Description
In the aftermath of the recent economic recession, the role of the welfare state in combating in-work poverty will most certainly remain at the centre of debate. According to Eurostat, the fraction of workers with household income below the poverty threshold amounts to 9.3% in the EU in 2012, with rates as high as 19.2% in Romania. For this particular vulnerable group, analysing the incentives to work created by the tax-benefit system is necessary to understand the viability of employment as a way out of poverty. The aim of this project is to compare the work incentives for the working poor that are embedded in the tax and benefit systems of all EU Member States. We will use EUROMOD, the EU-wide tax-benefit microsimulation model developed by the team.
Despite the increasing interest in in-work poverty, there is little analysis of the link between working poverty and work incentives. Allegre and Jaerhrling (2011) find a negative relationship between in-work poverty and marginal effective tax rates (METR), but they use synthetic families to calculate METRs at the country level; we propose to use EUROMOD to calculate the actual incentives of the large sample of individuals from the EU-SILC data at risk of working poverty. First, we will provide an overall picture of the incentives to work at all of the working poor, by calculating net replacement rates to unemployment and inactivity, and the extent to which these vary across EU countries. Second, we will provide an insight into the role of increased work intensity as a way out of poverty. In particular, we will analyse the incentives of the working poor to work more, either through increases in earnings or through moving into full-time employment for those working part-time.
Third, we will investigate the scope for secondary earners to reduce in-work poverty. Dual or multiple earnership has been considered an important factor alleviating in work-poverty (Marx et al. 2012; Lohmann and Marx, 2008). We will provide an EU-wide comparative analysis of the characteristics of secondary earners and the work incentives they face. Furthermore, we will expand the literature on the role of secondary earnership on working poverty, by analysing the effect on in-work poverty of a transition of secondary earners to unemployment or inactivity, and the extent to which this varies across EU Member States.
A growing body of literature has documented the increasing polarisation of labour markets across Europe, as jobs at the two ends of the wage distribution have increased in numbers relative to those in the middle (Goos et al., 2010, 2009; Hurley, John et al., 2013). Given the non-proportionality of most tax and benefit systems, polarisation can affect the government budget in at least two ways. First, an increase in the share of low-paid jobs and decrease in the share of middle-pay jobs can negatively affect the tax revenue in progressive tax systems, although a growth in high-pay jobs will act in the other direction. Second, the growth of low-pay jobs can lead to an increased cost of in-work credits. Moreover, changes in the gross wage distribution driven by polarisation can also affect the ability of a given tax-benefit system to redistribute income. Fourth, using micro-simulation methods and various (but realistic) scenarios for polarisation in different EU countries, we will investigate the implications of such long-term changes in the labour market for the incentive effects of a given tax and benefits system, as well as their net fiscal position.
Researchers
Professor Holly Sutherland, Research Professor and Director of EUROMOD, University of Essex, hollys@essex.ac.uk
Dr Holguer Xavier Jara Tamayo, Senior Research Officer, University of Essex, hxjara@essex.ac.uk
Mr Alberto Tumino, Senior Research Officer, University of Essex, atumino@essex.ac.uk
Dr Andrea Salvatori, Research Fellow, University of Essex, asalva@essex.ac.uk
Ms Iva Valentinova Tasseva, Senior Research Officer, University of Essex, itasseva@essex.ac.uk
Ms Olga Rastrigina, Senior Research Officer, University of Essex, orastr@essex.ac.uk
Dr Francesco Figari, Associate Professor, University of Insubria, ffigar@essex.ac.uk
See full project page here