Low Pay, Poverty and Social Security

Directing support towards those in employment but on low incomes is one of the most serious challenges facing social security policy, whether based on Beveridge or other models. Beveridge saw family allowances - universal cash transfers for children- as the mechanism for eliminating want for those at work. Means-tested transfers to those in work, tax allowances or exemptions, and minimum wages are other widely-used policy options. Here the links between low pay and poverty and the effectiveness of different strategies for helping the "working poor" are examined, using a sample of Irish households. Measuring poverty using relative income poverty lines, only 10-15% of households below such lines are headed by an employee, with up to 20% containing an employee. Using a measure of poverty which combines income and direct indicators of deprivation, households headed by an employee still only account for about 12% of "poor" households. Only a minority of employees below conventional low pay standards, at most about 20%, are in poor households, whether poverty is assessed using income alone or income and deprivation indicators. Of employees heading of poor households, only a minority are low paid but most have child dependants. While most of the first-round gains from a minimum wage do not to go poor households, about 40% of poor employee-headed households do benefit. Tax exemptions for children have quite limited effects, but a substantial increase in universal Child Benefit, partly financed by making it taxable, has a major impact on the working poor.