Household Work Intensity and the Adequacy of Social Protection in the EU

This working paper explores how the poverty reduction capacity of social security evolved in the ‘booming’ years leading up to the current economic crisis. The question to arise is whether and, if so, why social protection provides an explanation for, on the one hand, disappointing poverty trends in many of the EU15 and, on the other, declining poverty risks in Ireland and most of the new Member States. To what extent are these trends connected with expanding labour markets and evolutions in pre-transfer poverty on the one hand and the volume and efficiency of cash benefits deployed on the other? Relying on ECHP, SILC and SOEP data, the paper presents and discusses empirical indications of shifts in the pro-poorness and in the adequacy of cash benefits and the mechanisms underlying such trends. We find that in the nineties the adequacy of social transfers declined significantly in the traditional strongest welfare states in the Nordic countries. Conversely, the clusters of the Southern States in the nineties and of the new Member States in the 2000s displayed a significant increase of poverty reduction by social transfers. During the first years of the crisis the poverty reducing impact of social transfer systems in Europe seems to have been on the decline in the Nordic Countries, on the Continent as well as in the East. The most important conclusion to be drawn is the striking – and in many countries rising – inadequacy of social protection for individuals living in households with a low work intensity. This points at the tension between the adequacy of income protection and activation lending credence to the notion that policies have sought to raise employment at least partially by reducing reservation wages.