Minimum income schemes in Europe: is there a trade-off with activation policies?

Roberto Iacono

doi:10.1186/s40174-016-0073-2

Abstract

This paper makes two contributions to the literature. First, by employing a macro-level institutional dataset on benefit levels for social assistance (SA) and minimum income protection (MIP) in 22 European countries in the period 1990–2013, I show that the adequacy of income support for low-income inactive individuals in European welfare states has been steadily decreasing since 1994. Second, the paper revisits empirically the hypothesis of a trade-off between the adequacy of out-of-work benefits and the public expenditure on active labor market policies (ALMPs). The empirical results of the fixed effects model show that the trade-off does not appear to be significant in any of the tested specifications. The results are robust to the introduction of a set of conventional controls related to the labor market.JEL Classification: H53, H55, I38.

Highlights

1 Introduction This paper addresses the relationship between the adequacy of minimum safety-nets and the increased focus on activation strategies in labor market policies in European welfare states
To which extent can the effectiveness of activation policies go hand in hand with offering adequate levels of minimum income protection (MIP, hereafter) and social assistance (SA, hereafter)? On the one hand, do minimum income schemes have to be integrated in the overall activation framework and reduced in magnitude in order not to distort work incentives? On the other hand, how to achieve that balance whilst ensuring that minimum income schemes do not end up creating poverty traps? These broad questions lie behind the empirical analysis of the current paper, which aims at testing two opposite working hypotheses on the issue
7 Conclusions The main theme of this study was to investigate the actual shape of the relationship between the adequacy of minimum safety nets and the aggregate expenditure on activation strategies in labor market policies of European welfare states. Rather than exploring this relationship at the normative level or at the microeconomic theoretical level, the approach has been that of investigating the actual practice of authorities in European welfare states in the period 1990–2013

Summary

Introduction

This paper addresses the relationship between the adequacy of minimum safety-nets and the increased focus on activation strategies in labor market policies in European welfare states. By employing the dataset on benefit levels of SA and minimum income protection (MIP) in 22 European countries in the period 1990–2013, the descriptive empirical analysis indicates a marked reduction as regards the adequacy of income support for inactive lowincome individuals in European welfare states since 1994 This stylized fact, seemingly providing initial support for the “disincentive” view, constitutes the ground for the proceeding of the analysis on the interaction of provision of out-of-work benefits with activation. The introduction of TUD as a control has the effect of reducing the impact of ALMPs on adequacy rates, indicating that the relationship becomes milder with higher wages for the low-skilled individuals These results might be biased by time-invariant and country-specific factors simultaneously affecting the dependent variable and the regressors. A thorough discussion of these results is provided

Findings

Discussion

Conclusions