Abstract
The aim of this paper is to analyse the effects of flexibility in the labour market on workers? monetary poverty in 15 European countries in the time span 2005-2016. We estimate how the labour market regulation index (LMRI) affects workers? monetary poverty through two empirical exercises: in the first one, we use an autoregressive distributed lag model and, in the second one, the generalized method of moments model. The results suggest that greater flexibility of the labour market is positively correlated with greater monetary poverty among employed people. The result does not change significantly when introducing the effect of the economic crisis and the interaction effect between the economic crisis and the LMRI. Therefore, we conclude that the outcome should be considered to be noticeable whatever the macroeconomic conditions occurring in the labour market.
Highlights
Workers’ Monetary Poverty: A Dramatic New PhenomenonWho are the working poor? The literature defines them as “the number of working men and women who live in a low-income household and that cannot afford certain goods and services considered essential for a decent life” (Crettaz 2015, p. 312)
In order to calculate the percentage of workers living in conditions of monetary poverty, the literature adopts the at-risk-poverty rate indicator for employed persons compiled by the Eurostat (2019)1 website
Equation (1) allows us to analyse the “pure” impact of higher labour market flexibility on workers’ monetary poverty. It represents our baseline model, in which we hypothesize that workers’ monetary poverty at time t depends only on its previous level t − 1 and labour market regulation lagged by one year
Summary
Who are the working poor? The literature defines them as “the number of working men and women who live in a low-income household and that cannot afford certain goods and services considered essential for a decent life” (Crettaz 2015, p. 312). The “in-work at-risk-of-poverty rate” can be considered a monetary poverty index for workers It takes into account the number of working individuals living at the bottom of the scale of the income distribution calculated as a percentage of the whole population. We can distinguish two country groups (see Table A, Column 4 in the Appendix): the first group includes countries in which workers’ monetary poverty declined from the beginning to the end of the period considered This group includes Ireland (-0.8), the Netherlands (-0.2), Finland (-0.6), and Portugal (-0.7). The reduction of workers’ monetary poverty in Ireland and Portugal seems not to be coherent with the interpretative hypothesis of this paper These countries were subject to structural adjustment programmes whose main content was to increase the flexibility of the labour market. In Table A, we report the differences of the three variables between the last and the first year of observation for each country
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