Man pulls empty trouser pockets out

The Ranks of the Working Poor

The simple equation of the past that reducing unemployment is poverty alleviation is no longer true. Despite rising employment figures in many Western economies, poverty is not declining. What’s wrong with labor market policies?

By Justine Doody

Since the Great Recession, the countries of the Organization for Economic Co-operation and Development (OECD) and the European Union have returned to growth; investment and trade are up and labor markets have followed suit. Even in crisis-hit countries such as Spain and Italy, unemployment is falling.

But the rate masks a harsh reality: employment is rising, but poverty is not declining. A key finding of the recently published Bertelsmann Stiftung’s Social Justice Report 2019 is that being in work is no longer a guarantor of comfortable living standards. Social safety nets, eroded by the crisis, have not kept pace with changing employment structures. With a new recession potentially on the horizon, governments need to examine labor market policies, if the poorest are not to bear the brunt yet again of the next downturn.

In 2017, 9.4 percent of EU workers lived in households at risk of poverty, earning less than 60 percent of national median income – a figure that has risen from 8.3 percent in 2010. In the United States, as shown in the Bertelsmann Stiftung’s Sustainable Governance Indicators (SGI) data report 2019, 24.5 percent of workers earned less than two-thirds of the country's median earnings in 2017 and 17.8 percent of people was at risk of poverty in 2018, despite an unemployment rate of only 3.94 percent in that same year. It has been estimated that as much as $6 billion dollars is paid in federal food assistance to full-time US workers who cannot subsist on the wages they receive.

Statutory minimum wages fall short

In many countries, household earnings have not recovered since the crisis: in Spain, for example, the downturn led to a freeze on wages, and with unemployment remaining high, salaries have rarely risen since, meaning that real wages have fallen. Instating a minimum wage has been seen as a potential answer in Spain and elsewhere: Spain hiked its minimum wage by 22 percent in 2019; Romania has introduced different minimum wages for different sectors of the economy; and the United Kingdom's living wage campaign has influenced a steady rise in that country's minimum wage since its first introduction in 1998. However welcome they may be, minimum wages cannot solve the whole problem; as an EU report on in-work poverty points out, even when such wages are adequate, they are set at a rate to support one person, and are insufficient to support a single-wage family.

Moreover, the minimum wage is designed to support someone working a full-time job, and today's world of work includes increasingly fewer of those. In the UK, for example, only one in 40 jobs created since the recession is full-time. In Spain, as the recently published SGI 2019 country report notes, despite employment growth, "most jobs created have been unstable and of inferior quality, as shown by the high temporal increase in unemployment in August 2018 (the biggest since 2011)" – in fact, 91 percent of employment contracts in the first half of 2018 were temporary, with 38 percent lasting under one month, even though 80 percent of temporary workers would like to find a full-time job. Across the EU, the number of involuntarily temporary workers is lower, but still higher than it was in 2008 – 7.4 percent of workers were involuntarily working on temporary contracts, and 4.7 percent of workers held involuntary part-time jobs. In the US, 4.4 million people are working fewer hours than they would choose, out of a total workforce of 131.7 million. And even those who do receive a full-time job cannot be certain that it means security – in the US, half of all new positions created are eliminated within the first year.

High risk of poverty for the self-employed, part-time and temporary workers

Perhaps intuitively, temporary and part-time workers are more at risk of in-work poverty than permanent workers – in the EU, 16.2 percent of those on temporary contracts and 15.6 percent of those in part-time employment were among the in-work poor. The self-employed are at even higher risk, with 22.2 percent in the EU in in-work poverty. Many of those self-employed people are "independent contractors" – which, often, is a way for companies to use their labor without having to put them on the books as employees and provide the benefits that would go along with that. A side effect of this classification system is that it removes opportunities for people to pull themselves up the economic ladder; when those on the lowest rung are not direct employees of the company, they cannot be promoted within it.

In the US, healthcare is frequently tied to full-time employment, meaning a full-time job can literally be the difference between life and death. While other comparatively rich countries have better options for those who rely on the state for healthcare, welfare systems in general have been battered by the crisis and its aftermath. Housing, energy, and childcare costs are high and rising in many countries, and they affect the poorest most; for example, 10 percent of people in the EU spend more than 40 percent of their income on housing (so-called overburden), but 40 percent of the poorest households do. In Greece, the average overburden is 72 percent of monthly income; in wealthy Denmark, average overburden is 60 percent.

Labor market policies that ignore these needs in favor of a dogged emphasis on job creation will not succeed in lifting people out of poverty. The UK, for example, has virtually full employment – but after a decade of austerity policies, rough sleeping rose 165 percent between 2010 and 2018, and the country has 2,000 food banks, as compared to 29 before the crisis. Decent jobs, with regulated, regular hours and opportunities for advancement, must be part of the solution – but so must the creation, or the reinstatement, of the social safety net for those whom work leaves behind.

Justine Doody is an editor and analyst focusing on international relations, development, and the rule of law. She writes for the Bertelsmann Stiftung's SGI News and BTI Blog.

First published on Social Europe