Tackling poverty

OECD Directorate for Employment, Labour and Social Affairs

Combating poverty and exclusion depends on active policies that emphasise employment. That also means public effort.

“The greatest of evils and the worst of crimes is poverty”. George Bernard Shaw wrote these words in 1907. Today, a century later, his observation is truer than ever, for it is against the backdrop of today’s wealthy OECD countries that the costs of poverty seem both so large and reprehensible.

Yet, which OECD government does not attach importance to combating poverty and exclusion? After all, poverty is not just a waste of human resources and potential, but threatens to erode the capacity of governments to sustain economic growth, as well as social and political cohesion. The real question is how to implement more effective policies in reducing poverty, and give them the priority they need within OECD governments' overall policy objectives.

Traditionally, governments have tried to silence the consequences of poverty by treating the symptoms with income support. This has helped alleviate some of the worst symptoms of poverty, but at the cost of dimming personal ambition and work effort, and of keeping poverty alive. A more active approach to social policy can help to achieve lasting reductions in poverty and exclusion by helping recipients back on their feet, to support themselves and their families. Active social policies are designed to help people overcome obstacles to getting a job. They focus on better integrating the services available to help benefit recipients, and redefine the social relationship between clients and providers of social support, through a mutual obligation to co-operate in the rehabilitation process.

How is poverty measured? For a start, it is not just a question of income. People may have assets, or simply be in a temporary financial crisis. But income is still part of getting out of poverty, and disposable income is the key measure to use.

There are two basic notions of poverty. First, there are people whose income is simply not enough to be able to afford basic goods or services. This is absolute poverty, and most measures show it to be in sharp decline in OECD countries, indeed, by more than 60% between the mid-1980s and 2000 when measured with respect to a constant relative income threshold.

But relative poverty is another matter. This assesses people’s income, for instance, by benchmarking it with respect to an average or median household income. In essence, it measures how far individuals and families are from affording typical goods and services. In the mid-1980s, the proportion of the OECD population with disposable income at less than half of the median was around 9% on average, and by 2000 this proportion grew slightly, to over 10%.

Poverty’s roots

How people find themselves in poverty can be quite a riddle. Often the slide into poverty is gradual, even imperceptible. In his novel, Down and Out in Paris and London, George Orwell describes how he realised his poverty only when he was pawning his clothes. Some people suddenly become impoverished, by debt, family breakdown or the death of a spouse, for instance. Other causes include insufficient skills, or physical or mental health problems. But most of all, having a job is the single most important antidote to poverty, and getting people ready and into work should be a primary focus of policy.

The risk of low income for someone living in a jobless household is five times higher than that in households where some members go to work. Poverty is common among lone parents. In fact, the relative poverty rate of single-parent families is three times higher than for families with children in general, but when the lone parent has a job, the risk of falling into poverty is greatly diminished, as it is for couples with children. Little wonder that those OECD countries where employment rates of mothers are highest also show low rates of child poverty.

The quality of jobs also matters, of course, particularly as some types of employment provide little protection from poverty (see article by Roland Schneider). Indeed, households with one or more workers account for up to two-thirds of the income-poor in the OECD area. This is a warning that policies must address working poverty, too.

Today, nearly all OECD countries have put employment integration at the very heart of their fight against poverty. Active policies to get people back into the job market, first introduced as welfare-to-work for the unemployed, have been extended to other, more excluded groups. They might include an obligation to participate in labour market programmes, and may involve financial penalties. The same principles–called “mutual obligations”–are finding their way into disability programmes, too.

The system seems to work. The number of people receiving certain key welfare benefits fell by more than half from their peak levels in the mid-1990s in the UK and the US, by a third or more in Canada and the Netherlands, and by a quarter in Finland. In the US, most of those off the benefit lists are working, often full-time, with near-average wages. Some disability programmes, like the UK’s Pathways to Work pilots, appear quite effective as well. These reforms may not always have cut relative poverty by much, but they have contributed to stop the long-term trend towards greater inequality in the distribution of market income that has affected all OECD countries in recent years.

This said, not all people who get jobs get good jobs, or stay in work for long, and even in countries that have successfully reformed their system, for every 100 people who leave welfare, as much as a third may not get a job. Some end up even worse off. Many poor households have low-paid or precarious employment. For them, the focus must be on welfare-in-work. “Make-work-pay” policies are an option. They take two main forms. First, low-skilled workers are given support through tax credits or benefits that are only available to them when in employment. These in-work benefits are long-standing pillars of the social protection systems in the UK and the US, where they reach, respectively, 5% and 20% of all households. They are directed at families with low earnings, particularly those with children, and provide quite generous benefits administered through the tax system. Similar programmes have been introduced in Australia, Belgium, Canada, France, Germany, Iceland, the Netherlands and New Zealand.

The second approach is to increase firms’ demand for low-skilled workers, through a combination of general subsidies—most commonly in the form of reductions in employers' social security contributions for low-paid workers, as in the Netherlands and France, and of specific subsidies targeting less easily employable groups, as in Ireland or Spain.

While employment-conditional tax credits have proved to be effective tools in cutting poverty among working families, the major challenge today is getting low-skilled people not just into work, but into good careers. That means paying more policy attention to the career development of disadvantaged workers, including upgrading their skills and earning potential.

Social effectiveness

There is no real shortage of social programmes in the OECD area, but most could be made more effective. There is a strong relationship between social spending and poverty: a one-point increase in public social spending as a share of GDP is associated with a one-point decline in the relative poverty rate among the population aged 18-65. Also, the combined effect of taxes and benefits is to lift more than half of the population at risk out of poverty.

For individuals, however, what matters is who is covered by social programmes, the extent to which those entitled to a given benefit actually know about it or receive it, and whether adequate support is provided to escape poverty and exclusion in the long run.

With respect to benefit coverage, more than a third of all non-employed persons reporting a disability in OECD countries in the late 1990s declared that they did not receive benefit income; in Europe, only a third of those classified as unemployed in labour force surveys in 2001 said they had received unemployment benefit over the same period; and in the United States, around 9% of lone mothers without jobs in 2001 reported that they did not receive any benefit income in the 12 months preceding the interview.

Take-up of benefits should also be improved; as few as 40% of those eligible for social assistance take it up, and 60% to 70% in the case of unemployment benefits. Sometimes the benefit entitlements are very small, and so people do not bother claiming them. But ignorance of entitlement, stigma, or just long, complex claims procedures, can be a problem.

Last, with regard to adequacy of benefits, if last-resort minimum benefits are the only form of support, they rarely provide an income that is high enough to help people escape relative poverty. The picture improves, however, if child support or housing benefits are added.

Another problem that governments face is tying together the many programmes that may be in operation. A proliferation of different social programmes, each focused on a specific problem, such as joblessness, disability or poor housing, may lead to insufficient attention being paid to the range of needs of an individual client. They may attend training, yet could also qualify for rent allowance, for instance. If the social support system is fragmented, clients end up distrusting it and drop out all together.

Some countries have taken steps to overcome this risk by improving policy coherence to better avert danger. One such measure is Ireland’s National Anti- Poverty Strategy, whose “poverty-proofing” system demands that all major policy proposals must indicate their possible impact on groups at risk of poverty. Other countries have taken measures to bring the job placement and benefit payment services under one roof, and to introduce partnerships that involve the private and not-for-profit sectors.

Such steps testify to an awareness that despite years of strong incomes, growth and progress, the cancer of poverty has yet to be cured. Will it always be there? Perhaps not, but the job of reducing it should not let up. For as Shaw also remarked, poverty does not bring unhappiness quite as much as it brings degradation.


Förster, Michael, and Mira d’Ercole, Marco (2005), “Income distribution and poverty in OECD countries in the second half of the 1990s”, OECD Social, Employment and Migration Working Paper No 22. Available at www.oecd.org/social.

Information on the UK’s Pathways to Work programme: www.dwp.gov.uk/.

For more on Ireland’s National Anti-Poverty Strategy: www.welfare.ie/.

©OECD Observer No 248, March 2005

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