Poverty at workIn-work poverty rates among all individuals living in households with a head of working age OECD countries, mid-2000s OECD Employment Outlook 2009

Fighting poverty at work

With the crisis and sharp rise in unemployment, you might think anyone with a job these days should consider themselves lucky. Well, that depends.

Jobless families face three times the risk of falling into poverty than do working households, but having a job doesn't guarantee an adequate standard of living. In the US, more than 10% of the working population is poor. The same goes for Japan, Mexico, Poland, Portugal and Turkey. Even before the economic crisis hit, most people of working age in the OECD area living in poverty were part of a household in which at least one person worked. In fact, some 7% of people living in households with at least one breadwinner are poor-meaning the household's disposable income is below half the national median.

While it may be tempting to assume in-work poverty is mainly caused by low wages, evidence shows otherwise. Most people working for low wages are not poor: on average, fewer than one in 10 low-wage workers in 21 European countries lives in a poor household. Rather, underemployment is the main culprit. Among all adults living in a poor household, only slightly more than 20% have a full-time job, and almost 70% of those work six months or less, on average, during the course of one year. In contrast, slightly more than half of adults living above the poverty line work full-time, and only a quarter work an average of six months or less during the year.

These statistics are particularly troubling in this economic downturn. In an attempt to save jobs during this recession, some employers have opted to reduce working hours. That could cause in-work poverty rates to soar over the coming months.

So, what can governments do to help the working poor? Social welfare and tax transfers to households can nearly halve the poverty rate among the entire working-age population. In some countries, like Denmark, France and Sweden, the reduction is even greater. However, social transfers tend to be less effective in reducing poverty among families with children than among childless households. The income support given to jobless parents-which reaches, on average, 40% of the median income in OECD countries- considerably reduces the depth of poverty, even if the recipients still live below the poverty line. The trouble is that the net amount of these transfers declines rapidly once people become employed, so it often makes financial sense for unemployed people not to accept a low-paying job. On average, full-time employment in a low-paid job brings two-earner couples with children to only 65% of the national median income. In this recession, it would be diffi cult for these families to stay above the poverty line if both spouses worked fewer hours, even if it meant holding onto their jobs.

To counter this, more than half of OECD countries already offer benefits that top-up the earnings of low-income workers. These in-work schemes have a major advantage over normal social transfers: they make employment more attractive for workers with low earnings potentials, since they are conditional on having a job. There are two kinds of in-work benefits: those targeting low-paid individuals, which provide stronger incentives to work, and those targeting low-income families, which focus more on income redistribution.

Given the constraints on national budgets during this economic downturn, these benefit programmes need to be carefully targeted to have any real impact on the working poor. It is easier to reach only low-income families if, for example, in-work benefits are means-tested, based on their income. The downside is that these types of benefits tend to undermine any incentive for other people in the household to work. While benefits for the individual worker get around this problem, both types of schemes may reduce financial incentives to climb the wage ladder, work more or invest in further training or education.

Minimum wages seem the perfect vehicle to lift workers out of poverty. After all, earnings from work make up the bulk of a family's income. But minimum wages offer little support to the large majority of the working poor who cannot find a full-time job. In addition, high minimum wages tend to reduce employment among low-skilled workers, since employers are generally not inclined to spend more for workers who produce less.

Still, if minimum wages are set at reasonable levels so as not to undermine job creation, they could help the working poor in several ways. Setting a wage floor prevents employers from lowering wages and thus "pocketing" the value of any in-work benefi ts that are provided to individual workers. When combined with in-work benefit schemes, minimum wages can boost the earnings of low-wage workers. As a result, spending on benefits could be reduced-as could the taxes required to fi nance them. In-work poverty would fall too. MA


OECD (2009), "In-Work Poverty: What Can Governments Do?" Policy Brief, September, available at www.oecd.org/publications

Martin, John and Herwig Immervoll (2007), "The minimum wage: Making it pay", in OECD Observer, No. 261 May, available at www.oecdobserver.org/news/fullstory.php/aid/2217

Atkinson, A.B.(2008), "Unequal growth, unequal recession?" in OECD Observer, No. 270/271 December 2008-January 2009, available at www.oecdobserver.org/news/fullstory.php/aid/2751

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To order your own paper editions,email Observer@OECD.org

Online edition
Previous editions

Don't miss

  • MCM logo
  • The following communiqué and Chair’s statement were issued at the close of the OECD Council Meeting at Ministerial level, this year presided by the Slovak Republic.
  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019