Fighting child poverty across the OECD: is work the answer?

Presentation:

Joint OECD/Korea Regional Centre on Health and Social policy

July 2006, Seoul

Willem Adema and Peter Whiteford(www.oecd.org/els/social/)

• How does Korea compare in terms of female labour force participation, family support and child poverty?

• Is a ‘benefit’ or a ‘work’ strategy the most effective way of fighting child poverty?

• Reducing barriers to parental employment

Outline

In recent years, female employment growth has been strongest in Europe…,

Female employment population rates

40

45

50

55

60

65

70

1990 1995 2000 2005

40

45

50

55

60

65

70

USA

JPN

OECD

EU19

KOR

Family spending in Sweden and France has a more ‘active’ focus than elsewhere

Public social expenditure on family support as a percentage of GDP, 2001

Public support as child allowances, parental leave benefits and childcare support; spending for Australia, New Zealand and the UK includes income support for (sole) parents, while other countries typically record similar payments as ‘social assistance’. Spending on health and housing support also assists families, but not exclusively, and is not included here.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Cash Services Fiscal Average total (2.1%)

Progressivity of family assistance payments is most pronounced in Australia and the USARatio of family cash benefits received by poorest quintile of working age to benefits to richest quintile

0

5

10

15

20

25

30

35

40

45

50

Australia and France are very effective in reducing child poverty

Difference between market and disposable income poverty, percentage points

-5

0

5

10

15

20

On average across the OECD, about one in eight children lives in poverty

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5

10

15

20

25

Parental employment reduces poverty risk… Child poverty rates (%) for couples with children by parental employment status

0

10

20

30

40

50

60

70

80

90

None employed 1 employed 2 employed

…particularly for sole parent families. Child poverty rates (%) among sole parent families by parental employment status

0

10

20

30

40

50

60

70

80

90

100

Not employed Employed

Child poverty is on the policy agenda in all OECD countries

• Key issue is to find the appropriate balance between: – ‘benefits strategy’ : increasing the

adequacy of benefits for low income families with children

– ‘work strategy’ : promoting policies to increase employment among poor families.

Redistribution strategies

• Targeting If tax/benefit systems in OECD countries could be as effective as the third best performing country in percentage point reduction of child poverty – Australia 14 percentage points, then child poverty would be reduced from around 10 to 6 %.

• Spending If tax/benefit systems in OECD countries could be as effective as the third best performing country in proportional reduction in child poverty - Sweden, 77% - then child poverty would be more than halved from about 10 to 4.5%. NB Public spending on family benefits amounts to only .1% of GDP in Korea.

Redistribution strategies (continued)

• Simply taxing and spending more is not the answer. Sweden has a very low level of joblessness while market income poverty is about 80% of the OECD average. Countries wishing to be as effective as Sweden would have to spend considerably more than Sweden, or spend more and target it better.

• All the countries with very low levels of child poverty combine low levels of joblessness with effective redistribution.

The ‘benefit poverty gap’ for jobless families

Difference between 50% median poverty line and benefit entitlements, per cent of median income

-35

-30

-25

-20

-15

-10

-5

0

5

Sole parents Couples

The ‘poverty gap’ for working familiesDifference between 50% median poverty line and disposable income at minimum wage of median income

-20

-10

0

10

20

30

40

Sole parents Couples

Reducing joblessness has the biggest impact on child poverty in English speaking countries

Percentage point difference in poverty rate

0

0.5

1

1.5

2

2.5

3

3.5

4

Japan

Sweden

USA

OECD

Nethe

rlands

Franc

e UK

Austra

lia

New Z

eala

nd

Irela

nd

More dual earner couples has the biggest anti-child poverty effect in Ireland

Percentage point difference in poverty rate

0

0.5

1

1.5

2

2.5

3

3.5

4

Increased parental employment leads to a substantial reduction of child poverty

Percentage point difference in poverty rate

0

1

2

3

4

5

6

7

8

Caveats

• Different poverty lines lead to different size of effects; different equivalence scales lead to different results.

• Poverty line held constant, even though changes in joblessness and employment would shift the line.

• Assumes people who get jobs on average are paid as much as people who already have jobs.

• Would require very large increases in employment – for sole parents by 30 percentage points in Australia, Ireland and the Netherlands and more than 20 in New Zealand and the UK

Policy directions

• It is not sufficient to rely on just a ‘benefit’ or a ‘work’ strategy, but different countries need to do different things.

• Reducing joblessness among families will have a particularly strong effect on reducing poverty in Australia, Ireland, New Zealand and the UK

• Increasing dual earnership in couple families is particularly important for Ireland and Southern Europe

• Policy needs to facilitate paid employment for parents in Korea.…..

The Korean labour market should give women and mothers a fair chance

Gender earning gap for full-time employees at bottom (20%) and high earning levels (80%), 2003 or latest year available

0

5

10

15

20

25

30

35

40

45

P 20 decile P 80 decile

Very young children in Korea do often not participate in childcare,…

Proportion of young children below 3 using formal child-care arrangements

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20

40

60

80

100

USA KOR DEU NLD JPN GBR FRA NOR SWE DNK

OECD-23

this is also true for children of pre-school age

Proportion of children betw een 3 and the age of mandatory schooling using formal child-care arrangements

0

20

40

60

80

100

KOR USA NLD GBR NOR JPN DEU SWE DNK FRA

OECD-23

Implications for Korea

• Women have to choose between children and paid work: investment in human resources goes to waste

• Give mothers at the Korean labour market a fair chance: – Reduce barriers to mothers returning to regular employment – Performance-related pay– Improve childcare support

• Prioritise supporting low-income families, including in-work payments

• Use elements of both ‘benefit’ and ‘work’ strategies