GINI Policy Paper 5: Towards a better marriage between job growth and poverty reduction

Disproving fears of a future characterized by ‘jobless growth’, the decade prior to the crisis of 2008 was marked by strong net employment gains, even though many countries failed to achieve the employment targets set within the context of the Lisbon Agenda. Still, just prior to the crisis, employment rates had reached historically high levels. Unemployment in many EU Member States was at or below levels observers only a decade earlier deemed impossible to achieve. Yet it also became clear that employment growth in and out of itself did not produce the expected outcomes in terms of poverty reduction and other aspects of social inclusion. Marked increases in employment rates had gone accompanied with rising or stagnant relative poverty rates for the working aged population. Income inequality had mostly increased. The crisis period has been marked by equally if not more dramatic declines in employment in a number of countries. Yet ambitions to put more Europeans to work remain unabashed. First among the headlines targets formulated in the current Europe 2020 strategy is the objective of reaching an employment rate of 75 percent by 2020. Some countries have set even more ambitious national targets within this framework. Thus the idea that employment growth and poverty reduction need to go together remains at the core of the current Europe 2020 Agenda, but there seems to be an implicit recognition now that higher levels of employment may not automatically bring better social inclusion outcomes. The Europe 2020 Agenda also contains clear poverty and social inclusion targets. The European Commission (2010) recently stated that social protection is an additional cornerstone of an effective policy to combat poverty and social exclusion in Europe, complementing the effects of growth and employment. The European Commission (2013) has also launched a ‘Social Investment Package’ emphasizing human capital investment. This paper asks how a better marriage between employment participation and poverty reduction could be achieved. The paper starts with a sketch of current debates. The paper continues with a review and interpretation of past trends; why is it that employment growth has not brought lower poverty in the past? We then devote a sizable section to the issue of in-work poverty, as this is essential for optimal policy design. A second major part of this paper looks at what policy can do to achieve a better marriage between employment growth and poverty reduction. We discuss indirect policy options, which can help to tackle demand and supply barriers to higher work intensity, particularly among the poor. The major focus, however, is on policies for direct income support of workers. Here we discuss both incremental and innovative policy options. A final section contains some clear suggestions on directions policy could take so as to foster a stronger complementarity between employment and social inclusion .