Economic Impact of a Minimum Income Guarantee: Analysis of economic theory and policy evidence - Executive Summary

Restrictive Minimum Income Guarantee-type schemes

Restrictive Minimum Income Guarantee-type schemes are focused almost exclusively on tackling deep or extreme poverty. With the focus on deep poverty, these schemes have relatively low generosity and coverage and, as a result, they miss a large proportion of people who are in – or at risk of – being in poverty.

Restrictive schemes often have a strict time-limit attached to them for how long someone can be in receipt of the support, and supporting this time-limit is an intense focus labour market reintegration.

Greece, Portugal and Croatia.

Protective Minimum Income Guarantee-type schemes

Protective Minimum Income Guarantee-type schemes set a ‘socially acceptable’ income level that all citizens should be entitled to. A specified subsistence payment is then administered to plug the gap between current income and the set income level.

Additional payments are usually made depending on the household composition meaning that there is a high level of coverage across different groups. There is often a job-search conditionality, either informally or formally, within a protective Minimum Income Guarantee-type scheme.

The Netherlands, Italy, Spain, Germany, Slovakia.

Enabling Minimum Income Guarantee-type schemes

Enabling Minimum Income Guarantee-type schemes usually combine a generous income replacement rate with a broad range of active labour market and inclusion services.

While labour-market reintegration is the primary and long-term ambition of enabling Minimum Income Guarantee-type schemes, there is also a clear focus on enabling broader social participation and addressing other social / economic issues alongside labour-market activation.

France, Belgium and most Nordic countries.

Targeted Minimum Income Guarantee-type schemes

Targeted Minimum Income Guarantee-type schemes are policies that are directed at specific population groups, often because they have been identified as having high ‘at risk of poverty rates’.

These targeted schemes often combine cash transfers with wider support services and unique conditions that are not widely applied. It is often the case that targeted elements are more generous than the wider social security offering.

Malta, Poland, Hungary, UK (pensioners).

Typology: Protective

Annual cost: €3bn

Key findings: The IMV, compared to other Minimum Income Guarantee-type policies, has a lack of strict conditionality to recognise that the policy is designed to support people in deep poverty who need a ‘cash-first’ approach to addressing challenges without additional requirements. The scheme has been highly successful in reducing deep poverty as a result. However, despite this lack of conditionality, uptake has been an issue and there are challenges monitoring the very limited conditions.

Typology: Protective

Annual cost: €12.7bn

Key findings: The Participation Act is one of Europe’s most generous Minimum Income Guarantee-type policies, but suffers from significantly low up-take – especially amongst people who fall just under the threshold which has limited its poverty reduction potential. The Participation Act has a high degree of devolution (with municipalities given control over the level of conditionality) and assessments suggest these different approaches have not had radical impacts on outcomes.

Typology: Protective

Annual cost: €8.5 billion

Key findings: The RdC proved to be a generally effective tool tackling deep poverty as well as supporting recipients into work through the introduction of a ‘navigator’ system, which provided a designated professional to support and monitor job-seekers. However, the RdC was concluded after only three years, with its strict conditionality meaning it did not meet its stated ambitious objective to address poverty, leaving it open to political challenge.

Typology: Enabling

Annual cost: €15 billion

Key findings: The RSA is, in theory, a well-designed scheme for poverty reduction, placing a strong emphasis on incentivising labour market participation. However, in practice the scheme mostly rewards part-time work and there is concern that this has created a ‘part-time trap’ in which RSA recipients are constrained to living at the edges of the poverty line. As such, the scheme has not led to the reductions in poverty that initial evaluations anticipated.

Typology: Enabling

Annual cost: €1.1 billion

Key findings: The Integration Income has a strong focus on activation and understands that although this should primarily take the form of labour market activation, it should also tackle wider issues of social inclusion as a prerequisite to labour market reintegration. Experience from the pandemic suggests Belgium’s system is well-designed to respond to major social and economic shocks.

Typology: Targeted

Annual cost: €22-25 million (total ‘Make Work Pay’ cost)

Key findings: Malta takes a relatively unique approach to tapering – rather than being solely income-based, there is a time-limited taper to support long-term unemployed into work. This has been very successful in securing long-term employment opportunities, particularly for lone parents. Much of this success is due to an effective scoping phase identifying key target groups, being implemented in a way that maximised work incentives (best PTRs in EU) and is part of a broader package of ‘Make Work Pay’ reforms.

Typology: Targeted

Annual cost: €9.5bn

Key findings: A universal, non-means testing child allowance for all families with children. The policy led to a rapid and sharp decline in child poverty rates, which helped allowed Poland’s social assistance to be targeted on other demographics. However, the implementation of the policy has been costly to achieve this end – both on the public finances but also on having a negative impact of female labour market participation, especially amongst low-income women.