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

Existing Minimum Income Guarantee-type policies

Chapters 2 and 3 have highlighted that, ultimately, the overall microeconomic and macroeconomic impacts of delivering a Minimum Income Guarantee in Scotland will hinge on the specific policy design and implementation. To help to inform this, this chapter reviews the experiences of other countries who have adopted or tried to adopt similar policy agendas.

We will begin this chapter by outlining a typology for how different approaches to a Minimum Income Guarantee can be grouped and categorised. From these typologies, the chapter provides an overview and evaluation of a select sample of case studies from eight EU countries – Spain, the Netherlands, Italy, France, Belgium, Sweden, Malta and Poland – who are indicative or novel cases within these typologies. These case studies will provide an overview of the policy design and implementation, an assessment of the social and economic impact and an evaluation of the policy.

A typology of Minimum Income Guarantee-type policies

Before conducting a case study analysis, it was first important to categorise different ‘Minimum Income Guarantee-type’ schemes according to their common shared characteristics.

Referring to these policies as ‘Minimum Income Guarantee-type’ is significant as one of the important challenges in exploring existing Minimum Income Guarantee policies is the very definition and understanding of a Minimum Income Guarantee. While what constitutes a Minimum Income Guarantee is well understood within the UK social policy context, the term is not readily used in Europe. Rather, most European countries use the term ‘Minimum Income Schemes’, which refers to last-resort cash payments available to both working and non-working households who have insufficient financial means and are not entitled to contributory social insurance. While different to the understanding of a Minimum Income Guarantee in the Scottish and UK context, these schemes are comparable in so far as they are designed to ensure citizens can meet minimum income standards – especially in the context of the rising cost of living – and to support people who are either temporarily unable to work, who need time to learn new skills or whose wages are insufficient to cover costs.

Most EU countries have some form of ‘Minimum Income Guarantee-type’ scheme in place. Although there is growing interest in moving towards a common, binding standard for adequate minimum incomes, existing schemes differ in terms of generosity, eligibility, conditionality, coverage and purpose.

Based upon other comparative studies of ‘Minimum Income Guarantee-type’ schemes undertaken by academics and international organisations,^[44] we have identified four broad categories of ‘Minimum Income Guarantee-type’ policies that exist within the EU:

• Restrictive Minimum Income Guarantee-type schemes
• Protective Minimum Income Guarantee-type schemes
• Enabling Minimum Income Guarantee-type schemes
• Targeted Minimum Income Guarantee-type schemes

We present these four typologies in Table 4, which outline common characteristics and a selection of countries that sit within typologies.

From these typology groupings, we have identified eight countries within the protective, enabling or targeted typologies, which we explore in more detail in the rest of the chapter.^[45] These case studies have been selected as indicative of either exemplar or novel schemes within the relevant typology model. A summary overview of the case study countries is outlined in Table 5 below.

Table 4: A typology model of Minimum Income Guarantee-type policies – characteristics and exemplar countries

Typology	Common characteristics	Example countries
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).

Table 5: Summary of Minimum Income Guarantee-type case studies

Spain – National Minimum Income (Ingreso Mínimo Vital, IMV)
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.
Netherlands - Social Assistance under the Participation Act (Participatiewet)
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.
Italy - Citizens’ Income (Reddito di cittadinanza, RdC)
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.
France - Earned Income Supplement (Revenu de Solidarité Active, RSA)
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.
Belgium - Integration Income (revenu d’intégration / leefloon)
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.
Malta - Tapering of Benefits (ToB) scheme (as part of a wider ‘Make Work Pay’ package)
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.
Poland - Family 500+ child allowance
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.

Protective Minimum Income Guarantee-type schemes

Spain: Minimum Vital Income

Policy overview

The Spanish Government introduced a Minimum Vital Income (IMV) in June 2020 in response to the Covid-19 pandemic and as part of the Government’s 2019-23 National Strategy for Preventing and Fighting Poverty and Social Exclusion. The IMV provided a nationwide social minimum income that unified previously existing regional schemes, which had differences in design and coverage.

The IMV functions as a last-resort cash transfer that guarantees a minimum level of income for working-age individuals and families living in extreme poverty. The minimum income level is variable in that it is based on the composition and size of the household; in particular, lone parent households are entitled to a more generous minimum income standard. Claimants receive the difference between any earnings (from work or benefits) and the minimum income level.

In 2023, an adult without children had a guaranteed income of €6,784.44 per year (or €565.37 per month); for a couple without children, the amount is €8,819.88 per year (or €734.99 per month); for a couple with two children, the amount is 12,890.52 per year; and for a single parent with one child, the amount is €10,312.44 per year.^[46]

The IMV is available to both working and workless households and is not conditional on any work status or job-seeking requirements. It is, however, conditional on asset value and requires at least one member of the household to be of working age.

Assuming full take-up, the IMV is designed to cover 850,000 families living at risk of poverty with an annual cost of €3bn.^[47]

Policy impacts

The IMV has proven to be highly effective in alleviating – and nearly eliminating – extreme poverty. Based on microsimulation using EUROMOD, an academic study found that^[48]:

• Average household income among the poorest 20% has increased by more than €300;
• The incidence of extreme poverty in Spain (75% below median income) has fallen from 29.8% to 2.7%;
• There has been a substantial increase in perceived financial wellbeing, with a 20%-point fall in the number of people who feel pessimistic about their financial situation.

The impact of the IMV on poverty overall is less clear, with a quasi-experimental study comparing the IMV to a synthetic non-IMV version of Spain (modelled on 11 similar EU countries) finding that:^[49]

• Mean household income has risen by around €125, leading to a reduction in the poverty gap (the difference between median income and the poverty threshold) of 5.2%-points;
• However, several microsimulation analyses indicate that the incidence of poverty has only fallen by around 2%-points, with poverty incidence increasing in some areas due to IMV providing a less generous income standard than existing regional benefits;
• A limited take-up rate of around 65% and lack of work incentives are key reasons why the IMV has struggled to effectively alleviate overall poverty.

Policy evaluation

Overall, the IMV has been highly successful in its initial primary aim of drastically reducing the number of people living in extreme poverty by guaranteeing all working families a reasonable minimum income standard. It has also resulted in a small but still important reduction in poverty overall. Nevertheless, there is some agreement that the poverty impact of the IMV could have been (and could still be) far more significant.

Two key implementation factors seem to have limited its effectiveness:

The first limiting factor is that the IMV lacked a work incentive, and so may have unintentionally disincentivised employment. That the policy was introduced during a period of limited labour market access seems to have further disincentivised work, culminating in the advertent creation of a poverty trap in which beneficiaries were not encouraged or supported to earn more than the minimum income standard.^[50]

The second is the low levels of take-up. Estimates based on survey and administrative data indicate that only 42% of eligible individuals received the IMV by the end of 2022, although just under two-thirds (62%) of households had benefited from the IMV since its introduction.^[51] Take-up rates are thought to have been high amongst families living in extreme poverty, but lower for those families living in shallower forms of poverty. Qualitative studies have revealed that several factors limited take-up, including that potential beneficiaries^[52]:

Were not sufficiently informed about the existence of the policy;

Believed that they would not qualify;

Were put off by the complexity of the application process;

Did not consider their entitlement worth applying, especially when in receipt of other support payments; and

Were disincentivised from signing on given extended processing periods (40% of applications took more than three months to be resolved due to limited administration capacity).

The IMV also suffers from ongoing issues with eligibility – by the end of 2022, there was a high rate of rejected applications (69%).^[53] A compounding factor here is that the IMV assessment is based upon income data and household composition from the year prior, which presents challenges for how well the IMV is targeted.^[54]

Finally, by providing a national, unifying minimum, the IMV has had the unintended consequence of leading to some regional increases in poverty and the depth of poverty as a result of IMV replacing more generous regional schemes, such as the Basque Country.^[55] In general, regional differences in median incomes mean that in some (poorer) regions, MIS is more effective than in other (richer) regions.^[56]

Interview findings

During our conversation with civil servants in Spain, the following key points were stressed:

It was explained that several key additions have been made to the IMV that aimed to address the issue of a ‘poverty trap’:

1. Since January 2023, it has been possible to make the IMV compatible with income from work and can make up to 60% of the guaranteed income before an incremental taper is introduced. These adjustments are automatically calculated and activated when the MIS is reviewed. The introduction of employment incentives in January 2023 aims to encourage beneficiaries to seek and maintain employment. However, the impact of these incentives has not been evaluated yet.

2. A Social Inclusion Seal (SIS) has been implemented, an initiative that seeks to promote public-private collaboration to contribute to the goal of social inclusion. There is an incentive granted to public and private companies that contribute to the SIS scheme. The SIS can be obtained under the following actions: access to goods and services, support for children and adolescents, social and labour insertion, and digitalisation. 32 Pilots are currently in operation and are being evaluated, with the expectation that a majority will be adopted as best practice.

The annual cost of the scheme has most likely exceeded the initial estimates of €3bn, partly due to the increased generosity of the scheme since 2020. However, take-up rates are affected by the complexity of the system, the reluctance of target groups to engage with public administration, and limitations in digital access for those target groups. In addition, a significant challenge lies in determining eligibility based on cohabitation units, which can be complex due to changing circumstances. Verification of cohabitation units is especially difficult in cases of homelessness or shared living arrangements, which explains the high number of rejected applications.

A major focus of the conversation was to explain the philosophy behind the Spanish approach to the IMV, which is characterised by its lack of strict conditionality. Recipients of the IMV are not subject to stringent requirements related to job search activities, education, or behavioural expectations to receive the IMV – obligations primarily relate to declarations and updates on household circumstances, which, it was explained, are difficult enough to monitor and enforce. The decision to adopt a non-conditional approach to IMV reflects a philosophical stance that strict conditionality may not be effective or appropriate for all recipients. It was explained that the scheme seeks to recognise the challenges faced by individuals experiencing extreme poverty and to provide them with stable support without imposing burdensome requirements.

Netherlands: Participation Act

Policy overview

The Netherlands’ Participation Act was established in 2015 to reactivate labour participation among welfare recipients. It combined several previous social benefits, such as the Social Security Act, Work and Employment Support for Disabled Young Persons Act, and the Work and Social Assistance Act.

Most recipients of the Participation Act were subject to a recent loss of employment, declining health, or are refugees seeking asylum. Each of these life circumstances typically creates a difficult financial situation for the individual. As such, the Participation Act guarantees an income for those who have “insufficient means” to maintain themselves – defined as an income lower than a “social assistance norm” based on the minimum wage. The “social assistance norm” depends upon family composition and age: the benefit for couples over 21 is set at 100% of the minimum wage, a single person over 21 is set at 70% of the minimum wage (single parents can receive an additional child budget), whereas 18-21-year-olds receive an allowance derived from child benefit. The Participation Act imposes obligations for the beneficiaries, which include actively seeking work and applying for jobs in exchange for temporary financial assistance. All adults within the household require these obligations – not just the claimant.

The Participation Act is financed by the municipalities themselves and funded using the Ministry of Social Affairs and Employment’s budget, which also calculates the necessary amount to be distributed to each municipality based on estimated household needs within the municipality. As the law is decentralised which grants municipalities some control over how the law is enacted and how the benefit is distributed, although the central government outlines specific requirements for implementation that municipalities must follow. Due to the decentralisation of the Act, the central government made substantial budget cuts, which the municipalities largely opposed.^[57]

Policy impacts

The Participation Act is designed to set a level of income that provides a sufficient level of protection. According to a survey by the United Nations University, “nearly all respondents reported that the benefits were sufficient to provide for all basic necessities such as rent or food, yet did not cover any extras or unexpected expenses, let alone savings.” A trend recognised by this study is that recipients who had a more stable financial past were more likely to be more financially stable when in receipt of the Participation Act benefit, whereas people who have more consistently had financial struggles were more likely to report that the benefit was less sufficient.^[58]

One of the major goals of the implementation of the Participation Act was a reduction in poverty. In relative terms, the Participation Act provides one of the most generous replacement rates in the EU –set at 99% of the poverty threshold and 74% of the income of a low-wage earner for a single household. However, there has been little shift in the poverty rate since its introduction, with modelling by the International Microsimulation Association finding that from 2017 to 2021, the poverty rate is estimated to have decreased by a 5.4% to 5.0%. This modelling has forecast that the poverty rate in the coming years will rise, further indicating that in its current design, the obligations under the Participation Act may be ineffective in sustainably reducing poverty.^[59] This analysis concluded that while a more generous minimum income scheme would exclusively help the lowest incomes and therefore achieves a larger poverty reduction when compared to a comparable investment in other existing tax and benefit policies, the trade-off is that additional resources above the increase in the benefit level would be needed to accommodate the new inflow of benefit recipients as well as concerns about the cost of lost labour market participation.^[60]

The introduction of the Participation Act coincided with a halving of the unemployment rate. From 2014 to 2019, unemployment fell from 8.3% to 4.4%, with the implementation of the Participation Act taking place in 2015.^[61] However, alongside labour market reactivation, one of the Participation Act’s goals was to improve well-being, participation, self-management, and the quality of service provision. The European Commission evaluated the success of the Act in 2020 and claimed that it had done little to meet these aims. This is mostly because of the lack of growth in high-quality and sustainable job opportunities. In addition, the Act has not increased overall employment for beneficiaries as many were found to be unable to work despite the assistance and obligation in place under the Act. Because job opportunities have not expanded in the expected way, self-sufficiency and other aspects of personal life have not yet improved.^[62]

Policy evaluation

Among both the public and municipalities, there are three major concerns with the Participation Act^[63]:

Firstly, once people have received refugee or subsidiary protection and become status holders, they are granted the same rights to the Participation Act and all other social benefits as Dutch citizens. Whether this is an unfair use of resources is contested among the public.

Secondly, some Dutch municipalities regard social assistance as an “unconditional right”; however, the Participation Act poses a condition in which the welfare recipient is required to participate.

Finally, part of the Participation Act requires that employers provide jobs for disabled people. In practice, this is difficult to achieve since only a small proportion of current jobs are appropriate for people with disabilities.

Additionally, there is a major concern about the lack of social assistance in the Netherlands. According to an analysis conducted at the start of 2018, over a third (35%) of eligible households were not in receipt of support, with the lowest levels of take-up amongst those just below the threshold, the self-employed with only one income source, younger people (under 26) living with parents and migrants from European countries. Of particular concern is that a third of those who have not taken up the benefit have been eligible for at least a year.^[64] This issue with take-up may go some way to explaining why, despite the generous level of the Participation Act, the impact on poverty rates has been limited.

An evaluation by the European Commission completed in 2020 claimed that the Participation Act had yet to be successful in achieving its targets of reactivating people in the labour market and social participation. This evaluation raised two primary concerns^[65]:

The Government assumed that “people targeted by the Act would be able and willing to perform paid work, possibly with certain adaptations.” However, the European Commission’s Evaluation reveals (and municipalities confirm) that this is often not the case and that most beneficiaries have health issues that inhibit their ability to work.

In addition, the implementation of the Act expected employers to be willing to enact programs aligned with the Act; however, most employers see these as an administrative burden or are unaware of these programs completely, so the supply and demand of the labour market do not match the Government’s targets. There are still a number of accommodations and arrangements for beneficiaries that fall on employers, which makes them less willing to hire them. From this analysis, the European Commission concludes that these assumptions must be addressed in order to make the Dutch Participation Act more successful in reaching its targets.

A major point of criticism of the Participation Act is that it imposes sanctions on people who do not meet the requirements in seeking employment. This has been deemed by one academic assessment a “negative incentive” within the Dutch system, which does not appropriately motivate people to reciprocate and cooperate, and that the receipt of favours rather than negative incentives leads to more optimal outcomes.^[66] In recognition of this issue with sanctions, six municipalities – Deventer, Groningen, Nijmegen, Tilburg, Utrecht and Wageningen – were given freedoms to experiment with: a) granting an exemption from the labour and reintegration obligations in social assistance; b) more intensive guidance to work or c) a higher release for additional earnings next to social assistance. An evaluation of these experiments by the Netherlands Bureau for Economic Policy found that:^[67]

Exemption from obligations in social assistance had no statistically significant negative effect on the job search rate when compared to the initial situation in all municipalities.

More intensive job searches also had no effect on the outflow to full-time work for all municipalities. However, a positive effect on the outflow to part-time work was seen in Utrecht, where 16 months after the experience, 20% of the experimentation group worked more than 12 hours a week, compared to 12% of the control group.

For all municipalities, there was no effect of a higher release of additional earnings in social assistance benefits on the outflow to full-time work. This effect was expected as participants were not allowed to earn more than €200 euros net per month in addition to their benefit.

The evaluation concluded that there was a high level of uncertainty around the result, and it was difficult to attribute the effects as directly the sole outcome of the experimental interventions. It was concluded that any future experiments on conditionality would benefit from limiting the number of different interventions to be able to make more precise conclusions.

Interview findings

During our conversation with civil servants in the Netherlands, the following key points were stressed:

• The Dutch system is relatively generous by European standards, and the evaluation of the social minimum income occurs twice a year – which is relatively frequent by European standards – and allows the system to respond effectively to changes rapidly.
• The Dutch system grants a high level of autonomy to municipalities, who through this, have taken varying approaches to administering the Participation Act, which, a wide array of levels support policies and approaches to conditionality across the Netherlands. In part, this has been to recognise that there is a policy dilemma between incentivising work and providing adequate support. It is not clear what the correct approach is – as the 2020 experience uncovered – but also in making the caseload of social workers more management so they are dealing with the most at risk groups.
• A particularly difficult challenge revolved around long-term unemployment. It was explained that, in particular, individuals over 45 who had been unemployed for five years or more were a demographic who were particularly challenging to get into work. This then throws up what was deemed a “paradox” whereby these individuals would benefit from less conditionality and higher support payments to reduce the poverty and inequality they face. A critical issue here is ensuring that social solidarity is at the heart of the scheme and balancing the correct level of support with maintaining solidarity within the population. This needed nuances for different groups that may not be fully understood or appreciated by the wider population.

Italy: Citizens’ Income

Policy overview

The Italian government introduced the Reddito di Cittadinanza (RdC), or Citizens’ Income, in April 2019. Despite its name and characterisation as the cornerstone of a national strategy to fight poverty, the RdC is, in practice, a protective and highly conditional Minimum Income Guarantee-type scheme designed to reduce the incidence and intensity of extreme poverty through a combination of income support and work activation. It is the only general non-contributory benefit available to low-income households in Italy, providing the Italian case with a unique contextual dimension that brings into sharp relief wider political considerations about how a Minimum Income Guarantee-type scheme is branded and, in turn, received.

Income support under the RdC is comprised of two monthly monetary payments. The first is provided as a top-up to household disposable income, with a maximum value of €500 per month for a single adult household. The second is a rent subsidy, with a maximum value of €280 per month for a single adult household. The value of both the income top-up and rent subsidy is determined against a household equivalence scale, which, in absolute terms, provides for a higher rate of payment to larger households. Both benefits are paid for a maximum of 18 months, with the possibility of renewal following reassessment of a household’s eligibility. ^[68]

Eligibility for income support under the RdC is conditioned on strict means-testing. To be eligible for RdC, households must have an ISEE (an indicator used by the Italian government to capture the equivalised value of income, assets, and real estate) of less than €9360. Other means-related conditions also render ineligible households that: a) have an annual total equivalised income of more than €6,000, even when total ISEE is below the threshold of €9,360; b) own more than one property; and c) include a resident family member that has last year bought a car or motorbike above a certain engine specification.

Aside from the various means-related requirements, RdC eligibility is also conditioned on citizenship status, with the primary household recipient required to have legally resided in Italy for at least ten years. Non-EU citizens are additionally required to provide documentation detailing their immigration and economic status issued by the governmental authority of their home country.^[69]

For households who meet these eligibility requirements, payment of both the monthly income top-up and rent subsidy is further conditioned on a set of work and social inclusion obligations that are designed to support recipients into employment and thus mitigate potential negative effects on labour supply.

In the first instance, all eligible members (not employed, not in education or training, not retired, under the age of 65 and not disabled) from recipient households are required to register with PES, Italy’s work support centres. Following an initial meeting with their PES advisor, recipients who are deemed ‘closer to work’ on the basis of employment history and psychometric testing are additionally required to sign an ‘Agreement for work’. In broad terms, this agreement requires recipients to do the following: a) actively seek employment opportunities; b) register on a designated digital job platform; c) participate in designated training courses; and d) accept at least one of three ‘suitable job offers’. More specific details on the type of training and work and the relevant steps required are determined by a so-called ‘navigator’, a new work support role created specifically to support PES advisors in developing and monitoring work pathways for RdC beneficiaries.^[70]

As a work activation scheme, the RdC is further bolstered by both positive and negative reinforcement outcomes. In terms of negative reinforcement, RdC recipients who do not fulfil their obligations are subject to sanctions that consist ‘in a monthly cut of the income benefit at the first infringement to a complete revocation in case of repeated infringements’.^[71] In terms of positive reinforcement, the RdC provides for a temporary withdrawal rate during the first six months of new employment activity of 80%, meaning that RdC beneficiaries entering work keep 80% of their RdC entitlement for the first six months. RdC beneficiaries who increase their working hours, typically from part-time to full-time work, keep 100% of their RdC entitlement during the same six-month period.^[72]

Policy impacts

Official government statistics show that in 2020, RdC was granted to 982,000 households (2.2 million people), providing monthly average benefits of €482 at a total annual cost of around €8 billion. Consistent with the low-income targeting of the scheme, families benefiting from RDC are concentrated among the families with the lowest ISEE value [with] 30.6% of beneficiary households [having] an ISEE of €0. 45% of recipient household members over the age of 15 have never worked as formal employees, and only 10% of the entire group are currently employed.^[73]

Compared to Italy’s resident population, women, children, and single-resident households are over-represented among individuals receiving RdC. 28% of RdC recipient households are single-parent households, compared to 11% of resident households. A further 60% of RdC recipient households are single resident households, compared to around 30% of the resident population. Conversely, couple households with and without children are under-represented, with the latter making up just 1.5% of all recipient households. Larger households of six or more persons make up a similar share. However, this group is over-represented compared to the resident population. Finally, disabled people are also over-represented at around 9% of all recipients, compared to 5% of the resident population.^[74]

The overall rate of take-up of RdC is unclear given the absence of both an official government figure and take-up estimation modelling. On the one hand, economic theory would expect take-up of the RdC to be lower than other less conditional Minimum Income Guarantee-type schemes since the prospect of strict conditionality requirements tends to increase perceived opportunity costs. On the other hand, the Italian government has published figures showing that around a third of all RdC applications are rejected, suggesting instead that the RdC’s strict conditionality requirements function more like a barrier to entry rather than a deterrent.^[75] While other Minimum Income Guarantee type schemes, such as the French RSA, are also conditioned on strict income requirements, the barrier to entry in the Italian case is particularly salient given that in Italy the RdC is the only general non-contributory benefit available to low-income households.

Given the salience of the potential exclusionary effects of the RdC’s eligibility conditions, it is especially important to consider poverty impact in relation to both the recipient group and the wider group of households at risk of poverty.

With respect to the former, the RdC appears to have been effective in reducing levels of poverty and deep poverty. The Italian government estimates that the RdC has achieved a 13% reduction in the number of households at risk of poverty, with 250,000 of a total of 1.9 million at-risk households lifted out of poverty between April 2019 and June 2020.^[76] Given that around 1.4 million households received at least one RdC payment across this period, it can be estimated that around 18% of recipient households were lifted out of poverty and at least double (likely closer to three or more times) this share were lifted out of deep poverty. The ameliorating effects of the RdC are not, however, distributed equally within the recipient group.

The equivalence scale is used to adjust the monetary award of the RdC benefit according to household size and need. This is particularly problematic given that of all household types, larger families have the highest incidence of poverty in Italy. The Italian government does not publish data of sufficient granularity to quantitively examine the poverty impact of the RdC on different household types. However, given the choice of equivalence scale, analysts are in uniform agreement that larger families are under-represented in the group of RdC recipients who have exited poverty.^[77]

In analysing the poverty impact of the RdC in relation to all households at risk of poverty, it is first significant that the annual number of RdC recipient households makes up around only 60% of households that are at risk of poverty.^[78] While a significant share of the remaining 40% of at-risk households may in fact be eligible for RdC but, for various reasons, have not taken it up, there is still a substantially sized group of at-risk households that do not qualify for RdC and so are left without recourse to income support. Studies focused on this group indicate that it is comprised mostly of low-income working households and households located in urban centres, where wages and the cost of living are higher. One study using Tuscan administrative data finds that the at-risk of poverty rate in urban low-income areas is, on average, 30%, while the average RdC coverage rate of the same is only 17%.^[79]

Counterfactual analysis has also shown that indexing the RdC income threshold to the regional cost of living would lead to a 7% increase in the RdC coverage rate in such areas, effectively closing the gap between poverty and RdC coverage by nearly 50%.^[80] It is also worth noting that these demographic characteristics are somewhat typical of single non-EU migrant households, who would still be excluded from receiving RdC support even if the income threshold was increased. The upshot is that the ‘current eligibility design of the RdC leaves some […] demographic groups at a higher risk of poverty and social exclusion from the support framework of the measure, thus undermining the scheme in achieving its objectives’.^[81]

Regarding the efficacy of the RdC involving work activation, the picture is somewhat unclear, given that most studies are limited to the first year of rollout. The problem is that the ‘navigators’ did not start working until late 2019 at the earliest, while PES employment centres were initially overwhelmed by a huge uptick in caseload. As a result, at the end of 2019, only 1.9% of all recipients had signed an ‘Agreement to Work’ contract.^[82] The Italian case service reinforces the importance of sufficient preparation to avoid administrative failure.

Nevertheless, the available evidence indicates that after the initial rollout, the RdC achieved some moderate successes in supporting particular types of people into, but more so back into, work. On studying using difference-in-difference analysis on Tuscan administration finds a positive and statistically significant difference between the work intensity of RdC recipients and non-recipients of around 3% in the period between November 2019 and December 2019; the effect was negative across the preceding six months. The effect in the latter period was greatest for young adult males who had previous work experience, with RdC recipients working on average 1.1 days more than comparable non-recipients. The study also found a positive effect on women under 50 years old. Even so, these relatively modest gains in working days are clearly not sufficient to alter the incidence of poverty at a population level.^[83] These gains are, however, notable compared to other case studies, with the one major difference being the introduction of specialist support workers, the ‘navigators’. It is conceivable that more significant gains could be achieved by further improving capacity and support provision in PES employment centres.

Policy evaluation

Overall, the RdC proved to be a generally effective tool in tackling both poverty and deep poverty in Italy. It also appears to have been somewhat effective in supporting recipients into work – in particular, the introduction of the ‘navigator’ as a specially designated professional to support and monitor jobseekers provides a potentially useful model for effective implementation of work activation paths under a Minimum Income Guarantee type scheme.

However, given both the initial characterisation of the RdC as a universal tool for poverty reduction and the absence of other general income support schemes, the imposition of an extremely narrow conditionality regime brought into particularly sharp relief the effective exclusion of millions of vulnerable low-income households from Italy’s social security system, culminating in the closure of the scheme just three years after its introduction.

To that end, the central takeaway from the Italian case study is that a Minimum Income Guarantee-type scheme should, from the outset, be explicit in terms of its scope and aims, as well as designed to complement and fill gaps in the existing social security apparatus. It is conceivable that were the RdC introduced in a country with a more robust social security system and framed in terms of a protective Minimum Income Guarantee-type scheme with enabling elements, reception to the scheme would have been far more positive, providing scope to instead reform some of the more restrictive elements.

Enabling Minimum Income Guarantee-type schemes

France: Active Solidarity Income

Policy overview

The Active Solidarity Income (RSA) is a means-tested minimum income benefit awarded to people who are unemployed, economically inactive or in low-paid work. As the main instrument for tackling poverty in France, RSA payments are awarded to nearly two million households at an annual cost of around 15 billion EU.^[84] Beyond earnings, the main eligibility condition of RSA is that it is only awarded to working-age adults over the age of 24, reflecting the ‘principle that the family bears responsibility until this age’.^[85]

The RSA was introduced in 2009 as a replacement for the Revenu Minimum d’Insertion (RMI). The basic payment rate follows the RMI at around 50% of median equivalised earnings. Given that the deep poverty line in France is set at 60% of median earnings, the basic RSA alone is not sufficient to lift someone out of deep poverty. This is reflected in the incidence rate of deep poverty for RSA beneficiaries who are in poverty, which at 15% is roughly equal to the incidence rate among deep poverty for people who do not receive RSA.^[86] The RSA is, however, an incredibly effective tool for reducing the intensity of deep poverty, which is twice as high for people for who do not receive RSA.^[87] As with the RMI, entitlement to the basic rate of payment is not withdrawn or tapered over time, meaning that this minimum income standard is guaranteed for as long as a person requires it.

The RSA also provides a higher ‘active’ rate for recipients who enter or return to work. Under the higher ‘active’ rate, recipients received 100% of their basic RMI rate during their first three months of employment and then 50% across the next nine months. After working for 12 months, this 50% working rate was then fully withdrawn, resulting in the effective loss of RMI entitlement. In contrast, the working rate is built into the structure of the RSA and, crucially, is not tapered or withdrawn over time. Instead, the RSA working rate is paid at 62% of the RSA basic rate for as long as a person is earning below the RSA exit point, which is around 1.05 times the equivalised minimum wage.^[88] A single adult with a part-time job and earnings equivalent to 50% of the minimum wage is therefore substantially better off under the RSA for all but the first three months of their employment^[89]: in the 3^rd-12^th month, RSA provides an additional 60 EU per month compared to RMI, rising to an additional 260 EU per month thereafter.^[90]

Policy evaluation

The RSA’s higher and more stable working rate is designed to ‘make work the main safeguard against poverty’, eliminating the benefits trap by ensuring that labour market participation does not lead to a loss of income and making permanent the temporary work incentive introduced under the RMI.^[91] In the absence of a minimum hours requirement, the RSA’s working rate is intended to function as a particularly strong incentive for people to choose part-time work over benefit dependency. Even before accounting for the value of other available benefits, the additional income awarded under the working RSA is sufficient to lift most part-time working recipients above the poverty line.

To that end, analysts are generally in strong agreement that the RSA is a well-designed tool for poverty amelioration, particularly because it achieves this goal through the provision of enabling labour market incentives. Nevertheless, some analysts have expressed concern that the generous levels of support afforded to individuals working part-time may act as a disincentive to full-time work, resulting in the advertent creation of a ‘part-time trap’ in which RSA recipients are constrained to living at the edges of the poverty line. On the one hand, it is true that the standard of living afforded to most working RSA recipients is, in many ways, limiting. However, what this criticism fails to fully appreciate is that the working RSA rate represents a materially substantive improvement in the living standards of someone who, unable or unwilling to work full time, would otherwise receive only the basic RSA rate. Furthermore, there seems to be very little risk – and moreover, no existing evidence – of full-time workers deliberately choosing to reduce their hours in order to qualify for working RSA. This is because the French social security system also provides for a higher rate of benefit entitlement for those in full-time work under the PPE.^[92]

While the structure of the RSA provides an effective model for making work the main safeguard against poverty, its implementation has, however, failed to yield the sort of drastic reduction in poverty that the French government initially projected. An early evaluation study conducted in 2011 found that the ‘poverty rate would be 0.3 percentage points higher without the implementation of RSA, which corresponds to 135,000 people out of poverty in contrast with the French government’s projection of 700,000’.^[93]

A more recent study, which further captures the increased levels of take-up of RSA between 2010 and 2020, indicates that 65% of all beneficiaries have fallen below the poverty line while in receipt of RSA. Given that by design, the basic RSA rate is not sufficient to lift a person out of poverty, it is evident that the large majority of the 65% of RSA beneficiaries who are in poverty receive only the basic RSA rate.^[94] This is confirmed by longitudinal studies, which show that ‘after seven years from first receipt, only 34% have left RSA and are in work; 24% have left RSA without work; and 42% are still in receipt of RSA’.^[95]

Other studies examine further the experiences of RSA beneficiaries who cannot find long-term employment. These studies indicate that a considerable proportion of RSA recipients move between the basic and working RSA rates, with around 35% of RSA recipients finding temporary employment that is terminated within 12 months. A similar number of beneficiaries are unable to find even temporary employment and so remain on the basic RSA rate for the long-term, with some moving from RSA to more targeted benefits - for example, those awarded to disabled people who are unable to work.^[96]

Without a doubt, the composition of the labour market is a significant barrier to long-term employment for many RSA beneficiaries. Reflecting a wider trend across Europe over the last ten years, France has seen a huge rise in the prevalence of temporary and zero-hour work contracts, particularly in low-skilled occupations. Within this sphere of insecure work, hours and working patterns are fluid and seldom guaranteed, which can present difficulties for those who have children and caring commitments, thus potentially affecting around a third of RSA recipients. Research has also shown that the rate of voluntary and involuntary termination is significantly higher among people in insecure work, which provides some further explanation for why so many RSA recipients exit the labour market within 12 months.^[97]

Yet even in the most protective labour market, moving people from inactivity into long-term employment requires more than the incentive of increased earnings. The French government recognised this and so built into the RSA a contractual obligation between beneficiaries and support providers to ensure that both parties would do all that they could to find and maintain employment. Once again, analysts are in strong agreement that this reciprocal contract represents an effective model of support provision, ensuring action and accountability from both the jobseeker and support provider. The issue, though, is that these contracts have not been properly implemented, enforced and monitored. It is estimated that only seven in 10 RSA beneficiaries are subject to a support contract, meaning that nearly a third of recipients have no recourse to any type of support at all. Further, even among those who have a support contract, studies indicate that around 75% do not contain any commitments or action toward obtaining employment.^[98]

Analysts agree that the ineffective implementation of these contractual agreements is a direct consequence of the RSA’s complex institutional and administrative structure. The legal and regulatory framework is designed and administered by central government, which allocates public funds to a diverse and regionally varying network of social allowance funds, social action centres and local service providers, who in turn are supported by the Employment Agency in processing and monitoring applications. The upshot of this highly convoluted pipeline is that applicants often do not receive the level of support that they require, whether because they are not referred to a support provider in the first place or because there is no homogenous and regulated standard of support due to the sheer numbers of operators across the country. This amorphous structure of operators and support providers is also thought to have limited take-up of RSA, which is estimated to cover only 70% of the target population.^[99]

Overall, the RSA provides a well-designed model for poverty amelioration, making work the primary safeguard against poverty while ensuring that those who do not work do not live in deep poverty. The RSA has helped millions of people into long-term employment; however, millions more remain in poverty largely because of a failure to provide these people with the level of guidance and support they require. To that end, this case highlights the vital importance of effectively implementing a standardised and closely regulated support system to help people obtain and maintain stable, long-term employment.

Belgium: Integration Income

Policy overview

The Integration Income benefit in Belgium is a type of means-tested minimum income scheme and is intended to be a benefit of last resort. The income test includes an evaluation of a household’s resources, earnings, and annual net income. Receipt of the benefit requires that the individual is 18 years of age or older; meets the nationality and residence requirements; is willing to work (unless otherwise unable to do so due to health or disability conditions); has exhausted their rights to all other benefits; and has insufficient means to a decent life.

The Integration Income is distributed at the local level by the Public Centre for Social Work (PCSW), although it is a federally established benefit. Therefore, the local PCSWs and federal state have shared funding for the policy. Although the legislation and implementation of the benefit occur at the federal level, the local municipalities are entirely responsible for the distribution of the benefit as the income is largely dependent on individual, locally assessed circumstances.

The benefit is automatically adjusted as cost-of-living increases. These adjustments are calculated by linking amounts of integration income set out in legislation and the consumer price index. There is a maximum amount which can be awarded each month, with your circumstances and corresponding payment falling under three categories:

If an individual lives with whom they share the household expenses, they are regarded as cohabiting and receive €809.42 per month;

• If an individual lives alone, they receive €1,214.13 per month; and

If an individual has at least one child living with them, they are deemed as having a dependent family and receive €1,640.83 per month.

• In addition to the income support, Belgium’s Integration Income scheme aims to provide and encourage labour market participation and social inclusion activities. One of the particularly significant benefits of the Belgian approach to social integration is that access to services and measures available is not made based on an income basis but on an assessment of needs. In practice, social workers and PCSW have some discretionary room in evaluating the willingness to work requirements of claimants. Usually, it is assessed on the basis of the likelihood that the claimant will be able to make the necessary personal effort to find work. In other words, there is an assessment of whether other circumstances may prevent them from effectively searching for work and becoming employed. In addition, the PCSW’s perspective on the value of the job offer or training course for the individual may be taken into account.^[100]

Policy impacts

Belgium’s Integration Income has successfully boosted job retention and poverty reduction, particularly during the COVID-19 pandemic. Belgium successfully prevented increases in poverty, social exclusion, and income inequality with income support generally sufficient in replacing potentially lost income. According to 2021 data, social transfers reduced the number of employees at risk of poverty by 73%, with 119,000 fewer people at risk of poverty.^[101] In addition, the Integration Income scheme was part of a broader policy response that helped to stabilise employment levels and limited the impact that the pandemic had on the labour market. After an economic contraction of 5.7% in 2020, the Belgian economy quickly grew again, and GDP increased by 6.1% in 2021. The employment rate only fell 0.5% from 2019 to 2020, and the employment level rose back to a higher level than on record in 2021 at 70.6%.^[102]

Belgium’s overall social assistance scheme targets higher social inclusion and professional integration, which supports individuals who may be unable to work. Ensuring that all people have access to a stable and secure income allows people to bolster their social skills and participation.^[103] However, Belgium continues to have one of the highest long-term unemployment rates in comparison with the rest of the EU. For most individuals in Belgium, it is more optimal for them to stay unemployed because if they were to re-enter the labour market, their wages would often not exceed the amount they can be paid through the Integration Income.^[104] As a result, there has been a steady rise in Integration Income beneficiaries across the 21^st century. That said, the percentage of the population who benefit from the scheme is small – rising from 0.7% of the population in 2003 to 1.3% of the population in 2022.^[105]

Policy evaluation

Although concerns exist that the relatively generous level of the Integration Income can have negative unintended consequences by decreasing incentives to join the labour market, Belgium places particular emphasis on the importance of social activation and participation as important policy goals in their own right. While social activation is typically part of a wider set of labour market activation policies, it is distinct from labour market activation in that it first seeks to support the social inclusion of people who are not (yet) able to work. For those individuals who may be very far from the labour market, stabilisation of the life situation (i.e. preventing further exclusion and isolation) should therefore be viewed as a success, and a secure income is important to securing this stabilisation as it allows people to take part in activities that are meaningful and help to develop their social skills and allow them to enter the labour market at the appropriate opportunity.^[106]

There are issues with evaluating the success of Belgium’s labour market policies as, in most cases, no specific data on the participation of integration income beneficiaries in active labour market policies are collected. However, an evaluation has shown that in 60% of cases, there is a positive outcome associated with the integration plans, but that success depends on the objectives agreed in the plans. Moreover, there is a great variety in the way plans are implemented by PCSWs and practices differ considerably.^[107]

Uptake of the Integration income at 88% is well above the EU average. However, there is still a desire to boost take-up further. Research by the Federal Public Service (Social Security) has suggested that “proactive allocation” is one suggested way to limit non-take-up. Proactive allocation occurs when “the right to welfare support is opened fully automatically without any prior request from the potential beneficiary.” Belgium currently employs proactive allocation for several derived benefits, but the research suggested that proactive allocation may not be effective for non-derivative means-tested benefits.^[108]

In order to increase take-up of the benefit, Belgium plans to use the ‘CPAS online’ tool in 2024, which will be an online platform where individuals can submit requests for integrated income. This makes it easier for people to be informed about their benefit qualifications and creates easier access when applying.^[109]

Interview findings

During our conversation with civil servants in Belgium, the following key points were stressed:

• Belgium Integration Income is effective, separate to the formal social security system that functions on a broadly social-insurance model. While this does simplify the administration of the scheme, it can lead to confusion when interacting with other areas of social security – especially as there are specific minimum incomes for disabled people and low-income pensioners within the ‘formal’ social security system.
• The minimum income scheme is administered at the local level. One of the major benefits of the decentralised approach is that it allows for more personalised assistance and integration into local communities with a continuous relationship built with one social worker. While the primary purpose is labour market reintegration, personalised assistance is also recognised where there may be major barriers to work, and the Integration Income scheme seeks to address these by offering integration programs beyond financial assistance and active labour market policies, such as housing support, addiction support, mental health counselling, and language courses for refugees.
• A major challenge of these initiatives is that they are typically set to last for a year, and individuals who are deemed ‘lower risk’ may not be placed onto schemes as it is not seen as viable to place them onto a course that they will not complete – even if that support would be beneficial. This is mostly a problem in larger local areas, where the nature of individualised support tends to focus on those with the most prominent integration issues. There was a recognition of the opportunity cost of this and why those deemed lower risk may more quickly be able to be integrated into the labour market. The lack of associated integration could lead to issues recurring.
• A major challenge of the integration income has been the societal stigma attached to it, partly because of its separation from the formal social security system. Social security benefits are often viewed as entitlements earned through work and contributions to the system. At the same time, recipients of minimum income support may face stigma or negative stereotypes regarding their financial situation or willingness to work.
• The scheme is frequently evaluated thematically. Evaluations often focus on specific aspects or themes within the scheme, such as the integration of students, support for refugees, or the effectiveness of activation programs. These evaluations delve deeper into particular areas of interest, providing insights into program effectiveness and areas for improvement. Evaluation priorities may be influenced by the preferences and priorities of the responsible minister overseeing the scheme. For example, if there are recent policy changes or emerging issues, evaluations may be directed towards assessing the impact of these changes. However, robust evaluation of the scheme was a major challenge due to limited resources for comprehensive evaluations, bureaucratic hurdles, and the complexity of measuring social outcomes. Additionally, assessing long-term impacts, such as improved socio-economic outcomes for beneficiaries, may require longitudinal studies and data linkage with other social and economic indicators.
• In recognition of some of the challenges with the system, it was explained that two key areas of future reform would be taken forward:

1. One major issue is that of a “cliff edge” within the system, where individuals lose all support once they earn above a certain threshold. In effect, it is only possible to work one day a week before support is lost. There's a recognition that this system can create disincentives to work, and that reform is needed to ensure that people are not penalised for transitioning out of the system through the introduction of a taper.

2. There's a push to simplify administrative procedures for both beneficiaries and social workers. The aim is to reduce bureaucratic burdens and make access to the integration income more straightforward, for example, by allowing applications to be online, not just in person. In addition, initiatives like the “only once principle” are to be implemented where individuals are not asked for information already held by the Government, and efforts to minimise unnecessary documentation requirements. There's an acknowledgement of the administrative burden faced by social workers and a desire to make their jobs easier. Simplifying processes not only benefits beneficiaries but also improves efficiency within the social welfare system.

Sweden: Social Assistance

Policy overview

Sweden’s social assistance (SA) – ekonomiskt bistand – operates as a benefit of last resort for low-income families and individuals. Eligibility for the benefit requires that applicants have no other way to support themselves and have exhausted all other benefit options. The SA supports individuals with insufficient access to work income as well as those who lack contributory social insurance benefits. Anyone who has the right to stay in the country is eligible for the benefit, including refugees and asylum-seekers.

In 2020, about 374,000 people (3.6% of the Swedish population / 5.6% of the working-age population in Sweden) received SA.^[110] The Swedish SA cost 11.6 billion SEK in 2021.^[111]

SA is means-tested and based on the previous month’s household income including assets, with local authorities ultimately responsible for determining the eligibility based on an assessment of social workers. Applicants are required to submit their application each month. People are eligible to receive SA long-term as there is no limit on the duration in which an individual can receive SA.

Eligibility is assessed at the household level on the basis of a “nuclear family” – parents and their children. The level of SA which the household receives is based on the number of people in the household, the age of the children and whether the adults are single or co-habiting. Housing costs tend to be completely covered by SA. Municipalities will additionally step in to decide on and distribute additional support including for accommodation, electricity, work travel, home insurance, trade union membership, and unemployment insurance fund membership costs.

Swedish municipalities are responsible for the financing, assessments of eligibility, and distribution of the benefit. However, national institutions also play an important role. In particular, the Swedish Consumer Agency has a key role in calculating the “reasonable living costs” which are then used to assess the benefit level and set a minimum standard under which no one should be able to drop below. The “reasonable living costs” is automatically indexed but adjusted annually according to changes in consumer prices.

Policy evaluation

Originally, SA was aimed at preventing poverty. However, this aim has shifted over time to now include programs which activate and reintegrate people within the labour market. There is a strong emphasis on labour market attachment, however determining whether an application should be considerate able to work and should participate in a labour market activation programme is done on a discretionary basis. There is a recommendation that SA claimants receive a wider and more detailed screening of the underlying circumstances for claiming SA to identify appropriate support measures at an early stage and to set adequate requirements on the people concerned. However, there is no overarching regulation of the individual needs assessment, but a multidimensional perspective is recommended by the National Board of Health and Welfare, particularly if dependency is considered to be long-lasting. Similarly, there is no legal obligation on social services to establish an individual action plan based on these assessments, but such plans are used in many municipalities and individual action plans are often established within three months.^[112]

For those who are able to work, there is a requirement to actively look for work, be registered with the public employment service, accept available job offers, and participate in national labour market programmes or other municipal activation measures. A high degree of autonomy granted to municipalities to take different approach to local labour market activation. For example, some do not take a wholly ‘job first’ approach and instead focus on measures aimed at preparing recipients to participate in the active labour market policy programmes of the public employment services. Other municipalities have established ‘one-stop-shops’ focusing on specific user groups to offer tailored support, such as budget and debt counselling and language courses and bringing other public and social services into one place. Evaluations of such local programmes are scarce, but generally report weak effects on employability and self-sufficiency.^[113]

Sweden’s approach to labour market activation could be categorised as both a ‘carrot and stick’ approach. The ‘carrot’ takes the form of SA claimant qualifying for activity grants, and receive SA as a top-up to ensure the still meet the “reasonable living costs”. In addition, individual’s that have received SA for a period of six consecutive months are entitled to have 25% of their earnings from employment exempted (for a period of up to two years). The ‘stick’ takes the form of failure to comply with these work-related requirements resulting in the complete withdrawal of, or a temporary reduction in, benefits.^[114]

A major shortcoming in assessing Sweden’s SA and activation system is the lack of data, largely as a result of the municipal variation. A European Commission assessment found three areas where data collection would be important to improve evaluation:^[115]

• · Evaluations of national active labour market policies do not make a distinction between recipients of SA and recipients of unemployment benefits. As a result, no data is available on the number of SA recipients who participate in active labour market policy programmes.
• · There is no data on the number of SA recipients receiving an individual action plan.
• · No data is available on the number of recipients using such personalised services provided to SA recipients.

Despite this lack of data, Sweden established dedicated Institute for Evaluation of Labour Market and Education Policy (IFAU) in 1997 with the aim to improve Swedish active labour market policy by publishing research and policy proposals based on administrative data. The Swedish authorities also work with IFAU researchers to embed evaluations into the design of programmes they are piloting. For example, there is currently a trial different payment schemes for outside providers in a pilot programme of contracted-out employment services.^[116]

Sweden’s SA take-up rate is 93%, one of the highest in the EU. Sweden’s high take-up rate can be attributed to a few good practices which Sweden has integrated in its SA scheme. Firstly, social workers must help people in the application process and most municipalities have special application forms which can either be submitted in-person or digitally. Secondly, it typically takes less than two weeks for a claimant’s application to be processed and for them to receive an interview with a social worker.^[117]

The non-take-up rate in Sweden is potentially raised because of the individual assessment for eligibility and high sanctions if one does not uphold the eligibility requirements which can deter people from taking up the benefit. Take-up of SA in Sweden mostly occurs among young adults or migrants which are both typically in transition periods with regard to the labour market. This is largely due to the nature of SA as a temporary benefit of last resort. The most typical characteristics of beneficiaries include “lower educational qualifications, long-term unemployment, living alone and lone parenthood”.^[118] As a result, SA is not seen in the same terms as contributory elements of the Swedish welfare system, with SA associated with high stigma and comparatively less popular support than the Swedish welfare system at large.^[119]

Though there is a high take-up rate amongst those who are eligible for the benefit, Sweden still has high eligibility barriers. An academic study has found that over 25% of applications for SA are declined. In addition, many of those in receipt of SA get significantly less than what they applied for. This same report suggests that the demand for SA has only grown over recent years with increased unemployment, increased poverty, and decreased generosity among other benefits.^[120]

Sweden also compares differential to other ‘Nordic Model’ welfare systems. A comparative analysis between the social assistance schemes of Sweden and Finland found that although Finland showed much higher receipt rates than Sweden, the Swedish income and population structure produced higher eligibility rates and higher average benefits. This was explained by lower income levels at the bottom of Sweden’s income distribution and SA often the main income for recipient households. In Finland, however, the average amount paid in social assistance benefits in Finland was comparatively low because other concurrent benefits increased recipients income.^[121]

Interview findings

During our conversation with civil servants in Sweden, the following key points were stressed:

• · On average, individuals receive SA for approximately 7.3 months. However, a significant portion of recipients, around 43%, are on long-term assistance (ten months or more), which poses challenges for both individuals and society, particularly in households with children.
• · This long-term dependency on SA is often linked with significant personal or families circumstances, such as substance abuse, health problems, and low educational attainment. Efforts are being made to address these challenges, including providing support for rehabilitation and addressing health issues to facilitate reintegration into the workforce. However, there is a lack of consistency in how municipalities provide this support.
• · The strong incentive to move individuals into work is drive not only to improve their economic position through work, but also to ensure they better protected in the future. Other welfare benefits, such as insurance-based unemployment benefits received, often provide higher levels of support compared to SA.
• · There is also a social stigma associated with receiving SA. In particular there is a strongly embedded cultural perception that benefits tied to personal contributions are more socially acceptable than those provided as SA. This often has a negative impact on the self-esteem and motivation of those on SA.
• · There are plans to reform the SA system in the future, in particular to address the issue of long-term dependency. This involved a reassessment of the annual national standards and exploring the concept of a benefit ceiling – in particular to cap the support provided to larger families. Moreover, there is a desire for a greater robustness in ensuring receipt of SA is better aligned with reintegration programmes that are preventative in nature to reduce long-term dependency and individuals have access to staff with specialist training. Here, there was a recognition of the importance of consistency in service providers to build relationships and provide effective support, though challenges exist in achieving this consistently across different municipalities.

Targeted Minimum Income Guarantee-type schemes

Malta: Tapering of Benefits scheme

Policy overview

In 2014, the Maltese Government introduced a series of active labour market policies as part of a ‘Making Work Pay’ initiative.^[122] One of these initiatives was a Tapering of Benefits (TOB) scheme applied to Malta’s three main unemployment benefits – Unemployment Assistance (UA), Social Assistance (SA) and Social Assistance for Single Unmarried Parents (SUP).

The TOB scheme is targeted at individuals who are mid- to long-term unemployed and are able to work but lack the incentive to do so given low pay in entry-level roles and/or the insufficiency of employment earnings in the cost of raising children.

Under the TOB scheme, the payment of unemployment benefits to working beneficiaries is tapered over time rather than on the basis of earnings. Upon finding full-time employment, an individual who has benefitted from one of the three main unemployment benefits (SA, UA, SUP) for at least 24 months in the last 36 months is entitled to receive a non-taxable percentage of their last benefit rate paid in arrears every four weeks according to the following time-based taper:

• 75% of last benefit rate for the first year;
• 55% of last benefit rate for the second year; and
• 35% of last benefit rate for the third year.

The TOB scheme was designed with a time-based taper to prevent a ‘benefit trap’ by incentivising and supporting their entry/re-entry into the workplace – especially in entry-level jobs – as well as supplementing the earned income of families and individuals at risk of poverty.

This design reflected that entry-level jobs are often relatively low paying and insufficient on their own to incentivise those who are mid- or long-term unemployed to enter the workforce. Therefore, the Tapering of Benefits scheme was designed to address this market failure by providing a top-up that functions as an incentive for people to take up an entry-level job and then progress from there.

Policy impacts

The TOB scheme’s primary aim was to help people avoid a ‘benefit trap’ by supporting and incentivising their entry/re-entry into the workplace. When assessed against this aim, the scheme has proven highly successful in helping people who are able to work get back into work.

Five years after the scheme’s introduction, the number of employment benefit recipients fell dramatically: SA claimants fell from 10,784 to 6,840, and UA claimants fell from 4,330 to 766. Almost half of the reduction in unemployment benefit recipients is captured in the year-on-year increase in the number of TOB scheme claimants – from 0 to 1,958 – and in-work benefit claimants (introduced alongside the TOB scheme), which increased from 0 to 4,514.^[123]

The TOB scheme has also had a positive impact on increasing female labour market participation – with two-thirds of those benefiting from the TOB scheme being women – and long-term unemployment also fell much more strongly than short-term unemployment, indicating that the TOB scheme was effectively implemented in a way that avoided a ‘benefit trap’.^[124]

Results from a formal household survey survival analysis conducted by the Bank of Malta sheds further light on the impact of the TOB scheme of employment:^[125]

• The TOB doubles the probability of finding a job among those eligible for the scheme.
• The TOB was most successful in incentivising lone parents to enter the workforce, with the rate of job-finding more than doubling following the introduction of the TOB.
• Among those claiming the most basic type of benefit (SA), the effect is less at 1.68, indicating that the TOB alone cannot address specific medical and health issues that function as barriers to labour participation for some individuals (though important to note that this group was not a main target of the policy).

Policy evaluation

Overall, Malta’s TOB scheme has proven to be highly effective in incentivising people, especially female lone parents, into or back into work; two-thirds of those benefiting from the TOB scheme are women.^[126]

A major factor in the success of this targeting was the importance the Maltese Government placed on ensuring a thorough scoping and profiling exercise was carried out to identify those individuals and families who would benefit most from the scheme ahead of its introduction as well as directly involving social partners to support the development, promotion and implementation of the scheme.^[127] Through this scoping exercise, the main beneficiaries were found to be those people already on social assistance and unemployed, single parents, especially women with children under 16 years of age. In line with the design of the TOB, take-up rates were particularly high among single parents – especially women with children under the age of 16.

While no formal cost-benefit analysis has been conducted of the TOB scheme, an independent evaluation commissioned by the Maltese Ministry for Social Policy and Children’s Rights found that the TOB scheme has:^[128]

• · Played a key role in ensuring that there is a strong financial incentive to take up full-time employment, with Malta having an effective participation tax rate of 45% – the best PTRs in the EU. This particularly explains why Malta has seen a reduction in overall unemployment and the number of unemployment benefit claimants since the introduction of the TOB scheme.
• Proven to be an effective scheme in keeping beneficiaries attached to the labour market, with a very high percentage of these beneficiaries – 87% – remaining in employment after exhausting the three-year period of the scheme. This indicates that the TOB’s work incentive extends into the medium-term by supporting people to improve their earnings.

The TOB scheme was designed in part to help incentivise longer term unemployed individuals into entry-level roles, which were considered too often to be low-paid, low-skill roles. However, the Bank of Malta’s assessment found that the impact of the TOB on finding and sustaining employment was strongest for individuals entering professional and skilled roles, who were twice as likely to flow into employment when compared to those entering low-paid and low-skill roles. The TOB could be seen, therefore, as encouraging people to find ‘good’ work and that a ‘skills premium’ is at play in how the scheme incentivises labour market reintegration. The Bank of Malta assessment concluded that this could be further supported by policymakers focusing on long-term strategies to improve educational outcomes and labour market quality.^[129]

Evaluating the TOB scheme comes with two important caveats:

1. Firstly, the TOB was introduced as part of a broader package of measures as part of the ‘Make Work Pay’ initiative. These included free childcare for working parents, Breakfast Clubs, tax incentives for those entering work and an in-work benefit. As a result, it makes it difficult to fully disentangle the impact of the TOB from other policies and it’s likely there are dynamic and supporting impacts at play. However, Malta’s complete package is important for understanding how social security reform, labour market activation and the provision of essential services / reducing household costs interact with one another.

2. Secondly, implementing the TOB scheme (and other ‘Make Work Pay’ initiatives) occurred during a period of strong economic growth in Malta, which created many new labour market opportunities. A Maltese peer review of the TOB scheme for the European Commission concluded that an understanding of general economic conditions was critical when assessing the transferability of Malta’s schemes. This review suggested that in less favourable economic climates, there is a significant risk of a possible yo-yo effect whereby beneficiaries return to benefit dependency after the expiry of the tapering period.^[130]

Interview findings

During our conversation with Maltese civil servants, the following key points were stressed:

• As part of the Tapering of Benefits scheme, it was outlined that employers also benefit from the scheme – in the form of a payment equivalent to 25% of the social assistance. This involvement of employers was seen as crucial, as they play a vital role in facilitating the transition to employment and helping manage any associated risk of taking on individuals who have been long-term unemployed. This engagement was seen as being relatively smooth, although it was noted that Malta did receive some criticism from the European Union for engaging employers so closely in matters of social policy. However, it was explained that this was a nationally funded scheme and ultimately up to the Maltese Government to determine the best policy design to support successful outcomes. In the opinion of the Maltese civil servants, for the scheme to have positive outcomes, engagement with employers was crucial, in particular, to help beneficiaries who may be low-skilled when they enter employment be upskilled by the employer they join.
• While the success of the Tapering of Benefits scheme could be seen through the high number of beneficiaries who remain employed after the three-year tapering period (around 80%), it was stressed that introducing benefit changes alone in achieving a Minimum Income Guarantee would not lead to optimal outcomes. The importance of introducing the Tapering of Benefits scheme alongside other ‘Make Work Pay’ policies that addressed costs and access to services was stressed.
• Prior to the 2014 reform, there was limited inter-ministerial interaction. The introduction of these reforms led to radical reform in how Malta approaches social policy reform through a more joined-up approach that brought together various ministries and non-government stakeholders who are critical to the delivery of the policies. There are now monthly meetings of relevant ministries and departments who administer the schemes to assess development and isolate any key issues. Here, an important observation was made that ‘good governance’ lies at the heart of delivering widespread reform that was, initially, not well received. Increasing the effectiveness of their delivery and joining up various objectives and goals has bolstered the efficiency of the schemes and public support for them.
• Part of the success of the Maltese Tapering of Benefits has been the use of technology to simply the system. This was especially important given the time and resource constraints on civil servants, so simplified systems not only benefit recipients but those responsible for delivering the system. Despite some initial challenges, Malta was able to fully automate the system of locating eligible individuals and administering the TOP scheme automatically in 2022. It was, however, stressed that Malta was able to speed up the automation process due to the small number of social security claimants, both in terms of number of individual cases and relative to the overall population – which itself is relatively small compared to other European countries. Overall, what was important, where automation may not be possible, was leveraging technology to manage resources efficiently and maintain the integrity of the social security system.

Poland: ‘Family 500+’ child allowance

Policy overview

Poland’s ‘Family 500+’ child allowance was introduced in 2016 as the centrepiece of a package of policies designed to increase fertility rates and eliminate child poverty. At its introduction, the ‘Family 500+’ benefit provides a non-taxable cash transfer of 500 PLN (around £100) for each second and subsequent child in the family and the same amount for the first child in families with incomes under 800 PLN per family member. At the time of the introduction of the ‘Family 500+’, the benefit has very wide coverage, supporting 2.74 million families, compared to 1.04 million families for standard means-tested benefits.^[131]

The level the benefit was set at is relatively generous – at around a third of Poland’s minimum wage.^[132] However, despite evidence that child-rearing is most costly for lone parents and that the cost of child-rearing increases with a child’s age, the structure of the ‘Family 500+’ benefit does not provide for a higher rate of pay for lone parents, and nor does it scale with age.

Since its introduction, the benefit has undergone two important changes:

In July 2019, this income condition was removed, making the benefit fully universal for households with children. Since July 2019, ‘Family 500+’ has effectively functioned as a non-means tested, unconditional Minimum Income Guarantee for families with children.

From January 2024, the payment level increased from 500 PLN to 800 PLN (an increase from around £100 to £160) – with the policy subsequently rebranded as ‘Family 800+’.

Policy impacts

The rollout of the ‘Family 500+’ benefit has been highly successful in targeting and eliminating child poverty. An analysis conducted by the LIS Cross-National Data Centre found that within just one year of the introduction of the ‘Family 500+’, Poland saw^[133]:

• A sharp decline in overall poverty rates from 14% in 2015 to under 5% in 2017.
• A very large fall in poverty rates for lone parents with 2+ children of around 20 percentage points.
• The near-elimination of extreme child poverty.

Formal difference-in-difference analysis by the LIS Cross-National Data Centre further indicates that:

• Poverty risk (both in terms of objective poverty measurement and subjective financial wellbeing) is 14 percentage points less for households that received the ‘Family 500+’ benefit compared to those that did not.
• Among low-educated households with children, the poverty risk was 20 percentage points lower for those receiving ‘Family 500+’ compared to those who were not.

Although the poverty impact of the policy is substantial, the rollout of the ‘Family 500+’ led to concerns that would-be beneficiaries would reduce their working hours to ensure that their earnings were below the initial income threshold for one-child households. While these concerns appear to have motivated the removal of the one-child income threshold in 2019, formal retrospective analysis indicates that this was not a significant issue.^[134]

However, research by the Institute for Structural Research found that the ‘Family 500+’ has had a significant adverse effect on labour market participation rates among women with children. Difference-in-difference analysis indicates that the introduction of the policy resulted in a 2.4% decrease in labour market participation among women with children, with a particularly strong effect on women with lower education levels and those living in more rural areas.^[135]

Policy evaluation

Overall, the ‘Family 500+’ benefit has been successful in achieving its aim of drastically reducing child poverty in Poland. Not only has it led to the near-elimination of extreme child poverty, but it has also resulted in a substantial reduction in overall child poverty and, therefore, poverty at the population level. However, the programme has proven to be poor value for money with respect to achieving this aim, with one study estimating that extreme child poverty could be eliminated with just 12% of the total funds allocated to the ‘Family 500+’.^[136]

The reduction in child poverty has come at considerable cost to both Poland’s labour market and public finances:

In terms of labour market participation, the lack of work incentive and income threshold has led to around 100,000 women exiting the labour market in the first half of 2017 alone. It has been estimated that the labour force participation and employment of eligible mothers would have been between 2.5 and 3% higher by mid-2017 in the absence of the programme. This stands to negatively impact Poland’s economy and increase the cost of the ‘Family 500+’ programme in the longer term, given lower tax revenues and social security contributions.^[137] However, this reduction in female labour market participation should be understood in the context of increasing fertility rates being a stated aim and thus this outcome was anticipated by the Polish Government, with the policy designed to provide adequate support for mothers to ensure their children did not live in child poverty.

In terms of public finances, Before the 2019 removal of the one-child income thresholds, ‘Family 500+’ cost around 22 billion PLN (approximately 1.1% of GDP) per year. The 2019 extension of the programme is nearly twice as expensive, with an additional cost of 18.3 billion PLN per year. ‘Family 500+’ therefore now accounts for about 2% of GDP.^[138] By April 2023, 223 billion PLN has been spent on the programme since its introduction.^[139]

In addition, there are issues with the universalism of the scheme. It has been estimated that the bottom quintile of households accounts for 42% of the programme’s spending, meaning that the bulk of the money spent on a poverty reduction scheme is given to households who are not at risk of poverty.^[140] To this end, the ‘Family 500+’ may inadvertently increase inequality in the long-term, since higher earning recipients are likely to invest this child benefit in higher quality school and extracurricular education.

There are also additional administrative costs and complications for recipients that result from the creation of a second benefit system that is entirely separate from the main means-tested structure. An early academic assessment of ‘Family 500+’ suggested that there was a case for combining elements of the ‘Family 500+’ programme with pre-existing family benefits into an integrated family benefit as a way to improve the efficiency of the system for both recipients and administrators.^[141]

Interview findings

During our conversation with Polish civil servants, the following key points were stressed:

• The Family 500+ was introduced as Poland lacked a targeted policy to address child poverty and support the Government’s desire to increase the birth rate. It was stressed that although the scheme was not a Minimum Income Scheme in that it was not a last resort benefit, it did provide a minimum level to families with children. On those terms, the policy has been successful in reducing child poverty.
• While academic assessments raised the administrative complications of the ‘Family 500+’ scheme and the effective creation of a two-tier benefit system, civil servants did not recognise this as the case. They stressed that the ‘Family 500+’ has led to a decrease in the number of families with children accessing the Polish social assistance scheme. As a result, the Polish social assistance scheme allows it to more effectively target other demographic groups who are in need. The ‘heavy lifting’ for low-income families with children is now being done via the Family 500+ policy.
• It was acknowledged there has been an impact on women’s participation in the labour market, but despite this a decision has been taken to increase the value of the allowance largely in response to inflation and general economic conditions. This increase ensures that the policy continues to maintain the progress of reducing child poverty, and ultimately, this decision to increase the generosity of the scheme came down to a matter of policy prioritisation.