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

Lessons from existing Minimum Income Guarantee-type policies

This chapter brings together the evaluations of the case studies from the previous chapter into common policy lessons to consider before introducing a Minimum Income Guarantee. We have identified seven key policy lessons to consider that are observable across different countries and typologies of Minimum Income Guarantee-type policies. These are summarised in Table 6 as well as explored in greater detail below.

Minimum Income Guarantee schemes are effective at tackling deep poverty, but challenges exist around the impact on ‘shallower’ forms of poverty: Minimum Income Guarantee-type policies have been largely successful in eliminating – or dramatically reducing – extreme or deep poverty. The impact of this should not be downplayed, and significant reductions to deep poverty would be a highly desirable policy outcome that would improve the lived experience for those living in deep poverty. However, there are challenges around how effective Minimum Income Guarantee-type policies have been in tackling ‘shallower’ forms of poverty, especially when these are a stated policy objective. Largely this is a design challenge, both in terms of the level at which social security payments are set, the conditionality regime applied to these, and how well supported people are to access the labour market where it is required of them to enter employment.

Work incentives for those who can work are important: The lack of sufficient work incentives for those who are able and expected to work limits and undermines the impact of the Minimum Income Guarantee on overall poverty. In the absence of work incentives such as job-finding conditions or – in the case of Malta – time-tapered in-work benefits, the introduction of a Minimum Income Guarantee programme can inadvertently result in the creation of a benefits-trap, or can lead to labour market distortions. This is clear to see in the case of Poland and the adverse impact of female labour market participation, but also in France, where the design of the system has created a ‘part-time trap’. Getting the work incentives aspect of a Minimum Income Guarantee right is important for determining the impact of the policy on groups who should benefit the most from a Minimum Income Guarantee, especially in terms of moving people into sustainable, well-paid employment. Importantly, none of the case studies we explored have got this aspect ‘right’, and different approaches have been taken, even within a particular country, to operating work incentives. Many of the future areas of work discussed with civil servants focused on thinking more firmly on how to reform elements of the Minimum Income Guarantee-type scheme that are designed to incentivise work.

Activation within a Minimum Income Guarantee should be understood as not just about labour market activation but broader social inclusion: Across most Minimum Income Guarantee-type policies, the primary purpose is labour market activation, which explains why getting the work incentives of a Minimum Income Guarantee is so important. However, what was also stressed is that taking only an approach to activation that considers labour market reintegration can be detrimental and can overlook addressing important barriers that may prevent an individual entering the workplace. It was clear that a number of countries, mostly within the enabling Minimum Income Guarantee-type schemes but increasingly within other Minimum Income Guarantee typologies, were focusing on the importance of ‘social inclusion’ as a key goal of activation. Indeed, in the case of Belgium – where there are noted challenges around long-term unemployment – social integration was seen as a vital policy goal in its own terms. Moreover, in Spain, where the conditions are the most limited in the countries we surveyed, a policy choice was made to provide a decent minimum level that enabled the most vulnerable in society to integrate without additional burdens. There is clearly a balance to be struck, but combining labour market access with wider, tailored support allows for a Minimum Income Guarantee to address a number of issues in tandem.

Allowing a significant role for local institutions can improve the effectiveness of the Minimum Income Guarantee: The majority of interviews outlined that, while overall direction and policy development of a Minimum Income Guarantee-type policy is done at a national level, the delivery and administration was largely done on a localised basis. This speaks to a wider point around the greater policy role granted to regional and municipal governments across Europe compared to the UK. In particular, this approach allowed for activation and support services to better reflect the needs of the local population and, through this, allow individually tailored support. The Netherlands and Sweden show that granting a high level of autonomy to local actors can lead to very different approaches being taken, but with similar outcomes and challenges. In addition, most of the locally delivered Minimum Income Guarantee-type policies operated a system of building relationships between individuals and one social worker in order to place trust at the heart of the system. In some countries, this was administratively reflected in a reciprocal agreement between the individual and the support services – even in regimes with a high level of conditionality, this still ensured that cooperation and mutual agreement were paramount. Here, the importance is around fostering good governance and wider public support for Minimum Income Guarantee schemes. However, there is an important trade-off in that while decentralised approaches are more effective in delivering services, control over budgets is often still a national-level competence. The case of France’s RSA is a telling example of how leaving local networks underdeveloped by adopting a too rigid, centrally controlled-type system can lead to policy failure on a Minimum Income Guarantee.

Ensuring the Minimum Income Guarantee is effectively targeted can make a difference to success against aims: It is critical that a Minimum Income Guarantee programme is appropriately and effectively targeted. Even if a Minimum Income Guarantee is not specifically categorised as a ‘targeted Minimum Income Guarantee-type policy’, it is still imperative that specific at-risk populations are kept in mind as the policy is designed. Part of getting this right is the importance of conducting a thorough scoping and evidence review ahead of implementation. In the case of Malta, a pre-implementation assessment was carried out to identify the groups who would benefit most from the TOB scheme, leading to an effective and cost-efficient rollout that resulted in a large increase in employment – and a corresponding reduction in poverty – among the targeted populations of long-term unemployed people and single parents. By contrast, Poland’s ‘Family 500+’ programme has proven to be a highly inefficient tool for achieving its stated objective of eliminating child poverty. Although it is important to emphasise that the ‘Family 500+’ scheme has had substantial positive effects beyond this stated target, the disconnect between the scheme’s target and its implementation has resulted in a perception of wastefulness and inefficiency among both academics and Poland’s voting population.

Success is contingent on the level of take-up: All case studies show that the poverty impact of a Minimum Income Guarantee is also contingent on the rate of take-up. This was especially pronounced in the Dutch case, where the Minimum Income Guarantee-type policy’s generosity did not cut through to a significant reduction in poverty due to a lack of take-up amongst those groups closest to the poverty line. The Spanish case indicates that take-up rates among families in extreme poverty are not likely to be an issue since their level of need is so great that these people are highly motivated to ensure their access to the scheme. However, the Spanish case also indicates that the existence (real or perceived) of administrative barriers to entry is likely to have a substantial effect on families living in non-extreme poverty and shows how even limited conditionality is not a ‘silver bullet’ to high levels of take-up if eligibility criteria are complicated to administer. Therefore, for a Minimum Income Guarantee to achieve maximum impact, it is vital that the state provides support to help people navigate potential barriers to entry and that the state has sufficient administrative capacity in place prior to rollout. By contrast, both the Maltese and Polish cases exemplify the large potential returns of securing high take-up rates. In both cases, a very large proportion of the population signed up for these respective schemes, contributing to a more substantial impact on the overall poverty rate than the Spanish IMV.

The economic climate a Minimum Income Guarantee is operating in should be considered: The role of wider economic conditions in determining the effectiveness of a Minimum Income Guarantee programme cannot be understated. In the case of Malta, experts broadly agree that the efficacy of the TOB scheme was bolstered by the favourable economic conditions that existed during its implementation period. The work-incentivising effect of the TOB was supported and reinforced by the incentivising effects of a buoyant labour market and wage growth. By contrast, the implementation of the Spanish IMV appears to have been hindered by a weak labour market and stagnating wages, further reinforcing the lack of work incentives within the IMV. This is not to say that a Minimum Income Guarantee cannot be implemented within less favourable conditions but to recognise the importance of how a Minimum Income Guarantee, through its implementation phase, can mitigate some of these challenging conditions. Moreover, the case of France and the Netherlands highlights the importance of ensuring that any scheme with a keen focus on supporting labour market access for those who are able to work must be matched with a simultaneous focus on reforming the type of work people have access to.