Social transfers targeting children: the best way to fight child poverty?
Elena Bárcena, M. Carmen Blanco and Salvador Pérez, Universidad de Málaga
Statistical data from the European Union on income and living conditions (EU-SILC) show that, in two very di?erent economic contexts (2012, at the height of crisis, and 2016, in the recovery phase), concentrating transfers specifically on targeting children is more e?ective than channelling them towards the entire population based on income.
1. Child poverty during the Great Recession
Reducing child poverty constitutes one of the major challenges facing societies that aim to achieve greater levels of integration, cohesion and present and future economic effciency. Shortages suffered in childhood have consequences that go beyond this life stage: children who grow up in poor households show worse academic outcomes and, subsequently, lower income levels and worse health than children who grow up in households that do not suffer financial hardships. Ultimately, child poverty means that inequality is maintained and it turns out to be economically ineffcient for the whole of society.
During the crisis, the growth in child poverty in Spain was stronger – and its subsequent reduction is proving to be weaker – than in Portugal
It is considered that children are at risk of poverty when they live in a household whose income, once social transfers have been taken into account, is below 60% of the country’s median income. Using this criterion, in the year 2017, some 28.3% of children in Spain and 20.7% of those in Portugal were at risk of poverty (Eurostat, 2017). For Spain this figure represents an increase of one percentage point with respect to the year 2008, prior to the economic crisis. In contrast, in Portugal the risk of child poverty has fallen by over two points with respect to that registered in 2008 (figure 1).
Although the evolution of the poverty risk since 2008 has been similar in both countries, with a peak in 2014 followed by a gradual reduction until 2017, in the case of Spain the growth in child poverty during the crisis was more pronounced and its subsequent reduction is proving to be lower.
Spain and Portugal are two of the countries that are least reducing the childhood poverty risk rate through transfers (22%); this reduction was lower in 2016 than in 2012 in both countries
The risk of child poverty has been linked to unemployment levels, as children predominantly live in households where income is obtained from working. However, it is notable that, despite the improvement in employment as a consequence of the economic recovery, the risk of child poverty remains higher than the levels prior to the crisis. This fact suggests that, to understand the phenomenon of child poverty, rather than the unemployment rate in itself, we must take into account other aspects of the labour market such as the number of hours worked or the average salary.
In any event, one of the main ways that countries have to alleviate situations of poverty in general and child poverty in particular are social transfers.
2. Target the population based on income or focus on children?
To understand the impact of social transfers on child poverty it is important to take into account both the total expenditure and the distribution of spending by type (whether its destination is children, retirement, unemployment, survival, social exclusion, etc.) and whether it is more or less conditioned to the income level of receivers.
In Spain, total spending on cash transfers (unemployment, retirement, survival, illness, invalidity, study grants, family and child benefits, social exclusion, housing benefits) stood lower in 2016 than the European average: 1.3 percentage points lower (figure 2); however, the divide with respect to the EU has reduced since the year 2008, fundamentally as a consequence of the increase in unemployment benefits and subsidies.
Spain and Portugal, both with expenditure on family and child welfare very much below the European average, are two of the European countries that are least reducing the child poverty risk rate through transfers (figure 3). These reductions were greater in 2012 than in 2016, which reflects the special importance of the cushioning effect of the transfers during the severe recession experienced by both countries.
The European countries that are most reducing the risk of child poverty thanks to social transfers are Austria, Denmark, Sweden and Germany. Unlike Spain and Portugal, these are countries with high levels of social expenditure and with child protection systems based on universal transfers. These types of transfers, such as the benefit paid out per child in Sweden, are a subjective right of the entire population. They are paid on the basis of having a child or minor in one’s care, and people are beneficiaries regardless of their individual or family income. In general, the amounts paid by these universal systems are usually more generous than those conditioned to income, and because a broader population benefits from them, they attract considerable social support and, therefore, face less risks of suffering cuts in periods of austerity.
In any case, Spain’s and Portugal’s expenditure on family and child welfare is much lower than the European average. Despite a slight recovery following the worst years of the crisis, investment in this area represents 0.8% of GDP in Portugal, barely half the average European investment. As for Spain, investment in this area is even lower: around 0.5% of GDP, the lowest percentage in the European Union.
In Spain barely 3.3% of the total of social transfers in the year 2016 were allocated to childhood, against a European average of 9%
In relative terms with regard to total transfers, Spain is situated among the five European countries in which transfers targeting children represent a lower percentage (figure 4): barely 3.3% of the total in the year 2016, versus the European average of 9%. As a consequence of the crisis, the percentage of transfers targeting families and children with respect to the total fell in 2012, subsequently recovering towards 2016. In Portugal, this percentage was 4.5% both in 2012 and in 2016. This highlights two facts: firstly, that there has been no backing of a robust policy of family and child transfers, neither in times of prosperity nor in times of crisis. Secondly, that those transfers respond worse than other types of transfers to the cyclical fluctuations of economic activity, in particular of transfers for unemployment. In other words, while transfers for unemployment automatically increase enormously at times of crisis, the same does not happen with transfers for families and children, which have a much smaller and slower response to the economic situation because they are awarded on the basis of the previous year’s income.
Within this context of limitation of resources, it is very important to know who they should be targeted towards and how it is most efficient to invest them. In this sense, Bárcena-Martín et al. (2018) have evaluated the impact of family transfers in a more detailed way based on data on income and living conditions in the European Union (EU-SILC). Their analysis leaves no room for doubt: concentrating social transfers on children is more effective in fighting child poverty than channelling them in a more generic way towards the entire population based on income.
Both alternatives reduce the child poverty risk rate, but transfers conditioned to income do so to a lesser extent. Specifically, if we redistribute social transfers, increasing by one percentage point spending on transfers exclusively conditioned by income, the probability of a child being at risk of poverty falls by between 2 and 2.3%. In contrast, if we increase by that same percentage point our spending targeting children, that same probability falls by between 5.7% and 6.5%, in other words, approximately three times more. These differences are maintained for both 2012 and 2016 alike.
However, timing variations are definitely important when employment is taken into account. Thus, it is observed that in 2012 a country’s level of employment was largely related with the child poverty risk. In contrast, by 2016 the employment situation in itself had ceased to be a fundamental explanatory aspect of child poverty. This difference indicates that, in contexts of labour precarity, and high levels of seasonality and part- time working, like those that characterise numerous European countries at present, household employment and child poverty do not seem to maintain a strong correspondence. In other words, the important thing is not so much whether people work or not, but how much they work and in what conditions.
Concentrating social transfers on childhood contributes towards reducing the risk of child poverty approximately three times more than if these resources are channelled through transfers conditioned to income levels of the whole population
In any case, it is important to take into account the limitations of this analysis, since it does not consider other variables such as benefits such as tax allowances based on number of children, which in the case of Spain do exist and which especially benefit the middle classes.
Child poverty is a problem that, in countries such as Spain and Portugal, transcends the economic cycle. Child poverty risk rates were already high before the economic crisis in these two countries, then worsened during it and even today have not returned to pre crisis levels. The evidence suggests that transfers targeting children constitute a better public policy option for fighting child poverty than generic transfers conditioned by income.
BÁRCENA-MARTÍN, E., M.C. BLANCO-ARANA and S. PÉREZ-MORENO (2018): «Social transfers and child poverty in European countries: propoor targeting or pro-child targeting?», Journal of Social Policy, 47(4).
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