The impact of unemployment on inequality and poverty in OECD countries

Economics of Transition Volume 9 (2) 2001, 417–447

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Rosa Martínez,* Luis Ayala** and Jesús Ruiz-Huerta*** *Área de Economía y Hacienda Pública, Facultad de Ciencias Jurídicas y Sociales, Universidad Rey Juan Carlos, Paseo Artilleros, s/n 28032 Madrid, Spain. E-mail: [email protected] **Facultad de Ciencias Sociales, Universidad de Castilla-La Mancha, Avenida de los Alfares, 44, 16002 Cuenca, Spain. E-mail: [email protected] ***Departamento de Economía Aplicada IV, Facultad de Derecho, Universidad Complutense,Ciudad Universitaria s/n28040 Madrid,Spain. E-mail:[email protected]

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Table 1. Sources of data used in the international comparisons

Country / Years Survey Title

Australia (1981, 1985, 1989, 1994) Australian Income and Housing Survey Belgium (1985, 1988, 1992) Panel Survey of the Centre for Social Policy Canada (1981, 1987, 1991, 1994) Survey of Consumer Finances Denmark (1987,1992) Income Tax Survey France (1979, 1984) French Survey of Income from the Income Tax France (1984, 1989, 1994) Family Budget Survey Germany (1978, 1983) Income and Consumer Survey (EVS) Germany (1984, 1989, 1994) German Social Economic Panel Study (GSOEP) Netherlands (1983,1987) Additional Enquiry on the Use of (Public) Services

(AVO) Netherlands (1991) Socio-Economic Panel Spain (1980/81, 1990/91) Family Budget Survey Spain (1990 and 1995)1 Current Family Budget Survey United Kingdom (1979, 1986, 1991, 1995)

Family Expenditure Survey

United States (1979, 1986, 1991, 1994, 1997)

March Current Population Survey

Notes: 1) Spanish data for 1990 and 1995 are not included in the LIS database. Source: http://lisweb.ceps.lu/techdoc/datasets.htm.

5 Nevertheless, substantial differences persist in some countries between the unemployment rates obtained

from the microdata and those offered by the OECD (standardized unemployment). This was the reason for the exclusion of the Italian data. Italian unemployment rates from LIS data are substantially higher than those published by the OECD (13.5 per cent compared with 9.9 per cent and 16.2 per cent compared with 12.0 per cent in 1986 and 1995, respectively).


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Table 2. Population unemployment, inequality and poverty in selected OECD countries (Gini and poverty indices based on adult equivalent disposable income)

Poverty Indices 2 Country Year Unemployment Rate

Gini Index Threshold=40%

of mean Threshold=50%

of mean Australia 1981

1985 1989 1994

5.7 8.1 6.1 9.7

0.2825 0.2937 0.3054 0.3148

8.1 8.3 9.5 9.9

15.4 16.3 16.9 19.3

Belgium 1985 1988 1992

12.3 10.3 10.3

0.2279 0.2352 0.2300

2.6 2.7 3.3

6.2 6.6 7.8

Canada 1981 1987 1991 1994

7.6 8.8

10.4 10.4

0.2858 0.2834 0.2850 0.2852

9.2 8.5 8.5 8.5

15.4 14.4 14.4 14.4

Denmark 1987 1992

7.7 11.0

0.2567 0.2399

4.8 4.4

12.1 8.7

France 1979 1984_ 1984 1989 1994

5.8 9.7 9.7 9.3

12.2

0.2967 0.2954_ 0.3032 0.2925 0.2896

6.7 5.9_ 9.6 7.2 6.2

12.7 11.8_ 14.4 12.4 12.8

Germany 1978 1983_ 1984 1989 1994

3.5 7.9 7.9 6.9 9.6

0.2659 0.2607_ 0.2498 0.2484 0.2549

4.7 4.0_ 4.1 4.2 5.0

9.6 9.4_ 8.8 8.5 9.6

Netherlands

1983 1987_ 1991

11.0 8.0 5.5

0.2823 0.2580 0.2716

5.9 4.2_ 5.0

8.5 6.7_ 9.1

Spain 1 1980/81 1990/91_

1990 1995

12.2 16.5 15.7 22.7

0.3207 0.3062 0.2982 0.2996

10.2 8.1 7.3 7.5

18.1 15.8 14.5 15.1

United Kingdom

1979 1986 1991 1995

5.0 11.8

8.2 8.6

0.2701 0.3039 0.3404 0.3463

5.7 6.4

12.4 11.5

13.4 14.8 22.3 22.0

United States

1979 1986 1991 1994 1997

5.8 7.0 6.8 6.1 4.9

0.3042 0.3365 0.3372 0.3575 0.3754

12.1 15.4 14.8 16.0 16.0

18.4 21.8 21.9 23.6 24.6

Source: The data used for unemployment come from OECD (1999). The rest of the data are authors’ calculations from LIS micro-data and Continuous Family Budget Survey 1990 and 1995 for Spain. Notes: 1) The unemployment rates shown for Spain are weighted averages of the unemployment rates during the two years each survey was carried out (1980/81 and 1990/91 Family Budget Surveys were carried out between 1 April of one year and 31 April of the following year); 2) The poverty indices indicate the percentage of individuals in households whose equivalent disposable incomes (E=0.5) are below 40% (first column) and 50% (second column) of average disposable income. (_) Methodological change.


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3.2 The distribution of unemployment by income levels

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Figure 1. Distribution by income quintiles of the unemployed population

Source: Authors’ calculations from LIS micro-data.

Figure 2. Distribution by income quintiles of the population living in households headed by an unemployed person



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Figure 4. Composition of the bottom equivalent income quintile (%) (Labour force status of the household head)


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4.1 The effect of unemployment on households

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Table 3. Percentage distribution of unemployment within the household

Household role Country Year % Households with

unemployed head

Head Spouse Other

Australia 1985 1989 1994

3.6 3.7 5.1 5.3

38.1 42.4 45.4

22.4 21.7 15.5

39.5 35.9 39.1

Belgium 1988 1992

5.5 5.2 4.3

36.5 34.0

36.9 43.8

26.6 22.2

Canada 1987 1991 1994

4.7 8.0 6.6

40.9 50.4 50.0

26.3 18.6 21.4

32.8 31.0 28.6

Denmark 1987 1992

3.8 6.9

53.1 58.2

39.6 33.3

7.3 8.5

France 1989 1994

5.6 5.7

48.5 43.1

34.3 33.9

17.2 23.0

Germany 1984 1989

3.9 2.4

50.1 51.2

31.2 32.1

18.7 16.7

Netherlands 1991 1.9 73.6 13.9 12.5

Spain 1980 1990

5.1 5.5

32.1 27.7

3.8 18.2

64.1 54.3

United Kingdom

1991 1995

5.0 5.0

51.5 51.7

15.3 18.5

33.2 29.8

United States 1986 1991 1994 1997

3.4 4.5 3.1 2.7

41.8 46.2 42.4 39.2

19.9 17.8 17.0 18.4

38.3 36.0 40.6 42.4

Source: Own research with LIS micro-data.

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Table 4. Overall population poverty indices and poverty indices of all persons who living in households with an unemployed head

Threshold = 40% of mean adult equivalent disposable income

Threshold = 50% of adult equivalent disposable income

Country Year

All Households

Unemployed Head

All Households

Unemployed Head

Australia 1981 1985 1989 1994

8.1 8.3 9.5 9.9

29.2 24.8 33.2 27.3

15.4 16.3 16.9 19.3

44.6 47.9 50.2 48.4

Belgium 1985 1988 1992

2.6 2.7 3.3

6.4 6.0 5.9

6.2 6.6 7.8

23.7 27.8 34.2

Canada 1987 1991 1994

8.5 8.5 8.5

27.1 16.8 23.0

14.4 14.4 14.5

38.6 26.4 36.0

Denmark 1987 1992

4.8 4.4

6.4 5.1

12.1 8.7

11.0 12.0

France 1989 1994

7.2 6.2

18.5 26.6

12.4 12.8

34.3 44.2

Germany 1984 1989

4.1 4.2

19.5 18.2

8.8 8.5

35.4 36.0

Netherlands 1991 5.0 22.3 9.1 40.6 Spain 1980/81

1990/91 10.2 8.1

24.7 25.5

18.1 15.8

41.7 39.5

United Kingdom

1991 1995

12.4 11.5

53.4 41.3

22.3 22.0

68.2 62.9

United States

1986 1991 1994 1997

15.4 14.8 16.0 16.0

35.3 30.9 38.2 40.6

21.8 21.9 23.6 24.6

46.5 39.3 48.3 51.7


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0

10

20

30

40

50

60

70

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T50

Figure 5. Poverty indices of the population living in households with an unemployed head (%)


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Table 5. Receipt of different kinds of social protection benefits to households with an unemployed head

% Households receiving benefit

Benefit as a % of disposable adult equivalent

income

Country Year % Households with an

unemployed head CUB IS SB CUB IS SB

Australia 1981 1985 1989 1994

3.6 3.7 5.1 5.3

58.5 61.4 49.8 66.3

N/A N/A

18.9 12.4

83.4 87.2 78.1 84.9

19.2 25.5 18.0 25.7

N/A N/A

5.5 4.1

28.7 38.1 30.4 43.6

Belgium 1985 1988 1992

5.5 5.2 4.3

93.2 96.4 90.6

7.6 10.6 5.1

98.0 99.6 96.4

58.5 59.3 64.1

1.1 1.2 1.8

76.6 79.5 85.1

Canada 1981 1987 1994

4.7 8.0 6.6

59.8 64.7 53.3

48.2 45.8 33.5

94.8 96.7 95.5

14.3 16.6 14.9

6.4 5.7 9.9

23.6 27.8 31.8

Denmark 1987 1992

3.8 6.9

74.7 77.3

38.7 44.5

94.9 99.2

35.3 50.0

32.0 11.2

74.0 71.0

France 1989 1994

5.6 5.7

77.7 72.3

35.1 62.1

92.1 95.7

48.1 30.0

5.7 11.3

70.3 53.9

Germany 1984 1989

3.9 2.4

45.8 33.4

48.6 41.3

90.0 84.2

11.8 9.5

17.8 13.8

39.3 33.6

Netherlands 1991 1.9 28.0 70.1 90.6 19.1 39.6 69.4 Spain 1980

1990 5.1 5.5

N/A 70.7

N/A 7.7

65.1 78.6

N/A 25.9

N/A 3.6

42.3 35.6

United Kingdom

1991 1995

5.0 5.0

21.0 11.6

72.5 76.1

92.7 91.2

6.3 3.5

41.9 49.2

58.2 65.7

United States 1986 1991 1994 1997

3.4 4.5 3.1 2.7

35.1 42.5 32.2 25.1

35.6 31.2 38.0 56.6

66.0 71.1 72.1 73.6

3.9 6.4 4.3 3.1

7.2 5.0 6.7 8.1

14.8 15.3 16.7 15.4

Notes: CUB= Contributory unemployment benefit; IS= Income support (of any type); SB= Social benefits (contributory or not); N/A= Data not available. Source: Authors’ calculations from LIS micro-data.

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Table 6. Poverty indices of the population living in households headed by an unemployed ‘before’ and ‘after’ social protection cash benefits

Poverty Threshold = 40% of mean adult equivalent disposable income

Poverty Threshold = 50% of mean adult equivalent disposable income

Country/ Year

Poverty

‘before’

Poverty ‘after’

%

reduction

Poverty ‘before’

Poverty ‘after’

%

reduction

Australia (1994)

64.1

27.3

57.4

68.7

48.4

29.5

Belgium (1992)

85.6

5.9

93.1

86.9

34.2

60.6

Canada (1994)

44.4

23.0

48.2

51.7

36.0

30.4

Denmark (1992)

57.8

5.1

91.2

64.6

12.0

81.4

France (1994)

59.9

26.6

55.6

67.1

44.2

34.1

Germany (1989)

44.2

18.2

58.8

48.5

36.0

25.8

Netherlands (1991)

74.0

22.3

69.9

74.6

40.6

45.6

Spain (1990/91)

44.0

25.5

42.0

50.5

39.5

21.8

U. Kingdom (1995)

81.0

41.3

49.0

84.1

62.9

25.2

U. States (1997)

46.9

40.6

13.4

55.8

51.7

7.3

Notes: To obtain the poverty index ‘without benefits’, benefits were subtracted from disposable income and new poverty thresholds and poverty rates were calculated. The latter correspond to income distribution before benefit payments. Source: Authors’ calculations from LIS micro-data.


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Table 7. Relative contributions to poverty according to the employment status of the head of household (poverty threshold = 40% of mean adult equivalent income)

Country/Year Employed Unemployed Inactive Total Poverty rate Australia 1994 34.41

(70.8)2 15.7 (5.7)

49.9 (23.5)

100 (100)

9.9

Belgium 1992 26.6 (71.5)

7.6 (4.3)

65.8 (24.2)

100 (100)

3.3

Canada 1994 33.0 (68.0)

18.3 (6.7)

48.7 (25.3)

100 (100)

8.5

Denmark 1992 39.9 (67.0)

7.6 (2.6)

52.5 (30.4)

100 (100)

4.4

France 1994 32.4 (66.7)

26.1 (6.1)

41.5 (27.1)

100 (100)

6.2

Germany 1989 22.0 (67.0)

11.11 (2.6)

66.8 (30.4)

100 (100)

4.2

Netherlands 1991 46.0 (68.9)

7.1 (1.6)

46.9 (29.5)

100 (100)

5.0

Spain 1990/91 40.6 (66.7)

18.9 (6.0)

40.5 (27.3)

100 (100)

8.1

U. Kingdom 1995 38.8 (69.5)

19.9 (5.5)

41.3 (24.9)

100 (100)

11.5

U. States 1997 46.2 (73.7)

7.8 (3.1)

46.0 (23.2)

100 (100)

16.0

Notes: 1) relative contribution to poverty; 2) population share. Source: Authors’ calculations from LIS micro-data.


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8

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12

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BE 92 GE 89 DK 92 NL 91 FR 94 SP 90 CN 94 AU 94 UK 95 US 97

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Figure 6. Absolute contribution to poverty according to the employment situation of the head of the household

Note: I: Inactive; U: Unemployed; E: Employed. Source: Authors’ calculations from LIS micro-data.

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Table 8. Relative population, relative income and inequality by the employment status of the head of household

Country/Year

Employment Status

Relative population. Persons

(%)

Relative Income1

Inequality T1

Australia 1994

Employed Unemployed Inactive Total

70.8 5.7 23.5

100.0

1.145 0.59.1 0.663 1.00

0.12935 0.16166 0.19719 0.16886

Belgium 1992


71.5 4.3 24.2

100.0

1.083 0.615 0.824 1.000

0.06788 0.06453 0.12938 0.09013

Canada 1994


68.0 6.7 25.3

100.0

1.110 0.717 0.780 1.000

0.11494 0.15831 0.14735 0.13703

Denmark 1992


67.0 2.6 30.4

100.0

1.123 0.813 0.712 1.000

0.08823 0.07223 0.11672 0.11026

France 1994


66.7 6.1 27.1

100.0

1.072 0.666 0.899 1.000

0.14039 0.20341 0.15215 0.15288

Germany 1989


67.0 2.6 30.4

100.0

1.090 0.728 0.825 1.000

0.10182 0.13093 0.11513 0.11430

Netherlands 1991


68.9 1.6 29.5

100.0

1.074 0.693 0.844 1.000

0.12670 0.18175 0.17150 0.14495

Spain 1990/91


66.7 6.0 27.3

100.0

1.076 0.714 0.878 1.000

0.15171 0.21000 0.17317 0.16606

United Kingdom 1995


69.5 5.5 24.9

100.0

1.150 0.505 0.691 1.000

0.19182 0.13009 0.16469 0.21451

United States 1997


73.7 3.1 23.2

100.0

1.101 0.633 0.728 1.000

0.23205 0.27571 0.28410 0.25717

Notes: 1) Ratio of the group mean to the population mean standardized. Source: Authors’ calculations from LIS micro-data.


Table 9. Decomposition of inequality according to the employment status of the head of household (%) (adult equivalent household disposable income, person weighted)

Inequality within groups (%)

Country/Year Employed

Un-employed

Inactive Total

Inequality between groups

(%)

Total inequality

(%)

(T1)

Australia 1994

62.1 3.2 18.2 83.5 16.5 100.0 (0.16886)

Belgium 1992 58.3 1.9 28.7 88.8 11.2 100.0 (0.09013)

Canada 1994 63.3 5.6 21.2 90.1 9.9 100.0 (0.13703)

Denmark 1992

61.5 3.5 18.9 83.9 16.1 100.0 (0.11026)

France 1994 65.7 5.4 24.3 95.4 4.6 100.0 (0.15288)

Germany 1989

65.1 2.2 25.3 92.5 7.5 100.0 (0.11430)

Netherlands 1991

64.7 1.4 29.4 95.5 4.5 100.0 (0.14494)

Spain 1990/91

65.6 5.4 25.0 96.0 4.0 100.0 (0.16606)

UK 1995 71.5 1.7 13.2 86.4 13.6 100.0 (0.21452)

US 1997 73.2 2.1 18.6 94.0 6.0 100.0 (0.25717)

Note: Countries ordered from lowest to highest level of inequality according to T1 (index between brackets in the last column). Source: Authors’ calculations from LIS micro-data.

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Figure 7. Decomposition of inequality by employment situation of the head of the household (Inequality Index = T1)


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The impact of unemployment on inequality and poverty in OECD countries

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