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In-Work Poverty in the US, the UK, Germany, & Switzerland

In-work poverty is of special interest in the United States, where it has been remarkably common since the mid-1970s, as I discussed last week. While the proportion of employed white men and women in relative poverty ranged between nine and ten percent since the 1980s, in-work poverty rates fluctuated between 17 and 30 percent for Black and Hispanic men and women. However, in-work poverty is not only a concern in the US, but across many European countries and beyond. Factors associated with in-work poverty, such as economic restructuring, the decline of the manufacturing sector, technological change, the polarisation of skills and job opportunities, are problems that most high-income industrialised societies have been dealing with since the mid-1970s.


How do in-work poverty rates vary across countries and over time? Figures 1a and 1b show the proportion of employed men and women, respectively, that live in impoverished households. Employment was defined as working a minimum of 20 hours a week averaged across the previous year. Individuals were considered to live in relative poverty if their disposable income following taxes and government transfers were below 60 percent of the national median for that year. Household incomes were equivalized to account for the higher needs of additional household members, such as spouses or children. The basic idea of relative poverty is that individuals within relatively poor households are at risk of social exclusion and may not have the economic resources to participate in daily activities that are customary in their society. I used data from four studies that participate in the Cross-National Equivalent File (CNEF): the United States (PSID), the United Kingdom (BHPS), Germany (SOEP), and Switzerland (SHP).


Figure 1a: The Proportion of Men in In-Work Poverty over Time in the US, UK, Germany, and Switzerland


Proportions and 95 percent confidence intervals using a local polynomial smoothing function displayed. Data weighted.

Figure 1b: The Proportion of Women in In-Work Poverty over Time in the US, UK, Germany, and Switzerland


Proportions and 95 percent confidence intervals using a local polynomial smoothing function displayed. Data weighted.

For both men and women, and across all observed years, the proportion of employed persons living in poverty was considerably higher in the US than in the UK, German, and Switzerland. Between 1985 and 2015, roughly 15 percent of US working men and 20 percent of US working women managed with household incomes under the relative poverty threshold. These rates fluctuated only to a minor degree, with the exception of a spike between 1994 and 2000, especially among women. In-work poverty rates were the lowest for German men and women. In-work poverty rates for German women hovered around 6 percent and between 6 and 7 percent for German men. Moreover, in-work poverty rates were more stable in Germany, with the exception of a small increase among both men and women around the time of the reunification of East and West Germany (ca. 1991). Switzerland and the UK ranged between the US and Germany. However, in-work poverty rates were substantially lower for UK and Swiss women than for UK and Swiss men. For example, UK women had in-work poverty rates only slightly higher to German women in the late 1990s and early 2000s (6 to 7 percent). In contrast, in-work poverty rates between 2005 and 2015 were twice as high for UK and Swiss men compared to German men.


Comparing the prevalence of in-work poverty across historical time may mask important differences across individuals’ lives. So, how does the probability of in-work poverty vary as men and women grow older? I used the same data as above to plot the proportion of working US, UK, German, and Swiss men and women living in relative poverty between age 18 to 65 in Figures 2a and 2b. The figures demonstrate clearly that the risk of belonging to the working poor varied starkly across the life course. At age 18, 70 percent of US working men and 60 percent of US working women lived in impoverished households. However, the proportion of employed individuals living in relatively poor households decreased quickly to roughly 20 percent by age 30. By age 65, only 10 percent of employed men and women in the US were working poor.


Figure 2a: The Proportion of Men in In-Work Poverty over Age in the US, UK, Germany, and Switzerland


Proportions and 95 percent confidence intervals using a local polynomial smoothing function displayed. Data weighted.

Figure 2b: The Proportion of Women in In-Work Poverty over Age in the US, UK, Germany, and Switzerland


Proportions and 95 percent confidence intervals using a local polynomial smoothing function displayed. Data weighted.

Cross-national differences in the risk of in-work poverty are less clear cut by age compared to by historical time. Generally, the US did have the highest in-work poverty rates across all age groups. The differences between the US and the other three European countries were largest between age 20 and 35 for men and between 20 and 55 for women. In contrast to above, in-work poverty rates in Germany for men and women around age 18 were as high as for US men and women. The proportion of young working men and women living in poverty were at least 20 percentage points lower in the UK and Switzerland. Around age 30 there were no significant differences between UK, Swiss, and German men and women, but in-work poverty rates began to increase around age 35 for UK and especially for Swiss men. In Germany, the risk of in-work poverty continued to decrease as individuals grew older, reaching levels well into the single digits.


There are a number of differences between the US, UK, Germany, and Switzerland that could explain the cross-national variation across time and by age that I observed. One difference might emerge from the composition of the labour market, i.e. who is active on the labour market. Compared to Germany and Switzerland, female participation rates are very high in the US. Although it’s common for US mothers to return to work within a few months after entering parenthood, many German women will spend up to three years on leave with their children. The structure of the labour market may also play a role. The US and UK labour markets are also less regulated than German and Swiss labour markets. Especially German men in the manufacturing sector enjoy high levels of employment protection and high wages, in part due to very strong unions. For now, I’ll leave you to speculate more or search on Google Scholar until my next post on in-work poverty.


Notes:

This is part of joint work with Emanuela Struffolino within the remit of our Oxford-Berlin Research Partnership project on “Understanding Family Demographic Transitions and In-Work Poverty in Europe”. Replication files can be found here.

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