“The primary achievement of the welfare state is the extent to which the incidence of poverty is reduced” (Buti et al, 1999). It is poverty reduction which draws on most support among economists, social scientists, politicians and the public in general for shoulder-bearing the welfare state. With state provision, European Union Member States have reduced poverty to levels otherwise not attainable. The Dublin European Council in 1984 officially defined poverty as “those persons, families and groups of persons whose resources (material, cultural and social) are so limited as to exclude them from the minimum acceptable way of life in the Member State to which they belong.”
Eurostat, the EU’s statistical office, classifies as at-risk-of-poverty those persons within households whose income falls below the 60 per cent of the national median equivalised disposable income. There are however three shortcomings in using income as a yardstick of poverty measurement: i) the level of income of ‘poor’ households can be petty only for a short period of time; ii) no account is taken of the stock of wealth or savings; and iii) income disparities between countries can prove to be a hurdle for cross-section analysis.
On the other hand there are researchers such as Eisenstadt and Ahimer (1985) who interpret the welfare state as an attempt to influence distribution rather than to eradicate poverty. History shows that western welfare had an egalitarian aim and inspiration. Nonetheless, there are arguments in favour of viewing poverty as inequality; though as argued by Sen (1981) this would be misleading since, though related, neither concept subsumes the other. “Inequality is concerned not with the absolute living standard of the poor, but with the differences between income groups” (Barr, 2004). Economists maintain that the most common tool for measuring income inequality is the Lorenz curve. The Lorenz curve simply describes the cumulative (disposable) income mapped against the cumulative population. Normally the distribution forms a concave curve under the line of perfect equality.
The transfer of income from a high-income to a low-income earner will reduce inequality but not necessary poverty. To lessen inequality there is no need to expand the county’s resources as would be necessary to mitigate poverty. The redistribution of market income to disposable income can re-balance the final holding of resources. Thus, inequality can be an argument to substantiate the prevalence of poverty without making the two concepts identical. Inequality can be vertical or horizontal. Vertical inequality distinguishes between people who have the same needs but are of a different class whereas horizontal inequality compares people in different categories, like single mothers, old people and the unemployed.
In the forthcoming article, I will be dealing with the efficiency and effectiveness of European Union Member States in addressing poverty and inequality. Something worth noting is that the welfare state may be a cause in itself for larger shares of pre-transfers poverty. Kim (2000) and Nell (2005) doubt the accuracy of measuring poverty reduction using the ‘standard approach’ – the difference between pre-tax-transfer poverty and post-tax-transfer poverty. Kim argues that welfare models should not take poverty before transfers exogenously; they should preferably be endogenised. In his study about anti-poverty affects of welfare states he [Kim] claims that “countries with more generous welfare systems achieve greater reduction in poverty … are also likely to produce higher levels of pre-tax-transfer poverty.” Nell (2005) substantiates Kim’s argument by questioning the pre-tax-transfer poverty level as there is no doubt that transfers reduce initial poverty levels but it is uncertain whether the same poverty level would be there should transfers be non-existent.
Clyde Caruana is a statistician at the National Statistics Office
