Unemployment, employment and poverty¹

Although unemployment has been pointed out as one of the greatest risk factors of poverty and social exclusion, there are few comparative studies describing the effects of unemployment on the disposable income of households. This article focuses on unemployment as income poverty risk among working age households, with data based on the Luxembourg Income Study (LIS). It investigates differences in relative poverty rates between those working age households affected and those not affected by unemployment since the early 1980s to the mid-1990s. The study consists of eight OECD countries representing four different social policy models: encompassing model (Nordic countries), the corporatistic earned-benefits-principle model (Germany), the means-tested, targeted social security model (Australia) and the so-called liberal basic security model (UK, USA and Canada). The results classified the countries into three groups. In the encompassing model and Canada, no differences were found in the poverty rates of the working age unemployed and employed households; there was also no indication that this situation was changing. Canada, however, had higher poverty rates among all working age households compared with Nordic countries. The situation in Germany can be characterized as stable polarization: unemployment there was a great poverty risk, but the difference between the unemployed and others was not growing. In all the other countries unemployment constituted a great and growing poverty risk, creating a threat of polarization among working age households. The poverty risk of working age households does not seem to be directly connected to the unemployment rate or the share of long-term unemployment. This article asserts the importance of income transfers in poverty prevention. It also suggests that the significance of women’s paid employment as a poverty-reducing factor deserves further empirical study.