Acta Universitatis Danubius. Œconomica, Vol 14, No 4 (2018)
Business Administration and Business Economics
New European Union Faces to New Poverty Challenge
Romeo-Victor Ionescu1
Abstract: The paper is focused on the analysis of the correlation between economic development and poverty across the EU. The “surprise” is that many Member States face to high poverty and social exclusion rates in 2017 and the forecast are not too optimistic. The analysis in the paper follows more steps: a comparative analysis focused on child poverty rate, a regression analysis able to point out the disparities between Member States and a cluster analysis, as well. In order to obtain a better approach and better conclusions, forecasting procedures are used on short time. Finally, a cross-correlation analysis is used in order to express the compatibility between the poverty’s evolution in each Member States vs EU average. The main conclusion of the paper is that of the impossibility to solve the poverty’s challenge on short and medium terms in EU. Moreover, Member States can define three clusters under this indicator. This is the main reason to continue the present research to a new analysis of the poverty’s challenge in the context of the new EU’s approach.
Keywords: Child poverty rate; social exclusion; regional disparities; cross-correlation analysis.
JEL Classification: R10l; R11; R13
1. Introduction
The 56th session of the intergovernmental body under the UN Economic and Social Council put into attention as 1st goal the eradication of the poverty in all its manifestations over the next 15 years. (United Nations, 2018)
European Union is interested in solving this challenge for its EU citizens, in order to cover the basic needs for the poorest and most vulnerable categories.
As a result, the 5th target of the Europe 2020 Strategy was defined as Poverty and social exclusion and is quantified as at least 20 million fewer people in – or at risk of – poverty/social exclusion. (European Commission, 2010)
Unfortunately, the present EU is pressed by Brexit’s spectrum and is more interesting in its future structure, management and power balance than in poverty’s eradication. This is why some specialists put into discussion the implications of Brexit for the lives of the citizens. (Benson, Collins & O’Reilly, 2018)
Nowadays, EU is not able to eradicate the poverty and social exclusion in its Member States. Moreover, there great disparities between these states.
The paper analyses the disparities related to poverty and social exclusion across the EU and their trend until the beginning of the new financial perspective.
2. Literature Overview
The poverty and social exclusion represent important research themes for the European specialists. The poverty phenomenon became more relevant during the recent global economic crisis. It was followed by recession in many Member States. As a result, some specialists put into discussion the quantifying procedures related to the poverty analysis in the context of Europe 2020 Strategy’s targets. This analysis covered Ireland during 2004-2009 and was focused on risk of poverty, material deprivation and consistent poverty. The main conclusion of the analysis was the necessity of using a number of core and supporting indicators in monitoring social exclusion. (Watson & Maître, 2012)
The poverty phenomenon affects especially the children. An interesting analysis based on UNICEF’s support was focused on child poverty rate. This rate is considered to be the percentage of children living in households with an equivalent income lower than 50% of the national median. The study points out the challenges for all world economies connected to poverty across children and concludes that this problem is far away of being solved. In order to support this pessimistic conclusion, the author shows that USA faces to a high child poverty rate of 23.1%. Moreover, many EU states face to high child poverty rates, too (see Figure 1).
Figure 1. Child poverty rate
Source: Author’s contribution using http://www.unicef-irc.org/publications/pdf/rc10_eng.pdf
Moreover, other developed countries face to high child poverty rates: Norway, Switzerland, Australia, New Zealand, Canada or Japan. (Kinoshita, 2013)
A macroeconomic case study is focused on the individuals living in poverty in the UK. The approach is a pessimistic one because the author considers that the poverty is expected to rise. The analysis puts together poverty, poor health, low educational attainment and employability and reduced life expectancy in order to explain that poverty doesn’t mean only few moneys. On the other hand, the author proposes the Capabilities Approach as relevant measure of poverty. These capabilities represent a sum of specific indicators able to quantify better the poverty. (O’Hare, 2014)
The relationship between material deprivation and relative income poverty across the EU28 countries was analysed in order to quantify the cross-country variation in those at risk of consistent poverty. The analysis in the paper is built on the following items: a correlation analysis able to investigate the relationship between poverty concepts and their measures; an analysis of the poverty identification patterns of the population; and a multivariate regression analysis. The analysis concluded that consistent poverty is highest in the new EU Member States and the EU Southern countries. On the other hand, the poverty intensity depends on the household structure, level of education of the household head and work intensity of the household. (Kis & Gábos, 2015)
A different approach is that related to inequality and poverty across generations in EU. The authors started from the idea that the evolution of inequality within EU countries is mixed. The recent global economic crisis brought new challenges related to poverty. The risk of poverty increased significantly for the young and the working age population, while it declined sharply for the elderly. The market mechanisms and the public policies led to high unemployment rates for young labour and to lower youth incomes and greater risk of youth poverty. On the other hand, the recent public policies regarding the fiscal consolidation were more focused on programs helping the working age population rather than the elderly. And their effects cover poverty, too. The main conclusion of the analysis is that the present EU public policies are not able to solve the poverty’s challenge and is necessary a new economic and social approach. (Chen, Hallaert, Pitt, Qu, Queyranne, Rhee, Anna Shabunina, Vandenbussche & Yackovlev, 2018)
3. Research Methodology
The analysis in the paper uses the latest official statistical data. The first step of the analysis consists of trend and comparative analyses and is based on graphic approach.
They are followed by regression analysis able to point out the disparities between the Member States. The dependent variables are the individual poverty rates, while the independent variable is time. The curve estimation is realized under ANOVA conditions.
The next step of the analysis is a cluster approach. The Member States are grouped into three clusters. The average value of the silhouette will be certified or not the availability of the approach.
In order to point out the trend of the poverty across the EU, forecasting procedures are used. These procedures use as dependent variable the annual poverty rates and as independent variable time. The forecast is realized under ARIMA condition.
Finally, a cross-correlation analysis is realized in order to express the comparative evolution of the indicator in each Member State vs EU average.
4. Poverty’s Challenge for the European Union
As general trend, the poverty and social exclusion rate decreased across the EU28 during 2012-2016. Unfortunately, the latest official statistical data stop in 2016 (see Figure 2).
Figure 2. People at risk of poverty and social exclusion (% total population)
Source: Author’s contribution using European Commission’s data, 2018
Bulgaria (40.4%), Romania (38.8%), Greece (35.6%), Lithuania (30.1%) and Italy (30.0%) faced to the greatest poverty and social exclusion rates in 2016. On the other hand, the people at risk of poverty and social exclusion increased in Estonia, France, Italy, Lithuania, Luxembourg, Netherlands and Romania compared to the previous year.
The global economic crisis had powerfully effect on poverty rate in the EU28. As a result, the top value of the poverty and social exclusion rate was achieved in 2012, at the end of the economic recovery in almost all Member States.
The most integrated EU economies (Germany, France, Belgium, Netherlands and Luxembourg) achieved ones of the lowest rates (between 16.7% and 20.7%).
The gap between the greatest (Bulgaria, 40.4%) and the lowest (Czech Republic, 13.3%) poverty and social exclusion rates was 3.04: 1.
There are great disparities regarding this rate between EU’s economies. The regression leads to the situation presented in Figure 3.
Figure 3. Disparities related to people at risk of poverty and social exclusion (% total population)
Source: Author’s contribution using IBM-SPSS 25
Austria; 2. Belgium: 3. Bulgaria; 4. Croatia; 5. Cyprus; 6. Czech Rep.; 7. Denmark; 8. Estonia; 9. Finland; 10. France; 11. Germany; 12. Greece; 13. Hungary; 14. Ireland; 15. Italy; 16. Latvia; 17. Lithuania; 18. Luxembourg; 19. Malta; 20. Netherlands; 21. Poland; 22. Portugal; 23. Romania; 24. Slovakia; 25. Slovenia; 26. Spain; 27. Sweden; 28. UK
The economic performances regarding this indicator allow dividing the Member States into three clusters. The first one covers countries with poverty and social exclusion rates lower than 20.0% of total population (Austria, Czech Republic, Denmark, Finland, France, Germany, Luxembourg, Netherlands, Slovakia, Slovenia and Sweden). The second cluster is formed from countries with poverty and social exclusion rates between 20.0% and 30.0% (Belgium, Croatia, Cyprus, Estonia, Hungary, Ireland, Latvia, Malta, Poland, Portugal, Spain and UK). The third one is focused on countries with poverty and social exclusion rates up to 30.0% (Bulgaria, Greece, Italy, Lithuania and Romania). The cluster approach is supported by very good (0.8) average silhouette (see Figure 4).
Figure 4. Cluster approach to people at risk of poverty and social exclusion (% total population)
Source: Author’s contribution using IBM-SPSS 25
5. To a better Future?
In order to demonstrate the viability of the EU strategy regarding the poverty’s decreasing, specific forecasting procedures are usefully. EU27 will face to lower poverty rates until 2020. The analysis of EU27 is used in connection to the future Brexit. The forecasted results are presented in Figure 5.
Figure 5. People at risk of poverty and social exclusion’s forecasting (% total population)
Source: author’s contribution using IBM-SPSS 25
According to the above figure, an inflexion point is observed in 2017. Even that the decrease in the poverty rate will become constant during 2017-2020, the obsolete values of the indicator will lead to no better situation at the end of the forecasting period.
The disparities related to this indicator between the Member States in 2016 and at the end of the forecasting period are presented in Table 1.
Table 1. Poverty rates on Member States (% of total population)
Country |
2016 |
2020 |
Evolution |
Austria |
18.0 |
17.8 |
- |
Belgium |
20.7 |
20.9 |
+ |
Bulgaria |
40.4 |
32.5 |
- |
Croatia |
27.9 |
25.4 |
- |
Cyprus |
27.7 |
31.4 |
+ |
Czech Rep. |
13.3 |
12.9 |
- |
Denmark |
16.7 |
16.7 |
|
Estonia |
24.4 |
27.0 |
+ |
Finland |
16.6 |
16.2 |
- |
France |
18.2 |
16.9 |
- |
Germany |
19.7 |
20.3 |
+ |
Greece |
35.6 |
42.4 |
+ |
Hungary |
26.3 |
26.1 |
- |
Ireland |
24.2 |
23.2 |
- |
Italy |
30.0 |
32.0 |
+ |
Latvia |
28.5 |
21.8 |
- |
Lithuania |
30.1 |
24.9 |
- |
Luxembourg |
19.8 |
21.4 |
+ |
Malta |
20.1 |
21.9 |
+ |
Netherlands |
16.7 |
17.8 |
+ |
Poland |
21.9 |
18.5 |
- |
Portugal |
25.1 |
27.5 |
+ |
Romania |
38.8 |
36.1 |
- |
Slovakia |
18.1 |
16.0 |
- |
Slovenia |
18.4 |
19.4 |
+ |
Spain |
27.9 |
30.4 |
+ |
Sweden |
18.3 |
18.8 |
+ |
Only 13 Member States will succeed in decreasing the poverty rates in 2020 compared to 2016, while Denmark will maintain its poverty rate.
On the other hand, the gap between the greatest (Greece, 42.4%) and lowest (Czech Republic, 12.9%) poverty rates will increase to 3.29:1 in 2020.
The cross-correlation analysis points out the connections between each Member State and EU average regarding trends and obsolete values during the analysis period (2010-2020). The resulting data are presented in Tables 2-28.
Tables 2. 28 Poverty rates’s cross correlations (each Member State vs EU)
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According to data from the above tables, the lag’s trend between confidence limits for each Member State vs EU average (related to the analysed period) is presented in Figure 6.
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Figure 6. Lag’s trend between confidence limits (each Member State vs EU)
Source: Authors’ contribution using SPSS software
Cyprus, Estonia, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain and Sweden are better correlated to the EU average’s trend related to the poverty rate, especially during the forecasted period.
On the other hand, Austria, Bulgaria, Malta and Romania will face to lower correlation of the indicator to EU average.
6. Conclusion
Poverty is not a solved challenge for the EU in 2018. There are enough Member States to risk of poverty and social exclusion rates greater than 25% of total population.
The regional disparities related to this indicator are high across the EU. The Northern Member States have better situation than those from South and South-East.
The poverty rate is directly connected to the economic development. The economic development is the key element in defining and implementing the European social policy.
States as Greece, Bulgaria, Romania, Spain and Croatia will face with high poverty rates at least on short and medium terms.
In this context, a future research regarding the EU multi- speeds socio-economic development and poverty will be very usefully.
7. References
Benson, M.; Collins, K. & O’Reilly, K. (2018). What does Brexit mean for UK citizens living in the EU27? Talking about the citizens’ rights agreements with UK citizens across the EU27. London: Goldsmiths.
Chen, T.; Hallaert, J.J.; Pitt, A.; Qu, H.; Queyranne, M.; Rhee, A.; Shabunina, A.; Vandenbussche, J. & Yackovlev, I. (2018). Inequality and Poverty across Generations in the European Union. IMF Staff Discussion Notes, No. 18/01, pp. 1-51.
European Commission (2010). Europe 2020. A strategy for smart, sustainable and inclusive growth. COM (2010) 2020, Brussels, 3.3, pp. 1-37.
European Commission (2018). Poverty and social exclusion in your country. Retrieved from http://ec.europa.eu/eurostat/web/products-eurostat-news/-/WDN-20180402-1?inheritRedirect=true&redirect=%2Feurostat%2F.
Kinoshita, M. (2013). Thinking about children's issues from the perspective of poverty. Retrieved from https://www.childresearch.net/papers/rights/2013_02.html.
Kis, A.B. & Gábos, A. (2015). Consistent poverty across the EU. IMPROVE Discussion Paper No. 15/22, pp. 1-46, Retrieved from file:///E:/Downloads/1449577996wpdm_ImPRovE%20WP%201522_1.pdf.
O’Hare, S.E.M. (2014). Essays on Poverty and Wellbeing. Stirling Management School, Division of Economics, UK, p. 3.
United Nations (2018). Poverty eradication, inclusive growth focus of UN Social Development Commission’s 2018 session. Retrieved from https://www.un.org/sustainabledevelopment/blog/2018/01/poverty-eradication-inclusive-growth-focus-un-social-development-commissions-2018-session/, date: 29.01.2018.
Watson, D. & Maître, B. (2012). Technical Paper on Poverty Indicators. Department of Social Protection: Dublin, Ireland.
http://www.unicef-irc.org/publications/pdf/rc10_eng.pdf.
1. Professor, PhD, Dunarea de Jos University Galati, Faculty of Legal, Social and Political Sciences, Romania, Address: 47 Str. Domnească, Galati, Romania, Tel.: 0336 130 108, Corresponding author: romeo.ionescu@ugal.ro.
AUDŒ, Vol. 14, no. 4, pp. 5-24
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