Inequality, poverty, and material deprivation in new and old members of the European Union

Aim

To analyze the main indicators of income inequality, objective and subjective poverty, material deprivation, and the role of public social transfers in the reduction of poverty in 15 old and 10 new member states of the European Union (EU), undergoing post-communist socio-economic transition, as well as in Croatia, a candidate EU country.

Method

Objective poverty rates, poverty reduction rates, poverty thresholds in purchasing power standards (PPS), total social expenditure, inequality indicators, and risks of poverty according to demographics were calculated using the data from the Eurostat databases (in particular, Household Budget Survey). For Croatia, Central Bureau of Statistics first releases on poverty indicators were used, as well as database of the Ministry of Finance (social expenditure). Subjective poverty rates and non-monetary deprivation index were calculated using the European Quality of Life Survey, which was carried out in 2003 in EU countries and in 2006 in Croatia.

Results

According to the indicators of income inequality and objective poverty, there was a divide among old EU member states (EU15), with UK, Ireland and South European countries having higher and Continental and Nordic countries lower indicators of inequality and poverty. Among new member states (NMS10), Baltic countries and Poland had the highest and Slovenia and the Czech Republic the lowest indicators of inequality and poverty. In all EU15 countries, except Greece, subjective poverty rates were lower than objective ones, whereas in all NMS10 countries the levels of subjective poverty were much higher than those of objective poverty. With some exceptions, NMS10 countries had low or even decreasing social expenditures. The share of respondents who were deprived of more than 50% of items was 6 times higher in the NMS10 than in the EU15 countries. When standard of living was measured by income inequality, relative poverty rates, poverty reduction rates, total social protection expenditures, and non-monetary deprivation, only Slovenia, the Czech Republic, and Hungary, out of the NMS10, were in the upper half of the distribution, while Croatia had a medium position among NMS10 states.

Conclusion

Our analysis demonstrated that poverty in countries undergoing post-socialist socioeconomic transition is widespread and could seriously limit human development. Continual research and monitoring of different aspects of poverty is needed for setting appropriate policies across the EU to effectively combat poverty and social exclusion and to promote convergence process.Poverty exists in all societies, but its magnitude and depth are very different in different countries. There is also a lack of agreement on the scope of poverty within society, which is influenced by the fact that poverty itself is an ambiguous and controversial notion. Poverty is a “social construct” (1,2) and may be defined in an absolute or relative sense. The absolute poverty is commonly defined as the lack of material or financial resources necessary for survival or meeting basic needs, while the relative poverty implies exclusion from a way of life deemed to be minimally decent or acceptable in a society in which someone lives (3-7). Also, we should differentiate between objective and subjective approaches in measuring poverty. The objective poverty approach refers to objective aspects of one’s well-being, most often measured in terms of available resources, such as income and consumption (8). Subjective poverty is the result of people’s views, perceptions, or feelings about their situation or well-being. As many politicians have argued that absolute poverty has been eliminated in affluent western countries, it is not surprising that the European Union (EU) and Eurostat (Statistical Office of the EU) embraced the concept of relative poverty. Relative poverty is closely connected with the issue of income inequalities. As a matter of fact, relative poverty is a consequence of the distribution of income.There are many different indicators of poverty. Most research studies on poverty provide information about a poverty profile (9), which allows an insight into the scope of poverty, groups exposed to the risk of poverty, and the dynamics of poverty during a certain period of time. In most developed EU countries poverty has been studied for more than a century. In contrast to this, poverty research in Croatia and former communist countries, many of them now EU member states, started much later, in the 1980s. The first national research on poverty in Croatia was carried out only in the late 1990s (10,11).The scope of poverty is correlated with the level of economic prosperity in a society, but it does not depend only on the level of national wealth. Research studies have shown that tax and public social transfer systems have influenced considerably the reduction of poverty and inequality (12,13). Thus, countries with higher social protection expenditures have, as a rule, lower poverty rates and less severe inequalities (14,15).Poverty is a multidimensional phenomenon. Being poor is not only associated with lack of resources, but also with unsatisfied housing conditions, poor education, or ill-health. However, the connection between poverty and health is complex in terms of causal relationships. However, our analysis was restricted only to poverty and inequality indicators.This paper aims to analyze main indicators of income inequalities, objective and subjective poverty rates, the composition of the poor, material deprivation, social protection expenditures, and the role of public social transfers in combating poverty in EU countries and Croatia. We aimed to identify the dynamics of poverty and inequality in the 5-year period after 2000 and identify country groups with similar characteristics with regard to the above-mentioned dimensions. In identifying country groups, our aim was also to assess the position of Croatia and new EU member states with regard to the theory of welfare states model, which on the one hand still heavily influences the research on welfare state changes in Western European countries, but on the other hand demonstrates the inability to fully capture all different welfare trends (16-18). In addition, the history and particular post-communist experience, coupled with large differences among different countries, have shown that it is necessary to analyze new emerging social-policy strategies, and not simply to extend Western welfare state models to the new EU member states (19).