Social Transfers and Poverty Alleviation in Ireland, 2004-2011

A new research report on Social Transfers and Poverty Alleviation in Ireland is published today (Wednesday 11 December, 2013) jointly by the ESRI and the Department of Social Protection. The report examines the impact of social transfers – including both State and occupational pensions, other social welfare payments and child benefit – in alleviating income poverty in Ireland. The report shows how Ireland compares to other European countries and how the role of social transfers changed in the years from 2004 to 2011, as Ireland moved from high growth to deep recession. The report finds that the share of total household income from social transfers increased very rapidly after the start of the recession – from 20% in 2004 to 30% by 2011. This was largely due to the rise in unemployment, leading to more people receiving unemployment-related payments, and to the fall in market incomes (from work, interest/ dividends and rents). In 2011, 87% of households received some social transfer income, up slightly from 85% in 2004. The figure is high because all households with dependent children receive child benefit and virtually all adults of retirement age receive social transfers related to old age. For those receiving this kind of income in 2011, the average value of social transfers was €327 per household each week. This compares to a figure of €939 for market income. The average social transfer income per household had increased from €233 (in 2011 prices) in 2004. Some of the increase was due to a rise in the average weekly social welfare payment per beneficiary, but this was only 5% higher in 2011 than in 2004 (having fallen after 2009). Most of the increase was due to the receipt of means-tested unemployment-related social transfers by households that lost jobs during the recession. Prior to the recession, many of these households would have received child benefit only. The report finds a strong link between social transfers and poverty alleviation. The poverty reduction effectiveness of social transfers refers to the reduction of the gap between household market income and the poverty threshold when we take account of social transfers. In 2011, social transfers reduced this gap by 88%, up from 84% in 2004. In 2011, the poverty reduction effectiveness of social transfers was very high for all life cycle groups, ranging from 84% for working age adults to 95% for retired people. The effectiveness for children and people in jobless households was about the same as for the rest of the population (87%). Looking at Ireland compared to EU15 countries, we see that Ireland moved from the middle towards the top of the range of EU15 countries in poverty reduction effectiveness between 2005 and 2010. Another relevant indicator is the poverty reduction efficiency of social transfers. This refers to the proportion of social transfer income that goes towards reducing the gap between household market income and the poverty threshold. In 2011, just under 50% of social transfers went towards reducing this gap, a figure similar to the EU15 average. Although efficiency is measured as a percentage, reaching 100% poverty reduction efficiency should not be seen as achievable or as a 'gold standard'. Among other things, a social transfer system with 100% poverty reduction efficiency would impose a 100% benefit withdrawal rate at the poverty threshold. This could create a very undesirable incentive structure in terms of other goals of social policy such as encouraging participation in work.

Policy implications

• The poverty reduction effectiveness of social transfers for children is broadly similar to other life cycle groups. Given the negative long-term consequences of child poverty, this reinforces the importance of the emphasis on child poverty in the national social targets for poverty reduction.
• Child poverty must be addressed in the broader context of poverty among those of working age. Most social transfers going to households with children are not specifically child-related (such as child benefit and maternity benefit) but relate to other risks faced by working-age households (e.g. unemployment, lone parenthood and disability).
• In tackling household joblessness, a 'whole household' perspective is needed, including a consideration of the way in which one family member's eligibility for means tested social transfers is affected by another family member moving into work.

In launching the report, Ms Joan Burton TD, Minister for Social Protection said: “The report highlights the crucial role of the welfare system in alleviating poverty, ensuring those who need it most are protected and helping individuals and their families to overcome the severe difficulties caused by the crisis.” “The figures demonstrate that the system is extraordinarily effective in terms of income redistribution and poverty alleviation. The challenge now is to ensure those who are vulnerable – children and the long-term unemployed, in particular – are not left behind as the economic recovery takes hold. Tackling the issue of jobless households – where no adult member works and the number of which actually increased during the boom years – will be key in this regard, and is a core aim of the Pathways to Work strategy.”

Notes for Editors:

• The report, Social Transfers and Poverty Alleviation in Ireland, by Dorothy Watson and Bertrand Maître (ESRI), will be published on our website on Wednesday 11/12/2013. A research briefing on the report will also be available.
• The study is based on the Central Statistics Office national Survey of Income and Living Conditions (SILC), covering the period 2004 to 2011. It uses data from Eurostat to compare the situation in Ireland with that of EU member states.
• The main indicators used in the study are: poverty reduction effectiveness and poverty reduction efficiency.
• The report is an output of the Department of Social Protection/ESRI research programme on monitoring poverty trends and providing analysis and evidence to inform policy.
• The report will be launched by Ms Joan Burton TD, Minister for Social Protection at the conference Social Transfers and Poverty Alleviation: National and International Perspectives', taking place on Wednesday, 11 December 2013. It will be attended by c 100 participants representing government departments, the social partners, the unemployed and anti-poverty organisations. The conference is organised by the Department of Social Protection and the Economic and Social Research Institute. Full details and the Conference programme are available on our website.
• Members of the Media are invited to attend the Conference.