Electronic Journal of Polish Agricultural Universities (EJPAU) founded by all Polish Agriculture Universities presents original papers and review articles relevant to all aspects of agricultural sciences. It is target for persons working both in science and industry,regulatory agencies or teaching in agricultural sector. Covered by IFIS Publishing (Food Science and Technology Abstracts), ELSEVIER Science - Food Science and Technology Program, CAS USA (Chemical Abstracts), CABI Publishing UK and ALPSP (Association of Learned and Professional Society Publisher - full membership). Presented in the Master List of Thomson ISI.
2006
Volume 9
Issue 1
Topic:
Economics
ELECTRONIC
JOURNAL OF
POLISH
AGRICULTURAL
UNIVERSITIES
Łuczka-Bakuła W. , Kalinowski S. 2006. POVERTY AND ITS SELECTED CAUSES IN THE NEW EU COUNTRIES, EJPAU 9(1), #24.
Available Online: http://www.ejpau.media.pl/volume9/issue1/art-24.html

POVERTY AND ITS SELECTED CAUSES IN THE NEW EU COUNTRIES

Władysława Łuczka-Bakuła, Sławomir Kalinowski
Department of Economics, Agricultural University of Poznan, Poland

 

ABSTRACT

In this paper the problem of poverty in the new countries of the EU is investigated. The issue of poverty before and after social transfers is discussed. Also presented are some of the social exclusion indicators pertinent to this analysis. The analysis has shown, that poverty results in social exclusion, as it impedes the performance of social roles and the use of public goods and social infrastructure. Average monetary poverty threat indicators for Poland are similar to values for the EU; but the median level of income in the European Union is three times higher than it is in Poland and product baskets vary considerably at the poverty threshold.

Key words: unemployment, exclusion indicators, at-risk-of-poverty rate, Gini coefficient.

INTRODUCTION

The phenomenon of indigence has been accompanying humanity ever since its beginning. Although some researchers were preoccupied with it in the nineteenth century, it was in the sixties of the former century that the actual development of research in this area took place [13]. Poverty is connected with the lack of a sufficient amount of money to cover a given level of the households’ expenses. It results in social exclusion, and, due to the impossibility of obtaining goods and services, impedes performing social roles, and using public goods or social infrastructure. Thus, a decent standard of living and acceptable life style are precluded.

The problem of poverty became one of the key elements of the Lisbon Strategy, which intended to respond to the processes of globalisation, technological development, the increase in competitiveness of the world economy, unemployment, and structural changes impeding Europe’s economic development. Its main purpose was to create the world’s most competitive economy by 2010. This would be accomplished by stimulating innovativeness, liberalizing business ventures, and simultaneously preserving social cohesion. The strategy assumed creation of the framework for an active welfare state, whose primary activity was putting into effect proper employment policy. Due to a vast number of set priorities and actions, its implementation became impossible. Labour market problems, being the consequence of excessively developed systems of revenue redistribution and excessive employment protection, occurred to be the major weakness of the united Europe.

SOCIAL EXCLUSION INDICATORS

The Lisbon Strategy, though it eventually turned out to be a wish list, became the basis for creating social exclusion indicators, presented at the Laeken summit of 2001 as statistical indicators reflecting the recommendations included in the Antwerp Report, compiled by Atkinson, Cantillon, Markier and Nolan. The indicators can be divided into monetary and non-monetary indicators, and also into primary and secondary indicators (Table 1). The article concentrates on five monetary social exclusion indicators, i.e.: at-risk-of-poverty rate before and after transfers, relative median at-risk of poverty gap, Gini coefficient and persistent risk-of-poverty rate.

Table 1. Social exclusion indicators

Category

Name

Monetary Social Indicators

Primary Indicators

At-risk-of-poverty rate after transfers

Inequality of income distribution

Relative median at-risk-of-poverty gap

Persistent risk-of-poverty rate (60% median)

Secondary Indicators

Dispersion around the risk-of-poverty threshold

At-risk-of-poverty rate anchored at a given moment in time

At-risk-of-poverty rate before transfers

Persistent risk-of-poverty rate (50% median)

Gini coefficient

Non-Monetary Social Indicators

Primary Indicators

Persons living in jobless households

Long-term unemployment rate

Regional cohesion

Early school drop outs not in education or training

Life expectancy at birth

Self-defined health status by income level

Secondary Indicators

Long-term unemployment share

Very long-term unemployment rate

Persons with low educational attainment

Source: Author’s elaboration based on [4, 5, 12]

Social exclusion indicators constitute a basis for poverty research. They enable both the recognition of the scale of the phenomenon and the identification of poverty-related risk. They also enable the diagnosis of periodic changes, which, in turn, increases the possibility of providing help to the most endangered, i.e. initiate the activities of different social institutions.

POVERTY INDICATORS

Relative poverty constitutes one of the major measures which enables one to define the ratio of impoverished people to the rest of society. The poverty line varies depending on average monthly expenditures or incomes. The value defining the boundary changes according to level of living. According to Townsend, each line of poverty is relative. Thus depending on place of residence, education level, occupation, or society’s culture, the boundary and its determinants can be different. Therefore, Townsend gives priority to defining the relative line of poverty over seeking its absolute core [6].

The relative line of poverty is determined by comparing the degree of individual need satisfaction with the degree of the need satisfaction being met by other members of society. This approach includes among the impoverished the people whose level of living is lower than other members’ of society. The relative line is defined as half of the median income (or: expenditure) of the people surveyed. Thus, it is not severely impacted by extreme observations. Eurostat research uses three lines: 40%, 50% and 60% of average expenditures per person, however, a fourth line (i.e. 70%) is sometimes calculated. The poverty threshold defined in such a way assumes that a certain number of impoverished people must live in a given country. However, it is easily noticeable that within some countries, rich people can live below the level defined by the line and vice versa. Therefore, in the case of highly developed countries, relative lines define discrepancies between levels of living rather than poverty. Relative poverty cannot be overstated because differences in satisfaction needs exist within a given society.

The rates of relative poverty, quantified as 60% of median disposable income are similar in the EU countries. In Poland and the different EU countries (average), 15% of inhabitants live on an income under this value. As far as newly accessed countries are concerned, it is Slovakia that is the most endangered by poverty, as one in five of its inhabitants lives under the poverty border. The Czech Republic, Hungary and Slovenia have the lowest ratio of people facing poverty: 7.5%, 10% and 10.5%, respectively (Fig. 1).

Fig. 1. Poverty threat in the EU, percent of individuals with disposable income below the poverty line
Source: Author’s elaboration based on Eurostat data, 2003.

The volume of social transfers has significant influence on decreasing the relative poverty rate. According to Eurostat data, these kinds of transfers diminish the poverty threat to a greater degree than it does in the “old” EU countries. For example, in Poland social transfer payments contributed to decreasing poverty from 30% to 15%, and in the newly accessed countries poverty decreased from 25% to 13% due to these transfers (fig. 2). The range of these transfers, generally declared excessive, contributes to a diminishing poverty threat. If it were not for these transfers, the threat would be much more serious. However, any requirements to restructure the system of accessing these transfers, particularly economizing on expenses, reconsidering the range of aid, meeting the conditions of its granting and its scope, are of vital concern. Social aid, in order to be efficient, has to be target-oriented, and rational actions must be based on easily defined criterion. Without fulfilling these conditions, transfer resources could be wasted or could not meet general expectations. It is also important to mention that excessive care and egalitarianism have a negative influence on society, stifling individual entrepreneurship and hampering welfare.

Fig. 2. At-risk-of-poverty rate after transfers, by country groups
Source: Author’s elaboration based on Eurostat data, 2003.

Eurostat data, taking into account major population characteristics, shows that the people facing poverty include, first and foremost, the unemployed, who are 2.6 times more likely to find themselves below the poverty threshold than an average EU citizen. With regard to sources of income, the needs of the employed are the most likely to be met. Also, childless families hardly ever find themselves below the poverty threshold while every following child increases the probability of joining the impoverished part of a given society. Households with more than two children are very likely to find themselves below the poverty line – in fact, they are second only to the unemployed (Fig. 3).

Fig. 3. Poverty threat as a percentage of population's impoverishment, by age and family size
Source: Author’s own elaboration based on Eurostat, 2003.

According to Eurobarometer data (2001), groups such as elderly people, the employed, and childless marriages are least likely to find themselves in the quantile of lowest incomes in Poland. According to research of household budgets, low incomes concern, first and foremost, three groups of households. These include households with unemployed workers, farmers, and large families.

The range of poverty changes, depending on the applied threshold. Lowering the poverty threshold to 50% of median income results in decreasing the rate of poverty in Poland to 9% while applying a 40% median results in a 5% rate of poverty. On the other hand, estimating the poverty threshold at 70% of median income results in an increase of the poverty rate to 23% [10]. Also from this data on poverty rates, one may conclude that the income distribution in Poland and the EU are similar. However, it needs to be remembered that the income median in EU countries is three times higher than in Poland, and product baskets of consumers approaching the poverty threshold may vary. In the newly accessed countries, Slovakia has the highest rate of people facing poverty while the value of this rate is the lowest in the Czech Republic (Table 2).

Table 2. Relative median-based at-risk-of-poverty gap in the newly acceded EU countries

Median income threshold (%)

40

50

60

70

Cyprus

6

10

16

23

The Czech Republic

1

4

8

16

Estonia

7

11

18

26

Lithuania

6

10

17

25

Latvia

5

9

16

26

Malta

3

8

15

23

Poland

5

9

15

23

Slovenia

3

6

11

18

Slovakia

13

16

21

27

Hungary

2

5

10

18

EU (10)

5

8

14

22

EU (15)

5

9

15

23

EU (25)

5

9

15

23

Source: Author’s own elaboration based on Eurostat data, 2003.

According to criteria imposed by Laeken indicators, it can be estimated that the 20% of people with highest incomes dispose of incomes 4 to 5 times higher than the 20% of people with the lowest incomes. The value of quintile income dispersion indicators for Poland approximate the values estimated for the 25 EU countries, i.e. 4.4. There is less egalitarianism in Poland than there is in Germany or in Austria, i.e. in countries commonly declared social states, but there is more than there is in France. The greatest differences in the levels of incomes can be observed, regarding the newly accessed EU countries, in Estonia and Slovakia while incomes differ the least in Slovenia and in the Czech Republic (Fig. 4).

Fig. 4. Quintile indicator
Source: Author’s own elaboration based on Eurostat data, 2003.

This is also confirmed by Gini coefficients that parallel the quintile indicators. The highest degree of income differentiation can be observed in Estonia, 0.35, and Latvia, 0.34. Slovenia and Hungary have the lowest Gini coefficient values, i.e. 0.22 and 0.24 respectively. In Poland, the ratio is 0.30, which is a little higher value than the average level in the newly accessed EU countries (Fig. 5).

Fig. 5. Gini coefficient
Source: Author’s own elaboration based on Eurostat data, 2003.

Relative monetary poverty is highly likely to be experienced by uneducated people or people who have graduated from vocational schools. This situation is strictly connected with limited possibilities of choosing one’s place of work. Lower flexibility in adjusting to the requirements of the local labour market contributes to consolidation of structural unemployment. Low level of education, and, hence, relatively low level of human capital, act in favour of rendering low-paid jobs. Research shows that if the head of a household has only graduated from primary school, the rate of extreme poverty amounts to 17.5% and 70% of households live under the social minimum income level. The relative poverty boarder in this group amounts to 29.0%. The reverse situation takes place in households whose head has graduated from a college or a university. Only 0.6% of these households find themselves under the minimum level and 17.8% – under the social minimum income level. Only one in fifty of this survey respondent group claims to live under the relative poverty boarder [7].

THE FACES OF POVERTY

Monetary poverty is more frequently the case of country people versus city people. This situation exists because there are more job opportunities for inhabitants of cities to defend against poverty. In the EU countries, the problem of rural poverty is much less severe than it is in Poland. This is mainly due to the difficult situation of Polish rural households caused by socio-economic changes. Agriculture is characterised by high production costs. High unemployment rates exist in the regions impacted by the downfall of state agriculture. Hidden unemployment additionally heightens the bad situation in the Polish countryside [12].

Nearly 28% of rural Poland households live under the poverty line when the relative poverty threshold is estimated as 50% of average monthly household expenditures. These low incomes lead to considerable differences in the expenditures of rural Polish people compared to others. The poorest rural households are burdened with expenses aimed at meeting the basic needs, i.e. food and fixed rent charges. In 2002, these expenses accounted for 58.2% of all expenses in the budgets of the 20% of people with the lowest household incomes (58.4% in employees’ households and 59.3% in OAPs’ households). Regarding the 20% of people with the highest incomes, basic needs expenditures did not reach the level of 50% of all expenditures (36.2% regarding all households, 32.1% in employees’ households and 42.5% in OAPs’ households) [8].

There are said to be four faces of rural poverty. It is strongly correlated with high unemployment in rural areas and with few labour adjustment possibilities to the current demands of the labour market. Another aspect of Polish impoverishment is connected with the lack of effective social policies responding to these problems. Adjustment difficulties faced by agriculture in adapting to the new conditions contribute to the poverty problem. Finally, the fourth problem is correlated with the first one and exists in the marginalisation of the unemployed and their difficulties in joining the labour market [6].

Rural poverty, both in Poland and in the newly accessed EU countries, is to a large degree determined by unemployment. Long-term unemployment, exceeding 12 months, contributes to a large degree to being excluded from the labour market, impedes professional re-activation and, as a result, contributes to the aggravation of the level and conditions of life.

As far as the newly accessed EU countries are concerned, it is only Slovakia that has a higher rate of long-term unemployment than Poland (Table 3). On average, people unemployed for more than one year is less than 3%. The long-term unemployment rate in Poland is around 3.5 times higher than in the EU-15 countries. Country people are as likely to remain unemployed for more than 12 months as cities inhabitants. Among the unemployed, over 50% have been unemployed for more than a year. However, the percentage increases faster in the rural areas [9].

Table 3. Unemployment and long-term unemployment in the EU and in the newly accessed countries

Country

Unemployment rate

Long-term unemployment rate

Cyprus

4.4

0.8

The Czech Republic

8.8

3.7

Estonia

9.0

4.8

Hungary

5.9

2.4

Lithuania

11.4

7.0

Latvia

10.5

5.8

Malta

8.9

3.2

Poland

18.9

10.9

Slovenia

6.4

3.3

Slovakia

16.2

12.1

EU (10 countries)

..

8.1

EU (15 countries)

8.1

3.0

EU (25 countries)

9.1

3.8

EURO zone

9.0

3.5

Source: Author’s own compilation based on Eurostat data, 2003.

Long-term unemployment is often an effect of “habitual helplessness”. It impedes a given country’s development and, moreover, prevents its citizens from developing. Therefore, integration actions are necessary, including social education, professional education, recruitment consulting, apprenticeships, recruitment stimulation agencies, and social employment. The development of rural areas can be accomplished by greater differentiation of the rural economy characterized by the development of non-agriculture based production. This will allow an expansion of broadly-understood entrepreneurship, creating both technical and social infrastructure, which will create conditions required for new investments in these areas [3, 11]. As regards Poland, Slovakia, Lithuania, Latvia and Estonia, it is not as much the unemployment that matters as lack of positions matching people’s skills and qualifications. On top of everything else, this increases the feeling of helplessness and leads to social exclusion.

Therefore, looking for solutions and methods aiming at counteracting poverty and adversity seems to be a narrow-minded approach, which will not always lead to a complex solution of the problem. It is important to invest in the non-agricultural positions available in the labour market and improve country people’s skills through better access to education. Diminishing the discrepancies in the education system requires the prevention of early graduation and facilitating the process of finding new posts after training. It is important that the people who are not able to continue their education are given a chance to learn and obtain training. In many cases, improving their level of education will require promoting common persistent training, including computer training and new trends in education.

Eurostat data of 2003 shows that about 16% of citizens of the newly accessed EU countries do not attend any schools after graduating from secondary schools. Nearly 50% of Malta’s inhabitants under the age of 24, do not attend any academic schools. The experience of the recent years suggests that the introduced economic reforms have contributed to a significant improvement in the level of Slovenia’s citizen’s education. It is the country with the lowest percentage of people not attending any post-primary schools (Table 4).

Table 4. Percentage of youth not attending any schools after graduating from primary schools

Specification

2003

EU (15 countries)

18.1

Euro-zone (12 countries)

18.7

ACC

7.5

EU (25 countries)

15.9

Cyprus

15.1

The Czech Republic

6.0

Estonia

11.8

Hungary

11.8

Lithuania

11.8

Latvia

18.1

Malta

48.1

Poland

6.3

Slovenia

4.3

Slovakia

4.9

Source: Author’s own compilation based on Eurostat data, 2003.

Education is of vital importance for an individual, both in the capital dimension which they bring to the labour market and for personal development, not strictly connected with economic prospects. A young person often does not realise the importance of education, its value for the labour market and its productive effects, expressed by, among others, the fact that improving the level of one’s education increases not only their efficiency, but also the efficiency of their co-workers. Therefore, education is included in the group of goods that are most welcome in a given society, which means that the state, by increasing the availability of education, ought to aim at increasing its citizens’ willingness to educate themselves [1]. According to Drucker [2], knowledge is and will be a basic economic asset, influencing the social infrastructure and creating new social, political and, primarily, economic forces.

SUMMARY

Poverty results in social exclusion, as it impedes the performance of social roles and the use of public goods and social infrastructure. Average monetary poverty threat indicators for Poland are similar to values for the EU; but the median level of income in the European Union is three times higher than it is in Poland and product baskets vary considerably at the poverty threshold.

It can be expected that Poland’s integration to the EU contributes to an improvement in the level of life in the newly accessed EU countries. Limiting poverty resulted from the possibilities provided by effective use of structural funds and EU initiatives that contributed to improving the situation in the labour market.

REFERENCES

  1. Baran A. (2005): Zmiany w wykształceniu ludnosci miast i wsi [Changes in education of rural and urban sicuety], Wiadomosci Statystyczne, nr 2, Warszawa [in Polish].

  2. Drucker P. (1999): Knowledge-worker productivity, The biggest challenge, California Management Review, 42.

  3. Duczkowska-Małysz K. (1996): Rozwój obszarów wiejskich [Rural areas development] Warszawa [in Polish].

  4. Eurostat – Statistics in focus (2001), Report on Indicators in the field of poverty and social exclusion, Social Protection Committee, nr 10.

  5. Eurostat – Statistics in focus (2003), Monetary Poverty in EU, Acceding and Candidate Countries.

  6. Golinowska S. (1997), Badania nad ubóstwem. Założenia i metoda [Research on poverty. Assumptions and method], [w:] Polska bieda II Kryteria. Ocena. Przeciwdziałanie, red. S. Golinowska, Instytut Pracy i Spraw Socjalnych, Warszawa [in Polish].

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  10. MGPiPS (2004), Bilans istniejących badań i analiz oceniających poziom ubóstwa i zagrożenia wykluczeniem społecznym oraz kierunki dalszych analiz – raport wstępny [Balance of present research and analyses evaluation level of poverty and social exclusion and directions of further analyses – preliminary report], Warszawa [in Polish].

  11. Scieszka P. (2002): Integracja społeczna i zawodowa grup zagrożonych wykluczeniem społecznym – jak wypełnić wniosek [Social and professional integration of groups endangered by social exclusion – how to fill an application], Kraków [in Polish].

  12. Szukiełojć – Bieńkuńska A. (2002), Przygotowanie GUS do prezentowania wyników społecznego wykluczenia proponowanych przez Unię Europejską [CSO preparation level to social exclusion results recommebded by the European Union presentation], Polityka Społeczna, nr 11/12 [in Polish].

  13. Szulc A. (1995), Ubóstwo w Polsce w okresie transformacji ekonomicznej [Poverty in Poland in economic transformation period], Warszawa [in Polish].


Władysława Łuczka-Bakuła
Department of Economics,
Agricultural University of Poznan, Poland
Wojska Polskiego 28, 60-637 Poznan, Poland
phone: (+48 61 848 71 32)
email: luczka@au.poznan.pl

Sławomir Kalinowski
Department of Economics,
Agricultural University of Poznan, Poland
ul. Wojska Polskiego 28, 60-637 Poznan, Poland
email: skalin@au.poznan.pl

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