Publication
The Luxembourg Chamber of Commerce’s contribution to the analysis on poverty in Luxembourg, looking at the figures and the facts, and the policies that can help.
For several years, the question of poverty has been front and centre for Luxembourg. At the heart of a flourishing economy with a prosperous population, has social exclusion really been gaining ground? If so, how can we stop it? The Luxembourg Chamber of Commerce responds to these two questions, thereby shedding light on some of the unexpected faces of poverty as well as presenting a socio-economic model that is calling for reform.
Maintaining social cohesion and making prosperity possible for the population at large are essential aspects of the Luxembourg socio-economic model. They are also elements of the sustainable growth model that will succeed in maintaining economic prosperity for the people. These elements are also important for businesses, given their role in fighting against social exclusion thanks to the jobs they create, their tax contributions and their contributions that largely finance social expenditures, their commitment to social projects and Corporate Social Responsibility (CSR), and, in some cases, simply their activity itself. Businesses are key players and drivers of sustainable development.
The issue of social inequality and exclusion has been at the heart of social dialogue for several years. The Luxembourg Chamber of Commerce therefore must contribute real measures regarding poverty in Luxembourg and subsequently contribute to defining relevant public policies.
Subject to increasingly intense debate, sometimes more emotional than factual, the development of poverty, or more generally of social exclusion, can indeed be analysed extremely differently, depending on the indicators used. The indicator most commonly used in Luxembourg, the at-risk-of-poverty rate, is indeed increasing, reaching 18.7% in 2017, placing the country, where the lowest incomes are higher than elsewhere, within the average in Europe. In contrast, the indicator for material and social deprivation, which measures the standard of living of the population according to European standards, shows a low level of poverty in Luxembourg, 3.9% in 2017, compared to 14.2% (estimated) in the European Union. STATEC (Institut national de la statistique et des études économiques du Grand-Duché de Luxembourg) recently calculated a growing rate of poverty based on income, consumption, and financial wealth data. The rate for the resident population in 2017 was 5.7%. Thus, Luxembourg’s position in the rankings for poverty can vary substantially depending on the indicators used. However, Luxembourg is particularly affected by social exclusion. Following a survey conducted for the Eurobarometer in 2010, Luxembourgers believe that poverty is 79% due to housing, and only 17% due to salary.
Luxembourg is a country with a particularly open economy, which has become, over the years, a European metropolis, attracting and employing a highly qualified workforce, which is, in large part, foreign. It owes its success to the development of its financial centre, the establishment of international businesses, and its economic and demographic growth. The economic success and competitiveness of Luxembourg has brought prosperity and a higher standard of living for all, but has also been accompanied by increasing income inequality. The difficult balance between the appeal of Luxembourg and the policies to reduce inequality raises the question of how to take into account inequality indicators, including the at-risk-of-poverty rate, for measuring poverty.
The Chamber of Commerce has therefore undertaken both an objective, multidimensional analysis of social exclusion in Luxembourg, including income, standard of living, housing, financial wealth, employment, and education, as well as an overview of the populations most affected by poverty, which includes a look at the different faces of poverty.
Findings include the following elements:
- Disparities in income and wealth in Luxembourg have grown, but without real social rupture.
- The standard of living of low-income households has remained relatively stable over the last decade, well above the European average.
- The transitory nature of poverty is largely overlooked; every year, people enter or leave a state of poverty and long-term states of poverty are low in Luxembourg. During the period 2014-2017, 28% of residents passed through an at-risk state of poverty, but the persistent at-risk-of-poverty rate amounts to 10% over four years.
- Employment is by far the best defense against poverty and social exclusion and, moreover, is a vector of social cohesion and integration in a country where the minimum wage exceeds the median wage of neighbouring France.
- Luxembourg today shows certain shortcomings in terms of the fundamental role of education and training, in particular regarding equal opportunities and inclusion.
- The situation is quickly getting worse for housing for the impoverished, with housing costs weighing more heavily on their budget (more than one third of this population pay more than 40% of their income towards housing), especially when they are tenants.
Poverty can have numerous faces, with some standing out more than others. In Luxembourg, those living in poverty are primarily children whose parents have a foreign background and a low level of education. They live primarily in a single-parent household and/or within a large family, live in one of the less privileged areas of Luxembourg and could find themselves in difficulty in school within an education system that is not sufficiently inclusive. Another typical face of the impoverished resident is that of the single adult who is responsible for a single-parent family, especially if they are unemployed or have limited job opportunities, and even more so if they are tenants. The following three portraits also define the poverty found in Luxembourg more and more: the young adult who has not yet entered the job market and who does not know when they will be able to leave the family home, the older worker who has lost their job and has great difficulty re-entering the job market, and the self-employed worker whose activity generates less income than an employee, and who has less social protection. Entrepreneurs are more affected by the risk of poverty (22.4%) than the average population (18.7%), salaried employees (13.2%), and pensioners (9.3%).
Following the analysis of the Chamber of Commerce, four major challenges have been highlighted, challenges that policy makers will have to better respond to in the coming years, or risk Luxembourg’s social model and cohesion being called into question.
Increasing the real income of the least well-off
Increasing wages or income from benefits would have a negative impact on business competitiveness and work incentives and therefore are not effective solutions. This is especially true when it comes to the minimum wage, which can be a barrier to employment for low-skilled workers and thus contribute to increasing their level of poverty. The minimum social salary is higher than the reference salary considered necessary to achieve a ‘modest but adequate’ standard of living and has increased more than the average income since 2006 (+ 29% compared to + 25%). On the other hand, effective measures contributing to the real income of the lowest income households would be based more on larger social selectivity regarding the various assistance available, more protection for the self-employed, taxation and levels of social contributions that create incentives, effective programmes for re-entering the job market, and policies limiting the increase of the cost of living, mainly in housing. Furthermore, in the European Commission’s report, Semestre Européen 2019, they focused on the inefficiencies of social transfers in reducing poverty, despite the funds allocated to social benefits.
Limiting housing costs for low-income households
In 2017, 36% of the 20% of the lowest income households were overburdened by the cost of housing, which exceeded 40% of their income. This percentage was still only 20.1% in 2012. Housing prices have risen sharply, with low-income households being the most likely to suffer. This is largely due to a significant increase in demand due to the population growing more quickly than the housing market and weak public governance for housing. In terms of supply and demand, it would be better to increase supply and accelerate construction of new housing, especially social housing.
Promoting employability for all
New programmes for upskilling or reskilling workers and job seekers should be implemented, with a strong emphasis on digitisation. At the same time, training should be further supported and promoted as this would meet many of the workforce needs of companies and is appealing to many people. Reducing the traps that can lead to periods of inactivity by promoting work incentive policies is also essential, while replacing the guaranteed minimum income (GMI) by social inclusion income (REVIS) is deficient on this point. It is by acting at different levels, whether it is by age, by training or profession, by skills, either transferrable or specific to a trade, and without preconceived ideas about the different paths that can lead to job fulfillment, that it will be possible to promote employability, and therefore employment for all.
Making Luxembourg's education system inclusive
The progress to be made in terms of equal opportunities can be seen in the differences in students according to their origins, the education that is passed between parent and child, and the limited possibilities for the least-educated adults to have access to continuing vocational training. Thus, the rate of repetition for socio-economically disadvantaged students is 40%, compared to 13% for all students, and those that go on to obtain secondary education is low: 12%, compared to 68% for socio-economically advantaged students. Solutions must be found so that learning a particular language, or sometimes early orientation, is no longer an insurmountable obstacle to the success of some students, so that the education system supports the qualities of each student and does not stigmatise failure, so that school drop-outs decline, so the impact of students' socio-economic background on their academic success is limited, and so that a skills-based approach, not one focused on failure, is promoted.
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L'Actualité et tendances n°21 encourages a better use of figures to define a policy mix that can better combat poverty where it is concentrated, and thus respond to the four challenges identified. The figures are used to analyse the phenomenon of social exclusion and to gauge its evolution. They are indispensable for the establishment of effective policies to combat poverty and make it possible to establish priorities, to understand the complex issues that lead to situations of poverty, to determine the measures to be taken, and to evaluate the existing schemes. It is therefore necessary to establish new poverty indicators in order to make up for the shortcomings of existing indicators and to be able to unequivocally assess whether or not progress has been made in reducing social exclusion. It is also time to change the fact that figures have been lacking in the determination of poverty policies in Luxembourg.
Four proposals to fight social exclusion more effectively
1. The creation of a quadripartite 'Poverty Monitoring' committee
The goal of creating a quadripartite 'Poverty Monitoring' committee would be to establish one or more tools for measuring poverty in Luxembourg according to the essential principle of consensus. This committee would be composed of representatives from the state and municipalities, employees, employers, and Luxembourg NGOs, bringing together key stakeholders in the fight against poverty. This committee, which could be supported by experts, would not have the role of setting goals for poverty reduction as that is up to the Government. It would instead establish a consensual diagnosis of the state and evolution of poverty in Luxembourg based on objective indicators, and keep dialogue alive on this topic.
2. The choice of one or more official measurement tools
L'Actualité et tendances n°21 presents six measurement tools to update the understanding of poverty and better assess its evolution. These six tools could stimulate the work of the quadripartite Poverty Monitoring committee, in addition to the existent indicators, or those currently under development, with the aim of choosing the reference measurement tools for poverty in Luxembourg. The official measurement tool(s) would complement the national reporting tool and be included in the calculation of PIB Bien-être (the well-being GDP).
3. A triptych-based anti-poverty policy: Quantified objectives, targeted measures and evaluation
Experience shows that setting targets for poverty reduction could foster collective mobilisation and the implementation of effective policies. This process has the double advantage of establishing the credibility of the indicators and objectives decided upon and of giving policy makers great responsibility in terms of the results to be achieved. Amongst other major objectives to be achieved by 2030, l'Actualité et tendances n°21 proposes ending child poverty and promoting equal opportunities. These goals would include a 0% indicator for child deprivation and a 0% indicator for early leavers from education and training.
Establishing a strategy based on targeted policies requires the systematic use of poverty data, which means a necessary paradigm shift in social exclusion policies in Luxembourg. Strengthening these policies would require the development of an action plan to combat poverty.
Evaluation is a powerful tool for measuring the relevance of actions and for gauging any changes to be made to these actions. However, the evaluation of social exclusion policies remains an exception in Luxembourg. When it is used, it often lacks rigor, which limits its usefulness. Evaluation needs to be more ingrained in the state's culture with regard to policies to combat social exclusion.
4. A paradigm shift
The Luxembourg social model is characterised by its universality, which too often takes the form of a 'social watering can' policy. This universality does not favour the lowest income households, which, in recent years, have experienced growing inequalities, to their detriment. The introduction of greater social selectivity is increasingly necessary to successfully eradicate certain situations of social exclusion, without jeopardising public finances.
Social policies should better respond to situations of disruption that are often at the source of social exclusion: school drop-outs, transitions from school to work, loss of housing, accidents in life, loss of skills, family separation. Policies need to address core issues rather than symptoms, focusing more on training and upgrading the skills of workers and those who are unemployed, reducing the traps that can lead to periods of inactivity, and facilitating access to housing by supporting the supply chain involved in the construction of new housing. The fight against poverty is largely a fight for employment, which is the first defense against poverty and social exclusion. Based on the REVIS model, social policies could more frequently take the form of a policy mix via measures adding financial and non-financial aid. A better orientation of social policies requires moving from a focus on medium-term goals to results oriented goals, while the creation of an inter-ministerial 'social exclusion' committee would reinforce cooperation between the various ministries and organisations concerned. The introduction of tendering and contracting processes based on objectives with stakeholders on the ground would facilitate the steering of policies to combat social exclusion by the public authorities and promote their effectiveness.
This paradigm shift must be based on an overall policy favourable to the competitiveness of companies and entrepreneurial initiatives because they create the wealth and then redistribute it to the entire population. The most powerful instrument to fight poverty is the maintenance and development of economic prosperity on home ground. The recent history of Luxembourg illustrates this best.
To read l'Actualité & tendances N°21 in its entirety: click here
To read Mesurer la pauvreté, un défi historique: click here
