I N - WORK POVERTY

Iceland has generally very low rates of poverty, for the general population and in particular for pen-sioners (OCED 2008; Ólafsson 1999). In this context, it is interesting to profile the main patterns of in-work poverty. Thus, it may also come as something of a surprise that Iceland‟s in-work poverty rate is close to the average for EU as well as for the OECD, rather than being close to the lowest rates.

EU-SILC data indicates that the at-risk-of-poverty rate in Iceland has been in the region of 9-10%

since 2004 (Income year of 2003), while the poverty rate for employed individuals has been in the region of 6.5-7.9% in the period since 2004, when Statistics Iceland started to undertake the surveys in Iceland (cf. Table 5-4).

-10 0 10 20 30 40 50 60 70

Iceland 2000 Iceland 2009 OECD 2000 OECD 2009

Iceland 2000 -0,5 8,8 24,4 23,8 26,2 42,0

Iceland 2009 9,9 12,6 26,9 26,7 32,3 36,7

OECD 2000 20,4 28,5 33,3 34,5 37,8 42,4

OECD 2009 16,9 26,0 31,3 32,7 36,4 41,1

Lone parent 2 children 67% of average

One-earner couple 2

children

Two-earner couple 2 children 100% +

Single 67% of average

wage

Single average wage

Single 167% of average wage

Table 5-4: In-work poverty rate (60%) by gender and activity status

2004 2005 2006 2007 2008 2009

Total Total 9.4 9,4 8,9 9,3 9,5 9,9

Employed 6.9 7,9 6,6 7,0 6,7 7,7

Men Total 8.9 9,3 8,2 8,4 9,0 8,8

Employed 7.2 8,5 6,9 6,9 7,0 7,4

Women Total 10,0 9,5 9,5 10,3 10,1 11,0

Employed 6,7 7,3 6,2 7,1 6,4 8,0

Source: Statistics Iceland

The rate is similar for males and females, but at times somewhat higher for males. The overall at-risk-of-poverty rate for females is, however, significantly higher than for males. This is primarily due to the rather high rate for single parents, the great majority of whom are females. The rate for that group was 23% in 2007, which was one of the lower rates at that time.

It should be noted that the figures for 2009 in the tables actually refer to 2008, which, in the case of Iceland, marked the start of the financial crisis. Since the crisis started as late as October 2008, the effect of the crisis on these figures is generally minimal. Figures for the income year 2009 will show the real consequences for living standards much better.

Another feature of in-work poverty in Iceland is that the rate goes down with increased work vol-ume. Thus, jobless households have about four times the rate of fully working households. Two earners in a household are the norm in about 90% of households of people at working ages in Ice-land. Fully working households with children have experienced a poverty rate in the region of 6-7%

for most of the period since 2004, but reached a low of 4.9% in 2008. Those without children have tended to have a slightly lower rate in most years. Figure 5-7 shows the 50% poverty rates for households with dependent children, where both parents are working (work intensity=1).

Figure 5-7: Poverty rates (50%) for households with dependent children in 2008.

Both parents working (Work intensity=1). International comparison.

Source: Eurostat 13

8 7 7 7

6 6 6

5 4 4

3 3 3 3 3 3 3 3

2 2 2 2 2 2 2

1 1 1 1 1 0

2 4 6 8 10 12 14

Romania Poland Greece Lithuania Portugal Estonia Spain Latvia UK EU27 Luxembourg Euro Area (16) Denmark Germany Ireland Italy Netherlands Austria Slovakia Belgium Bulgaria France Finland Sweden Iceland Norway Czech Republic Cyprus Hungary Malta Slovenia

Households with dependent children. Household with work intensity = 1. Cut- off point: 50% (%)

In this instance, Iceland has one of the lowest rates (2%). Thus, the clear indication is that in-work poverty is more common among people with lower work intensity, especially households with chil-dren who have only one low-wage earner. This situation may have worsened in 2009 and 2010 since unemployment has increased due to the financial crisis. In third quarter of 2010 the unem-ployment rate was 6.4%. However, this is low by international standards and it is significantly low-er than predicted at the start of the crisis.

Table 5-5 shows that minimum wages were generally in the region of 50% of average worker pay in the period between 1999 and 2008 and in the region of 40-43% of average employee pay in the same period. Minimum wages are determined in collective agreements between the labour market partners in Iceland and not by means of legislation. This is also the case in the other Nordic coun-tries.

In the other Nordic countries, the minimum pay seems to have been higher than in Iceland in the last decades. A study by Neumark et.al (2004) shows the minimum wages in the other Nordic coun-tries to be in the region of 51-64% of average pay, compared to Iceland‟s 40-45%. This suggests that a rather low level of the lowest wages may be a major cause of the higher rates of in-work pov-erty that OECD and Eurostat/Statistics Iceland find in Iceland compared to the other Nordic coun-tries. Iceland‟s minimum wage level appears to be closer to what is common in many of the more affluent EU nations.

Table 5-5: Minimum wage rate as a % of average pay and average workers’ pay, 1998-2010

Year Min. wage as a % of average

worker pay

Min. wage as a % of average employee pay

1998 54.8 45.3

1999 51.8 42.0

2000 49.0 40.0

2001 52.1 42.9

2002 52.9 43.4

2003 49.6 42.0

2004 50.0 42.3

2005 48.8 40.6

2006 48.1 40.5

2007 47.6 40.0

2008 51.4 43.4

2009 57.3 46.8

2010 56.1 45.8

Source: Statistics Iceland and Social Security Administration

Thus, it is likely that the low level of minimum wages has much to do with the in-work poverty that recent data from EU and OECD show. Low level of in-work benefits is also a contributing factor, especially for families with children. Low volume of work can also be a contributing factor, but that is likely to have had a less important role than the above-mentioned factors in the years before the crisis. If the level of unemployment in future years is higher after the present crisis than in the preceding decades, the role of restricted work volumes in creating in-work poverty may increase.

In-work benefits, such as family benefits are relatively low in Iceland for couples on relatively low earnings. Income supplements for fully working individuals are also rare (Kristjánsson 2011). This may also contribute to in-work poverty rates being higher than poverty rates among pensioners.