What is the 500+ trap?

Feb 21, 2018 4:24 PM|Marcin Lipka

The Polish 500+ benefit program does not promote employment, and the latest Central Statistical Office (GUS) data from Poland even suggest that it may favour an increase in professional inactivity. “Probably about 2.5 million parents are currently wondering whether it is worth getting a job, working longer hours, or improving their qualifications, while, at the same time risking the loss of family benefits,” says Marcin Lipka, Conotoxia Senior Analyst.

Marcin Lipka, główny analityk Cinkciarz.pl

The GUS data published three weeks ago showed that over 30% of adult Poles in families where the 500+ benefit is awarded for the first and only child have no employment or are currently not looking for it.

The same study shows that the professional activity of young women (aged between 25-34) is at its lowest in 19 years. Linking both pieces of information signals that the 500+ may support professional inactivity. On one hand, these are surprising reports, but on the other, looking at the balance of benefits and losses: overtime, promotion, additional training or even finding a job have become unprofitable for many people.

2.5 million people have a problem

The combination of social benefits and taxes should be constructed in such a way that going to work is advantageous. Presumably, it will not be possible to build an ideal solution, but when we are dealing with a systemic push of a large portion of society to inactivity, then a professional deactivation problem arises.

According to the the Ministry of Family, Labor and Social Policy (MRPiPS) data, the number of families entitled to receive the 500+ for the first child is 1.56 million. The vast majority of them are households with one child (726,000) and two children (611,000). This means that the income of these families per person does not exceed 800 PLN net.

It is ineffectual to take away benefits from families in the worst financial situations because they really need these resources. On the other hand, over 1.5 million households (or about 2.5 million adults) are currently wondering whether it is worthwhile for their spouse to work or whether it it would be more beneficial to get a promotion, a raise or higher qualifications. In many cases the answer may be negative, and what’s even worse, it will be justified by logical, financial reasons.

You go to work but there is no more money

The European Commission's databases (Tax and benefits indicators) make it possible to analyze family net income changes relatively easily, depending on the number of its members, their salaries and social benefits.

Simulations for Polish families show (data for 2016) that the additional income obtained from the second parent who works, is percentage-wise the lowest in the EU. For a four-person household, where an employee's earnings amount to two-thirds of the national average, taking up work by a spouse also for two-thirds of the average salary means a marginal increase in net income.

For a person taking up a job in the households mentioned above approx. 22% net (about 600 PLN) from their gross salary will be lost due to losing the 500+ benefit for the first child and other social assistance benefits and the need to pay taxes and social security contributions (on average, 60% in the EU, 70% in Hungary). Of course, these calculations do not include travel costs, employment related expenses (e.g. clothing, meals outside the home) or payments incurred, e.g. in connection with prolonged nursery schools of their children. Going to work becomes financial nonsense.

Costs from everywhere

Solving the current problem will not be easy. Resignation from the income criterion for the first child or its drastic raise means an increase in the costs of the program even by several billion PLN annually.

On the other hand, maintaining current rules which discourage from taking up a job by a large part of the society, will probably intensify the phenomenon of professional inactivity, when the demand for labor in Poland is at its highest in at least 25 years. Finally, it will also have a negative impact on the entire economy, including the least well-off beneficiaries of this program who, due to a long break in their career, will have difficulty in finding a job when their children grow up.

Also, pension benefits of those professionally inactive will be extremely low and increasingly subsidized from the state budget and from the contribution of working taxpayers'.

Feb 21, 2018 4:24 PM|Marcin Lipka

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