Examining Differences in Child Poverty through the Great Recession in Liberal Welfare States

Background

While the 2008 global economic crisis is over and many countries are into a recovery phase, the impacts continue to linger. Analysis of its aftermath offers insight into how economic shocks affect the lives of children and families. This study examines how children in five liberal welfare states fared through the Great Recession of 2008. We focus on liberal welfare states, following Esping-Anderson’s (1990) typology, these English-speaking countries are characterized by reliance on means-tested social assistance, higher economic inequality, and less unionization. While prior studies have examined within-country (Waldfogel, 2010) and cross-country variation in child poverty (Gornick and Jäntti, 2012), there is a lack of knowledge about how child poverty varies within welfare regimes. Further, there is limited in-depth understanding about the extent to which social welfare policies mitigated the Recession’s effects on children. 

Method

This study builds on the UNICEF report card (2014) to ask: How well have liberal welfare states protected children from the Great Recession? We used the latest nationally representative household survey data from Waves VI, VII, and VIII of LIS (formerly the Luxembourg Income Study), approximately aligning with 2004, 2007, and 2010. Countries included were Australia, Canada, Ireland, the United Kingdom and United States. Child poverty was measured in relative terms, as 50% of median equivalized household income. Poverty thresholds were anchored in 2004 to control for considerable overall shifts in income distributions during the Recession. Household income was measured pre-tax (market) and post-tax (disposable) and comprised of earnings from (a) labor, (b) capital, (c) transfers, and (d) others minus (e) taxes.

Results

We found large cross-country variation in child poverty rates during this period. For example, in Canada poverty fell consistently across years (17% to 11%), whereas poverty increased slightly in the U.S. (20 to 21%). To understand the degree to which child poverty was reduced by social welfare transfers, we compared market income poverty to disposable income poverty (post-tax and transfers). Canada and the U.S. reduced far less poverty through policy (average 35%) compared to the U.K. and Ireland (averaged 68%). Australia was in between. To further understand the impact of social welfare transfers we decomposed changes in poverty rates over time by income source (labor, capital, transfers, and other). For example, the poverty reduction in Canada was largely due to increases in labor earnings whereas in the U.K. poverty was reduced primarily via transfers. In the U.S., the transfer system offset what would have been a large (4 percentage point) increase in poverty. Social policies had considerably more impact than changing demographics.

Discussion

We contextualize our findings with a discussion of differences in child and family policy frameworks as well as differing policy responses to the Recession. Our research describes the different levels of protection provided by different social policy frameworks, as well as the effect on children of different government responses to the Recession. Aside from investigating the financial crisis as a discrete event, this study gives a richer understanding of the economic position of children within liberal welfare states.