The Family 500+: Battling Child Poverty in Poland

Facing one of the lowest fertility rates in the European Union (EU), the Government of Poland introduced a new family benefit program that had two objectives: encourage fertility and reduce child poverty.
 
The Family 500+ program, introduced in April, 2016, consists of a monthly payment of PLN 500 (€115) for every child after the first until the age of 18. The benefit was also extended to the first child in families whose income was below a defined threshold.
 
Given the amount of the per-child benefit - equal to almost 40% of the net minimum wage in 2016 - and the coverage of all children in poorer families, this new program represents a relatively large increase in transfers to households living in poverty in Poland. Importantly, the program was designed to supplement other social assistance and family benefits and does not influence eligibility to other programs.
 
Eighteen months into the program, it is now time to look whether it has effectively helped to reduce child poverty – a stated goal of the Polish government.

Simulated impacts of the 500+ programs on extreme poverty 

Initial simulations of the program’s effect on extreme poverty among children were very promising. In a scenario where families were assumed to consume the same share of the 500+ income as they do with all other income, then extreme poverty among children was expected to decrease by 76 percent (from 11.9 to 2.8 percent of all children).
 
Under the assumption that families consumed all the additional 500+ income, then poverty among children would decrease by 94 percent (from 11.9 to 0.7 percent).
 
In both cases, extreme poverty among children was expected to be nearly eliminated (Figure 1). 
   

While such a decrease might seem surprising at first, this is not the case once we consider the rules of the program and the relatively low expenditure threshold for extreme poverty. In fact, the extreme poverty line was only PLN 555 for a one-person household in 2016 and PLN 1,499 for a household with two adults and two children.  The 500+ was expected to nearly eliminate extreme poverty among households with children by design, because the size of the 500+ benefit is relatively large compared to the extreme poverty threshold.

 As an extreme example, consider a household with children where the adults earn zero labor income. Under these circumstances, and including standard family benefits (but no other available social assistance), the addition of Family 500+ benefits would yield sufficient resources for most households to cross the extreme poverty threshold (Figure 2). It would take only a small amount of additional income or social assistance to ensure all these households cross the extreme poverty threshold.
 

Divergence between simulation and actual extreme poverty rates after the 500+

The Central Statistical Office announced that the extreme poverty rate among children amounted to 6% in 2016, based on HBS (2016) survey data.
 
So what accounts for the difference in the actual outcome versus the simulated results? Two reasons are quantified below: incomplete reporting during the first year and unspent disposable income.

Full year effect. The Family 500+ benefit was paid beginning in April 2016, but applications were accepted through July 1 ^st and municipalities (“gminas”) had up to 3 months to verify the application prior to disbursing the money.

Thus, households surveyed up through September may have been eligible, but had not yet received any benefits at the time of the survey. Among the 6.2 percent of children in extreme poverty in the survey, more than half (3.6 percent) were in households that did not receive benefits yet, but this was most likely because they were interviewed before October (Figure 3). The full year effects will be clearer in 2017.
 
Families are not spending all of their disposable income. Households are considered poor if their reported expenditures are below the poverty threshold. Thus, there can be households that have disposable income above the extreme poverty threshold, but they do not spend enough to have expenditures above the line. Indeed, the 2.6 percent of children that were in extreme poverty despite receiving the 500+ benefit in 2016 was in line with earlier projections (2.8 percent, see Figure 1).

Of these, we find that as much as 95 percent were in households that had disposable incomes above the extreme poverty threshold; only the remaining 5 percent (0.12 percent of all children) lived in households with both disposable incomes and household expenditures below the threshold. Families with children that are in extreme poverty despite receiving 500+ benefit are likely to have complex situations with multiple kinds of needs that require holistic approaches and targeted interventions.

Although we have argued elsewhere that the Family 500+ program could have undesirable consequences (e.g. in terms of female labor force participation) and its effects on increases in fertility are very hard to predict, there is no denying that the Family 500+ Program should put a dent in extreme child poverty in Poland.