Trends

Since the mid 1990s Estonia experienced rapid demand-driven economic growth. In 2000- 2007 average GDP growth rate was 8.6%, with strong employment growth and decline in unemployment. Unemployment fell from around 14% in 2000 to 4.8% in 2007. Wages, pensions and some other social benefits increased. Although the price level also rose, the real purchasing power of families still increased considerably.

This all led to rapid reduction in absolute poverty for all social groups, including families with children.

Although at-risk-of-poverty rate in the overall population changed only little, the structure of households at risk of poverty changed considerably during 2000-2007. At-risk-of-poverty rate remained more or less unchanged around 18-19% (see Table 1). According to Estonian national statistics, which uses age band 0-15 for a child, children were at greater risk of poverty than the overall population in 2000-2005, but since 2005 the poverty among children has declined, and in 2006 and 2007 it was already lower than in the overall population.

Table 1. At-risk-of-poverty rate (%)

2000 2001 2002 2003 2004 2005 2006 2007

Total population 18.3 18.2 17.9 18.3 18.3 18.3 19.4 19.5

Children 0-15 21.3 18.9 17.8 19.8 21.5 19.8 17.3 17.1

65 and older 16.0 18.1 15.8 16.7 20.3 25.1 33.1 39.0

Source: Statistics Estonia, on-line database.

Notes: The percentage indicates the share of persons with equivalised disposable income lower than the at-risk- of-poverty threshold. The year refers to the income year. Change in data source in 2004 should be taken into account when comparing data for 2000-2003 with the following years.

This can be explained by higher employment rates of prime-aged workers and higher wage growth compared to pensions, for example. But also some of the benefits for families increased (especially parental benefits). Table 1 shows that while the risk of poverty decreased among children it almost doubled during 2000-2007 for the elderly.

1.3 Absolute poverty

The level of absolute poverty has considerably declined during the last ten years, both in the overall population and also among children.

Indicators used by the Estonian Ministry of Social Affairs when measuring social inclusion and absolute poverty of children are usually the following:

a) the share of children (up to age 15) below absolute poverty line, which reflects the minimum level of necessary expenditures (cost of minimum food basket, dwelling, clothing, education and transport expenses),

b) the number of children in households receiving subsistence benefits, and the share of households with children among the recipients of subsistence benefits. Subsistence benefits are means- tested social assistance benefits that also include a component to cover minimum housing costs.

Table 2 shows that when in 1998 about 40% of children lived below the absolute poverty line, then by 2007 (latest available data) it has dropped to 9.4%, but being still higher than the population average (6.5%). Also the number of children living in households who have received means-tested social assistance benefits has dropped drastically. When in 1999 there was more than one child (1.12) in benefit applications per person aged 0-17, then by 2008 it has dropped to 0.14⁵. The share of households with children among benefit recipients has also dropped.

Note that because the subsistence level (which is fixed by the government each year and forms a basis for calculations of subsistence benefits) is below the absolute poverty level (which depends on prices of goods), there are many households which are still in absolute poverty despite receiving subsistence benefits.

5 Note that subsistence benefits are applied every months and indeed large share of households receives them every month.

3 5

. Trends in absolute poverty 19981999200020012002200320042005200620072008 population below absolute poverty line ulation 32.830.728.928.325.019.617.0 16.113.28.3 6.5 aged 0-15 40.444.139.136.633.726.725.3 20.316.810.79.4 ce benefit recipients of children in applications for subsistence divided by population 0-171.081.120.990.990.780.800.650.480.300.170.14 householdswithchildren among the of subsistence benefits49.354.545.938.334.038.743.439.136.432.029.4 single parent households 22.927.127.425.726.226.427.054.359.563.463.4 households with 3 or more children 18.218.616.314.413.81719181818.517.3 households with disabled child1.5 0.9 1.2 1.5 1.2 2.7 3.1 3.7 4.6 5.4 5.8 e in methodology in 2004 in absolute poverty. inistry of Social Affairs “Sotsiaalvaldkonna arengud 2000-2006”, Sotsiaalministeeriumi toimetised nr 2/2008 ; ocial Affairs, online data on subsistence benefits, own calculations, http://www.sm.ee/meie/statistika/sotsiaalvaldkond/sotsiaalhoolekanne/toimetulekutoetus.html; 05) “Elatusmiinimumi ja vaesuspiiride hindamise metoodika ning sotsiaalsete indikaatorite leidmisel kasutatavate tarbimiskaalude kaasajastamine”, report to Ministry of Social Affairs, 2005, http://213.184.49.171/est/HtmlPages/ELMtarbimiskaaludETveebi/$file/ELM%20tarbimiskaaludETveebi.doc.

As the number of recipients of subsistence benefits dropped then also the structure of the remaining households with children receiving subsistence benefits has changed. We see a drastic increase in the share of single parent households. While in 1998 about 23% of households with children were single parent households, then by 2008 it increased to 63%. It supports the claim we made in the previous section that children living in single parent households are currently most at the risk of poverty in Estonia.

We also see that the share of children with disabilities has increased among recipients of subsistence benefits, reflecting the fact that one of the parents may need to reduce the labour supply to take care of disabled children. The Ministry of Social Affairs is planning to conduct a survey at the end of this year to investigate this issue.

To conclude, we see that recent rapid economic development has indeed improved the situation of households with children, reducing their risk of poverty both in absolute and relative terms.

With a few exceptions, such as the effect of parental benefits on poverty among 0-2 year olds, this has not been a result of a smart policy making, but more a good luck arising from global economic development.

Now, when the Estonian economy is in deep decline, we would expect that the poverty will increase again, both in absolute and relative terms, and new policy choices that reflect changed economic and social conditions are necessary.

2. Impact and effectiveness of policies in place

2.1 Overall approach

Estonian social policy aiming at families with children is influenced by three levels: 1) national (state) level, 2) municipality level, 3) international level (EU directives, guidelines, strategies, and open method of co-ordination, ILO recommendations, etc). At the state level, family policy strategy and all necessary legislation are accepted, and major cash benefits are provided. Local municipalities are responsible for provision of child care (pre-school education), basic and secondary education, means- tested subsistence benefits, social housing, and other services for children. Local municipalities also pay various additional ad hoc benefits to families (e.g. birth grants, first school-day benefits, etc).

Estonian social policy is also influenced by EU policy since 2003, when Estonia started to follow the EU strategies and guidelines and participate in the open method of coordination.

Reducing social exclusion and especially child poverty has been one of the main aims of the Estonian governments in the field of social and labour policy (see, for example, the following documents by the Ministry of Social Affairs: Joint Inclusion Memorandum in 2003, National Action Plan 2004-2006, National Report on Strategies for Social Protection and Social Inclusion 2006-2008).

Policies started to incorporate explicit numerical targets only recently. The effectiveness of the policies targeted on child poverty is usually measured with the proportion of children below absolute or relative poverty line, and the proportion of households with children among recipients of subsistence benefits. Sometimes, there are also some additional, usually input or process oriented indicators, such as number of child protection officials, number of children without parental care, participation of children with special development needs in kindergartens, young people who are not learning and have only acquired basic or lower education, etc.

For example, in the 2006 National Action Plan, the main targets set for 2008 were the following:

1) share of children living below relative poverty line: 17.8% (2% lower than in 2005)

2) difference between the absolute poverty rate of children (0-15 years) and that of total population: 7.9% (in 2004 it was 8.3% according to the old methodology).

In 2008, the main targets to be achieved by 2010 were the following:

2) share of children living below relative poverty line below 16.8% (18% in 2007)

3) share of households with children among the households receiving subsistence benefits below 30.1% (32% in 2007).

The first principle for social inclusion by the Estonian governments has always been that employment is the best protection against poverty and exclusion. Partly it is self-evident, because Estonian economic policy is to keep tax levels low and hence there is not much to redistribute in the form of benefits. And as the economy boomed and employment rates increased in 2000-2007, then indeed both absolute and relative poverty declined among children and it was easy to consider the targets of earlier years as fulfilled.

On the other hand, targets for 2010 are now clearly unrealistic as economic conditions have drastically changed, unemployment is increasing, and the government does not have any policy instruments to achieve the goals of reduction in child poverty.