The Debate Over PUA and the Post-COVID Return to Work: A False Dichotomy?

The Debate Over PUA and the Post-COVID Return to Work: A False Dichotomy?

Published on March 25, 2021 / Leer en español

Director, Madrid Policy Bureau

The recent public discussion in Puerto Rico over the Pandemic Unemployment Assistance (PUA) and the post-pandemic return to work seems to put social assistance benefits in conflict with participation in the labor market. Both, however, need to be seen as related: their interplay requires a fine calibration exercise. I would like to focus on one example: the Minimum Income, Insertion Rent or Social Solidarity Income, a cash benefit that many countries in Europe disburse to at-risk low-income households and that interacts with other measures that seek to encourage the attachment of economically vulnerable adults into the labor market.

Instead of considering them in antagonistic terms – social assistance vs. labor participation, “handout” vs “individual endeavor” – in Europe, Minimum Income schemes are seen as part of an integrated ensemble of social and economic measures that seek the social inclusion of the economically vulnerable population through employment, training and social assistance.  In that sense, Puerto Rico – where 43.5% of the population lives below the poverty level – could well refocus the discussion towards the type of measures that could foster the insertion (or reinsertion) in the labor market of those on social assistance due to economic and social vulnerability.

Simultaneously with the debate in Puerto Rico, Europe has started the discussion on how to implement a pan-European Minimum Income scheme. These programs currently exist at the national level, with great heterogeneity among them. The benefits are not exorbitant – they only provide a minimum income geared towards covering basic needs – but they serve to ameliorate the effects of poverty among recipients.

In Spain, for example, where one in four people is at risk of poverty or of social exclusion, the Vital Minimum Income is about 610€ each month (about $727) for a two-person home with an income of less than 600€. Greece recently implemented a Social Solidarity Income due to the acute impoverishment of its population caused by its economic crisis and debt restructuring plan. The program has been successful in significantly reducing the severity of the deprivation of its participants, 60% of whom belong to the country’s poorest decile.

The European Commission, however, considers that these national Minimum Income programs offer inadequate levels of support: only nine of the 26 countries that have this type of program actually succeed in lifting the participants to levels close to the poverty line. The majority of the programs either offer limited benefits or fail to achieve the adequate attachment of participants to the labor market. The frailty of labor force participation programs is one of the Achilles heels that the European Union (E.U.) seeks to address.

This is why the E.U. is proposing a pan-European minimum income and labor insertion program that would complement national Minimum Income programs. The proposal is framed within the EU’s Social Rights Action Plan (access to a dignified life is considered a social right), which integrates the components of employment and social assistance in a comprehensive action plan that has both social and economic objectives:

  • Employment goals (78% of the population between 20 and 64 should be employed by 2030)
  • Labor training goals (60% of the adult population should participate in training programs each year)
  • Social inclusion goals (people at-risk-of-poverty or social exclusion should be reduced by 15 million)

The idea is that minimum income programs focused on addressing economic vulnerability at the national level should be implemented in tandem with robust labor insertion programs; these, in turn, should take into account the changes that economic transformations are producing in labor markets. This is a complex task and involves much more than the punitive measures that we have recently seen in Puerto Rico or the typical job fairs that were set up on the island with public funds in the past.

Several researchers of the Torcuato di Tella University in Italy and the Center for Evidence-Based Policies in the U.S. examined over a hundred labor activation programs throughout the world. They found that insertion policies – cash transfers, salary subsidies, vocational training programs, individualized job search, for example – vary enormously and their effectiveness depends on their design, implementation, and economic context. In this sense, the institutional capacity of the state to design, coordinate, and execute these policies is of utmost importance. A growing economy and the availability of human capital development programs are also crucial for the success of labor implementation policies.

At the same time, labor insertion programs include a variety of support policies that seek to make work attractive to those in the lowest rungs of the labor market. Some of these are:

  • Minimum wage programs. In some countries (like the U.S.), the minimum wage is set by law. In others (Belgium), it is negotiated by sectors between sectoral business associations and labor unions. The bigger the difference between the minimum wage and social assistance payments, the greater the incentive to enter the labor force.
  • Reduction in income and social taxes for the lowest-paid echelons. This helps participants have a larger net disposable income, making insertion into the labor market more attractive.
  • Cash transfers through tax credits – such as the Earned Income Tax Credit that CNE has been advocating for since 2003 – that serve as income supplements. This type of policy is highly effective in economies where there is a high proportion of workers in low-wage jobs (U.S. and Puerto Rico). In economies with compressed salary structures and less workers in the lowest echelons of the wage scale, this sort of policy reaches less people or is too costly to implement, as Germany’s Institut zur Zukunft der Arbeit (Institute of Labor Economics) has found.
  • Child-care allowances. These are crucial for the insertion of women in the labor force, who still are the primary caretakers in many families.

In conclusion, the effective interplay between social assistance and labor insertion programs requires careful policy design and calibration in order to ensure that entry into the labor market is attractive and to avoid penalizing those facing social and economic vulnerabilities.