The Fight Against Poverty – Policy Options and Reality

Studienarbeit von Uwe Bußmann, Robert Marc Panz, Silvia Schweighofer

Introduction:

Ghettos of poor and unemployed people, homeless people, families relying on food banks, sick people without health insurance. There is a long list of people which comes into our minds when we think about poverty and people who are affected by it. If we search for an exact definition of poverty we will not find a single, universally accepted standard definition of it. Poverty is hardly measurable. Every interpretation is affected by credos of value. The ethical correctness of these trails to valuate poverty is scientifically not concluding appraised. The European Union’s working definition of poverty is:

‘Persons, families and groups of persons whose resources (material, cultural and social) are so limited as to exclude them from the minimum acceptable way of life in the Member State to which they belong’.

This definition is the basis of the valuations of poverty in this assignment. The variety of poverty shows how many groups of people in particular are at risk of becoming poor. In Germany the gap of income and the number of poor people in the society increased from the year 2000 to the year 2005 faster than in any other country of the OECD. Causes are the high unemployment rate in the year 2005 and a significant gap of income. Nobody can be excluded if we talk about the poor ones in future. High income during employment does not mean that there is enough money for times of unemployment or old-age-pension. When thinking about poverty we should never forget of what advantage it is to have a high old-age pension when you are lonesome and you have to pay for every help you need?

Policy options have to be divided in to groups:

Actions to prevent poverty.

Actions to help people out of poverty.

From a scientific point of view there is only one thing needed to stay out of poverty: enough money to sustain your expenditures. Therefore a well paid job is necessary. Minimum wages are a controversially discussed topic during the last months. Only an occupation with an adequate salary is good for covering all costs.

Another crucial point is to secure the old age pensions. Due to this the Federal Government promotes a 3-layer programme. The tax policy is also a point which can be influenced by the state. Prevention of excessive indebtness and a adequate asset accumulation are also important topics. Proper education is a crucial point to prevent poverty and likewise the core measure to get out of poverty. Only good education opens the doors to the well paid jobs. Some social groups are usually not able to get out of poverty on their own. Therefore help is needed. Especially for single parents, families with many children, drug addicts and disabled people as well.

Proper programmes for social housing or for improving language skills are often helpful for the poor. Here, the government has countless options to help people, but the realty is often different. In the fight against poverty the Federal government starts several actions to avoid and to help people out of poverty. The central statements behind these actions are:

Every person should secure his life by gainful employment at first.

Furthermore specific social transfer benefits should help to secure basic needs, especially for families.

They directly stress the responsibility of the successful fight against poverty lying in the hands of everyone. Especially one aspect implied in the first statement is important for every citizen: Gainful employment, everyone himself is responsible for, gives the chance to secure life. In the past poverty and employment were inseparably connected and mutual exclusive. As employment was taken poverty was banned, in case of unemployment poverty threatened. Today especially the first statement is no longer true without restrictions. The effectiveness of employment as major driver in avoiding and helping out of poverty was weakened. The reason is the increase of low-wage employees. The belief gainful employment can always secure life is no longer true.

The actual problem in Germany is a high amount of fully-employed people becoming poor. The expression ‘working poor’ describes working full-time in one and even more jobs earn wages under the existence minimum. Labour unions claim legal minimum wages in the different lines of business. The Confederation of German Employers BDA demands the negotiation of minimum wages by the bargaining parties, employer associations and labour unions. The free social market economy of Germany may not be influenced by law. The Federal Government established and renewed the ‘Mindestarbeitsbedingungsgesetz’ and ‘Arbeitnehmer-Entsendegesetz’, which do not give legal minimum limits. The laws ease the establishment of minimum wages in business lines. Low wages and the difference of income are one reason of the gap between rich and poor. To even this income differences the federal government introduce the progressive income tax rate. It attenuates the inequality of the gross incomes. But the gap between rich and poor is only less affected by the tax policy.

The other reason for the gap between rich and poor is the difference of assets. The gap increases because the middle-class decreases. More and more people become poor. Poor people are not able to establish coverage by accumulating asset. People who are able to accumulate asset need the right strategy. Capital investments offer different strategies to accumulate asset, from conservative to risky.

In the actual financial crises many people and companies have lost much asset. The trust of savers in the banking system and especially in shares hits the rock bottom. Today every possibility to accumulate asset is questioned. The coverage in old-age was formerly granted by legal pensions. But legal pensions are no longer safe, as it was belief for a long time. The ‘three-layer-concept’ of retirement provision offers possibilities to close the increasing gap. The intention is to support the conventional public old-age pension by two additional layers. Nevertheless every layer and every kind of provision has its own particularities which should be considered.

Poor and unemployed people are often threatened by indebtedness. Especially unemployed people are not able to pay back their bills and become excessively indebted soon. To leave this hopeless way debt relief and employment are the best means. In insolvency proceedings the debt relief is pronounced. From the year 2002 until now the annual increase of insolvency proceedings decreases. Additionally the average amount of indebtedness decreases in these years too.

The basic requirement for employment and therefore a central driver to avoid and to help out of poverty is education. Federal Chancellor Angela Merkel proclaimed the ‘Educational Republic of Germany’. One reason for her reaction is secondary general schools are in trouble. After graduation many youngsters stay in the transitional system for too long. They don’t find a vocational education. Another reason is even the vocational education has a problem. The participation in the Dual System in the vocational education decreases from 51.2 percent to 42.6 percent in 2005. This is an alarming development. Although the tendency is declining in the year 2005 to 2006 the efficiency of the Dual System should be improved even more.

Forecasts of the employment market show a growing demand for highly qualified employees between 2003 and 2020. The demand for low qualified people will reduce. According this forecast qualification and competence become the securing means of future, for everyone at anytime. This can only be granted by lifelong learning. Besides the stated major effects of policy options affecting the whole society there are some groups of people, which need special support: Single parents, families with many children, people addicted to drugs, homeless, disabled and migrated people are treated in detail.

Table of Contents:

	Executive Summary	I
	Table of contents	VI
	List of Abbreviations	IX
	List of Figures	X
	List of Tables	XII
1.	Introduction	1
2.	Problem Definition	2
3.	Objectives	3
4.	Methodology	4
5.	The Fight Against Poverty	5
5.1	Poverty – A Definition	5
5.2	How to Measure Poverty	7
5.3	The Variety of Poverty	7
5.3.1	Key Factors of the Risk of Becoming Poor	7
5.3.2	Poverty Among Poor Educated People	8
5.3.3	Child Poverty	9
5.3.4	Poverty of Seniors	10
5.3.5	Poverty Among Handicapped People	12
6.	The International Day for the Eradication of Poverty	14
7.	Poverty in Germany	15
7.1	The Risk-of-Poverty-Line in Germany	15
7.2	The Present Situation in Germany	17
8.	Prospective Poor People	19
8.1	Outsiders of Today are the Poor of Tomorrow	19
8.2	An Income Above the Average is No Relaxing Situation	20
9.	Policy Options Against Poverty	21
9.1	Actions to Avoid Poverty	22
9.1.1	Minimum Wages	22
9.1.2	Securing Pensions	23
9.1.3	Tax Policy	27
9.1.4	Asset Accumulation	27
9.1.5	Prevent Excessive Indebtedness	28
9.1.6	Education	28
9.1.7	Basic Education	29
9.1.8	Vocational Education	29
9.1.9	Lifelong Learning	30
9.2	Actions to Help People Out of Poverty	30
9.2.1	Education	30
9.2.2	Help for Single Parents	31
9.2.3	Language Skills	32
9.2.4	Aid for Families with Many Children	32
9.2.5	Help People Out of Drug-Addiction	32
9.2.6	Social Housing	33
9.2.7	Disabled People	33
10.	Reality – How Political Options Impact on Life The Status Quo – Facts	35
10.1	Policy Options to Avoid Poverty Impact Reality	36
10.1.1	Effects of the Policy Option ‘Minimum Wages’	38
10.1.2	Effects of Policy Options to Secure Pensions	41
10.1.3	Effects of the Tax Policy	45
10.1.4	Effects of Asset Accumulation	46
10.1.5	Effects of Policy Options to Prevent Indebtedness	48
10.1.6	Effects of Policy Options to Improve Education	50
10.1.7	Basic Education in Reality	51
10.1.8	Vocational Education in Reality	54
10.1.9	Lifelong Learning in reality	55
10.2	Policy Options to Help out of Poverty Impact Reality	56
10.2.1	Education	56
10.2.2	Effects of Policy Options to Support Single Parents	56
10.2.3	Effects of Policy Options to Improve Language Skills	57
10.2.4	Effects of Policy Options to Support Families with Many Children	59
10.2.5	Effects of Policy Options Against Drug-Addiction	60
10.2.6	Effects of the Policy Option ‘Social Housing’	63
10.2.7	Effects of Political Options to Support Disabled People	65
11.	Results	68
12.	Conclusion	69
13.	Integral Total Management (ITM) – Checklist	70
13.1	General Economics	70
13.2	Strategic Management	70
13.3	Marketing	70
13.4	Financial Management	70
13.5	Human Resources Management	70
13.6	Business Law	70
13.7	Research Methods/Management Decision Making	70
13.8	Soft Skills/Leadership	71
14.	Bibliography	72

Text Sample:

Chapter 9.1.3, Tax Policy:

Tax policy is the whole of tax actions of a state with policy objectives. Through tax policy the state pursuits the aim to generate income to cover all expenditures. The state is able to pursuit socio-political aims through tax reduction or tax increase. An effective instrument to even the income differences is in particular a progressive in-come tax rate. Within the tax reform of 2000 the Federal Government decreased the in-come tax rate radically. According to the judgement of the Federal Constitutional Court that the minimum living wage must be tax free, the German government increased the tax free level virtually every year. This goes along with a decrease of the marginal tax rate from 25.9% in 1998 to 15.0% in 2005.

9.1.4, Asset Accumulation:

Having savings in the bank is a good way to avoid poverty. In times of unemployment citizens are able to draw money from the bank and cover the financial gaps without being dependent on public benefits.

The Federal government offers mainly two types of investment:

Savings.

Acquisition of shares.

These are both appropriate to accumulate assets on a long range.

9.1.5, Prevent Excessive Indebtedness:

Debts are always a fast way to cross the poverty line!

Therefore is very important to prevent indebtedness before it begins. In 2002 approx. 9% of all households in Germany were over-indebted. Debtors are often not able to solve the problem on their own. For that reason they need help. The government financed debt counselling and measures for debt relief. This came along with a programme to educate indebted people.

9.1.6, Education:

The significance of education to prevent poverty is indisputable. School education and vocational qualification are the best way to participate on the job market as well as the best protection against unemployment and poverty. The European Union regards a graduation from secondary school as minimum qualification to participate in modern knowledge society and for the best prospects on the job market. In January 2008 the Federal Cabinet approved the draft law for the qualification initiative (i. e. Qualifizierungsinitiative).

It mainly contains actions to:

Improve education opportunities for children younger than six years of age.

Improve the permeability in the education system.

Improve the way to be promoted.

Improve the options of further education.

9.1.7, Basic Education:

Education does not start in school. Potentials of children should in fact be developed earlier and dependent on their age. Kindergartens, beside the family, have as places for infantile education a particular duty. In kindergartens talents – even from children of underprivileged families – may foster at an early stage and learning difficulties may be discovered early.

Primary schools cover the first four years of schooling (in Berlin and Brandenburg six years). They are attended by all children and provide basic education, preparing children for secondary schools. At the end of primary school parents and teachers have to decide which type school the pupils should attend further on.

Available are:

Secondary general schools (i. e. Hauptschulen).

Intermediate schools (i. e. Realschulen).

Grammar schools (i. e. Gymnasien).

Comprehensive schools (i. e. Gesamtschulen).

Special schools (i. e. Förderschulen).

This affects the life and future job options of the child profoundly. Therefore promotion of primary school pupils is essential. One out of eleven pupils in a grammar school lives in poverty, but every second in a secondary general school. Poverty is one causal reason for bad education. Out of 100 children who were considered to be poor during kindergarten only four manage to archive the entry qualification for grammar school – compared to 30 in well-off families. These are the results of a long term study by the Workers Welfare Federal Association from 1997 to 2005.

9.1.8, Vocational Education:

A Certificate of Education (minimum: Certificate of Secondary Education / Hauptschulabschluss) is necessary to get a proper chance on the apprenticeship market. The Federal Government takes actions to educate juveniles in the dual system of vocational education to decrease the number of untrained youngsters. Because a qualified apprenticeship is crucial for partaking and fulfilment in the community and the best protection against the risk of unemployment and income poverty.

9.1.9, Lifelong Learning:

Learning will not end after school, vocational training or university degree. Learning is an essential mean to shape an individual's chances in life. Lifelong learning is the keyword for coping with the job market, to finally get a school's or a vocational qualification or just for further training. Once archived qualifications are less and less sufficient to cope with the challenge of business and community. Continuing learning all lifelong is becoming more and more important to secure the participating on the job market permanently. The partaking in further education is low in Germany - compared to other countries. In particular, people with lower qualification do not take part in further qualification sufficiently.

9.2, Actions to Help People Out of Poverty:

13.5 % citizens of the total population live below the poverty line. These need help to become better off and – even more important – stay below the line.

9.2.1, Education:

As stated in chapter 9.1.6 proper education is the best way to prevent poverty, but it’s also a lasting way to get out of it. People with no or only basic education have a strictly limited access to well paid jobs or no access jobs at all. In 2006 7.9 % of all pupils left school without any graduation. However, without any graduation the prospects of an apprenticeship are very small. Thereby the vicious circle of poverty starts turning. The government provides different measures to help juveniles and adults to improve their education:

Help to get the Certificate of Secondary Education (i. e. Hauptschulabschluss).

Help to get an apprenticeship.

Help to make the change from Secondary Education to higher education entrance qualification easier.

Olaf Scholz (Secretary of State for Employment) even recommended a legal claim to achieve a Certificate of Secondary Education. This should be financed by the Federal Employment Office. But he wasn’t able to convince the CDU-parliamentary group.