Dualisation versus targeting? Public transfers and poverty risks among the unemployed in Germany and Great Britain

Abstract

The paper analyses changes in the generosity of public transfers to the unemployed and their effectiveness for the alleviation of poverty risks in Germany and Great Britain between the 1990s and the 2000s. In the light of changing poverty risks among the unemployed, the contribution of policy changes is assessed using individual-level data on household incomes. The results indicate that the introduction and expansion of the tax credit programmes in Britain led to an increase of public transfers especially for those with low household market incomes and thereby also improved the effectiveness of transfers in combating poverty. In Germany, the generosity of transfers to the unemployed hardly changed over time, whereas the effectiveness of transfers to prevent households from falling into poverty declined. This can be explained by changes in the composition of the unemployed by recent labour force participation and household market incomes. As former labour market insiders are consistently better protected from poverty than former outsiders, the results confirm the stratified nature of unemployment protection in Germany, albeit no significant trend towards increasing dualisation in public benefits is found. Thus, the results do not support notions of a fundamental shift of the system of unemployment protection with respect to the generosity of transfers in Germany but emphasise the importance of changes in the German labour market.