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Recession, Recovery, and Regime Change: Effects on Child Poverty in Hungary

published 20 September 2017 updated 25 September 2017
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The relative well-being of children is, in principle, driven by a mix of socio-economic developments (business cycles, demographic trends, etc.) on the one hand and of policy responses on the other. When the paradigmatic elements of policies (the policy regimes themselves) change, things get more complicated. This is exactly what happened in Hungary, in the period between 2007 and 2014.

A new book, Children of Austerity: Impact of the Great Recession on child poverty in rich countries, published by the UNICEF Office of Research – Innocenti, provides a detailed account of the effects of the crisis on children in high income countries. The selection of countries (Belgium, Germany, Greece, Hungary, Ireland, Italy, Japan, Spain, Sweden, the United Kingdom and the United States) covers the whole spectrum in terms of their circumstances prior to the crisis, the severity of the crisis’ impact within their borders, and their national policy responses.

According to this book (Cantillon et al, 2017), the effect of the Great Recession on children was strong throughout Europe. Material vulnerability of households with children increased and child poverty peaked in most of the member states. Countries, however, differ not only in the characteristics of the crisis’ impact on children, but also in their reaction to their own shocks.

The Hungarian story begins with an apparent paradox: the poverty risk of families with children has been higher compared to the overall population since the early 1990s, despite the high spending on family benefits by any international standards, and despite a traditionally wide portfolio of family support, and the high poverty reduction effectiveness of cash benefits in the country. The relative failure of policies to better protect children comes partly from the fact that the share of children in very low work-intensity households was (traditionally) relatively high – due to educational shortcomings of the parental generations, to potential inactivity traps and to disincentive effects “by design” of policies.

The crisis period brought an even higher poverty risk for children: their poverty rate increased more than the rate for the population overall and more than the poverty rates among their peers in the European Union Member States. According to TÁRKI data, every sixth child was income poor in 2007, just before the outburst of the financial crisis, rising to one in four at the crisis’ peak. (A recovery followed in the post-crisis period, with a two percentage points decline in the poverty rate in 2014). The deterioration in the situation of children between 2007 and 2012 is even more visible when measures of absolute living standards (measured by anchored poverty rates or by material deprivation rates) rather than relative poverty rates (a manifestation of income inequalities) are examined. In addition, children in already high poverty risk groups (especially children living with low-educated parents, and living in households weakly attached to the labour market) were among those most affected by the crisis in terms of income poverty.

To better understand the role of policies in the above poverty trends, one must consider the specific aspects of the Hungarian financial and economic crisis on the one hand and a massive shift in the social policy regime that took place after the landslide victory of the conservative government in the spring of 2010.

Even prior to the outburst of the Great Recession, the situation was characterized by spirals of macro imbalances–spending cuts–poverty increases in Hungary. Moves towards workfare, conditionality, and activation policies (so important in a country that has suffered from very low economic activity rates since the beginning of the 1990s) started even prior to the massive political turn in 2010. However, they were placed at the center of social policy when the conservative government came to power: virtually all elements of the social system, including the traditionally large and complex family support system, moved in this direction (activation policies for the inactives, drastic cuts in the social assistance system, expanding conditionality at many levels of social policies and education, shifts from cash handouts towards tax allowances any many more - see Table 6.1. in Gábos and Tóth, 2017).

The increase in child poverty in the first phase of the crisis (2007–10) was driven by labour market processes. The share of children in low work-intensity households has increased, while the weakened, but still functioning automatic stabilizers reduced the magnitude of these effects. By contrast, in the second phase (2010–13), the main elements of the new regime made an impact: labour market processes started to improve (although mainly through controversial policy tools, like public work and outward migration) and the share of people (including members of families with children) living in low work intensity households decreased significantly, while the poverty reduction effect of the cash benefits started to decline due to the shift towards a regressive social policy regime. It should be noted that the decreased poverty reduction effect of social benefits was observed in the circumstances of declining pre-transfer poverty rates (again reflecting improved employment and decreasing share of children in low work intensity households).

More recently, there are signs of improvement in terms of poverty rates, both in the overall population and especially among children, according to both TÁRKI and Eurostat data. This very recent development, however, needs to be understood more profoundly before any predictions can be made regarding its future sustainability.

References

Cantillon, B., Y. Chzhen, S. Handa, B. Nolan (eds., 2017). Children of Austerity: Impact of the Great Recession on Child Poverty in Rich Countries. Oxford University Press.

Gábos, A. - I. Gy. Tóth 2017. Recession, Recovery, and Regime Change: Effects on Child Poverty In: Cantillon et al. (eds., 2017). Children of Austerity: Impact of the Great Recession on Child Poverty in Rich Countries. Oxford University Press. pp 118-145.

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