Poverty reduction during the COVID-19 pandemic: How did the European union perform relative to the United States?

Abstract

The COVID-19 pandemic led to declines in market income and increases in unemployment across much of the European Union (EU) and the United States (US), and had the potential to increase poverty rates. However, the US and EU Member States adopted vastly different strategies for mitigating the economic consequences of the crisis. Using EU-SILC data and the U.S. Current Population Survey, this study compares the poverty-reduction performance of the EU and US from before the pandemic to during the pandemic. We find that unemployment and market poverty rates increased in many countries, disproportionately more in the US than in the EU, but welfare states largely compensated for those losses. Post-tax/transfer poverty rates for the average EU country did not change from 2019 to 2020, and poverty decreased substantially in the US. The US experienced the largest pre-tax/transfer increase in poverty rates, yet also the largest post-tax/transfers declines in poverty rates from 2019 to 2020. This suggests an improvement from historically poor poverty-reduction performances and underscores a policy approach focused on income support, contrasting with the EU’s emphasis on short-time work schemes. Among all countries, changes in pre-tax/transfer poverty rates were not positively correlated with changes in post-tax/transfer poverty. Overall, welfare states generally increased their performance enough to prevent what could have been large increases in post-tax/transfer poverty during the first year of the pandemic, with the US increasing its poverty-reduction performance more than any EU country.