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Journal of European

Social Policy
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The generational conflict reconsidered


Gsta Esping-Andersen and Sebastian Sarasa
Journal of European Social Policy 2002 12: 5
DOI: 10.1177/0952872002012001560
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Article
The generational conflict reconsidered
Gsta Esping-Andersen* and Sebastian Sarasa,
Universitat Pompeu Fabra, Spain

Summary The deteriorating trend in the


incomes of families with young children is of
increasing concern to both academics and
politicians. Since the well-being of the elderly
has improved concomitantly, many see an
emerging generational clash. We argue that
this zero-sum distributional trade-off view is
largely premised on an overly static analysis
and prefer, as an alternative, to examine the
age-distribution of well-being through the lens
of cohort dynamics. The aim of this article is
very policy applied, an attempt to identify a
win-win policy model that simultaneously
ensures child and elderly welfare. We argue
that social investments in children now will
have strong and positive secondary effects in
terms of helping maintain welfare guarantees
for the elderly in the future. The key lies in
minimizing child poverty, and we evaluate
which policy mix may prove most effective for
this end. We conclude that, in most countries,
the elimination of poverty in families with
children would be surprisingly affordable.
Key words families with children, family
benefits, mothers employment, poverty,
sustaining the welfare of the elderly

Introduction
The eclipse of the 20th century appears to
coincide with the waning of the old industrial
class divide. It remains an open question
whether an alternative class-based stratifica-

Rsum La tendance une dtrioration des


revenus des familles avec de jeunes enfants
constitue une inquitude croissante tant dans
les milieux acadmiques que politiques. Dans
le mme temps le bien-tre des personnes ges
sest amlior, et beaucoup y voit la possibilit
dun clash gnrationnel. Nous arguons que
cette approche dun change distributionnel
somme nulle est largement base sur une analyse compltement statique. Nous prfrons
adopter comme approche alternative la distribution du bien tre par ge la lumire des
dynamiques par cohorte. Lobjectif de cet article
est rsolument policy oriented et constitue une
tentative didentifier un modle politique
gagnant/gagnant qui assure en mme temps le
bien tre des enfants et des personnes ges.
Notre argument principal est que des investissements sociaux en faveur des enfants maintenant
auront des effets secondaires importants et positifs aidant maintenir les garanties pour les
personnes ges dans le futur. Llment cl est
de rduire la pauvret des enfants et nous valuons quel policy-mix peut tre le plus efficace
pour rencontrer cet objectif. Nous concluons
que dans la plupart des pays llimination de la
pauvret des familles avec enfants pourrait tre
de manire tonnante relativement peu chre.

tion system is evolving but, in the meantime,


both sociologists and economists have begun
to identify new cleavage patterns. One which
has sparked considerable attention is the possibility that chronos will become a battleground of conflicting interests (Preston,

* Author to whom correspondence should be sent: Prof. G. Esping-Andersen, Department of Political and
Social Sciences, Universtat Pompeu Fabra, 08005, Barcelona, Spain. [email: gosta.esping@cpis.upf.es]
Journal of European Social Policy 0958-9287 (200202)12:1 Copyright 2002 SAGE Publications, London, Thousand
Oaks and New Delhi, Vol 12 (1): 521; 021560

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Esping-Andersen and Sarasa

1984). The argument is that the welfare


claims of the elderly (ever more numerous and
electorally powerful) will be met at the
expense of youth (ever more the opposite).
Echoing this view, some see the emergence of
a new chronos politics (Hernes, 1987).
The generational-clash scenario is not
embraced by all (Mirowsky and Ross, 1999).
An early empirical reply to Preston (Palmer et
al., 1988) gives only very partial support to
the view, and this support is primarily limited
to the United States (where, indeed, public
support for families is unusually residual). In
Pampels (1994) important comparative work
an even more sanguine view emerges. He finds
that the capacity of the elderly to yield excessive distributional power depends on a
countrys political system. Hence, it is not
ageing as much as political decision systems
that drive spending allocations.
This article adheres to the sanguine view,
but offers a different argument, namely that the
youthelderly divide becomes far less zero-sum
when viewed through the lens of cohort dynamics. The well-being of tomorrows elderly will
depend very much on the welfare of tomorrows labour force. And since future workers
are todays children, it is not difficult to see that
social investment in children and youth may
constitute positive-sum politics. There is, in
addition, strong evidence in favour of Pampels
argument that if there is a trade-off , it is
probably more nation-specific than universal.
The notion of a generational clash may be
spurious insofar as it rests on a far too static
analysis. We need to approach the issue in
terms of cohort-specific dynamics. Adopting a
static, snapshot view of the world, todays
elderly undoubtedly appear well off. This is
perhaps less because their share of the welfare
state cake is unfairly large, and perhaps more
because they, as a cohort, are the beneficiaries
of historical fortune. Likewise, todays young
families often fare poorly. In part, some countries no doubt underinvest in youth programmes but, in part, todays young families carry
the burden of historical misfortune. Easterlins
(1987) observation that period-cohort effects

conspire interactively is a good point of departure for analysis. If we focus on trends, we


cannot disconnect the well-being of the elderly
tomorrow from the well-being of todays children.
Virtually all prognoses and simulation
models show that the problems of demographic
dependency and financial sustainability will
culminate some 30 years ahead (OECD, 1996;
1998; Storesletter, 2000). This implies that
future pensioner welfare is doubly conditional
on the life chances of children now: first, their
future productivity is an important precondition for financing the coming pension burden;
second, the better their lives, the better will
also be their welfare when, one day, they too
become elderly. From a policy-making perspective, then, solid investments in children
now enhance the welfare of future retirees.
This is the basic argument of the article. Yet
it does not automatically refute the generational clash perspective. For one thing, generational interdependencies may be argued
theoretically, but they may not necessarily be
perceived in political practice. For another,
our interdependence scenario is linked to
long-term dynamics. Between now and, say,
2030 lie 30 years in which a distributional
cleavage may very well assert itself. The
empirical case for the chronos conflict view
must therefore be examined more closely.

The chronos conflict scenario


The hypothesis of a looming chronos clash is
certainly not lacking empirical support.
Examining national social expenditure allocations, there is an evident bias in favour of the
elderly in some countries. But the variance is
considerable. If we exclude health expenditures (which are difficult to allocate by age),
the aged/non-aged spending ratio averages 1.7
in Continental Europe (ranging from 3.5 in
Italy to 1.2 in Belgium) and 1.2 in the
AngloSaxon countries (ranging from 0.7 in
Australia to 2.5 in the US). As a group,
Scandinavia is unusually youth-friendly with a

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The generational conflict reconsidered

homogenous spending ratio around 0.8.1


More tellingly, the aged-bias is growing in
some countries notably in the United States,
Italy and Japan; less so in Belgium and France.
At the same time, it is falling in Australia,
New Zealand, the UK and Scandinavia.
Of course, some of these differences are due
to changing population distributions. But even
a very rough correction suggests that these
explain little. For example, the two extremes
(Italy and Denmark) have an almost identical
aged-ratio. Or take the United States, an
unusually youthful OECD country, with an
aged/youth spending ratio almost 3 times the
Nordic. Evidently some of the bias comes
from non-demographic forces. The median
voter is ageing, and one consequence may be
that governments overspend on pensions at
the expense of the young and children. But the
electorate ages everywhere. Pampel (1994)
illuminates how the distributional clash varies
by national institutional arrangements. In
countries, like those in Scandinavia, with comprehensive interest organizations, the social
partners internalize distributive consequences
and, hence, are better at neutralizing the maximization strategies of special interests. In contrast, uncoordinated political economies such
as the US permit special-interest lobbies to
hold sway. In some cases interest organizations paralyse the national economy at any
hint of pension reform; in others, pension
adjustments flow from broad social accords.
The same conclusion obtains if we shift
from individual countries to a broader welfare
regime approach. Regressing the aged-bias of
expenditures (the aged/non-aged ratio for the
mid-1990s) on three regime dummies separately, the simple bi-variate coefficient is weak
and insignificant for the liberal regime (B =
.044; t= .26; R2 = .004). It is strongly (and
significantly) negative for the social democratic regime (B = .407; t = 2.68; R2 = .310).
And for Continental Europe, the effect turns
positive (and significant) with (B = .317; t =
2.44; R2 = .272). In other words, the agedbias is especially pronounced in Continental
(and especially Southern) European welfare

states. Scandinavian social democracies are, if


anything, youth-biased.
Lobbying power or not, part of the rising
pension dominance simply reflects policy
responses from a bygone era when poverty
among the elderly was indeed severe.
Historically, most advanced countries introduced mandatory retirement without backing
this up with adequate pension guarantees. In
response to the poverty crisis in the 1960s,
almost all countries launched sweeping pensions reforms, leading to broader coverage,
defined benefit guarantees with pay-as-you-go
financing and, hence, accelerated pension
spending. Soon after began the era of early
retirement. If the goal was to eradicate
poverty, the reforms were a success. To illustrate, US elderly male poverty dropped by a
factor of 5 from 1949 to 1980 (Smolensky et
al., 1988: Table 3.1). In some nations, poverty
in retired households has been virtually eradicated (< 5 percent in Canada, the Netherlands,
and Sweden). It remains fairly high in the UK
and the US (1520 percent), about half that in
France, Germany, Italy, and Spain.2 In many
countries, most pension-age households are
homeowners, and the average elderly household in Europe enjoys a disposable income
equivalent to 80 percent of the national mean
(OECD, 1998). Most of Europes remaining
elderly poor are widows or workers with
problematic careers, who end up depending
mainly on residual assistance pensions.
Those who warn against an impending generational clash can marshal additional facts in
their favour. There is, no doubt, some occasional pension overshooting (Italy is an oftcited case). Generous pensions must, in
addition, be gauged against the fact that
retired households typically possess assets
equal to 34 times their annual income stream
(OECD, 1998). As a result, the elderly often
command an income surplus that is, perversely, recycled in the form of intrafamilial
redistribution (Kohli, 1999; Esping-Andersen,
2000).
The comparatively modest outlays on youth
and families with children in many welfare
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Esping-Andersen and Sarasa

states are, similarly, an echo of past policy


assumptions. In the postwar decades, egalitarian policy for young people centred primarily
on educational expansion in the belief that
human capital and universal education were
the great levellers of class inequalities.
Additionally, spending on families was modest
because it was assumed that families were selfreliant: marriages were stable, and the male
breadwinner typically enjoyed excellent
labour market prospects. Low employment
among mothers was offset by husbands
income security and by the general practice of
a family wage (or marriage bonus) which
added roughly 5 or 10 percent to mens wages
(Montanari, 2000). Child allowances and
other family transfers mainly addressed the
income problems of very large households (3+
children was typical until the 1960s). As fertility declined, so too did many welfare states
support for families (Wennemo, 1994;
Gauthier, 1996; Kamerman and Kahn, 1997).
The problem is that stagnant (in some countries, eroding) social benefits now coincide
with an accelerating deterioration in young
households income position. Nonetheless,
during the 1990s we began to see a policy
reversal. Population-size adjusted spending on
child families has increased notably in
Australia and Scandinavia and also, if more
modestly, in Canada and the UK. But this
trend is far from convergent and youthspending continued to decrease in some countries (Germany in particular).
This spending shift coincides with some
decline in population-adjusted transfers to the
aged. Yet the relative disposable income of the
aged continues to rise in virtually all OECD
countries. If we take a long-term historical
view, the improved economic status of the
elderly looks spectacular simply because the
point of departure was problematic. As the US
example indicates, postwar retirement cohorts
were extremely vulnerable due to their life histories. Those who retired in the 1950s began
working before the First World War. Their
pension entitlements if they were covered at
all were often contribution-defined or

modest flat-rate benefits, and their careers


spanned a lifetime of war and economic crisis.
But when we move forward to the 1980s and
beyond, every single welfare parameter
changes. The recent retirement cohorts are the
triple beneficiaries of circumstance. They
spent most of their active life in periods of
rapid real-wage growth, full employment, and
rising job security with concomitant experience-based salary gains. In great part, they
became privileged insider workers. They
were also the chief beneficiaries of pension
upgrading during the 1960s, and when wage
growth began to stagnate in the 1980s they
came to benefit from rising returns to capital
(Thompson, 1998; Myles and Pierson, 2001).
The basic point is that the well-being of the
elderly is not solely due to generous public
benefits. Their relative disposable income is
equally high in countries with generous and
ungenerous public pensions (OECD, 1998).
Public pensions account for 85100 percent of
total disposable retirement income in countries like Belgium, France and Sweden, but
only 4050 percent in the AngloSaxon countries. So, the relative reliance on public or
private income sources matters little for
todays average retirees, but it does matter for
equality and poverty. The more dominant are
public pensions in the income mix, the lower
is the aged poverty rate.3 In brief, the aged
today are generally well-off because of historical circumstance. Indeed, if their well-being
appears immune to worsening economic conditions such as high unemployment, stagnant
real wages, or even to slight reductions in
transfers, this is not true for younger households.4
Poverty in todays families is rarely due to
large numbers of children. The underlying
problem is that the risk structure has changed,
shifting down the life cycle to young adults
and families with children. On the one hand,
this is driven by family change: new household forms (especially lone parents) and more
unstable marriages generate heightened risks
of child poverty, even when children are few.
On the other hand, changes in labour markets

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The generational conflict reconsidered

Table 1 Poverty rates and trends in families with children, 198095


Poverty
Rate
mid-90s
Denmark (1992)
Finland
Norway
Sweden
France
Germany
Italy
Netherlands
Spain (1990)
UK
US

2.9
2.1
3.4
2.2
7.1
9.4
17.2
8.1
9.5
15.5
19.3

Trend
198090s
0.2
+0.1
0.7
1.6
0.9
+7.1
+7.4
+5.0
0.9
+7.0
+2.5

Extreme poverty
Rate
mid-90s

Trend
198090s

1.3
0.8
1.6
0.9
1.3
4.0
9.4
4.7
3.5
4.7
8.8

0.1
0.1
+0.2
+0.4
1.9
+3.3
+6.0
+4.1
0.3
+2.7
+1.1

Notes: Estimates refer to households with head aged 2555 only. Poverty = 50 (extreme poverty = 33)
percent of median income of all households with children. Estimates based on the new OECD equivalence scale ( = .5).
Source: LIS.

generate inequalities and potential exclusion


that, in most countries, affect younger households most severely. The school-to-work transition has become much more tormented,
unemployment often concentrates among the
young (and in couples), and wage decline
affects younger, low-skilled, and inexperienced workers the most. The share of children
who live in a no-work household has
increased by 32 percent in the EU since the
mid-1980s (Micklewright and Stewart, 2000:
Table A4). Hence, the pervasive rise in
national income inequalities correlates positively with worsening conditions among
younger households with children.5

Generations and welfare state


redistribution
International differences in generational wellbeing are clearly the product of historically
specific economic circumstances (some cohorts
are historically lucky, others less so) but also
of nation-specific policy choices. Some welfare
states are evidently better equipped to smooth
periodcohort interaction effects. The Scandinavian youth-bias in spending is clearly not

bought at the expense of pensioners, whose


poverty rates are internationally very low and
whose average disposable income parallels the
OECD norm of roughly 80 percent of the
median (OECD, 1998). Its youth-friendly
profile includes generous and universal child
allowances but, arguably, the real thrust
comes from huge investments in family services and active labour market policies which
simultaneously ensure that virtually all
mothers work and that costly early retirement
spending is comparatively lower. The policy
mix appears successful if measured against the
internationally very low and falling child
poverty rates (the average is 2.6 percent, see
Table 1). The combination of basically universal, well-paid female employment (upheld by
day-care provision) with generous subsidies to
households with children surely accounts for
the outcome.
This mix obtains nowhere else. In the
AngloSaxon nations, family benefits
increasingly work-conditional are incometested and serve in great part to offset low
wages. The Australian (and Canadian) programmes are more generous and comprehensive and this may explain why child poverty
has declined far more than in the UK and the
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Esping-Andersen and Sarasa

10

Table 2 Working-age population (198595). Trends in inequality of disposable income (Gini), and the
relative impact of trends in earnings and government redistribution

Australia
Canada
UK
USA
Denmark
Finland
Norway
Sweden
France
Germany
Italy
Netherlands

% Gini
(disposable income)

due to
earnings
inequality

due to
transfersa

due to
taxationb

1.6
+0.1
+3.1
+0.6
0.8
+3.0
+2.1
+2.3
+1.0
+2.4
+3.7
+2.1

+4.6
+1.0
4.4
+3.6
+2.9
4.2
+4.2
+3.6
+3.0
2.1
2.3
+4.2

0.3
0.3
+0.4
+0.3
1.4
1.3
0.3
0.4
0.9
1.7
+0.7
0.3

7.6
5.0
+1.4
0.7
0.1
+0.1
+3.7
5.9
2.4
+1.3
2.1
+3.7

Notes:
a This includes all types of public cash transfer benefits.
b This includes also the value of deductions for tax purposes and tax credits.
Income from capital and self-employment excluded. (Equivalence scale = 0.5.)
The row data do not sum up due to the omission of incomes from self-employment and capital.
Source: OECD data from Oxley et al. (1999).

US. The poverty trap inherent in British (and


until recently US) aid to lone mothers additionally promotes sustained child poverty in
lone-parent households: in the UK, 16 percent
in 1995, an increase of 8 percentage points
since 1980; in the US, 19 percent, an increase
of 2.5 percentage points (LIS data estimates).
Since day care is basically private, the implicit
tax on low-income mothers work may be
very high. The worrisome increase in child
poverty in some Continental European countries with an often alarming rise in extreme
poverty must, likewise, be linked to the
combination of parental labour supply and
social policy characteristics. With a few exceptions, child allowances are ungenerous and
public child-care subsidies virtually nonexistent. Worse, social insurance systems are
poorly equipped to offer more than residual
assistance benefits to needy households. And
nowhere is the youth concentration of unemployment as severe as in Continental and
Southern Europe. Families remain far more
stable, but new market inequalities nonetheless

generate poverty in families with children, and


employment rates among mothers remain
quite low. An overview of poverty rates and
trends is presented in Table 1.6
Working-age household poverty is principally a question of unemployment, labour
supply, and earnings power. All three have
contributed to the observable increase in
income inequalities over the past decades.
And, clearly, this affects the resources of families with children. As we noted earlier, child
poverty rises 1.1 percentage points for every 1
point increase in the Gini coefficient of
income distribution. This suggests that (with
some exceptions) welfare states do not
manage to fully stem the tide of inequality. As
shown in Table 2, Denmark and Australia are
exceptional in that significant increases in
earnings inequality do not result in more final
income inequality. In Denmark, the main
thrust comes from transfers; in Australia,
from the negative income tax policy.
To summarize, families with children face
deteriorating economic conditions while

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The generational conflict reconsidered

pensioners continue to do well. But there is


very little evidence that the twain are interrelated; that families with children are poor
because the welfare state devotes too much to
the elderly. The fallacy behind the generational
clash argument is, in part, due to the use of
unwarranted cross-national means. Some
nations may provide overly generous pensions,
but most do not. And, some of the very same
countries which guarantee high levels of pensioner income security (like Scandinavia) also
give strong distributional priority to families
with children. Likewise, other countries, such
as the UK and the US, manifest high poverty
rates among the aged and children alike.
Additionally, a sometimes huge burden of
pension expenditure goes to early retirement
(30 percent of the total in Italy). The rising
expenditure allocations in favour of the aged
may therefore simply mirror problematic
labour reduction policies. It is symptomatic
that early retirement is modest in Scandinavia
and extraordinarily high in Italy. Finally, the
cross-national correlation between aged and
youth poverty trends (.486) is positive, implying that adverse (or favourable) poverty trends
among children are shared by the aged.

The case for abolishing child poverty


From any angle, the issue of rising child
poverty is an acute problem. Since the 1980s
it has risen in 6 out of the 10 countries we
examine, most sharply in the UK, Germany,
and in Italy (by about 7 percentage points). In
part, this is undoubtedly due to unemployment and declining parental earnings; in part
due to the especially precarious position of
(growing) numbers of one-parent families. In
several nations it is also due simply to eroding
social benefits for families with children (here
Germany and Italy stand out). And lonemother poverty is everywhere substantially
higher: quite modest in Scandinavia (57
percent) and extremely high in European
countries like Italy and the UK (32 percent)
and Spain (23 percent); in the United States

11

(with 45 percent), lone-parent poverty appears


almost inevitable (estimated from mid-1990s
wave of LIS data).
The demographic and labour market
induced risks of poverty among families with
children can be offset by increased household
labour supply (mainly by mothers). Thus,
with two incomes the risk of child poverty
declines by a factor of 2 or 3 in comparison
with one-earner families, and lone-mother
poverty declines to half if the mother works
(Esping-Andersen, 1999). But for mothers
with small children, labour supply is generally
conditional upon affordable day care. Hence
welfare state servicing may be crucial.
Child poverty, like all poverty, means hardship. But unlike aged poverty, it has strong,
long-term negative consequences for both
individuals life chances and for society at
large. We know from American research that
childhood poverty is strongly associated with
less schooling (on average, 2 years less), criminal behaviour, various psychological pathologies, and with lower earnings in adulthood
(on average, 30 percent less than children who
were not poor). Children of poor families are
also much more likely to become poor themselves and, thus, to reproduce the poverty syndrome across generations (Haveman and
Wolfe, 1994; 1995; Duncan et al., 1998).
European research (Gregg and Machin, 2001)
comes to similar, if somewhat less dramatic,
conclusions.7
The collective problem of childhood
poverty is its negative externalities. If it translates into less educational attainment and cognitive skills, the second-order effect is a mass
of low-productivity and low-paid workers,
highly vulnerable to unemployment and low
pay, who will yield less revenue to tax authorities. This effect is bound to intensify in knowledge-intensive economies.
Child poverty (and, generally, income
inequalities) is, in fact, strongly correlated
with cognitive inequalities (Gregg and Machin,
2001). Regression estimates suggest that a 10
percent rise in child poverty may imply an 8.5
percent increase in the share of adults who fall
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12

Esping-Andersen and Sarasa

into the lowest (basically dysfunctional) level


of cognitive abilities.8 In turn, low cognitive
abilities, such as low educational attainment,
are powerful predictors of unemployment.
With very little cross-national variation, the
unemployment risk doubles among low-cognitive adults (OECD, 2000).
It follows that investing in the minimization
of child poverty now will yield better earnings
prospects, improved productivity, superior
abilities for lifelong learning and retraining in
the future. This will diminish the risks of oldage poverty 30 or 40 years hence (and possibly also the need for early retirement), and
this will strengthen the financial sustainability
of pension systems between now and
203040. In other words, it is possible that a
policy of abolishing child poverty may constitute a productive investment that is not only
efficiency optimal in Paretian, but also in
Rawlsian terms.

How to minimize child poverty


Income alone is a narrow measure of deprivation. Children may do very well even if they
grow up in a low-income household (Bill
Clinton and Rockefeller grew up poor), and if
the family can compensate with strong cultural and social capital, the potential damage
may prove nil. Yet it is the only reliable comparative statistic available, and its predictive
power has been very well proven.
Poverty in families with children may be
brief and sporadic, or it may be lasting.9 It may
hit when children are young (and parents
earning power is weak), or later (due to
divorce, unemployment, or to wage decline).
Research is still too undeveloped to give us
clear answers as to when and how childhood
poverty is most damaging, but there is strong
evidence that deprivation in early childhood is
the most problematic. The context in which
income poverty occurs may also be influential.
It is by now well established that lone-mother
poverty may have substantially worse consequences than poverty within stable two-parent

families (Duncan et al., 1998). However, childrens well-being improves dramatically when
(and if) lone mothers remarry or cohabit in
either case, the transition almost doubles
household income (Morrison and Ritualo,
2000). The important point here is that we
need to make sharp distinctions by household
type.
Undoubtedly, the growth of womens
employment is mainly driven by higher educational attainment, better earnings prospects,
and by desires for economic independence.
But it is surely also motivated by (young)
males eroding labour market fortunes and
their weakened ability to guarantee adequate
living standards. Today, as always, employment income remains the single most powerful
bulwark against poverty. But at the lower end
of the earnings scale and especially when
households are excluded from employment,
transfer dependency is intensifying. This we
see among the growing number of lone-parent
and no-work households. Yet transfer
dependency can and is being effectively
reduced in some countries by the provision of
child-care services. Unaffordable care can be a
very powerful poverty trap for low-income
families. If, as is typical across much of
Continental Europe (and North America), the
cost of full-time, quality care per child exceeds
a third of mothers expected earnings, the
resulting real tax on her employment becomes
prohibitive (Meyers and Gornick, 2001). The
resulting outcome may be perverse: highincome women will be able to afford care,
low-income women will not, notwithstanding
that the urgency of affordable care is greater
among the latter. Marital homogamy (marriage between a man and woman of similar
social status and background) obviously reinforces such inequalities.
Let us, for analytical purposes, boil the
issue down to two basic factors: the earnings
capacity of households with children (which,
in turn, may be directly related to access to
affordable day care); and the level of social
benefits to which they are entitled (which may
help defray the cost of children). In order to

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13

Table 3 Logistic regressions of poverty in families with children. Two-parent households only
(mid-1990s)
Denmark Sweden
1992
1995

USA
1997

UK
1995

France Germany
1994
1994

Italy
1995

Spain
1990

All families with children


Number of children
Father no work
Mother no work
Log-transfers
N=
Chi2

2.08c
2.25c
2.96c
0.72c
2,653
36.81

1.46b
1.32c
1.19
4.24c
1.34c
8.84c
20.28c
3.08c
2.13c
0.35c
1.68c
0.83c
3,975
13,802
1,801
145.26 3,168.72 174.69

0.96
8.27c
4.05c
0.93b
3,617
216.11

1.48c
12.01c
3.03c
0.98
1,811
139.67

1.04
2.04
6.29c
0.05c
904
251.13

0.86
6.42c
1.19
0.18c
701
202.89

1.05
4.32c
1.28
0.23c
256
68.59

1.74c
1.77c
9.09c
6.16c
5.51c
3.02c
0.90c
1.00
2,461
8,892
391.68 658.20

Pre-transfer poor only


Number of children
Father no work
Mother no work
Log-transfers
N=
Chi2

1.93b
2.36
3.01
0.07c
463
191.72

1.07
0.99
1.54c
21.96c
1.94c
1.41
0.42c
0.07c
2,780
384
289.89 159.75

1.73a
5.89c
4.02
0.05c
465
290.92

1.14
4.49c
1.82b
0.12c
1,382
876.50

Notes: Dependent variable : poor (less than 50% median equivalent disposable income). All missing
values and also households with negative final disposable income have been eliminated. Note also that
declared zero transfer income has been altered to 1 (e.g. pta1, or $1) so as to permit log transformations of the transfer income amounts. For measurement details, see Note 2.
a p = < 0.1; b p = < 0.05; c p = < 0.001
Source: LIS databases.

isolate the relative salience of either, we analyse


two-parent (in Table 3) and lone-parent (in
Table 4) households separately. Tables 3 and 4
both present logistic regression estimates of
the risk of poverty, conditional upon parental
employment status (a simple dummy of
employed or not) and the size of public income
transfers, controlling for number of children.
Since we are concerned with the poverty risk
in terms of final disposable income, we prefer
to conduct two sets of estimations: one for all
families with children, and one specifically for
such families who are poor before transfers. In
the first, we identify the relative importance of
fathers and mothers employment, controlling
for social transfers and number of children. It
stands to reason that the poverty-reduction
effect of social transfers will be weaker in
households where parents work, basically
because they are unlikely to be poor to begin
with. The second set of estimations, limited to
pre-transfer poor households (with presumably very low work incomes), is more directly

aimed at identifying the ability of social transfers to combat poverty.10 Simply put, the top
part of the table tests the parental employment effect; the lower part, the social transfer effect.
We follow the now typical regime-comparison approach (Esping-Andersen, 1999). To
also capture intra-regime variation, we match
two countries from each of 4 distinct welfare
regimes: the liberal AngloSaxon (UK and the
US), with its tradition of targeted assistance;
the social democratic (Denmark and Sweden),
with its comprehensive, universalistic and
women-friendly approach; the traditional
core conservative Continental model (France
and Germany) in which social benefits are
strongly tied to regular employment; and the
far more rudimentary and residual variant in
Southern Europe (Italy and Spain), where
family policy is unusually undeveloped.
The results are partly predictable, partly
surprising. As one would anticipate, the number of children is positively related to poverty
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14

Table 4 Logistic regressions of poverty in families with children. Lone-parent households only (mid1990s)
Denmark Sweden
1992
1995

USA
1997

UK
1995

France
1994

1.48b
6.64c
0.63c
470
63.17

1.08
7.55c
0.96
422
62.63

1.43c
1.29
4.76c 24.28c
0.37c
0.01c
2,307
371
301.07 165.79

1.19
13.96c
0.07c
219
77.27

Germany Italy
1994
1995

Spain
1990

1.57
2.33a
0.94
180
9.11

2.37b
4.56c
0.95
150
22.03

1.36a
3.32c
0.96
471
23.66

1.05
1.09
0.29c
90
21.50

0.48
2.86
0.09b
72
42.91

0.70
4.23b
0.15c
214
93.67

All lone-parent families


Number of children
Parent no work
Log-transfers
N=
Chi2

1.30
7.80c
0.60b
541
28.76

1.41
1.53c
117.56c
4.58c
0.09c
1.36c
498
3,982
72.11 1,131.45

Only pre-transfer/tax poor families


Number of children
Parent no work
Log-transfers
N=
Chi2

1.00
18.81c
0.03c
289
77.12

1.02
23.85c
0.02c
267
93.52

Notes and sources: see Table 3.

in countries where the family benefit package


is ungenerous (countries which rank below the
mean in generosity using the Ditch et al. (1998)
measure). It might seem more surprising that
the number of children matters much less
among pre-transfer poor families. Yet in this
case, income support whether targeted or
universal is usually more generous and more
in tune with the size of the household in most
countries.11
Furthermore, as a large feminist literature
shows, there are important national differences in the degree of male-breadwinner
dependency (OConnor, 1996). This comes
out in a comparison of the odds-ratios for
fathers and mothers employment effect on
poverty. If we begin with the all families with
children estimations, the male-breadwinner
bias is noticeable in France, Germany, Italy,
Spain and the UK, while it is basically the
opposite in Denmark, Sweden and the United
States. A singularly spectacular case is
Sweden, where the odds of poverty increase
by a factor of 20 if mothers do not work. But,
more generally, there is no country in which
mothers employment would not reduce the
poverty risk substantially. When we limit our
focus to households that would have been
poor without transfers, the relative importance

of parental employment remains the one


major exception being that mothers employment status becomes insignificant in countries
like France, Germany and Italy.12 In this
respect, the confrontation between Sweden on
the one hand, and Continental Europe on the
other hand, is quite telling. Sweden secures
minimal child poverty by a combined strategy
of generous transfers and support to working
mothers. In Continental Europe (and the UK)
families depend far more on the conventional
male breadwinner.
Regardless, the principal interest of the pretransfer poor families analyses is that they
enable us to gauge better the effectiveness of
the transfer system. Concentrating on prepoor families means examining households
where work income, to begin with, is modest.
Scanning the odds-ratios for transfers within
the pre-poor subsample, it is evident that the
family benefit package is quite effective in just
about all countries. In some, like Denmark,
Italy, Sweden and the UK, it is very effective
indeed (odds-ratios lower than 0.1, implying
that the odds of poverty are reduced by a
factor of 9+). It is somewhat less effective in
France, Germany and Spain and, as is widely
known, quite ineffective in the United States
(an odds-ratio of 0.42).13

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For obvious reasons the combination of


social transfers and work income functions
very differently in one-parent families. Since
the vast majority consist of lone mothers,
transfer dependency will generally be stronger,
and the ability to work in the first place is
conditional upon access to day care, school
hours and, often, on the availability of parttime jobs. In Table 4 we present analogous
logistic regression analyses for lone-parent
households.
As we now turn to lone parents (i.e. mainly
lone mothers), we must first note two circumstances which influence interpretation. One,
the sample size is smaller, especially for Italy
and Germany. This augments statistical uncertainty. Two, the confrontation of all loneparent families with pre-transfer/tax poor
families is influenced by the fact that the
share of all who are poor is quite high
(roughly half in most countries, two-thirds in
the UK) to begin with.
In any case, the results from the one-parent
analyses are by and large in line with those
from Table 3. In some countries Italy, the
UK and the US the number of children
noticeably increases poverty risks and in
others (like Scandinavia), not at all. Parental
work is evidently also crucial, much more so
where mothers employment is the norm.
Among the pre-poor households one notes
the absence of a significant effect of employment in Germany and Italy.
For lone-parent families, the poverty reduction effect of social transfers is generally
greater than for two-parent families (and,
again, somewhat weaker in the case of all
families). Furthermore, the US and Germany
continue to stand out in terms of the internationally weaker ability of the family transfer
package to combat poverty.14
The overall lesson that emerges is quite
clear, namely that the most effective ways to
reduce child poverty combine adequate income
support with, especially, mothers employment. Where the two go together, as is especially the case in Scandinavia, child poverty
almost evaporates; where neither obtains (as

15

in Italy and, to a degree, Germany), it remains


high. On the one hand, the main culprit may
be ungenerous social benefits (as in the US,
Italy and Spain) and, on the other hand, the
culprit may be obstacles to mothers working
(as in Germany).

The costs of eradicating child poverty


A policy paradox of our times is that the associated costs of child poverty can be very high,
both to individuals and to society, and yet the
costs of eliminating the problem turn out to
be very modest indeed.
As a thought-experiment, let us for the
moment abstract from fathers contribution to
the welfare of families with children. This
makes sense since it tends to be rather fixed:
fathers are usually the ones working (or collecting unemployment or pension benefits) in
two-parent households. They are usually absent
in one-parent units. In contrast, mothers
employment and the generosity of social transfers are far more variable, and are theoretically
more responsive to policy. Which policy (or
policy combination) might then most effectively and cheaply ensure zero child poverty in
any country regardless of the number of
children?
Continuing our thought-experiment, if we
hold all other factors constant, we might
interpret the results in Table 3 as follows:
child poverty would decline to half in the UK
(and to about a third in the US, Germany and
Spain) if all mothers were employed.15
Universalizing mothers employment would
not fully eradicate poverty, but it would result
in a substantial drop (to 34 percent in
Germany and Spain, and to 78 percent in the
UK and the US). To be sure, the motheremployment strategy would inevitably require
alternative public expenditure, such as subsidized child care and, arguably, a womenfriendly welfare package of paid maternity
and parental leave. A second policy strategy
would be to focus on family transfers, raising
them to the rate necessary to bring families
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Esping-Andersen and Sarasa

Table 5 The cost of eliminating child povert (national accounting estimates, 1990s)a
Cost base
Number of
poor families
with children (000s)
Denmark (1992)
Sweden (1995)
France (1994)
Italy (1995)
Spain (1990)
UK (1995)
US (1997)

19
25
315
1,033
531
1,210
6,665

Additional spending required to reach zero poverty


Poverty gap
(in local currency)
31,554
33,108
9,268
3,871b
125,153
1,256
3,613

Extra spending needed


(% of GDP)
0.07
0.05
0.04
0.23
0.13
0.22
0.30

Notes:
a Estimates are based on the objective of bringing poor families with children above 50% of the
median-adjusted disposable income line. We ignore the fact that doing this would alter the overall distribution and, thus, also the median.
b Thousand lire.
Source: LIS databases and OECD National Accounts.

above the poverty line. A third approach, of


course, would be to include both strategies.
If we were to rely entirely on public transfers
to attain a zero-poverty rate (given existing
parental employment patterns), the cost calculus would be a simple arithmetic function of
[(no. poor households poverty gap)/GDP].
The cost of bringing all families with children
above the existing 50 percent of equivalent
median income would, in most countries, be
cheap.16 Since Nordic poverty rates are
already close to zero, obviously the additional
cost would be minute. At the other extreme,
high poverty rates combined with large
poverty gaps (as in the US) require more substantial spending requirements (see Table 5).
Returning to the mothers-employment
strategy, this would also require additional
public expenditure, mainly in the form of
ensuring affordable day care. Here we need to
establish some reasonable benchmark of
affordability. An obvious choice would be
Danish standards, considering that virtually
all Danish mothers with small children
(including lone mothers) are employed, and
given that Denmark boasts the worlds most
comprehensive day-care coverage. The current
Danish parental copayment norm is 30
percent of total cost per child, but lone

parents and assistance recipients are exempt


from payment (Meyers and Gornick, 2001:
Table 5). With this benchmark, what would
be the comparable public outlay elsewhere?
Across Europe, private day-care costs appear
surprisingly similar. For licensed urban daycare centres (ages 03), the annual, full-time
cost per child is roughly L.910m in Italy,
pta460,000 in Spain, and 4,000 in the UK.17
This would, with little variation, eat up about
one-third of a mothers expected net earnings
in all three countries (assuming an average
wage income). Child care is, in other words, a
huge implicit tax penalty on (and, hence, negative incentive for) average womens employment. To reach the Danish cost-benchmark,
the Italian government would need to furnish
subsidies equivalent to L.67m annually per
child, the British equivalent to 2,700, and
the Spanish roughly pta310,000. A rough
national accounts calculation, based on
Spanish data, suggests an additional treasury
outlay of pta3.54b, or a little less than 1
percent of GDP per year, assuming 2 children
on average per mother. For other countries
which like Spain rely almost exclusively on
private care provision, the added treasury cost
is likely to be rather similar.
The servicing strategy in favour of maternal

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The generational conflict reconsidered

employment will no doubt prove more costly


than the transfer strategy. Leaving aside the
complexities of a combined dual strategy, the
two policies also represent two distinct
philosophies with distinct secondary effects.
Our transfer strategy is clearly targeted exclusively to households with less than 50 percent
of median disposable income. Such targeting
could in principle be premised on a negative
income tax method or, as in Scandinavia, on
universal and equal family benefits. Our very
modest additional transfer-cost estimates
would obviously rise considerably if a universal child allowance scheme were adopted: in
Italy, the additional expenditures for a universal plan would amount to 2.4 percent of GDP,
and in Spain to 1.4 percent. If government is
concerned with re-distribution in favour of the
neediest households, family benefits might be
taxable.
The servicing strategy, in contrast, is universalistic, providing similar and equal benefits to
rich and poor alike. Again, government might
prefer to allocate child-care subsidies on a targeted basis, and this would certainly lower
public outlays.18 Besides the standard repertoire of externalities and moral hazards associated with targeting, there is actually a strong
actuarial case to be made in favour of universal day-care policy, namely that working
mothers will quite likely reimburse the subsidy
via higher tax payments throughout their
working life. If day care minimizes womens
employment interruptions, their cumulative
lifetime earnings increase substantially, implying augmented future tax revenue.19
Yet actuarial justifications for a universal
child-care policy are hardly necessary for
those EU member countries that fall far short
of the new Lisbon guideline of a 60 percent
female employment rate by 2010. In the case
of Italy and Spain this means a 235 percentage point growth over the next 10 years.
Regression simulation suggests that each 10
percentage point increase in day-care provision raises mothers employment rate by
roughly 5 percentage points (controlling for
family transfers and fertility) (Esping-Andersen,

17

1999). Hence, and all else being equal, Italy


and Spain might reach the 60 percent goal by
expanding day-care coverage to 43 percent
(compared to their current coverage rate of
35 percent). When we consider that Danish
day-care coverage is 57 percent, this may
appear possible. But considering that it took
Denmark 30 years to reach this level, countries like Italy and Spain would need to
produce annual growth rates three times as
high as did Denmark.

Conclusions
We have deliberately pitched the analysis in
terms of applied policy relevance. We start
from one indisputable stylized fact, namely
the precarious economic situation of contemporary families with children in many countries. Since the worsening welfare of children
seems to coincide with steady improvements
among the elderly, and given perceived budgetary limits and little room for additional taxation, it is tempting to see the problem in
terms of an impending zero-sum distributive
clash between young and old.
This is a false trade-off if governmental
efforts to minimize child poverty constitute a
positive-sum, or win-win, policy that benefits
the aged too. There are two key arguments
behind this view. First, within a dynamic perspective, the welfare of todays children will
dictate their life chances as adults and, further
ahead, the resources they command when they
reach retirement age. The long-term sustainability of pensions can be better secured by
raising the productivity and labour supply of
the working-age population. All in all, social
expenditures that alleviate child poverty today
arguably constitute a productive investment in
our future. Second, the additional expenditures required may prove surprisingly modest.
Targeted income maintenance to eliminate
child poverty would everywhere be very
cheap. While the universalistic alternative is
far more costly, the value of child allowances
will also help defray part of the cost of child
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18

Esping-Andersen and Sarasa

care. Likewise, universal day-care subsidies


would be quite costly but the additional spending requirement will decline when existing tax
deduction schemes are (logically) abolished,
and a large part of the necessary outlays will
be recovered dynamically through the added
tax payments that lifetime female employment
engenders.
A purely transfer-based strategy while the
cheapest may not be the most efficient
option. Our analyses confirm how important
is mothers ability to work, particularly in
lone-mother households. In fact, it is well
established that the recent rise in childrens
poverty is closely linked to the growth of nowork households. In countries with low
female employment, the odds of child poverty
fall by a factor of 35 when mothers work. If,
as we have seen, the poverty gap in most
countries is quite small it is likely that the
mothers-employment strategy will prove a
more effective one against poverty because,
for most families, mothers additional work
income, even via part-time employment,
would easily close the poverty gap.
Recent academic work highlights the huge
variability in nations family policy (Gornick
et al., 1997; Ditch et al., 1998; Bradshaw, 1999;
2000). The renewed interest in family welfare
is, perhaps, first and foremost stimulated by
the apparently worsening conditions that families face. But we believe there is, additionally,
a more generic ongoing change occurring,
namely that the family is no longer, as it was
once, prepared to fully internalize the full cost
of children. As long as the one-earner family
was the norm, the cost was a simple matter of
the additional consumption outlays associated
with yet another member. As women abandon
housewifery, the calculus must also include the
opportunity cost of having children in the first
place. And, if males earning power is declining, then clearly the importance of womens
earnings increases for household living standards. In brief, the real challenge to 21stcentury family policy lies in the changing
parameters which define the social and individual benefits and costs of children. And it is

very possible that the way we distribute the


costs of children today will affect our ability to
shoulder the financial costs of ageing tomorrow.
Notes
1

Calculated from OECDs social expenditure


database. The main items in aged spending are
old age and widows pensions and services to
the elderly. Youth spending includes family
transfers and services, unemployment, work
accident and sickness benefits, active labour
market programme spending, and maternityparental leave benefits as the main items.
Based on LIS-data estimates for the mid-1990s
waves (except for Spain, which refers to 1990).
The poverty measure used here (and throughout the article) is less than 50% of equivalent
median income, using the new OECD equivalence scale of = 0.5.
The bi-variate correlation between the relative
size of private pension incomes and retired
household poverty rates is r = .595 (based on
LIS data, n = 12. Sweden was excluded).
In fact, the population Gini coefficient has risen
in most OECD countries and so has the relative
disposable income of aged households.
Mirowsky and Rosss (1999) US study shows
that the odds-ratio of economic hardship is 4
times higher in households under 40 years of
age than in retired households.
The bi-variate correlation between Gini and
child poverty (198595) is + .691 for 15
OECD countries. In OLS regressions, every one
point increase in Gini raises child poverty by
1.1 points (regression estimates based on
OECD data from Oxley et al., 1999).
In Spain, however, child poverty has remained
basically stable at 1012% between 1980 and
1990. Note that our estimates (from LIS data)
refer only to households with head aged 2555.
American data show that children (aged 1624)
from the poorest quintile are 3 times as likely to
drop out of highschool (Cornia and Danziger,
1997: 201). Buchel et al.s (2001) data for
Germany suggest that children from the bottom
two quintiles (i.e. poor families) are half as
likely to go to Gymnasium as the mean. For
Britain, Gregg and Machin (2001) find that
poor economic conditions in childhood are 5%
more likely to lead to unemployment or to
provoke problems with the police (if men) and
9% more (if women). Also in their study the
negative impact of childhood poverty on
schooling is the key mechanism.
OECDs literacy studies distinguish 5 cognitive
levels. The lowest (1) must be considered inher-

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The generational conflict reconsidered

10

11

12

13

ently dysfunctional, reflecting a level so poor


that people are inherently untrainable and able
to perform only the most routine unskilled
work. T-statistic in estimation = 4.38, and R2 =
.635 (n = 12). A similar equation predicting low
cognitive abilities with overall inequality (Gini
coefficient for the working-age population)
yields even stronger elasticities: for each Ginipoint increase, the percentage in cognitive level
1 increases by 1.3 points (T = 5.81, and R2 =
.772). The regression estimates are based on
OECD data from OECD (2000).
The duration of child poverty is clearly detrimental to the dynamics of welfare. From the
rather limited studies available on comparative
poverty dynamics, there are pretty clear indications that persistence is positively related to
overall poverty levels. The likelihood of remaining poor in 3 out of 3 years (and 5 out of 5
years) is substantially higher in the US than in
Europe (Duncan et al., 1997; 1998; Bradbury et
al., 1999). Correspondingly, the likelihood of
exiting poverty is lower in any given year in the
US than in Europe.
Here, as elsewhere, we measure poverty as 50%
of adjusted median income (using the new
OECD equivalence scale of .5). Note that we
also adjust social transfer benefits in the same
manner. The social transfers are logarithmically
transformed.
Bradshaws (2000) data show that even in Italy
(one of Europes least child-friendly transfer
systems) social assistance benefits to large families with children assume a standard that is
comparable to France or the UK
And in Denmark, both fathers and mothers
work becomes insignificant, suggesting that
here social transfers are overwhelmingly effective in diminishing poverty. Ideally, the best test
of the parental work-effect on lifting poor families out of poverty would be based on panel
data. Unfortunately, the LIS database does not
permit transition analyses.
The dramatic change in the US odds-ratio for
transfers (1.68 for all families and 0.42 for the
pre-poor) testifies to the highly targeted nature
of US family policy. Three cases would appear
anomalous to many poverty experts. Italy is
well known for its comparatively very weak
family benefit system, so it may appear odd
that, nonetheless, transfers are so effective. Yet,
as noted earlier, Italian social assistance to large
families with children approaches Northern
European standards. Also, it is very likely that
the transfer-effect includes alternative benefit
categories (in particular benefits from Cassa
Integrazione, a type of unemployment support,
and pension transfers, which often go to

14

15

16
17

18

19

19

working-age adults). In both cases, benefits tend


to be very generous. The relatively modest performance of the French transfer system may
also come as a surprise, but here one must consider that child allowances are not granted to
the first child. Since international post-redistribution poverty statistics routinely place the UK
at the high end, it may come as a surprise that
the effect of transfers is so strong. But here we
must note the concomitant fact that this is in
the context of fathers employment (with an
odds-ratio of almost 22!).
Indeed, in the US transfers are significantly and
positively related to poverty (in the all families
case). Here, possibly, the data are influenced by
selection bias, i.e. access to benefits is conditional on being poor.
To exemplify, the UK poverty rate would drop
from 15.5% to about 8% and the German
would drop from 9% to about 3%. We wish to
stress that this is a thought-experiment which
ignores all else and which may, very likely, be
subject to selection bias (the roughly 30% of
Spanish and 60% of British mothers who do
work are undoubtedly very different from those
who do not).
Of course, by doing so we will have altered the
whole distribution, including the median used
for our calculations.
Costs based on telephone interviews with daycare centres in one or two larger cities in each
country. Womens expected earnings are calculated from OECD (1999).
Although in this case administrative costs are
high, fraud possibly widespread and, worse of
all, it may create poverty traps. A targeted servicing strategy also runs the risk of reinforcing
class dualisms among families. One very strong
argument in favour of universal day-care
systems is that they help neutralize unequal
social capital among children.
An attempt to cash out this effect for Denmark
suggests that the treasury obtains a (small) net
revenue gain in the long run (Esping-Andersen,
2000).

References
Bradbury, B and Jantii, M. (1999) Child Poverty
across the Industrialized World, LIS Working
Paper No. 217, Luxemburg: LIS.
Bradbury, B., Jenkins, S. and Micklewright, J.
(2000) Child Poverty Dynamics in Seven
Nations, paper prepared at conference on
Families, Labour Markets, and the Well-being of
Children (June), Vancouver.
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