Blog Post

Risking their health to pay the bills: 100 million Europeans cannot afford two months without income

Nearly 100 million people in 21 EU countries do not have enough savings in their bank accounts to meet two months of basic expenses: food, utilities, rent or mortgage. Those born outside the EU are especially at risk. Government support is thus fundamental to help individuals withstand the COVID-19 crisis.

By: Date: May 7, 2020 Topic: European Macroeconomics & Governance

Despite state support, the COVID-19 crisis is wreaking havoc on households’ finances across Europe. Millions of individuals have stopped working or had to substantially reduce their working hours because of health restrictions or suppressed demand. How many households in Europe could live without income for one or two months?

In a working paper, we used the 2017 wave of the European Central Bank Household Finance and Consumption survey (HFCS) to estimate how many individuals live in such vulnerable households among 342 million residents in 21 countries: Croatia, Poland and Hungary, and the euro area except for Spain.[1] The methodology section below provides details on the population considered.

Ability to afford food and utilities

According to our estimates, without privately earned income, 29.6 million individuals would be unable to afford one month’s supply of food at home and payment of basic utilities (8.7% of the population considered). This number climbs to 41.6 million for a period of two months without privately earned income, or 12.2% of the population considered.

When taking home 50% of their gross privately earned income, the number of vulnerable individuals decreases substantially to 4.4 million for a period of one month, and 5.5 million (1.6%) for a period of two months.

Differences across countries are substantial. In Slovenia, Lithuania, Latvia and Croatia more than 8% of individuals are unable to meet expenses with 50% of their gross income for two months, while in Belgium, Austria, Finland and Malta, less than 0.5% of individuals are in such vulnerable positions (Figure 2).

Figure 1: Percentage of individuals who cannot afford food and utilities for two months with 50% of gross privately earned income

Note: Only individuals living in households with bank accounts were considered.

While percentages allow comparisons between countries, absolute numbers are also relevant. For example, only 2.1% of the individuals considered in Italy are vulnerable when taking home 50% of their gross privately earned income. However, Italy has the highest absolute number of vulnerable individuals: 1.2 million[2]. Germany, Croatia and France follow, all with over half a million vulnerable individuals (see Figure 6 in the annex).

Although numbers decrease when taking precautionary cash savings into account, 1.03 million individuals remain at risk in Italy, and 482,000 in France according to our estimates (see Figure 6 in the Annex).

The relative importance of savings, pensions, public transfers and income

Private income is clearly an essential lifeline for many individuals in the countries analysed. Within one month without privately earned income, 8.7% people cannot afford food and utilities. Within two months the percentage climbs to 12.2%. It is highly variable across countries: below 6% in Malta, the Netherlands and Austria; above 30% in Greece, Slovenia, Latvia, Lithuania and Croatia. (see Figure 4, series ‘using deposits + pensions + all public transfers’).

If we exclude pensions and public transfers and look exclusively at money available on individuals’ bank deposits, we find that 25% of individuals in the countries considered cannot afford food and utilities after two months without income, and 17.4% within the first month. Differences between European countries are striking: in Latvia, 71% do not have large enough bank deposits to face two months of basic expenses, while in Austria and the Netherlands, the percentages are 11% and 12.5% respectively.

Figure 2: Percentage of individuals who cannot afford two months of food and utilities under different income shocks

Note: Unemployment benefits are included in all public transfers. Note: Only individuals living in households with bank accounts were considered.

We also find that:

  • Pensions are a fundamental source of income in all countries and substantially reduce the number of vulnerable individuals.
  • Public transfers (other than pensions) are crucial in France, Ireland, Finland and Germany. In Italy, Greece and Portugal, they do not provide substantial added social protection beyond pensions.
  • Unemployment benefits are particularly important in Finland, Belgium and France.

Housing expenses

Let’s now broaden our definition of ‘basic expenses’ so that), in addition to food and utilities, it includes rent or mortgage on the main residence (for people who own no other residence. With this definition, the number of vulnerable individuals doubles (i.e., those who cannot afford for two months of expenses with 50% of their gross privately earned income double) (Figure 3).

After two months without income, 57.5 million individuals (or 16.8% of the population considered) would not be able to pay their basic expenses from their bank savings, pensions and pre-COVID-19 public transfers. 41.1 million individuals are already in this situation after one month without income.

If 50% of the gross privately earned income is guaranteed, numbers reduce considerably: 8.4 million people cannot meet one month of basic expenses; 11.3 million for a period of two months.

Both rent and mortgage expenses increase substantially the number of vulnerable individuals, but tenants are in the overall sample more vulnerable than mortgage holders. When we considered only utilities and food at home, we found that 5.5 million individuals could not afford two months of expenses with 50% of their privately earned income. Once we add rents on main residences, the number of vulnerable individuals almost doubles to reach 9.8 million. Once we add mortgages on main residences, the number increases to 11.3 million. Rent and mortgage suspension can therefore offer effective support to vulnerable households.

Landlords might be harmed by rent suspension: we estimate 220,000 landlords would not be able to cover their expenses for two months without rental income. Yet, this group is substantially smaller than the 4.3 million individuals who, through a rent suspension, would become able to handle two months

Such measures can be particularly effective in specific countries. While only 0.8% of the French population cannot afford a month of food and utilities, the number quadruples to 3.1% if rents and mortgages are included in the definition of ‘basic expenses’. In Finland, the percentage of vulnerable individuals jumps from 0.1% to 0.5%, and in Belgium, from 0.4% to 1.8%. Such measures would also be highly beneficial in Germany, Ireland and Cyprus.

Migration background

We find that individuals born outside of their country of residence, particularly those born outside of Europe, are substantially more at risk of not being able to afford basic expenses.

Individuals living in their country of birth have a 16.3% risk of not being able to cover basic expenses for two months with no privately earned income. The risk is at 24.7% for those born elsewhere in the EU, and 29.6% and for those born outside Europe. Individuals born elsewhere in the EU are 1.5 (24.7 / 16.3) times more at risk, while individuals born outside the EU are 1.8 (29.6 / 16.3) times more at risk.

Individuals born outside the EU are always at greater risk in all countries except in Portugal and Slovenia[3]. The group born abroad is very diverse, since countries receive not only individuals from abroad from working age but also individuals whose parents had immigrated themselves and retirees from other countries.

Despite those differences, significant migrant groups might also be even more susceptible to higher private income shocks linked to COVID-19 because of precarious labour conditions and prevalence of informal work which hinders access to social security and thus to government assistance policies in the case their income falls.

Conclusion

Resilience to income shocks is highly differentiated across the 21 EU countries analysed. Pensions are an important buffer for households who receive them. The effect of other public transfers is more heterogeneous, having little effect beyond pensions in reducing the number of vulnerable individuals in some countries, namely Portugal, Italy and Greece, but playing an important role in France, Belgium or Germany.

The stark differences in vulnerability might explain different perceptions of urgency and hinder EU cooperation. Measures such as mortgage and rent deferrals are generally helpful to support people in need, though to what extent depends on country characteristics. Policies on rent should safeguard tenants without jeopardising the livelihoods of landlords. Such measures appear feasible, since an income shock threatens the livelihoods of substantially more tenants than landlords.

Providing substantial income support is fundamental even in the very short term, since 57 million individuals cannot meet their most basic expenses from savings, and (pre-COVID-19) pensions public transfers within only two months. Importantly, even when COVID-19 policy responses are in place, namely rent and mortgage deferrals and employment protection schemes, there might still be pockets of vulnerability. Individuals born outside of their country of residence, and especially outside the EU, are a particularly vulnerable group, possibly more likely to suffer income shocks and with limited access to social assistance in the case of income downfall.

For some individuals, the shock we have simulated might be in line with COVID-19 employment protection schemes. For instance, in France and Belgium schemes cover 70% of gross salaries and in Portugal 66%, on which individuals pay social security contributions and income tax. Importantly, schemes provide minimum amounts such as the minimum wage, which ought to decrease the number of vulnerable individuals. In future work, measures can be considered country by country to provide estimates of by how much current policies might have reduced vulnerabilities.

Different levels of vulnerability will translate to different levels of health risk, particularly as countries start relaxing social distancing and allowing companies to return to normal. Individuals who are dependent on their incomes will be forced to leave their homes and resume work earlier, taking greater health risks than they might otherwise choose.

Methodology

In this blog post we set out two scenarios: living without privately earned income and living with 50% of gross privately earned income[4]. For each scenario, we estimate whether households can cover their typical basic monthly expenses (utilities and food consumption at home) by using their bank deposits and their pre-COVID-19 pooled monthly pensions and pooled public transfers[5]. The numbers reported are estimates of the number of individuals living in households that cannot meet these expenses.

Our second scenario postulates government support that guarantees individuals take home 50% of their gross privately earned income. This is more generous than it might at first seem since we are dealing with gross incomes. Regardless of the COVID-19 shock, individuals pay social security contributions and income tax.

We extend the analysis to include monthly mortgages and rents on main residences, but only for individuals who own no other residences. We discuss whether COVID-19 policy measures can ensure the livelihoods of individuals.

The analysis is based on the third wave of the European Central Bank Household Finance and Consumption survey (HFCS), conducted in 2017, which covers 21 countries: Croatia, Poland and Hungary, and the euro area except for Spain[6]. The survey provides information on households and individuals[7].

The survey does not provide information on precautionary savings individuals might hold in cash instead of in bank accounts. We restrict the analysis to households who own bank accounts, as they are more likely to use their accounts as their main source of savings. As a sensitivity analysis, we use a different ECB survey to simulate cash resources, which we add to individuals’ available savings[8].

 

References

Esselink, H. and L. Hernández (2017), ‘The use of cash by households in the euro area’, ECB Occasional Paper Series No. 201, available at: https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op201.en.pdf

Annex

Figure 4. Thousands of individuals who cannot cover two months of basic expenditures (food at home and utilities) with 50% of their gross privately earned income, by country

A. With deposits, pensions and public transfers

B. With deposits, pensions, public transfers and simulated cash savings

[1] Data on Spain will only be available later in the year.

[2] The number is slightly below 2.1% of the Italian population because we are only considering households with a bank account and because the survey is representative of households and not of individuals directly, though household composition is considered in the sampling design.

[3] We have only considered countries for which they were more than 100 sampled individuals born outside of Europe and more than 100 sampled individuals born in the EU but outside the country.

[4] By privately earned income, we refer to income other than pensions and public transfers. It encompasses salary income, self-employed income, rental income, income from financial assets and regular private transfers.

[5] Utilities comprise electricity, water, gas, telephone, internet and television.

[6] Data on Spain will only be available later in the year.

[7] The HFCS represents the total number of households in each country, not the total number of individuals, but does consider household composition in its sampling design. As result, there are (small) differences in the number of individuals represented in the survey and the number of individuals of the country.

[8] For simulations, we use data from another ECB survey (Table 5 from Esselink and Hernandez (2017)). Table 5 provides percentages of individuals in different precautionary cash savings brackets, by country. We have allocated cash savings randomly among all individuals aged 18 or above to match the country percentages. Individuals randomly assigned to each bracket of precautionary savings in cash were allocated the midpoint of the interval. Individuals assigned to the bracket ‘above 1000’ were assigned 1500 euros. ‘Refusal to answer’ percentages were distributed in proportion of the respondents’ brackets.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More by this author
 

Parliamentary Testimony

House of Lords

Employment and COVID-19

Testimony before the Economic Affairs Committee at the House of Lords, British Parliament on Employment and COVID-19.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation, House of Lords, Testimonies Date: September 9, 2020
Read article More on this topic More by this author
 

Opinion

Coronavirus recovery: invest rainy day savings to boost Hong Kong’s economy

The Hong Kong government might want to consider diversifying its economy by using part of the savings earmarked for rainy days. Beyond cushioning the negative impact of Covid-19 on SMEs and households, it is one more reason to spend.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: August 6, 2020
Read article More on this topic More by this author
 

Opinion

The Challenges of the Post-Pandemic Agenda

This opinion piece has previously been published in Project Syndicate. PARIS – There is a growing possibility that the COVID-19 crisis will mark the end of the growth model born four decades ago with the Reagan-Thatcher revolution, China’s embrace of capitalism, and the demise of the Soviet Union. The pandemic has highlighted the vulnerability of […]

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: July 28, 2020
Read article More on this topic
 

Blog Post

Government-guaranteed bank lending: beyond the headline numbers

Loan guarantees have been a major part of the COVID-19 support packages offered by European governments to companies. The actual take-up numbers so far follow very different patterns from the headline announcements, and might allay early concerns about single market distortions caused by the different sizes of packages in different countries.

By: Julia Anderson, Francesco Papadia and Nicolas Véron Date: July 14, 2020
Read about event More on this topic
 

Past Event

Past Event

An EU budget for Europe's future with Johannes Hahn

How do we make the EU fit for future?

Speakers: Zsolt Darvas, Johannes Hahn and Mehreen Khan Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 7, 2020
Read article More on this topic
 

Opinion

Credible emerging market central banks could embrace quantitative easing to fight COVID-19

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimising the risks of large depreciations and spiralling inflation.

By: Gianluca Benigno, Jon Hartley, Alicia García-Herrero, Alessandro Rebucci and Elina Ribakova Topic: Global Economics & Governance Date: July 6, 2020
Read article More on this topic
 

Blog Post

EU recovery plans should fund the COVID-19 battles to come; not be used to nurse old wounds

In its proposed Recovery Fund, the European Commission uses allocation criteria mainly linked to infection rates and past economic performance. To foster an efficient economic rebound post COVID-19 crisis, we propose instead to allocate funds through a forward-looking approach based on specific industrial and economic structure of EU regions.

By: Carlo Altomonte, Andrea Coali and Gianmarco Ottaviano Topic: European Macroeconomics & Governance Date: July 6, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

Redefining Europe’s role after the Covid-19 Pandemic

How will the Covid 19 crisis change the role of the EU in Europe and the world?

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: June 25, 2020
Read article More on this topic More by this author
 

Opinion

A tale of two pandemics

The two narratives briefly examined here cast light on different aspects of the EU in the times of Covid-19. Euroskeptic nationalists typically propagate claims of EU failure but have been rather subdued during the pandemic as mainstream governments have taken over their trademark policy of closing borders to foreigners. Nonetheless, the grip on power of several pro-EU mainstream leaders, including President Emmanuel Macron in France, Prime Minister Conte in Italy and Prime Minister Pedro Sanchez in Spain, remains tenuous.

By: Michael Leigh Topic: European Macroeconomics & Governance Date: June 23, 2020
Read about event More on this topic
 

Past Event

Past Event

The role of AI in healthcare

How can AI help us fight through a pandemic crisis?

Speakers: Dimitris Bertsimas, Georgios Petropoulos, Effy Vayena and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 23, 2020
Read article Download PDF More by this author
 

Parliamentary Testimony

Italian Parliament

EU priorities and the recovery during Covid19

Testimony at the Committee on EU Policies of the Italian Chamber of Deputies.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Italian Parliament, Testimonies Date: June 18, 2020
Read about event More on this topic
 

Past Event

Past Event

Biological threats and EU preparedness: How can we make the system more resilient?

Can the EU handle biological threats?

Speakers: Maria Demertzis, Magnus Normark, Ilkka Salmi, Jukka Savolainen, Anne Sénéquier and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 18, 2020
Load more posts