The Government has approved this Tuesday the new employment incentives for beneficiaries of the Minimum Vital Income (IMV). They intend to combat the so-called “poverty trap”, where the benefit discourages households from accepting jobs for fear of losing the benefit or seeing their income reduced. This new tool will allow households to increase their salary income and also maintain the IMV with the same or similar amount, so that it always pays to accept a job because the household will add a higher income. In the highest case, households may add up to 1,840 euros per month between income from work and the IMV.
The minimum vital income reaches 380,000 households two years later with the challenge of doubling its beneficiaries
The incentives will come into force next year and, according to sources from the Ministry of Social Security, they will begin to be paid to households around mid-2023, once the annual review of the IMV is carried out by the INSS (National Institute of Social Security). Families should not request it, since it will be applied ex officio, they explain in the department led by José Luis Escrivá.
The change is remarkable for the economy of these very low-income, at-risk-of-poverty families. When Social Security reviews the income of beneficiary households to adjust the IMV, the increase in salary income – due to new jobs or more hours of work by its members – will not mean a reduction in aid by the same amount as until now. The result: the household will earn more money, thanks to increasing the weight of work and not seeing the IMV reduced in the same proportion.
“Zero paperwork”, has summarized the Government spokesperson, Isabel Rodríguez, about its operation, which has reiterated that it does not require any paperwork by the beneficiaries or that they have to go to any administration. Rodríguez has also highlighted that the measure means meeting one of the milestones committed by the Government to Brussels in the Recovery Plan.
The measure is expected to reach “1 in 5 households” beneficiaries of the IMV, indicate from Social Security, around 100,000 households.
Why pay incentives if you work
To understand the new incentives, we must start from the current situation. If a beneficiary household of the IMV increases its salary income by 100 euros, Social Security would subtract those 100 euros from the minimum vital income that it pays when updating the aid. It must be remembered that the IMV is not a benefit of a uniform amount, but that the State pays aid to reach certain thresholds of guaranteed income, according to different types of household (a single adult, an adult with dependent minors, two adults with a minor, …).
For example, the guaranteed income in a single adult household is almost 5,900 euros per year in 2022, 492 euros per month (although it has temporarily increased by 15% due to the war in Ukraine). If that person has zero income, she would receive an IMV with all income guaranteed. If she happens to earn 100 euros, this amount would be subtracted from the IMV and she would enter 392 euros per month.
This situation, in which working means the reduction –or the disappearance– of the aid, means that sometimes there are beneficiaries who do not accept jobs. Many times these jobs are unstable, for a short time or very uncertain, so that families face the disappearance of secure help with no guarantee of being able to maintain these new wage incomes even in the short term. Hence the so-called ‘poverty trap’, which keeps households in the anti-poverty benefit without being able to transition to inclusion in the labor market.
Social Security will launch a simulator to be able to calculate the incentive money in the face of an increase in salary income
How incentives work
Against this situation, Minister José Luis Escriva announced that the IMV would have employment incentives attached. These have been approved this Tuesday in the Council of Ministers and will begin to collect from 2023. The incentives assume that, when a household increases its income from work, the IMV does not decrease by the same amount and the money that household enters is always higher than if he refused the job.
The incentives will be paid for one year, they explain in Social Security, which will launch a simulator “soon” that allows households to calculate how their IMV would look in the face of an increase in salary income.
There are three tranches of incentives and they work differently. First, in which there is no decrease in the IMV even if salary income is increased. This will occur when the increase in wages reaches up to 60% of the guaranteed income threshold. In a one-person household, that 60% is around 295 euros for salary income.
With this example, a beneficiary who did not charge anything and starts to earn 100 euros per month for a job will continue to charge the same IMV as to date thanks to the incentive. For every euro in extra wages, an incentive euro is added. The final income of the household: the new 100 euros of salary plus the 492 euros of IMV with incentive, which add up to a total of 592 euros per month.
The second tranche of incentives it comes into operation when the new salary income is between that 60% of guaranteed income and 100%. Continuing with the example of a household of a single adult person, from around 295 euros per month to 492 euros per month. With this increase in wages, the incentive will not be complete, but a percentage.
The incentive here varies between 20% and 40%, in order to encourage more labor incorporation to some types of household with special difficulties (such as single parents, with children and with people with disabilities), as well as to further encourage the entry into a new employment above the extension of hours of one that already existed.
Thus, in the example of a household of a person without a previous job, if they start earning 375 euros for a new job, the incentive that would be applied would be 30%. This household would enter 375 euros per month for their new job, plus around 440 euros per month of IMV with incentive. In total, 815 euros per month, as explained in Social Security.
Finally, the third tranche of incentives, in which the wage income of the household places it above the guaranteed income thresholds. In other words, the household would no longer be entitled to the IMV. In this case, some incentives are displayed, in a diminishing way, so that the household continues to see its income improve by accepting the job.
Until where? Until almost doubling the guaranteed income (1.7 times this). In the case of one person’s household, it could reach up to 835 euros per month. In the highest possible case, of larger households with the highest guaranteed income, up to 1,840 euros per month between salary and incentives.
The spokeswoman has trusted that the measure will help more people join the labor market and, in the best of cases, to do so with income that allows them to get out of the situation of great need that entitles them to the IMV .