# I. Introduction

**The European Union boasts some of the highest living standards globally, yet significant welfare disparities persist among its regions and populations.** Headcount income poverty at the $25 high-income country poverty line (in 2017 PPP) in the EU27 region has shown fluctuations over the long term, peaking at 38.2 percent in 2006 before gradually declining to 22.1 percent in 2021. Eastern and Central European countries have experienced a significantly faster decline than other European subregions.<sup>1</sup> More recently, the anchored at-risk-of-poverty (AROP) rate for the EU27 countries has decreased from 16.5 in 2019 to 13.8 percent in 2022.<sup>2</sup> Despite the progress witnessed across nations and regions in the last two decades, disparities in monetary poverty persist. In 2022, while some countries like Belgium and Czechia demonstrate relatively lower AROP rates (12.3 and 9.8 percent, respectively), others like Bulgaria and Estonia exhibit significantly higher rates (20.6 and 22.5 percent).<sup>3</sup> The COVID-19 and Ukraine crises have disproportionately impacted low-income populations, who experienced more severe income declines compared to middle-class and wealthier households, mostly due to the differentiated impacts on the labor market (Prasad et al., 2023; <mark>Michálek,2023)</mark> .

**Designing effective policies and interventions to address poverty and promote social inclusion presents numerous challenges.** These challenges underscore the need for a thorough comprehension of poverty beyond monetary deprivations, including its persistent nature and assessment and design policies to tackle the inclusion of ethnic minority groups, for whom data availability is limited.

**Poverty is a multi-dimensional phenomenon, including not only income but also other aspects of welfare; it is also important to understand the overlap between different dimensions of poverty.** In 2022, approximately one-fifth of the European Union (EU) was at risk of poverty or social exclusion (AROPE)<sup>4</sup> . When looking at individual countries within the EU, Romania and Bulgaria experienced the highest poverty and social exclusion rates, reaching 34.4% and 32.2%, respectively, while Czechia reported the lowest at 11.8%. The elderly population (aged 65 to 74) in these countries was particularly vulnerable to poverty and social exclusion, with rates of 33.7% and 37.8 %, respectively. Children also tend to experience a higher risk, with about 41.5% and 33.9% of Romanian and Bulgarian children affected by poverty and social exclusion. There are significant urban-rural differences: in both countries, over 40 percent of the rural population is considered socioeconomically deprived, according to AROPE, compared to less than one-fourth of the urban population.<sup>5</sup> Though multidimensional poverty indices are useful, as they combine information on several deprivations of well-being measured at the household level in one scalar number, it is also important to understand the extent of overlap between them (Ferreira and Lugo, 2012; Bradshaw and Finch, 2003). Moreover, the monetary welfare dimension of the AROPE indicator has a relative nature. To monitor progress

> 1 Source: Own Estimates based on the European Union Statistics on Income and Living Conditions (EU-SILC) for all countries in EU27, except Germany, for which microdata is not available. The year refers to income reference year

> 2022 and survey year 2023. <mark>Eastern and Central EU countries are Bulgaria, Czechia, Croatia, Hungary, Poland, Romania, t</mark> he  Slovak Republic <mark>and Slovenia.</mark>

> 2 An individual is at risk of poverty if he/she has an equivalized disposable income (after social transfers) below 60 percent of the national median equivalized disposable income after social transfers. To track poverty changes over time, the poverty line is fixed/anchored in the year 2019. Source: Eurostat, 2024

> 3 Source: Eurostat, 2024

> 4 The AROPE is the main indicator to monitor the EU 2030 target on poverty and social exclusion. An individual is AROPE if she is deprived in at least one of these dimensions: income poverty, severe material deprivation, and low work intensity, as explained in more detail later in this paper.

> 5 Source: Eurostat, 2024; The year refers to the survey year 2022. No more recent estimate is available for EU27.

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