Inclusiveness and growth in the EU: a shift from pro-poor to pro-employed at risk of poverty approach

The importance of inclusive growth is widely acknowledged by academia, policymakers, and the public, yet debates persist about whether current policies effectively ensure that growth benefits all. While a pro-poor approach has been vital, focusing on those employed at-risk-of-poverty is increasingly important. Low wages can demotivate workers, pushing them to rely on safety nets and reducing the pool of human capital, a key driver of economic growth. This research shifts the perspective from a pro-poor to a pro-employed at-risk-of-poverty approach by constructing a benefit-sharing and participation inclusiveness index for EU-27 countries from 2010 to 2021, addressing a gap in traditional indices. Unlike methods using the poverty headcount ratio, this index incorporates the in-work at-risk-of-poverty rate, emphasizing job quality. The index was constructed using Principal Component Analysis (PCA) and analyzed through an Ordinary Least Squares (OLS) regression model with fixed effects for both country and year, ensuring robust control for unobserved heterogeneity. Findings reveal the inclusiveness index as a significant determinant of Real GDP per capita, with a strong positive correlation between inclusiveness and economic growth. This relationship is particularly strong in more inclusive countries, where improvements in benefit-sharing and participation are closely linked to higher economic performance. However, exceptions among socio-economically developed countries suggest the need for country-specific policies. The results emphasize the need to address income inequality, reduce in-work poverty, and increase job opportunities to promote sustainable and equitable growth in the EU, ensuring that those contributing to economic growth receive fair benefits and achieve a decent living standard.