In the past decades, employment and incomes were on the rise, social spending remained high while passive welfare states were progressively transformed into so-called ‘investment states’. Despite these favourable conditions, however, contemporary welfare states did not succeed in reducing poverty and inequality. What lies beneath the disquieting poverty standstill and how did welfare states miss this ‘window of opportunity’? In this article, we aim to shed more light on this question. We identify three structural trends behind the poverty standstill: rising employment has benefited workless households only partially; income protection for the working-age population out of work has become less adequate; social policies and, more generally, social redistribution have become less pro-poor. In other words, the reorientation of social expenditures to the employed occurred at the expense of those at risk in the labour market. The success of future poverty-reducing strategies will depend on the way policies aimed at labour market inclusion will be implemented and the emphasis on redistributive policies.