Social Programs in the United States and Western Europe ... · PDF fileSocial Programs in the...
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Chapter2
SocialProgramsintheUnitedStatesandWesternEurope:AnIntroduction
LaneKenworthyNovember3,2016
2.0.INTRODUCTION
Socialpolicyaimstoalleviaterisk,ensureaminimallydecentstandardofliving,enhancecapabilities,andfacilitatethesharingofprosperity.Itincludesprogramstohelpwithold-age,survivorship,unemployment,returningtoemployment,health,incapacity,housing,family,andotherrisksandconditions.
Howhavetheseprogramsdevelopedoverthepastcentury,andparticularlyinrecentdecades?Whatsimilaritiesanddifferencesdoweobserveacrosstheworld'srichlongstanding-democraticcountries?Liketheotherchaptersinthisvolume,thisonefocusesontheUnitedStatesandfifteenEuropeancountries(theEU-15):Austria,Belgium,Denmark,Finland,France,Germany,Greece,Ireland,Italy,Luxembourg,theNetherlands,Portugal,Spain,Sweden,andtheUnitedKingdom.Otheraffluentdemocraticnations—Australia,Canada,Japan,Korea,NewZealand,Norway,andSwitzerland—aren'tincluded.
OfparticularinterestiswhethertheUSwelfarestateisexceptional—alaggardinthescopeandgenerosityofitssocialprograms.Topreview,thereisonenotablerespectinwhichtheUnitedStatesisnotalaggard:itstotalsocialspending,includingbothpublicandprivateexpenditures,isonparwiththatofmanywesternEuropeancountries,andhigherthansome(Gilbert2010;Adema,Fron,andLadaique2014).Moreover,evenifwefocusonpublicexpenditures,therangeofvariationwithintheEU-15
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islargerthanthevariationbetweenwesternEuropeandtheUnitedStates(Alber2010;AlberandGilbert2010).
YetAmerica'ssocialprogramsdodifferinimportantwaysfromthoseofmanyotheraffluentnations.TheUShasfewerpublicprograms(nosicknessinsuranceorpaidparentalleave).Someoftheprogramsithasareonthelowendintermsofgenerosity.Itreliesheavilyonprivatespendinginthetwomostexpensiveprogramareas:pensionsandhealthcare.Itsspendingonhealthfarexceedsthatofanyotherrichnation.Ithasanextensivearrayofmeans-testedprograms,fromTANFtoFoodStampstotheEarnedIncomeTaxCredittodisabilitybenefits.Itencouragesemploymentbutprovideslimitedsupportforthosewhostruggleinthelabormarket.IntheserespectsAmerica'swelfarestateisindeedexceptional.
Thischapterproceedsasfollows.Section2.1examinesthegenerosityandsizeofthewelfarestateinEuropeandtheUS.Section2.2looksatspecificprogramareas.Section2.3considersminimumincomeprotection.Insection2.4Iexploreuniversalismandtargeting.Section2.5examinestheshiftingoalsfromdecommodificationtoactivation.Finally,insection2.6IconsiderthelikelytrajectoryofAmericansocialpolicyincomingdecades.
2.1.WELFARESTATES
Aspeoplegetmoreaffluent,theytendtobewillingtospendmoreoninsuranceandonenhancingfairness.Large-scalepublicinsuranceprogramsoriginatedinthelate1800s,becamecommonplacein1930s,andweresignificantlyexpandedovertheensuinghalfcentury(Hicks1999;HuberandStephens2001;KuhnleandSander2010).Sincethemid-1980stherehasbeenconsiderablechangeinthesizeandgenerosityofsocialprograms,butlittleornooverallincrease.
TheSocialInsuranceEntitlementsDatasetfromtheSwedishInstituteforSocialResearchatStockholmUniversityhasreliableestimatesofsocialprogramgenerositybeginningin1930.Figure2.1showsameasureofbenefitgenerosityforpublicpensions.Thepointhereisn'ttofocusonpensionsperse,butrathertogiveasenseofthelong-runpatternsforatypicalpublicinsuranceprogram.Inmostoftheworld'srichcountriespublicpensionswerecreatedasanationalprogramduringorshortlyaftertheGreatDepressioninthe1930s.Theyweremadesteadilymoregenerousthroughthemid-1980s.Sincethenthelevelofgenerosityhasleveledoffandevendecreasedslightly.
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AnothermeasureofsocialprogramscomesfromLyleScruggs,DetlefJahn,andKatiKuitto.Theirmeasurecoversthreeprograms:pensions,unemploymentinsurance,andsicknessinsurance.Foreachcountrytheyscorethesizeofthebenefit,itsduration,andtheshareoftherelevantgroupthatiscovered.Theythencombinetheseintoanoverallmeasureofprogramgenerosity.Theyusethesetocalculateanaveragemeasureofgenerosityforthethreeprograms.Thesedata,availablebeginningin1971,areshowninfigure2.2.Theytoosuggestariseingenerositythroughthemid-1980s.Insomecountriesprogramgenerositycontinuedtoincreasebeyondthatpoint,butinmanyitflattenedoutandinafewitdecreased.
Figure2.1.Generosityofatypicalpublicinsuranceprogram
Publicpensionaveragenetreplacementrateforasinglepersonorcouplewhoearnedanaverageproductionworker'swage.Greece,Luxembourg,Portugal,andSpainaren'tincludedinthecountryaverageduetoinsufficientdata.Datasource:SocialInsuranceEntitlementsDataset(SIED),providedaspartoftheSocialPolicyIndicatorsDatabase(SPIN),versionJune2015,seriespx2indst.
Thin lines: countriesThick line: 12-country averageLow
High
1930 1985 2010Year
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Figure2.2.Generosityofpublicpensions,unemploymentcompensation,andsicknesscompensation
Thegenerositymeasureisanaverageforthethreeprograms.Itincludesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.LuxembourgandPortugalaren'tincludedinthecountryaverageduetoinsufficientdata.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriestotgen.
Figure2.3.Publicexpendituresonsocialprograms
ShareofGDP.Grossexpenditures.Includesspendingonoldage,survivors,unemployment,activelabormarket,health,incapacity,housing,family,andothersocialprograms.Datasource:OECD,SocialExpenditureDatabase.
Thin lines: countriesThick line: 14-country averageLow
High
1930 1985 2010Year
Thin lines: countriesThick line: 16-country average0
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1930 1985 2010Year
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Athirdmeasureofsocialprograms—themostwidelyusedbysocialscientists—ishowmuchmoneyacountryspendsonthem,usuallyexpressedasashareofgrossdomesticproduct(GDP).TheOECDhasdatabeginningin1980forgrosspublicexpendituresonsocialprograms.Thisisamorecomprehensivemeasurethanthoseshowninfigures2.1and2.2inthatitcoversallsocialprogramsratherthanonlyafew.Itincludesgovernmentspendingonbenefitsandservicesrelatedtoold-age,survivors,unemployment,activelabormarket,health,incapacity,family,housing,andavarietyofotherprograms.(Thereisacaseforincludingeducation,buttheOECDdoesn't.SeeGarfinkel,Rainwater,andSmeeding2010.)Figure2.3showsthatinmostcountriesthismeasurewaseitherflatorincreasedalittlefrom1985to2005.Itthenjumpedupnearlyeverywhereduringandafterthe2008-09economiccrisis,duetothefallinGDP(thedenominator)andariseinpaymentsforunemploymentandincapacity.
Whataboutdifferencesacrosscountries?HereIfocusonthecontrastbetweenwesternEuropeandtheUS.TheUnitedStatesiscommonlyconsideredalaggardinpublicsocialprograms:ithasfewerprograms(nopublicsicknessinsuranceorpaidparentalleave,forexample)andtheprogramsitdoeshavetendtobelessgenerousthaninmanyotheraffluentcountries.Thatisn'tsurprising,astheUSisatthelowendwithrespecttomanyofthekeycausesofpublicsocialprogramgenerosity—politicalinstitutions,economicstructures,organizedinterestgroups,publicopinion,andmore(Hicks1999;HuberandStephens2001).
Yetthisisonlypartofthestory.IntheUnitedStatesasizableamountofmoneyisspentonprivatesocialprograms.Thebiggestofthesearefirms'expendituresonhealthinsuranceandpensionsfortheiremployees.Also,thelargespendinglevelsinsomeaffluentcountriesaremisleadingbecausethebenefitsthatarepaidtoindividualsorhouseholdsaretaxable,sosomeofthemoneygoesrightbacktothegovernment.Moreover,householdsspendsomeoftheirbenefitsonitemsthataresubjecttoconsumptiontaxes,whichmeansevenmoreofthemoneyreturnstothegovernment.Amoreaccuratemeasureofsocialspendingisthereforepublicnet(ratherthangross)expendituresplusprivateexpenditures(Howard1997;Hacker2002;Gilbert2010;Adema,Fron,andLadaique2014).
Thesedataareshownontheverticalaxisinfigure2.4,withthemorefamiliarpublicgrossspendingdataonthehorizontalaxis.Thereissomeshiftingofpositionsaswemovefromthehorizontalaxismeasuretotheverticalaxisonthisgraph.Forinstance,Finland,Denmark,andSwedendropdownabitintheranking.That'sbecausetheyareamongthemost
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aggressivein"clawingback"cashbenefitsbysubjectingthosebenefitstoincometaxandbyimposingheavyconsumptiontaxes.
Figure2.4.Socialprogramexpenditures:publicnetplusprivateexpendituresbypublicgrossexpenditures
ShareofGDP.Thedataarefor2013.Includesspendingonoldage,survivors,unemployment,activelabormarket,health,incapacity,housing,family,andothersocialprograms.Datasource:OECD,SocialExpenditureDatabase.Thisupdatesandextendsfigure1inAlber2010.
TheUnitedStatesstandsoutasthecountryforwhichthechoiceofmeasuremakesthebiggestdifference.Publicgrosssocialexpenditurestotaljust19%ofGDPintheUS,puttingitatthelowendamongtherichnations.America'stotalforpublicnetplusprivatesocialexpenditures,bycontrast,is29%ofGDP,andit'soneofthetopspendersonthismeasure.ThedifferenceowesalittletoAmerica'slessertaxationofbenefits,butit'smainlyafunctionofthelargequantityofprivatesocialspendingintheUS,whichfarexceedsthatinanyoftheothernations.
SoisAmericaalaggard?Ifwefocusonpublicsocialspending,theanswerisyes.Ifwe'reinterestedintotalsocialspending,theanswerisno.
IstheUSwelfarestatecategoricallydistinctfromothers,asGøstaEsping-Andersensuggestedinhis1990bookTheThreeWorldsofWelfareCapitalism?Ordoesitlieatoneendofacontinuum—differentindegreeratherthaninkind?InthedecadessinceEsping-Andersen'sbookappeared,therehavebeennumerousreassessmentsandcritiquesofhisthreeworldstypology(CastlesandMitchell1993;Esping-Andersen1999;HicksandKenworthy2003;ArtsandGelissen2010;Schröder2013).Butintheend,itmaynotmattermuch.Thethreeworldstypologyisseldom
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usedforanalyticalpurposes—forinstance,asahypothesizedcause.Insteaditserveschieflyasadatareductiondevice,withthreeworldsstandinginfortwentyorsocountries.Anddebatesaboutdifferenceintypeversusdifferenceindegreemaydistractsocialscientistsfrominvestigatingmoreinterestingandimportantquestions,suchashowsocialprogramswork,howtheyhavechanged,andwithwhateffects.
2.2.PROGRAMS
Let'sturnfromtheaggregatepicturetoindividualprogramareas(seealsoCastles2008;ObingerandWagschal2010).TheOECD,whichisthesourceoftheexpendituredataforsocialprograms,organizesthemintoninecategories:old-age,survivors,unemployment,activelabormarket,health,incapacity,housing,family,and"other."Thedataareavailablebeginningin1980.I'llfocusonpublicgrossexpenditures,sinceformostcountriesthesegiveaprettyaccurateportraitoftotalspendingandpublicnetspendingdataaren'tavailableformostprogramsinmostcountries.
Incomeinourretirementyearscancomefromavarietyofsources,mostnotablypersonalsavings,anemployerpension,orsaleofassets(suchasahome).Butformanypeoplethesearen'tsufficienttoensureadequateresources,soallrichnationshaveoneormorepublicprogramstosupplementmitigatepovertyinoldage.Publicpensionscomeinvariousforms.Earnings-basedprogramspayanamountproportionaltoaverageorpeakearningsduringtheworkcareer.Typicallytheseguaranteeabenefitamount("definedbenefit"),butsometimesonlythecontributionamountispredetermined,withthebenefitdeterminedbybothcontributionandperformanceoftheinvestment("definedcontribution")."Basic"pensionschemespayaflatrateoranamountdeterminedbythenumberofyearsofwork."Targeted"programsadjustthepaymentbasedontheperson'sincomeorassetsinretirement."Minimum"pensionsadjustbasedonothersourcesofpensionincome,ratherthanontotalincomeorassets.Manycountriescombinetwoormoreoftheseprograms(OECD2015).
Pensionstypicallyaremainlyfundedviasocialcontributionsorpayrolltaxesthatareearmarkedforthisprogram.IntheUnitedStates,theSocialSecurityprogramisfundedbyataxof12.4%ofanemployee'swage,withhalfpaidbytheemployeeandhalfbytheemployer.Insomecountriesthecontributionisconsiderablylarger,totalingmorethan40%ofthewage.
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Figure2.5showspublicexpendituresonold-ageprogramsasashareofGDP.Mostofthisisonpensions,butthiscategoryalsoincludesspendingonservicesfortheelderlysuchasrehabilitationandhome-help,aswellasotherbenefitsinkind.ThebiggestspendersarethecontinentalandsouthernEuropeancountries,includingItaly,France,Greece,Austria,andPortugal.TheUnitedStatesistowardthelowend,butitisn'tparticularlyexceptional.
Pensionsareoneofthetwobiggest-spendingcategoriesofsocialprogram.Asofthemostrecentyearofdata,theaverageamongthecountriesshowninfigure2.5was9%ofGDP.Inmanycountries,pensionexpenditureshaveincreasedsincethemid-1980s.Inmost,however,thisriseisn'taresultofincreasesinprogramgenerosity.Instead,it'safunctionofpopulationaging—agrowingshareofthepopulationisage65orolder.Thecountrytrendsinfigure2.6,whichisbasedonprogramdetailsratherthanthequantityofexpenditures,confirmthatprogramgenerosityhasbeenlargelyflatsincearound1980.
Figure2.5.Publicexpendituresonold-ageprograms
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
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Figure2.6.Generosityofpublicpensions
Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriespgen.
Paymentstothewidowsofdeadsoldierswereoneoftheearliestpublicassistanceprogramsinmanyrichnations.Todaymostofthesecountriesprovidecashbenefitsand/orservicestovariouscategoriesofsurvivors.Oftenthistakestheformofapension.Figure2.7showspublicspendingonsurvivorsbenefitsandservices.HeretoothecontinentalandsouthernEuropeancountrieshavethehighestspendinglevels.TheUnitedStatesagainistowardthebottom.Expendituresonsurvivorsaremuchsmallerthanonretirees.Buttheyarefarfromtrivial,averaging1%ofGDPacrossthesecountriesandreachingashighas3%insome.Theseexpenditureshavetendedtobeflatoverthepastgeneration.(Theexpenditurechartsinthissectionofthechapterallusethesamerangeofvaluesontheverticalaxisinordertofacilitatecomparisonofspendinglevels.)
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Figure2.7.Publicexpendituresonsurvivorsprograms
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
Unemploymentinsuranceprovidestemporarycashassistancetopeoplewhohavelostajobinvoluntarily.Accesstotheprogramusuallyhingesonfulfillingcriteriasuchasminimumlengthofemploymentandminimalearningslevel.IntheUnitedStates,onlyabout40%ofunemployedpersonstypicallyqualifyforunemploymentbenefits.
Thebenefitleveltypicallyisproportionaltopriorearnings.Replacementrateshavevariedfromaslowas10%toashighas90%intherichnations.IntheUnitedStates,theyhaveaveragedaround60%overthepastgeneration.
Durationofbenefitreceiptalsovarieswidely.IntheUS,theformallimitis26weeks.Instateswheretheunemploymentsituationhasworsenedsignificantly,theseareextendedby13or20weeks.Andduringnationalrecessionsthefederalgovernmenttypicallyprovidesmoneytoextendeligibilitytoafullyear.InsomeEuropeancountries,eligibilityinthepasthasbeenineffectunlimitedinduration.Inrecentdecadesmanycountrieshavemovedtoshortenthis.
Thefundsforunemploymentinsurancetypicallycomefromsocialcontributionsorpayrolltaxesorfromgeneralrevenues.IntheUnitedStates,employerspayadedicatedtaxtothefederalandstategovernments,andstategovernmentsadministertheprogram.Insomecountriestheunemploymentbenefitsystemisadministeredbyunionsandemployersratherthanbythegovernment.Infourofthesecountries
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—Belgium,Denmark,Finland,andSweden—accesstothesystemrequiresbeingamemberofaunion.Notsurprisingly,unionizationlevelshaveremainedhigherinthesenationsthaninotherrichdemocracies.
Publicexpendituresonunemploymentcompensationareshowninfigure2.8.Theyaccountforlessthan2%ofGDPinmostnations,andlessthan1%inmany.Unemploymentspendingtendstomovewiththeeconomy—fallingduringgrowthperiods,risingduringrecessions.Ifweignorethesefluctuations,thetrendinmostcountrieshasbeenflat.
Figure2.8.Publicexpendituresonunemploymentcompensation
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
Theflatover-timepatternalsoisinevidenceifweuseameasurebasedonprogramdetails,showninfigure2.9.NoteworthyhereisthattheUnitedStatesstandsinthemiddleofthepack,ratherthanatthelowend.ThisismainlybecausetheunemploymentinsuranceeligibilitycriteriaandreplacementrateintheUSareaveragerelativetootherrichnations.ThestinginessoftheUSprogramliesmainlyinitsshortduration.ThelowexpenditurelevelintheUnitedStates(figure2.8)alsoowestothefactthatmanyAmericansfindanewjobcomparativelyrapidly(Gangl2006).
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Figure2.9.Generosityofunemploymentcompensation
Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriesugen.
Tohelppeoplewhoareunemployedoroutofworkforotherreasons,richnationsoffermorethanjustmonetarycompensation.Theyalsoprovidearangeofservicessuchasretraining,helpwithjobplacement,assistanceinmovingtoanewlocation,andspecialservicesforparticularlyvulnerablegroupssuchasyoungpersonsandthedisabled.Theseservicesareusuallyreferredtoas"activelabormarket"programs.Researchontheeffectivenessofretrainingandjobplacementassistancehasyieldedmixedresults,butarecentmeta-analysisfindsgenerallypositivefindingsofmedium-term(three-year)impactonlikelihoodofemployment(Card,Kluve,andWeber2015).
Figure2.10showsthatpublicexpendituresonactivelabormarketprogramstendtoberelativelymodest,thoughDenmark,Sweden,theNetherlands,andFinlandspend1%to2%ofGDPonthem.DespitethecentralityofpaidworkinAmericanculture,theUSisatthelowendofthespectrumintheresourcesitdevotestothesekindsofemploymentsupports(BarnowandSmith2015).
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Figure2.10.Publicexpendituresonactivelabormarketprograms
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
Afterold-ageprograms,healthcareisthelargestspendingcategoryofpublicsocialexpenditure,accountingonaveragefor7%ofGDPasofthemostrecentyearofavailabledata.Figure2.11showsthecountrypatterns.Healthalsoisthecategoryinwhichspendinghasincreasedmostinrecentdecades.
Figure2.11.Publicexpendituresonhealth
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
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Wecanseetheriseinhealthspendingevenmoreclearlyifprivateexpendituresareincluded,asinfigure2.12.HeretheUnitedStateshassteadilypulledawayfromallotheraffluentdemocraciessincearound1980,anditnowstandsquiteapart.PublicspendingonhealthisrelativelyhighintheUS,andwhenweaddprivatespendingtheUStotalfarexceedsthatofeveryothercountry.
Figure2.12.Total(publicandprivate)expendituresonhealth
ShareofGDP.Grossexpenditures.Datasource:OECD.
Arelatedbutseparatecategoryisforincapacityduetodisability,sickness,oroccupationalinjury.Figure2.13showsthattheNordiccountriesarethebiggestspendersinthisarea,at4-5%ofGDP.TheUnitedStatesisatthelowend,withexpenditurestotalingalittleover1%ofGDP.That'spartlybecausetheUShasnopublicsicknessinsurance(paidsickleave)program,asfigure2.14indicates.Incapacityprogramshaveseenlittlechangeingenerosityoverthepastgeneration.ThelonenoteworthyexceptionistheNetherlands;itsdisabilityprogram,whichwasexceptionallygenerousinthe1980s,hasbeenscaledbackinrecentdecades.
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Figure2.13.Publicexpendituresonincapacity(disability,sickness,occupationalinjury)programs
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
Figure2.14.Generosityofsicknesscompensation
Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriessgen.
Allrichcountriesprovidesomehelpwithhousing,mainlyintheformofpublichousingandrentalassistance.Asfigure2.15shows,spendingin
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thisareaismodestalmosteverywhere,at1%ofGDPorless.Ithaschangedlittleovertime.
Figure2.15.Publicexpendituresonhousingprograms
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
Spendingonfamiliesincludescashbenefitsandtaxallowances,provisionorsubsidizationofchildcareandpreschool,andotherfamilyservices.Asfigure2.16shows,heretootheNordiccountriesareamongbiggestspenders.TheUnitedStates,despiteitsdeepculturalattachmenttostrongfamilies,isatthebottom.Assistancetofamiliesis,alongwithhealthcare,thechiefareainwhichsocialprogramshavetendedtobecomemoregenerousinrecentdecades.Thespendingtotalissmallerthanforhealth,andtherisehasbeenmoremodest,butitisreal.
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Figure2.16.Publicexpendituresonfamilyprograms
ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.
ThelastoftheOECD'ssocialspendingcategoriesisacatch-all"other"group.Theseexpendituresarerelativelysmall,andthey'vebeenlargelyconstantoverthepastgeneration(notshownhere).
Tosummarize:Pensionsandhealtharebyfarthelargestsourcesofexpenditureonpublicsocialprograms.Healthandfamilyaretheonlytwoareaswithnoteworthyincreasesinspendingduringthepastgeneration.Mostothershavebeenflatordecreasedmodestly.TheUnitedStatesisabigspenderonhealthcare;whenprivateexpendituresareincluded,America'shealthcarespendingdwarfsthatofanyotherrichnation.Inalmostallotherareasofpublicsocialprogramexpenditure,Americaisatornearthebottomofthepack.
2.3.MINIMUMINCOMEPROTECTION
Fortheleastwell-off,governmenttransfersareanimportantsourceofincome.Nomatterhowmuchwemightwantworking-agedhouseholdstobeself-sufficient,thereinevitablywillbeanontrivialfractionthathavesignificantlabormarketdisadvantages—disability,familyconstraint,geographicvulnerabilitytostructuralunemployment,andmore—andsorelywhollyorpartlyonincomefrompublicsocialprograms.Itisn'tsurprising,therefore,thatcountriesinwhichthelevelofpublicminimumincomeprotectionishighertendtohavelowerincidenceofmaterialdeprivation(Nelson2012).Norshouldwebesurprisedthatinrecent
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decades,risingincomesforhouseholdsinthebottomfourthhavetendedtodependonincreasesingovernmenttransfers(Kenworthy2011,ch.2).
Howgenerousistheminimumincomeprotectionintheworld'srichnations?KennethNelsonhasassembledameasurethatincludessocialassistance,childbenefits,housingbenefits,andrefundabletaxcreditsforhouseholdswithlittleornomarketincome(seealsoMarxandNelson2012).Figure2.17showstheseamountsasof2013.Thelevelofgenerosityvariesmarkedly,from$25,000atthehighendtolessthan$10,000atthelowend.TheUnitedStatesisoneoftheleastgenerousinthegroup.
Figure2.17.Minimumincomeprotection,2013
Includessocialassistance,childbenefits,housingbenefits,andrefundabletaxcredits.Averageofbenefitsforasinglepersons,aloneparentwithtwodependentchildren,andatwo-parentfamilywithtwochildren.Datasource:KennethNelson,SocialAssistanceandMinimumIncomeProtectionDataset(SAMIP),providedaspartoftheSocialPolicyIndicatorDatabase(SPIN),StockholmUniversity,versionApril2015,seriesMIPavey.
2.4.UNIVERSALISMANDTARGETING
Generosityisonlyoneaspectofsocialprograms.Anotheristheirdistribution.Hereacommondistinctionisbetweenprogramsthatareuniversalisticandthosethataretargeted.Auniversalprogramprovidesasimilarquantityofincomeorservicestohouseholdsupanddownthe
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incomeladder.Inotherwords,itprovidesasmuchtothoseinthemiddleandperhapseventothoseatthetopasitdoestothepoor.Atargetedprogramgivesmoretothepoorthantothemiddleclassorthewell-to-do.
Figure2.18showsthedegreeoftargetingoruniversalismineachnationaccordingtoastandardmeasure:anindexofconcentration.Themeasurerangesfrom-1ifthepooresthouseholdgetsallofthegovernmenttransferincome(targeted)to0ifallhouseholdsgetanequalamountoftransferincome(universal).Itcanbepositiveifbetter-offhouseholdsgetmoreincomethanpoorhouseholds.Greece,Austria,Italy,France,andSpainhavetheleast-targetedpublictransfers,whiletheUnitedKingdomandDenmarkmakethegreatestuseoftargeting.
Figure2.18.Targetingoruniversalismofpublicsocialprogramtransfers,mid-2000s
Concentrationcoefficientforgovernmenttransfers.Portugalisomittedduetolackofdata.Datasource:IveMarx,LinaSalanauskaite,andGerlindeVerbist,''TheParadoxofRedistributionRevisited,"DiscussionPaper7414,InstitutefortheStudyofLabour(IZA),2013,tableA.1,usingLuxembourgIncomeStudydata.
Perhapssurprisingly,theUnitedStatesisinthemiddleofthepackratherthanatthetargetingendofthespectrum.TheUShaslongbeentheposterchildfortargeting.Thestandardreferenceistoitschiefsocialassistanceprogram,knownasAidtoFamilieswithDependentChildren
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(AFDC)until1996andTemporaryAssistanceforNeedyFamilies(TANF)sincethen.AFDC/TANFismeans-testedandhasallofthefeaturescommonlyassociatedwith"poorrelief":adegradingin-personapplicationprocess,extensivediscretionbycaseworkers,andheavystigma.ButAFDC/TANFisarelativelysmallpartoftheAmericanwelfarestate,particularlysincethemid-1990swelfarereform.TheshareofAmericansreceivingTANFhasdroppedtolessthan2%.FoodStamps,theotherprincipalmeans-testedbenefitforlow-incomehouseholds,gotoabout15%ofthepopulation.
ThesetwoprogramsaredwarfedbytheEarnedIncomeTaxCredit(EITC),whichgoestonearly25%ofAmericansandpaysmuchmoretothetypicalrecipientthanFoodStampsdoes.TheEITCismeans-tested,butitsbenefitsgoonlytothosewithsomeearnings,soitsrecipientstendtobehigherontheincomeladderthanAFDC/TANFandFoodStampsrecipients.EachoftheseprogramsinturnpaysoutfarlessthanthelargestUSpublictransferprogram—SocialSecurity.Likepublicpensionsinmostcountries,SocialSecuritybenefitsareroughlyproportionaltoearnings,soalotofthemoneyendsupgoingtomiddle-classandaffluenthouseholds.AndwhereasAFDC/TANFbenefitshaveshrunkovertime,SocialSecuritybenefitgenerosityhasincreased.ThelargeandgrowingsizeofthepublicpensionprogramrelativetoothergovernmenttransfersisakeyreasonAmerica’stransfersystemisscoredasmoderatelyuniversalistic.
Howdoesthedistributionofgovernmenttransfersrelatetotheirgenerosity?Universalistictransfersaremoregenerousbydefinition,inthesensethattheygotomoreofacountry'shouseholdsthandotargetedtransfers.Inaddition,wemightexpectuniversalprogramstohavehigherbenefitlevelsandlessstingyeligibilityanddurationrules,becausetheywilltendtobeperceivedasprogramsfortheentirecitizenryratherthanforanarrowandpoliticallyweakgroup(KorpiandPalme1998).Figure2.19plotsameasureoftransfergenerosity—governmenttransfersasashareofhouseholdincome—bythetargeting-universalismmeasure.Asexpected,transferuniversalismispositivelycorrelatedwithtransfergenerosity(seealsoKenworthy2014,figure4.19).TheUnitedStatesstandsapartfromtheothercountriesbecauseofitslowpublicsocialprogramgenerosity.
Sodoesuniversalismyieldgreaterredistribution?Ontheonehand,universalprogramstendtobemoregenerous.Ontheother,thebenefitsarespreadacrossthecitizenry,ratherthanfocusedonthepoor,whichshouldreducetheirredistributiveimpact.Ifwecompareacrossnations,itturnsoutthatinthe1980stherewasapositiveassociationbetween
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universalismandredistribution,butsince2000therehasbeennoassociationineitherdirection(Kenworthy2011,ch.6;Marxetal2013).
Figure2.19.Generosityofpublicsocialprogramtransfersbytheirdegreeofuniversalism,mid-2000s
Transfergenerosity:governmenttransfersasashareofhouseholdincome.Targeting-universalism:concentrationcoefficientforgovernmenttransfers.Portugalisomittedduetolackofdata.Datasource:IveMarx,LinaSalanauskaite,andGerlindeVerbist,''TheParadoxofRedistributionRevisited,"DiscussionPaper7414,InstitutefortheStudyofLabour(IZA),2013,tableA.1,usingLuxembourgIncomeStudydata.
Hasthedegreeofuniversalismingovernmenttransferschangedovertime?Notmuch.DenmarkhasshiftedfromtheuniversalismendtogreatertargetingandtheUnitedStateshasmovedintheoppositedirection,butinmostcountriesweobservelittlenoteworthymovementinrecentdecades(Kenworthy2011,ch.6).
Whataboutthedistributionofpublicservices?Services,suchashealthcare,aremorelikelythantransferstobeuniversalratherthantargetedtohouseholdswithlowincome.Onestudyfindsthattheredistributiveeffectofservices,onaverage,isonlyaboutone-quartertoone-halfthatoftransfers,dependingonthemeasureused(OECD2008,ch.9).
2.5.FROMDECOMMODIFICATIONTOSOCIALINVESTMENT
Socialscientistsandpolicymakerstraditionallyhaveviewedthewelfarestateasameansofachievingeconomicsecurityandredistribution.Socialprogramsprovidemoneyandservicestoindividualsandhouseholdsin
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ordertoinsureagainstmarket-basedrisksandreducemarket-generatedinequalityandpoverty(Esping-Andersen1990).Inthepasttwodecades,however,athirdgoalhasbecomeprominent:employment.Policyreformsandinnovationshavemoreandmoreaimedtoincreasepaidwork(Morel,Palier,andPalme2012;Hemerijck2013,2016).Thisapproachiscommonlyreferredtoas"activation"or"socialinvestment."
Employmentpromotionisn'tnovel.Swedeninthe1950sputinplaceasetofactivelabormarketprograms,includingretraining,jobplacementassistance,andpublicsectorjobsasalastresort.What'snewisthecentralityofactivationinmodernsocialpolicy.
Theactivationturnhasanumberofcauses(Esping-Andersen1999,2008;Ferrera,Hemerijck,andRhodes2000;ScharpfandSchmidt2000;Esping-Andersenetal.2002;Koketal.2003;Kenworthy2004,2008;OECD2005,2009).Thechiefone,arguably,isthefactthattheretirementofthebabyboomgenerationwillincreasepensionandhealthcarecostsatthesametimethatcapitalmobilityhasmadeincreasingtaxratesmoredifficult.Gettingmorecitizensintopaidworkmeansgreaterpayrollandincometaxrevenue,withoutrequiringanincreaseintaxrates,anditalsomeanslowerexpendituresonsocialassistance,unemploymentcompensation,andrelatedprograms.Otherconsiderationsandaimspushingpolicymakerstowardemploymentpromotionincludepovertyreduction,socialinclusion,fairness,women'sindependenceandfulfillment,subjectivewell-being,andencouragementbyexternalorganizationssuchastheOECDandtheEU.
Thepolicytoolsusedtopursueactivationarewide-ranging(Kenworthy2008,2010).Someimposerequirements,whileothersprovideincentives.Someworkonthedemandside,attemptingtoincreasehiringbyemployers,whileotherstrytoincreasethesupplyofthoseseekingemployment.Someareaimedbroadly,attheentireworking-agepopulation,whereasothersaretargetedatparticulargroupsforwhichtheemploymentrateislow,suchaswomen,thosenearretirementage,theyoung,personswithlimitededucationand/orskills,immigrants,andpeoplewithdisabilities.Someaimtoincreaseemploymentdirectly,whileothersattempttoimprovepeople'scapabilities,undertheassumptionthatthiswillindirectlybringaboutgreateremployment.
Ineveryrichcountry,personswithmoreeducationaremorelikelytobeemployed,soacommonstrategyforincreasingemploymentistoimproveeducationalattainmentand/orthequalityofschooling.Policymakershaveattemptedtodothisinavarietyofways:subsidizingearlyeducation;improvingelementaryandsecondaryschoolingviaincreased
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funding,greatercentralizationordecentralizationofdecisionmaking,heightenedteacheraccountability,schoolchoice,andothers;increasingopportunityforcollegeattendanceviareducedcostsand/orincreasedaccesstograntsandloans.Somecountriesalsohaveenhancedopportunityfor"lifelonglearning"viaretraining,subsidiesforreturntoschooling,accesstoonlineeducation,andothers.
Benefitprogramswitheasyeligibilityconditions,generouspayments,andlengthydurationmaydiscourageemployment.Somenationshavetightenedeligibilitycriteria,reducedbenefitlevels,madebenefitreceiptconditionalonparticipationintrainingoremployment("workfare"),and/orshortenedthedurationofreceipt.
PublicassistancewithfindingnewemploymenthaslongbeenakeyfeatureofSwedishactivelabormarketpolicy.Sincethemid-1990sitsusehasbecomemorewidespread.Atrendinrecentyearshasbeentowardindividualizedassistance:clientsareassignedanindividualcaseworkerwhoevaluatestheirabilitiesandneeds,helpswithbenefitreceipt,overseesthesearchfornewworkandplacementwiththefirm,andmonitorsemploymentoutcomes.
Inareaswherekeysourcesofemploymentarenoteasilyaccessibleviapublictransport,governmentssometimesprovidesubsidiestodefraythecostoftransportationtoandfromwork.
Cashtransfersandtaxcreditstopeopleinpaidworkbutwithlowearningsareincreasinglyprominentinaffluentcountries.TheUnitedStatesandtheUnitedKingdombeganusingsuchemployment-conditionalearningssubsidiesinthe1970s,andinrecentdecadesmostoftheotherrichlongstanding-democraticcountrieshaveadoptedsomeversionofthem.
Publicemploymentcanbeusedasa"lastresort"inprovidingjobsforthoseunabletofindworkintheprivatesector.IntheNordiccountriesandFrance,thegovernmenttypicallyhasaccountedfor25%to30%oftotalemployment,makingthepublicsectoracommonsourceofemploymentwhetherasalastresortorafirstoption.
Part-timejobsareanattractiveoptionforsomepeople,especiallysecondearnersinhouseholds.Inanumberofcountriestheynowaccountforaquarterormoreofallemployment,andintheNetherlandsathird.Someofthisisduetoinabilitytofindasatisfactoryfull-timeposition,butsurveyssuggestmuchofitisbychoice,particularlywherepart-timeemployeeshavethesamewageandbenefitstatusasfull-timers.TheDutchemploymentsuccessstorysincetheearly1980sislargelyoneof
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part-timeemploymentgrowth.Flexibleworkschedulesalsotendtobeattractivetopotentialemployees,againespeciallythosewhowouldbeasecondearnerwithinahousehold.Protectionsforsuchemployeesaswellasfinancialincentivestoemployersforexpandingflexiblework-timeoptionscanhelptoattractthem.
Taxescanmatter.Somecountrieshavemovedtoshiftthetaxburdenawayfrompayrolltaxesinordertoreducenonwagelaborcosts.Also,insomenationsthetaxsystempenalizesacouplewithtwoearnersrelativetothosewithjustoneearner.Reducingthisdisincentivecanhelptoboostemployment,particularlyamongwomen.
Injobswhereproductivityislowanddifficulttoincrease,employersmayhirefewerpeopleifwagesaretoohigh.Loweringthewagefloormaythereforeincreaseemployment.Incountrieswithastatutoryminimumwage,policymakerscandothisdirectly.IntheUnitedStatesandtheNetherlands,theinflation-adjustedvalueofthestatutoryminimumhasbeenallowedtofallsincetheearly1980s.Innationswithoutastatutoryminimumwage,oneresponsehasbeentheformationofformalorinformalsocialpacts,inwhichgovernmentencourageswagerestraintinexchangeforchangesincertainsocialprograms,taxes,oractivelabormarketprograms.
Strongemploymentprotectionregulationsmakeitmoredifficultand/orcostlyforemployerstofireemployees.Sincethemid-1990s,mostofthecontinentalEuropeanandNordiccountrieshavereducedthestiffnessofemploymentprotectionregulations,mainlybyeasingrestrictionsonfixed-term(temporary)employment.
Inthenationsthathaveexperiencedemploymentgrowthsincethe1970s,muchofithasbeenamongwomen.Family-friendlypolicies—particularlypaidparentalleaveandaffordable,good-qualityearlyeducation—areacommonly-usedstrategyforencouragingwomen'semployment.OriginallyconfinedtotheNordiccountriesalongwithBelgiumandFrance,theseprogramsnowareembracedtoonedegreeoranotherbymostaffluentnations.
Hasactivationboostedemploymentrates?Figure2.20showsemploymentratesin1989and2014fortheworking-agepopulationasawhole(age25-64)andforthreegroupsamongwhomemploymenthastendedtobecomparativelylow—prime-working-agewomen,thenear-elderly,andtheleast-educated.(Aproperassessmentwouldincludeemploymenthours,butwelackcross-nationallycomparabledata.)Nearlyallcountrieshavehigheremploymentratesnowthantheydidtwenty-fiveyearsago,despitejustrecentlyemergingfromthedeepest
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economiccrisissincetheGreatDepression.Moreover,SwedenandDenmark,consistentpractitionersofsocialinvestmentsincethe1970s,tendtobeatornearthetopinemployment.Unfortunately,it'simpossibletoknowforcertainhowmuchoftheacross-the-boardemploymentrise,andoftheNordiccountries'comparativesuccess,owestoactivationpolicies.
Figure2.20.Employmentrates
1989istheearliestbusiness-cyclepeakyearforwhichdataareavailablefornearlyallcountries.Datasource:OECD.
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TheUnitedStateshaspursueda"marketliberal"approachtoactivation:alowwagefloor,verylimitedlabormarketregulations,relativelystingygovernmentbenefits,comparativelylowtaxes,littleregulationofproductmarkets,andlimitedsupportforretraining,jobplacement,andwork-familybalance.UptotheturnofthecenturytheUSwasamongtherichworld'sleadersinraisingitsemploymentrate;somecommentatorsreferredglowinglytothe"greatAmericanjobsmachine."Today,however,America'semploymentrecordlooksquitemediocre.Partofthisowestothe2008-09crisisanditsaftermath.Buttheproblembeganearlier.Theperiodafterthe2001recessionfeaturedfeeblejobgrowth,andby2007,thepeakyearpriortothecrisis,theUSemploymentratehadnotyetrecoveredtoits2000level.AnumberofaffluentnationswithmorerobustpublicsocialprogramshavedoneaswellasorbetterthantheUnitedStatesatachievingandmaintainingahighemploymentrate.
2.6.ASOCIALDEMOCRATICUNITEDSTATES?
TheUnitedStatesisalaggardinthesizeandscopeofitspublicsocialprograms.Willitremainso?Thereareplentyofreasonstopresumeitwill.Americansdon'tlikebiggovernment.ThestructureoftheUSpoliticalsystemhindersprogressivepolicychange.Thecountry'scenter-leftpoliticalparty,theDemocraticParty,mightincreasinglystruggletogetelected.Andthebalanceoforganizationalpoweroutsidetheelectoralarenahasswungtotheright.
Despitetheseformidableobstacles,IsuspecttheUnitedStateswillmovetowardsignificantlygreateruseofpublicinsuranceandpublicservices.Halfacenturyfromnow,AmericansocialpolicywilllookalotlikeitcurrentlydoesinDenmarkandSweden(Kenworthy2014,ch.5).Policymakers,perhapswithapushfromorganizedinterestgroupsorthepopulace,willrecognizethebenefitsofalargergovernmentroleinpursuingeconomicsecurity,equalopportunity,andsharedprosperityandwillattempttomovethecountryinthatdirection.Oftentheywillfail.Sometimes,however,theywillsucceed.Progresswillbeincremental,cominginfitsandstarts,butitwillhavestayingpower.Newprogramsandexpansionsofexistingoneswilltendtopersist,becauseprogramsthatworkwellbecomepopularandbecausetheUSpolicymakingprocessmakesitdifficultforopponentsofsocialprogramstoremovethem.Smallstepsandtheoccasionalbigleap,coupledwithlimitedbacksliding,willhavethecumulativeeffectofsignificantlyincreasingthebreadthandgenerosityofgovernmentsocialprograms.
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Thisishowthingshaveplayedoutinthepast100years.Asaresult,intherealmofpublicsocialpolicy,thedistancebetweentheUnitedStatestodayandDenmarkorSwedentodayissmallerthanthedistancebetweentheUSofacenturyagoandtheUStoday.
AnewobstacleistheoppositionalstanceofthecontemporaryRepublicanParty.Inatwo-partypoliticalsystemthatfeaturesmanyvetopoints,aunifiedminoritycanobstructmost,ifnotall,attemptstolegislatenewsocialprograms.ButhistorysuggeststhattheRepublicans'hardturntotherightisunlikelytopersist.
Ofcourse,eveniftheUnitedStatesdoescontinuetoaddandexpandpublicsocialprograms,otheraffluentnationsareunlikelytostandstill.Changesintheeconomy,intechnology,intherisksfacedbyworkersandfamilies,andotherdevelopmentswillalmostcertainlypushpolicymakersinunforeseendirections.Amid-twenty-first-centurysocialdemocraticAmericamightstillhaveawelfarestatethatisrelativelyunusual—perhapsevenexceptional.
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