Towards a European social investment model

Joakim Palme

Institute for Futures Studiesand

Uppsala University

The European Social Model

Goal

”The European social model is about social inclusion and equality of opportunity.”

Barrosso July 12, 2005

The Reality in Europe:Goal of social inclusion

Examples from

European InequalitiesWard, Lelkes, Sutherland and Toth (eds.)Budapest: Tárki/Applica, 2009

Reality in Europe I: income levels and poverty

Figure 1: Percentage of population with income <50% of EU median income

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

LT LV PL EE SK HU PT CZ GR ES IT SI UK DE SE FR IE CY BE DK AT NL FI LU EU

Source: European Inequalities (Budapest: Tárki 2009)

Reality in Europe: cross-national variation in poverty

Figure 2: At-risk-of-poverty rates (<60% of median income) across European countries

0%

5%

10%

15%

20%

25%

30%

CZ NL SI SK DK SE FI AT DE FR LU BE CY HU EE IE PT PL UK IT ES LT GR LV EU

Source: European Inequalities (Budapest: Tárki 2009)

Redefining social inclusion: adjust poverty targets

”Policies exclusively designed for the poor tend to be poor policies.”

Amartya Sen

European social models are also about:the means to achieve common goals

• Institutional typologies useful tool for simplifying complex patterns of differences and similarities

• different strategies and principles for determining eligibility and entitlement levels, as well as financing

• strict focus on institutional aspects of the social protection programs; not to be confused with their political driving forces/potential outcomes

European strategies of redistribution

Model• Targeted Model• Basic Security Model• State Corporatist

Model• Encompassing Model

Strategy• Robin Hood• Simple Egalitarianism• Within Group

Redistribution• Mattew’s principle:

Give to those who have

Paradox of redistribution:

Middle-class inclusion thesis – encompassing social insurance institutions tend to reduce levels of poverty and inequality better than targeted- example: quality of last resort

Shaping inequalites

• Gerhard Lenski’s perspective on inequality:

- inequalities in human societies are shaped by political conflicts as well as economic structures

Factors explaining variation among 16 OECD-countries 1970-2000

Child poverty• Genorisity of dual earner support -• Prevalence of lone-parent families +Poverty among working-aged• Unemployment insurance: level and duration –• Time trend +Old-age poverty • Generosity of residence based benefits -• Time trend -

Factors explaining variation among 16 OECD-countries 1970-2000

Child poverty• Genorisity of dual earner support -• Prevalence of lone-parent families +Poverty among working-aged• Unemployment insurance: level and duration –• Time trend +Old-age poverty • Generosity of residence based benefits -• Time trend -

Social protection and inclusion I

• Income replacement:Financial support to workers to cushioning transition to new employment

• Social safety net:Benefit programs also protect marginalised segments of the workforce against poverty

• Rewarding labour force attachment: Generous benefits makes it attractive to qualify via employment

Social protection and inclusion II

Unemployment insurance• Improved matching:

Generous benefits allow people to stay unemployed for long enough to find a job that suits their skills (“search subsidy”)

• Macroeconomic stabilization:Reduce the volatility of households’ disposable income; automatic stabilizer over the business cycle

• Promoting economic restructuring: Reduce workers’ resistance to such changes

Social protection and inclusion III

• may create benefit dependency:

• this is why conditions and active measures are important

• productive aspects: reproduction of a highly skilled workforce

-

Protection programs in Europe

Qualifying conditions

Coverage

Replacement rates

Waiting days, benefit duration

Sickness insurance net replacement rates

Source: SCIP and MISSOC.

Figure 5. Sickness Insurance Net Replacement Rates in the EU Member States, 2005.

Rehabilitation and inclusion

Increased emphasis on rehabilitation

Systematic reassessment of benefit claims

Reducing the scope of programs that regulate the pathways to an early exit from the labour market

Tougher pressure on insured persons

Unemployment insurance net replacement rates

Source: SCIP and MISSOC.

Figure 12. Unemployment Insurance Net Replacement Rates in the EU Member States.

Active labour market policy

• Participants in active labour market programmes relative to the number of unemployed may be viewed as a measure of the of active labour market policies.

• Proportion of the unemployed participating is highest in a number of Northern-European countries

• Average levels of spending on those participating in active labour market policies reinforce the pattern

Conclusions: protection and inclusion

• Good reasons for taking a program specific approach to the study of social protection

• Yet any comparison among nations based on just one type of program is almost doomed to be misleading

• What is warranted is a more comprehensive approach if we are serious about: - understanding the sources of cross-national variation in social exclusion and inequality- assess the impact of different policy proposals

Redefining social inclusion: a dynamic approach

• Beyond minimum income levels: identifying the various critical capabilities – health, skills, housing

• Policies that can open up access to the social goods (welfare state programs) and spheres (social, labour market, politics) of society: ensure a just intergenerational transmission of knowledge and capabilities in society

Securing a sustainable development

Time to change perspective:What future for social investment?

• Without losing the academic rigour and without losing sight of the practical instruments needed to be successful policy wise

• The economic crisis and climate change will in many ways impose constraints

• It also provides a chance to innovate, and prolong the time horizons for policy making

• Human capital investments have been getting less attention in the debate, especially the social dimension

Capability formation: a life course perspective

Publicly funded child-care invests in cognitive skills essential for life chances of children

Quality of compulsory education – PISA studies of core competencies: reading, mathematics, science

Skill needs in advanced industrial societies have changed –polarization among youth is a reality and a threat

The ”learning economy” requires a constant renewing of capabilities in firms and competences of workers

• If the current crisis results in a longer period of high and persistent unemployment, strengthening work incentives may be an inadequate response

• Policies that target human capital seem preferable, including job creation programmes aimed at slowing the process of human capital depletion associated with unemployment

Social investment and learning

• No way around; investment today less resources for consumption today

• Possible or not to extract the necessary taxes now and in the future will depend on what people want, and probably on international co-operation

• A balanced approach: a synthesis involving a concern with the way that the social investment supports different groups in society and a realistic view of how society works

• ‘Learning’ as a part of European integration carries a great - but largely under-utilized - potential

EU 2020 Agenda

• Focus on the expanding sectors of the knowledge-based economy; innovation

• Employment targets; gender neutral

• Skills, and educational attainment

• Social inclusion; primarily in poverty terms

Flaws of the EU 2020 Agenda

• Focus on expenditure cuts, instead of increasing the revenue, might block potential of social investment approach

• Missing targets concerning secondary education

• Sustainability of social protection

• Poverty focus without meaningful targets

Political economy of social

investment • European social models are attempts to

apply ‘strategies of cooperation’, time to revitalise

• Social investment approach is unattainable and elusive, unless boldness and willingness to take political and other risks

The road to hell is paved with good intentions…

We should make sure that we base our policy recommendations

on a knowledge-based and realistic assessment of how the

world works, not on wishful thinking

Research Report 2009/2, edited by Morel, Palier and Palme: What Future for Social Investment?

www.iffs.se

Hrvoje Kap and Joakim Palme. ’Analysis of the social and economic situation in Europe – challenges for social inclusion ahead.’, www.iffs.se

Joakim Palme, Kenneth Nelson, Ola Sjöberg, Renate Minas. 2009. European Social Models, Protection and Inclusion. Institute for Futures Studies, Research Report 2009/1

Joakim Palme. 2006. ’Welfare states and inequality: institutional designs and distributive outcome.’ Research in Social Stratification and Mobility 25