SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE EUROPEAN UNION IN THE CONTEXT OF THE ECONOMIC CRISIS

SOCIAL PROTECTION AND SOCIAL INCLUSION IN THE EUROPEAN UNION IN THE CONTEXT OF THE ECONOMIC CRISIS

Alina HAGIU1

ABSTRACT

Firm policy intervention and the automatic stabilizers embedded in European welfare systems have limited the economic and social impact of the worst recession in decades. However, the human cost of the crisis is difficult to evaluate fully as yet. The impact on labour markets and on the population, notably the most vulnerable, is still unfolding. Investing in regular monitoring of social trends and enhancing social statistics is crucial for designing early and effective policy responses and assessing their impact.

The crisis has highlighted great diversity within the EU. Its scope, magnitude and effects vary as does the capacity of national welfare systems to provide adequate protection. Not all Member States have the financial means to meet rising demand and some have large gaps in their safety nets. Narrowing these gaps is now a priority.

At the same time, the need to contain the rise in public spending calls for enhancing the quality of intervention, and in some cases setting clear priorities. This means more effective and efficient social inclusion and social protection, in line with the principles of access for all, adequacy and sustainability.

KEY WORDS: social protection, social inclusion, health, pensions, economic crisis JEL: E24, H31, I38

1. INTRODUCTION

Strong policy intervention and automatic stabilisers played a major role in mitigating the social consequences of the crisis. However, the full impact of the crisis on people is yet to be faced. The Commission forecasts that unemployment could exceed 10% in 2010, with social expenditure rising from 27.5% to 30.8% of GDP between 2007 and 2010.

With 5 million more unemployed than at the outset of the crisis, income has dropped for many households, exposing them to poverty and over indebtedness, and some have lost their homes. Migrants, younger and older workers, and those on temporary contracts, especially women, were affected early on, but unemployment is touching other categories, hitherto fairly safe. Unemployment rates may stay high for some time, with the attendant risks of long-term unemployment and exclusion.

The nature, size and effects of the crisis differ within EU. Unemployment rose from 2.7% to 3.9% in one country and from 6.0% to 20.9% in another. Also, Member States started with different social situations. In 2008, at-risk-of poverty rates ranged from 9% to 26%. The coverage and level of support provided by social protection also varied across countries and social groups. Public perceptions echo these disparities: in

1

Sciences, Romania, alinahagiu.upit@yahoo.com

University Assistant Ph.D. Candidate, University of Pitesti, Faculty of Economic

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June 09 while the majority felt the crisis had increased poverty, those who sensed a profound impact ranged from 10% to 69%.

Policy responses also vary in scale and emphasis. The Commission estimates that spending on discretionary measures varies from less than 1% of GDP in some countries to more than 3.5% in others. The Commission forecasts that between 2007 and 2010 social spending will rise, by less than 1 pp in three countries and up to 6 pp or more in another four.

Member States used the European Social Funds to enhance support to the unemployed, to keep workers in employment and to help the most vulnerable facing structural barriers to labour market integration. They used flexibility in the ESF adjusting operational programmes, modifying them where necessary, and used the simplifications proposed by the Commission to improve the effectiveness of the fund. ESF programmes also provide financial support for long-term EU social inclusion objectives, underpinning the recovery and social cohesion.

The crisis emphasises the need to support citizens at a time of major budget constraint. This highlights the EU agenda for more effective and efficient social inclusion and social protection, pursuing access for all, adequacy and sustainability; which is a long term concern of the Social OMC. Short-term responses should be consistent with structural reforms needed to modernise social policy, prevent lasting damage to the economy and society and prepare for long-term challenges, such as ageing.

2. SOCIAL PROTECTION AND SOCIAL INCLUSION

The social climate survey also yields interesting results about how people see some key social policy issues. With a satisfaction score of 1.3, health care provision is regarded as satisfactory by a majority of Europeans. Most satisfied are respondents in Belgium (5.5), followed by those in the Netherlands, Luxembourg, Austria and the United Kingdom, all scoring above 4. The lowest levels of satisfaction are in Bulgaria, Greece and Romania where scores are all below -3. In most countries, more people tend to see past and likely future changes as being for the worse rather than the better, but there are some exceptions — notably Cyprus, Spain, Malta and Belgium.

The people least satisfied are those who report health care needs that are not being met.

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Figure 1 - Health care provision

Source: Special Eurobarometer no 315

Figure 2 - Satisfaction with health care provision (QA 2.3) and unmet need for care (in 3rd income quintile)

Sources: Special Eurobarometer no 315 and EU-SILC 2006. Total self-reported unmet need for medical care for the following three reasons: financial barriers + waiting times + too far to travel.

Pension provision is perceived much more negatively with an EU-wide satisfaction score of - 1.0. The countries with the highest levels of satisfaction are Luxembourg, the Netherlands, Denmark and Austria with scores ranging from 4.6 to 2.9. The least satisfied are the Greeks, Bulgarians and Portuguese, all with scores below

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-4. In almost all countries, a negative view of past and future changes prevails, with two notable exceptions: Cypriots tend to see an improvement over the past five years, and a larger proportion of them expect further improvements; Estonians also acknowledge progress over the past five years, but they are pessimistic about the coming twelve months. People's current satisfaction with pension provision seems to be poorly correlated to the relative income of pensioners.

Figure 3 - Provision of pensions

Source: Special Eurobarometer no 315

Figure 4 - Satisfaction with the provision of pensions (QA2.3) and Relative median income ratio (65+/0-64)

Sources: Special Eurobarometer no 315 (index for current situation - see methodology in the introduction of this section) and EU-SILC 2006

With a score of -1.2, the level of dissatisfaction with unemployment benefits is similar to that for pensions. The countries with the lowest scores are Greece, Bulgaria,

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Romania and Hungary, all scoring below -4. The highest score is in the Netherlands at 3.5, followed by Austria, Luxembourg, Denmark and Belgium (1.9). In all Member States, a majority of respondents expect the situation to worsen or stay the same over the next twelve months, and there is only one country, Cyprus, where a larger proportion perceive an improvement rather than a deterioration over the past five years.

Figure 5 - Unemployment benefits

Source: Special Eurobarometer no 315

There is strong feeling of dissatisfaction with the way inequalities and poverty are addressed. The score for the EU as a whole is -2, and there are only four countries scoring 0 or above. Luxembourg comes top (0.9), followed by the Netherlands, Sweden and Finland. Dissatisfaction is greatest in Latvia, Hungary, Greece, Bulgaria and Lithuania, all scoring -4 or below. France, at -3.8, also displays a strong feeling of discontent in this regard. With the exception of Malta, the prevailing sentiment is that the situation has not improved but rather deteriorated over the past five years and will continue to do in the near future. There is a correlation between a country's income inequality and the way that country addresses inequality and poverty.

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Figure 6 - The way inequality is addressed

Source: Special Eurobarometer no 315

Figure 7 - Current satisfaction with the way inequalities and poverty are addressed in the country (June 2009) and income inequality S80/S20 (2007)

Sources: Special Eurobarometer no 315 (index for current situation - see methodology in the introduction of this section) and Eurostat – EU-SILC 2006 for the S80/S20

Relations between people from different cultural backgrounds or of different nationalities are seen in a much more positive light than inequalities and poverty. The satisfaction score for the EU as a whole is positive, although only 0.3. It is highest by far in Luxembourg (2.5), followed by Finland, the United Kingdom, Lithuania, Estonia, Romania and Latvia, all between 1.3 and 1.5. The countries with the lowest scores are Greece, the Czech Republic, Italy, Denmark, Hungary and France, scoring between -1.7 and -0.6. People in the countries with low scores also perceive a deterioration, both in the past and near future, but strong pessimism about the quality of community relations is also evident in the Netherlands, Austria and Slovenia.

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Figure 8 - Relation between groups

Source: Special Eurobarometer no 315

The overall picture that emerges from this first European social climate survey is a contrast between relatively high levels of satisfaction and confidence regarding people’s personal situation and a very negative perception of the general economic situation and living conditions and of key social policy issues. While apprehension about the general economic situation and living conditions is perfectly understandable under current circumstances, policymakers should be concerned about people’s dissatisfaction with key social policy issues and their strongly negative view of the way things are going in these areas. Indeed, these views seem to be deep-seated and might call for a review of policies to ensure that they are better designed and better explained.

Another important observation is that, in general, it is in some of the most prosperous Member States that people have the highest levels of satisfaction and are most likely to perceive a positive trend. This may be because the recession hits some of the poorer Member States harder. However, over the long run, it would be reasonable to expect that the poorer Member States would display a positive trend given that they are in the process of catching up with the richer countries, raising hopes for better social conditions and policies. However, this is clearly not the current perception in most of the poorer countries. Many of them are at the bottom of the satisfaction ranking and at the same time among the least optimistic about the changes that have occurred or will occur across the wide range of areas covered by the survey. If these perceptions are not just the reflection of a temporary mood caused by the recession, they could point to an increasing and worrying divergence: countries with good social conditions making further progress and countries with the poorest social conditions falling even further behind.

3. EFFECTIVE AND EFFICIENT SOCIAL INCLUSION POLICIES IN AND AFTER THE CRISIS

Unemployment in the EU is now at 9.1%, and could reach 10.3% in 2010. The rate is more than double for young workers (20.7%) and migrants (19.1%). The loss of

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earnings affects all family members, and especially children and other dependants. Young people are also affected by the lack of job opportunities. The maturing of pensions systems has helped reduce poverty risks for the elderly in many countries. However, the crisis threatens the development of adequate pensions where elderly poverty remains very high.

The crisis is also likely to affect those furthest from the labour market, either inactive or long-term unemployed. Even beforehand, the low skilled, people with disabilities or mental health problems, migrant - particularly women - had limited access to training and other enabling services. Recent efforts to boost employability for all may be undermined by lack of jobs and increased pressure on training and employment services.

Maintaining decent living standards for all is both crucial to ensure that people live in dignity, and to sustain their employability and learning capacity. Overall, most Europeans can rely on some of the most effective safety nets in the world. However, there are gaps.

The effectiveness of unemployment benefits vary greatly depending on the coverage, duration, conditionality and replacement rate of the benefits. Young workers with short contributory records and some of the self-employed may not be entitled to unemployment benefits, while workers on part-time or temporary contracts often receive lower benefits than other workers.

Reforms to strengthen work incentives have tightened eligibility criteria, or reduced the level or duration of entitlements. Together with a greater emphasis on activation measures, these reforms contributed to a reduction in long-term unemployment. However, they have not always reduced long-term welfare dependency. In addition, even though several Member States prolonged benefit duration and relaxed eligibility rules in response to the crisis, the pressure on last-resort schemes has started to increase, as unemployment benefits run out for more and more people. This underlines the need to prepare comprehensive exit strategies based on active inclusion principles.

The coverage and adequacy of minimum income provisions vary greatly across EU. In most countries, social assistance alone is not sufficient to lift people out of poverty, but in general it reduces its intensity. Recent efforts to modernise social assistance have focused on financial incentives to work; but, the lack of clear mechanisms to up-rate minimum incomes has in some instances led to deterioration in benefit adequacy over time. In all countries, non-take-up significantly affects the effectiveness of the schemes, though to various degrees. Complex rules, lack of information, discretionary assessment, administrative errors and fear of stigma are some of the multiple reasons that explain non-take up. There is therefore room for increasing the effectiveness and efficiency of minimum income schemes.

Adequate income support is crucial for people in time of need, but policies must also help them to participate in the labour market. Both spending and participation in active labour market measures, including life long learning, have improved overall in recent years. However, more needs to be done to ensure that all are reached, including the low skilled, the young and the elderly, lone parents and those returning from caring breaks, migrants and ethnic minorities, and people with disabilities. Experience shows that long-term unemployment and inactivity tend to persist long after recovery. Modern social security policies are an important tool to prevent people moving on to long-term sickness and disability benefits, or early retirement schemes.

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Adequate and individualised social and employment services are also essential to overcome structural barriers to participation in the labour market and in society. The personal, family and social hurdles people face need to be addressed by quality social and health services. It is of particular importance to improve the reconciliation of work and family-life. Supporting children and families is investing in a sustainable future for Europe.

4. CONCLUSIONS

While there are signs that the recession is bottoming out, its full social consequences have yet to materialise across the EU. Unemployment is likely to rise further. Previous recessions have shown that the people hardest hit by unemployment are men working in the construction and manufacturing sectors and young people arriving on the labour market. In several Member States there appear to be gaps in benefit systems, with the result that many unemployed people do not receive any form of social benefit. Over the longer term, the social consequences of the recession will depend partly on the speed of the recovery. Slow growth might result from weak consumer demand due – for instance – to employment insecurity and inadequate social protection or to reduced housing wealth and access to credit. A long period of slow economic growth would imply a prolonged lack of job opportunities and a risk that many people – in particular young people entering the labour market – will suffer long spells of unemployment. To prevent these people from being permanently excluded from the labour market and thus falling into the poverty trap, governments must ensure adequate provision of unemployment benefits and must actively support employment. There will also be a need to closely monitor the social consequences of budget consolidations.

Public spending cuts may also affect the welfare of households in the longer run, for instance, if social benefits and public services (education, child care, health and long-term care) are reduced. Moreover, the financial situation of households could be affected by various policy measures. The Social Protection Committee is constantly monitoring all these social impacts of the economic crisis and the policy responses in the Member States.

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De dezvoltare şi perfecţionare”, Bucureşti, Editura ASE;
Council of the European Union, (2010), „Report on Social Protection and Social Inclusion
2010“;
Council of the European Union,(2010), „Report on Pensions“, Brussels;
European Comission, (2009), „Social Situation in the European Union”;
Ferrera, M., (2005), „The boundaries of welfare: European integration and the new spatial
politics of social protection”, Oxford: Oxford University Press;
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*** Special Eurobarometer 315, “Social Climate”. Available at
ec.europa.eu/public_opinion/archives/ebs/ebs_315_en.pdf *** www.insse.ro

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