Stretching the Safety Net: Is the European Welfare State in Crisis?

1
Stretching the Safety Net Is the European
Welfare State in Crisis?

• European Roundtable VI
• April 8, 2006

2
Names on welfare

• Gerhard Schröder
• Dominique de Villepin
• Kurt Biedenkopf
• Wolfgang Clement
• Tony Judt
• Fritz Scharpf
• Jürgen Habermas

3
Overview

• The background Different conceptions of the
  state in Europe and the US
• A case in point Welfare policies in Germany
• Challenges to the welfare state
• Comparative perspectives on the welfare state
• Whats so good about the welfare state?

4
1. The background Different conceptions of the
state in Europe and the US
5
(No Transcript)
6
(No Transcript)
7
2. A case in point Welfare policies in Germany

• The scope and volume of the German welfare state
• Course correction The Agenda 2010

8
Social Data Germany, 1950-2001
Indicator 1950 1970 2001
Population (million) 50.0 60.7 82.3
Employed ( of pop.) 45.9 44.2 50.8
Unemployed ( of employable) 7.2 0.6 9.4
Women in labor force () 35.7 35.9 44.0
White collar ( of labor) 19.8 36.6 56.3
Blue collar ( of labor) 48.6 46.8 32.6
9
The major elements of the German welfare state (1)

• Insurance-based benefits
• Social security (old age) pensions
• Unemployment insurance
• Mandatory health insurance
• Mandatory hospice insurance
• Contract-based benefits Company pensions

10
The major elements of the German welfare state (2)

• Need-based benefits
• Social assistance (including housing, clothing,
  Christmas allowances)
• Unemployment assistance (after exhaustion of
  unemployment insurance)
• Policy-based benefits
• Child allowances
• Educational services and financial assistance

11
Welfare Data Germany
Indicator Unit 1970 1980 1989 2000
Total welfare Billion 89.3 243.8 346.9 680.8
Total welfare of GDP 25.7 32.1 30.0 33.8
Employee Contribut. of wages 13.3 16.2 18.0 20.6
12
Number of Welfare Recipients Germany, 1970-2000
(in million)
Service 1970 1989 2000
Pensions 10.2 14.8 23.0
Unemployment benefits 0.1 1.4 3.2
Child subsidies 6.9 9.2 9.7
Social welfare 1.5 3.3 2.7
13
Increase in Welfare PaymentsGermany, 1970-2000
(Billion )
Service 1970 1989 2000
Pensions 27.9 111.3 232.0
Medical care 12.2 68.7 133.7
Unemployment 1.1 13.2 60.3
Child subsidies 1.5 5.7 25.9
Social welfare 1.7 14.7 23.3
14
Contributions to Social Security Pension Fund
Germany, 2003

• Premiums 19.5 of wages (equally shared between
  employer and employee)
• Wage limits for assessing premiums
• Western Germany 5.100
• Eastern Germany 4.250
• Revenue of pension fund
• Premiums 75
• Federal subsidy 25

15
AGENDA 2010 (Germany 2003)Major Reform Items
(1)

• Tax Reform (previouslygt1/1/04gt1/1/05)
• Lowest tax bracket 19.9 gt 16 gt 15
• Highest tax bracket 48.5 gt 45 gt 42
• Modest loosening of job security (esp. for small
  firms) facilitating termination
• More flexibility for mini jobs

16
AGENDA 2010 (Germany 2003)Major Reform Items
(2)

• Tightening unemployment compensation
• Unemployment insurance 18 gt 12 months
• Combine unemployment assistance with social
  welfare
• Any reasonable job offer must be accepted
• Reducing health care benefits
• Copayments of 10 for physicians, prescriptions,
  hospital (min.5/max.10 per service, max. 2 of
  gross income/year)

17
AGENDA 2010 (Germany 2003)Major Reform Items
(3)

• Scaling down social security benefits
• No increase of payments in 2004
• Sustainability Factor for adjusting future pay
  levels to ratio contributors/recipients
• Cap premiums (now 19.5) at 20/22 (20/30)
• Increase age of eligibility to 63 (67 in 2035?)
• Enhance employment opportunities for older
  workers

18
3. Challenges to the welfare state

• More people are in need of welfare
• There are more older people
• More people need (increasingly costly) medical
  care
• More people are (longer) unemployed
• Resources remain (at best) constant
• Largely stagnant economies
• Shifts in ratio of working to retired population
• Contributory schemes drive up cost of labor
• Limits to tax increases

19
The Ageing of Germany
20
Ratio of population 65 and over to the labor
force, 2000 and 2020 (OECD)
21
Total tax revenue (as of GDP), 2003
22
(No Transcript)
23
4. Some comparative perspectives on the welfare
state
24
Public social expenditures, 1998
Country as of GDP as of public expenditure
France 28.82 55.27
Germany 28.48 59.87
UK 25.07 63.84
USA 14.96 43.77
25
Public social expenditure (as of GDP) 2001
(OECD)
26
Unemployment Compensation, 1998
Country as of GDP as of public expenditure
France 1.48 2.83
Germany 1.31 2.76
UK 0.32 0.82
USA 0.25 0.73
27
Public Health Benefits, 1998
Country as of GDP as of public expenditure
France 7.27 13.93
Germany 7.80 16.39
UK 5.62 14.32
USA 6.00 17.54
28
Public and private health expenditure (US- per
capita) 2003 (OECD)
29
Infant Mortality (deaths per 1000 live births),
2003
30
5. Whats so good about the welfare state?
31
The welfare state and its socio-economic context
Some evidence (1)
Relationship Correlates Correlation
Welfare and poverty Social expenditure rate/Poverty rate -.74
Change in welfare/poverty ? Social exp.rate/ ? poverty rate -.66
Welfare and income inequity Social exp. rate/ Income distribution -.79
32
The welfare state and its socio-economic context
Some evidence (2)
Relationship Correlates Correlation
Welfare and civic engagemt Social expenditure rate/ of volunteers .23
Welfare and criminality (1) Social expend. rate/ of prison staff per 100 k population -.60
Welfare and criminality (2) Social expend. rate/ of police per 100k -.79
33
The European Roundtable Websitehttp//www.stanf
ord.edu/weiler/ERT_website.htm
34
THE SPEAKERS

• Marina Bourgain, European University Institute,
  Florence University of California at Santa Cruz
• Isabela Mares, Department of Political Science,
  Stanford University
• Jonah Levy, Department of Political Science,
  University of California at Berkeley

35
PRESENTATIONS

• Marina Bourgain Stretching the Safety Net
  Beyond National Boundaries The Welfare State and
  the Role of the EU
• Isabela Mares Business Interests, Wage
  Bargaining, and the Political Economy of
  Employment and Unemployment in Europe
• Jonah Levy On the Compatibility of Economic
  Liberalism and Welfare Policies