Social safety nets in (the) crisis Anti-poverty policy in Greece - PowerPoint PPT Presentation

Social safety nets in (the) crisis Anti-poverty policy in Greece 2010-2015 Manos Matsaganis Associate Professor Athens University of Economics and Business CSP Lunch Seminar University of Antwerp 29 January 2016

The Greek crisis and austerity in brief Greece entered into a bailout agreement with the EU, the ECB and the IMF  (May 2010), in return for massive spending cuts and tax hikes, and a programme of structural reforms. The bailout agreement has (so far) enabled Greece to remain part of the  Euro area – at the cost of a severe recession, widespread misery, and political instability. Other ‘programme countries’ such as Latvia (January 2012), Ireland  (December 2013) and Portugal (June 2014) have now successfully exited their programme. But Greece’s attempts at an early exit (October 2014) under the previous  conservative-socialist coalition government, and renegotiation (February- July 2015) under the new radical left-nationalist right coalition government backfired badly. A new three-year programme was signed in August 2015.

economic effects GDP contraction In recent years the Greek economy shrank enormously: in 2014 GDP had fallen  26.0% below its 2007 level. This only compares with the US Great Depression (approx. -30% in 1929-1933).  In other countries badly hit by the crisis, GDP fell less and/or recovered faster  (-6.8% in Portugal, -7.5% in Latvia in 2007-2014). Gross domestic product at market prices, in real terms (2007=100). Source: Eurostat.

economic effects divergence In 2000 GDP per head in Greece was at 74% of the EU-15 average.  At the pre-crisis peak (in 2009) relative income had converged to 86%.  By 2015 Greece had fallen back to 64% of the West European average.  Gross domestic product at current market prices per head of population (PPS: EU-15 = 100). Source: AMECO Eurostat.

labour market effects employment Employment had always been below the EU average. But in recent years it fell  precipitously: from 61.4% in 2008 to as low as 48.8% 2013. This, in effect, undid the progress of the previous two decades and more (the  employment rate in 1992 had been 53.7%). Employment rate (%). Source: Eurostat.

labour market effects unemployment GDP contraction caused unemployment to rise, same as everywhere. Except  that in Greece it rose more sharply, peaked later and is now the highest in the EU. In September 2015, seasonally adjusted unemployment stood at 24.6%.  Unemployed rate (%). Source: Eurostat.

labour market effects earnings Real wages also fell, both as a result of the recession (reduced demand for  labour) … … and in the context of ‘internal devaluation’ (policy -driven compression of  wages via labour market deregulation). The decline in gross earnings in 2008-2013 was 24.6% in Greece (vs. 12.3% in  Portugal). Source: Myant & Piasna (2014) ‘Why have some countries become more unemployed than  others ?’ ETUI Working Paper 7 2014.

labour market effects earnings growth by category In Greece, earnings growth in 2000-2009 was undone by earnings decline in  2010-2014. On average, earnings in 2014 were 8.4% below their 2000 level. Trends differed by category: workers in public utilities had been awarded  fabulous pay rises in the past (and still remained 3.4% above the 2000 level). Source: Bank of Greece.

labour market effects internal devaluation Recent labour market reforms in Greece included a legislated cut in the  minimum wage (February 2012): -22% in nominal terms  (-32% for young workers)  Also, sweeping deregulation of labour market institutions:  collective bargaining  employment protection legislation  etc.  Changes especially affected those newly hired and/or young workers:  administrative data from IKA (the social insurance agency for private sector  employees) indicate that in 2010-2014 median reported earnings of all insured workers fell by 18.3% in real terms. real median earnings were cut less (by -9.6%) for those who kept their job with the  same employer. for those aged below 30 the decline was -34.8% (newly-hired workers: -34.2%). 

poverty effects three indicators We estimate poverty effects in 2011-2015, using EUROMOD, in terms of three  different indicators. The standard poverty rate shows the proportion of the population with a net  equivalent disposable income below 60% of median. 2015 threshold: € 824 per month for a couple with two children  The second indicator ‘anchors’ the poverty line at 60% of the 2009 median, adjusted  for inflation. 2015 threshold: € 1,271 per month for a couple with two children  The third indicator measures the proportion of population who are unable to  purchase the cheapest basket of goods consistent with dignified living without dissaving, borrowing, or getting into debt. 2015 threshold: € 640 per month for a couple with two children living in Athens, in owner-occupied  housing Source: PARU estimates.

poverty effects three indicators In 2015, our estimated headcount rate was:  23.2% (relative poverty)  45.3% (anchored threshold)  15.2% (extreme poverty)  Source: PARU estimates.

poverty effects headcount rates 2015 poverty rate population relative anchored extreme share all households 23.2% 45.3% 15.2% 100.0% gender men 23.4% 45.3% 15.8% 49.1% women 23.0% 45.2% 14.5% 50.9% age 0-15 23.6% 46.2% 17.4% 15.4% 16-29 33.9% 57.1% 24.2% 15.6% 30-44 22.8% 42.7% 16.5% 23.0% 45-64 25.5% 46.2% 16.5% 26.5% 65+ 11.6% 36.8% 2.7% 19.5% household head is unemployed 80.6% 91.0% 70.4% 8.3% employee (public sector or banking) 1.5% 10.2% 0.7% 11.8% employee (private sector excl. banking) 17.7% 45.4% 12.2% 23.7% liberal profession 7.8% 13.2% 4.9% 3.3% own account worker 32.1% 54.3% 23.8% 10.6% farmer 38.7% 66.3% 18.3% 6.7% pensioner 13.3% 39.6% 3.8% 32.9% inactive, student, other 55.3% 77.6% 43.7% 2.6% Source: PARU estimates.

poverty effects focus on extreme poverty We focus on extreme poverty.  Arguably more relevant for policy (?)  The extreme poverty threshold converged to 50% of median income in  2013 (47% in 2015). This in spite of the fact that our basket of goods is very Spartan.  Note that the corresponding estimate for food for a healthy diet &  kitchen equipment alone under the ‘EU reference budgets’ project was € 915 per month (67% of median). Source: PARU estimates.

poverty effects extreme poverty Somewhat surprisingly, we find that extreme poverty rates were much lower  for the elderly (2.7% in 2015) than for children (17.4%), while they were alarmingly high for households with unemployed head (70.4% in 2015). Source: PARU estimates.

policy responses the core business of the welfare state? In principle, a well-designed system of social protection should be able to  mitigate the social effects of an economic crisis. “These are precisely the kinds of emergencies that welfare state  programmes and institutions are designed to deal with, so that when a financial crisis turns up we have routine mechanisms […] for coping with its consequences. Long lines of the unemployed caused by economic crises are the core business of the welfare state ” Source: Castles F.G. (2010) ‘Black swans and elephants on the move: the impact of  emergencies on the welfare state’. Journal of European Social Policy. But in Greece, as the crisis increased the demand for social protection, the  austerity reduced its supply. Or did it? 

policy responses social expenditure (% GDP) In terms of social expenditure as % of GDP, things look rather encouraging.  Greece now spends more than the EU-15 (and much more than Portugal).  31.6% vs. 29.5% respectively in 2012 (Portugal: 27.6% in 2013)  Latest figures out of date!  Source: Eurostat.

policy responses social expenditure (per head) But in terms of euros spent per inhabitant (in real terms, 2005 prices), social  expenditure in Greece remains well below the EU-15 figure. What is more: social spending is actually falling since 2009 (which is when the  crisis hit the country) . Source: Eurostat.

policy responses Greek welfare unfit for the crisis? So, what is going on?  Pre- crisis: rising social expenditure …  faster than GDP, and faster than the EU average  … but disappointing social effectiveness  gross inefficiencies in core programmes (pensions and health) remained  income support and social care to the poor and other vulnerable groups  neglected serious gaps in the social safety net  When the economic crisis hit the country, the welfare state failed  to rise to the occasion

policy responses anti-poverty effectiveness (pre-crisis)