Welfare state and the inter-generational redistribution of public - PDF document

Welfare state and the inter-generational redistribution of public consumption and public transfers in the EU countries 1 Agnieszka Ch ł o ń -Domi ń czak 2 Anita Abramowska-Kmon 3 Irena E.Kotowska 4 Wojciech Łą tkowski 5 Pawe ł Strzelecki 6 Draft version Abstract: The paper presents the quantitative assessment of the inter-generational distribution of public consumption and public transfers related to education, health and other items across different welfare states of the EU. Our approach draws on the National Transfer Account age profiles of public consumption to assess the level of consumption of three generations: young, working-age and senior. We also analyse the benefits received and taxes paid by generations. Our results are to some extent in line with the up-to date literature on the welfare states. In particular, they confirm the highly redistributive character of welfare regimes in the Scandinavian countries. On the other end of the spectrum the ‘new’ EU member states are located – they form a cluster of “underdeveloped” welfare policies. In the middle of the two distinctive clusters of countries are those countries with a mixed shape of generational transfers, depending on the type of public consumption or cash transfers. We also notice some convergence of generational transfers in continental and liberal welfare regimes. This development may result from social reforms and austerity measures introduced in reaction to the 2008 economic crisis, which imposed on reduction of public expenditure and public transfers inflows (benefits). In the recent years countries in the Continental and Anglo-Saxon clusters reduced their public spending, which corresponds to the population ageing, while Scandinavian and Social Democratic countries kept their spending higher. As a result, with population ageing they may face further pressure to increase public expenditure. 1 The research for this paper was supported by AGENTA project funded from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement no 613247. 2 Warsaw School of Economics (Institute of Statistics and Demography) agnieszka.chlon@gmail.com 3 Warsaw School of Economics (Institute of Statistics and Demography), aabram@sgh.waw.pl 4 Warsaw School of Economics (Institute of Statistics and Demography), iekoto@sgh.waw.pl 5 Warsaw School of Economics (Institute of Statistics and Demography), latkow@poczta.fm 6 Warsaw School of Economics (Institute of Statistics and Demography), pstrzel1@sgh.waw.pl 1

Introduction This paper aims to broaden the current discussion on the welfare regimes in Europe by providing an additional evidence on similarities and differences in public consumption and transfers from the intergenerational perspective across welfare regimes. By use of the National Transfer Accounts (NTA) we provide the quantitative assessment of the intergenerational distribution of public consumption between education, health and other items in the EU countries as well as intergenerational difference in public transfers inflows and outflows. The NTA age profiles of public consumption serve as a tool to find how this consumption is divided between three generations: young (0-19 years old), prime-aged (20-64 years old) and senior (65 years old and over). We also investigate how benefits (public transfer inflows) and taxes (public transfer outflows) are distributed across generations. Moreover, by applying a cluster analysis we check whether the identified patterns of public consumption and transfers by generations are in line with the welfare state typologies discussed in the literature. Furthermore, referring to the clusters obtained we look at the public expenditure changes against advancements in the population ageing. The paper starts from the brief overview of welfare state typologies discussed in the literature. Then we describe the NTA approach as well as the data used. Next, public consumption and public transfers are presented in the intergenerational context. These findings are followed by the cluster analysis to group countries by their patterns of public transfers and consumption for young, prime-aged and senior generations. Finally, we analyse how the public expenditure in the clusters are linked to the changing age structure of the population. The conclusions complete the paper. 1. A brief overview of welfare states typologies The literature on welfare regimes in Europe attempts to describe and explain similarities and differences in various welfare states. The welfare states typology by Esping-Andersen (1990), elaborated for democratic developed countries, was followed by a lively debate that resulted in extensions of the initially proposed typology. His identification of the types of welfare regimes was based on the three key dimensions: de-commodification, social stratification and employment. The scores of de-commodification referred to measures related to replacement ratios and eligibility conditions for pensions, sickness benefits and unemployment benefits. Social stratification was evaluated by considering corporatism vs. etatism (understood as paternal authority of the state), means-testing vs universalism and the equality between social statuses. The third dimension – employment - was considered with respect to three main issues: • conditions under which people retire and depend on welfare state institutions; particularly it refers to long-term unemployment among older workers, chances of receiving pension benefits, rights of employees, early retirements schemes; • regulations regarding paid absence at work (i.e. sickness allowances, maternity and parental leaves); 2

• conditions under which people enter the labour market (i.e. different programmes of employment for a limited period, programmes subsidising salaries, programs of active policy of labour market, and particularly the role of the welfare state as the employer). Additionally, women’s participation in the labour market is also taken into account, including full- time vs. part-time employment and their economic activity over the life course. This includes also females’ labour market involvement stemming from the employment structures by sectors and sex and the size of the public sector. Originally, the following three types of welfare state were proposed: conservative, liberal and ‘social democratic’. The conservative welfare regime is characterized by the moderate level of de- commodification and social benefits that are mostly related to former contributions and a status. The employment rates are rather low while females’ labour market participation is low. The family is a main provider of care and support and the state steps in when the family is not able to fulfil its obligations towards its members. Due to the fact that this type of welfare state is linked to absolutism and Catholicism the social rights and consequently most social benefits are differentiated on the basis of the class and the status. This cluster was composed of the following countries: Italy, Japan, France, Germany, Finland and Switzerland. The liberal welfare state can be described by the low level of de-commodification and market- differentiation of welfare as well as a high employment level and women’s participation in the labour market. The market is the main source of social benefits and services and the state’s support is provided only to those who cannot purchase them on the market. As this type of welfare state is grounded on the liberal work-ethic norms the benefits provided by the state are mean- tested and the requirements are strictly eligible. This group included the following countries: Australia, Canada, the United States, New Zealand, Ireland and the United Kingdom. The ‘social democratic’ type of welfare state can be identified by the high level of de- commodification, universal benefits and the high degree of benefit equality, and the highest employment rates, also for women. This welfare state is based on social democracy, which is highly linked to the social equality and economic redistribution, thus the state provides a wide range of social benefits to citizens in order to secure their welfare. Some social benefits are mean- tested in order to enhance the universal solidarity. This cluster was comprised of the following countries: Austria, Belgium, the Netherlands, Demark, Norway and Sweden. In the debate initiated by Esping-Andersen’s typology of 1990 the main criticism addressed the following three issues (i.e. Arts & Gelissen, 2002; Arcanjo, 2006; • an incorrect/ improper inclusion of the Mediterranean countries to the group of immature continental welfare states, • an inclusion of the Antipodean countries to the group of the ‘liberal’ welfare states, • a neglect of the gender dimension in social policy. Consequently, alternative classifications of welfare states have been proposed, including initially neglected the Mediterranean countries Ferrara (1997) and later incorporating the Central and Eastern European countries (Cerami and Vanhuysse (eds.), 2009), as well as referring to different aspects of social policy. Generally, the typology of welfare regimes refers to an institutional design of welfare policies. However, the classification of countries according to their real outcomes of social policy is based on different approaches, statistical techniques and data used, which may lead to different results between the scholars manifested, inter alia, by the number of clusters as well as their country 3