The  European  Welfare  State:  Performance  and  Challenges  

Pierre  Pes:eau  CORE,  Université  de  Louvain  and  CREPP,  

Université  de  Liège.  

Assessing   the   European   Welfare   State   brings  contrasted  reac:ons  depending  on  whether  you  are  a  pessimist  or  an  op:mist:  – Half  full  glass:  All  the  missions  have  been  fulfilled.  Recent   study   on   the   performance  of   the  Welfare  State   in   the   28   EU   countries:   improvement   and  convergence.    

– Half   empty   glass:   They   are   more   numerous.  Concerned   by   the   challenges   that   threaten   the  viability   of   the   Welfare   State   more   than   by   its  current  performance.  

Among  the  most  cited  challenges,  there  are    – demographic  aging,    

– globaliza:on  ,  – financial,  budgetary  crisis.  

As   a   reac:on   to   these   challenges,   we   have  already   observed   over   the   last   decade   changes  in   the   architecture   of   our   Welfare   State.   From  contributory,   it   becomes   more   and   more  Beveridgean.  

On   the   revenue   side,   an   increasing   frac:on   of  resources   comes   from  general   revenue  and  not  from  contribu:ons.  

Table  1.  General  government  contribu:ons  as  %  of  total  receipts  

1990 2000 2010 Belgium 23.8 25.5 35.8 France 17.0 30.3 34.0 Germany 19.1 31.9 36.7 Italy 27.2 40.6 45.6 Spain 26.2 29.5 43.5

On   the   benefit   side,   there   is   less   and   less   link  between   the   contribu:ons   and   the  compensa:ons:  survival  benefits,  minimums  and  maximums,  derived  rights.  

•  Problem:   by   moving   away   from   the  Bismarckian   contributory   principle,   we  increase   tax   distor:ons   and   lose   poli:cal  support.    

Two   remarks   in   order   when   assessing   the  performance  of  the  welfare  state.    – Different   countries   can   have   different   priori:es:  employment,  equality,  poverty  allevia:on,  health,  educa:on,  old  age,  …  

– Those   priori:es   are   not   always   reflected   in   the  amount  of  social  spending.  There  exists  other  non  financial   means   to   achieve   certain   objec:ves:  relying   on   the   private   sector   through  mandatory  insurance,  laws  and  regula:on,  environment,  …  

Now  I  provide  some  evalua:on  of  the  performance  of  the  European  welfare  states.  For  the  most  recent  years,   it   comprises   the   28   EU  member   states.   For  the  dynamic  part,  it  is  restricted  to  EU15.  

•  The  performance   is  measured  as   the  capacity   to  fulfill  5  basic  missions  of  the  Welfare  State:  –  Poverty  allevia:on  –  Inequality  reduc:on  – Health  –  Employment  –  Educa:on  

•  Two  techniques  of  aggrega:on  are  used:    

– simple   unweighted   sum   of   normalized   indicators  (SPI)  (ex:  HDI)  

– Data  Envelopment  Analysis  (DEA)  that  weights  the  par:al   indicators   according   to   the   importance  they  are  given  in  each  country.  

Figure  1  :  Primary  indicators  in  4  countries  

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Table  2  :  DEA  and  SPI  performance  indicators  –  EU  28,  2012  (1)  

DEA rank SPI rank

Austria AT 1.000 1 0.821 6 Belgium BE 0.911 17 0.736 11 Denmark DK 0.947 14 0.773 8 Finland FI 0.997 10 0.835 5 France FR 1.000 1 0.749 9 Germany DE 0.916 16 0.738 10 Greece EL 0.846 23 0.319 26 Ireland IE 0.882 21 0.648 15 Italy IT 1.000 1 0.543 19 Luxembourg LU 0.984 11 0.813 7 Netherlands NL 1.000 1 0.896 1 Portugal PT 0.799 25 0.446 23 Spain ES 1.000 1 0.263 28 Sweden SE 1.000 1 0.863 2

Table  2  :  DEA  and  SPI  performance  indicators  –  EU  28,  2012  (2)  

DEA   rank   SPI   rank  

UK   UK   0.904   18   0.646   16  Bulgaria   BG   0.650   28   0.327   25  CroaLa   HR   1.000   1   0.471   21  Cyprus   CY   0.902   19   0.716   12  Czech  R.   CZ   1.000   1   0.849   3  Estonia   EE   0.758   26   0.513   20  Hungary   HU   0.859   22   0.604   18  Latvia   LV   0.697   27   0.332   24  Lituania   LT   0.896   20   0.462   22  Malta   MT   0.925   15   0.648   14  Poland   PL   0.962   13   0.617   17  Romania   RO   0.842   24   0.305   27  Slovakia   SK   0.965   12   0.648   13  Slovenia   SI   1.000   1   0.840   4  

Mean   0.916   0.622  

Table  3  :  Implicit  weights-­‐    EU  28,  2012  

POV INE UNE EXP EDU DEA   0.027 0.160 0.264 0.294 0.255

Figure  2  :  Convergence  of  SPI    

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AT   BE   DE   DK   EL   ES   FI   FR   IE   IT   LU   NL   PT   SE   UK  

1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012  

Figure  3  :  Average  DEA  growth  

Overall  assessment  

•  Quasi  universal  coverage  rela:ve  to  less  than  50%  in  La:n  America.  

•  S:ll  many  holes  in  the  safety  net:  poverty  rates,  working  poor,  unalended  dependent  elderly.