The development of EU social policy

The Lisbon acme of March 2000 set an ambitious purpose to EU authoritiess: doing the EU “ the most competitory and dynamic knowledge-based economic system in the universe, capable of sustainable economic growing with more and better occupations and greater societal coherence ” .[ 1 ]Even though some advancement has been made, one can state that the coveted ends are still far from being achieved.[ 2 ]Low employment rate, low economic growing and ripening of population are merely a few of the elements that question the success of this ambitious undertaking.

In this paper we try to analyze the impact that EU societal policies have on the overall economic public presentation of the EU district.

The first portion of our paper focuses on the development of EU societal policy, by depicting its development and the chief differences bing among EU societal theoretical accounts. The 2nd portion gives a theoretical model on the controversial tradeoff refering societal equity and economic efficiency. In the 3rd portion, we analyse the chief economic losingss connected with EU public assistance policies. Finally, we use these results to supply some practical illustrations of EU societal programmes and measure their negative impact on EU economic efficiency.

European Social policy

Harmonizing to the Treaty of Rome, societal policies remained largely under national matter, as the states did n’t pull off to make a via media about their harmonisation. One of the accomplishments of the Treaty of Rome is the proviso about the constitution of the European Social Fund ( ESF ) .[ 3 ]It was chiefly concerned with the simplification of the employment of workers, the addition of their mobility in the Community and their version to alter by agencies of vocational preparation.[ 4 ]

The Single European Act, the Maastricht pact and the Nice Treaty brought farther alterations in footings of societal policy.[ 5 ]

The Lisbon Summit gave a new encouragement to the development of the European societal policy. The Open Method of Coordination ( OMC ) is defined as an instrument of the Lisbon Strategy. This new tool of administration is aimed at the coordination and harmonisation of societal policies and is based on European guidelines, which are transferred into national action programs.[ 6 ]The OMC established common indexs for comparing best patterns. The rating and reappraisal of the national programs are sporadically organized at the European degree.[ 7 ]

European societal theoretical accounts

Despite enterprises seeking to harmonise societal policies at the EU degree, we can detect that a individual European societal theoretical account can non be detected, since the penchants vary among member States.

Sapir distinguishes between four types of European societal theoretical accounts. Nordic states ( Denmark, Finland, Sweden and the Netherlands ) are characterized as states with the highest degree of societal disbursement, high revenue enhancement rate and strong labor brotherhoods.[ 8 ]In Anglo-Saxon states ( the United Kingdom and Ireland ) hard currency transportations are chiefly directed to the people in working age. The labour brotherhoods are weak. As to pay scattering, it is quite broad and increasing.[ 9 ]Continental states ( France, Germany, Austria, Belgium and Luxembourg ) are characterized by high outgo on employment protection, wellness and pensions, still holding strong trade brotherhoods.[ 10 ]In MediterA­ranean states ( Italy, Spain, Portugal, Greece ) the chief portion of the societal disbursement goes to pension financess. The societal public assistance systems of these states acknowledge employment protection and early retirement.[ 11 ]

Economic position of public assistance policies

Extra-economic considerations are besides at the base of public assistance policies, and can explicate the ground why they constitute presents such a controversial issue.[ 12 ]The nucleus concern sing public assistance policy is due to the quandary of the complex relation between equity and efficiency.

Equity versus Efficiency

The ground why public assistance policies are considered of import relies on societal considerations connoting more just economic position on one manus, and important costs on the other.[ 13 ]

The grade of inequality, bing in any state, can be explained by the Gini coefficient derived from the Lorenz curve, which shows the relation between the cumulated distribution of income to the cumulated distribution of families.[ 14 ]

In Figure 1, the diagonal represents the curve of absolute equality, where each individual should hold the same sum of income. A conjectural curve in the left-bottom corner will stand for the curve of absolute inequality, where one individual will have the entire income.[ 15 ]The curve ‘c ‘ shows a conjectural state where the distribution is in between the two opposite extremes.

Curve of absolute inequality

Figure 1 – Lorenz curve ( Beginning: based on Samuelson, Nordhaus )[ 16 ]

The country in Grey represents the Gini coefficient[ 17 ]. It varies significantly among EU member States, with an norm of 30.6 % in 2007[ 18 ]and of 30.5 % in 2008[ 19 ]. In 2009, the societal public assistance outgo in the EU accounted for 42.2 % of authoritiess outgo[ 20 ], but the informations available boulder clay now do n’t give grounds of an bettering state of affairs in footings of equity ( Table 1 ) .

Table 1 – Beginning: Eurostat[ 21 ]

The “ leaky-bucket ” experiment – developed by Okun – can give an account of the tradeoff between equity and efficiency.[ 22 ]Okun illustrates the cost of redistribution policies by showing that non the full sum of money taken from the richer goes to the poorer.[ 23 ]

Figure 2. Beginning: based on Pestieau[ 24 ]

Pestieau uses a simple illustration to explicate this economic metaphor.[ 25 ]As in Figure 2, he assumes that at point A, Robinson has 8 oranges whereas Tintin has 2. If we want to redistribute the oranges every bit, we should reassign 3 from Robinson to Tintin. However, as we transport those oranges in a “ leaky pail ” , some of them will be lost: Robinson will hold 5 oranges and Tintin 4 ( point B ) .[ 26 ]The lost orange represents the cost of transportation, demoing a loss in footings of efficiency. In existent life, that cost is due to factors such as administrative costs and lower attempts in work made by the tax-payers and nest eggs.[ 27 ]

The Matthew Effect

Another ground at the base of public assistance policies inefficiency is the alleged Matthew consequence. The Mathew consequence supports the thought that – normally – the people who benefit the most from societal disbursement are those who need it less.[ 28 ]This is due to cultural and institutional grounds: the lowest socio-economic groups are frequently stopped from profiting from EU societal policies because of “ administrative complexness and fright of stigmatisation ” .[ 29 ]

The consequence of this phenomenon is an addition in inefficiency of public assistance policy, related to the neglect of its chief end: redistribution of wealth.

Economic Losingss

The nature of the tradeoff between equity and efficiency is a controversial issue. Even though the statistics appear to demo a correlativity between public disbursement and GDP, we can reason about the way of the causality.[ 30 ]Furthermore, as Pestieau references, “ we can non correlate societal disbursement with GDP because less generous societal systems [ … ] experienced globally higher growing rates than more booming systems such as the Northern provinces of the EU in the early 1880ss ” .[ 31 ]In fact, if we analyse the inclination over the old ages, we notice that states with a individualistic economic system had a better GDP public presentation during the last decennaries.[ 32 ]

In the following paragraphs we will concentrate on the impact of EU public assistance policies on economic efficiency, viz. through the influence that these policies have on nest eggs and investing, competition and deterrences to work in the European Union. In add-on, we will show the inefficiency of the EU public assistance policies, non ever in line with their expected result. Finally, we will utilize those tools to discourse on the economic efficiency of some EU policies being presently undertaken.

Savingss and Investing

Basic macroeconomic theory arguments about the importance of nest eggs and investing in order to accomplish increased economic growing. Many economic experts claim that “ since the inclination to salvage additions with income, policies redistributing gross from the richer to the poorer would cut down nest eggs and growing by the same item ” .[ 33 ]In other words, richer European citizens will put aside an progressively big proportion of their extra income on nest eggs, while disfavoured socio-economic groups are likely to salvage less. Therefore, inequality can be economically desirable to some extent, since economic systems with greater inequality degrees would see a higher economic growing.[ 34 ]

Competition

Given the recent failure of the Lisbon scheme, the concern about the ability of the EU to vie with other universe major economic powers, such as the US and China, is being earnestly questioned.

EU public assistance policies would non forestall the fact that portion of the societal protection financing comes from labour revenue enhancements. In a globalized universe where the EU acts as a major trade participant, the being of these revenue enhancements would do an inauspicious consequence on EU ‘s fight. In fact, the higher the European house ‘s pay cost and cost of production is, “ the less competitory it will be comparative to houses from states with lower revenue enhancement loads ” .[ 35 ]Therefore, revenue enhancement strategies can be an “ component that makes the EU a less attractive district ”[ 36 ], by detering foreign investors and promoting revenue enhancement equivocation and out-migration. Consequently, it is of import that EU societal policies do non negatively affect competition and that private companies are able to vie freely, as they are of course more efficient.

EU public assistance policies would besides do deadweight losingss through the deformations of consumer picks[ 37 ], given that the assortment of merchandises lessenings without competition.[ 38 ]Taking into history Ricardo ‘s theoretical account of comparative advantage, the accommodation of rewards implied in paysheet revenue enhancements would give a comparative advantage to both labors and capital intensive states when trading merchandises with the EU.

Disincentives to Work

Another of import facet of EU public assistance policies is the job of the deterrences to work and the consequence of single behavioral responses to the inducements implicit in them. Both have a big impact on economic efficiency. For case, “ societal security can bring on socially unwanted early retirement ” .[ 39 ]Besides, “ disablement insurance can take to more absenteeism on evidences of minor wellness ailments ” .[ 40 ]

“ Traditional micro-economic logical thinking is based on the construct that an person will merely seek employment when it provides him with stuff addition ” .[ 41 ]If halting to work and accepting benefits was more financially attractive than gaining money via work, employees would presume the possibility to cut down their labor supply, catching them in an “ inaction trap ” .[ 42 ]Furthermore, some people would see the possibility to work in the unreported economic system while still illicitly profiting from minimal pension commissariats.

Inefficiency of the execution of EU policies

Finally, it is indispensable to see the inefficiency of the execution of EU societal policies. Following the Matthew consequence – described earlier – the distribution of the EU ‘s societal outgo has a negative impact on economic efficiency in the EU. Indeed, public outgo associated with EU policies frequently favours the wealthiest societal groups, by supplying them with “ societal commissariats intended for the deprived groups ” .[ 43 ]

Finally, the Administrative costs should be mentioned. Even though it is true that holding EU common societal policies by and large reduces administrative costs, these are still well high, as the execution of such European policies is made on a national degree.

Figure 3. Best Practice frontier ( beginning: Pestieau[ 44 ])

To sum up, the productive inefficiency in the allotment of resources should ever be considered when it comes to societal policies. As seen in Figure 3, there is a productive inefficiency if the same production of goods and services can be carried out with fewer resources ( indicate a to c ) or if more can be produced with the resources used ( in point a to B ) . This denotes that “ better can be done with less ” .[ 45 ]

Now that we know to what extent societal policies affect economic efficiency, we can concentrate on the impact that some of the EU public assistance policies may hold on its economic public presentation.

Examples of EU public assistance policies

Lifelong Learning Programme

At the EU degree, womb-to-tomb larning programmes – such as Erasmus and Grundtvig- are seen as “ critical factors for accomplishing the Lisbon scheme ‘s aims of heightening economic growing, fight and societal inclusion ”[ 46 ]by bettering the cognition, accomplishments and competencies of European citizens.

Notwithstanding the societal benefits of such programmes, we can still oppugn whether there is an economic payback for the a‚¬7 billion spent for 2007 to 2013[ 47 ].

For case, the Grundtvig programme aims at “ back uping grownup larning staff to go abroad for larning experiences ” .[ 48 ]Puting the societal benefits aside, we can debate whether the fringy economic result of learning an grownup is the same as of learning a younger individual that will be longer in the labor market. This will do a deadweight loss. If the addition in productiveness does n’t do up for the money invested on that programme, there is no economic benefit in making so. This will hold a negative consequence on EU ‘s fight when compared to other states.

Furthermore, we should inquire if the people profiting from these programmes are the 1s who truly necessitate it, as in the Matthew consequence. The considerable personal funding needed in programmes like Erasmus can except lower socio-economic groups. This has a counter-efficient consequence on equity excessively.

Furthermore, the result of these programmes extremely depends on single behavioral responses.

Finally, the administrative costs and other actions of the Life Learning Programme should besides be taken into consideration, as it accounts for about a‚¬180 million per twelvemonth.[ 49 ]

Health and safety at work

The Health and Safety ordinances can hold a negative consequence on the efficiency of EU economic system excessively. As a affair of fact, there is an chance cost when following with these ordinances, as more productive investing determinations – such as industrial enlargement programs – have to be either delayed or abandoned. This builds a clear disadvantage to the fight of the EU towards other states.

Health and safety at work “ represents today one of the most of import advanced Fieldss of the societal policy of the European Union ”[ 50 ]harmonizing to the European Commission. However, the duties refering for case workplaces and work equipment can hold a negative consequence on the economic side. These ordinances – supported by the PROGRESS programme – can in some instances arm the fight of EU companies, given that international rivals will ever hold the option to do other investing picks, based entirely on whether they are more efficient or non from an economic point of position.

Environmental policies

Environmental Directives[ 51 ]can besides do the same jobs as the Health and Safety work ordinances. An illustration of this can be the Directive on Environmental Noise and on Waste bar and direction, which represents one of the EU ‘s Sixth Environment Action Programmes. Even though the purpose of these EU policies is besides related with take downing overall costs, it is ever more efficient to run in an unrestricted market. If those directives truly had a positive impact on economic efficiency than the private sector would implement them automatically.

Reasoning, there are many Fieldss in which EU societal policies can hold an unwanted impact on the efficiency of EU economic systems. The most of import is to measure whether “ the losingss associated with these public assistance policies exceed the associated additions ” .[ 52 ]It is in this relationship between the entire economic additions and losingss that economic experts do n’t happen a consensus.

As in Figure 4, there is an optimum point ( A ) where net additions can be maximised.

Figure 4. Economic Additions and Losingss of the Welfare State. ( Beginning: based on Haveman[ 53 ])

It is a just inquiry to inquire if one of the grounds for the hapless economic public presentation of the EU during the last few decennaries might non be related with its size. Indeed, the dimension of the EU policies might non be at an optimum point, as in point B. Furthermore, we could even reason whether economic losingss engendered by these public assistance policies surpass or non – presents – the economic additions, as in point C of Figure 4.

Decision

In this paper we tried to give a general overview of the European societal policy in an economic position, foregrounding the economic costs related to those policies.

After reexamining the development of the European societal policy, different societal theoretical accounts and analyzing some economic facets, we linked both positions together and structured them into four chief classs. Furthermore, we used them to measure the economic efficiency of some of the societal programmes being presently implemented at the EU degree.

Despite the possible societal benefits of EU policies, we can reason that there is economic inefficiency. Those societal policies have a negative impact on nest eggs and investings, an inauspicious consequence on EU ‘s fight, and can even make deterrences to work among its donees. Furthermore, we discussed the inefficiency in the execution of these societal policies. The Best Practice Frontier graph showed that “ better can be achieved with less ” .[ 54 ]

Taking into consideration all these statements, we can reason that some of import reforms need to be implemented at the EU degree. Structural and funding alterations have to be made in order to maximise entire additions and minimise entire losingss[ 55 ], doing the EU public assistance policies more economically efficient and sustainable.