social europe towards a more inclusive europe by 2020 gini mid-term conference budapest 23 march...
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Social Europe
Towards a more inclusive Europe by 2020
GINI mid-term conference Budapest23 March 2012
László Andor
Commissioner for Employment, Social Affairs and Inclusion
Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au
Social Europe
Structure
1. Different types of inequality and trends
2. EU response to inequality• Europe 2020 Strategy and the European Semester• Cohesion policy• Social experimentation
3. Challenges in the context of 2020• Coping with the crisis• Discrepancies between EU headline and national
targets• Addressing inequality's causes or its consequences?
4. Conclusion
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The scourge of inequality
"An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
—Plutarch "there should exist among the citizens neither extreme poverty nor, again, excessive wealth, for both are productive of great evil"
—Plato
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Inequality's many facets• Absolute income, relative income, (un)employment…
• Education• early school-leavers: range from 4.9% (CZ) to 36.9%
(MT); in ES 10 pp more males than females
• Health• Unmet need for healthcare (too expensive): 5% in
lowest quintile, 0.3% in top quintile• Life expectancy of tertiary-educated CZ male: 80 years
against 62 years for CZ male with basic education
EU-27 (now) EC-9 (mid-1970s)GDP/head (PPS EU= 100) 45 to 133 92 to 113 (IE 56)Unemployment 4.0% to 23.3% 2.9% to 9.6%Gini 24 to 37 24 to 36
Soc. exp. (% of GDP) 11% to 30%21% to 29% (excluding IE and IT)
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EU trends - income inequality
Degree of inequality (Gini)
•UK: back to historical high
•IE: historical low (increase in 2010 after long descent)
•IT: comparable to 1980
•EL: comparable to 1967
Source: UN-SWIIDv3
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Trends in net income inequality in BRIC, Mediterranean countries, USA and Japan (Gini)
Over the last 30 years:
- Significant decrease from very high levels:Brazil and most Mediterranean countries
- Increase in countries with lower levels of inequality -- Russia, China, Israel and USA
Current level of income inequality in USA, BRIC and Mediterranean countries is still considerably higher than in Europe
Source: UN – SWIID v3
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2. EU response to inequality
Europe 2020 and the European semester
Cohesion policy
Social experimentation
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Europe 2020: integrated strategy for smart, sustainable and inclusive growth
Three EU targets most related to inclusive growth:• Raising employment rate (20-64 age group) to 75%• At least 20 million fewer people at risk of poverty or social
exclusion • < 10% early school-leavers & at least 40% with tertiary education
qualification
Supported especially by three flagship initiatives:• Agenda for New Skills and Jobs• Youth on the Move• European Platform against Poverty and Social Exclusion
• Aim of the Platform: "to ensure social and territorial cohesion such that the benefits of growth and jobs are widely shared, and people experiencing poverty and social exclusion are enabled to live in dignity and take an active part in society."
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10
2011: 1st European Semester priorities
Prerequisites for growth: • Rigorous fiscal consolidation• Correcting macro-economic
imbalances• Stability of financial sector
Mobilising labour markets:• Making work more attractive• Reforming pension systems• Getting the unemployed back to
work• Balancing security and flexibility
Frontloading growth:• Tapping the potential of the
Single Market• Attracting private capital• Cost-effective access to energy
2012: 2nd European Semester priorities
Pursuing growth-friendly fiscal consolidation
Restoring normal lending to the economy
Promoting growth and competitiveness
Modernising public administration
Tackling unemployment and the social consequences of the crisis• Mobilising labour for growth• Supporting employment,
especially among the young• Protecting the vulnerable
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2012 in detail: protecting the vulnerable
• Continue improving the effectiveness of social protection systems
• Implement active inclusion policies• Ensure access to services to support integration
into the labour market and society• Monitor distributional impact of reforms• Pay attention to the needs of the most vulnerable
in any tax shift
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Cohesion policy after 2014 – potentially stronger impact on inequality
• Alignment of cohesion policy with Europe 2020
• Thematic concentration, including on: • Employment & labour mobility
• Social inclusion & combating poverty
• Education, skills & lifelong learning
• Minimum 25% share for ESF within cohesion policy
• Minimum 20% share of ESF in each MS for social inclusion
• More effective: conditionality, stronger focus on results
• More efficient & accessible: simplification for beneficiaries
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Spawning and spreading new solutions: social experimentation
• Testing innovative solutions for addressing social challenges:
• First on a small scale, with impact evaluation
• Then scaling up, if they prove effective
• €100 million proposed in the Commission-managed Programme for Social Change and Innovation 2014-2020
• E.g. Revenu de solidarité active in France, first tested in 33 out of the 101 "départements"
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3. Challenges with an eye to 2020
Crisis and inequality – what future?
Lack of ambition in national targets
Are we tackling the root causes of inequality?Employment package
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Quantiles of the household gross income distribution, UK
Quantiles of the household net income distribution, UK
Source: Blundell and Etheridge (2010) based on UK Family Expenditure Survey
Source: Blundell and Etheridge (2010) based on UK Family Expenditure Survey
Income inequality and crisisHistory: Inequality may widen during (Blundell and Hetheridge) and after (Atkinson and Morelli) recessions
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• Disposable income inequality did not increase in the early phase of the crisis (role of capital income, for instance) (ESDE, 2011; Jenkins et al., 2011)
• Medium to longer term effects may be harsher (ESDE, 2011) as a result of fiscal consolidation measures (Jenkins et al., 2011)
Is it different this time?
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Discrepancy between EU headline and national targets: Employment
Now: North-west versus the rest, EU-27 average: 69%
Target: raise employment to 75%
National commitments: 74%
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Poverty and exclusion
Now: South/East divide, 115 million at risk of poverty or social exclusion
Target: at least 20 million fewer
National commitments: 12 million
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Addressing inequality's causes or its consequences?
Preventing inequality•"Social investment" – education, health, social minimum, active ageing support, LLL …• Policies influencing original income distribution
• Labour market policy• Equal opportunities policy• Taxation and redistribution
Remediation• Much spending (incl. health & social protection expenditure), albeit necessary, addresses the consequences • Reducing existing inequality: taxation, redistribution
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Addressing the causes of inequality – social investment, in-kind services
• Beyond disposable income inequality: in-kind benefits reduce inequality by a further fifth
• Education, training and healthcare are investments!
• Source: ESDE (2011)
Distribution of in-kind benefits by quintiles
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Addressing the causes: labour market polarisation
Before the crisis
More jobs created in low- and high-wage segments
During the crisis
More jobs lost in middle-wage segments
Source: Eurostat EU LFS, Fernández-Macías (2010) Source: Eurostat EU LFS, Fernández-Macías (2010)
Net job creation 1998-2007
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Lowwages
Highwages
Net job creation 2008q2-2010q2
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
6000
Lowwages
Highwages
Source: Eurofound, ESDE
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Addressing the causes: in-work poverty
Source: DG EMPL calculations based on EU SILC 2009
Labour market reasons for in-work poverty:- Low wages (LV)- Low participation, low work intensity (DE)
Redistribution also matters:- benefits do not always compensate for cost of a child (ES)
Relative importance of factors for in-work poverty
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Addressing inequality more effectively - taxes
• 1995-2008: Big reduction in top income tax rates – EU average down from 47.3% to 37.8%
• Since 2008 increase in top income tax rate in EL, ES, PT, UK, …
• OECD (2012): Reducing income inequality while boosting growth?• Re-assessment of tax expenditures
that benefit mainly high-income groups
• Reduce distortive tax relief on capital taxation
• Annual Growth Survey 2012, Euro Plus PactSource: European Commission
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Addressing more effectively – taxes and transfers
• Correlation between social protection expenditure and redistributive effect of taxes and transfers
• Similar expenditure can go with big differences in inequality reduction
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Choosing fairer consolidation options
Greece
-11%-10%-9%-8%-7%-6%-5%-4%-3%-2%-1%0%
poorest 2 3 4 richest
Portugal
-11%-10%-9%-8%-7%-6%-5%-4%-3%-2%-1%0%
poorest 2 3 4 richest
Estonia
-11%-10%-9%-8%-7%-6%-5%-4%-3%-2%-1%0%
poorest 2 3 4 richest
Estimated impact of austerity measures on households by income quintile: changes to income components and VAT increases
• Measures affecting disposable income of households have been progressive in Greece, regressive in Portugal and relatively neutral in Estonia
• Taking VAT increase into account, the picture changes significantly for Greece, making austerity measures less progressive
• The effect of the crisis on household income, potentially very significant and regressive, is not represented in the graphs
• Source: Sutherland et al, 2011
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4. Summary conclusions• Fairness of reforms is crucial to social acceptance of policies
and stability of our democracies• Inequalities have many dimensions – to tackle them we need
a range of policies that address both the causes and the consequences:• social investment• fairer and more effective tax and transfer system
• Cohesion policy, employment and social policy and social innovation have an important role in preventing and mitigating inequality
• Research most welcome, e.g. on crisis impact, effects of interventions, trade-offs