Austerity, Retrenchment and the Welfare State: Truth or Fiction? 2019951920, 9781789903713, 9781789903706

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Austerity, Retrenchment and the Welfare State

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Austerity, Retrenchment and the Welfare State Truth or Fiction?

Bent Greve Professor of Welfare State Analysis, Department of Society and Business, Roskilde University, Denmark

Cheltenham, UK • Northampton, MA, USA

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© Bent Greve 2020 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2019951920 This book is available electronically in the Social and Political Science subject collection DOI 10.4337/9781789903713

ISBN 978 1 78990 370 6 (cased) ISBN 978 1 78990 371 3 (eBook)

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Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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Contents vi vii ix

List of figures List of tables and appendices Preface   1   2   3   4   5   6   7   8   9 10 11 12

Austerity and the welfare state: an introduction Key concepts Can we measure change? Tax or welfare? Key developments in welfare state spending Has there been austerity within the pension system? Employment policy Health care Long-term care Poverty and inequality How far have welfare states changed? Austerity in welfare states or not?

1 13 28 41 53 64 82 94 109 125 142 157 163

Index

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Figures   4.1 Taxes and duties as percentages of GDP in different welfare regimes, 2000‒2017 43   5.1 Social protection as a percentage of GDP, 2000‒2016 58   6.1 Development in spending on pensions per inhabitant in 2010 prices, 2006‒2016 70   7.1 Replacement rate unemployment, 2001‒2018 85   8.1 Spending as a percentage of GDP in fixed prices since 2000 in European welfare regimes 96 10.1 Development in relative poverty within the EU since 2005131 10.2 Development in severe deprivation within EU countries, 2007‒2017 135

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Tables and appendices A3.1 Countries included and split into welfare regimes 4.1 Social benefits/services cost businesses too much in taxes/charges, 2008 and 2016 4.2 Benefits for parents to combine work and family even if means higher taxes, 2016 A4.1 Taxes and duties as percentage of GDP in 2017 and change since 2000 split into different periods 5.1 Central data for the overall development on spending on social protection (total and specific areas) within EU28/EU27 countries since 2008 5.2 Spending on social protection in euros per inhabitant (at constant 2010 prices) and percentages changes – split into different time periods 6.1 Development in future gross replacement rate (GRR) and net replacement rates (NRR) since 2006 for EU member countries 6.2 Aggregate replacement rate in selected years since 2005 in EU countries A6.1 Spending in euro to old age pension per beneficiary in constant 2010 prices and change herein A6.2 Spending in euro per inhabitant in 2010 prices for EU countries in selected years since 2000 7.1 Spending as a percentage of GDP on unemployment cash benefit per percentage unemployed in selected years since 2000 in EU countries A7.1 Replacement rate for individual EU countries, selected years, 2001‒2015 for a single earner 8.1 Spending in euros (fixed 2010 prices) per inhabitant in 2016 and the development since 2000 8.2 Change in spending on health care in fixed 2010 prices on average euro per inhabitant above the age of 65 8.3 Average percentage of health care cost paid for by user across OECD/EU members

40 46 48 52 56 60 72 75 78 80 86 93 97 99 100

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8.4 Change in unmet needs 2008–2017 for EU countries 102 8.5 Perceived quality of service 103 8.6 Hospital staff per 1,000 inhabitants – development since 2000 104 A8.1 Development in spending on health care as proportion of GDP 108 9.1 Development in expenditure to long-term care per inhabitant in euros 2010–2016 and change herein in most EU member states 112 9.2 Percentage change in spending on in-kind benefits in old-age in fixed 2010 prices per inhabitant since 2000 in EU member states, before and after the financial crisis115 9.3 Spending on old age in 2016 and changes in three different periods in absolute amount in fixed 2010 prices per person above the age of 65 116 9.4 Change in persons above 65 and 80+ as percentages of the total population 117 9.5 Projected demographic development within the EU 117 9.6 Change in employment rate for the 55–64 age group since 2000 120 9.7 Change in average exit rate 122 10.1 Changes in the impact of transfers on the Gini coefficient since 2005 excluding pensions 129 10.2 Change in percentages at risk of poverty in EU countries since 2005 132 10.3 People at risk of poverty or social exclusion, by age group, 2016 134 A10.1 Development in Gini coefficient in selected years since 2000 for EU countries 140 A10.2 Gini coefficient in selected years since 2005 before social transfers 141 11.1 Austerity in welfare spending? 147 11.2 Change in taxation 148 11.3 Austerity in the field of pensions? 149 11.4 Austerity in old age – including long-term care? 149 11.5 Austerity in health care? 150 11.6 Austerity in replacement rates? 151 11.7 Change in inequality and poverty 152

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Preface This book started with the fact that I was surprised at the wealth of books and articles arguing that there has been austerity, and often permanent austerity. If the word ‘austerity’ was not used, then ‘retrenchment’ was used or other words indicating that welfare states have been under strong attack at least since the millennium. Several of the books and articles did not have any data to back up the argument, and the analysis of possible austerity was undertaken only to a limited extent. At the same time, voters often support especially health care and long-term care, which raised the question whether these two issues could be combined. This book tries to answer the question of whether we live in a time of permanent austerity. The short answer is that this seems not to be the case when looking at Europe. This does not imply that there have not been changes, and to a certain extent one might find what I label restricted or populist austerity. Welfare states are seemingly here to stay – and there are still many good reasons why the welfare state is important for the everyday life of people. I hope the book will help to give a more nuanced presentation of welfare states and their development. Roskilde and Bagsværd, May 2019 Bent Greve

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1.  A  usterity and the welfare state: an introduction 1.1 INTRODUCTION Austerity and retrenchment are some of the words that have been used extensively in the public debate as well as in the academic literature on the development of welfare states during the last few years. They were first mainly used in the context of the consequences of the economic crisis in the 1970s of stagnation and inflation. Expressed among other things from the OECD publication on The Welfare State in Crisis (OECD 1981), among others. With Keynesian economic steering discredited by the then economic crisis, there was room and opportunity for other forms of economic policy, especially with a focus on monetary policy. Liberal and neoliberal understandings gained weight and it has even been argued that welfare states were in times of permanent austerity (Pierson 2002). This is in line with the debate on the legitimacy of the welfare states, including level of benefits and whether or not to support the middle class (Oorschot and Roosma 2015; Roosma et al. 2017), and questioning the legitimacy of spending as a policy strategy as it is easier to make cuts if the welfare state does not have a sufficiently high degree of support among the population (for this, read voters). Crisis in welfare states has been argued to be caused by a wide range, albeit often very different kinds, of reasons, such as change in demography, technology, globalization, migration, legitimacy, ability to finance and so on. The financial crises from 2009 onwards are thereby just the latest in a series of pressures on welfare states. Arguments were put forward that, in order to reduce governments’ budget deficit and, in the longer run, reduce debt, countries should reduce public spending. These crises and ongoing challenges can be one possible explanation for the fact that arguments and claims about crisis and cuts have formed a significant part of the literature on the development of welfare states around the globe. The 1

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­ evelopment has further been seen as a neoliberal approach with a d stronger focus on using market forces instead of the state in order to develop society. However, the question is what is understood by austerity? Can we measure cuts in welfare states and, if so, how can this then be done? The choice of data brings with it the risk that other key aspects of societal development will then not be captured. Perhaps there is no austerity at all? Perhaps there has been limited austerity within a few selected welfare areas? Perhaps there is a difference in the development between benefits in cash and benefits in kind? Perhaps it is citizens’ and voters’ expectations that have not been met? Perhaps the politicians just wanted to give new types of service; however, they could only do so by reducing expenses in other areas, such as income transfers to the unemployed and those on a pension? Perhaps there has not been retrenchment but welfare states have rather been reformed (Kersbergen, Vis and Hemerijck 2014)? The ambition of this book is to try to answer these questions from a comparative analysis of the developments, especially within the EU. The book tries to look at changes in welfare states overall, but also within the core sectors of welfare states’ main spending areas. It looks at how overall expenditure and coverage (both replacement rate and conditionality) have been developing and, if possible, changes in rules for receiving benefits. Among other things, the book analyses whether there is a difference between benefit in kind and in cash. Furthermore, the book analyses whether welfare chauvinism can help in explaining the development. It is also possible that there are different degrees of change within various sub-sections of welfare states’ development, including variation across welfare regimes, which are also sought to be captured in the analysis. How quality has developed is only included insofar as solid data are available to measure change herein. The use of data will be combined with existing knowledge from already published books and articles, which have been searched for using ‘austerity’ and ‘retrenchment’ as search terms. Following on from this, snowball effects from these articles combined with the author’s knowledge and research about welfare states form the input to the analysis in order to answer whether there has been austerity and retrenchment, and also whether this is a permanent tendency. There might further be a contradiction between the individual’s perception of changes (e.g. a public sector worker who has a feeling

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of increased work-pressure, a recipient of services or benefits who is experiencing a reduction) and the overall macro-changes. In a way, this is a classical problem in that the understanding of changes at the micro-level and what de facto are the macro-level changes might depend on the position one is looking at changes from. So, without neglecting the individual’s perception, this is included only to a more limited extent, but might be part of the explanation for varying interpretations of what has happened. The possible challenges for welfare states and their mutual relationships, as well as factors explaining the experience of cuts, are included in the book, and this is done by looking into the development in core welfare state arenas. This first chapter discusses a few of the key issues discussed throughout the book, which sets the frame for the book. This first chapter also gives a brief overview of the contents of the entire book.

1.2  KEY ISSUES IN THE BOOK The overall aim of the book is to discuss whether there has been austerity and retrenchment in developed welfare states mainly in Europe, including whether this is a permanent condition for welfare states (Pierson 2002), or whether the development more reflects a combined variation in the economic and political climate, including the possible influence of populism on welfare states development (Greve 2019). Also included is the option for a variegated change in welfare states where expansion in some sectors goes hand in hand with reduction in others. Or to put it another way: “The welfare state is not on retreating, nor has it clearly stagnated. Cutbacks were imposed on unemployment cash benefits, but family policy, healthcare, and long-term care are expanding” (Obinger and Starke 2015, 477). Despite this, it has in fact been argued that since 2008 there has been an “austerity consensus” (Edmiston, Patrick and Garthwaite 2017, 253). The context of changes might vary across countries. The historical pathways of welfare states have also been different. Both of these are arguments for carrying out a comparative analysis, and also using the classical regime analysis (combined with a focus on Eastern and Southern Europe) (Kersbergen 2019; Aspalter 2019). This implies having a mirror to use when looking into the changes. Given the

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size of the book it is not possible to go into the detail of different countries’ development, but some of the development in individual countries is referred to throughout the book. For a recent overview of the development in European welfare states, see Kuhlmann, Schubert and de Villota 2016; Blum, Kuhlmann and Schubert 2020. A further reason for using regimes as central building blocks is that the impact of liberal and neoliberal ideas has been widely discussed, and also that Southern Europe has been seen as especially hard hit (Petmesidou and Guillén 2014; Petmesidou, Pavolini and Guillén 2014; Del Pino and Ramos 2018; Sacchi 2018). The time frame for the analysis is mainly after the financial crisis, but in most places goes further back to after the millennium as one option for understanding whether the debate is not, in fact, austerity in itself, but a slower growth in welfare spending recently compared to the historical development, and this combined with demographic changes has implied that there has not been any real increase (and in some countries real reductions) since the financial crisis. Demographic changes have for a long time been argued to be a problem for welfare states’ development (Acemoglu and Restrepo 2017; Greve 2015). The combined stream of changes as a possible consequence of demographic ageing and also the financial crisis could be part of the reason why it has been argued that there has been retrenchment. There have also been debates on whether welfare states are frozen landscapes (Palier and Martin 2007). This seems not to be the case, as also argued in the aforementioned book, but still we see that adjustment, changes and whether they expand, retrench, or do something else, might also be influenced by ideas (Greve 2018; Béland and Mahon 2016; Béland 2016). Ideas can shape actors’ perceptions of what is going on, so if the idea is that there has been austerity, it might be seen as such, even if no firm evidence shows it.

1.3  OVERVIEW OF THE BOOK Chapter 2 presents and discusses core concepts used throughout the book – mainly with a focus on how to understand austerity and retrenchment in welfare states. Conceptualizations are important as a foundation for understanding whether and how one might measure changes and label them austerity/retrenchment. The chapter therefore presents a variety of ways in which to understand the concepts,

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as this might have an impact on our understanding of whether or not there have been strong changes in welfare states. How to measure change is the focus of Chapter 3, where the focus is particularly on whether we can, in fact, measure changes. This is basically the dependent variable problem (Clasen and Siegel 2007), but it is also a discussion of whether changes in welfare states’ development can be measured at the overall level of society. There might be more money for welfare (as a share of Gross Domestic Product, GDP), but at the same time some have experienced less money, or have a perception of areas with less money as well as a share of GDP, in the form of changes in the level or conditionality of social benefits. The classic issues of how to use fixed/current prices, cost per number of relevant citizens within an area are described, and added to which are delimitations that are used later in the book. A specific problem relates to the fact that even if resources are available within one sector, there might have been changes in how they are spent and if new types of, for example, services have to be delivered. A reduction in the level of spending might not always be a reduction in welfare available, for example, if a decline in spending on unemployment is due to an increase in the overall employment level. Thus, even a reduction in spending might or might not be an indicator of retrenchment. The difference between interventions that have an effect now and those that have an impact at a much later date is also included. Will changes be slow, for example, because of the choice of benefits indexation techniques? Movements in pension schemes from pay-asyou-go (PAYG) to funded systems, changes in criteria for access to benefits and their consequences are presented as fundamental issues that are analysed later in the book. There is also a discussion on whether it is always possible to compare changes in rules for access to benefits and services across countries, as the interaction of other services and/or benefits varies from country to country. Asymmetric reasons of growth in public spending are included as an example of a possible explanation for growth and, at the same time, the sense of reduction. This is because asymmetric reasons for growth in public sector spending might help in explaining that some gain and others lose; and thus those losing will see it as retrenchment, whereas those gaining will see it as a just reflection of a need to be covered. Another core issue in the development of welfare states has been

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how to finance public sector spending, including the choice between spending and level of taxation, which is the central focus of Chapter 4. There are and may be different opinions about whether possible developments, including budget deficit and government debt management, should be financed through higher taxes and/or lower public expenditure. The discussion about this choice can have an impact on voters’ perception of whether there has been a reduction in a number of policy areas. By looking into the overall financing of welfare states, this might show whether there have been decided changes in the financing that will reduce the option for future financing of welfare states, and whether a reduction in the overall level of taxes and duties implies a reason for the fact that, at least in some countries and some areas, retrenchment has been the case. The chapter also looks into the willingness to pay taxes and duties, using data from the European Social Survey related to welfare attitudes from 2008 and 2016 (latest released spring 2018) on the cost for business and benefits in order for parents to combine work and family life. Before embarking upon a detailed analysis of development in sub-sections of the welfare states, Chapter 5 has a macro-perspective. Here, the overall development in spending is described through the use of the areas as methodologically included in the European system of integrated social protection statistics (ESSPROS)1 publications of welfare costs. Education is thus not one of the areas that are being considered. As far as possible, data back to 2000 is used, and described as a percentage of GDP and in fixed prices per inhabitant. The data is broken down into different welfare regimes for the purpose of seeing whether there are actual differences across regimes, and whether the amount of expenditure is different. The data is split up before and after the financial crisis. The level of old age and sickness health care covered in the European Union (EU) in 2015 was close to 70 per cent2 of all expenditure. This is the reason why pensions, health care and longterm care are central policy areas for the analysis in this book. The pension system and austerity have been analysed by many (Adascalitei 2017; Been et al. 2016; Bridgen 2019), and have also been perceived as a central and core area of welfare states, which is the focus of Chapter 6. Change in pensions has been a central policy issue in many countries, with the aim of reducing the pressure on public sector financing by using instruments such as moving from a PAYG to some kind of funded system and/or changing the eligible

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pension age so that the pension age today is later than in previous years. The chapter depicts these changes, while at the same time looks into the development in replacement rates related to pensions. Those receiving a pension are often perceived as a group of deserving people, thus if retrenchment has taken place this is in contrast to what one could expect. In contrast, the unemployed are not seen as deserving in all countries, thus active labour market policy and unemployment benefit are the focus of Chapter 7. Further, given the historical focus on income support in case of unemployment, but also the expected possible changes in the labour market, then the unemployment benefit system might strongly influence the standard of living especially for the unemployed and others dependent on cash-benefits. The standard of living can also be influenced by the social assistance system, and since these two systems might overlap, they are discussed in the same chapter. Further, the fact that unemployment/social assistance recipients are often, in various ways, presented as less deserving makes it important to look into this. Whereas the central focus in Chapters 6 and 7 is mainly on benefits in cash, Chapters 8 and 9 look into benefits in kind. Furthermore, the focus is on two service areas often with high support from voters. Health care is at the core in Chapter 8, as a field where it has been discussed for some time how changes in demography and the increasing cost of new types of medicine and new technology cause the risk that even if an increase in spending can be witnessed, this might still reflect a feeling of reduced welfare. Looking into money available and possible drivers of both spending and reduction in cost should help to inform about whether there has been austerity in the field. As an example, fewer days in bed at a hospital might not be austerity, but better quality. A further difficulty is that the impact of austerity on health can be both by direct changes in spending and through its possible impact on unemployment, poverty and so on (Stuckler et al. 2017); even without documenting it, Stuckler et al. argued that “austerity is a massive experiment on people in Europe” (p. 18). Long-term care, like health care, is influenced by demographic pressure, but also changes in family life have caused pressure towards changes within the system, which is the focus in Chapter 9. This has been witnessed across countries belonging to different welfare regimes (Greve 2016). At the same time, it is an area where a reduction in the overall level of spending cannot necessarily be argued to

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be austerity, if the reduction is due, for example, to better health than in previous years and the use of interventions enabling the elderly to increase the time span in which they can take care of themselves, such as rehabilitation and the use of welfare technology. The chapter presents data on development in spending and connects them to average exit rates from the labour market and healthy life expectancy. Even if there has not been a change in the overall level of spending or even an increase in the real level of spending, it is possible that reordering and change in spending priorities has implied austerity in another way. This might be by having an impact on poverty and inequality, in such a way that those with fewer resources have had less, whereas others have got more. This is the focus of Chapter 10. Given that a possible aspect has been that austerity has taken place mainly with regard to cash benefits and also changes in the tax system, this raises the issue about how this might have had an impact on the level of poverty and inequality. Thus, a possible contrast of the development could be that despite more money being spent on welfare, there has at the same time been an increase in inequality, with all the possible negative impacts thereof (Wilkinson and Pickett 2018, 2009). The chapter tries to link development in replacement rates and changes in the tax system with how many people are living in poverty and how the development in inequality has been brought about. Given the different perspectives – and the reasons for the ­contradictions – as depicted in the previous chapters, Chapter 11 tries to explain the various ways in which to understand the development. The use of the market as a way of distributing resource has been a liberal argument for some time. A reduction in income transfers, but less so with regard to services, might be a way to understand contradictions, including who is seen as deserving and who is not. Further, the fact that this might increase is not only seen in the classical ways of measuring inequality in different positions in society. This, as part of welfare services, goes to a broader group of persons, including the middle class, so it might be that the ability to reach especially those with not as good standards of living has been reduced in order to uphold better living conditions for the middle class. Discussing the perception of working conditions and changes in the welfare states delivery are also included as important points. Lastly, Chapter 12 answers the question: Are we in a time of permanent austerity or restricted austerity? The central tenets of

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this chapter are possible varieties of expansion or ways in which to interpret the development in European welfare states in light of changes, mainly in spending on social issues over time. This might help in answering the question of whether the literature on austerity is on the wrong track – or just does not have all the information – and that partial use of data might not tell the full story of welfare state development.

1.4  A FEW DELIMITATIONS There are, as always, certain aspects that are not included in a book. A few are mentioned here – others during the presentation of the various chapters. With regard to services, an issue such as day-care for children is not included. The main reason is that this kind of service historically has mainly been a Nordic issue. There has, however, been an increase in the support for day-care, for example, both in Germany and in the UK, so further it would not at the outset be a candidate for a policy field where one would be able to find retrenchment and austerity. In this way, this also points to the fact that even if there have been areas with a reduction in the position and role of the welfare states, there has also been an increase in others. Also outside the scope of analysis is how those working in the welfare state perceive their working conditions. There is the possibility that they find that their working conditions have deteriorated even if there have been more resources available. The reason for this omission is that, further, it would require another set-up and other types of data, which especially in a comparative setting are very difficult to achieve. The book does not look into whether or not there are better times  than others to make interventions reducing public sector ­spending – such as, for example, being made by an incoming government, what has been labelled the honeymoon period where it is easier for a government to impose cut-backs (König and Wenzelburger 2017). The impact on, including the defeat of, the sitting governments is not part of the analysis (see instead Posner and Sommerfeld 2013).

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NOTES 1. See also https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Eu​ ropean_system_of_integrated_social_protection_statistics_(ESSPROS), accessed 30 March 2019. 2. Source: Social Protection Statistics, Statistics Explained, 28 November 2018.

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Greve, B. 2016. Long-Term Care for the Elderly in Europe: Development and Prospects. London: Routledge. https://doi.org/10.4324/9781315592947. Greve, B. 2018. Social and Labour Market Policy: The Basics. London: Routledge. https://doi.org/10.4324/9781315150802. Greve, B. 2019. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Kersbergen, K. 2019. “What are Welfare State Typologies and how are they useful, if at all?.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge. Chapter 11, pp. 115‒123. Kersbergen, K., B. Vis and A. Hemerijck. 2014. “The Great Recession and Welfare State Reform: Is Retrenchment Really the Only Game Left in Town?” Social Policy & Administration 48 (7): 883–904. König, P. D. and G. Wenzelburger. 2017. “Honeymoon in the Crisis: A Comparative Analysis of the Strategic Timing of Austerity Policies and Their Effect on Government Popularity in Three Countries.” Comparative European Politics 15 (6): 991–1015. https://doi.org/10.1057/cep.2016.1. Kuhlmann, J., K. Schubert and P. de Villota. 2016. Recent Developments of European Welfare Systems: Multiple Challenges and Diverse Reactions. Challenges to European Welfare Systems. Heidelberg: Springer. https://doi. org/10.1007/978-3-319-07680-5_1. Obinger, H. and P. Starke. 2015. “Welfare State Transformation. Convergence and the Rise of the Supply-Side Model.” In S. Leibfried (ed.), The Oxford Handbook of Transformations of the State. Oxford: Oxford University Press, Chapter 24, pp. 465‒481. OECD. 1981. The Welfare State in Crisis. Paris: OECD. Oorschot, W. and F. Roosma 2015. “The Social Legitimacy of Differently Targeted Benefits.” Discussion Paper No. 15/11. https://core.ac.uk/down​ load/pdf/34633028.pdf. Palier, B. and C. Martin. 2007. “Editorial Introduction From ‘a Frozen Landscape’ to Structural Reforms: The Sequential Transformation of Bismarckian Welfare Systems.” Social Policy & Administration 41 (6): 535–554. https://doi.org/10.1111/j.1467-9515.2007.00571.x. Petmesidou, M. and A. M. Guillén. 2014. “Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery.” South European Society & Politics 19 (3): 295–307. Petmesidou, M., E. Pavolini and A. M. Guillén. 2014. “South European Healthcare Systems under Harsh Austerity: A Progress–Regression Mix?” South European Society and Politics 19 (3): 331–352. https://doi.org/10.10 80/13608746.2014.949994. Pierson, P. 2002. “Coping with Permanent Austerity: Welfare State Restructuring in Affluent Democracies.” Revue française de sociologie, 369‒406. Posner, P. L. and M. Sommerfeld. 2013. “The Politics of Fiscal Austerity.” OECD Journal on Budgeting 13 (1): 141–174. Roosma, F., W. van Oorschot, P. Kenneth and N. Lendvai-Bainton. 2017. “The Social Legitimacy of Welfare States in European Regions and Countries: Balancing between Popular Preferences and Evaluations.” In

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P. Kennett and N. Lendvai-Bainton (eds), Handbook of European Social Policy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, Chapter 25, pp. 415‒431. Sacchi, S. 2018. “The Italian Welfare State in the Crisis: Learning to Adjust?” South European Society & Politics 23 (1): 29–46. Stuckler, D., A. Reeves, R. Loopstra, M. Karanikolos and M. McKee. 2017. “Austerity and Health: The Impact in the UK and Europe.” European Journal of Public Health 27 (suppl_4), 18‒21. https://doi.org/10.1093/ eurpub/ckx167. Wilkinson, R. and K. Pickett 2009. The Spirit Level – Why Equality Is Better for Everyone. London: Allen Lane. Wilkinson, R. and K. Pickett 2018. The Inner Level. How More Equal Societies Reduce Stress, Restore Sanity and Improve Everyone’s WellBeing. St. Ives: Allen Lane.

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2.  Key concepts 2.1 INTRODUCTION This chapter presents the key concepts that are often used in articles and books to describe the development in welfare states at least since the millennium, and with increased intensity after the financial crisis. This is not only intended as a traditional academic exercise, but also because the concepts by themselves are not always clear and unambiguous when used. Thus, by discussing and defining the concepts this should also make it possible to link the understanding hereof to the analysis later in the book. Investigating the key questions, as presented briefly in Chapter 1, can best be done by first defining a number of key concepts. These include how to understand what austerity is and, further, how to understand what retrenchment is. Are these concepts in fact different or are they synonymous? The use of these concepts are ongoing thematic elements for understanding how welfare states have evolved mainly since the beginning of this century. Further, this includes a connection to the debate on whether in all welfare states there has been a neoliberal approach with higher individual responsibility, but also a more lean state in contrast to the social investment perspective (Morel, Palier and Palme 2012; Leoni 2016). This is done without entering into the debate on social investment as a strategy; it is however clear that if social investment in one sector entails reductions in others (which can be considered austerity by those affected) then social investment could be difficult to implement, as some would oppose the investment (Neimanns, Busemeyer and Garritzmann 2018). The focus in this chapter is, as mentioned, on concepts. In Chapter 3 there is a discussion on whether and how to measure change from a more methodological approach. In the next section the two central concepts are discussed, followed by concluding remarks on how the concepts are used here, as well as how this is an argument for the 13

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choice of the more specific analysis later in the book. A possible withdrawal of state responsibility or keeping an already low level (as is also included in Chapter 9 on long-term care) can have an impact on voters’ attitudes towards the welfare state (Greve 2019), which might lead to the possibility of changes without losing support from voters. The chapter does not discuss in detail issues of blame-avoidance or negativity bias of change, as it is the case that expansion is often seen as more popular among voters than cut-backs, as some have argued this is a central claim in Pierson’s work on new politics of the welfare state (Ross 2000). However, this will be returned to later in the book as both credit-claiming and blame-avoidance1 might help in the understanding of the transformation of welfare states. The chapter also does not discuss whether retrenchment might be due to globalization and Europeanization (for an early discussion, see Korpi 2003). A recent analysis, though, does not confirm that the free movement of workers has been influential in relation to possible retrenchment (Kramer, Sampson Thierry and Van Hooren 2018). How changes can actually be measured is first discussed in Chapter 3. A central question related to the use of the concepts, which is returned to several times in the book, is whether it can be labelled austerity only if there has been dismantling within all sectors of the welfare state. It also asks the question whether there is an option that some part of the welfare state will be cut back while others are expanded, for example, as a consequence of the impact of populist parties (Greve 2019).

2.2 AUSTERITY AND RETRENCHMENT – HOW CAN THEY BE UNDERSTOOD? Austerity is a slippery concept, perhaps due to its long history and use in different economic crises (Blyth 2013); it is still undertheorized (Farnsworth and Irving 2015). One way of interpreting it is: “‘Austerity’ is an extension of the neoliberal logic to characterise any form of public spending as ‘unproductive’” (Corbett and Walker 2018, 9). However, this would imply a very thorough analysis of different kinds of public spending if one wants to define what is unproductive, including a new understanding of how and whether to cope with market failure. Is day-care for children, for example,

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unproductive? To make such distinctions between productive and unproductive social investments has proven difficult even within the school and ideas of the welfare state as a social investment state (Kersbergen, Vis and Hemerijck 2014; Morel, Palier and Palme 2012). Despite the often high disagreement among economists on variations in economic policy, there is an overall agreement that related to market failures there is a need for public sector intervention, for example, to reduce the consequences of negative externalities and to ensure that monopolies do not get the power to set the price they prefer. This also means that change in public sector intervention or less intervention in itself cannot be interpreted as austerity or retrenchment. Given this as a starting point could be how austerity and retrenchment are defined in a classical dictionary. Austerity is defined as: Restraint in public spending; spec. a programme of government measures designed to reduce public spending and conserve resources, esp. during a time of economic hardship; the conditions resulting from such measures. The term entered common use in 1942, and was frequently used in the context of rationing and other measures introduced by governments in the period during and after the Second World War (1939–45).

Retrenchment as: “The action of economizing or reducing expenditure.”2 Thus it has something to do with reduction – and with regard to the welfare state, this must be to do with change in state spending and intervention in one way or another. It is sometimes described as “‘austerity economics’ (with reduced spending and increased frugality by government)” (Plummer 2016, 67). By now, there has been a long tradition in welfare state analysis of discussing austerity. However, as argued early on “remarkably few welfare states have experienced fundamental shifts” (Hacker 2004, 243), and further “nor is there much evidence of convergence towards some neoliberal orthodoxy” (Pierson 1994a, 13). Even the known right-wing leaders in the UK and the US were seemingly not able to make considerable change, as “on the whole, welfare state programs demonstrated considerable resilience during the tenures of both leaders” (Pierson 1994b, 164). It has, however, been argued that “since the global crisis in 2008, an ‘austerity consensus’ has emerged” (Edmiston, Patrick and Garthwaite 2017, 253). This, despite contributions to a seminar in 2015 discussing Pierson’s Dismantling the Welfare State, seems to conclude that there has not been permanent

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austerity, but that it seems to be more that money to expand welfare states has “become much harder to come by” (Stephens 2015, 274). However, this still begs the question what austerity is. This is not clear from the by now abundant number of books and articles with the title of ‘austerity’ (to mention just a few: Bengtsson, de la Porte and Jacobsson 2017; Adascalitei 2017; Kersbergen, Vis and Hemerijck 2014; Taylor-Gooby, Leruth and Chung 2017). Understanding changes can be difficult, but it could be “the idea of ‘cumulative but transformative’ development” (Palier and Martin 2007, 543). Still, a recent book argues in the introduction: “as the crisis unfolded, governments shifted from stimulus to austerity, and the worst-off countries had to cede some of their financial independences and live with strict constraints from external powers” (Ólafsson et al. 2019, 2). This does not imply that there is not a strong pressure on welfare states due to globalization, economic crisis, demographic changes and expectations from voters in some welfare states. Neither does it imply that there has not been re-commodification, costcontainment and/or recalibration in welfare states as also pointed to in the early discussions on permanent austerity (Pierson 1994a). However, as is looked into in later chapters, this does not necessarily imply overall retrenchment. This is also in line with the fact that the early debates on changes also included a hypothesis on a race to the bottom; however, this is in: “advanced political economies is not empirically verified” (Clift 2014, 258). Later in his book, though, Clift also argues that without data, there is retrenchment. To illustrate the academic debate, let me give one specific example related to the use of the concept of retrenchment in the literature. Starke’s article of 2006 (Starke 2006) has been cited 121 times (as of March 20193), with 446 references in Google Scholar, and many use it as arguments for the fact that there has been retrenchment without entering a debate on how to interpret it or even document whether this has been or still is the case. Starke’s review article on retrenchment focused on why, despite rhetoric about cut-backs (Reagan and Thatcher), this has not really materialized, in spite of there having been severe cut-backs in some places, but also that “retrenchment remains of particular interest, since it is usually regarded as inherently unpopular and hence difficult to pursue” (Starke 2006, 105). Thus, retrenchment is often connected to cut-backs in the welfare state spending and/or change in criteria for access to benefit, often with the postulated aim of making the

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welfare state prepared for the future challenges. One might even say that those arguing in favour of retrenchment do it in order to reduce the welfare state. The use of the concept in this way is also a starting point for the political science analysis of why change takes place – often without context and history included. Retrenchment is also argued to be “generally an exercise in blame avoidance rather than credit claiming” (Pierson 1996, 145), due to the fact that voters have an asymmetric understanding of losses and gains. Whether this has still been the question in the wake of the financial crisis is open for discussion, as it could be argued to have been a window of opportunity (Kingdon and Thurber 1984), used for achieving a specific political purpose. In one of the references in the literature on the topic, retrenchment is defined as: “policy changes that either cut social expenditure, restructure welfare state programs to conform more closely to the residual welfare state model or alter the political environment in ways that enhance the probability of such outcomes in the future” (Pierson 1994b, 17). In the wake of the financial crisis, there has further been a long debate in the political economy literature of how to cope with public sector deficit in many welfare states. There are contrasting views between whether in a Keynesian sense one should stimulate the economy, or in more classical understanding one should use austerity instruments (such as lower public spending or higher levels of taxes and duties) (see, for example, Skidelsky and Fraccaroli 2017). This also includes debates on whether cuts would have restored confidence in the abilities of states to finance welfare states and pay back debt, and by this reduce interest rates. The debate on the level of public sector deficit, as argued by Reinhart and Rogoff, who set the limit of 90 per cent of GDP (Reinhart and Rogoff 2010), and the controversy about the validity of this study – whether welfare states, including especially countries such as Greece and other Southern European countries could have fared better with another type of economic policy – is, however, outside the scope of this book. Nevertheless, even if the limit for debt is 90 per cent or another level, for those countries which need international financing, there seems to be an issue of what to pay in interest for their debt, in contrast to countries which mainly finance debts internally, such as Japan and the US. The focus is, in general, more on whether there has been, de facto, one way of understanding austerity, a reduced level of public sector spending

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and/or level of welfare benefits (see also Chapter 3 for a discussion on the ability to measure austerity). This debate on the possible levels of public sector debt reflects also a historical debate (Blyth 2013), on how to stabilize the public sector economy. Thus, the understanding of different economic schools has had an impact on the choice of how to reduce public sector deficit, even if the knowledge about confidence as an important parameter for policy choices is not very strong. Furthermore, ideology can lie behind attempts to implement austerity measures as it could be an excuse for conservatives to roll back the welfare state (de Carvalho 2018), and can therefore be an explanation of the fact that some countries in Southern Europe have witnessed austerity (Guerrina 2015). This might even be the reason why it has been argued to be both difficult to define the concept, but that it is a change “to a public acceptance of reductions in benefits and services, a retreat from its role as guarantor of social rights at the cost of longterm economic security” (Farnsworth and Irving 2017, 106). Historically, the development and aim of reducing at least part of the expenditures, goes back to the idea of how to change public sector management, labelled new public management (NPM). This has been argued to be in line with megatrends (of that time, but still valid) including a lower or even reversal of government growth, privatization and quasi-privatization and automation (Hood 1991), and also in line with transaction cost theory and principal–agent theory. Part of the reason, therefore, was (also at that time) a discussion on the ability to finance welfare states in the future, including the impact of demographic changes. It might be that from a psychological viewpoint we adapt, which is often used in studies on happiness also showing the negative impact of a financial crisis (Greve 2012). This implies that if we have got used to a constant increase in welfare services and income transfers, as can be partly ascribed to the time of the golden growth of the welfare state (at least until the outbreak of the first oil crisis in 1973) (Esping-Andersen 1996; Ferrera 2008), where it can be argued to have been the case, then changes might be perceived as austerity even if the continuation is at the same level as previously. This is in line with Kahneman and Tversky’s (Tversky and Kahneman 1979) prospect theory of decision making used as argument for the fact that voters are negative to cut-backs (as they are a loss), as also argued above. This has also been used as a reason why blame ­avoidance is connected to retrenchment (Pierson 1996). However,

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whether retrenchment and austerity give rise to negative associations of a politics with the aim of avoiding blame is not central for whether there has been change, albeit it might be a reason why – despite the rhetoric hereabout, including in books and journals – cuts have de facto been less strong than one might have envisioned at the outset. One argument is that retrenchment (Kersbergen, Vis and Hemerijck 2014) involves three issues: lowering of benefit levels, shortening the duration of benefits and tightening of eligibility criteria. This will inform the choice and use of data (see more in Chapter 3). This is an indicator that retrenchment is something which is discussed and conclusions drawn by the use of quantitative data especially. Therefore, it might also be the case that retrenchment is connected with a change in the overall level of spending, but one still needs at least to include a change in replacement rates (Wenzelburger, Zohlnhoefer and Wolf 2013). Further, as also discussed in Chapter 3, even if at a particular time there has been retrenchment at the general level, it does not imply that this will continue at other times, nor that there has not been expansion in others. Austerity can also be perceived as changing the historical understanding of welfare states in such a way that it will have a stronger focus on individual responsibility, more than the collective approach (Taylor-Gooby, Leruth and Chung 2017). It can also be understood as “shorthand to describe a deliberate policy to impose deep and sustained across-the-board cuts in public expenditure” (Farnsworth and Irving 2015, 11). With such an understanding of austerity, the focus might not necessarily be on spending as such, but more on responsibilities for individuals to have a sufficient coverage. Still, then one must expect that this will have repercussions on spending, as part of the coverage could now come from individual (or occupational) paid coverage, such as through insurance. However, this also points to the fact that changes, such as from a PAYG to a funded pension system – in the longer-time perspective might cause contractions of welfare states, even supported by the use of fiscal welfare (Sinfield 2019). However, this need not cause a lower level of standard of living for pensioners, at least for those having had a stable attachment to the labour market. Furthermore, a change in focus can also influence one’s understanding, including that as argued “today in Germany the current discussion about the welfare state is not so much about a general lack of resources: it is more a question about what and who to focus on and how to do this” (Judd, Boeck and Madsen 2015, 345).

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Looking into policy communication shows that austerity is interpreted as considerable cuts in the welfare state (König 2016), thus at least rhetorically adjustment in spending is seen as a central parameter for whether or not there is austerity. Therefore, this is also part of the understanding of austerity in the book. It is not necessarily the case that this will be understood as cuts in all parts of the welfare state. As it has been argued, “everywhere austerity measures were accompanied and compensated by other social investment policies” (Kersbergen, Vis and Hemerijck 2014, 893). Others have argued that the debate in the UK about the “Big Society” was a way of arguing that the civil society could replace at least part of the welfare state (Jónsson and Stefánsson 2013), and using this as an argument that change in spending would not reduce access to welfare, but only public sector spending, and thereby not be retrenchment of support. Austerity thereby does not necessarily cause a reduction in the overall level of spending in the short term, but can do so in more restricted parts of the welfare state, also as a consequence of blameavoidance strategies, where visible instruments are used more for expansion than for retrenchment (Jensen et al. 2018). Even though strategies from policy makers to frame decisions can be important in order to grasp the development, the focus here is more whether, by looking into specific parts of the welfare state, one might depict changes reducing the state’s overall influence on social policy and whether there are variations across welfare regimes. This causes the use of existing data for public spending within the social policy field, but also more in-depth studies of important sectors in the welfare state; see more below. This also as austerity can be imposing cuts in some sectors while expanding in others. However, if this is the case one cannot talk about permanent austerity like Pierson did (Pierson 2001). Austerity might be a political rhetoric, despite the fact that blameavoidance is an argument against this. Thus, this might be a reason why: “More generally there is surprisingly little evidence that international economic crisis has led to sudden and fundamental welfare state reform” (Pierson et al. 2016, 264). Still, a crisis can be used as a game-changer in order to pursue change in line with a political ambition, but hiding it behind a smoke-screen by arguing that cuts are necessary due to an economic crisis. The understanding of austerity and retrenchment can be divided into different stages. They will both be understood as a reduction in

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the welfare state’s influence in society, including welfare spending and impact on the degree of equality within a society. The latter, as setting, for example, minimum standards for wages, does not in itself influence public sector spending, but has an impact on the standard of living of people, and thus is in line with the historical definition of welfare states where “power is deliberately used in an effort to modify the play of market forces” (Briggs 1961, 226). Permanent austerity will be defined as: a constant reduction in the welfare state’s position in society and a continuously stronger focus on the market and civil society’s role. In contrast to permanent austerity, there can be restricted austerity, causing one or more parts of the welfare states to witness cut-backs – whether in spending or eligibility conditions. Further, there can be singular retrenchment where a change causes a single reduction in a field, although it might have a longer-term impact, for example, a change in the conditions for social security benefits, including pension reform. Retrenchment is thus understood as changes that reduce the welfare state’s influence in a sphere of social policy (see more in Chapter 4) of the fields encompassed within this kind of definition. There is thereby seemingly no clear difference between retrenchment and austerity. Using this delimitation makes it clear that even expansion in public sector spending can be combined with retrenchment if the increased spending is done in areas outside the scope of the understanding of what social policy is; to avoid such an issue arising, this book will focus on social spending alone, as this relates more specifically to the welfare state. The precise way of measuring these changes is discussed in Chapter 3. It also highlights that a combination of macro-studies with specific analysis of sub-sections of the welfare state can be important in order to grasp the changes. This might even include “qualitative assessments of the overall effect of legislative changes” (Starke 2006, 113). One might discuss for how long a time reduction shall be witnessed in order to label it permanent austerity. Using the definition above, it can be argued to be a constant process, but a less strong criteria would be that after a time there will be standstill. However, as seen in some studies, it is not sufficient that the definition of austerity is “a reduction in total government expenditure adjusted for inflation and purchasing power between two consecutive years” (Reeves et al. 2014). This would imply a more or less self-fulfilling prophecy of permanent austerity as it would often be possible to find two years

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where this can be witnessed, at least in part of social spending. In this book the focus is (cf. also Chapter 3) on the development since the millennium, which is used as a guideline for an understanding of whether or not there has been permanent austerity, or as argued related to the Bismarckian system of a frozen landscape, albeit with incremental shifts away from it (Palier and Martin 2007). Thus, incremental changes over a long time span might imply constant austerity; however, again, it should then be possible to measure this as changes in a welfare state’s effort related to a society’s intervention in the overall development. Thus a short time reduction is not seen in this book as austerity. In line with one of the now classics within this kind of analysis there are three issues to examine: changes in long-term as well as short-term spending; structure of policy spending; and systemic and programmatic retrenchment (Pierson 1994b). The first two points are good arguments to look into overall changes in spending on welfare issues (as is done later in the book), as well as the structure of spending, including whether there might have been retrenchment in some fields but not others in the welfare states. Furthermore, that changes of this kind could cause a change in distribution, and therefore also to the argument (in Chapter 10) for looking into the development in inequality and poverty. Structural shifts such as a change in eligibility rules, indexation, and the transfer of responsibility to the private sector could be indicators of, if not short-term, then long-term retrenchment, and will, by using replacement rates in central fields, be included (see also Chapter 3). Thereby, the context and institutional change can have an impact. Systemic retrenchment can include ways to defund revenue as this would reduce the option to finance welfare in the future, and therefore be an argument in itself for retrenchment. A study about changes in the tax policy in Denmark from 1975 to 2008 confirms that this could be a strategy to be pursued (Klitgaard and Elmelund-Præstekær 2014). In fact, since the financial crisis, a public sector deficit has been an argument for change in welfare states in some countries. This is also a reason for looking into the development of financing. This book does not – as others do – just use cut-backs as a definition of retrenchment (Schubert, Villota and Kuhlman 2013).

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2.3  CONCLUDING REMARKS A first important issue to be aware of is that austerity/retrenchment has not in the historical literature been an either/or presentation. There have been options of expansion in some fields, while a reduction in others. Thus, the more classical literature (such as Pierson 1994a, 1994b) does not, in fact, argue that it is a permanent position in all parts of the welfare states. Austerity will be understood as reduction in spending, financing or policies related to distribution. This can be fully fledged in all spheres of the welfare states or it can be restricted and/or limited austerity related to policies seemingly having less support, even being part of a debate on deserving/undeserving persons’ positions in the welfare states. Instead, it can be argued that one should look for restricted austerity, for example, on a specific sub-section of the welfare state. Restricted austerity might even be connected with an increase in certain parts of the welfare state. This might thus, at least for some, be considered a democratic right to change the direction of the welfare state in a direction they prefer. Retrenchment can be understood either as a single or several cutbacks in a certain segment of the welfare state. Thus, retrenchment can be more singular, and might not in principle reduce the welfare state’s overall position in societies, but shift the balance between different parts of the sectors the welfare state interacts with. Naturally, retrenchment year after year over a longer time spell can be considered to be permanent austerity. The concepts are not only semantic constructs, but also concepts where the more precise interpretation thereof when analysing change is important. How to interpret changes from a more methodological focus point is discussed in the next chapter. Still, the difference between the concepts is not that strong, so one could argue that they do in fact cause the same result, and at a minimum are often overlapping. Therefore, here they are used interchangeably, as they have, in fact, also been used in the literature.

NOTES 1. Credit-claiming being the situation where policy makers claim that it is their responsibility when things are going well, while at the same time they try to avoid

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the blame for changes they know voters do not like – such as possible cut-backs in part of the welfare state. 2. Cited from Oxford English Dictionary online, OED 3rd edn, June 2014, accessed 5 March 2019. 3. In other journals, accessed from the journals webpage (11 March 2019), https:// onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9515.2006.00479.x.

REFERENCES Adascalitei, D. 2017. “From Austerity to Austerity: The Political Economy of Public Pension Reforms in Romania and Bulgaria.” Social Policy and Administration 51 (3): 464‒487. https://doi.org/10.1111/spol.12173. Bengtsson, M., C. de la Porte and K. Jacobsson. 2017. “Labour Market Policy under Conditions of Permanent Austerity: Any Sign of Social Investment?” Social Policy & Administration 51 (2): 367–388. https://doi. org/10.1111/spol.12292. Blyth, M. 2013. Austerity: The History of a Dangerous Idea. Oxford: Oxford University Press. Briggs, A. 1961. “The Welfare State in Historical Perspective.” Archives Européenes de Sociologie 2: 221–259. Clift, B. 2014. Comparative Political Economy: States, Markets and Global Capitalism. London: Macmillan International Higher Education. Corbett, S. and A. Walker. 2018. “Between Neoliberalism and Nationalist Populism: What Role for the ‘European Social Model’ and Social Quality in Post-Brexit Europe?” Social Policy and Society, September. Cambridge University Press, 1–14. https://doi.org/10.1017/S1474746418000349. de Carvalho, F. J. C. 2018. “Arguments for Austerity, Old and New: The British Treasury in the 1920s and the Bundesfinanzministerium in the 2010s.” European Journal of Economics and Economic Policies: Intervention 15 (3): 262–288. Edmiston, D., R. Patrick and K. Garthwaite. 2017. “Austerity, Welfare and Social Citizenship.” Social Policy and Society 16 (2): 253‒259. https://doi. org/10.1017/S1474746416000658. Esping-Andersen, G. 1996. “After the Golden Age? Welfare State Dilemmas in a Global Economy.” In E. Ashford (ed.), Welfare States in Transition: National Adaptations in Global Economies. Oxford: Basil Blackwell, pp. x, 352. https://doi.org/10.1017/S0008423900057024. Farnsworth, K. and Z. Irving. 2015. Social Policy in Times of Austerity: Global Economic Crisis and the New Politics of Welfare. Bristol: Policy Press. Farnsworth, K. and Z. Irving. 2017. “The Limits of Neoliberalism? Austerity versus Social Policy in Comparative Perspective.” In B. Jones and M. O’Donnell (eds), Alternatives to Neoliberalism: Towards Equality and Democracy. London: Policy Press, Chapter 6, p. 101. Ferrera, M. 2008. “The European Welfare State: Golden Achievements, Silver Prospects.” West European Politics 31 (1‒2): 81‒107. https://doi. org/10.1080/01402380701833731.

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Greve, B. 2012. “The Impact of the Financial Crisis on Happiness in Affluent European Countries.” Journal of Comparative Social Welfare 28 (3): 183‒193. https://doi.org/10.1080/17486831.2012.736354. Greve, B. 2019. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Guerrina, R. 2015. “Socio-Economic Challenges to Work–Life Balance at Times of Crisis.” Journal of Social Welfare & Family Law 37 (3): 368–377. Hacker, J. S. 2004. “Privatizing Risk without Privatizing the Welfare State: The Hidden Politics of Social Policy Retrenchment in the United States.” American Political Science Review 98 (2): 243‒260. https://doi.org/10.1017/ S0003055404001121. Hood, C. 1991. “A Public Management for All Seasons?” Public Administration 69 (1): 3‒19. Jensen, C., C. Arndt, S. Lee and G. Wenzelburger. 2018. “Policy Instruments and Welfare State Reform.” Journal of European Social Policy 28 (2): 161–176. Jónsson, G. and K. Stefánsson. 2013. Retrenchment or Renewal? Welfare States in Times of Economic Crisis. Helsinki: The Nordic Centre of Excellence NordWel. Judd, D., J. Boeck and A. Madsen. 2015. “Chicken or Egg? Global Economic Crisis or Ideological Retrenchment from Welfare in Three European Countries.” Critical and Radical Social Work 3 (3): 339–355. https://doi. org/10.1332/204986015X14392797857418. Kersbergen, K., B. Vis and A. Hemerijck. 2014. “The Great Recession and Welfare State Reform: Is Retrenchment Really the Only Game Left in Town?” Social Policy & Administration 48 (7): 883–904. Kingdon, J. W. and J. A. Thurber. 1984. Agendas, Alternatives, and Public Policies. Vol. 45. Boston: Little, Brown and Company. Klitgaard, M. B. and C. Elmelund-Præstekær. 2014. “The Partisanship of Systemic Retrenchment: Tax Policy and Welfare Reform in Denmark 1975–2008.” European Political Science Review 6 (1): 1–19. König, P. D. 2016. “Communicating Austerity Measures during Times of Crisis: A Comparative Empirical Analysis of Four Heads of Government.” British Journal of Politics & International Relations 18 (3): 538–558. Korpi, W. 2003. “Welfare-State Regress in Western Europe: Politics, Institutions, Globalization, and Europeanization.” Annual Review of Sociology 29 (1): 589–609. Kramer, D., J. Sampson Thierry and F. Van Hooren. 2018. “Responding to Free Movement: Quarantining Mobile Union Citizens in European Welfare States.” Journal of European Public Policy 25 (10): 1501–1521. Leoni, T. 2016. “Social Investment: A Guiding Principle for Welfare State Adjustment after the Crisis?” EMPIRICA 43 (4, SI): 831–858. https://doi. org/10.1007/s10663-016-9348-0. Morel, N., B. Palier and J. Palme. 2012. Towards a Social Investment Welfare State? Ideas, Policies and Challenges. Bristol: Policy Press. Neimanns, E., M. R. Busemeyer and J. L. Garritzmann. 2018. “How Popular Are Social Investment Policies Really? Evidence from a Survey

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Experiment in Eight Western European Countries.” European Sociological Review 34 (3): 238‒253. https://doi.org/10.1093/esr/jcy008. Ólafsson, S., M. Daly, O. Kangas and J. Palme. 2019. Welfare and the Great Recession: A Comparative Study. Oxford: Oxford University Press. Palier, B. and C. Martin. 2007. “Editorial Introduction From ‘a Frozen Landscape’ to Structural Reforms: The Sequential Transformation of Bismarckian Welfare Systems.” Social Policy & Administration 41 (6): 535–554. https://doi.org/10.1111/j.1467-9515.2007.00571.x. Pierson, C., L. Humpage, P. Fisher, L. Buckner, S. Ronchi and C. Mills. 2016. “Coming Together or Drifting Apart? Income Maintenance in Australia, New Zealand, and the United Kingdom.” Politics & Policy 44 (2): 261–293. https://doi.org/10.1111/polp.12150. Pierson, P. 1994a. The New Politics of the Welfare State. Oxford: Oxford University Press. Pierson, P. 1994b. Dismantling the Welfare State?: Reagan, Thatcher and the Politics of Retrenchment. Cambridge Studies in Comparative Politics. Cambridge: Cambridge University Press. https://doi.org/DOI: 10.1017/ CBO9780511805288.002. Pierson, P. 1996. “The New Politics of the Welfare State.” World Politics 48 (1): 143–179. Pierson, P. 2001. “Coping With Permanent Austerity: Welfare State Restructuring in Affluent Democracies.” Revue français de sociologie 43 (2): 369‒406. Plummer, K. 2016. Sociology. The Basics. 2nd edn. London: Routledge. Reeves, A., M. McKee, S. Basu and D. Stuckler. 2014. “The Political Economy of Austerity and Healthcare: Cross-National Analysis of Expenditure Changes in 27 European Nations 1995‒2011.” Health Policy 115 (1): 1‒8. https://doi.org/10.1016/j.healthpol.2013.11.008. Reinhart, C. M. and K. S. Rogoff. 2010. “Growth in a Time of Debt.” American Economic Review 100 (2): 573‒578. https://doi.org/10.1257/ aer.100.2.573. Ross, F. 2000. “Interests and Choice in the ‘Not Quite so New’Politics of Welfare.” West European Politics 23 (2): 11–34. Schubert, K., P. Villota and J. Kuhlman 2013. Challenges to European Welfare System. Heldelberg: Springer. Sinfield, A. 2019. “Fiscal Welfare.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 23–33. Skidelsky, R. and N. Fraccaroli. 2017. Austerity vs Stimulus: The Political Future of Economic Recovery. Edited by R. Skildelsy and N. Fraccaroli. Cham: Palgrave Macmillan. https://doi.org/10.1007/978-3-319-50439-1. Starke, P. 2006. “The Politics of Welfare State Retrenchment: A Literature Review.” Social Policy and Administration 40 (1): 104‒120. https://doi. org/10.1111/j.1467-9515.2006.00479.x. Stephens, J. D. 2015. “Revisiting Pierson’s Work on the Politics of Welfare State Reform in the Era of Retrenchment Twenty Years Later.” PS: Political Science & Politics 48 (2): 274–278. Taylor-Gooby, P., B. Leruth and H. Chung. 2017. After Austerity, Welfare

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State Transformation in Europe after the Great Recession, 1st edn. Oxford: Oxford University Press. Tversky, A. and D. Kahneman. 1979. “Econometrica.” Econometrica 47 (2): 263–291. https://doi.org/10.1111/j.1536-7150.2011.00774.x. Wenzelburger, G., R. Zohlnhoefer and F. Wolf. 2013. “Implications of Dataset Choice in Comparative Welfare State Research.” Journal of European Public Policy 20 (9): 1229–1250. https://doi.org/10.1080/13501 763.2013.822908.

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3.  Can we measure change? 3.1 INTRODUCTION “Measuring retrenchment is a difficult task” (Pierson 1996, 157). This chapter is about how to do this task. When we want to depict whether there has been austerity, retrenchment or even expansion of welfare states, we first need to know how and whether we are able to measure change in such a way that we compare like with like. This is not only the dependent variable problem (Clasen and Siegel 2007; Starke 2006), but also more basically what data do we need, and how can we actually use them, especially when comparing across countries? The chapter is important given that many of the studies arguing for retrenchment do not, in fact, use any data to document that this has taken place. They might either just use a few references to others’ work or base it on the existing (often national) understanding of what has actually happened (see, for example, Judd, Boeck and Madsen 2015; Guerrina 2015; Erk 2017). This chapter points to the principles and need for data without entering into whether these data are actually available, and thus also intends to show some of the issues to be aware of when reading the following chapters about the analysis of the development. The next section looks into some core aspects of data issues, then section 3.3 discusses the aspect of fixed versus variable cost of production of service, continuing in section 3.4 to raise the debate on the quality of the service, the quality of work conditions and so on. Section 3.5. opens the way for the issue (also to be returned to in the subsequent chapters) of whether we can assume that spending allocated to a specific area is used for the same type of service as previously, and how new types of services or the impact of prevention might blur the picture. For example, if new medicine or new types of treatment are introduced, then it might be that this has a negative impact on money available for existing treatment. Data presented in the book is often done by following the classical 28

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welfare regimes (Greve 2019); however, see Appendix 3.1, where the three worlds are supplemented by a Southern, Eastern and Baltic core of countries. There is reflection on individual countries with examples to illustrate the development. Where for presentational purposes a limited number of countries are used, they are chosen, as far as possible, so that all six regimes are included. These are mainly EU27 countries (including the UK) as they give the best option to go back to 2000; however, sometimes all 28 countries are included. For some of the issues where survey data are used, the group of countries where data are available might be more limited. As in other comparative studies, nation states are used as the central institutional arrangement. This is because solid comparative data are available at this level. A risk hereby being that variation within a country will not be captured in the analysis (Ciccia and Javornik 2018). This might especially be a problem in highly decentralized welfare states, and presumably more so within the service part of the welfare states than with benefits, where the rules, conditions and levels are mainly decided at the central level.

3.2  CENTRAL DATA ISSUES The first issue to delve into is what kind of data to use. Historically, the measure of changes has been as the dependent variable mainly the overall spending level and the generosity of benefits, in line with  the recommendation by Pierson (Pierson 1994). It has been argued that social rights should also be included in an analysis of change (Otto 2018). Here the focus is on spending and generosity as social rights are implicitly often part of the other two indicators when looking into whether austerity has taken place, and they further seem more important when analyzing the reason for policy changes. Retrenchment needs in principle to be linked not only to overall spending, but also to generosity of benefits, even if this does not solve the dependent variable problem (Wenzelburger, Zohlnhoefer and Wolf 2013), and this is also a reason for in the analysis to include both overall spending and generosity of central benefits. It might be banal to point to some of the following issues; however, this is important as using data without being aware thereof might in a variety of ways blur the picture of what is actually going on. Just a first simple issue of whether to have the data in fixed or running

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prices is central. Given money tomorrow can buy less than it can today, even though inflation is low today, one needs to correct for the impact of inflation. This naturally also implies that even what might at the outset look like more money can be retrenchment. While it is obvious to reconstruct to fixed prices for public consumption, it is less simple for income transfers. Even though buying power is important, it needs to be done in a different way when calculating it. Therefore, the data on spending look into both benefits in kind and in cash, although, as far as possible and if available the data are used to show the development in real prices. This is supported by further looking into the replacement rate as this is in many ways a stronger indicator of the possible change in standards of living for those on income transfers within the welfare states. Change in indexation (as discussed in Chapter 5) might be a way of causing retrenchment for some, by indirectly being able to move money spent on, for example, unemployment benefit, to services within the health care. To avoid national interpretations of the ways in which to calculate fixed prices, international databases mainly from Eurostat and the OECD are used, as using fixed prices informs on the quantity of services, but naturally not the quality, available for the specific part of the welfare state. If wanting to compare the size of the welfare states across countries, one would further need to be using prices in purchasing power parities. This is less of an issue with regard to the analysis in this book as the focus is on a longer time span of development and whether there has been expansion or reduction in the size of welfare states in individual countries. However, using it is done if possible, as this also opens the way for change in and variations across welfare states on their level of spending (Brady and Lee 2014). Looking into replacement rates might also be an option in relation to capturing how long-term development has been and, especially within the pension area, will be in the years to come. In order to do this some stylized typical examples are used, although this is also with methodological challenges (Wenzelburger, Zohlnhoefer and Wolf 2013). A specific issue is whether those on welfare benefits overall keep their buying power in line with the overall development in wealth in a society, for example, if growth in GDP is positive is it then retrenchment if there is not the same real increase in buying power for those on benefits? In principle, one could argue this; however, given that the replacement rate reflects the level of benefits

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compared to previous income, if they are not keeping up with the real wage change, this will be seen in a lowering of the replacement rate. This also implies that retrenchment can be done in a very slow way without direct cuts if the indexation is in line only with inflation and not with real wage increases in a society. Therefore, retrenchment in relation to replacement rates relates to a decline in the replacement rate, even if the benefit is indexed so that it keeps its buying power, but not the real growth in income on the labour market. Another central issue is the choice of time period. The starting and ending years might have an impact on the results. Several of the earlier studies on retrenchment (such as Sacchi and Roh 2016; Petmesidou and Guillén 2014; Montanari and Nelson 2013) have either been carried out before the financial crisis and/or use data from shortly after. Here the focus is on what has happened since the millennium. This is because there are close to the same number of years available before and after the financial crisis, which might enable us to investigate whether the analysis of austerity by looking at the time of or just after the crisis does not in reality capture the long-term trend in the development of welfare state spending. It might not be possible within all fields to have information spanning this long time period. This is supplemented with information from other studies going further back; especially as changes in the pension system have a very long time span before being fully implemented. A two-year period is thus also considered too short a time, despite the fact that this can be found in some studies (Reeves et al. 2014). Studies to compare development sometimes use the percentage of GDP spent on social protection as one indicator.1 However, the problem here is that the percentage of GDP is highly influenced not only by change in spending on welfare state issues, but also the development in GDP. Thus, this can imply that an increase in spending on social protection as a proportion of GDP can reflect both an increase in real spending as well as a decrease depending on the development in GDP. Naturally, it can also be the other way around, as has been the case in the wake of the financial crisis, where many countries witnessed a decline in GDP and thereby the increase in social protection as a proportion of GDP was not due to higher spending on welfare benefits, but often that the same amount spent increased the proportion of GDP. Still, over the longer time span it shows something about the willingness to pay for welfare states development, and further that there seems to be a relation between

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percentages of GDP expenditures per capita in purchasing power parities and austerity.2 So, change in spending as proportion of GDP is an indicator especially when looking at the long-term development since 2000, and with a need for caution if using data from only a few years. Thus, it is the case that lower spending as a proportion of GDP in welfare states because of better economic conditions cannot be interpreted as austerity, in the same way that an increase in spending due to worsening economic conditions does not inform us of expansion of welfare states. Furthermore, a problem for comparison and development is how fiscal welfare develops (Sinfield 2019; Morel, Touzet and Zemmour 2018b). Thus, these hidden changes in the welfare states (Avram 2018; Hacker 2004; Greve 1994; Morel, Touzet and Zemmour 2018a) also have the implication that looking only at public sector spending might not tell the full story of the development of neither spending nor finance available for welfare state development and even less for specific parts of the welfare state. However, at the same time this can have an upside down effect so that changes towards the more hidden part of the welfare state can make it less clear what is actually happening, and what the impact is on equality. The same issue arises due to occupational welfare that if this is increasing then it might be that the coverage and especially the level of replacement rate has not changed or even declined just using public spending. This is because either there has been a crowding-out or crowding-in of welfare state activities (Yoon and Chung 2016; Chung 2019; den Dulk, Peters and Poutsma 2012). Thus, even international comparison comes with the risk of not all aspects of the development being included in the data. Rather than looking into the overall level of spending but, instead, the specific policy fields, this risk should be minimized. Additionally, despite international standards for the data there might and can be overlaps between sub-sections of the system (see Chapters 7 and 8 on the blurring boundaries between health care and long-term care (Greve 2016a)). However, these caveats with macro-data do not make it a sufficient reason to make only small-scale studies and then use these for broader sweeping arguments of overall retrenchment in welfare states development. Lastly, but also outside the scope of this analysis is the role of civil

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society and whether this – like occupational welfare – crowds-out or crowds-in welfare state activities and whether this is a substitute for state intervention. However, the focus is on whether or not the state’s role has been diminished. This is because this is often the interpretation of how to understand austerity or not.

3.3  FIXED VERSUS VARIABLE COSTS However, even if the same real amount of money is available, this might still imply a risk that it is possible to deliver less service and thereby a reduction will take place. This is due to the issue that a change in demography might not have the same impact in all fields of the welfare state. It is relatively simple in relation to those receiving different kinds of in-cash benefits, if the rules have not been changed, then the number of recipients – such as old-age pensioners and people on unemployment benefit – can be used as a proxy for spending in this field. It is more difficult within services. An extra child in primary education does not necessarily imply a higher total cost, in the same way that a reduction of one child does not imply a lower cost. However, larger changes can imply that one needs to erect new buildings or the opposite to reduce capacity and be able to reduce costs to staff without this having a negative impact on quality. The same applies to day-care for children, long-term care and health care. This might not be spread across a country, so the implication is that even if in fixed prices the same amount is available, some will have to reduce spending in order to cover the fixed cost of buildings, heating, water and so on which has not changed even if there are fewer persons in need of support. This helps in explaining why the demographic changes towards more elderly and fewer young people, not only as a possible consequence of that, might imply that less revenue is a problem for the welfare states. Also the ability to move money from one group to another, and to change the fixed cost of a service is a challenge, and further that such changes might take time. Thereby, this might be one of the reasons why some feel that there has been a reduction in spending at the micro-level despite the fact that macro-data informs us that there has been, in fixed prices, more money available within welfare states. It is further the case that there can be differences in regional/local ability to provide services, and

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thus in principle that there can be at the same time both austerity and expansion in a country, and also still overall either expansion or retrenchment in specific parts of the welfare state. The standard calculated level of spending can be a way to look into changes. Using this, the starting point will be spending in one year, and then trying to estimate what the level of spending should be, given changes in the demographic composition of the population if the same level per user should be available in later years. This will be done for health and long-term care spending.

3.4  QUALITY OF SERVICE AND WORK A core problem for comparative analysis of whether or not there has been austerity is that measuring the quality of services is difficult. Allocating more or less money to an activity does not necessarily inform about the quality of the given service. It might be better or it might be worse – dependent on several other factors, including issues such as new technology, better standards of living and new evidence of what works best. For a discussion on the quality issue with regard to long-term care, see Chapter 9. However, even if it is difficult to measure quality, there might be a perceived position of those welfare workers delivering the work. They might have professional viewpoints on what would be the best quality to deliver if they have “more” resources. This is a classical conflict between the principal and the agent, and where it is difficult to know exactly what the necessary level is, including how one type of service can be compared to a service in other areas. This also applies to the public sector, where there has been a quest for increase in productivity. Part of this reflects the classical discussion that when societies get richer we witness an increase in the public sector (Wagner’s Law) partly, but not only, due to the fact that the public sector does not increase productivity to the same extent as in the private sector (Baumol’s disease) (for a classical text, see Musgrave and Peacock 1958). This has influenced policy makers (and those responsible in the different Ministry of Finances) to find ways to ensure that an increase in productivity would also take place within the public sector. This further, as an increase in productivity (real or expected) would enable decision makers to finance new activities within more or less the same overall level of taxation.

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Naturally, there will be times where new productivity, such as the use of new technology, will make it possible to deliver more for the same amount of money. However, this might not continue year after year. Thus, the caseload could be an indicator of change in work quality. However, there does not seem to be systematically comparative data available to analyze this. Using a survey on the perceived quality of certain services could be an indicator of change if data were available for several years, although there does not need to be a causality between a change in perception and austerity. Users’ perception of austerity is one aspect. This can include that they might have to wait longer, cannot get the support they expect or will be transferred to a different income transfer than they hoped for. They might also not have been in need of service earlier, and have had an idea about the level, which when in need perhaps might be lower than expected. Thereby, despite users’ viewpoints being an important aspect to judge welfare states development, there is a risk of bias. Another issue is the perception of those employed in welfare state institutions. If there has been a constant pressure for increased productivity this might be in conflict with, as indicated above, professionals’ knowledge on what they perceive as good quality. Therefore, a decline in public sector workers’ perception that they deliver good quality could be seen as a change due to austerity by a gradual worsening of working conditions. However, a problem for the analysis is: What is the cause and what is effect of a change in perception of working quality? Nevertheless, it is important to have an eye on whether or not there is an indication of change in work quality in the welfare states. There might, lastly, be the same or even more resources available, still also new tasks and an increase in users in need of services. This is an area that macro-data will not inform about.

3.5 IS IT THE SAME TYPE OF SERVICE DELIVERED? Another methodological issue is that the same type of service might not be delivered over a period of time. To give an example: a reduction in the number of days a person is in a hospital does not necessarily imply austerity, but might be due to new knowledge being

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available, indicating, for example, that fewer days at the hospital is better for the patient. New ways of carrying out operations could also imply the same. Thus, part of the data does not by itself reveal whether changes in the way services can be delivered are due to new ways to do the services – or due to a reduction/increase in spending. A change in and focus on prevention might in principle also imply, in line with a social investment perspective (Midgley, Dahl and Wright 2017; Busemeyer et al. 2018), that there have been years with an increase in spending to help in preventing work accidents or improving health in such a way that there is less need for health and/ or long-term care. So, if persons are not only living longer, but they also have better health, then a reduction in spending does not necessarily imply austerity, but more that the society has been able to reap the fruit of a social investment approach. The use of new welfare technology is another issue that can explain change in several directions, from less spending to more as new technology, at least at the outset, might be more expensive (Greve 2016a), but could later reduce spending. Naturally, there is also the risk that the amount available, especially when looking into welfare services, is influenced by the change in administration costs, and also the risk that part of the real increase in spending is due to higher administration costs (Hood and Dixon 2015).

3.6  SUMMING UP The data used in later chapters focuses on both the overall level of spending and specific sub-elements in the welfare states. This is done in fixed prices and where possible in relation to the specific group benefitting from the spending. In several areas, such as unemployment benefit and social assistance, the development in overall spending is influenced by the business cycle. For example, spending on unemployment benefit could be adjusted for the level of unemployment to ensure a better indicator. Furthermore, the use of replacement rates will be an indicator of whether or not there has been a change in the generosity of the welfare state. The replacement rate also will inform about whether a change in the indexation of benefits or the social rights has been amended over time. The analysis tries always to include data at a time before and after the last finan-

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cial crisis. Data availability might reduce this option, especially as the attempt is to ensure a comparative analysis of the development. A particular problem can be trying to depict the development in the quality of welfare services. Better health and prevention might, to give just one example, reduce over time the cost of long-term care. This without it can be argued to be a situation where retrenchment has taken place. Thus, it can be important to have better indicators of the development in the quality of welfare services in the future. By looking at macro-data, it is difficult to depict, for example, whether the development has caused a change in the working conditions of those working in the welfare services and delivering the services. This is only reflected here by looking into the amount of money available and how this has developed over time. This is also the case if the decision makers decide that the amount of service to be delivered is higher than in previous years, as a way of ensuring a productivity gain also in the public sector.

NOTES 1. See, Statistics Explained, https://ec.europa.eu/eurostat/statisticsexplained, from 28 November 2018, accessed 13 December 2018. 2. See previous footnote.

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Ciccia, R. and J. Javornik. 2019. “Methodological Challenges for Comparative Welfare State Research: Capturing Intra-Country Variation in CrossNational Analyses.” Journal of Comparative Policy Analysis: Research and Practice 21(1): 1–8. Clasen, J. and N. Siegel. 2007. “Comparative Welfare State Analysis and the ‘Dependent Variable Problem.’” In J. Clasen and N. Siegel (eds), Investigating Welfare State Change. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, Chapter 1, pp. 3‒12. den Dulk, L., P. Peters and E. Poutsma. 2012. “Variations in Adoption of Workplace Work–Family Arrangements in Europe: The Influence of Welfare-State Regime and Organizational Characteristics.” International Journal of Human Resource Management 23(13): 2785‒2808. https://doi. org/10.1080/09585192.2012.676925. Erk, J. 2017. “Is Age the New Class? Economic Crisis and Demographics in European Politics.” Critical Sociology 43(1): 59‒71. https://doi.org​ /10.1177/0896920515603109. Greve, B. 1994. “The Hidden Welfare State, Tax Expenditure and Social Policy A Comparative Overview.” Scandinavian Journal of Social Welfare 3 (4): 203‒211. https://doi.org/10.1111/j.1468-2397.1994.tb00227.x. Greve, B. 2016a. Long-Term Care for the Elderly in Europe: Development and Prospects. London: Routledge. https://doi.org/10.4324/9781315592947. Greve, B. 2016b. Long-Term Care in Denmark, with an Eye to the Other Nordic Welfare States. In B. Greve (ed.), Long-Term Care for the Elderly in Europe: Development and Prospects. Dordrecht: Springer, Chapter 11, pp. 168‒184. https://doi.org/10.4324/9781315592947. Greve, B. (ed.) 2019. The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge. Guerrina, R. 2015. “Socio-Economic Challenges to Work–Life Balance at Times of Crisis.” Journal of Social Welfare & Family Law 37 (3): 368–377. Hacker, J. S. 2004. “Privatizing Risk without Privatizing the Welfare State: The Hidden Politics of Social Policy Retrenchment in the United States.” American Political Science Review 98 (2): 243‒260. https://doi.org/10.1017/ S0003055404001121. Hood, C. and R. Dixon. 2015. A Government That Worked Better and Cost Less?: Evaluating Three Decades of Reform and Change in UK Central Government. Oxford: Oxford University Press. Judd, D., J. Boeck and A. Madsen. 2015. “Chicken or Egg? Global Economic Crisis or Ideological Retrenchment from Welfare in Three European Countries.” Critical and Radical Social Work 3 (3): 339–355. https://doi. org/10.1332/204986015X14392797857418. Midgley, J., E. Dahl and A. Wright (eds). 2017. Social Investment and Social Welfare. International and Critical Perspectives. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Montanari, I. and K. Nelson. 2013. “Social Service Decline and Convergence: How Does Healthcare Fare?” Journal of European Social Policy 23 (1): 102–116. https://doi.org/10.1177/0958928712456574. Morel, N., C. Touzet and M. Zemmour. 2018a. “From the Hidden Welfare

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State to the Hidden Part of Welfare State Reform: Analyzing the Uses and Effects of Fiscal Welfare in France.” Social Policy and Administration 53 (1): 34‒48. https://doi.org/10.1111/spol.12416. Morel, N., C. Touzet and M. Zemmour. 2018b. “Fiscal Welfare in Europe: Why Should We Care and What Do We Know So Far?” Journal of European Social Policy 28 (5): 549–560. https://doi.org/10.1177/0958928718802553. Musgrave, R. and A Peacock. 1958. Classics in the Theory of Public Finance. London: Macmillan. Otto, A. 2018. “Social Expenditure, Social Rights, and Benefit Receipt as Indicators of Welfare State Generosity: Three Peas in a Pod, or a Different Kettle of Fish Altogether?” International Journal of Sociology and Social Policy 38 (9–10): 851‒867. https://doi.org/10.1108/IJSSP-02-2018-0022. Petmesidou, M. and A. M. Guillén. 2014. “Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery.” South European Society & Politics 19 (3): 295–307. Pierson, P. 1994. Dismantling the Welfare State?: Reagan, Thatcher and the Politics of Retrenchment. Cambridge Studies in Comparative Politics. Cambridge: Cambridge University Press. https://doi.org/DOI: 10.1017/ CBO9780511805288.002. Pierson, P. 1996. “The New Politics of the Welfare State.” World Politics 48 (1): 143–179. Reeves, A., M. McKee, S. Basu and D. Stuckler. 2014. “The Political Economy of Austerity and Healthcare: Cross-National Analysis of Expenditure Changes in 27 European Nations 1995‒2011.” Health Policy 115 (1): 1‒8. https://doi.org/10.1016/j.healthpol.2013.11.008. Sacchi, S. and J. Roh. 2016. “Conditionality, Austerity and Welfare: Financial Crisis and Its Impact on Welfare in Italy and Korea.” Journal of European Social Policy 26 (4): 358–373. https://doi.org/10.1177/0958928716657277. Sinfield, A. 2019. “Fiscal Welfare.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 23–33. Starke, P. 2006. “The Politics of Welfare State Retrenchment: A Literature Review.” Social Policy and Administration 40 (1): 104‒120. https://doi. org/10.1111/j.1467-9515.2006.00479.x. Wenzelburger, G., R. Zohlnhoefer and F. Wolf. 2013. “Implications of Dataset Choice in Comparative Welfare State Research.” Journal of European Public Policy 20 (9): 1229–1250. https://doi.org/10.1080/13501 763.2013.822908. Yoon, Y. and H. Chung 2016. “New Forms of Dualization? Labour Market Segmentation Patterns in the UK from the Late 90s Until the Post-Crisis in the Late 2000s.” Social Indicator Research 128: 609–631. https://doi. org/10.1007/sl11205-015-1046-y.

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APPENDIX 3.1 COUNTRIES INCLUDED AND SPLIT INTO WELFARE REGIMES Nordic: Denmark Finland Sweden Continental: Austria Belgium France Germany Luxembourg Netherlands Liberal: Ireland United Kingdom Southern Europe: Cyprus Greece Italy Malta Portugal Spain Eastern Europe: Bulgaria Czech Republic Hungary Poland Romania Slovakia Slovenia Baltic: Estonia Latvia Lithuania Note:  Countries are included as far as possible, but there might be data issues causing a fewer number of countries within each regime and/or over a short time than for other countries.

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4.  Tax or welfare? 4.1 INTRODUCTION There are and may be different opinions about the possible impact on societal development of the overall economic developments on welfare states spending, including budget deficit and government overall debt management. One issue is whether this should be changed through higher taxes and/or lower public expenditure. A high public sector deficit, by systematic underfinancing of the welfare state, might also be a strategy in order to make it possible in the longer run to reduce welfare spending (as pointed to by Pierson 1994). This chapter therefore presents data on the development in taxes and duties as an indicator of what choices have been taken since the year 2000 between tax and/or welfare. By looking into the development of overall financing in different welfare states it provides an indication of whether there have been decided changes in the financing that will reduce the options for future financing of welfare states (discussed in section 4.2). Making the decision on future change mainly a debate about cuts in spending and not what the theoretical choice is between financing and spending might be misleading, as this would lead to an understanding that cuts are the only option. There are clearly political and ideological issues related to taxation (Morel and Palme 2019): this is also due to the fact that a reduction in taxes and duties has been found to be related to cuts in spending (Reeves et al. 2014). There is the further risk that tax cuts today might imply retrenchment at a later date due to the increased difficulties in financing the welfare states as a consequence thereof (Klitgaard and Elmelund-Præstekær 2014). However, the discussion about this choice can also have an impact on voters’ perceptions of the fact that there has been a reduction in a number of welfare state areas. Therefore, the chapter (in section 4.3) looks into the willingness to pay taxes and duties, using data from the European Social Survey related to welfare attitudes from 2008 and 41

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2016 on the cost for business of taxes and duties. It further discusses whether people are willing to pay more in tax in order for parents to be able to combine work and family life (data only for 2016). Lastly, the understanding of whether the tax burden is seen as fair can be an important aspect of the legitimacy of the welfare states (Roosma, Van Oorschot and Gelissen 2016). The impact of the tax structure on people’s willingness to pay is, in general, related to the progressivity of the tax system, which is outside the scope of the chapter; see, instead, Berens and Gelepithis, who argue that as more welfare spending is targeted towards the poor, support for progressive taxation is weakened (Berens and Gelepithis 2018). This is (as returned to in Chapter 10) in line with the fact that support for welfare might be higher if it reaches broader groups in society, for example, the middle class will also find it important to benefit from the welfare state. The final section sums up the chapter.

4.2 DEVELOPMENT IN FINANCING THE WELFARE STATES Financing of welfare states has been argued to be under pressure due to globalization and internationalization of economies (see Mankiw, Weinzierl and Yagan 2009; Zangari, Caiumi and Hemmelgarn 2017), which reduce the option of taxing companies and other mobile taxable sources. However, the choice of instruments is the important issue here. How to finance also includes issues related to compliance (Keen and Slemrod 2017), as well as broader issues related to incentives/ disincentives arising from the choice of taxes and duties, where there can, however, be different viewpoints (Piketty, Saez and Stantcheva 2014). The influence of taxes and duties on economic growth has also been discussed (Brys et al. 2016). The revenue available is not only influenced by the tax rate, but also the use of fiscal welfare and the impact of this on distribution (Avram 2018; Morel, Touzet and Zemmour 2018; Sinfield 2019). However, the focus here is mainly the more specific witnessed development in public sector revenue as this not only influences resources available for providing welfare, but also has an impact on the degree of inequality (Hagemann 2018). When looking into the financing of welfare states revenue, the overall payment of taxes and duties as a percentage of GDP is a

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Tax or welfare?

good indicator, as taxation and spending are influenced by economic development. The proportion of GDP is a valid data source, particularly when looking at the longer-term perspective. Still, the real available amount of money is also an important indicator. In the wake of the financial crisis the ratio is influenced in both an upward and a downward direction: upward due to the decline in GDP in many countries, downward due to high unemployment causing lower taxable incomes and thereby fewer taxes and duties, and also companies with lower overall levels of income. Figure 4.1 shows the development since 2000 split into the six welfare regimes. Figure 4.1 is a clear indication that the Nordic countries have the highest level of taxes and duties, closely followed by the continental countries, and Southern Europe catching up after the crisis so that in 2017 it was even higher than in 2000, and especially Greece with 60.0

50.0

% of GDP

40.0

30.0

20.0

10.0 Nordic

Continental

Liberal

Southern Europe

Eastern Europe

Baltic

04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17

03

20

02

20

01

20

20

20

00

0.0

Year

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, gov_10a_taxag, accessed 19 December 2017 and own calculations.

Figure 4.1 Taxes and duties as percentages of GDP in different welfare regimes, 2000–2017

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an increase from 34.7 per cent to 41.6 per cent of GDP has seen a remarkable increase. Naturally, the taxes and duties as percentages of GDP do not inform fully about the money available for spending on welfare. The income also can be and is used for other purposes; this includes public goods such as justice, foreign affairs, police, infrastructure, but also in this context, education that is not included in the expenditures within the understanding of spending for welfare purposes. Countries with a high level of debt also pay back interest and loans. Still, changes in taxes and duties are an indicator of the willingness to pay for the public sector. Furthermore, a decline in the overall level of taxes and duties could imply a process by which, due to high debt levels, it could be easier to impose austerity measures at a later stage (Pierson 1994). Part of this development in the increase in taxation in Greece can be explained by the fact that Greece is the only country which in 2017 had a lower real GDP than in 2000 (a minus of 1.4 per cent). There has been lower growth in Southern Europe in general and only a slight positive economic growth in Italy (2.9 per cent) and Portugal (7.9 per cent).1 Still, the increase in the level of taxation means that there has been a growth in revenue in real prices in Greece of close to 20 per cent over the years; however, part of this has been used to cover the deficit, the increase in interest to be paid, but still shows that in principle more money could otherwise have been available in order to finance welfare state activities. Overall, Southern Europe has witnessed an increase in the tax level. The figure shows further the striking picture that the lowering of taxes and duties as a percentage of GDP has been remarkably strong in the Nordic countries (from 47.8 per cent to 44.8 per cent), indicating that the willingness to pay taxes and duties seemingly has been less profound here than in previous years. Overall, there has been a positive development in GDP, so that the real revenue has increased in all the Nordic countries – Denmark and Finland just at par with Greece, and Sweden at a higher level. Still, the low level could imply pressure on spending in the longer run, especially in times of no or slow economic growth. In the liberal welfare states, there has also been a reduction from 33.1 per cent to 29.3 per cent. The overall picture is stability in Continental, Baltic and Eastern European welfare states. Appendix 4.1 shows the change in the overall level of taxes and duties as a percentage of GDP, split into 2000–2010, 2010–2017 and

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years in total. A reduction in the tax level could be considered as an implicit risk of future retrenchment, compared with the view that defunding can cause a future reduction in spending and thereby be part of a long-term strategy of reducing spending. This is thereby an overall indication of a standstill in the sense that no further convergence (using coefficient of variation) can be found in the data since the year 2000. There have naturally been variations over the years, also as explained earlier due to the influence of the business cycle, including the financial crisis. Still, the long-term perspective indicates than on average across Europe there is no tendency to lower overall level of taxes and duties. This means, at least indirectly, that voters have seemingly been willing to continue to pay taxes and duties for the welfare state’s activities, with the caveat that overall taxes and duties are used not only to finance welfare state activities. This is returned to in Chapters 5‒8, where the focus is on spending.

4.3 PERCEPTIONS AND VIEWPOINTS ON TAX AND WELFARE One way to look into support for the welfare states is whether people are willing to pay taxes and duties in order to finance the activities, including the understanding of the fairness and redistributive impact of taxation. Asking questions about willingness to pay naturally comes with the risk that people would prefer both more service and to pay less in tax. One way in which to circumvent this is to connect questions combining taxes and services. Here, given the focus is on development, the choice (also given the availability of international data) has been to look into the perception of the relationship between social benefits/services as a proxy for support for welfare, in relation to the understanding of whether this is too expensive, understood as a cost for business. For countries where there are data for both years, this is shown in Table 4.1. Table 4.1 shows declining support for the viewpoint that benefits and services cost business too much in taxes/charges, although changes are rather modest, with the exception of Germany, Spain and Hungary, where there is less support than earlier for the viewpoint that it is too expensive. Still, a value above 2.5 indicates support for the viewpoints that taxes and duties are a burden for companies. This

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3.2 2.6 0.6

Germany

2.9 3.1 −0.2

Estonia

3.3 2.6 0.7

3.0 2.9 0.1

Spain Finland

3.5 3.4 0.1

France

3.3 2.9 0.4

United Kingdom

3.9 3.0 0.8

Hungary

3.5 3.1 0.3

Ireland

3.2 3.0 0.2

Netherlands

3.1 3.1 0.1

Poland

3.2 3.1 0.1

Portugal

3.1 2.9 0.2

Sweden

3.0 3.1 −0.1

Slovenia

3.1 2.9 0.2

Total

Source:  Based on the European Social Survey (https://www.europeansocialsurvey.org/), 2008 and 2016 and calculations based hereupon, downloaded 19 December 2018.

Note:  Includes only EU countries with data in both years, except for the total which includes all countries in the survey. The answer is transferred to a scale from 1 to 5 where 1 is “disagree strongly” and 5 is “agree strongly”.

3.1 2008 2016 3.0 Difference 0.1

Czech Republic

Table 4.1 Social benefits/services cost businesses too much in taxes/charges, 2008 and 2016



Tax or welfare?

47

might reflect the argument for austerity measures that in order to ensure competitiveness vis-à-vis other countries, a country needs to have a lower level of taxes and duties, and therefore austerity measures on spending are needed instead of increasing taxes and duties. The data are, however, even if limited, an indicator of the fact that voters’ perceptions of the negativity of taxes and duties are not, perhaps, as strong as sometimes argued. Further, that with the decline, this should in principle give less support than in previous years for reducing taxes on companies, including company taxation which has been reduced over the years in many countries (OECD 2017). In 2016 a new question related to welfare attitudes was added to European Social Survey. This is shown in Table 4.2, which looks into willingness to pay extra tax if the purpose is to improve work–life balance. Table 4.2 is, in a way, in contrast to the picture of taxation as depicted in Figure 4.1, as those countries with the highest proportion against paying more in taxation in order to make it possible to achieve a better work–family balance are in the Nordic countries. Only one country has a slight majority willing to pay extra tax, namely Portugal. The data can be difficult to interpret given that they might be related to the existing size of service, such as day-care for children (Vuolo et al. 2016; Masselot 2015), and the role of companies (Chung 2019). Thus, for example, the already existing higher level of provision and support to combine work and family life in the Nordic welfare states might be a reason why there is only limited support for the viewpoint to spend even more in this area. The level of service might also be the reason for the fact that slightly more people are in favour of paying more tax in countries in welfare regimes other than the Nordic ones. At the same time, the data, in a way, also point to the fact that a social investment perspective (Ronchi 2018; Greve 2018) is seemingly not clear among European citizens, given that solid support to children when growing up would be highly beneficial for society (Heckman 2006). Overall, the redistributive effect of the tax benefit (e.g. not only taxes) seems to be that, at least still in 2013, was more effective than 30 years earlier (Caminada et al. 2019). Lastly, it is the case that “citizens in fact prefer to accept higher taxes or higher levels of public sector debt rather than cutting back spending in other parts of the welfare state” (Neimanns, Busemeyer and Garritzmann 2018, 240). Thereby, this indicates still a willingness to pay tax – and also that decision makers might have difficulties

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Table 4.2 Benefits for parents to combine work and family even if means higher taxes, 2016 Nordic: Finland Sweden

3.3 3.1

Continental: Austria Belgium France Germany

2.9 2.9 3.1 2.6

Liberal: Ireland UK

2.7 2.8

Southern European: Italy Portugal Spain

2.7 2.4 2.6

Eastern Europe: Czech Republic Hungary Poland

2.6 2.8 2.8

Baltic: Estonia Lithuania

 3 2.6

Note:  For this question there was not a neutral option as with the question in Table 4.1. For comparison the same scale has been used, e.g. 1 (strongly in favour), 2, 4 and 5 (strongly against). Source:  European Social Survey https://www.europeansocialsurvey.org/, 2016, own calculations, accessed 19 December 2018.

in enacting direct cuts of central welfare state issues; see also later chapters in the book.

4.4  A FEW CONCLUDING REMARKS Overall, the data do not point to a reduced willingness to pay taxes and duties over the last close to twenty years within Europe. It has, overall

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been close to the same level, with some variations across countries, including strong increases to the levels of taxes and duties in several Southern European Welfare states. The data do not inform on what the money has been spent on, and, for some, part of the increase after the financial crisis has been necessary in order to finance interest on public sector debt and repayment thereof, but also what was paid by many countries as part of the rescue of the European financial sector. There has further only been limited change in the willingness to pay tax, and support for the viewpoint that companies have to pay too much due to social services has been diminished. There is support for extra spending to help a better work–life balance, although it is not strong. Thus, at the outset, the changes in taxes and duties do not point to austerity or retrenchment in European welfare states.

NOTE 1. Based on growth in GDP in million euros in 2010 prices, own calculation based upon data from Eurostat https://ec.europa.eu/eurostat/home?, accessed 19 December 2018.

REFERENCES Avram, S. 2018. “Who Benefits from the ‘Hidden Welfare State’? The Distributional Effects of Personal Income Tax Expenditure in Six Countries.” Journal of European Social Policy 28 (3): 271‒293. https://doi. org/10.1177/0958928717735061. Berens, S. and M. Gelepithis. 2018. “Welfare State Structure, Inequality, and Public Attitudes Towards Progressive Taxation.” Socio-Economic Review. https://doi.org/10.1093/ser/mwx063. Brys, B., S. Perret, A. Thomas and PO. O’Reilly (2016), “Tax Design for Inclusive Economic Growth”, OECD Taxation Working Papers, No. 26. Paris: OECD Publishing. https://doi.org/10.1787/5jlv74ggk0g7-en. Caminada, K., K. Goudswaard, C. Wang and J. Wang. 2019. “Has the Redistributive Effect of Social Transfers and Taxes Changed over Time across Countries?” International Social Security Review 72 (1): 3–31. https://doi.org/10.1111/issr.12193. Chung, H. 2019. “National-Level Family Policies and Workers’ Access to Schedule Control in a European Comparative Perspective: Crowding Out or In, and for Whom?” Journal of Comparative Policy Analysis: Research and Practice 21(1): 25‒46. https://doi.org/10.1080/13876988.2017.13537 45.

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Greve, B. 2018. “Do Stakeholders in Denmark Know about Social Investment within Long-Term Care?” Journal of International and Comparative Social Policy 34 (2): 127‒139. https://doi.org/10.1080/216997​ 63.2018.1465447. Hagemann, R. (2018), “Tax Policies for Inclusive Growth:  Prescription versus Practice”, OECD Economic Policy Papers, No. 24. Paris: OECD Publishing. https://doi.org/10.1787/09ba747a-en. Heckman, J. 2006. “Skill Formation and the Economics of Investing in Disadvantaged Children.” Science 30: 1900–1902. Keen, M. and J. Slemrod. 2017. “Optimal Tax Administration.” Journal of Public Economics 152: 133‒142. https://doi.org/10.1016/j.jpubeco.20​17.04.​ 006. Klitgaard, M. B. and C. Elmelund-Præstekær. 2014. “The Partisanship of Systemic Retrenchment: Tax Policy and Welfare Reform in Denmark 1975–2008.” European Political Science Review 6 (1): 1–19. Mankiw, N. G., M. Weinzierl and D. Yagan. 2009. “Optimal Taxation in Theory and Practice.” Journal of Economic Perspectives 23 (4): 147‒174. https://doi.org/10.1257/jep.23.4.147. Masselot, A. 2015. “The EU Childcare Strategy in Times of Austerity.” Journal of Social Welfare & Family Law 37 (3): 345–355. Morel, N. and J. Palme. 2019. “Financing the Welfare State and the Politics of Taxation.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 467–476. Morel, N., C. Touzet and M. Zemmour. 2018. “Fiscal Welfare in Europe: Why Should We Care and What Do We Know So Far?” Journal of European Social Policy 28 (5): 549–560. https://doi.org/10.1177/0958928718802553. Neimanns, E., M. R. Busemeyer and J. L. Garritzmann. 2018. “How Popular Are Social Investment Policies Really? Evidence from a Survey Experiment in Eight Western European Countries.” European Sociological Review 34 (3): 238‒253. https://doi.org/10.1093/esr/jcy008. OECD. 2017. Revenue Statistics: 1965–2016. Paris: OECD. https://doi.org/​ 10.1787/9789264283183-en. Pierson, P. 1994. Dismantling the Welfare State?: Reagan, Thatcher and the Politics of Retrenchment. Cambridge Studies in Comparative Politics. Cambridge: Cambridge University Press. https://doi.org/DOI: 10.1017/ CBO9780511805288.002. Piketty, T., E. Saez and S. Stantcheva. 2014. “Optimal Taxation of Labor Income. A Tale of Three Elasticities.” American Economi Journal: Economic Policy 6 (1): 230–271. Reeves, A., M. McKee, S. Basu and D. Stuckler. 2014. “The Political Economy of Austerity and Healthcare: Cross-National Analysis of Expenditure Changes in 27 European Nations 1995‒2011.” Health Policy 115 (1): 1–8. https://doi.org/10.1016/j.healthpol.2013.11.008. Ronchi, S. 2018. “Which Roads (If Any) to Social Investment? The Recalibration of EU Welfare States at the Crisis Crossroads (2000‒2014).” Journal of Social Policy 47 (3): 459–478. https://doi.org/10.1017/S004727941​ 7​000782.

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Roosma, F., W. Van Oorschot and J. Gelissen. 2016. “A Just Distribution of Burdens? Attitudes Toward the Social Distribution of Taxes in 26 Welfare States.” International Journal of Public Opinion Research 28 (3): 376‒400. https://doi.org/10.1093/ijpor/edv020. Sinfield, A. 2019. “Fiscal Welfare.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 23–33. Vuolo, R. L., P. Taylor-Gooby, S. Sacchi, E. Riva, E. Garavaglia, M.  Petmesidou and T. Meyer. 2016. “The Divisive Welfare State.” International Journal of Sociology & Social Policy 50 (1): 712–733. Zangari, E., A. Caiumi and T. Hemmelgarn. 2017. “Tax Uncertainty: Economic Evidence and Policy Responses.” 67. Vol. 7565. Taxation Paper. Luxembourg. https://doi.org/10.2778/620293.

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APPENDIX 4.1 TAXES AND DUTIES AS PERCENTAGE OF GDP IN 2017 AND CHANGE SINCE 2000 SPLIT INTO DIFFERENT PERIODS

Denmark Finland Sweden Belgium Germany France Luxembourg Netherlands Austria Ireland United Kingdom Greece Spain Italy Cyprus Malta Portugal Bulgaria Czech Republic Hungary Poland Romania Slovenia Slovakia Estonia Latvia Lithuania

2017

2000–2010

2010–2017

2000–2017

46.4 43.3 44.8 46.5 40.3 48.2 40.1 38.8 42.2 23.3 35.3 41.6 34.2 42.2 33.7 33.2 36.7 29.4 35.2 38.2 34.9 25.7 36.7 33.0 32.8 31.2 29.6

−2.3 −5.1 −5.6 −0.7 −3.3 −0.8 0.4 −1.5 −1.8 −3.6 0.4 −0.6 −1.9 1.5 4.4 4.8 0.1 −5.1 −0.1 −1.9 −1.6 −3.4 0.5 −5.9 2.1 −0.9 −2.3

0.3 2.5 1.2 1.7 2.2 4.1 1.2 3.0 0.4 −4.9 0.6 7.5 2.2 0.6 2.0 0.1 3.1 3.6 2.7 1.0 2.6 −1.3 −0.6 5.0 −0.5 2.6 1.1

−2.0 −2.6 −4.4 1.0 −1.1 3.3 1.6 1.5 −1.4 −8.5 1.0 6.9 0.3 2.1 6.4 4.9 3.2 −1.5 2.6 −0.9 1.0 −4.7 −0.1 −0.9 1.6 1.7 −1.2

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, gov_10a_taxag and own calculations based hereupon.

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5.  Key developments in welfare state spending 5.1 INTRODUCTION Chapter 4 shows that there has not been any overall reduction in the financing of the public sector across welfare regimes, naturally with some variation, since 2000. However, as also pointed out, this does not necessarily imply that the money has been used for welfare state purposes. This chapter presents the development from a macroperspective, and later chapters embark upon a detailed analysis of the development in sub-sections of the welfare states. Overall, as a starting point, it is the case that when using macro-data for public spending “the comparative evidence for austerity up until 2013 (the latest available year) is not especially compelling” (Farnsworth and Irving 2015, 15). This chapter looks into whether this is still the case for Europe, and with a view back to 2000 as far as possible. In the next section (5.2) a few methodological considerations are presented in relation to the type of data included, and also the delimitations of what and how welfare spending is defined. Section 5.3 then looks into the overall development, including breaking data down into different welfare regimes for the purpose of seeing whether there are actually any differences across regimes, whether the amount of expenditure available for welfare is different, and whether there have been different kinds of development. The data are split up before and after the financial crisis. Lastly, section 5.4 sums up the description of the development.

5.2 A FEW METHODOLOGICAL CONSIDERATIONS The overall development in spending is described through the use of the welfare topics as methodological is included in ESSPROS 53

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publications of welfare costs.1 Education is therefore not one of the areas that are being considered. This despite the fact that education could be argued to be social investment, including ensuring better access to the labour market (Bengtsson, de la Porte and Jacobsson 2017). As far as possible, data back to 2000 is used – and described as a percentage of GDP and in fixed prices per inhabitant in 2010 prices. The reason for using per inhabitant data is in order to take changes in the demographic size into consideration. This is, naturally, only a first step, as changes in the demographic composition, such as a growing number of elderly people and fewer children, could cause a need for more money to avoid less money per user being available, due to (as pointed out in Chapter 3), among other aspects that there are differences in fixed and variable costs. This is a topic to be returned to in later chapters. Still, it gives a first impression on whether or not there has been retrenchment. The areas included in ESSPROS are: “disability, sickness/health care, old age, survivors, family/children, unemployment, housing and social exclusion”.2 Thus, in addition to the overall level of spending, the chapter presents a snapshot of the development in these core areas for all the EU28 or EU27 countries, dependent on data availability. For the overall development, spending in euros (2010 prices) and as a percentage of GDP for the different welfare regimes are used as a first proxy for the overall development. In the chapters on the different sub-sections the split into welfare regimes are also used. The intention with this chapter is mainly to set the scene and present the overall perspective of the development within Europe. Naturally, even if there is agreement on what shall be counted in different sections of welfare state spending, this does not necessarily mean that this is followed precisely in all countries. Furthermore, there can be variations across countries on institutional structures, such as is the case with long-term care blurring the boundaries between health care and spending on old age (Greve 2016). Still, having an overall view of the development is a first step to understanding how the situation has evolved. Another issue with a need for caution is that the data are on public sector spending, and thereby do not include information on fiscal welfare (Sinfield 2019) or whether or not the benefits paid out are taxed, so that it shows gross spending and not net social spending (Adema, Fron and Ladaique 2011). However, unless there have been strong changes in these elements, such as more welfare through the

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tax system or a change in the taxation of benefits, the overall development can be depicted by looking into the data as presented later in the chapter. The interaction with the occupational welfare system is outside the scope of analysis (Greve 2018; Farnsworth 2019). This is partly due to the fact that it is often outside the welfare state’s ability to make decisions, even though it has been supported by fiscal welfare. Whether or not it crowds-out/crowds-in welfare state spending (Chung 2017) is outside the scope of analysis. Also, the data available for measuring occupational welfare is extremely scarce and over time there is no consistency in comparative data. Earlier studies have already indicated that despite discussion, very few welfare states had seen fundamental shifts (Hacker 2004). Even if the analysis should show that there are the same amount of, or more, resources available, it is also still a question about how to prioritize and what to focus on in different welfare states development (Judd, Boeck and Madsen 2015). In later chapters, the book looks into the fact that, as it has been argued, the financial crisis had added to the belief that it would be best to focus spending on specific issues such as health care and pensions (Diamond and Lodge 2014), although ­pensions seems to be a less clear cut case (see Chapter 8). The reduction in benefit generosity, which is returned to in later chapters, has been based upon two different sets of arguments, including budget savings and work incentives (OECD 2018), also arguing that the coverage rules influence spending. Lastly, it has been argued that retrenchment with regard to unemployment benefit had already started in the 1970s, but also that in general lower income groups have not witnessed reductions to the same degree (Jahn 2018). These possible conflicting changes might blur the picture of the ­development when there is expansion in some areas and reductions in others.

5.3  HOW HAS THE DEVELOPMENT BEEN? Table 5.1 shows central data for the development in the EU28 countries since 2008 – the first year where there is data for all countries.3 Overall, the data in Table 5.1 do not lend any support to welfare states in Europe having witnessed retrenchment in the wake of the financial crisis. There has been an increase as a percentage of GDP and also in euros per inhabitant. The same picture emerges when

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2.033

2.020 512 2.682 414 593 429 139 136

1.899

496 2.556 396 559 326 130 125

517 2.731 407 601 420 144 136

28.6 28.6 7.293

2010

28.7 28.7 7.235

2009

26.0 25.9 6.781

2008

514 2.762 404 596 400 144 134

2.044

28.4 28.3 7.283

2011

513 2.803 398 591 386 145 132

2.038

28.7 28.7 7.299

2012

Source:  Eurostat, https://ec.europa.eu/eurostat/home, accessed 22 December 2018.

Note:  For all sub-sections the data is in euros per inhabitant in constant 2010 prices.

% of GDP, EU28 % of GDP, EU27 EURO per  inhabitant, in constant 2010 prices Sickness/Health  Care Disability Old age Survivors Family/Children Unemployment Housing Social Exclusion

Year

515 2.835 404 591 391 144 133

2.058

28.9 28.9 7.360

2013

518 2.869 403 609 367 147 137

2.085

28.7 28.7 7.420

2014

: : : : : : :

:

: : :

2015

544 2.961 403 642 343 148 161

2.175

28.2 28.2 7.656

2016

Table 5.1 Central data for the overall development on spending on social protection (total and specific areas) within EU28/EU27 countries since 2008



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looking into the different sub-sections that in 2016 there is more money available per inhabitant than before the crisis across the EU countries. The fact that since 2009 there has been a decline in spending on unemployment is due to the reduction in unemployment in recent years, as the rate was 9.6 per cent in the EU28 countries, rising to 10.5 per cent in 2012 and then dropping to 7.6 per cent in 2017. One problem, which is returned to in later chapters, is that calculations based upon the number of inhabitants do not take changes in the demographic composition into consideration. This might, for example, also help in explaining the relative increase in spending on old age and health care. The data also indicate that part of the reason for the continued debates on austerity is that, since 2013, there has been a decline in the relative level of spending, in contrast to the increase from 2008 to 2013. Possible causes therefore are returned to in later chapters, albeit one is simply a change in the business cycle and recent years increased growth in GDP. Thus there was a negative growth (−4.3 per cent in 2009, −0.4 per cent in 2012) and since 2015 a growth rate above 2 percentage points.4 The table is a further indication that the two largest welfare sectors are health care and old age – and thus also a good reason for analysing these parts of the welfare states and their development in more depth later. The development has not been evenly spread across the welfare regimes, as depicted in Figure 5.1. The figure exemplifies that in all welfare regimes there was an increase in spending in the wake of the financial crisis, as a consequence of the combination of a decline in GDP and an increase in the need for income transfers to those being unemployed. Besides that, there are some remarkable differences. In the Nordic welfare states the higher level continued at this level, albeit with a slight decline from 2014 to 2016. The development was similar in the continental welfare states. In the liberal welfare states the increase in the wake of the financial crisis was strong with an increase from 21.1 per cent of GDP in 2007 to 26.8 per cent in 2010 – and then reduced to close to the same level as in the year 2000. The changes were strongest in Ireland – a country, however, where there was strong expansion in the “Celtic Tiger” years from 1994 to 2007 (Hick 2014). The development looks the same in the Baltic countries. Eastern Europe is a welfare regime with fewer changes. Southern Europe is another type of development, so that in 2016 it is close to 5 percentage points higher than in 2000, and with

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% of GDP

25.0 20.0 15.0 10.0 5.0

Nordic

Continental

Liberal

Southern Europe

Eastern Europe

Baltic

07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16

06

20

05

20

04

20

03

20

02

20

01

20

20

20

00

0.0 Year

Note:  For Bulgaria, in order to be able to do the calculation, the size has been assumed to be the same from 2000 to 2005. Source:  Eurostat, https://ec.europa.eu/eurostat/home?, spr_exp_sum and calculations based hereupon, accessed 22 December 2018.

Figure 5.1  Social protection as a percentage of GDP, 2000–2016 strong increases as percentages of GDP in Greece, Italy, Portugal and Spain. In these countries, this is highly influenced by the change in GDP after the crisis and a very late increase in economic growth. The data also point to the fact that if starting to analyse the development in spending from 2009 (or for some regimes 2013) onwards, it looks like retrenchment, but the picture is not the same if looking over a longer time span. As indicated above, one problem might be that these data are influenced by the development in GDP and a change in demography. In order to depict whether there is also change in real terms taking the size of the population into consideration, Table 5.2 presents the development for selected years since 2000 for the EU27 countries in constant 2010 prices per inhabitants. Table 5.2 is a clear indication of the variation of development in welfare state spending if taking the different time periods into

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consideration. Since 2000 there has been a huge difference from a 20 per cent increase in Italy to a 212 per cent increase in Romania, but in all countries more money was available for social protection in 2016 than in the year 2000. However, the development since the financial crisis paints a more varied picture. Here there has been retrenchment in some countries, such as −13.8 per cent in Greece, as well as reductions in Spain, Portugal and Italy. This is also reflected in several articles on retrenchment in Southern Europe (Matsaganis and Leventi 2014; Petmesidou, Pavolini and Guillén 2014; Petmesidou and Guillén 2014; Zartaloudis 2014). Thus, if looking into the time after the financial crisis, several countries (eight in total) have witnessed a decline in the available resources for welfare state activities – this mainly being in the Southern European and Liberal welfare states. There was an increase in 19 countries in the Nordic, Continental, Baltic and Eastern welfare states (with Hungary as the exception). However, the data also show the growth since 2010 being remarkably lower than from 2000 to 2010 (where there were real increases in all countries), so in this way the lower level of growth in spending might be a reason why it has been felt as austerity. Given that there has been varied development dependent on the specific area in question (looked into in more detail in later chapters), this also indicates that there were welfare areas with retrenchment, combined with expansion in other areas. Still, the data indicates that since the millennium there has not been austerity at the overall level, so we are not living in a time of permanent austerity. Since the financial crisis, there has been austerity in part of Europe, showing that the choice of time frame for the analysis might cause a variation in the viewpoints on whether or not there has been retrenchment in the welfare states. However, it is generally thought (as also argued) that the financial crisis as legitimizing welfare states being financially unsustainable should cause “the end of welfare given the post-industrial economy and the squeeze on the public finance have been proved wrong” (Diamond and Lodge 2014, 46). Due to fixed and variable costs, a change in the demographic composition might, however, still mean that not all can receive the same welfare as earlier.

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2000

7.976 570 2.062 11.525 8.441 987 5.104 3.208 4.092 8.301 6.463 2.693 795 834 12.519 1.567 2.248 8.540

GEO/TIME

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands

8.963 570 2.557 12.902 8.575 1.333 6.898 4.325 4.802 9.226 7.103 3.854 982 1.106 15.735 2.152 2.546 9.381

2005 9.849 879 2.998 14.220 9.433 1.945 9.139 5.265 5.716 10.212 7.810 4.368 1.549 1.731 17.871 2.226 3.079 11.286

2010 9.939 966 2.959 14.418 9.731 1.889 8.416 4.381 5.360 10.652 7.533 4.612 1.496 1.690 18.367 2.097 3.210 11.568

2013 10.173 1.105 3.145 14.481 10.467 2.325 8.478 4.536 5.527 11.042 7.757 4.148 1.710 1.897 18.362 2.213 3.417 11.577

2016 27.5% 93.8% 52.5% 25.7% 24.0% 135.6% 66.1% 41.4% 35.0% 33.0% 20.0% 54.0% 115.1% 127.5% 46.7% 41.2% 52.0% 35.6%

Change 2000‒2016 3.3% 25.6% 4.9% 1.8% 11.0% 19.5% −7.2% −13.8% −3.3% 8.1% −0.7% −5.0% 10.3% 9.6% 2.7% −0.6% 11.0% 2.6%

Change 2010‒2016

23.5% 54.3% 45.4% 23.4% 11.7% 97.1% 79.0% 64.1% 39.7% 23.0% 20.8% 62.2% 95.0% 107.5% 42.7% 42.0% 37.0% 32.2%

Change 2000‒2010

Table 5.2 Spending on social protection in euros per inhabitant (at constant 2010 prices) and percentages changes – split into different time periods

61

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8.926 1.265 3.346 369 3.396 1.648 7.920 9.848 6.223

9.455 1.499 3.919 602 3.845 1.732 9.010 11.060 7.543

10.479 1.874 4.386 1.084 4.322 2.286 10.223 11.336 8.496

10.534 1.944 4.389 1.009 4.167 2.306 10.644 11.896 8.474

10.858 2.317 4.321 1.152 4.380 2.526 11.264 12.509 8.280

21.6% 83.3% 29.2% 212.0% 29.0% 53.3% 42.2% 27.0% 33.1%

3.6% 23.6% −1.5% 6.3% 1.3% 10.5% 10.2% 10.3% −2.5%

17.4% 48.2% 31.1% 193.5% 27.3% 38.7% 29.1% 15.1% 36.5%

Source:  ESSPROS, downloaded from Eurostat, https://ec.europa.eu/eurostat/home?, 22 December 2018 and own calculations based hereupon.

Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

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5.4  SOME CONCLUDING REMARKS Taking a longer time perspective of welfare states development on a macro-level shows that there is no indication of retrenchment and austerity, thus indicating that the hypothesis of permanent austerity cannot be confirmed within the European development. However, looking into the development since 2010 shows the picture is more blurred, with retrenchment in certain welfare states, although there are increases in others when taking the change in overall numbers of inhabitants and changes in price levels into consideration. This does not inform about whether there have been dramatic changes in other or more specific parts of the welfare states. So, the last two chapters have shown that more money is available for the public sectors and also that in all EU countries since the millennium more money (in real terms) has been available for the core of the welfare states development. This still does not mean that partial retrenchment might not have been the case. This is returned to the in next chapters.

NOTES 1. For a presentation, see: https://ec.europa.eu/eurostat/web/social-protection/meth​ odology, accessed 20 December 2018. 2. Here from https://ec.europa.eu/eurostat/web/social-protection/overview/core-sys​ tems, accessed 22 December 2018. 3. The database does not inform on EU27 for any year, despite detailed data being available for each country for each year. This choice for the overview table has therefore been to show the development since 2008. However, when looking into regimes, EU27 countries are used and split into welfare regimes as this makes it possible to refer back to the tax data in Chapter 4. 4. Data in this section from Eurostat, accessed 4 February 2019.

REFERENCES Adema, W., P. Fron and M. Ladaique. 2011. “Is the European Welfare State Really More Expensive?: Indicators on Social Spending, 1980‒2012; and a Manual to the OECD Social Expenditure Database (SOCX).” Paris: OECD. Bengtsson, M., C. de la Porte and K. Jacobsson. 2017. “Labour Market Policy under Conditions of Permanent Austerity: Any Sign of Social Investment?” Social Policy & Administration 51 (2): 367–388. https://doi. org/10.1111/spol.12292.

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Chung, H. 2017. “National-Level Family Policies and Workers’ Access to Schedule Control in a European Comparative Perspective: Crowding Out or In, and for Whom?” Journal of Comparative Policy Analysis: Research and Practice 21 (1): 25‒46. https://doi.org/10.1080/13876988.2017.1353745. Diamond, P. and G. Lodge. 2014. “Dynamic Social Security after the Crisis: Towards a New Welfare State?” International Social Security Review 67 (3–4): 37–59. https://doi.org/10.1111/issr.12047. Farnsworth, K. 2019. “Occupational Welfare.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 34–45. Farnsworth, K. and Z. Irving. 2015. Social Policy in Times of Austerity: Global Economic Crisis and the New Politics of Welfare. Bristol: Policy Press. Greve, B. 2016. Long-Term Care for the Elderly in Europe: Development and Prospects. London: Routledge. https://doi.org/10.4324/9781315592947. Greve, B. 2018. “At the Heart of the Nordic Occupational Welfare Model: Occupational Welfare Trajectories in Sweden and Denmark.” Social Policy and Administration 52 (2): 508‒518. https://doi.org/10.1111/spol.12380. Hacker, J. S. 2004. “Privatizing Risk without Privatizing the Welfare State: The Hidden Politics of Social Policy Retrenchment in the United States.” American Political Science Review 98 (2): 243‒260. https://doi.org/10.1017/ S0003055404001121. Hick, R. 2014. “From Celtic Tiger to Crisis: Progress, Problems and Prospects for Social Security in Ireland.” Social Policy and Administration 48 (4): 394–412. https://doi.org/10.1111/spol.12067. Jahn, D. 2018. “Distribution Regimes and Redistribution Effects during Retrenchment and Crisis: A Cui Bono Analysis of Unemployment Replacement Rates of Various Income Categories in 31 Welfare States.” Journal of European Social Policy 28 (5): 433–451. Judd, D., J. Boeck and A. Madsen. 2015. “Chicken or Egg? Global Economic Crisis or Ideological Retrenchment from Welfare in Three European Countries.” Critical and Radical Social Work 3 (3): 339–355. https://doi. org/10.1332/204986015X14392797857418. Matsaganis, M. and C. Leventi. 2014. “The Distributional Impact of Austerity and the Recession in Southern Europe.” South European Society & Politics 19 (3): 393–412. OECD. 2018. Employment Outlook, 2018. Paris: OECD. Petmesidou, M. and A. M. Guillén. 2014. “Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery.” South European Society & Politics 19 (3): 295–307. Petmesidou, M., E. Pavolini and A. M. Guillén. 2014. “South European Healthcare Systems under Harsh Austerity: A Progress–Regression Mix?” South European Society and Politics 19 (3): 331–352. https://doi.org/10.10 80/13608746.2014.949994. Sinfield, A. 2019. “Fiscal Welfare.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 23–33. Zartaloudis, S. 2014. “The Impact of the Fiscal Crisis on Greek and Portuguese Welfare States: Retrenchment before the Catch-Up?” Social Policy and Administration 48 (4): 430–449. https://doi.org/10.1111/spol.12069.

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6.  Has there been austerity within the pension system? 6.1 INTRODUCTION How to cope with the so-called ageing of societies due to the ongoing demographic transition in most welfare states as a consequence of fewer new-born babies has been discussed for a long time. The change in the composition of the population has thus pointed towards more people in old age. This has implications for the welfare states, given that a large part of the spending has been related to income transfers within the pension system. It also has an impact on the spending in relation to long-term care and health care. These issues are returned to in later chapters. In this chapter, the focus is on whether or not we have witnessed change in the pension system that can be considered retrenchment and austerity. Given that change in the pension system, especially when moving from a Pay-As-You-Go (PAYG) to a funded system takes time, the time horizon in this chapter is longer than in the previous chapters. The focus is not only on the size of the pension, but also on the criteria for receiving a pension (age, contributions, means-testing), and in combination herewith the possible impact on the replacement rate, as this can be an indicator of austerity, even by a gradual relative diminishing of the value of pensions, such as by using a lower indexation rate. It might also be a question of whether the elderly can keep pace with the general increase in standards of living in societies. Change in the poverty rate among the elderly could be another indicator. This is also a reason for looking into public pensions as the spending on pensions has a clear connection to the number of elderly living in poverty (Jacques, Leroux and Stevanovic 2018). Categories of changes to look into could, in line with Pierson (Pierson 2001), be cost-containment, re-commodification and recalibration. Cost-containment is the analysis of spending, 64

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r­e-commodification is related to whether there has been increased use of the market, and recalibration is new ways to achieve, in this case, the historical aim of securing income for the older people in society. The indicator used here for re-commodification is the replacement rate, as a lower replacement rate indicates an increase in the need for having more market-based pensions or other private saving, and this is also used as an indicator of the development in relation to recalibration. The chapter is organized so that the next section gives a short overview of pension reforms, section 6.3 then looks into the overall welfare state direct spending on pensions as an indication of whether we have witnessed targeted retrenchment within the area of pensions. Section 6.4 broadens the picture by discussing changes in the criteria for pension and replacement rates, before section 6.5 sums up the chapter.

6.2  PENSION REFORMS Pension reforms have been on the agenda for many years now, for an early overview see Bonoli and Shinkawa (Bonoli and Shinkawa 2005), who also argue that the pension reforms underway are due to demographic change, but are also influenced by the institutional structure of various countries’ pension systems. Some would argue that pensions cannot be analysed alone by looking into state pensions, as market-based pension supplements have been central from the beginning (Reynaud et al. 1996). However, historically, pensions was one of the first social security areas to be covered in most welfare states as this was seen as important in the wake of industrialization and the movement from living in the countryside to living in cities, where the option of shelter and food in old age was often not available. Later on, pensions gradually became what today is labelled a three tier pension system, with the state being the first, occupational the second and individual pensions the third (see, on design, Hinrichs 2019). They can also be considered redistributive, earnings-related or private schemes (OECD 2005). Especially, the first state-funded pillar has been argued to have high financial pressure, due to the demographic changes. This has then opened the way for discussion and changes, including later retirement, changing the rules on indexation and the eligibility criteria for receiving a pension.

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In an overview of reforms in pension policy since 2007 (and until 2013), it has been argued that there has been retrenchment in European countries with regard to the pension age in all countries. Further, that in most countries the level of benefits and access to early retirement systems has been weakened, even arguing in a book covering all European countries that “all country chapters mention that risk prevention has been retrenched in one way or another” (Schubert, Villota and Kuhlman 2013, 776). This also includes changes towards a stronger influence of occupational pensions, which has increased since the mid-1990s (Greve 2007). Discussion on pension reforms is often depicted as retrenchment without further specific data to support this. See, for a description of Romania and Bulgaria, Adascalitei (Adascalitei 2017), who argues for retrenchment despite data (see appendix) which indicates that in both countries there has been a real increase in the level of pensions. Even within welfare regimes the development can be diverse (Pierson et al. 2016). The authors argue that there has been an increase in the net-replacement pension rate in Australia, but not in the UK and New Zealand. For the UK this is presumably due to the fact that income has developed faster than for pensioners, as there has been an increase in spending on pensions (see also later). Another article, however, shows expansion in the UK (Jensen et al. 2018), although this not based on spending, but coding legislative change. The same article concluded expansion in Denmark, but this is not what data referred to below shows has been the case. Another contradiction is that “almost everywhere mandated pension regimes grant the low waged relatively high replacement rates” (Meyer 2017, 345). Meyer further argues that what we have seen is more a calibration than, in fact, austerity, so that even if insiders in the labour market are still well protected, outsiders seem not to lose as much as was once expected to be the case. However, it is also still the case that the future net replacement rate will be higher for low-income earners (defined as 50 per cent of an average production worker’s wage) than for the average wage earner (OECD 2007). Therefore, despite reforms, there still seems to be a redistribution towards those with low income, and given the possible change in the labour market, those on the margins will still have some coverage in many countries. However, the fact is also that “recent reforms will lower replacement rates in many countries due to measures aimed at improving pension finances” (OECD 2017, 16).

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On this understanding, despite this being an area with often relatively large voter support, the data on the replacement rate and its development within the pension system do not support the fact that it has been left untouched, where the option of a gradual reduction over time, for example, by ‘decay’, seems a more likely explanation (Saxonberg and Sirovátka 2009). The use of invisible policy instruments such as a change in indexation rules has been the case in at least four European countries (Britain, Denmark, Finland and Germany) from 1974 to 2014. It is even so that visible policy instruments, primarily nominal benefits, were much more likely to be used for expansionary purposes than for retrenchment (Jensen et al. 2018). The time frame used for analysis of change might also give rise to diversity. For example, an article with data until 2011 argued for cut-backs in 11 EU countries also within the pension area (Hermann 2017). The Nordic and Continental welfare states were not included in the article, and it did not include spending data, only structural changes, and concluded thereby (as argued later), that the possible impact of reform on spending might still be there in the future. Part of the reason for this (as depicted later in the chapter) might be that: “The financial crisis appears to have reinforced the ‘traditional’ welfare state consensus based on higher pension payments and prioritizing public expenditure on health care” (Diamond and Lodge 2014, 40). Changes in the pension system have been ongoing for a number of years. They have included higher retirement ages, higher contribution rates, changed indexation, care-giver credits, higher minimum protection and new or extended private pension schemes. This has been done in many countries, although less so in Beveridgean basic pension systems. A central goal is to shift away from defined benefit to defined contribution (Hinrichs 2019). It has even been argued that there has been significant retrenchment in pensions in liberal welfare states, but this is mainly during the first period from the 1980s and onwards, and has partly been reversed since the mid-1990s (Bridgen 2019). In recent years, fewer changes and reforms in pensions have taken place (OECD 2017). The development does not indicate that there has been increase in poverty, so that in this sense austerity has not been the main driver of the development. It is even the case that “in all countries,1 elderly incomes seem therefore to have benefitted positively in real terms, despite austerity measures has slowed down benefit increases in some countries” (Ebbinghaus,

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Nelson and Nieuwenhuis 2020). Thus, overall it is difficult from the existing analysis to find support for the fact that, despite discussion and changes in the pension systems, retrenchment has been the case. To follow up on the above elements the next section looks into indicators that should be able to cast light on the development. There are several aspects one can use in order to analyse progress or the opposite, including possible cost-containment and recalibration. In section 6.3 the focus is on cost-containment, whereas section 6.4 focuses on recalibration by looking into changes in the replacement rate.

6.3 SPENDING ON PENSIONS IN WELFARE STATES Spending on pensions depends on a number of factors including the number who have reached the age of retirement (as defined in individual countries), the level of benefits and other related criteria in order to receive a pension. These can include other income, wealth, number of years on the labour market and so on. Thereby, a change in welfare state spending on pensions does not necessarily by itself inform about the reason for the change. In this section, this is not the main issue to delve into, although these issues should also be kept in mind when looking at the following sections. The data do not include any impact of fiscal welfare and how they support different pension systems as there is no data available for this over a long time period. In addition, there is disagreement about whether tax relief for pension saving is fiscal welfare. This depends on whether the tax forgone (due to a tax deduction) when doing the saving is paid back when the pension is paid out at a later time and the pension income then is taxed. If the marginal tax rate is the same, this would be the case. Appendix 6.1 shows calculations for all member states, displaying the spending in euros per beneficiary, as a way to ensure that change in spending is not influenced by change in the number of recipients. This is not a perfect measure as it is counted in numbers (e.g. not full-time equivalent) and also includes people on a disability pension. Still, given that these are presumably more or less the same over time, it seems reasonable to use this as a way of depicting change in overall effort within the pension area. Based on these data, since 2006, there has been austerity in such diverse countries as Denmark and Cyprus,

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while at the same time a strong increase has occurred in Romania, Bulgaria and Latvia. The picture is thus not uniform and clear across countries, and therefore to argue for a time of permanent austerity does not reflect what has happened in the area of old age pensions. Looking into a longer-term perspective, although based on all citizens, the picture emerging (see Appendix 6.2) is also that overall one cannot witness any austerity across Europe. With the exception of Italy from 2010 to 2016 there has been increase in spending in all countries. The development across welfare regimes is shown in Figure 6.1, which depicts how the development has been since 2006 in spending per recipient in 2010 prices. The figure is a clear indication that pension is not an area where, when looking at spending in fixed prices, there has been overall retrenchment since the year 2006. In all regimes and countries within these regimes (except Denmark and Cyprus), the average level is higher in 2016 than it was in 2006. In the liberal welfare states, if using the 2010–2016 time period, there has been a slight reduction, which is also the case in the individual countries of Greece and the Netherlands. The growth has been higher in the early period since 2000, see data for all countries in Appendix 6.2, thus indicating that whether or not one is able to come to a conclusion related to austerity depends on the time frame one is using. In Denmark, the rules on supplementary pensions (decided in 1993) and maturation of occupational-based pensions have caused a reduction in public expenditures to old-age pensions. Within this field, there is data, as used above, indicating that the changes are not just a consequence of more people getting a lower average amount of money. However, given that the enactment of pension reforms takes time, it might be that part of the reason for only being able to see a lower growth rate and not retrenchment is due to the fact that changes have not yet been fully implemented. This is, at least partly, reflected in the next section when looking into replacement rates.

6.4  REPLACEMENT RATES DEVELOPMENT Transformation in a pension system can be related to several and varied types of changes, such as increases in retirement age, reductions in payments generally or related to means-testing, more

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Austerity, retrenchment and the welfare state 25,000

20,000

EURO

15,000

10,000

5,000

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Year Nordic Southern Europe

Continental Eastern Europe

Liberal Baltic

Note:  In order to calculate the average for the regimes, if data have not been made available for the first or last year for a country in the regime, the closest year for that country has been used for the calculation. Source:  Eurostat, https://ec.europa.eu/eurostat/home?, and own calculations based hereupon.

Figure 6.1 Development in spending on pensions per inhabitant in 2010 prices, 2006–2016 working years to receive a full state pension, automatic adjustment to life expectancy and changes in indexation. Some of these might be implemented quickly, such as, for example, a freeze in the level of pensions, whereas a change in the retirement age in the future due to expected changes in longevity might take more time. Further, a gradual movement away from mainly a PAYG to a funded system can mean that the reduction in public sector spending might take years before being fully implemented. As argued, a longer time frame is important when analysing:

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“replacement rates also show long periods of decline in all (liberal welfare states) but Canada and the United Kingdom” (Bridgen 2019, 18). The focus here is on how changes have had an impact, and mainly their possible influence on the replacement rate from 2006 to 2016. Table 6.1 shows fluctuations in future replacement rates from 2006 to 2016 split into 2006–2012, 2012–2016 and 2006–2016 within EU member states, for those where there are available data. The table looks at both the gross replacement rate and the net replacement rate as this means that changes in pensions as such (combined with development in wages on the labour market) and the impact of the income tax system are included in the calculations. Table 6.1 is an indicator that there seemingly have been changes in rules in relation to pensions since 2006, which have caused a future lower level of replacement rates, especially in countries such as Greece, Hungary, Cyprus, Italy, Romania, Denmark and Slovenia, while at the same time there have been increases in countries such as the Czech Republic, Estonia, Ireland, Slovakia, the UK and Malta. The long-term changes are rather dramatic in several of the countries, causing a relatively lower standard of living for future pensioners when they retire compared to the standard of living for pensioners today. However, if the decline is due to higher real wage increases in the labour market than in pensions, then the buying power in fixed prices might not be reduced, but instead the decline is due to increased inequality, in the sense that the elderly do not get the same real increase as those in the labour market. Still, in this way the reforms in these countries can be characterized as long-term retrenchment change, which cannot be found by looking at data of changing in spending in recent years. While at the same time increases for the average production worker having a stable career have improved in some countries, it seems that in most countries pensioners have similar development as on the labour market. The later retirement age has been one central parameter of change in many countries, but also the calculation of benefit and indexation can be seen as explanations for the changes. One reason might be that hidden changes are easier to implement, as the impact will first be witnessed in an often very unclear future. Whether this de facto causes a lower standard of living for the elderly in the future depends on whether funded pension systems (non-mandatory) outside the public sector have increased. The data for the liberal welfare states thus confirm the

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Austria Belgium Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Luxembourg Netherlands

−3.5 −1.0 1.6 −1.8 4.9 −1.5 5.5 −1.0 −41.8 −3.2 2.5 3.2 −31.7 2.4

GRR

−0.1 −1.6 −0.3 −13.9 3.1 0.4 5.8 −4.2 −40.3 −10.3 4.7 6.6 −27.1 −2.1

NRR

Male −3.5 −1.0 1.6 −1.8 4.9 −1.5 5.5 −1.0 −41.8 −3.2 2.5 18.4 −31.7 2.4

−0.1 −1.6 −0.3 −13.9 3.1 0.4 5.8 −4.2 −40.3 −10.3 4.7 23.3 −27.1 −2.1

NRR

Female GRR

2006‒2012

1.8 5.7 17.7 −32.7 34.2 −5.1 −2.2 18.5 −15.7 −19.9 22.0 −37.1 26.7 −14.0

GRR 1.6 4.0 25.1 −17.4 17.8 −5.4 −6.4 17.4 −20.0 −41.5 44.8 −39.2 23.8 −12.7

NRR

Male 1.8 5.7 16.6 −32.7 34.2 −5.1 −2.2 18.5 −15.7 −19.9 22.0 −37.1 26.7 −14.0

1.6 4.0 23.7 −17.4 17.8 −5.4 −6.4 17.4 −20.0 −41.5 44.8 −39.2 23.8 −12.7

NRR

Female GRR

2012‒2016

−1.7 4.7 19.3 −34.5 39.1 −6.5 3.3 17.5 −57.5 −23.2 24.5 −33.8 −5.0 −11.6

GRR

1.5 2.4 24.8 −31.3 20.9 −5.0 −0.7 13.2 −60.3 −51.8 49.5 −32.5 −3.3 −14.8

NRR

Male

−1.7 4.7 18.2 −34.5 39.1 −6.5 3.3 17.5 −57.5 −23.2 24.5 −18.7 −5.0 −11.6

1.5 2.4 23.4 −31.3 20.9 −5.0 −0.7 13.2 −60.3 −51.8 49.5 −15.8 −3.3 −14.8

NRR

Female GRR

2006‒2016

Table 6.1 Development in future gross replacement rate (GRR) and net replacement rates (NRR) since 2006 for EU member countries

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−12.5 0.8 9.5 −20.0 −7.3 −6.0 1.8 18.5 0.2 8.5 −44.9

−15.3 −1.8 12.7 −23.8 −4.6 −8.8 0.9 29.8 5.1 10.9 −58.0

4.2 0.8 9.5 −18.0 −7.3 −6.0 1.8 18.9 0.2 8.5 −40.8

4.4 −1.8 12.7 −20.8 −4.6 −8.8 0.9 28.7 5.1 10.9 −53.0

48.1 −23.1 8.1 −5.8 −9.6 −17.5 39.7 −28.5 −43.2 12.1 22.6

41.1 −29.2 9.5 −11.7 3.7 1.4 40.0 −52.7 −45.5 18.5 28.2

48.1 −26.8 8.1 −9.5 −9.6 −15.5 39.7 −22.4 −43.2 11.0 24.1

41.1 −33.7 9.5 −17.0 3.7 3.9 40.0 −44.9 −45.5 17.1 30.3

35.7 −22.3 17.6 −25.8 −16.9 −23.4 41.5 −10.0 −43.0 20.6 −22.3

25.7 −31.0 22.2 −35.5 −0.9 −7.4 40.9 −22.9 −40.5 29.4 −29.8

52.4 −26.0 17.6 −27.5 −16.9 −21.4 41.5 −3.5 −43.0 19.5 −16.6

45.4 −35.5 22.2 −37.8 −0.9 −4.9 40.9 −16.2 −40.5 28.0 −22.7

Source:  OECD, www.oecd.org, extracted 19 January, 2019 for those EU countries where there is data in the OECD database and for 2016 OECD, gross pension replacement rates (indicator). doi: 10.1787/3d1afeb1-en (accessed 23 January 2019) and calculations based hereupon.

Note:  Data are for a single person entering the labour market at the age of 20 at the wage of the average production worker and retiring at the retirement age in the individual country. The gross replacement rate shows the level of pensions in retirement relative to earnings when working. The net replacement rate takes into consideration the impact of the tax system and social security contribution (both when in the job and when retired).

Poland Portugal Slovak Republic Slovenia Spain Sweden United Kingdom Bulgaria Cyprus Malta Romania

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picture (see, for example, Bridgen 2019). Furthermore, when looking into data for the development in replacement rates since 2005 from Eurostat, as shown in Table 6.2, the picture painted is again different. Table 6.2, although having a different definition of the replacement rate than in the previous table, does not show, on the overall level, any sign of austerity. The situation for pensioners has in fact improved over time in most countries, although in some countries a decline since 2010 can be witnessed. At the same time, the table shows that the income of pensioners has been able to follow changes in income on the labour market over the last 10 years. In this way they have, depending on the change in real wages, had both a real increase in living standards and their part of the growth in societal welfare, in contrast to the expectation of what will happen in the future as indicated in Table 6.1.

6.5  SUMMING UP So far, on the aggregate level across European countries, there is no indication of any sign of austerity or retrenchment in relation to pensions since the millennium. There might be, in the future, as depicted in Table 6.1, but whether this causes lower standards of living is an open question depending on the possible crowding-in of non-mandatory based pensions and real wage change. Still, this will presumably mean a higher degree of inequality, which is returned to later in the book. Possibly, this can reflect the fact that policies related to the elderly have a high level of support (for an overview of the debates hereabout, see Greve 2019). It points further to the fact that pension might be an area where changes have been decided with a long-implementation time, in order to avoid having the blame for dramatic direct changes in the standard of living of a strong and rising number of voters. Still, despite long-time discussion on pension reforms, including later retirement, and the movement from a PAYG to a funded pension system, there does not seem to be any sign of retrenchment of the role of the welfare states overall, but only in a few countries, and in specific time periods. Change in pension systems and levels of pensions do not fully inform on the quality of life and standard of living, as these are also influenced by services, such as health and long-term care, both of which are returned to later in the book.

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Table 6.2 Aggregate replacement rate in selected years since 2005 in EU countries GEO/TIME

2005

2008

2010

2016

2017

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

0.42 : 0.51 0.35 0.46 0.47 0.46 0.49 0.57 0.57 : 0.58 0.29 0.61 0.47 0.63 0.61 0.47 0.43 0.69 0.58 0.60 : 0.42 0.55 0.46 0.60 0.42

0.45 0.34 0.51 0.41 0.44 0.45 0.49 0.41 0.42 0.65 : 0.51 0.33 0.30 0.43 0.58 0.61 0.41 0.43 0.61 0.56 0.51 0.50 0.44 0.54 0.49 0.61 0.43

0.46 0.43 0.54 0.44 0.49 0.55 0.47 0.42 0.47 0.65 0.32 0.53 0.37 0.47 0.58 0.68 0.60 0.44 0.47 0.57 0.57 0.53 0.64 0.45 0.61 0.50 0.59 0.48

0.48 0.45 0.50 0.47 0.46 0.45 0.35 0.64 0.66 0.68 0.39 0.69 0.44 0.42 0.45 0.88 0.67 0.54 0.50 0.62 0.62 0.64 0.66 0.47 0.62 0.53 0.57 0.53

0.50 0.37 0.51 0.48 0.46 0.45 : 0.62 0.69 0.68 0.41 0.71 0.43 0.43 0.43 0.86 0.64 0.56 0.52 0.64 0.62 0.67 0.61 0.46 0.62 0.53 0.57 0.54

Note:  The rate is defined as: Ratio of income from pensions of persons aged between 65 and 74 years and income from work of persons aged between 50 and 59 years. It is thus a different way of calculating changes than in Table 6.1. Source:  Eurostat https://ec.europa.eu/eurostat/home? (ilc_pnp3), extracted 17 January 2019.

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NOTE 1. Nineteen OECD countries.

REFERENCES Adascalitei, D. 2017. “From Austerity to Austerity: The Political Economy of Public Pension Reforms in Romania and Bulgaria.” Social Policy and Administration 51 (3): 464‒487. https://doi.org/10.1111/spol.12173. Bonoli, G. and T. Shinkawa. 2005. Ageing and Pension Reform Around the World – Evidence From Eleven Countries. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Bridgen, P. 2019. “The Retrenchment of Public Pension Provision in the Liberal World of Welfare during the Age of Austerity – and Its Unexpected Reversal, 1980–2017.” Social Policy and Administration 53 (1): 16–33. https://doi.org/10.1111/spol.12444. Diamond, P. and G. Lodge. 2014. “Dynamic Social Security after the Crisis: Towards a New Welfare State?” International Social Security Review 67 (3–4): 37–59. https://doi.org/10.1111/issr.12047. Ebbinghaus, B., K. Nelson and R. Nieuwenhuis. 2020. “Poverty in Old Age.” In B. Greve (ed.), The Routledge Handbook of Poverty, 1st edn. London: Routledge, forthcoming. Greve, B. 2007. Occupational Welfare. Winners and Losers. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Greve, B. 2019. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Hermann, C. 2017. “Crisis, Structural Reform and the Dismantling of the European Social Model(S).” Economic and Industrial Democracy 38 (1): 51‒68. https://doi.org/10.1177/0143831X14555708. Hinrichs, K. 2019. “Old Age and Pensions.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 418–431. Jacques, P., M-L. Leroux and D. Stevanovic. 2018. “Poverty Among the Elderly: The Role of Public Pension Systems.” Cahiers de Recherche, No. 1807. Jensen, C., C. Arndt, S. Lee and G. Wenzelburger. 2018. “Policy Instruments and Welfare State Reform.” Journal of European Social Policy 28 (2): 161–176. Meyer, T. 2017. “How European Pension Promises Changed in Austere Times: 2002–15.” In P. Kennett and N. Lendvai-Bainton (eds), Handbook of European Social Policy. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, Chapter 20, pp. 329‒351. OECD. 2005. Pensions at a Glance. Public Policies Across OECD Countries. Paris: OECD. OECD. 2007. Pensions at a Glance. Public Policies Across OECD Countries. Paris: OECD. https://doi.org/10.1161/01.ATV.0000124104.23702.a0.

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OECD. 2017. Pensions at a Glance 2017. OECD Pensions at a Glance. Paris: OECD. https://doi.org/10.1787/pension_glance-2017-en. Pierson, C. L. Humpage, P. Fisher, L. Buckner, S. Ronchi and C. Mills. 2016. “Coming Together or Drifting Apart? Income Maintenance in Australia, New Zealand, and the United Kingdom.” Politics & Policy 44 (2): 261–293. https://doi.org/10.1111/polp.12150. Pierson, P. 1994 The New Politics of the Welfare State. Oxford: Oxford University Press. Pierson, P. 2001. “Coping With Permanent Austerity Welfare State Restructuring in Affluent Democracies.” The New Politics of the Welfare State. https://doi.org/10.1109/TELSKS.2011.6143211. Reynaud, E., L. ApRoberts, B. Davies and G. Hughes (eds). 1996. International Perspectives on Supplementary Pensions. Westport: Quorum Books. Saxonberg, S. and T. Sirovátka. 2009. “Neo-Liberalism by Decay? The Evolution of the Czech Welfare State.” Social Policy and Administration 43 (2): 186‒203. https://doi.org/10.1111/j.1467-9515.2009.00655.x. Schubert, K., P. Villota and J. Kuhlman 2013. Challenges to European Welfare System. Heldelberg: Springer.

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Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta

20,234 1,122 4,528 24,873 13,285 2,902 18,171 11,992 12,911 14,800 15,827 15,631 2,097 2,308 25,062 4,140 9,267

2006

17,571 1,342 5,003 24,682 13,067 3,504 18,836 12,849 14,108 15,443 15,647 15,871 2,352 3,138 25,127 4,361 9,352

2008 19,268 1,595 5,413 23,964 13,174 3,712 22,676 12,778 15,199 15,981 16,606 16,553 3,333 2,895 25,782 4,207 9,937

2010 19,670 1,531 5,581 23,747 12,993 3,529 20,940 12,575 15,007 16,510 16,568 17,798 3,029 2,904 26,140 4,654 9,728

2012 19,871 1,772 5,508 25,119 13,252 3,673 19,642 12,052 15,365 16,752 16,974 15,836 3,116 3,099 26,324 4,714 10,020

2014 21,479 1,893 5,681 24,204 13,531 4,015 20,737 12,545 15,977 17,059 17,626 15,467 3,316 3,068 26,491 4,653 10,349

2016 −4.8% 42.2% 19.5% −3.7% −0.8% 27.9% 24.8% 6.6% 17.7% 8.0% 4.9% 5.9% 58.9% 25.5% 2.9% 1.6% 7.2%

2006–2010 11.5% 18.7% 5.0% 1.0% 2.7% 8.2% −8.6% −1.8% 5.1% 6.7% 6.1% −6.6% −0.5% 6.0% 2.8% 10.6% 4.1%

2010–2016

6.1% 68.8% 25.5% −2.7% 1.8% 38.3% 14.1% 4.6% 23.8% 15.3% 11.4% −1.0% 58.1% 32.9% 5.7% 12.4% 11.7%

% change since 2006

APPENDIX 6.1 SPENDING IN EURO TO OLD AGE PENSION PER BENEFICIARY IN CONSTANT 2010 PRICES AND CHANGE HEREIN

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19,937 19,802 4,388 8,096 1,325 6,824 3,810 15,964 20,326 15,593

20,487 20,227 4,567 8,336 2,109 6,916 4,061 16,220 21,034 15,772

21,338 20,905 4,948 8,875 2,416 7,189 4,470 16,979 21,209 16,687

Source:  ESS PROS and own calculations based hereupon.

Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UK

21,201 20,847 5,104 8,550 2,389 6,990 4,465 17,168 21,555 17,170

21,100 21,075 5,501 9,281 2,485 7,065 4,786 17,816 21,788 17,270

20,907 21,224 5,784 9,207 2,588 7,179 4,866 18,379 22,218 17,397

7.0% 5.6% 12.8% 9.6% 82.4% 5.3% 17.3% 6.4% 4.3% 7.0%

−2.0% 1.5% 16.9% 3.7% 7.1% −0.1% 8.8% 8.2% 4.8% 4.3%

4.9% 7.2% 31.8% 13.7% 95.4% 5.2% 27.7% 15.1% 9.3% 11.6%

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Belgium Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta

GEO/TIME

2.523,72 775,38 4.261,25 2.666,82 421,29 1.348,35 1.507,36 1.392,69 2.893,97 3.335,01 1.094,14 431,81 353,74 4.439,26 549,27 864,17

2000 3.032,96 1.213,87 4.878,17 2.973,62 838,88 2.336,33 2.427,42 1.889,33 3.745,08 3.716,00 1.811,27 784,07 664,52 4.814,38 877,28 1.351,04

2010 3.701,40 1.333,57 5.173,55 3.235,73 951,27 2.547,41 2.460,44 2.206,07 4.140,19 3.635,04 1.978,19 805,23 771,62 5.717,45 969,90 1.493,09

2016 20.2% 56.6% 14.5% 11.5% 99.1% 73.3% 61.0% 35.7% 29.4% 11.4% 65.5% 81.6% 87.9% 8.5% 59.7% 56.3%

Change 2000‒2010 46.7% 72.0% 21.4% 21.3% 125.8% 88.9% 63.2% 58.4% 43.1% 9.0% 80.8% 86.5% 118.1% 28.8% 76.6% 72.8%

Change 2000‒2016

22.0% 9.9% 6.1% 8.8% 13.4% 9.0% 1.4% 16.8% 10.6% −2.2% 9.2% 2.7% 16.1% 18.8% 10.6% 10.5%

2010‒2016

APPENDIX 6.2 SPENDING IN EURO PER INHABITANT IN 2010 PRICES FOR EU COUNTRIES IN SELECTED YEARS SINCE 2000

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3.007,71 3.403,30 547,20 1.122,95 149,08 1.430,53 513,41 2.445,49 3.549,49 2.697,45

3.824,65 4.326,95 869,96 1.841,61 496,47 1.670,67 831,08 3.573,99 4.569,48 3.424,76

4.245,15 4.639,00 1.052,21 2.074,61 570,16 1.804,62 986,05 4.517,03 5.170,03 3.446,49

27.2% 27.1% 59.0% 64.0% 233.0% 16.8% 61.9% 46.1% 28.7% 27.0%

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, spr_exp_sum, and own calculations.

Note:  Data from 2000 not available for Bulgaria and Croatia.

Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UK

41.1% 36.3% 92.3% 84.7% 282.5% 26.2% 92.1% 84.7% 45.7% 27.8%

11.0% 7.2% 20.9% 12.7% 14.8% 8.0% 18.6% 26.4% 13.1% 0.6%

7.  Employment policy 7.1 INTRODUCTION Employment policy has been a central policy field in many welfare states for several years. This has been stronger in the Nordic than in the liberal welfare states, partly for historical reasons, partly ideologic­ally driven based upon viewpoints on how and whether to intervene in the market. Despite this the labour market in all welfare states is a central institution to distribute income and consumption options, as well as influencing people’s positions in societies, including ensuring buying power for those unemployed. Therefore, the focus in this chapter is on possible change, and in which direction the labour market policies have moved. Since the financial crisis, there have been changes reducing labour market protection on the labour market, for example, in Southern Europe (Petmesidou and Guillén 2014). Labour’s share of the economy has also declined (OECD 2018), as there has been a decoupling of productivity from wage increases, and also the reallocation of market shares to companies employing fewer people, such as platforms companies. One of the explanations for the ‘feeling’ of austerity might be that there are a variety of options and possibilities for people with different skills in the labour market. High-skilled labour has been less affected, and thereby there is an increased risk in a movement towards more diverse and split societies. It has been argued for Europe (2007–2013) that there has been a reduction in benefits, employment rights and public employment (Schubert, Villota and Kuhlman 2013). One can distinguish between active and passive labour market policy, where the passive is the benefit available to those who are unemployed. Given that having an income can be important not only in relation to living in poverty, but also that the size of the benefits influence the overall demand in societies, unemployment benefit conditions and levels thus have important societal consequences. 82

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83

This is therefore the focus in section 7.2, including whether there has been change in conditions and especially replacement rates, as this is seen as an indicator of whether or not there has been retrenchment within this field. Spending levels might not per se give any indication of whether there has been austerity, as changes within the labour market due to the business cycle might be without strong long-term changes in spending (Dinan 2019). Section 7.3 looks into conditions attached to, and changes in, the active labour market policy, including whether there is any sign of a movement towards an active labour market policy where sanctions and a work-first approach are at the core, compared to a focus on upskilling and social capital development. The active labour market policy might also help in alleviating the consequences of change in the economic business cycle, which is also looked into. Given that the measurement of change in quality and the impact of the active labour market policy is difficult, and this has not had a strong focus in all welfare states, this section builds to a larger degree on the existing analysis of changes than section 7.2. Lastly, section 7.4 sums up and discusses how the overall situation can be characterized. The focus is on the impact of the welfare state and, thereby, the impact of more flexible working conditions. However, the platforms economy is outside the scope of the analysis (but see Acemoglu and Restrepo 2017; Greve 2017). This, despite the fact that the willingness or attempts of welfare states to help in reducing social dumping, social security and so on could have an impact on people’s standards of living. This, further, as employment status, including what is labelled bogus self-employment, has an impact hereupon,1 and also has a risk that a deterioration of working conditions might influence workers’ perception of austerity, including that access to unemployment benefit in most welfare states is not possible for the self-employed. Part of what cannot be depicted by the data in this chapter is the possible change in the collective bargaining system; however, this is not ­connected to change in public finances (Hermann 2017).

7.2 UNEMPLOYMENT BENEFIT – BETTER OR WORSE The reason for looking into replacement rates as an indicator of retrenchment is that the overall level of spending within this field

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would be strongly influenced by the economic business cycle, meaning that spending, even if measured in fixed prices and related to the number of inhabitants, could hide important changes within the system. Therefore, data on what individuals receive in case of unemployment is an important indicator of how the development has been. Unemployment benefit has also historically been a core welfare benefit to help people in times of low levels of demand for labour and high levels of unemployment. Historically, there have been growing replacement rates since 1950, with a peak in the mid-1970s or late 1980s in several countries (Ervik, Kildal and Nilssen 2015). It has been argued that retrenchment in relation to these benefits took place before the financial crisis, although not hitting low income earners, still with stark variations among countries, and continued after the crisis when it affected low income earners more (Jahn 2018). Overall, besides the changes in unemployment benefits and in relation to social assistance, there has not been any “large retrenchment, reforms or benefit cuts with respect to minimum income benefits” (Wang and Van Vliet 2016, 351) within OECD countries, although the study refers to the period from 1990 to 2009, and thus does not include the development after the financial crisis. Looking into the eligibility criteria for unemployment benefit, only to a limited extent does there seem to have been strong changes from 2011 to 2014, with the UK as a possible exception, where the conditions seem to have been tightened (Langenbucher 2015). This can, naturally, reflect the fact that in times of growing unemployment and with many influenced by spells of unemployment, reducing the level of benefit might be politically difficult. The unemployed, whether relying on unemployment benefit or social assistance, are one group where perhaps the support for a high level of benefit is not so strong, as some unemployed are not seen as actively searching for a job and therefore are undeserving. The focus here is first on the development in the replacement rate. Figure 7.1 shows the development in the replacement rate for a single person unemployed for six months. Housing allowance is not included in the calculation. The person has the average wage in the country. The figure indicates that over a long time period the situation has been rather stable on average in the different welfare regimes, with the highest in the Continental countries followed by the Baltic countries. The Nordic welfare state does not top the list, compared

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50 40 30 20 10

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11

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Continental

Liberal

Eastern Europe

Baltic

Southern Europe

Note:  For a few countries full data were not available – they have been added using the values in the years closest to the missing ones. Given the slow changes in many countries, this is not a problem. Source:  Own calculations based upon OECD replacement rates, accessed 24 January 2019.

Figure 7.1  Replacement rate unemployment, 2001–2018 to the otherwise strong historical focus on labour market policies. During the time in most countries there have been relatively small changes. However, there has been retrenchment (although from very different levels) in Sweden, Hungary and the Czech Republic, while there has been expansion in Bulgaria, Italy and Lithuania. Thus, the overall picture is very blurred, with no indication that the often perceived negative stance towards the unemployed has caused, in most countries – even in the wake of the financial crisis – a reduction in benefits. Another way of looking into changes in societies’ prioritization of unemployment benefits (inspired by Otto 2018) is to calculate the ratio between spending as a proportion of GDP and the ­unemployment rate. This is done in Table 7.1. A high value in Table 7.1 is an indication of a higher level of spending. Looked upon in this way, there has been a reduction, especially

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Table 7.1 Spending as a percentage of GDP on unemployment cash benefit per percentage unemployed in selected years since 2000 in EU countries GEO/TIME

2000

2005

2010

2013

2016

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

0.41 0.07 0.65 0.24 0.01 0.24 0.05 0.14 0.22

0.39 0.02 0.08 0.50 0.18 0.01 0.24 0.06 0.20 0.21

0.04 0.21 0.04 0.01 0.18 0.11 0.06 0.38 0.26 0.06 0.14 0.13 0.13 0.04 0.23 0.30 0.11

0.06 0.19 0.04 0.04 0.22 0.07 0.07 0.25 0.21 0.03 0.15 0.06 0.09 0.03 0.25 0.19 0.10

0.43 0.05 0.11 0.21 0.23 0.04 0.24 0.12 0.15 0.20 0.04 0.18 0.16 0.06 0.04 0.26 0.07 0.06 0.24 0.25 0.04 0.12 0.09 0.08 0.07 0.25 0.12 0.06

0.39 0.04 0.09 0.20 0.21 0.03 0.21 0.05 0.12 0.18 0.03 0.15 0.13 0.04 0.03 0.25 0.05 0.07 0.22 0.22 0.03 0.11 0.03 0.08 0.04 0.24 0.11 0.07

0.32 0.07 0.13 0.18 0.22 0.06 0.18 0.04 0.09 0.19 0.03 0.15 0.08 0.06 0.05 0.21 0.06 0.09 0.22 0.22 0.03 0.08 0.02 0.06 0.05 0.26 0.10 0.06

Note:  For Denmark there is break in data series in 2007 so that they can’t be compared. Source:  Eurostat https://ec.europa.eu/eurostat/home?, and own calculations, accessed 24 January 2018.

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in the Nordic welfare state Sweden, and this is both before and after the crisis. Hungary, the Netherlands and Romania are other countries with a strong reduction. At the same time there has been, albeit small, an increase in other countries. Table 7.1 points more towards a worsening position for the unemployed which might reflect the fact that the overall time limit and eligibility criteria have been changed even if the financial compensation for those getting unemployment has not changed, as the picture from the data in Appendix 7.1 shows. It might also reflect the fact that the unemployment situation has improved, meaning that fewer people are long-term unemployed, and that in some countries the replacement level is highest for a short time-spell of unemployment. For the Czech Republic the data in fact contradicts each other, as the replacement rate has been drastically reduced, while the spending data indicate more money. The overall situation is thus seemingly not worse in most countries. However, change in the net replacement rate indicates retrenchment only for a limited number of countries, whereas overall in more countries there has been less money available per percentage of unemployed. The picture of diversity in the development is also found in other studies (Jensen et al. 2018), although Hermann (Hermann 2017) argues for general cuts in general in unemployment benefit, as does the OECD study (OECD 2018), but it also points towards this as a combination of savings for the public sector spending and stronger work incentives. It is done, as shown above, by a change in eligibility rules and that further the short-term unemployed are better covered, so the data above could have been different for those often outside the labour market. Unemployment protection changes can thus also cause lower spending. An example of weaker protection can be found in Southern Europe (Petmesidou and Guillén 2014). While the spending has seemingly not really changed, there has been a decline in the coverage of unemployment benefit since the financial crisis (OECD 2018).

7.3 CHANGE IN THE LABOUR MARKET POLICY – WHAT DIRECTION? Active labour market policy has been here for many years, as have political discussions (Bonoli 2010). A problem for the active labour market policy has been that the ability to show effectiveness has not

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been strong (Card, Kluve and Weber 2018; Calmfors, Forslund and Hemström 2002; Caliendo and Schmidl 2016). Activation in the private sector might have an impact (Vooren et al. 2016), however, it is also the case that the impact is often not in the short run, albeit in the longer-term perspective it could be having an impact, especially when using training in times of low demand for labour (Nordlund and Greve 2019). Another study points to the fact that start-up incentives and support to the vulnerable (job rotation, supported employment and direct job creation) are more effective than other activities (Escudero 2018); although the data is from 1985, it covers 31 countries. Still, overall it seems that there is a lack of effectiveness of the active labour market policy and, in combination with a stronger belief in market forces, this might be a reason why the active labour market policy at least to a certain extent has changed direction. There is, in general, less support from voters for spending towards the unemployed as part of a self-interest argument – s­ tudents support education, the unemployed support unemployment policies (Busemeyer et al. 2018). However, even if one ongoing challenge and discussion has been whether change in flexicurity would cause more flexibility and less security (see the previous section), this seems not to have materialized. The fear was that the focus on austerity would reduce the willingness to look into flexicurity. However, overall, it seems that flexicurity is still on the agenda (Bekker 2018). The focus here is not on the effectiveness of active labour market policy, but more the direction related to the change in the protection of workers, and also the logic behind the active labour market policy, including whether the focus is on, for example, up-skilling and social capital development, or is more on coercion (Dean 2007). This is because welfare to work has been changed in a more restrictive direction (Pierson et al. 2016). Activation can have different incentive strategies and work on both the supply and demand side. It can range from incentives focusing on the individual person (such as benefit reduction and compulsory activation), to companies (such as financial support and tax credits), all in all indicating very broad and diverse types of approaches, with an overall stronger focus since the crisis of a workfare approach (Dinan 2019), and less on humancapital development. Another possible development with more occupational-based welfare can be that greater segmentation of the labour market can

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be the result, including variation in different kinds of benefits. Thus, already today it seems that insiders have a better position with regard to family friendly working-time arrangements (Chung 2017, 2018). Especially in those countries often argued to be most hard hit by the crisis (in this case Spain and Greece) there has been a reduction in work–family arrangements, one implication being that the male breadwinner system still prevails (Dotti Sani 2018). However, the overall change in criteria for receiving unemployment benefit has not been further changed in the time after the fiscal crisis, albeit from 1980 to 2012 there was change towards more restriction in access to benefit and demand for activation when being unemployed, although not so that the unemployed shall accept all types of jobs (Immervoll and Knotz 2018; Knotz 2018). Therefore, data do not indicate a movement towards a strong focus on workfare. This again points to the contradiction that arguments of retrenchment in the wake of the financial crisis are difficult to substantiate, however before the crisis there was tightening within the ­unemployment system.

7.4 CONCLUSION Despite at the outset one could have expected that unemployment could be a prime example of austerity, the data point towards a much more nuanced picture of what has happened. It seems that the movement towards stronger workfare regimes took place mainly before the financial crisis, and thereby not as a consequence of the crisis. This also indicates that being in a time of permanent austerity is not a clear picture of the overall societal development. In relation to unemployment compensation, there has been retrenchment in some countries and increase in a few countries. This is also a policy field where the universal Nordic welfare states do not perform as those with the highest replacement rate – this is in the Continental welfare states. The conditions and criteria in order to be eligible to receive unemployment benefit have been tightened, however seemingly this occurred mainly before the financial crisis. Overall, the data do not inform on a situation with permanent austerity, but that there has historically been, in a few countries, retrenchment. Still, there has also been improvement in some countries. So, despite the rhetoric

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about workfare and the need for ensuring economic incentives to take up jobs, this has only to a more limited extent influenced the development in actually decided and implemented policies.

NOTE 1. https://www.eurofound.europa.eu/publications/policy-brief/2018/does-employme​ nt-status-matter-for-job-quality, accessed 11 February 2019.

REFERENCES Acemoglu, D. and P. Restrepo. 2017. “Robots and Jobs: Evidence from US Labor Markets.” MIT Department of Economics, Working Paper 17–04, SSRN. https://doi.org/10.2139/ssrn.2940245. Bekker, S. 2018. “Flexicurity in the European Semester: Still a Relevant Policy Concept?” Journal of European Public Policy 25 (2): 175‒192. https://doi.org/10.1080/13501763.2017.1363272. Bonoli, G. 2010. “The Political Economy of Active Labor-Market Policy.” Politics & Society 38 (4): 435–457. Busemeyer, M. R., C. de la Porte, J. L. Garritzmann and E. Pavolini. 2018. “The Future of the Social Investment State: Politics, Policies, and Outcomes.” Journal of European Public Policy 25 (6): 801‒809https://doi. org/10.1080/13501763.2017.1402944. Caliendo, M. and R. Schmidl. 2016. “Youth Unemployment and Active Labor Market Policies in Europe.” IZA Journal of Labor Policy 5 (1). https://doi.org/10.1186/s40173-016-0057-x. Calmfors, L., A. Forslund and M. Hemström. 2002. “Does Active Labour Market Policy Work ? Lessons from the Swedish Experiences.” IFAU – Institute for Labour Market Policy Evaluation 91 (558). https://doi. org/10.1007/s10273-011-1262-2. Card, D., J. Kluve and A. Weber. 2018. “What Works? A Meta Analysis of Recent Active Labor Market Program Evaluations.” Journal of the European Economic Association 16 (3): 894‒931. https://doi.org/10.1093/ jeea/jvx028. Chung, H. 2017. “National-Level Family Policies and Workers’ Access to Schedule Control in a European Comparative Perspective: Crowding Out or In, and for Whom?” Journal of Comparative Policy Analysis: Research and Practice 21 (1): 25‒46. https://doi.org/10.1080/13876988.2017.1353745. Chung, H. 2018. “Dualization and the Access to Occupational Familyfriendly Working-time Arrangements across Europe.” Social Policy & Administration 52 (2): 491–507. Dean, H. 2007. “The Ethics of Welfare-to-Work.” Policy and Politics 35 (4): 573‒589. https://doi.org/10.1332/030557307782453029.

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Dinan, S. 2019. “A Typology of Activation Incentives.” Social Policy & Administration 53 (1): 1–15. Dotti Sani, G. M. 2018. “The Economic Crisis and Changes in Work–family Arrangements in Six European Countries.” Journal of European Social Policy 28 (2): 177–193. Ervik, R., N. Kildal and E. Nilssen. 2015. New Contractualism in European Welfare State Policies. Oxford: Ashgate. Escudero, V. 2018. “Are Active Labour Market Policies Effective in Activating and Integrating Low-Skilled Individuals? An International Comparison.” IZA Journal of Labor Policy 7 (1): 4. Greve, B. 2017. Technology and the Future of Work. The Impact on Labour Markets and Welfare States. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. Hermann, C. 2017. “Crisis, Structural Reform and the Dismantling of the European Social Model(s).” Economic and Industrial Democracy 38 (1). https://doi.org/10.1177/0143831X14555708. Immervoll, H. and C. Knotz. 2018. “How Demanding Are Activation Requirements for Jobseekers?” OECD Social, Employment and Migration Working Papers. Paris: OECD. Jahn, D. 2018. “Distribution Regimes and Redistribution Effects during Retrenchment and Crisis: A Cui Bono Analysis of Unemployment Replacement Rates of Various Income Categories in 31 Welfare States.” Journal of European Social Policy 28 (5): 433–51. Jensen, C., C. Arndt, S. Lee and G. Wenzelburger. 2018. “Policy Instruments and Welfare State Reform.” Journal of European Social Policy 28 (2): 161–176. Knotz, C. M. 2018. “A Rising Workfare State? Unemployment Benefit Conditionality in 21 OECD Countries, 1980–2012.” Journal of International and Comparative Social Policy 38 (2): 91‒108. https://doi.org/10.1080/21​ 699763.2018.1472136. Langenbucher, K. 2015. “How Demanding Are Eligibility Criteria for Unemployment Benefits, Quantitative Indicators for OECD and EU Countries.” OECD Social, Employment, and Migration Working Papers. https://doi.org/10.1787/5JRXTK1ZW8F2-EN. Nordlund, M. and B. Greve. 2019. “Focus on Active Labour Market Policies.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 366–377. OECD. 2018. Employment Outlook, 2018. Paris: OECD. Otto, A. 2018. “Social Expenditure, Social Rights, and Benefit Receipt as Indicators of Welfare State Generosity: Three Peas in a Pod, or a Different Kettle of Fish Altogether?” International Journal of Sociology and Social Policy 38 (9–10). https://doi.org/10.1108/IJSSP-02-2018-0022. Petmesidou, M. and A. M. Guillén. 2014. “Can the Welfare State as We Know It Survive? A View from the Crisis-Ridden South European Periphery.” South European Society & Politics 19 (3): 295‒307. Pierson, C., L. Humpage, P. Fisher, L. Buckner, S. Ronchi and C. Mills. 2016. “Coming Together or Drifting Apart? Income Maintenance in

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Australia, New Zealand, and the United Kingdom.” Politics & Policy 44 (2): 261–293. https://doi.org/10.1111/polp.12150. Schubert, K., P. Villota and J. Kuhlman 2013. Challenges to European Welfare System. Heldelberg: Springer. Vooren, M., C. Haelermans, W. Groot and H. Maassen van den Brink. 2016. “The Effectiveness of Active Labour Market Policies: A Systematic MetaAnalysis.” https://www.sole-jole.org/17403.pdf, accessed 17 August 2019. Wang, J. and O. Van Vliet. 2016. “Social Assistance and Minimum Income Benefits: Benefit Levels, Replacement Rates and Policies across 26 OECD Countries, 1990–2009.” European Journal of Social Security 18 (4): 333–355.

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APPENDIX 7.1 REPLACEMENT RATE FOR INDIVIDUAL EU COUNTRIES, SELECTED YEARS, 2001‒2015 FOR A SINGLE EARNER 2001

2005

2010

2015

2016

2018

Nordic: Denmark Finland Sweden Nordic

Year

  62 56 57 58

  60 54 59 58

  58 53 47 53

  59 56 42 52

  59 55 45 53

  58 52 43 51

Continental: Austria Belgium France Germany Luxembourg Netherlands Continental

  55 58 69 61 85 67 66

  63 58 67 61 85 65 67

  60 64 66 60 84 70 67

  55 66 68 59 86 71 68

  55 67 68 59 86 70 68

  55 65 68 59 86 70 67

Liberal: Ireland United Kingdom Liberal

  23 14 19

  26 13 20

  29 13 21

  30 14 22

  29 13 21

  28 13 21

Southern Europe: Greece Italy Portugal Spain Cyprus Malta Southern Europe

  26 49 83 63 58 38 53

  24 69 83 62 58 38 56

  29 58 133 60 59 36 63

  28 62 75 56 59 35 53

  28 61 75 55 59 34 52

  28 61 75 56 59 33 52

Eastern Europe: Czech Republic Hungary Poland Slovak Republic Slovenia Bulgaria Eastern Europe

  40 42 35 55 64 47 47

  45 41 35 64 64 47 49

  17 28 28 64 68 76 47

  17 13 25 65 67 77 44

  16 12 24 65 66 77 43

  14 10 22 66 62 77 42

Baltic: Estonia Latvia Lithuania Baltic

  45 63 43 50

  45 63 43 50

  44 65 43 51

  44 63 44 50

  44 63 43 50

  47 63 68 59

Source:  See Figure 7.1.

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8.  Health care 8.1 INTRODUCTION Whereas previous chapters have had a focus on income transfers, this chapter and the next chapter venture into core welfare services, as services have become an important part of many welfare states, and this includes especially health care. Health care is the focus in this chapter. This is a field where, for some time, there has been discussion on how the pressure on welfare states – due to changes in demography, increases in the cost of new types of medicine and new technology – means that even if an increase in spending can be witnessed, this might still reflect a feeling of reduced welfare. Thus, looking into money available and possible drivers of both spending on and reduction in cost should help in informing about whether there has been austerity in the field. Another example of how difficult this can be to measure is that fewer days in bed at a hospital might not be austerity, but better quality as the treatment is faster and more effective. However, there is also the risk that it is a sign of a reduced level of spending. Health care is also an important topic given that in most welfare states access to hospitals is based on citizenship1 and universality in access in case of need of treatment. This does not mean that there cannot be user charges, inequality in access to treatment and other risks for different parts of the population. It is, though, a sector with an often high degree of state involvement in the activities. The chapter proceeds by presenting in the next section a quantitative description of the development in spending within health care, including whether there has been a change in user charges. This is because an increase in users’ own spending might reduce the option for treatment and in this way might be considered a reduction in state responsibility for health care. Section 8.3 looks into issues of activities within health care, including numbers of staff and whether information on drivers and or/quality of care is available. 94

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8.2 DEVELOPMENT IN CENTRAL ECONOMIC PARAMETERS FOR HEALTH CARE For some time, there have been discussions about the possible shortand long-term pressure on welfare states due to the rising pressure on the cost of health care, including the focus on cost-containment (Wenzl, Naci and Mossialos 2017), demography changes (especially the age structure), rising income (as health has an income elasticity above 1) and a residual factor (including relative prices, technology and institutional factors). In OECD countries from 1995 to 2009 the average real change (per capita in 2005 PPS US dollars) was 4.3 per cent, of which demography counted for 0.5 per cent, income elasticity 1.8 per cent and the rest 2.0 per cent (OECD 2015). The report also showed an expected future trend towards higher levels of spending, which could help in explaining that countries have had a focus on how to reduce the increase in spending over the last 15–20 years. Demographic changes are thus only part of the explanation for the increase in expenditures, partly as a result of spending in this field being related to the proximity to death, that is, the main part of the expenditure is related to the last few years of people’s lives. In this section the focus is mainly on how the development of spending has been, with the same approach as in Chapters 6 and 7, that is, focusing on fixed prices and related to the cost per inhabitant, and only to a more limited extent related to different factors influencing growth in health care spending. In a longer perspective (30 years) in all OECD countries, spending on health has increased more than GDP (Pammolli, Riccaboni and Magazzini 2012), and this is also expected to continue (OECD 2015). This is confirmed in a recent EU study, which also shows as a percentage of GDP that expenditure on health care has increased since the 1970s and continued after 2009, albeit with a slower growth and even a decline in some countries (European Commission 2018). One problem with using expenditure data is that the use of the more expensive health care often takes place in the last years of a person’s life. Still, it is the best indicator we have. Figure 8.1 shows the development in the spending in the different welfare regimes. In all welfare regimes the spending as a proportion of GDP is higher in 2016 than it was in 2000, and the spending was lower in only three countries (Cyprus, Hungary and Slovakia). The picture is more diverse when splitting the time into the periods 2000–2010

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06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16

05

20

04

20

03

20

02

20

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20

20

01

10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 00

%

96

Year Baltic

Nordic

Continental

Southern Europe

Liberal

Eastern Europe

Note:  Eastern Europe does not include Bulgaria and Croatia due to the lack of a sufficient number of data points. Appendix 8.1 shows the development in selected years for all the countries. Source:  Eurostat, https://ec.europa.eu/eurostat/home? and own calculations based hereupon.

Figure 8.1 Spending as a percentage of GDP in fixed prices since 2000 in European welfare regimes and 2010–2016, where especially there was an increase until 2010, and then a decline in several countries. This has partly to do with the way data is calculated as a change in GDP level, which especially was the case in the wake of the financial crisis, influences the proportion of GDP. Therefore, Table 8.1 shows the development and change in selected years for the same EU member states as included in Figure 8.1 and Appendix 8.1, for the spending in fixed 2010 prices in euros per person. The table thus takes into consideration how many people are in need of care on the condition that the total population is a predictor of need. However, data do not seem to indicate that the unmet need of medical care has increased in Europe, with Greece and Estonia as exceptions;2 see also Table 8.3. As can be clearly depicted from the table, in all countries since 2000 there has been in fixed prices more money available for the delivery of health care. This is both in high and low spending countries. However, the main part of the increases took place before the financial crisis, so that from 2010 to 2016 there was a reduction in

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Table 8.1 Spending in euros (fixed 2010 prices) per inhabitant in 2016 and the development since 2000 GEO/TIME

2016

2000–2010

2010–2016

2000–2016

Belgium Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

2566 989 2868 3506 684 3093 917 1498 2945 1724 753 421 564 4448 601 1114 3620 2697 526 1040 307 1433 799 2509 3176 2675

615 232 672 521 204 1379 569 428 494 373 112 192 189 1408 127 269 1472 362 179 187 177 352 122 675 155 871

−111 86 −65 558 169 −98 −457 −124 195 −173 −87 92 134 −22 42 168 −182 119 105 −103 37 67 120 9 413 255

505 318 607 1079 373 1281 112 305 689 200 25 285 323 1386 170 437 1290 481 284 84 214 419 243 684 568 1126

Source:  Eurostat, https://ec.europa.eu/eurostat/home? and own calculations based hereupon.

spending in Portugal, the Netherlands, Luxembourg, Cyprus, Italy, Spain, Greece, Denmark, Ireland and Belgium (e.g. in 10 out of the 26 countries included in the table). The variety both in size of money available for health care and the variation in impact of changes is also confirmed in a European comparison (Baeten et al. 2018). The data again show that the choice of time period for the analysis can influence the conclusion. Data fit with other analysis show that possible reduction within health care is not necessarily related to change in

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the economic business cycle (Reeves et al. 2014), although Reeves et al. also argue that there have been budget cuts, especially in countries which have been lending money in order to cover budget deficits. There are two specific issues at stake here, which can be difficult to measure. The first being the quality of the service, discussed in the next section, and the second is that the overall number of people in a society is presumably not the best indicator for change unless the distribution across age groups is stable over time. There has been an increase in the number of elderly, and therefore in order to cope with the needs of these groups, one would have expected at the outset an increase in spending dependent on the demographic changes. Those above the age of 85, for example, cost six times those between 55 and 59.3 Where to set the age in order to ensure comparative perspectives is open for discussion. Here the choice has been to use an age close to the pension age in most countries, that is, 65. OECD data indicates also a variety across countries in the age group, still around 40–50 per cent of all health care cost seems to be spent on people above the age of 65. The number of people above the age of 65 and total spending in fixed 2010 prices has therefore been used to calculate the development, which is presented in Table 8.2. When using the number of elderly in calculating the amount available, even more countries had a decline in money available from 2010 to 2016 (16 out of the 26 included), whereas from 2000 to 2010 it was only Germany, and since the millennium there has been retrenchment in Greece, Italy, Cyprus, Portugal and Finland. Thus, again, all welfare states do not seem to be in times of permanent austerity, and especially in Eastern Europe there has been a strong increase in the amount of money available in most countries. That there has not been austerity until 2010 can also be confirmed by the fact that in the longer time perspective from 1980 health was not hit by retrenchment, and further that there was convergence in Europe (Montanari and Nelson 2013). A specific issue could be that there could have been pressure on individual people, by letting an increased part of the expenditures be paid by the citizens as out-of-pocket payments as a percentage of the total costs, that is, user charges. One reason for looking into this is that higher out-of-pocket spending seems to have implications for the growth in public spending (Lorenzoni et al. 2018). Furthermore, this could have been another possible type of retrenchment because the individual has a higher responsibility to pay for his or her own

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Table 8.2 Change in spending on health care in fixed 2010 prices on average euros per inhabitant above the age of 65

Belgium Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

2000–2010

2010–2016

2000–2016

27.2% 21.8% 18.0% −4.6% 41.3% 75.3% 55.6% 33.7% 16.0% 10.6% 3.9% 96.2% 39.7% 49.9% 16.8% 10.6% 44.4% 1.7% 55.7% 4.5% 136.5% 13.0% 12.0% 19.6% 1.5% 52.2%

−10.1% −8.6% −15.2% 17.0% 21.7% −17.4% −40.5% −17.2% −5.6% −16.0% −26.2% 18.9% 20.7% −2.4% −2.2% −4.1% −19.7% 0.3% 6.3% −19.8% 5.3% −5.9% 1.4% −16.6% 5.6% 0.2%

14.4% 11.4% 0.1% 11.7% 72.0% 44.8% −7.4% 10.7% 9.5% −7.1% −23.3% 133.3% 68.6% 46.4% 14.2% 6.1% 15.9% 2.0% 65.6% −16.2% 149.0% 6.3% 13.6% −0.3% 7.2% 52.5%

Source:  Own calculations based upon spending and demographic data from Eurostat.

health care. However, data for EU countries which are members of the OECD (23 out of the 28) has not really changed since 2000; the simple average percentage of health care cost paid for by user charges across the countries are listed in Table 8.3. There are some differences among countries, with an increase in the Czech Republic, Ireland, Hungary and a decrease in France, Latvia and the Netherlands. Still, it does not indicate austerity by transforming the payment more towards the users than before the

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Table 8.3 Average percentage of health care cost paid for by user across OECD/EU members 2000 2005 2010 2015 2017

25.4 25.5 24.0 25.2 25.3

Source:  Based on data from OECD, www.oecd.org, Health Database, accessed 5 February 2019 and calculations based hereupon.

crisis. Part of the explanation might be that even if there has been an increase in user charges in several countries, more people, mainly with low incomes, have been exempted from paying (Wenzl, Naci and Mossialos 2017). Naturally, the data do not inform about the quality, the ability to use all new types of medicine and interventions. However, it shows that overall health care has not been a central target for adjustment since the millennium, especially in Southern Europe, it has seemingly been open for retrenchment (see also Petmesidou, Pavolini and Guillén 2014; del Pino and Ramos 2018; Stuckler et al. 2017; Legido-Quigley et al. 2016; Cervero-Liceras, McKee and Legido-Quigley 2015).

8.3 MORE OR FEWER ACTIVITIES – BETTER OR WORSE? The analysis in the previous section is in many ways in line with the understanding that pensions and health care will not be touched. “The financial crisis appears to have reinforced the ‘traditional’ welfare state consensus based on higher pension payments and prioritizing public expenditure on health care” (Diamond and Lodge 2014, 40). Although other authors have reached different conclusions (Babones 2013), albeit not backed by data. A problem with data is that they not only include spending on directly health care related activities, but can also include administrative costs, which might be substantial. This, for example, helps in explaining the higher cost of health care in the US, which was shown in a study to have the far highest administrative cost (25.3 per cent

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of all US hospital expenditures), with the second highest being the Netherlands with 19.8 per cent, England with 15.5 per cent and Canada with 7.4 per cent (Himmelstein et al. 2014). Himmelstein et al. further argue that hospital administrative costs are influenced by the complexity of the reimbursement system. Quality is one of the difficult aspects to measure within health care (Getzen 2010), and therefore the connection between spending and outcomes is mediated through input of persons, facilities and medical treatment (Wendt 2019). Health is also an area where the nation states as a generic element might be less strong as a predictor, as there can be large regional and local differences, or to put it another way: where you live can kill you (Bambra 2016). Health quality indicators could be changes in life expectancy, but could also be issues such as diabetes-related lower extremity amputation rates, breast cancer five-year survival rates, or mortality rates after hospital admission for acute myocardial infarction (Mossialos et al. 2017). User satisfaction might also be an issue, although this does not necessarily inform on the quality of the treatment in itself. Given that life expectancy, in general, in most countries has been increasing, this does not in itself lend support to austerity. However, this increase is not only due to short-term changes in the quality of health care, and might therefore not be the best indicator for the development. A selection of data on survival related to cancer are presented below as an indicator of the development in the quality of health care intervention. One problem for the analysis of the development within health care is that the “decline in social service expenditure in Sweden and UK, for example, is mostly due to the out-sourcing of service provision to private actors and to administrative reforms, rather than to restrictions in access and cuts in levels of service provision” (Montanari and Nelson 2013, 103). By looking into a few indicators, it seems that since 2000, and until 2014, the quality – as measured by the five-year survival rate for specific cancers (breast, colon and rectal) – has improved in nearly all OECD countries, whereas this is not the case with cervical cancer.4 Seen in this light, quality has improved despite the fact that there has been a reduction in the overall level of spending in some countries. Naturally, given the focus on cost-containment in many countries with regard to health care spending, an important issue is whether certain policies are more effective than others, for example, trying to

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Table 8.4  Change in unmet needs 2008–2017 for EU countries Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

1.6 −13.2 −0.2 0.4 −1.9 4.5 1.0 4.6 −0.3 −0.9 −3.4 −1.3 −3.7 −4.2 −0.3 −2.4 −0.5 −0.2 −0.5 −2.7 1.2 −6.4 3.3 1.1 2.8 −1.2 2.3

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, hlth_silc_08 and own calculations based hereupon, accessed 5 February 2019.

use evidence as a steering mechanism within the sector (Greener and Greve 2013). Here there seems to be evidence that an increased focus on primary care and the use of health technology assessment could be important (Lorenzoni et al. 2018). An indicator for the reduction in the access to, and the quality of, care could be a development in the unmet need for care. Table 8.4 shows the development since 2008 in unmet needs for people above the age of 16 and for one of the following causes: too expensive or too far to travel or waiting list. Thus the data does not inform on

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Table 8.5  Perceived quality of service 2007 2011 2016

6.1 6.3 6.7

Source:  Eurofound (2017).

which of the three causes is the main reason, still it indicates whether there has been a change in unmet needs within health care. A simple average across the countries shows a fall in the percentage with unmet needs. A slight increase could be witnessed just after the financial crisis, but it has been reduced since then. In Portugal it has been argued that from 2010 to 2012 it was doubled (Legido-Quigley et al. 2016). As can be witnessed from Table 8.4, in most countries there has been a decline, with the exception of a few countries in Eastern and Southern Europe. Looked upon in this way, there is no indication of a path with retrenchment of welfare states’ activities within the health care sector. Furthermore, it is striking that despite discussion and arguments about austerity, the perceived quality of the service has remained the same or increased in most European countries from 2007 to 2016 using the European Quality of Life studies, showing on average in EU28, as detailed in Table 8.5. There has been a decline in Greece, Cyprus, Latvia, Slovakia, Sweden and Belgium; however, in most countries, this is only to a very limited extent. Taking this as an indicator does not lend support to austerity having had a strong impact. Data on staff are not always systematically available, and there might even be a decline in one group and an increase in another group. Here, as an overall depiction, the choice has been to take the staff per 1,000 inhabitants if possible since the year 2000. This is shown in Table 8.6. In five of the countries (Estonia, Greece, Italy, the Netherlands and the UK), there are fewer staff available for health care, although not always covering the same time period. In the other countries, there has been an expansion of the staff available. Part of the change reflects the fact that people often stay in hospitals for a shorter time than in previous years, but it is still an indicator that, in order to cope

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Table 8.6 Hospital staff per 1,000 inhabitants – development since 2000 Change 2000–2016 Austria Belgium Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Lithuania Netherlands Portugal Slovenia Spain United Kingdom

If years available deviates

1.86 2.1 1.16 0.9 −1.65 1.85 1.45 1.43 −0.63 0.35 1.74 −0.95 1.06 −1.7 1.59 1.68 2.03 −0.82

2003–2015 2005–2016 2000–2015 2006–2016 2000–2014

2006–2016 2003–2016

2000–2015 2009–2016

Source:  OECD Health Statistics, accessed 6 April 2019.

with the increasing health care needs of the population, the same relative level of staff is not available. Lastly, the data used in this chapter does not inform about access to, and possible inequalities in, health care. In general, there are inequalities in access (Baeten et al. 2018), thus thereby also presumably creating an increased health divide in societies.

8.4  SUMMING UP The picture of the development in health care is blurred. In the long-run there does not seem to be any indication of austerity and retrenchment. However, since 2010 especially when using spending in relation to the number of elderly above the age of 65, there has been a reduction in several European countries. At the same time, there seems to be no indicator of an increase in most countries of the ­persons

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having unmet needs, and the five-year survival rate of a number of cancer diseases has improved considerably at the same time. Still, the data also indicates that Southern Europe seemingly has been hit by retrenchment within the field of health care especially since 2010, an indicator of the fact that austerity over time can vary across welfare states, and does not need to be uniform. This also points to the fact that a weak economy, for whatever reason, can be a reason why some countries have had to scale back their spending within health care.

NOTES 1. In many countries, the correct term is legal residence. 2. See https://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pco de=tespm110&language=en, accessed 30 January 2019. 3. http://www.oecd.org/els/health-systems/estimating-expenditure-by-disease-age-and​ -gender.htm, accessed 30 January 2019. 4. Based on OECD health statistics, https://stats.oecd.org/#, accessed 30 January 2019.

REFERENCES Babones, S. 2013. “Austerity Economics and the Threat to Human Infrastructure.” Peace Review 25 (4): 576–583. Baeten, R., S. Spasova, B. Vanhercke and S. Coster. 2018. “Inequalities in Access to Healthcare. A Study of National Policies 2018.” European Social Policy Network (ESPN), Brussels. Bambra, C. 2016. Health Divides – Where You Live Can Kill You. Bristol: Policy Press. Cervero-Liceras, F., M. McKee and H. Legido-Quigley. 2015. “The Effects of the Financial Crisis and Austerity Measures on the Spanish Health Care System: A Qualitative Analysis of Health Professionals’ Perceptions in the Region of Valencia.” Health Policy 119 (1): 100‒106. https://doi. org/10.1016/j.healthpol.2014.11.003. European Commission. 2018. “The 2018 Ageing Report.” Brussels: European Commission. del Pino, E. and J. A. Ramos. 2018. “Is Welfare Retrenchment Inevitable? Scope and Drivers of Healthcare Reforms in Five Spanish Regions During the Crisis.” Journal of Social Policy 47 (4): 701–720. Diamond, P. and G. Lodge. 2014. “Dynamic Social Security after the Crisis: Towards a New Welfare State?” International Social Security Review 67 (3–4): 37–59. https://doi.org/10.1111/issr.12047. Eurofound. 2017. “European Quality of Life Survey 2016: Quality of

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Life, Quality of Public Services, and Quality of Society.” Luxembourg: Publications Office on the European Union. Getzen, T. 2010. Health Economics and Financing. 4th edn. Hoboken: John Wiley & Sons. Greener, I. and B. Greve. 2013. Evidence and Evaluation in Social Policy. Oxford: Wiley.https://doi.org/10.1002/9781118816530. Himmelstein, D., M. Jun, R. Busse, K. Chevreul, A. Geissler, P. Jeurissen, S. Thomson, M-A. Vinet and S. Woolhandler 2014. “A Comparison Of Hospital Administrative Costs in Eight Nations: US Costs Exceed All Other By Far.” Health Affairs 9: 1586–1594. Legido-Quigley, H., M. Karanikolos, S. Hernandez-Plaza, C. de Freitas, L. Bernardo, B. Padilla, R. Sá Machado, K. Diaz-Ordaz, D. Stuckler and M. McKee. 2016. “Effects of the Financial Crisis and Troika Austerity Measures on Health and Health Care Access in Portugal.” Health Policy 120 (7): 833‒839. https://doi.org/10.1016/j.healthpol.2016.04.009. Lorenzoni, L., F. Murtin, L-S. Springare, A. Auraaen and F. Daniel. 2018. “Which Policies Increase Value for Money in Health Care?,” Health Working Papers No. 104. Paris: OECD. https://doi.org/https://doi.org/ https://doi.org/10.1787/a46c5b1f-en. Montanari, I. and K. Nelson. 2013. “Social Service Decline and Convergence: How Does Healthcare Fare?” Journal of European Social Policy 23 (1): 102–116. https://doi.org/10.1177/0958928712456574. Mossialos, E., A. Djordjevic, R. Osborn and D. Sarnak. 2017. “International Profiles of Health Care Systems, 2016”. The Commonwealth Fund. https:// www.commonwealthfund.org/sites/default/files/documents/___media_files​ _publications_fund_report_2017_may_mossialos_intl_profiles_v5.pdf, acc­ essed 17 August 2019. OECD. 2015. Fiscal Sustainability of Health Systems: Bridging Health and Finance Perspectives. Paris: OECD. Pammolli, F., M. Riccaboni and L. Magazzini. 2012. “The Sustainability of European Health Care Systems: Beyond Income and Aging.” European Journal of Health Economics 13 (5): 623‒634. https://doi.org/10.1007/ s10198-011-0337-8. Petmesidou, M., E. Pavolini and A. M. Guillén. 2014. “South European Healthcare Systems under Harsh Austerity: A Progress–Regression Mix?” South European Society and Politics 19 (3): 331–352. https://doi.org/10.10 80/13608746.2014.949994. Reeves, A., M. McKee, S. Basu and D. Stuckler. 2014. “The Political Economy of Austerity and Healthcare: Cross-National Analysis of Expenditure Changes in 27 European Nations 1995‒2011.” Health Policy 115 (1): 1‒8. https://doi.org/10.1016/j.healthpol.2013.11.008. Stuckler, D., A. Reeves, R. Loopstra, M. Karanikolos and M. McKee. 2017. “Austerity and Health: The Impact in the UK and Europe.” European Journal of Public Health 27 (suppl_4): 18‒21. https://doi.org/10.1093/ eurpub/ckx167. Wendt, C. 2019. “Health Care.” In B. Greve (ed.), Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 407–417.

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Wenzl, M., H. Naci and E. Mossialos. 2017. “Health Policy in Times of Austerity: A Conceptual Framework for Evaluating Effects of Policy on Efficiency and Equity Illustrated with Examples from Europe since 2008.” Health Policy 121 (9): 947‒954. https://doi.org/10.1016/j.health​ pol.2017.07.005.

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APPENDIX 8.1 DEVELOPMENT IN SPENDING ON HEALTH CARE AS PROPORTION OF GDP GEO/TIME

2000

2005

2010

2012

2014

2016

Nordic: Denmark Finland Sweden Nordic

  5.5 5.6 7.5 6.2

  5.9 6.4 7.6 6.6

  6.7 7.2 7.0 7.0

   6.5  7.4  7.3  7.1

  6.3 7.5 7.5 7.1

  6.3 7.1 7.5 7.0

Continental: Belgium Germany France Luxembourg Netherlands Austria Continental

  6.5 8.3 7.9 4.6 6.6 6.9 6.8

  7.2 7.9 8.6 5.5 7.6 6.9 7.3

  8.0 9.3 8.9 5.6 9.9 7.3 8.2

   8.2  9.4  8.9  5.7 10.3  7.3  8.3

  8.4 9.7 9.1 5.6 9.9 7.3 8.3

  7.5 9.8 9.2 5.3 9.2 7.5 8.1

Southern Europe: Greece Spain Italy Cyprus Portugal Southern Europe

  4.5 5.7 5.6 3.7 5.9 5.1

  5.7 6.2 6.5 4.1 6.7 5.8

  6.8 7.0 7.0 3.6 6.7 6.2

   6.0  6.6  6.8  3.5  6.2  5.8

  4.7 6.5 6.8 3.3 6.1 5.5

  5.4 6.6 6.6 3.5 6.1 5.6

Liberal: Ireland United Kingdom Liberal

  5.3 5.8 5.6

  6.6 7.2 6.9

  8.7 8.2 8.5

   8.4  8.7  8.6

  7.4 8.6 8.0

  5.8 8.5 7.2

Eastern Europe: Czech Republic Hungary Poland Romania Slovenia Slovakia Eastern Europe

  5.8 5.4 3.7 3.3 7.1 6.5 5.3

  6.0 6.3 3.8 3.7 7.2 4.6 5.3

  6.0 5.6 4.4 4.4 7.7 5.4 5.6

   6.0  5.0  4.1  4.0  7.9  5.3  5.4

  6.0 4.8 4.0 3.9 7.2 5.6 5.3

  5.9 5.2 4.6 3.9 7.6 5.8 5.5

Baltic: Estonia Latvia Lithuania Baltic

  4.4 2.6 4.5 3.8

  3.9 3.3 3.9 3.7

  4.7 3.9 4.8 4.5

   4.2  3.3  4.2  3.9

  4.3 3.5 4.1 4.0

  4.9 3.7 4.6 4.4

Source:  See Figure 8.1.

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9.  Long-term care 9.1 INTRODUCTION Historically, the main focus of welfare states was to ensure income transfers in case of sickness, old age, unemployment and work accidents. First, relatively late in welfare states development, welfare services have become a central issue for the development, although health care happened at an earlier stage. Services for families, including child benefits, was also a latecomer in many welfare states’ provision of services. Care for the elderly was mainly done by the families, and thereby there was no state involvement, and families still have a strong role in many welfare states in Europe (Greve 2016). Today, however, long-term care has become part of the European Pillar of Social Rights, where it is emphasized that in member states there should be the right to affordable long-term care services of good quality, in particular home-care and community-based services (Principle 18).1 Long-term care is an area where the welfare state is important, as a social insurance market would have difficulties in functioning (Barr 2010), and therefore also that risk-pooling is preferable for the individual as well as society by being best able to use scarce resources, and split the economic risk in case of need. Naturally, if there have been cut-backs in long-term care, this would imply an increased demand for care from civil society (Broese van Groenou and De Boer 2016). Care for the elderly is further an area where there is overall support for public provision, although there has been a decline in several countries (countries which have participated in both the 2008 and 2016 European Social Survey) since 2008 (Meuleman et al. 2018). However, given the combination of the ageing of populations, as also described in Chapter 8, and the ambition and option in many countries that both men and women should be able to be in the labour market, this has increased the need in those countries that long-term care should be available, and not only family-based long-term care. 109

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This chapter focuses on the development in this area, mainly with an eye to those above the age of 65 in need of care, for example, persons with disabilities in need of care are not central to the analysis, despite the fact that one aspect of long-term care is aimed at this group of people. However, the results can be understood as having the same impact. Another reason for analysing the development in long-term care is that the elderly in general are seen as a deserving group, and are supported by populist movements (Greve 2019b). Furthermore, there has been an issue of financing long-term care and how it can be done in some welfare states in the future (Rodrigues 2015). Thus on the one hand there is support for care for the elderly, while at the same time there is an issue of how to be able to finance the possible increase in cost as a consequence of the demographic changes with an increasing number of elderly (OECD 2017). In the next section, the chapter describes the actual development in spending in order to depict whether there have been changes, including retrenchment. It also includes a discussion on the option and possibility of measuring the cost of long-term care. Then in the following section the focus is to explain the development, including variations due to historical understandings and varied ways of delivering long-term care. A specific problem with regard to long-term care is that the pressure seems to “originate from weaker productivity gains than in the economy as a whole” (De la Maisonneuve and Martins 2013, 7).

9.2 DEVELOPMENT IN SPENDING ON LONGTERM CARE This section tries to depict the actual development of spending within the field of long-term care. For several reasons, this is not an easy task. The first, and most central, reason is that the border between health and long-term care cost is not always clear cut – in some countries, money is spent on hospitals, which in principle could be considered at least a medical long-term care cost, or a substitute for long-term care service provision. The variation in countries of where and how they actually support the elderly is thus an obstacle to a very precise depiction of the actual development. However, one could argue that, on the assumption that this

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has not changed dramatically, the spending data will inform to a reasonable degree about the development in spending. Further, some countries use cash for care schemes, which might also blur the boundaries.2 The use thereof is also part of the trend of increasing user choice. The second reason is that, especially in Southern and Eastern Europe (Greve 2016), civil society is the most important provider of long-term care, and even migrant workers (both legal and illegal) can be part of the delivery of care and who have access hereto that care. The ability to cope with the need for care can thus depend to a large degree on the possibility that there is a family to help in supporting the elderly in need and/or the elderly’s ability to pay privately for care. If there has been an increase in marketization and the withdrawal of state support or the state never really developed long-term care, then it is the case that even if there has been an ambition to reduce the cost, it has not been possible, as there has, so to speak, not been anything to cut. Even if, at the outset, one could argue that the data should mainly be related to the number of people having reached the pension age, given that one should expect this to be the main beneficiary group, this is not necessarily the case. This seems to be because “the LTC costs per recipient related to severe disability are relatively independent of age” and “[o]verall, in contrast to health care, where higher spending as a consequence of ageing is partly due to increasing age-cost profiles, ageing affects LTC spending mainly through increases in the number of dependent people” (European Commission 2018, 134). Therefore, the following data include only spending per inhabitant, see also Table 9.3. For many countries data are only available in recent years; this is why Table 9.1 presents the development since 2010 only. Due to a large difference in the absolute spending, data are shown in euros per inhabitant as well as percentage changes. Table 9.1 is a clear indication of two different issues. With the exception of Sweden, Denmark, the Netherlands and Ireland, the spending level is very low, indicating that long-term care is only to a limited extent delivered by the state for those in need of long-term care. Furthermore, that with the exception of Cyprus there seems not to have been retrenchment in the wake of the financial crisis, albeit there is close to no change in many countries despite a growing number of elderly. In general, there has been more money available, even though the change in the demographic composition of the

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Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary

GEO/TIME

755.7 : : 1,239.52 549.15 33.68 : 15.95 215.98 652.42 : 55.05 : 102.62 : 62.37

2010

784.82 0.38 : 1,220.52 578.91 33.96 867.57 14.96 209.1 675.45 : 50.93 : 103.05 1,141 54.62

2011 817.06 0.38 : 1,229.12 602.6 36.95 910.62 22.37 210.85 699.95 243.6 51.36 : 102.99 1,299.61 59.91

2012 840.36 0.46 199.57 1,242.3 638.44 43.41 863.84 27.14 204.75 719.38 244.4 47.3 55.19 107.91 1,349.83 60.06

2013 876.72 0.49 202.56 1,280.82 663.81 50.53 891.7 28.1 204.28 737.89 246.49 45.96 57.14 125.75 1,432.88 64.54

2014 813.88 0.61 212.79 1,310.79 700.35 56.69 914.81 40.3 210.71 746.87 245.99 50.4 66.69 137.2 1,420.8 63.46

2015 803.46 0.47 228.4 1,345.45 731.81 63.4 946.19 19 216.7 753.11 250.53 51.12 60.68 166.13 1,407.91 61.85

2016 47.76 0.09 28.83 105.93 182.66 29.72 78.62 3.05 0.72 100.69 6.93 −3.93 5.49 63.51 266.91 −0.52

2010‒2016

6.3% 23.7% 14.4% 8.5% 33.3% 88.2% 9.1% 19.1% 0.3% 15.4% 2.8% −7.1% 9.9% 61.9% 23.4% −0.8%

i%

Table 9.1 Development in expenditure to long-term care per inhabitant in euros 2010–2016 and change herein in most EU member states

113

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1,511.43 542.67 : 131.97 18.31 941.31 1,439.44 :

1,657.11 564.93 : 137.83 19.87 993.14 1,533.78 :

1,642.29 587.97 39.08 146.17 22.34 997.64 1,586.41 764.51

1,675.86 598.49 38.56 155.8 23.49 1,002.61 1,555.75 821.41

1,634.16 609.54 41.99 166.84 26.99 1,001.66 1,578.4 935.28

1,639.92 618.34 42.46 176.59 31.33 981.12 1,609.23 863.51

167.98 89.17 3.38 44.96 13.02 107.64 1,354.53 99.00

11.4% 16.9% 8.6% 34.2% 71.1% 12.3% 531.8% 12.9%

Source:  Eurostat, https://ec.europa.eu/eurostat/, hlth_sha11_hc, accessed 9 February 2019.

Note:  This is what is labelled the long-term care expenditure within the health care spending (both social and health). This is the best comparative dataset for this analysis. Data on long-term care (social) is for fewer countries. Presumably, there is a data break for Sweden from 2010 to 2011. The data is in running price not fixed prices.

Netherlands 1,471.94 Austria 529.17 Poland : Portugal 131.63 Romania : Finland 873.48 Sweden 254.7 United Kingdom :

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population can, in principle, be part of the explanation, and thereby the money per inhabitant in need (however that is defined) might be less clear-cut. There are several problems with the above comparison. One is that it is not in purchasing power parities, and thus differences in wage levels can influence the level of spending. This can explain why the unit cost of long-term care services is different across countries (Muir 2017), which does not include quality of service of the formal long-term care system. Another is that it is not in fixed prices. In order to aid the above comparison, Table 9.2 shows the development since 2000 in in-kind spending on old age in fixed 2010 prices per inhabitant. This means that spending on in-cash benefits, including pensions, is not included (for pensions, see Chapter 6). Table 9.2 shows that for in-kind benefits – which is mainly spending on long-term care services in relation to old age – there is, with the exception of Greece, Czech Republic and Italy, an increase in all other countries. However, from 2010 to 2016 there has also been a decline in several countries other than the three mentioned, meaning that there has been retrenchment at least in some countries. The often high relative percentage change should be interpreted with caution, as part of the explanation thereof is that the level, as shown in Table 9.1, in many welfare states is at a very low level, meaning that long-term care is still only to a very limited extent part of welfare states’ activities, and even a small absolute change in percentages can be very high. In order to further control for the fact that the data are not informed by a change in the number of elderly (defined as those above 65 years of age), Table 9.3 shows the development since 2000 in spending on old age in euros in fixed 2010 prices per person above the age of 65. Table 9.3 confirms the picture that overall there has been expansion with regard to spending on old age even when taking the relevant age group into consideration. Thus overall, with some variations, there has been expansion since the start of the millennium. Still, overall, it is difficult to find austerity and retrenchment since the millennium, and this is confirmed in a European study of 10 different welfare states in different parts of the EU, in which it argued for retrenchment since 2010 for the UK only, and limited retrenchment in the other countries (Greve 2016). However, also in relation to long-term

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Table 9.2 Percentage change in spending on in-kind benefits in oldage in fixed 2010 prices per inhabitant since 2000 in EU member states, before and after the financial crisis Change Belgium Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

2000‒2010

2010‒2016

2000‒2016

94.8% −17.4% 43.7% 138.4% 1.2% 212.2% −69.2% 209.2% 165.4% 41.2% 5.9% 188.7% 76.7% 40.3% 62.1% 61.5% 36.7% 111.0% 81.8% 574.5% 165.3% 49.0% 56.2% 10.2% 50.5%

558.9% 16.3% −2.9% 16.7% 1.5% −31.2% −25.0% −8.5% 2.4% −30.4% 24.9% 71.4% 54.3% −9.0% 38.6% −4.6% 26.9% −42.4% −8.3% 10.9% 11.8% 11.4% 37.9% 6.5% −26.6%

1183.6% −4.0% 39.5% 178.1% 2.7% 114.8% −76.9% 183.1% 171.8% −1.7% 32.3% 394.7% 172.8% 27.7% 124.7% 54.1% 73.5% 21.6% 66.7% 647.9% 196.7% 66.0% 115.4% 17.4% 10.5%

Note:  For Belgium there is seemingly a break in data for the last two years with a strong jump explaining the large change. Source:  Eurostat, https://ec.europa.eu/eurostat/home?, spr_exp_fol, accessed 13 February 2019 and own calculations based hereupon.

care, the time used for the analysis can influence the conclusion, so that looking only at the time since 2010 would imply that austerity has taken place in more countries than if looking into the changes since 2000.

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Table 9.3 Spending on old age in 2016 and changes in three different periods in absolute amount in fixed 2010 prices per person above the age of 65

Belgium Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UK

2016

2000‒2010

2010‒2016

2000‒2016

20 332 7292 27 581 15 402 5000 19 397 11 564 11 795 22 031 16 484 13 136 4082 4035 40 602 5298 8160 23 432 25 253 6593 10 006 3269 9804 6831 22 102 26 347 19 280

2681 2342 1187 −2034 1978 8776 4077 2824 4239 −190 4819 1387 1212 3556 1611 1740 2782 2460 1906 3053 1940 −213 2186 4554 4797 4047

2567 −657 −2393 1015 195 −1480 −1230 528 −573 −1745 −1487 −199 258 5759 24 −904 −1603 691 179 −81 199 −314 148 1048 1001 −1862

5247 1685 −1206 −1019 2174 7296 2847 3352 3666 −1935 3332 1188 1470 9314 1635 836 1179 3151 2085 2973 2139 −527 2334 5602 5798 2185

Note:  The data are influenced by spending on pensions as well. Source:  Eurostat, https://ec.europa.eu/eurostat/ and own calculations.

9.3 DO WE KNOW THE REASONS FOR THE DEVELOPMENT? Over the last close to 20 years there has been an increase both in the number of persons above the age of 65 and also above the age of 80 as a percentage of the total population, as shown in Table 9.4.3

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Table 9.4 Change in persons above 65 and 80+ as percentages of the total population

65 years and over 80 years or over

2000

2010

2018

15.6  3.3

17.5  4.7

19.7  5.6

Table 9.5  Projected demographic development within the EU

65 years  and over 80 years  or over

2020

2030

2040

2050

2060

2070

2080

20.4

23.9

27.0

28.5

29.0

28.8

29.1

 5.9

 7.2

 9.1

11.1

12.1

12.5

12.7

This is projected to continue to increase, as shown, in Table 9.5. Thus, this also explains the strong interest in how to be able to cope with these changes, even given that there are national variations, as without increased productivity or better health, this could cause a pressure on welfare states. Changes in life expectancy are thus one possible cause and reason for the development, including the issue of healthy ageing as a possible explanation why changes in spending have been less strong than changes in demography could have implied. This can be done by also looking into average age exit rates from the labour market as increasing exit ages could mean that there is a lesser need for long-term care. Albeit naturally with the issue that, as within health care, the main need for support from the welfare states are in the last few years of a person’s life, so it might be that what we are witnessing is a time where the expenditures are postponed to the future. A possible more healthy life-style can be seen as a preventative strategy (Berghman, Debels and Van Hoyweghen 2019). Thus, if countries help in preventing illness and use rehabilitation then this might influence the development in spending. Lastly, welfare technology as a driver for change could be argued to have an impact on the spending within the field, and thus even if it looks like retrenchment, this might not be the case.4 This can, thereby, also be

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an example of how difficult it is to disentangle changes in spending and whether this implies less or better welfare services. In this way, part of the explanation for the development has the same issues as within health care, but with the extra dimension that here we have a field where the boundaries not only between health and long-term care are important, but also whether it is the responsibility of the state or the civil society to help those in need of care (which it might even be difficult to measure), and also the influence of the market. Lastly, it is very difficult to evaluate and know what works within long-term care (Rodrigues 2017). There has in general been an increase in life expectancy across Europe both for men and women. This took place before, as well as after, the financial crisis. Across the EU28 countries, life expectancy increased from 76.9 to 78.2 for men and from 82.8 to 83.6 for women. The data for healthy life years are measured by the answer to a selfperceived question with the purpose of measuring the extent of any limitations experienced for at least six months.5 Generally, this also points towards better health across Europe since 2010 for both men and women, albeit with national variation. Thus in combination with the increase in life expectancy, this implies a more healthy ageing, which overall should reduce the pressure on the long-term care system. Another indicator of a reduced pressure on the long-term care system is if people continue longer in the labour market. This can only be an indicator as the change in demand for labour and the role of the pension system (such as higher pension age) could be a factor influencing the level of participation. The data used to describe this is the employment rate for the 55–64 age group. An increase herein, even if this partly reflects a growing equality between men and women as more women are now in the labour market, could be an indicator of a higher degree of participation than in earlier times. In 2017 the employment rate within the EU28 countries was still different for this age group (67.8 for men and 53.8 for women, on average 60.6). It has increased for both men and women, but most for women, see Table 9.6. Table 9.6 shows that, with the exception of Romania, the employment rate for those closest to the retirement age, and perhaps shortly thereafter in need of long-term care, has gone up. It has increased in all countries, for men and for women since the financial crisis in 2010. Thus, in this sense, this in combination with the development in spending seems to indicate that austerity has not been the central

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issue of the development within the field. This is not to neglect the fact that especially in Southern and Eastern Europe, but in general in all welfare states, there is a pressure on the role of civil society to take care of the elderly. Further, this is a pressure that might be increased when both men and women are increasingly on the labour market as it will then be more difficult to help a frail elderly relative. The data in Table 9.6 is confirmed by OECD data (until 2014) on the average exit rate from the labour market, showing a decline from 1970 and until the millennium. The average exit rate has changed for men and women, as shown in Table 9.7. Overall, the evaluation of quality within long-term care is also positive when asking people how they would rate the quality of the service on a scale from one to ten, where one is very poor quality and ten is very high quality. Only in Bulgaria and Greece was the average below 5 (4.4 in 2016), with the highest being 7.7 (Eurofound 2017). Still, it is difficult to measure quality (Greve 2019a), albeit historically the focus has been on structure, process and outcome. A quality assurance is further needed, which can be defined as: “all actions taken to establish, protect, promote and improve the quality of health care” (Donabedian 2003, xxiiv). Although criteria are formulated with regard to health care, they are also useful within long-term care. Quality assurance might then include issues of organization and systems (for discussions on the topic, see Stevenson and Bramson 2013). For the time being, the most frequently used way to look into quality development in Europe is by the use of predefined standards and requirements, including in some countries the use of accreditation (Spasova et al. 2018). Healthy ageing, rehabilitation and welfare technology seem to be the main drivers to explain why there is no indication overall that retrenchment should have been the way one could explain and understand the development in welfare states’ policies with regard to long-term care. This combined with the fact that voters are often in favour of supporting this policy field can help in explaining why austerity has not seemingly been the case.

9.4  SUMMING UP Long-term care has been a latecomer to social policy. In many welfare states it is still fragmented and with a strong emphasis on the role of civil society – even in the more highly developed welfare states

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EU28 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta

Men

Women

9.3 12.1 25.3 11.5 3.6 19.9 13.3 8.3 4.7 9.8 10.2 8.9 8.1 17.0 11.5 14.3 13.6 4.1

11.0 12.1 12.5 13.9 9.8 10.0 7.9 6.9 1.5 8.9 12.7 17.5 0.9 11.0 14.8 0.5 17.1 15.1

20.3 24.2 37.8 25.4 13.4 29.9 21.2 15.2 6.2 18.7 22.9 26.4 9.0 28.0 26.3 14.8 30.7 19.2

7.6 10.1 18.2 8.0 1.1 18.5 2.3 −0.8 2.9 3.5 9.2 6.8 4.9 4.2 4.4 12.2 7.7 −0.1

11.9 7.3 5.1 4.3 0.3 7.4 3.9 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 7.0

19.5 17.4 23.3 12.3 1.4 25.9 6.2 2.2 2.9 3.5 9.2 6.8 4.9 4.2 4.4 12.2 7.7 6.9

10.8 13.8 31.1 14.3 6.9 21.3 21.6 17.5 5.7 15.7 11.1 10.8 11.2 26.5 16.7 16.1 18.2 6.4

12.8 14.9 14.4 16.5 11.7 12.9 8.1 7.7 3.8 13.4 13.6 17.6 4.6 11.2 17.9 3.1 12.6 16.0

23.6 28.7 45.5 30.8 18.6 34.2 29.7 25.2 9.5 29.1 24.7 28.4 15.8 37.7 34.6 19.2 30.8 22.4

2000‒2010 2010‒2017 2000‒2017 2000‒2010 2010‒2017 2000‒2017 2000‒2010 2010‒2017 2000‒2017

Change all

Table 9.6 Change in employment rate for the 55–64 age group since 2000

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16.9 11.7 5.4 1.8 −7.9 12.5 20.8 14.3 6.0 7.1

13.6 11.4 13.4 7.2 3.9 9.1 11.3 7.6 5.7 6.4

30.5 23.1 18.8 9.0 −4.0 21.6 32.1 21.9 11.7 13.5

16.1 7.8 8.5 −2.6 −4.6 12.9 18.7 12.8 7.0 5.8

12.8 14.9 14.4 16.5 11.7 12.9 8.1 7.7 3.8 13.4

28.9 22.7 22.9 13.9 7.1 25.8 26.8 20.5 10.8 19.2

17.8 15.6 2.3 5.5 −10.8 11.4 21.6 15.8 5.0 8.2

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, employment rate, lfsi_emp_a., accessed 10 February 2019.

Note:  For France, in order to have data since 2000, the metropolitan area is used.

Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United  Kingdom

15.7 10.9 14.6 7.2 2.6 14.0 20.7 7.9 7.6 9.8

33.5 26.5 16.9 12.7 −8.2 25.4 42.3 23.7 12.6 18.0

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Table 9.7  Change in average exit rate

2000 2010 2014

Men

Women

63.1 63.9 64.6

61.1 62.6 63.1

Note:  From Figure 7.9 and data from Pension at a Glance, 2015, OECD, www. oecd.org., accessed 10 February 2019.

there is an expectation that civil society should take a strong lead and be responsible at least partly for care of the elderly. This combined with the fact that many elderly de facto prefer to stay as long as possible in their own home (or in their own life) means that there is a role for civil society. However, even in the more mature welfare states and in countries with a larger state involvement in the financing and delivery of longterm care, we are not witnessing any clear reduction in spending and state involvement. This partly reflects the support for long-term care, but also increases in the population in the relevant age group. In general, the data do not inform about the quality of the care. There has been only limited marketization despite the pressure on spending. Further, there has been the use of new ways of supporting the elderly, including the use of new technologies and rehabilitation. Therefore, social investment could be one reason for the fact that austerity has not been at the core of the development within long-term care.

NOTES 1. Here from https://ec.europa.eu/social/main.jsp?catId=792&langId=en, accessed 8 February 2018. 2. See the regional issue of Social Policy & Administration, 2019, no. 4 on Cash-forcare schemes in Europe. 3. Data from Eurostat, https://ec.europa.eu/eurostat/, for EU countries, demo_ pjanind, and proj_15ndbims accessed 6 April 2019. 4. Part of this debate can be witnessed in the analysis related to social investment in long-term care, see also Horizon project SPRINT, and, for issues on welfare technology and rehabilitation http://sprint-project.eu/wp-content/uploads/2018/09/ SPRINT_D.5.3_Impact_Map.pdf, accessed 10 February 2019. 5. https://ec.europa.eu/eurostat/cache/metadata/en/hlth_hlye_esms.htm, accessed 10 February 2019.

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REFERENCES Barr, N. 2010. “Long-Term Care: A Suitable Case for Social Insurance.” Social Policy and Administration 44 (4): 359‒374. https://doi.org/10.11​ 11/j.1467-9515.2010.00718.x. Berghman, J., A. Debels and I. Van Hoyweghen. 2019. “Prevention: The Cases of Social Security and Healthcare.” In B. Greve (ed.), Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 46‒57. Broese van Groenou, M. I. and A. De Boer. 2016. “Providing Informal Care in a Changing Society.” European Journal of Ageing 13 (3): 271‒279. https://doi.org/10.1007/s10433-016-0370-7. De la Maisonneuve, Christine and Joaquim Oliveira Martins. 2013. “Public Spending on Health and Long-Term Care.” OECD Economic Policy Papers, No. 6. Paris: OECD Publishing. https://doi.org/10.1787/5k44t7jwwr9x-en. Donabedian, A. 2003. “Formulating Criteria and Standards:An Introduction to Quality Assurance in Health Care.” In A. Donabedian (ed.), An Introduction to Quality Assurance in Health Care. Oxford: Oxford University Press, pp. 60‒73. Eurofound. 2017. “European Quality of Life Survey 2016: Quality of Life, Quality of Public Services, and Quality of Society.” Luxembourg: Publications Office on the European Union. European Commission. 2018. “The 2018 Ageing Report.” Brussels: European Commission. Greve, B. 2016. Long-Term Care for the Elderly in Europe: Development and Prospects. London: Routledge. https://doi.org/10.4324/9781315592947. Greve, B. 2019a. “Long-Term Care.” In B. Greve (ed.), Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 498–507. Greve, B. 2019b. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Meuleman, B., W. van Oorschot, D. Gugushvili, S. Baute, S. Delespaul, T.  Laenen, F. Roosma and F. Rossetti. 2018. “The Past, Present and Future of European Welfare Attitudes: Topline Results from Round 8 of the European Social Survey.” ESS Topline Series. https://www. europeanso​cialsurvey.org/docs/findings/ESS8_toplines_issue_8_welfare. pdf, accessed 17 August 2019. Muir, T. 2017. “Measuring Social Protection for Long-Term Care,” ECD Health Working Papers No. 93. Paris: OECD. https://doi.org/https://doi. org/https://doi.org/10.1787/a411500a-en. OECD. 2017. Revenue Statistics: 1965–2016. Revenue Statistics. Paris: OECD Publishing. https://doi.org/10.1787/9789264283183-en. Rodrigues, R. 2015. “Long-Term Care – the Problem of Sustainable Financing.” Brussels: European Commission. Rodrigues, R. 2017. “Evaluating Long-Term Care Policies: Challenges and Advancements.” In B. Greve (ed.), Handbook of Social Policy Evaluation, 1st edn. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, pp. 323–344. Spasova, S., R. Baeten, S. Coster and D. Ghailani 2018. “Challenges in

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Long-Term Care in Europe. A Study of National Policies.” Brussels; European Commission. Stevenson, D. and J. Bramson. 2013. A Good Life in Old Age? OECD Health Policy Studies. https://doi.org/10.1787/9789264194564-en.

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10.  Poverty and inequality 10.1 INTRODUCTION In relation to spending and taxation, even if it is the case that there has not been any – or only partial – austerity (as shown in several respects in the previous chapters), then there is still the question of the impact on distribution of the continued changes in the welfare states. This question revolves around whether or not the overall economic distribution with regard to both the payment of taxes and duties and the access to welfare services and income transfers has caused different effects on well-being and standards of living for dissimilar groups in societies compared to the situation in previous years. This is also due to the fact that transfers are highly dependent on the overall size of welfare state spending and the level of the tax revenue. The rising income inequality is due not only to an increase in the top 1 per cent, but also a lower increase among low-income earners (Causa and Hermansen 2017). A further question is whether one possible impact of the economic policy has caused more people to live in poverty or to be at risk of living in poverty. It also relates to the change in the distribution of market income, and welfare states’ ability to redress the wide inequalities created partly due to how the market, especially the labour market, has functioned, such as the development towards more non-standard jobs. Thus, the question is whether it is still the case that the welfare state redresses these inequalities or whether, instead, growing inequality and/or the number of people living in poverty has increased in the aftermath of the financial crisis. This is because the composition of changes, whether or not it can be considered retrenchment at an overall level, can have different distributional types of impact (Paulus, Figari and Sutherland 2016), and therefore the effect of the variation in policy changes can be one of the reasons for the change in inequality. However, the ways in which change in instruments used in order to achieve fiscal consolidation 125

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have an impact on macro-economic recovery is outside the scope of the analysis, but if there is growing inequality, this might be one of the consequences thereof. It is important to look into the issues due to the many possible consequences of increases in inequality such as less social cohesion, reduced social mobility, negative impacts on health and several other aspects (Wilkinson and Pickett 2009, 2018; OECD 2011). The chapter does not have a strong focus on causes and reasons behind the development, albeit a few issues are presented. For a discussion on whether different kinds of governments (majority, minority or coalition) influence the development, see Schaltegger and Weder 2014. One reason for analysing inequality and poverty is that austerity can be understood as change in a negative way in quality of life, including in living conditions for all or specific groups in a society as a consequence of the public policy. The focus is not on who to blame – or to take the credit – for the policy, but on whether one can witness a change in the level of inequality, mainly at the aggregate level, but also a change in poverty, and this for different groups – working age and pensioners as prime examples of groups that might have been influenced by the development. There can be both vertical and horizontal redistribution (Bussolo et al. 2019); however, the focus here is on the overall outcome and consequences in the welfare states, and less on redistribution among, for example, different socioeconomic groups, and redistribution over a life-time. However, the difference between children, adults and older people is presented. Changes in inequality and poverty can also be an indicator of the degree of solidarity in a welfare state, including the understanding of deservingness (Reeskens and van der Meer 2019). The chapter is structured so that the next section depicts the development in inequality since the millennium and how changes in inequality may have an impact on societies. Section 10.3 then moves on to a presentation of the development in poverty, and a short discussion on whether this can be attributed to welfare state development and how this can influence societies’ development. Section 10.4 sums up the analysis. Even if access to services has an impact on distribution, this is not included due to data limitations, and, further, that it can be difficult to measure, albeit see the previous chapter for discussion on user charges. Still, consequences for standards of living depend on free and/or cheap access to elements such health care, education, accommodation, transport and so on.

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10.2  DEVELOPMENT IN INEQUALITY The development towards increased inequality might not, for example, be due to policy reactions in welfare states, but can also be caused by changes in the market (especially the labour market). Of the many factors in the market that might play a role, one can mention technological innovation and financial globalization which tend to favour people with specific skills and those with accumulated wealth (Darvas and Wolff 2016). Thus, for example, between 2007 and 2014, this was the main reason for the change in the EU15 member states, while also “policy changes contributed to lowering inequality in most countries, with the exception of a few traditionally generous welfare systems such as Denmark, Sweden and Belgium” (Bussolo et al. 2019, 10). It has been argued that we have seen widening of inequality within the OECD countries (Caminada et al. 2019b; Atkinson 2015; Causa and Hermansen 2017), and also specifically a rise in the income of the most rich (Piketty 2014). The tax system naturally has an impact on the development in inequality, so that the choice of and combination of the tax system and income transfers to a higher or lower degree reduces the level of inequality (Hagemann 2018). Appendix 10.1 and Appendix 10.2 show the development in the Gini coefficient measured by using equalized disposable income: in Appendix 10.1 since 2000 and in Appendix 10.2 since 2005 due to data availability. The choice for the market inequalities has been to use those where pension is excluded from transfers, for example, so that income includes pension income. This is because those outside the labour market often do not have any other income, so that trying to depict the change in inequality due to the impact of welfare state transfers would be distorted by that if only using the Gini coefficient for pure market income changes, and indicating a larger impact than what one could see as a consequence of welfare state changes. This also due to the fact that, as described earlier in relation to pensions, these changes will often be implemented over a very long time period. It is equivalized disposable income, so differences in household size have been taken into consideration. Overall, the data point to very diverse development with, in fact, a fall in inequality since 2005 in many countries, and an increase in some, for example, in Sweden, Denmark Austria, France, Spain and Lithuania. Thus, in a group of very diverse welfare states, which is

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an indicator that policies, in fact, matter with regard to reduction in inequality (Carmo, Rio and Medgyesi 2018). Further, at the same time, there has been light convergence across the member states (using the coefficient of variation as measure), showing that those with an increase in inequality have mainly been those with low levels of inequality; the opposite is also the case. These data inform not only about the impact of welfare state activities, but also as mentioned earlier the consequence of the changes in the market, especially the labour market. In 2013, it seemed that across 31 countries included in the Luxembourg Income Study (LIS) social transfers and taxes reduced the Gini coefficient by 31 per cent (Caminada et al. 2019a). There are many different possible factors influencing growth in inequality, such as globalization and technological change (Cohen and Ladaique 2018), but also levels of income transfers and the structure of the tax system. It has even been argued that the reduced progressive taxation in several countries has caused higher inequality (Carmo, Rio and Medgyesi 2018), or to put it another way the same tax level does not necessarily cause the same degree of redistribution. Therefore, Table 10.1 presents the changes in the redistributive effect (measured as a change in the Gini coefficient) since 2005 on transfers excluding pensions. Table 10.1 is an indication of the strong variations in the development in welfare states, including overall redistributive effect, but also how it has changed over time. A minus indicates that the impact on equality has been reduced, whereas a positive sign is an indicator that transfers have contributed more than in previous years towards a more equal society, for example, a reduced Gini coefficient. Using a simple average shows that welfare states from 2005 to 2010 slightly increased their effort to reduce inequality, whereas the opposite was the case from 2010 to 2017 – and over the full period welfare states have to a lesser degree reduced the inequalities than previously. This shows that the increase in inequality is not only caused by changes in the market, but also that the redistributional effort by welfare states has been reduced. Thus, if rising inequalities due to changes in transfers are interpreted as austerity, then there has been austerity in several countries, although seemingly not permanent austerity. However, this is not necessarily the same as witnessed by changes in spending, for example, in Greece, Cyprus and Ireland the reduction by transfers in inequality has increased over time, implying a stronger impact of welfare state activities on the degree of inequality, while in

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Table 10.1 Changes in the impact of transfers on the Gini coefficient since 2005 excluding pensions

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United  Kingdom

2005‒2010

2010‒2017

2005‒2017

−1.5 −1.2 −1.6 −0.8 −0.4 0.2 6.2 0.5 2 −0.1 0.6 1.1 −0.1 1.8 1.4 −0.1 1.2 −0.5 −0.1 −1.9 1.4 −0.6 −0.9 −1.4 −1 −0.3 0.8

−0.6 0.5 −1.2 −2 −0.7 −0.4 −5.1 0.6 −0.2 −0.1 0.2 0.5 −0.6 −1.7 −1.5 −3 −0.7 −0.8 −0.2 0.8 −1.2 −0.5 −0.4 −1.1 0.5 −0.9 −1.3

−2.1 −0.7 −2.8 −2.8 −1.1 −0.2 1.1 1.1 1.8 −0.2 0.8 1.6 −0.7 0.1 −0.1 −3.1 0.5 −1.3 −0.3 −1.1 0.2 −1.1 −1.3 −2.5 −0.5 −1.2 −0.5

Source:  Own calculations based upon Eurostat data, https://ec.europa.eu/eurostat/.

these countries after the financial crisis there has been some reduction in spending. Again, the implication is that the overall picture of the development is blurred. It further shows, as others have also done, that it is also the composition of changes that has an impact on the development in inequality (Paulus, Figari and Sutherland 2016). Literature shows that increases in inequality can have a large

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number of impacts, including higher levels of crime, more teenage mothers, less social cohesion, worsening health and so on (Wilkinson and Pickett 2018, 2009). It can also influence social cohesion and voters’ attitudes. This, in itself, should be a good reason for continuing welfare state intervention, but also the way in which spending is done. Recent years have also seen a growing awareness that reduced inequalities might increase economic growth (Tridico and Meloni 2018), this is because when inequality is low, more people feel free to invest in human capital and society will have to spend less on control and so on. Naturally, the structure of the welfare state has an impact (Cournède, Fournier and Hoeller 2018). So, overall, there is no doubt that increases in inequalities have repercussions on the way in which societies function. These might not be the same in all countries, still it can be important to include considerations of the impact on inequality in the choice of mix of instruments and changes in welfare states. Some part of retrenchment might even, however, have had a positive impact if, for example, it has caused higher taxes on the highest income earners, but also cuts in public sector pay in Greece, for example, had a progressive impact on distribution (Matsaganis and Leventi 2014).

10.3  POVERTY – WHAT DIRECTION? There are many and very varied issues related to the understanding, measurement and policies related to poverty (Greve 2020; Saunders 2019). Here the point is to look at what and how the development has been since the beginning of this millennium. Poverty can be measured in a number of ways. The choice here, given the focus on the development mainly within the EU, is to have a central focus on the number of people at risk of living in poverty, using 60 per cent of  the median income as a benchmark for the development. The overall development in relative poverty within the EU is depicted in Figure 10.1.1 The figure is an indicator of the fact that since the financial crisis the incidence of relative poverty has been on the rise within the EU as the distance to the threshold (e.g. the 60 per cent of median income) has increased. However, when looking at the percentage of the population living in poverty since 2005, the picture is very diverse across EU countries, as shown in Table 10.2.

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2005

23.3

2006

2007

2008

2009

2010

2011

22.9

23.0

2012

(% distance to poverty threshold)

2013

Figure 10.1 Development in relative poverty within the EU since 2005

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, sdg-10–30, accessed 17 August 2019.

25.5 25.0 24.5 24.0 23.5 23.0 22.5 22.0 21.5 21.0 2014

Relative medlan at-risk-of-poverty gap, EU-27 and EU-28, 2005–2016

2015

2016

25.0

EU-28

EU-27

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Table 10.2 Change in percentages at risk of poverty in EU countries since 2005

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

2005‒2010

2010‒2017

2005‒2017

−1.8 −12.1 −5.2 1.1 1.3 −4.2 2.3 −1.7 1.8 0.3 −0.6 −0.7 −8.1 −7.0 −0.2 −2.2 0.7 −1.6 1.5 −17.5 −0.8 −5.5 −0.2 −11.4 −0.3 3.3 −1.6

−0.5 −10.3 −2.2 −1.1 −0.7 1.7 −4.6 7.1 0.5 −2.1 3.9 0.6 −10.0 −4.4 4.4 −4.3 −2.0 1.9 −0.8 −8.3 −2.0 −5.8 −1.2 −4.3 −1.2 0.0 −1.2

−2.3 −22.4 −7.4 0.0 0.6 −2.5 −2.3 5.4 2.3 −1.8 3.3 −0.1 −18.1 −11.4 4.2 −6.5 −1.3 0.3 0.7 −25.8 −2.8 −11.3 −1.4 −15.7 −1.5 3.3 −2.8

Note:  For Bulgaria and Romania, the first year of available data is used for the calculation. A minus means less risk of living in poverty. Source:  Eurostat, https://ec.europa.eu/eurostat/, ilc_peps01, accessed 21 February 2019 and calculations based hereupon.

Overall, the emerging picture is that there has been a reduction in the percentages of people within the EU at risk of living in poverty. However, there has been an increase in countries as diverse as Sweden, Spain, Greece, the Netherlands, Luxembourg and Italy;

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whereas, there has been a reduction in all Eastern European countries. There are differences between before and after the financial crisis, although not with a systematic bias. Still, as a simple average, the reduction in poverty was higher before than after. Further, when using the coefficient of variation as the indicator, the overall picture is that there has been a strong trend towards convergence among the European countries. Even if the number of people living in poverty is known, it is also important to have an idea about who, as a rule of thumb, has a higher risk than others. This can be seen in Table 10.3. The table reveals not only the divergence across countries, but also that children in general are the group hardest hit and with the largest risk of living in poverty. A core explanation is the situation in the labour market with the risk not having a job or working poor, but there is also the impact of state welfare transfers. A historical issue and discussion have been whether policies should be targeted towards the poor, which could be one way of reducing public sector spending in times of possible retrenchment, with an argument being that those most in need should have, rather than the rest of the population. However, there is a contradiction as it has been argued to creating a paradox, as noted many years ago: “The more we target benefits at the poor only and the more concerned we are with creating equality via equal public transfers to all, the less likely we are to reduce poverty and inequality” (Korpi and Palme 1998, 36). This is also labelled the need to bribe the middle class in order to have their support for welfare states development. This thereby emphasizes that there is a need, as discussed in earlier chapters, to look into not only the degree of targeting and change in conditionality, but also the overall size of the welfare states, as a higher level of spending seems to help in ensuring also over time that more money is available for those in need of support from the welfare states. Poverty is not only about money, but can also be related to deprivation. A snapshot of the situation and development is shown in Figure 10.2. The severe material deprivation rate is defined as the percentage who are unable to pay for at least four of the nine defined deprivation items. Figure 10.2 reveals the huge difference within European countries, but also that in most countries severe deprivation has been reduced since 2007, the main exception being Greece, but also at a lower level in Italy, Spain, Austria and the Netherlands. In this way, the situation

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Table 10.3 People at risk of poverty or social exclusion, by age group, 2016 (% of specified population)  

Total

Children (aged 0–17 years)

Adults (aged 18–64 years)

Older people (65 years and over)

EU28 Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

23.5 20.7 40.4 13.3 16.7 19.7 24.4 24.2 35.6 27.9 18.2 27.9 30.0 27.7 28.5 30.1 19.8 26.3 20.1 16.7 18.0 21.9 25.1 38.8 18.4 18.1 16.6 18.3 22.2

26.4 21.6 45.6 17.4 13.8 19.3 21.2 27.3 37.5 32.9 22.6 26.6 33.2 29.6 24.7 32.4 22.7 33.6 24.0 17.6 20.0 24.2 27.0 49.2 14.9 24.4 14.7 19.9 27.2

24.2 21.7 37.2 13.0 20.2 20.2 20.3 24.4 39.7 30.4 19.2 26.9 31.5 28.1 25.0 27.3 21.0 27.2 17.3 18.4 18.6 22.7 25.6 37.0 19.1 17.6 18.2 18.1 21.8

18.2 16.4 45.9 10.1 9.2 18.3 41.4 17.4 22.0 14.4 10.0 32.8 23.2 22.9 43.1 37.4  9.1 15.1 26.1 10.0 13.7 16.1 21.8 34.0 19.9 12.3 13.6 17.0 18.0

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, ilc_peps01, accessed 17 August 2019.

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25 20 15

25

20

15

Figure 10.2 Development in severe deprivation within EU countries, 2007–2017

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, tespm030, accessed 17 February 2019.

Note:  The left bar is 2007, whereas the right bar is 2017.

0

30

30

l s s c e e ria ec nia ary nia ru via aly kia ga nd nd um ain nia nia nc om li ria ny lta ark d nd urg en ga re ma ng ua yp Lat It ova rtu ola rela elgi Sp ove sto ra gd pub ust rma Ma nm rlan inla bo wed l h C F in e A e e F em S e Sl E Sl Po P I B Bu G Ro Hu Lit G D eth K hR x d N Lu ti e zec n C U geo

35

35

5

40

40

0

45

45

5

50

50

10

55

55

10

60

60

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has also improved for the poor in most countries after the financial crisis. Naturally, different groups in societies can be harder hit by poverty than others, besides the difference between age groups. These are, for example, unskilled people or immigrants whose risk of living in poverty depends especially on the social security system (Eugster 2018). Growing up in poverty can have strong repercussions on future options, so that children doing so may have a lower level of education, if any, and a prospect of lower future income (Lesner 2018), and it is also known that investment in children growing up has positive societal implications (Heckman 2006). So, in this way, this might cause future problems for societies with high numbers of children growing up in poverty. Overall, it is therefore a problem that “in many OECD countries the bottom 20 per cent, hence poor households (based on a relative poverty criterion) have been the primary losers from the decline in redistribution” (Causa and Hermansen 2017, 44). Looking into groups, young people seem to have been harder hit (Erk 2017), and unemployment has been high for young people. This is because those at the bottom of the income distribution, at least in Southern Europe, but presumably also many other places, are now younger than before the crisis (Matsaganis and Leventi 2014). There are still many and varied ways into poverty, which might include family breakdown, educational failure, personal debt, addiction and worklessness (Pantazis 2016).

10.4 WHAT DO WE KNOW? – SOME CONCLUSIONS Inequality has been on the rise – even though, at the same time, the disparities between countries in Europe have been reduced. Welfare states’ ability to reduce the increase in inequality has in many countries been reduced over the last 10–15 years, while at the same time relative deprivation has been reduced in many countries. This is in contrast with the development presented in several other chapters that, even if there is in reality no or only limited signs of retrenchment in spending, the effectiveness with which welfare states have been able to cope with and reduce increases in inequality and poverty as a consequence of the way market forces work, has been reduced in the years after the crisis. Part of the reason is that the use

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of the tax system to reduce inequalities and lift people out of poverty has been weakened. This also includes the fact that in some countries the lowest benefits have not followed the change in income levels (see examples in Chapter 7 and Table 10.1). This is because transfers are an important component of low income earners’ overall income (Causa and Hermansen 2017). The tax and transfer systems have seemingly been able only to reduce part of the increased inequality in the market, meaning that this also explains part of the rising inequality (Caminada et al. 2019a), also arguing that pension is still the most dominant factor. This does not imply that the redistributive impact is the same in all countries; it is, for example, lower in Southern Europe and the US than in the Nordic and Central European welfare states (although data are from 1995 to 2010, so before the financial crisis), and that the “redistributive efficiency increases with government effectiveness and human capital and decreases with population” (Kyriacou, Muinelo-Gallo and Roca-Sagalés 2017, 945). In this sense, the final outcome of the market and welfare state initiatives has weakened especially the position of those who are on the margin of the labour market, given that their social security coverage is often lower than others. There is still also a high risk that children will grow up in poverty, and thus the intention to ensure social investment in relation to the standards of living of children in order to avoid this has not been reached, at least in the European welfare states. The data do not inform about the intergenerational impact of distribution; however, given that (as seen in Chapter 6) there might be reductions in pension coverage in the longer run, this shows a weakening of the role of the welfare states. Given that the loss of both absolute and relative position can influence people’s perception of the life they live, this might be a reason for the fact that some argue that there has been retrenchment and austerity in welfare states, albeit this is not what data in general show. This is summed up in the next chapter.

NOTE 1. Here from https://ec.europa.eu/eurostat/statistics-explained/index.php?title=SDG_​ 10_-_Reduced_inequalities#Inequalities_within_countries, accessed 6 February 2019.

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REFERENCES Atkinson, T. 2015. “What Can Be Done about Inequality?” Juncture 22(1): 32‒41 https://doi.org/10.1111/j.2050-5876.2015.00834.x. Bussolo, M., C. Krolage, M. Makovec, A. Peichl, M. Stockli, I. Torre and C. Wittneben. 2019. “Vertical and Horizontal Redistribution: The Case of Western and Eastern Europe.” 1/19. EUROMOD Working Paper Series. Caminada, K., K. Goudswaard, C. Wang and J. Wang. 2019a. “Income Inequality and Fiscal Redistribution in 31 Countries After the Crisis.” Comparative Economic Studies 61 (1): 119–148. https://doi.org/10.1057/ s41294-018-0079-z. Caminada, K., K. Goudswaard, C. Wang and J. Wang. 2019b. “Has the Redistributive Effect of Social Transfers and Taxes Changed over Time across Countries?” International Social Security Review 72 (1): 3–31. https://doi.org/10.1111/issr.12193. Carmo, R. M., C. Rio and M. Medgyesi. 2018. Reducing Inequalities: A Challenge for the European Union? Cham: Springer Nature. https://doi. org/10.1007/978-3-319-65006-7. Causa, O. and M. Hermansen. 2017. “Income Redistribution through Taxes and Transfers across OECD Countries.” OECD Economics Department Working Papers, No. 1453. Paris: OECD Publishing. Cohen, G. and M. Ladaique. 2018. “Drivers of Growing Income Inequalities in OECD and European Countries” In R. M. Carmo, C. Rio and M. Medgyesi (eds), Reducing Inequalities: A Challenge for the European Union. Cham: Springer International Publishing, pp. 31‒43. https://doi. org/10.1007/978-3-319-65006-7_3. Cournède, B., J-M. Fournier and P. Hoeller. 2018. “Public Finance Structure and Inclusive Growth,” OECD Economic Policy Papers, No. 25. Paris: OECD. https://doi.org/https://doi.org/https://doi.org/10.1787/e99683b5-en. Darvas, Z. and G. B. Wolff. 2016. An Anatomy of Inclusive Growth in Europe. Bruegel Blueprint Series 26, October 2016. Erk, J. 2017. “Is Age the New Class? Economic Crisis and Demographics in European Politics.” Critical Sociology 43 (1): 59‒71.https://doi.org/10.11​ 77/0896920515603109. Eugster, B. 2018. “Immigrants and Poverty, and Conditionality of Immigrants’ Social Rights.” Journal of European Social Policy 28 (5): 452‒470. https:// doi.org/10.1177/0958928717753580. Greve, B. (ed.) 2020. The Routledge Handbook of Poverty, 1st edn. London: Routledge. Hagemann, R. 2018. “Tax Policies for Inclusive Growth,” OECD Economic Policy Papers, No. 24. Paris: OECD Publishing. https://doi.org/https://doi. org/https://doi.org/10.1787/09ba747a-en. Heckman, J. 2006. “Skill Formation and the Economics of Investing in Disadvantaged Children.” Science 30: 1900–1902. Korpi, W. and J. Palme. 1998. “The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality and Poverty in the Western Countries.” No. 174, LIS Working Paper Series. Luxembourg.

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Kyriacou, A. P., L. Muinelo-Gallo and O. Roca-Sagalés. 2017. “Regional Inequalities, Fiscal Decentralization and Government Quality.” Regional Studies 51 (6): 945‒957. Lesner, R. V. 2018. “The Long-Term Effect of Childhood Poverty.” Journal of Population Economics 31 (3): 969–1004. https://doi.org/10.1007/s00148017-06​74-8. Matsaganis, M. and C. Leventi. 2014. “The Distributional Impact of Austerity and the Recession in Southern Europe.” South European Society & Politics 19 (3): 393–412. http://10.0.4.56/13608746.2014.947700. OECD. 2011. Divided We Stand: Why Inequality Keeps Rising. Paris: OECD. https://doi.org/10.17​87/9789264119536-en. Pantazis, C. 2016. “Policies and Discourses of Poverty during a Time of Recession and Austerity.” Critical Social Policy 36 (1): 3–20. http://10.0.4.15​ 3/0261018315620377. Paulus, A., F. Figari and H. Sutherland. 2016. “The Design of Fiscal Consolidation Measures in the European Union: Distributional Effects and Implications for Macro-Economic Recovery.” Oxford Economic Papers, 1–23. https://doi.org/10.1093/oep/afw054. Piketty, T. 2014. Capital – in the Twenty-First Century. London: Harvard University Press. Reeskens, T. and T. van der Meer. 2019. “The Inevitable Deservingness Gap: A Study into the Insurmountable Immigrant Penalty in Perceived Welfare Deservingness.” Journal of European Social Policy 29(2): 166‒181, 0958928718768335. Saunders, P. 2019. “Poverty.” In B. Greve (ed.), Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 58‒70. Schaltegger, C. A. and M. Weder. 2014. “Austerity, Inequality and Politics.” European Journal of Political Economy 35: 1‒22. https://doi.org/10.1016/j. ejpoleco.2014.03.005. Tridico, P. and W. P. Meloni. 2018. “Economic Growth, Welfare Models and Inequality in the Context of Globalisation.” Economic and Labour Relations Review 29 (1): 118–139. https://doi.org/10.1177/1035304618758941. Wilkinson, R. and K. Pickett. 2009. The Spirit Level – Why Equality Is Better for Everyone. London: Allen Lane. Wilkinson, R. and K. Pickett. 2018. The Inner Level. How More Equal Societies Reduce Stress, Restore Sanity and Improve Everyone’s Well-Being. St. Ives: Allen Lane.

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APPENDIX 10.1 DEVELOPMENT IN GINI COEFFICIENT IN SELECTED YEARS SINCE 2000 FOR EU COUNTRIES GEO/TIME Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

2000

2005

2010

2012

2014

2016

2017

30 25 : : 25 36 30 33 32 28 : 29 : 34 31 26 26 30 29 24 30 36 29 22 : 24 : 32

28.0 : 26.0 23.9 26.1 34.1 31.9 33.2 32.2 27.7 : 32.7 28.7 36.2 36.3 26.5 27.6 27.0 26.9 26.3 35.6 38.1 : 23.8 26.2 26.0 23.4 34.6

26.6 33.2 24.9 26.9 29.3 31.3 30.7 32.9 33.5 29.8 31.6 31.7 30.1 35.9 37.0 27.9 24.1 28.6 25.5 28.3 31.1 33.7 33.5 23.8 25.9 25.4 25.5 32.9

26.5 33.6 24.9 26.5 28.3 32.5 30.5 34.3 34.2 30.5 30.9 32.4 31.0 35.7 32.0 28.0 27.2 27.1 25.4 27.6 30.9 34.5 34.0 23.7 25.3 25.9 26.0 31.3

25.9 35.4 25.1 27.7 30.7 35.6 31.1 34.5 34.7 29.2 30.2 32.4 34.8 35.5 35.0 28.7 28.6 27.7 26.2 27.6 30.8 34.5 35.0 25.0 26.1 25.6 26.9 31.6

26.3 37.7 25.1 27.7 29.5 32.7 29.5 34.3 34.5 29.3 29.8 33.1 32.1 34.5 37.0 31.0 28.2 28.5 26.9 27.2 29.8 33.9 34.7 24.4 24.3 25.4 27.6 31.5

26.0 40.2 24.5 27.6 29.1 31.6 30.6 33.4 34.1 29.3 29.9 32.7 30.8 34.5 37.6 30.9 28.1 28.3 27.1 27.9 29.2 33.5 33.1 23.7 23.2 25.3 28.0 33.1

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, EU-SILC, ilc_di12, accessed 6 February 2019.

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APPENDIX 10.2 GINI COEFFICIENT IN SELECTED YEARS SINCE 2005 BEFORE SOCIAL TRANSFERS (PENSIONS EXCLUDED FROM SOCIAL TRANSFERS) GEO/TIME

2005

2010

2012

2014

2016

2017

Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Greece Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden United Kingdom

37.7 : 32.5 35.8 33.1 37.9 41.8 34.7 34.4 34.3 34.1 31.0 39.4 39.9 32.1 36.5 30.2 33.7 32.5 41.1 41.3 : 30.7 31.7 35.5 33.3 42.9

34.8 35.9 29.8 38.0 35.9 35.3 46.8 34.9 37.7 36.3 33.7 33.5 39.0 42.4 34.9 32.9 33.0 31.8 34.4 34.7 38.3 37.4 29.8 30.0 33.9 35.1 42.0

35.1 35.9 29.1 37.1 34.5 35.9 46.2 36.6 38.7 36.0 34.6 34.1 38.8 37.7 35.3 34.9 31.8 32.0 33.6 34.2 38.7 37.2 30.1 29.1 34.2 34.9 40.7

34.5 38.0 29.6 38.2 37.1 39.2 45.4 37.0 39.9 35.1 34.8 37.5 38.5 39.4 35.5 35.4 32.4 32.3 33.9 34.0 38.7 38.2 31.0 30.0 34.1 36.3 40.2

34.2 40.3 29.2 36.9 35.9 36.2 41.9 36.8 39.1 35.3 35.6 36.5 37.0 41.0 36.8 34.2 32.7 32.7 33.6 32.9 37.5 38.1 30.1 27.7 34.6 36.4 39.7

33.6 43.4 28.2 36.7 35.0 35.2 41.6 36.0 38.1 35.7 34.9 34.7 37.0 41.3 36.4 33.9 32.0 32.6 33.8 33.6 36.9 36.5 29.3 26.2 34.3 36.7 40.9

Source:  Eurostat, https://ec.europa.eu/eurostat/home?, EU-SILC, ilc_di12c, accessed 6 February 2019.

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11.  How far have welfare states changed? 11.1 INTRODUCTION In the previous chapters, the overall macro development in spending and financing as well as in core parts of the welfare state are presented, as is the development in equality/inequality and poverty. The aim of this chapter is to try to sum up what we have learned and how, in a more general frame, one can interpret the data. Therefore, in section 11.2 there is a discussion about whether the analysis shows a good picture of the actual development. This is a follow up to Chapter 3 and its discussion on measuring changes in welfare states. The interpretation of data includes whether there is permanent austerity and overall retrenchment in general in the welfare states, or whether we need to think about and de facto are having a variation across different welfare areas over time and between countries in order to be able to understand how the development has been. This is the focus of section 11.3. Section 11.4 tries to discuss possible explanations for the development, but mainly with a focus on why so many articles and books argue for austerity and retrenchment, given that data to a large degree are not able to explain that welfare states should be in a state of permanent austerity. It also ventures into why this might be the case. Lastly, section 11.5. sums up the analysis.

11.2 A FEW WORDS OF MEASUREMENT ISSUES As already shown, especially in Chapter 3, there is an issue in relation to how to understand the development, which includes a number of interrelated issues:

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1. Impact of demographic changes. 2. Impact of fixed and variable costs in the light of these changes. 3. Increases in wealth in a society – also in relation to welfare transfers and services. 4. New services and changes in productivity. 5. Overall impact on the degree of inequality. Thus, first there is the issue of demographic pressure on spending, including the ageing of the population, and whether or not there is the same amount of money available for the users. This is also because demographic changes, besides the financial crisis, have been seen as a reason for economic pressure on the welfare state, and thereby also for some a window of opportunity to change as one would like. The analysis has tried to cope with this by using a variety of measurements. Looking into income transfer is a specific aspect with regard to demographic changes, especially in relation to pensions, as one can argue that this can be interpreted in different ways. One is that the same amount of money (in real prices) should be available. Another is that the replacement rate should not change, as a negative change in the replacement rate means that the group of beneficiaries have not received any part of the real increase in society’s wealth during the time of the analysis (and if higher, they have received more). The data in the previous chapters have (for unemployment and pensions) looked into the replacement rate, so in this way this has been taken into consideration in the analysis. Specifically, in relation to pensions, the chapter also included not only the short-term development, but also how decisions taken can have an impact in the years to come. In relation to services, even if there is the same or a higher real amount of money available, then this begs the question whether it has followed the number of people in need of services. This has been taken care of as best at possible by relating cost to the change in demography, and, if possible, to the specific age group. Overall, ‘need’ is difficult to define and measure, as it also includes a normative perspective on who, in fact, is deserving. However, there has not been, for example within health care, any strong changes in unmet needs; see Chapter 8. There have been different ways of coping with the change in demography. This given that there does not seem to be any systematic international knowledge on what increase in spending is necessary to

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cope with the change in demography, as well as the consequence of how this influences various elements of the welfare states. Thus using the overall number of people has been one way to measure it, and for long-term care the number above the age of 65 has been used. For this analysis, changes in the composition of the population, especially care for children, the elderly and the sick, are areas where this might influence the need for money in order to avoid that users and those working in these sectors do not have the feeling that they have less resources available and, therefore, a reduction in quality. It is thus important to keep in mind that the analysis focuses on the macro-level, and with regard to services there might be specific micro-cases where users and/or workers have a different perspective, and also sometimes with regional and local variations. For the spending on services, besides the abovementioned, there is a second question on the issue of fixed and variable costs of a provision of service (small changes, up or down, to the number of children in day-care, primary education and so on do not, in reality, change the overall cost, even if they might change the average cost per user). Therefore, the cost per user might change differently whether the number of users go up or down and therefore the pressure on spending and feeling of austerity might depend hereupon. In the long-run, it should also be possible to change fixed costs. There is further, as the third issue, a question about whether increase in wealth (due to economic growth) should also cause a higher level of service within the specific welfare service area. At the end of the day, this is a political issue, but also as shown this is the case in both good and bad times. However, a contradictory (fourth) issue is whether in the delivery of services within the welfare state one can also expect an automatic increase in cost, for example, the old debate about Wagner’s Law of increasing the proportion of society’s resources to the public sector (Musgrave and Peacock 1958). This partly due to, it was argued, the fact that the services sector did not follow productivity increases in the industrial sector (Baumol’s disease), and therefore would increase when measuring it as a proportion of GDP, given the lower productivity increase than in private industrial production. To put it another way, this also means that it might be possible, if there is an option for productivity increase, to deliver more services (including to more people in ‘need’) for the same amount of money. The choice in the chapters on services was to look into changes in spending in

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fixed prices. By using fixed prices, the consequence of the variation in inflation is ensured not to have an impact on the results, and whether productivity or new tasks have influenced the level of spending is thus not integrated into the analysis. The calculation has thus not dealt with the issue of productivity. On the one hand, it might be argued that it is not possible to make services directly to users (such as long-term care and childcare) more productive as they are personal-related social services. This is highly likely in many respects. Still, at least in principle there might be options for making perhaps part of the service more effective, such as in health care to plan activities better than before or combined with the use of new technology, including welfare technology in long-term care. It has thereby been assumed that if there has been increased productivity, then this has been used as part of the service development and is also an option to take care of the balance between fixed and variable costs of delivering care. This is also so that if there has been a new type of service delivered, it can be done as part of an increase in productivity. However, the data do not inform about whether there has been an increase in the need for service in line with an increase in GDP (as in recent years in most countries). Using real changes in GDP as a requirement for measuring change could imply a risk that in countries with low or negative development in GDP there should also be a reduction in spending on social policy. One calculation does, in fact, show that using growth in GDP since 2010 and comparing it with what the growth in spending should have been and then with the actual level of spending in 2016 would mean that there has not been austerity in the Southern European welfare states, whereas there would have been reduction in all other welfare states. This would be a contradiction to most of the other measurements done (as one issue), as well of what is depicted in many articles and books (see section 11.3). Furthermore, one issue is that in times of economic recessions there might be the need for more spending (e.g. to those who have become unemployed), but it would not be expected to reduce total spending on transfers, unless making strong cuts in the replacement rates. Naturally, when societies become richer there might be expectations of more services, such as with health care, but this does not mean that the need for transfers might move in the same direction as spending on certain transfers in prosperous times, which then might be influenced by higher levels of employment and thereby be reduced without implying retrenchment.

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Overall, it can be argued that the method to estimate change should give a reasonably precise picture of the macro development and thereby help in presenting whether or not we have witnessed austerity. Specifically within the health care sector the growth in spending is argued to have an age effect, an income effect (income elasticity) and a residual effect (relative price, technology, institutions and policies), with the residual effect from 1995 to 2009 being the highest (De la Maisonneuve and Martins 2013), and today the highest age groups still cost the most. The unit cost of long-term care does not depend on age, but still a growing number of elderly in need could cause a pressure on spending. Thus by using the number in need and fixed prices, as was done, the main part of change is covered, although not institutional changes. However, even if there has not been retrenchment, then the question of the overall impact of the welfare state’s impact on distribution is still an important issue (the fifth element). The increasing degree of inequality might be a reason why people find that there has been retrenchment, in the sense that the ability to reduce inequalities in the distribution created mainly in the labour market has been reduced. Therefore, Chapter 10 looked into the development in inequality.

11.3 HAS THERE BEEN AUSTERITY AND RETRENCHMENT? As argued in Chapter 3, a central issue is to try to depict whether or not there has been austerity. The discussion below is based upon the analysis in the previous chapter, and comprises a summation in order to depict whether one can argue that there has been retrenchment at the macro-level. This has, in accordance with Chapters 2 and 3 been understood as a reduction in overall taxation and/or spending in the different sub-aspects included in the analysis, as well as the analysis on change in inequality and poverty. It has been split into distinct time-periods in order to be able to see whether, at times, there have been reductions, while at the same time looking into whether this has been there for a longer time period. Permanent austerity is understood, as in all three periods considered there have been reductions. This means that it should have been in each of the two sub-periods (typically before and after the financial crisis) and over both periods.

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Table 11.1  Austerity in welfare spending? 2000–2010 Welfare spending

2010–2016 Ireland, Greece, Spain, Italy, Cyprus, Hungary, Portugal, the UK

2000–2016

Permanent austerity Zero

This is to avoid the situation that a short time-spell with changes influences the overall depiction of changes, which could be the case if strong changes in one of the two periods also causes a reduction over the full period. The following presentation sets out the different parts one by one using a common format and splitting into the time before and after the financial crisis as far as possible. It starts with overall spending on welfare. The data on welfare spending1 is summarized in Table 11.1. So, overall the data do not inform on a situation where reduction has been the central way to understand the development, although after the financial crisis there was a reduction mainly in Southern European and in the liberal welfare state countries. Spending is one issue, the way of financing the welfare state is another. This is shown in Table 11.2. In contrast to the development on spending, there have been strong changes in several countries, which can be labelled systemic retrenchment (Pierson 1994), and where these possible changes towards defunding might in the future pave the way for further reductions in welfare spending. Still, however, it is only in Ireland and Romania that one can find permanent austerity, while at the same time there has been a reduction in the overall tax pressure in 12 countries over the last 17 years. This can be, and has presumably been, the case for different reasons. However, this might explain part of the change in inequality and poverty, see also later hereabout. Pensions has been an area with lengthy discussions on changes due to the demographic pressure (Hinrichs 2019). Table 11.3 provides a summary of the short-term and future expected change within the pensions system. Here the picture in the short term is not one of austerity. Neither is this the case when looking at spending per capita or per beneficiary,

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Table 11.2  Change in taxation

Taxation (reduction in tax-burden)

2000–2010

2010–2017

2000–2017

Permanent austerity

Denmark, Finland, Sweden, Belgium, Germany, France, the Netherlands, Austria, Ireland, Greece, Spain, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Latvia, Lithuania

Ireland, Romania, Slovenia, Estonia

Denmark, Finland, Sweden, Germany, Austria, Ireland, Bulgaria, Hungary, Romania, Slovenia, Slovakia, Lithuania

Ireland and Romania

even though there have been more reductions when looking into spending per beneficiary. In none of the countries can permanent austerity be witnessed over the time period. However, this is not the case when looking into expected net-replacement rates in the future, where changes from 2006 to 2016 indicate permanent austerity in six countries – and this in very diverse welfare states. This is albeit a field where the data alone do not inform about changes in the standard of living as there might be a crowding-out effect from other changes, such as occupational-based pensions not reflected as public spending. One issue related to the elderly is pensions and another is services, which is shown in Table 11.4. This also gives a variegated picture. Until 2010 there has been more money available in most countries, not dependent on whether we look only at those above the age of 65 or looking overall at spending on long-term care, including also people below the age of 65 in need of long-term care. From 2010 to 2016 the picture indicates that there has been retrenchment in different types of welfare states. Although looking into all the years and all the periods, for each

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Table 11.3  Austerity in the field of pensions?

Pension  per old age beneficiary (2006–2010, 2010–2016, 2006–2016) Pension –   short term Pension  long-run (net replacement rate in future – 2006–2012, 2012–2016, 2006–2016)

2000–2010

2010–2016

2000–2016

Permanent austerity

Belgium, Denmark, Germany

Ireland, Greece, Cyprus, Latvia, the Netherlands, Slovenia Italy

Denmark, Cyprus

Zero

Denmark, Finland, France, Greece, Hungary, Italy, the Netherlands, Portugal, Slovenia, Bulgaria, Cyprus

Denmark, Finland, France, Greece, Hungary, Italy, Luxembourg, the Netherlands, Portugal, Slovenia, Spain, Sweden, Bulgaria, Cyprus, Romania

Austria, Belgium, Czech Republic, Denmark, Germany, Greece, Hungary, Luxembourg, the Netherlands, Portugal, Slovenia, Spain, Sweden, Romania

Zero Denmark, Greece, Hungary, the Netherlands, Portugal and Slovenia

Table 11.4   Austerity in old age – including long-term care? 2000–2010

2010–2016

2000–2016

Permanent austerity

Old age spending per inhabitant over 65

Germany, Italy, Slovenia

Slovenia

Slovenia

Long-term care (spending in in-kind benefit)

Czech Republic, Greece

Czech Republic, Denmark, Ireland, Greece, France, Italy, Cyprus, Latvia, Malta, the Netherlands, Portugal, Slovenia, the UK Denmark, Ireland, Greece, Spain, Italy, Hungary, the Netherlands, Poland, Portugal

Czech Republic, Greece, Italy

Greece

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Table 11.5  Austerity in health care? 2000–2010 Health care

2010–2016 Belgium, Denmark, Ireland, Greece, Spain, Italy, Cyprus, Luxembourg, the Netherlands, Portugal

2000–2016

Permanent austerity Zero

indicator there is only two countries where one can argue that there has been permanent austerity – that is Slovenia and Greece. Another service, and one that is often important for voters (Greve 2019), is the next topic – health care (see Table 11.5). Health care is an important issue as indicated by the lack of permanent austerity within health care. There were no countries with a reduction from 2000 to 2010, 10 from 2010 to 2016, and none over all the years. This, again, points to the fact that the choice of time for analysing what has happened to welfare states can influence the outcome of the analysis. Another central field of welfare states is unemployment benefit. Table 11.6 provides an overview of the development herewith. This is a field where both before and after the financial crisis there has been austerity, even to such a degree that in six countries this can be labelled permanent austerity, and in 13 countries there has been a reduction in the wake of the crisis. Thus, in contrast to health care, and in line with populist arguments, the unemployed are not to the same extent seen as deserving and thereby making it possible to make changes when there is an option to do so – as when there is a financial crisis and/or a public sector deficit. The focus on the possible negative incentive to work due to the level of benefits has also been used as an argument for change. Change in the replacement rate might thus be one of the reasons for the possible changes witnessed in the economic distribution. Table 11.7 provides a summary of development in inequality and poverty. Especially when looking at the development in inequality, this shows that there has been a negative development as in five countries

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Table 11.6  Austerity in replacement rates?

Unemployment – replacement rate

2001–2010

2010–2018

2000–2018

Permanent austerity

Denmark, Finland, Sweden, France, Germany, Luxembourg, the UK, Spain, Malta, Czech Republic, Hungary, Poland, Estonia

Finland, Sweden, Austria, Germany, Ireland, Greece, Portugal, Spain, Malta, Czech Republic, Hungary, Poland, Slovenia, Latvia

Denmark, Finland, Sweden, France, Germany, the UK, Portugal, Spain, Malta, Czech Republic, Hungary, Poland, Slovenia

Finland, Sweden, Malta, Czech Republic, Hungary and Poland

in all three periods there have been tendencies towards higher inequality. It is even stronger when looking into the impact of changes in the transfer system which has been less redistributive in a state of permanent austerity in 11 countries. Surprisingly the Southern European welfare state is not among these 11 countries; instead there are a number of countries from Eastern, Middle and the Northern part of Europe. Since the financial crisis, an increase in inequalities has been the case in most EU countries. This increase in inequality cannot be found to have had the same impact on those at risk of poverty as only one country (Spain) can be argued to have seen permanent poverty.

11.4 REASONS FOR THE UNDERSTANDING OF THAT THERE IS AUSTERITY One possible reason for the fact that there seem to be many arguing for and presenting arguments of austerity could be that, as based upon the data in the previous section, since the millennium, in 23 EU member states there has been permanent austerity in at least one of the indicators used. In Greece, Hungary and Sweden it can be found in three of the indicators, and in Slovenia and Denmark in two of the

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Change in poverty (at risk of poverty rates)

Inequality – change in impacts of transfers on Gini coefficient

Gini coefficient – change

Bulgaria, Denmark, Germany, Ireland, Greece, Spain, France, Cyprus, Lithuania, Luxembourg, Malta, Austria, Sweden Belgium, Bulgaria, Czech Republic, Denmark, Germany, France, Latvia, Hungary, the Netherlands, Austria, Poland, Romania, Slovenia, Slovakia, Finland, Sweden Denmark, Germany, Ireland, Spain, France, Malta, Austria, Sweden

2005–2010

Bulgaria, Greece, Cyprus, Luxembourg,Sweden

Belgium, Czech Republic, Denmark, Germany, France, Latvia, Hungary, Austria, Romania, Slovakia, Sweden

Bulgaria, Denmark, Greece, Spain, France, Italy, Cyprus, Lithuania, Luxembourg, Malta, Austria, Sweden Belgium, Bulgaria, Czech Republic, Denmark, Germany, Estonia, France, Latvia, Luxembourg, Hungary, the Netherlands Austria, Poland, Romania, Slovenia, Slovakia, Finland, Sweden, the UK Germany, Greece, Spain, Italy, Luxembourg, the Netherlands, Austria, Sweden

Bulgaria, Greece, Spain, Italy, Cyprus, Luxembourg, Hungary, the Netherlands, Finland, Sweden Belgium, Czech Republic, Denmark, Germany, Estonia, Ireland, Spain, France, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Portugal, Romania, Slovenia Slovakia, Sweden, the UK The Netherlands, Luxembourg, Cyprus, Italy, Spain, Greece, Estonia

Spain

Permanent austerity

2005–2017

2010–2017

Table 11.7  Change in inequality and poverty



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indicators. Thus if analysing the development using one indicator, or even a case-based analysis, it is possible to argue that there has been reduction in the spending or the impact of welfare state activities in most countries. This alone does not inform on the severity of changes, and the impact of the changes in Southern Europe seems to be stronger than in most of the rest of Europe. Possible explanations for the debate and understanding concerning austerity could be: a) Asymmetric discussion, including a continued expected option of more money. b) ‘Luxury goods’ income elasticity is above 1 and thus when societies become richer, the demand for goods increases. c) A few reductions might feel stronger than new initiatives (behavioural psychology/behaviour argument), e.g. people have a high loss-aversion. d) Public and academic debate cause the belief that austerity has taken place – including discussion on pressure on welfare states due to demographic transitions. e) Micro level – certain groups harder hit by changes. f) New tasks with the same amount of money. g) Increase in inequality. h) In certain parts there has been austerity inspired by populist viewpoints on deservingness. i) Earlier defunding leading to a budget deficit in need of correction – where the focus has been on spending rather than increases in taxes and duties – although this has also taken place. The book does not go into detail on these, but it indicates possible reasons for them, besides where there has been austerity, the fact that there is a strong understanding that this is happening. However, a few words to elaborate are important. The asymmetric issues revolve around the fact that if the gain is concentrated and the payment is spread then this has historically been used as an argument for growth in the public sector, and this might have been more difficult to ensure in times of restricted or no economic growth. The luxury goods argument, also used in the argument for growth in health care spending (De la Maisonneuve and Martins 2013), is that the demand for public sector services increases when societies grow richer. Using the word ‘luxury’ refers only to economic theory about what

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­ appens when demand elasticity is above 1. Since 2000 there has been h economic growth, albeit especially in the first part of the millennium. Loss aversion has, since the path-breaking work of Kahneman and Tversky (Tversky and Kahneman 1979), been a central element to understanding the difference between the impact of gaining something and losing something. Thus, just a small reduction in one’s services and benefits can cause a negative view on the development, or to put it another way if the same amount is available and there has been an increase in one area and a reduction in another, then the reduction has a higher impact on people’s perception, and thereby a feeling of a negative development. This is further related to the fact that when we get used to something we will want new things, the hedonic treadmill due to adaptation. Thus, over time it might be that improvement does not give extra real benefits to the users (Kahneman 1999). Therefore, also the combination of adaptation and the hedonic treadmill implies that it might be possible to create an understanding that less is available even if there is, as shown in previous chapters, in most circumstances the same or more available. This combined with a reduction in a few areas thus indicates to citizens that austerity has taken place. In combination herewith (point c, above), the public and academic debate implies that it is possible that a misconception of what actually takes place is described. The public debate might be due to interest groups who push for expansion in their field of interest, and thus arguing for the need for a specific group can leave the impression that there have been cuts for this group. Furthermore, the need for changes in spending between areas as a consequence of the demographic transition might thereby also ­ nderstanding of whether or not there has been influence the u retrenchment. Whether the pressure group comprises users or public sector employees does not change the possibility of this influencing what has taken place or might take place if more resources are not allocated to a field. Given the political ambition of re-election, this might also influence their behaviour as re-election is influenced by promises of new initiatives. Such new initiatives might mainly be possible if either reductions are made in other areas, there is a willingness to increase tax payments or the ability to increase productivity. An increase in productivity might, at the same time, cause poorer working conditions for those employed, and they will feel this as a loss. So new

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initiatives with the same amount of money can mean, at the micro level, a feeling of austerity, in that workload increases. Given the difference in legitimacy of various parts of the welfare state (for a recent overview, see Greve 2019), there might even have been austerity due to populist viewpoints, such as those on benefits to migrants and the unemployed. One could label this as populist austerity. This, given that the notion of deserving versus non-­deserving is still an important driver for welfare states’ development. The feeling of austerity might further be due to the increase in inequality as also depicted in this book. This is for two reasons – one being the impact of relative deprivation, the other is that for some the increase in inequality is due not only to the market forces, but also a reduction in the level of benefits, as shown in Chapters 6 and 7. Further, given, as described earlier, public sector services increase with increases in economic wealth, then a situation where this is not seen by an increase in services available implies a feeling of austerity. As also argued earlier, the creation of a situation where one can avoid blame for reductions, by using the economic public sector deficit and debt as a reason, is an indication that if one wishes to continue to have a strong welfare state, defunding of the welfare state must be avoided. An important aspect of this is to ensure that the necessary financing is also available in the future, even if this means, for example, the need to tax robots (Guerreiro, Rebelo and Teles 2017). Thus stable public finances can be a prerequisite for stability in future welfare states.

11.5  SUMMING UP Overall, the analysis does not lend support to a situation of permanent austerity, where Greece might be an exception. Instead, the analysis shows what can be labelled restricted austerity, or perhaps populist austerity. This is in line with populist arguments – focusing on who they see as deserving – where changes have implied higher levels of inequality, including lower coverage rates for the unemployed. The only contradiction is the future expected reduced level of the pension replacement rate. Demography still seems to play a role in the transition of welfare states, including the feeling that those in countries with a population increase do not find that they get a sufficiently higher amount of

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money, and those where demography is shrinking find that their benefits are reduced too much. The welfare state in affluent countries seems to survive, and will, perhaps, in good economic times grow again.

NOTE 1. Unless otherwise described, euros per inhabitant in fixed 2010 prices are used, and the countries mentioned are those where there has been retrenchment. Data for the tables can be found in the appendices and tables in Chapters 4 to 10.

REFERENCES De la Maisonneuve, C. and J. O. Martins. 2013. “Public Spending on Health and Long-Term Care.” Paris: OECD Publishing. Greve, B. 2019. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Guerreiro, J., S. Rebelo and P. Teles. 2017. “Should Robots Be Taxed?” NBER Working Paper Series. https://doi.org/10.3386/w23806. Hinrichs, K. 2019. “Old Age and Pensions.” In B. Greve (ed.), The Routledge Handbook of the Welfare State, 2nd edn. London: Routledge, pp. 418–431. Kahneman, D. 1999. “Objective Happiness.” In D. Kahneman, E. Diener and N. Schwarz (eds), Well-being: Foundations of Hedonic Psychology. New York: Russell Sage Foundation, Chapter 1, pp. 3‒25. https://doi.org/10.10​ 07/978-3-540-68540-1_1. Musgrave, R. and A. Peacock. 1958. Classics in the Theory of Public Finance. London: Macmillan. Pierson, P. 1994. The New Politics of the Welfare State. Oxford: Oxford University Press. Tversky, A. and D. Kahneman. 1979. “Econometrica.” Econometrica 47 (2): 263–291. https://doi.org/10.1111/j.1536-7150.2011.00774.x.

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12.  Austerity in welfare states or not? 12.1 INTRODUCTION This last chapter, albeit briefly, sums up and concludes on what has been learned throughout the book, thus answering the question: is retrenchment truth or fiction? Before embarking upon this, section 12.2. briefly discusses issues touched upon only to a limited extent, including the reasons why, and section 12.3 concludes what the analysis has shown. There are many and varied issues to be aware of when analysing welfare states and this book does not claim to have answered them all, but hopefully it will provide inspiration for the continuing analysis of why and how we see welfare states develop, including perhaps – and also very importantly – the consequences thereof, without believing that there is just one single explanation.

12.2 LIMITATIONS The analysis has focused on measured changes within welfare states in the EU. Thus, changes in the many welfare states outside Europe, including the US, have not been analysed. One can also question whether countries from East Asia and countries such as Australia, New Zealand and Canada should have been included in the analysis. However, given that most European countries are members of the EU, Eastern European countries and Cyprus becoming members in 2004, and Bulgaria and Romania in 2007, it is a group of countries with common traits and conditions. The focus has been on the macro-level, thus even when there have been the same resources available there might be individuals who felt or witnessed a worsening of the support they get or their working conditions. Thus, for example, the possible consequences of outsourcing and marketization are not included, neither is the 157

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weakening of working conditions, although economic security in the case of unemployment is reflected in the data used for the analysis. Change in legal rules and/or institutional structures is not included in the analysis. This might have specific local consequences or for specific groups of persons now or in the future. However, given the overall macro-data used, this can be argued to be of a lesser problem, as there will presumably always be a conflict and discussion about how to distribute scarce resources. A specific issue is also whether new tasks and new promises from the political system to do more than in previous years means that even with more money available, as shown in Chapter 5, this might not be looked upon in this way for those in need. However, on the other hand, a possible increase in productivity is not taken into consideration, including the use of welfare technology, and the impact of healthy ageing, so these are aspects which might point in different directions. Some of these questions might best be answered by case studies, which albeit at the same time risk losing sight of the bigger picture, including that even if in one small section of the welfare state there have been reductions, there has at the same time been expansion in others. There has thus, for example, been an increase in formal day-care for children in most EU countries.1 Family policy has not been included in the analysis, although spending is part of the overall level of spending as used in Chapter 5.

12.3  HAS THERE BEEN AUSTERITY? Welfare states in Europe are not a frozen landscape (Palier and Martin 2007), nor have they been resilient to change (Pierson 2002; Taylor-Gooby 2016). Nevertheless, neither is it a time of permanent austerity. Thus from 2000 in fixed 2010 prices there has been more money available for social protection per inhabitant, with the lowest being in Italy (20 per cent) and the highest in Romania (212 per cent). Even in Greece where after the crisis (from 2010 to 2016) there was a reduction in spending of 13.8 per cent, since 2000 there has been an increase of 41.4 per cent. There are still strong deviations among the countries, and in 2016 the highest amount per inhabitant (2010 prices) was in Luxembourg with 18.362 euros per inhabitant, and the lowest with 1.105 euros was in Bulgaria. However, over time, the difference has narrowed from a

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factor of 33.9 in 2000, to 20.3 in 2010 and 16.6 in 2016. This is in line with the fact that there has been convergence, also when including eligibility criteria and conditionality for benefits, also in line with that “there is surprisingly little evidence that international economic crisis has led to sudden and fundamental welfare state reform” (Pierson et al. 2016, 264). Given the lower growth in spending after the crisis, and especially in Southern European countries and those in the liberal welfare state reductions, this points to the fact that voters’ expectations of continued increases has not been a possible option, and might thus explain the understanding that austerity has been the only game in town (Kersbergen, Vis and Hemerijck 2014). However, this cannot be shown by these data. This is not to neglect the fact that in some countries the crisis was used as a window of opportunity (Kingdon and Thurber 1984; Béland 2016) to pursue ideas of societies’ development which, without the crisis, would not have been possible. This reflects the fact of loss aversion (Tversky and Kahneman 1979) that losing even just a little is greater than gaining the same amount. At the same time, there has been increasing inequality, meaning that for many the situation after the financial crisis has worsened, and thus even if not clearly seen at the macro-level as retrenchment, it is felt as such for the individual when comparing with how others have had a better development. This leads to the fact that one could argue that we have seen retrenchment in areas not in line with populist sentiments, such as with regard to unemployment benefit. At the same time, this does not explain the longer-term perspective of reducing the replacement rate within the pension system, as old age can be seen as deserving (Greve 2019). However, given the more hidden retrenchment (which has not yet been fully implemented), this might explain why it has been possible, as it has presumably not been recognized by voters as such, but more as a way of coping with the demographic pressures in societies now and in the future. Using the lens of populism could give rise to not labelling development as permanent austerity, but as more populist retrenchment, meaning that welfare states might change in line with populist sentiments on who is deserving and who is not deserving, as this influences voters’ behaviour and thereby options for re-elections. Naturally, ideas also influence, so if one does not want to use the

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populist label, one could argue that there is limited or specific types of retrenchment, especially in times of weak economic development. One possible reason for retrenchment in some countries is, in fact, in line with one of Pierson’s historical arguments (Pierson 1994), that defunding by reducing taxation could then be used later as an argument for reduction in welfare state spending, as those countries with the strongest changes have been countries with the highest public sector deficits and debts. Thus, in order to ensure stable welfare state development, one needs to ensure stable financing, and trying in good times to reduce public sector debt, or as it has been argued “social policies increasingly face retrenchment because of demands for austerity that are prompted by budget deficits and debts” (Brady and Lee 2014, 57). This, in order to be able to have reserves in less good times to, in fact, make classical Keynesian demand management policy. By this, it is not argued that part of the policies and restrictions imposed on some countries after the financial crisis were the best, but it seems obvious that this would have been less possible in cases where the economy had been managed differently in good times. Therefore, policies arguing for reductions in taxes and duties as a way to ensure economic growth (although not ensuring whether this will work or not) might cause a reduced welfare state and an increase in inequality in the future.

12.4 CONCLUSION Despite the rhetoric, it seems that welfare states are here to stay. Across Europe, they are under pressure in different ways, partly due to demographic transition and difficulties in ensuring financing. Thereby, the historical growth until the crisis has not been sustainable in the same way. However, since the millennium there has been more money available for welfare purposes in most areas. Welfare states are changing, as they have always done, and they are said to have been in crisis (OECD 1981). There is no reason to believe that there will not be a demand for more welfare in the future. However, this also points to the fact that populist austerity is a risk for those not seen as deserving by these approaches. Those arguing for less welfare state will, presumably, also continue if possible to reduce spending. Thus, continuing a welfare state is not something that will just come about; there might still be a need for engagement

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in developing societies in a more just way and having state welfare as a central actor. Balancing the pressure from different pressure groups will also be important, as well as being able to transfer from a population with a declining size to an increasing group of people. To maintain a stable welfare state, one might also need to save for a rainy day, for example, stable public finances and willingness to pay the necessary taxes and duties can thus be important.

NOTE 1. Eurostat, Code: tps00185, shows formal day-care for children aged under 3 and over 3 until school age with more than 30 hours per week and this has increased.

REFERENCES Béland, D. 2016. “Kingdon Reconsidered: Ideas, Interests and Institutions in Comparative Policy Analysis.” Journal of Comparative Policy Analysis: Research and Practice 18(3): 228‒242. https://doi.org/10.1080/13876988.2 015.1029770. Brady, D. and H. Y. Lee. 2014. “The Rise and Fall of Government Spending in Affluent Democracies, 1971‒2008.” Journal of European Social Policy 24(1): 56‒79. https://doi.org/10.1177/0958928713511281. Greve, B. 2019. Welfare Populism and Welfare Chauvinism. Bristol: Policy Press. Kersbergen, K., B. Vis and A. Hemerijck. 2014. “The Great Recession and Welfare State Reform: Is Retrenchment Really the Only Game Left in Town?” Social Policy & Administration 48 (7): 883–904. http://10.0.4.87/ spol.12063. Kingdon, J. W. and J. A. Thurber. 1984. Agendas, Alternatives, and Public Policies. Vol. 45. Boston: Little, Brown and Company. OECD. 1981. The Welfare State in Crisis. Paris: OECD. Palier, B. and C. Martin. 2007. “Editorial Introduction From ‘a Frozen Landscape’ to Structural Reforms: The Sequential Transformation of Bismarckian Welfare Systems.” Social Policy & Administration 41 (6): 535–554. https://doi.org/10.1111/j.1467-9515.2007.00571.x. Pierson, C., L. Humpage, P. Fisher, L. Buckner, S. Ronchi and C. Mills. 2016. “Coming Together or Drifting Apart? Income Maintenance in Australia, New Zealand, and the United Kingdom.” Politics & Policy 44 (2): 261–293. https://doi.org/10.1111/polp.12150. Pierson, P. 1994. Dismantling the Welfare State?: Reagan, Thatcher and the Politics of Retrenchment. Cambridge Studies in Comparative Politics.

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Cambridge: Cambridge University Press. https://doi.org/DOI: 10.1017/ CBO9780511805288.002. Pierson, P. 2002. “Coping with Permanent Austerity: Welfare State Restructuring in Affluent Democracies.” Revue française de sociologie, 369‒406. Taylor-Gooby, P. 2016. “The Divisive Welfare State.” Social Policy & Administration 50 (6): 712‒733. Tversky, A. and D. Kahneman. 1979. “Prospect Theory: An Analysis of Decision under Risk.” Econometrica 47 (2): 263–291. https://doi.org/10.​ 1111/j.1536-7150.2011.00774.x.

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Index active labour market policy 82–83, 87–89 administration costs 100–101 age 64, 109, 143, 146 asymmetric growth 5, 153 austerity 1–2, 14–22 consensus 3, 15 partial 62 permanent 59 populist 155, 160 Austria 40, 48, 52, 127, 133, 142–152 average production worker 71 Baltic counties 29, 40, 44, 48, 57, 59, 70 Baumol’s disease 34, 144 Belgium 40, 48, 52, 91, 103, 127, 142–152 benefit levels 19 benefits in-cash and in-kind 2, 30, 33, 114, 128–129 Beveridgean basic pension 67 “Big Society” 20 Bismarckian 22 blame avoidance 14, 17, 126 blame-avoidance strategies 20 bogus self-employment 83 budget deficit 6 Bulgaria 40, 52, 66, 69, 85, 119, 142–152, 158 business cycle 57, 83, 98 Canada 71, 101, 157 cash for care 111 children in poverty 133–136 citizenship 94 civil society 20, 111, 118, 122 comparative analysis 3, 34

compare 3 conditionality 5, 133, 159 continental countries 40, 48, 57, 59, 67, 70 contributions 64, 67 convergence 44, 128, 133, 159 cost business 45–47 cost-containment 16, 64, 68, 95, 101 credit claiming 14, 23 crisis in welfare states 1 crowds-in 32, 55, 74 crowds-out 32, 55 Cyprus 40, 52, 68, 71, 95, 97–98, 103, 111, 128, 142–152 Czech Republic 40, 46, 48, 52, 71, 85–87, 99, 115, 142–152 data choice of 2 day-care 9, 15, 33 decay 67 definition 21–22, 74 defunding 22, 44, 147, 153, 155, 160 demographic changes 4, 16, 18, 33, 54, 64–65, 95, 98, 110, 117, 143, 147, 155, 159 Denmark 22, 40, 44, 52, 66–69, 71, 97, 111, 127, 142–152 dependent variable problem 5, 28–29 deprivation 133 deservingness 23, 110, 150, 155, 159 Eastern European welfare states 29, 40, 44, 46, 48, 52, 57, 59, 70, 103, 111, 119, 130 economic crisis 14 economic growth 144, 160 economic schools 18 education 54 163

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eligibility criteria 65 employment 82–89, 118 equality 21, 32, 118 ESS (European Social Survey) 6, 41, 47, 109 ESSPROSS 6, 54 Estonia 40, 46, 48, 52, 71, 96, 142–152 European Pillar of Social Rights 109 European Quality of Life 103 Eurostat 30 fairness 45 family life 7, 109 financial crisis 1, 4, 17, 43, 55, 67, 143 financing 6, 22, 41, 110 Finland 40, 44, 142–152 fiscal welfare 19, 32, 42 fixed or running prices 5, 29–30, 146 fixed versus variable cost 5, 28, 33–34, 143 flexicurity 88 France 40, 48, 48, 52, 99, 127, 142–152 free-movement of workers 14 frozen landscape 4, 22, 158 game-changer 20 GDP 31–32, 43, 144–145 gini coefficient 127 generosity 29 Germany 19, 40, 45–46, 48, 52, 67, 98, 142–152 globalization and internationalization 14, 16, 42 Greece 17, 40, 43–44, 52, 59, 69, 71, 89, 96–98, 103, 114, 119, 128, 130, 133, 142–152, 156, 158 gross replacement rate 71–73 health care 6–7, 33, 57, 94–105, 110, 117, 126, 143–146, 150 health technology assessment 102 healthy ageing 117–118, 158

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hedonic treadmill 154 hidden changes 32, 71 Hungary 40, 45–46, 48, 52, 59, 71, 85–87, 95, 99, 142–152 ideas 4, 159 ideology 18, 41 incentives 42, 55, 87 income tax system 71 income transfers 143 incremental changes 22 indexation 22, 30, 65, 70 inequality 42, 94, 104, 125–137, 143, 146, 151, 155 inequality and poverty 8, 22, 146, 150 inflation 30 insiders 89 Ireland 40, 46, 48, 52, 71, 97, 99, 111, 128, 142–152 Italy 40, 48, 52, 59, 69, 71, 85, 98, 115, 130, 133, 142–152, 158 Keynesian 17, 160 labour market 82–89, 109, 118 protection 82 later retirement 65, 71, 74 Latvia 40, 52, 99, 103, 142–152 legitimacy 59, 155 liberal welfare states 4, 40, 48, 82, 147, 159 life expectancy 101, 117–118 Lithuania 40, 48, 52, 85, 127, 142–152 long-term care 7, 33, 109–120, 145, 148 loss aversion 154 Luxembourg 40, 52, 97, 130, 142–152, 158 luxury goods 153–154 macro-data 53, 62, 157 Malta 40, 52, 71, 142–152 market-failures 14–15 marketization 122, 157 maturation 69

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Index means-testing 64 measuring change 5, 28, 130, 142–146, 157 methodology 3, 29, 32–35 middle class 8, 42, 133 migrant workers 111 minimum income 84 mortality 101 need 114, 118, 143 neoliberal 1–2, 13–14 Netherlands 40, 46, 52, 69, 87, 97, 99, 101, 111, 130, 133, 142–152 net replacement rate 66, 72–73 net social spending 54 new medicine 28 new public management 18 Nordic countries 40, 43, 47–48, 57, 59, 67, 82 occupational welfare 19, 32, 66, 69, 88 OECD 1, 30 overall spending 29, 36, 147 paradox of redistribution 133 PAYG 5, 19 pension reform 8, 64, 70 pensions 5, 32, 64–76, 100, 118, 127, 143, 147, 159 permanent austerity 2, 8, 21, 89, 142–152, 158 Pierson 14–15, 160 platforms economy 83 Poland 40, 46, 48, 52, 142–152 policy communication 20 political economy 17 populism 3, 14, 110, 150, 155, 159 Portugal 40, 46–47, 52, 59, 98, 103, 142–152 poverty 3, 14, 82, 125–137 pressure group 154, 161 prevention 28, 36, 117 principal-agent theory 18 productivity 34, 110, 144–145, 154 professionals’ knowledge 35 progressive taxation 42, 128

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prospect theory 18 public goods 44 public sector debt 18, 49 public sector deficit 17, 22, 41 purchasing power parities 21, 32 quality of life 126 quality of the service 28, 34–35, 98, 101, 114, 119 recalibration 16, 64, 68 race to the bottom 16 re-commodification 16, 64 redistributive 47, 65, 126 rehabilitation 117 relative deprivation 15 replacement rates 2, 7, 19, 30, 32, 36, 65, 69–74, 83–86, 93, 143, 150, 159 restricted austerity 8 retirement age 68–69 retrenchment 1–2, 14–22, 142–152 risk pooling 107 risk prevention 66 Romania 40, 52, 66, 87, 118, 142–152, 158 self-interest 88 segmentation 88 singular retrenchment 21 Slovakia 40, 52, 71, 95, 103, 142–152 Slovenia 40, 46, 52, 142–152 social assistance 84 social capital 83 social cohesion 126, 130 social expenditure 17, 21, 55–57, 68 social investment 13, 15, 20, 36, 47, 122, 137 social mobility 126 social policy 21 social protection 31, 58, 60–61 social rights 29 social security benefits 135 Southern Europe 4, 17, 29, 43–44, 57, 70, 82, 100, 103, 111, 119, 145, 147, 159

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Spain 40, 45, 48, 52, 89, 97, 127, 130, 133, 142–152 spending on welfare 8 standard of living 7, 19, 21, 71, 74, 148 structural shifts 22 supplementary pension 69 Sweden 40, 44, 46, 48, 52, 85–87, 101, 103, 111, 127, 130, 142–152 systemic retrenchment 147 targeting 133 tax policy 22, 127 taxation 8, 41–49, 55, 128, 146, 148, 160 taxes and duties 41–49, 57, 125 technological innovation 127 transaction cost theory 18 undeserving 84 unemployment 5, 7, 57, 82, 143 benefits 82–86, 150, 159 United Kingdom 20, 29, 40, 46, 48, 52, 66–67, 71, 101, 114, 142–152

universality 94 unmet needs 102–103 US 17, 100 user charges 94–95, 98 user satisfaction 101 voters’ perceptions 41, 130 Wagner’s Law 34, 144 wealth 143–144 welfare 41 welfare attitudes 4, 47 welfare chauvinism 2 welfare regimes 6, 29, 40, 43 welfare states 17–19, 83, 109, 125, 152–156 definition of 21 welfare technology 36, 117, 145, 158 willing to pay taxes and duties 45 window of opportunity 17, 143, 159 work-fare 88 work–life balance 41 work quality 35