Routledge Handbook of European Welfare Systems [2 ed.] 2019030477, 2019030478, 9780367259150, 9780429290510

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‘Featuring a conceptual introduction and 28 country chapters, the second edition of this Routledge Handbook provides a rich overview of social policy continuity and change within the European Union. Scholars and practitioners interested in the evolution of social policy in Europe should read and engage with this strong volume.’ – Daniel Béland, Professor of Political Science, McGill University, Montreal, Canada ‘To cope with far-reaching social, economic, and demographic changes – in particular the challenges resulting from the financial crisis of 2008 – European welfare states have demonstrated their transformative capacities in the last two decades. These profound changes have been analyzed thoroughly in this book in a series of well-organized and evidenced chapters. The editors have brought together a number of recognized social policy scholars to explore in 28 country chapters and in a chapter on EU social policy the shifting landscape of European welfare states. In addition to the in-depth analysis of what is happening in 28 countries and on the EU level, the reader is also offered a comparative analysis of the reforms, both from a quantitative and a qualitative perspective. This comprehensive overview of recent efforts to transform European welfare state systems makes the book a must read for all who are interested in comparative social policy research. It is a recommended reading for students and senior researchers, but also for professionals and policymakers who seek to learn from policy solutions from abroad.’ – Tanja Klenk, Professor of Administrative Sciences, Helmut-Schmidt University Hamburg, Germany ‘Edited volumes which review social policy development in a “country-by-country” fashion seem somewhat old-fashioned in style and can often be incoherent in substance. This volume is a welcome exception. Guided by a clear analytical structure, the chapters in this compendium systematically assess key national social policy trajectories since the late 1990s across Europe.The result is an invaluable resource for all those interested in the development of advanced welfare states in recent times.’ – Jochen Clasen, Professor of Comparative Social Policy, The University of Edinburgh, UK

Routledge Handbook of European Welfare Systems Published ten years after the first edition, this new Handbook offers topical and comprehensive information on the welfare systems of all 28 EU member states and their recent reforms, giving the reader an invaluable introduction and basis for comparative welfare research. Additional chapters provide detailed information on EU social policy, as well as comparative analyses of European welfare systems and their reform pathways. For this second edition, all chapters have been updated and substantially revised, and Croatia additionally included. The second edition of this Handbook is most timely, given the often-fundamental welfare state transformations against the background of the financial and economic crises, transforming social policy ideas, as well as political shifts in a number of European countries.The book sets out to analyse these new developments when it comes to social policy. In the first part, all country chapters provide systematic and comparable information on the foundations of the different national welfare systems and their characteristics. In the second part, using a joint conceptual foundation, they focus on policy changes (especially of the last two decades) in different social policy areas, including old-age, labour market, family, healthcare, and social assistance policies. As the comparative chapters conclude, European welfare system landscapes have been in constant motion in the last two decades. While austerity is not to be seen on the aggregate level, the in-depth country studies show that all policy sectors have been characterised by different reform directions and ideas. The findings not only reveal both change and continuity, but also policy reversal as a distinct type that characterises social policy reform. The book provides a rich resource to the international welfare state research community, and is also useful for social policy teaching. Sonja Blum is Researcher and Lecturer at the Institute of Political Science, University of Hagen, and External Research Fellow at the KU Leuven Public Governance Institute. She holds a PhD in Political Science from the University of Münster. Her research focuses on public policy analysis, comparative social policy, family policy, evidence use, and learning in public policy. She has published in journals such as Critical Social Policy, European Policy Analysis, Policy Studies, Social Policy & Administration, and Social Politics and is co-editor of the Annual Review of Leave Policies & Related Research.   Johanna Kuhlmann is a Postdoctoral Researcher at the Collaborative Research Centre ‘Global Dynamics of Social Policy’ (CRC 1342), University of Bremen. She received her PhD from the University of Münster. Her current research focuses on public policy analysis and causal mechanisms of social policy dynamics. She has published in journals such as Policy Studies Journal, Review of Policy Research, Journal of Comparative Policy Analysis: Research and Practice, and European Policy Analysis. Klaus Schubert is Senior Professor of Political Science at the Institute of Political Science at the University of Münster. His research interests focus especially on comparative social policy, policy analysis, integration research, and pluralism. He has co-edited Challenges to European Welfare Systems (2016), Policy Analysis in Germany (2013), as well as the first edition of the Handbook of European Welfare Systems (2009), and is the co-editor of the journal European Policy Analysis (EPA).

Routledge International Handbooks

ROUTLEDGE INTERNATIONAL HANDBOOK OF POVERTY Edited by Bent Greve ROUTLEDGE INTERNATIONAL HANDBOOK OF NEW DIGITAL PRACTICES IN GALLERIES, LIBRARIES, ARCHIVES, MUSEUMS AND HERITAGE SITES Edited by Hannah Lewi,Wally Smith, Dirk vom Lehn and Steven Cooke ROUTLEDGE INTERNATIONAL HANDBOOK OF HUMAN TRAFFICKING A Multi-Disciplinary and Applied Approach Edited by Rochelle L. Dalla and Donna Sabella THE ROUTLEDGE HANDBOOK OF COMPARATIVE RURAL POLICY Edited by Matteo Vittuari, John Devlin, Marco Pagani and Thomas Johnson ROUTLEDGE INTERNATIONAL HANDBOOK OF MASCULINITY STUDIES Edited by Lucas Gottzén, Ulf Mellström and Tamara Shefer ROUTLEDGE HANDBOOK OF EUROPEAN WELFARE SYSTEMS, 2E Edited by Sonja Blum, Johanna Kuhlmann and Klaus Schubert ROUTLEDGE INTERNATIONAL HANDBOOK OF HETEROSEXUALITIES STUDIES Edited by James Joseph Dean and Nancy L. Fischer ROUTLEDGE HANDBOOK OF CONTEMPORARY EUROPEAN SOCIAL MOVEMENTS Protest in Turbulent Times Edited by Cristina Flesher Fominaya and Ramón A. Feenstra For more information about this series, please visit: www.routledge.com/Routledge-InternationalHandbooks/book-series/RIHAND

Routledge Handbook of European Welfare Systems Second edition

Edited by Sonja Blum, Johanna Kuhlmann, and Klaus Schubert

Second edition published 2020 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2020 selection and editorial matter, Sonja Blum, Johanna Kuhlmann, and Klaus Schubert; individual chapters, the contributors The right of Sonja Blum, Johanna Kuhlmann, and Klaus Schubert to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. First edition published by Routledge 2009 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Blum, Sonja, 1983– editor. | Kuhlmann, Johanna, editor. | Schubert, Klaus, 1951– editor. Title: Routledge handbook of European welfare systems / edited by Sonja Blum, Johanna Kuhlmann and Klaus Schubert. Other titles: Handbook of European welfare systems. Description: Second edition. | Abingdon, Oxon ; New York, NY : Routledge, 2020. | Series: Routledge international handbooks | Earlier edition published in 2009 as: The handbook of European welfare systems. | Includes bibliographical references. Identifiers: LCCN 2019030477 (print) | LCCN 2019030478 (ebook) | ISBN 9780367259150 (hardback) | ISBN 9780429290510 (ebook) Subjects: LCSH: Public welfare—European Union countries. | European Union countries—Social policy. Classification: LCC HV238 .E9613 2020 (print) | LCC HV238 (ebook) | DDC 361.94—dc23 LC record available at https://lccn.loc.gov/2019030477 LC ebook record available at https://lccn.loc.gov/2019030478 ISBN: 978-0-367-25915-0 (hbk) ISBN: 978-0-429-29051-0 (ebk) Typeset in Bembo by Apex CoVantage, LLC

Contents

List of tables xi List of box xv xvi List of figures xvii List of contributors Prefacexxv PART 1

Introduction1   1 Reform pathways of European welfare systems: Analysing change and continuity in a broadened geographical and temporal perspective Johanna Kuhlmann and Sonja Blum

3

PART 2

Country studies

19

  2 Austrification in welfare system change? An analysis of welfare system developments in Austria between 1998 and 2018 August Österle and Karin Heitzmann

21

  3 Belgium’s welfare system: Still lagging after all these years Ive Marx and Lien Van Cant

38

  4 The Bulgarian welfare system: Reforms and their effects on inequalities and vulnerable groups between 1997 and 2018 Rumiana Stoilova and Veneta Krasteva

56

  5 The restructuring of the Cypriot welfare system: Will the new provision system prove to be a success? Odysseas Christou and Christina Ioannou

73

vii

Contents

  6 Hybridisation and diversification: Welfare system developments between 1993 and 2018 in the Czech Republic Tomáš Sirovátka andVojtěch Ripka

91

  7 The German welfare system: The calm after the storm Florian Blank

110

  8 Denmark – a universal welfare system with restricted austerity Bent Greve

129

  9 The welfare system in Estonia: Between liberalism and solidarity Mare Ainsaar, Ave Roots and Avo Trumm

145

10 The Spanish welfare system: Towards a new social and territorial pact? Paloma de Villota and Susana Vázquez-Cupeiro

164

11 Still holding its breath: The Finnish welfare system under reform Juho Saari and Liina-Kaisa Tynkkynen

184

12 The recalibration of the French welfare system Patrick Hassenteufel and Bruno Palier

202

13 ‘Liberalising’ social protection amid austerity in Greece Stefanos Papanastasiou and Christos Papatheodorou

220

14 The Croatian welfare system: A lack of coherent policy paradigm followed by inconsistent policy reforms? Ivana Dobrotić

237

15 Pathway to a punitive workfare system: Hungary Katalin Tausz

256

16 The welfare system in Ireland over the last 20 years Mary Daly

275

17 The Italian welfare system: An incomplete transition? Igor Guardiancich and David Natali

291

18 The Lithuanian welfare system over the last 20 years of democratic transition: Achievements, challenges, and future prospects Jolanta Aidukaite, Julija Moskvina and Daiva Skuciene

310

19 Changes in Luxembourg’s welfare system (1998–2018): Coalition governments and Europeanisation as major driving forces Nicole Kerschen

327

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Contents

20 Social policy reforms in Latvia: Shift towards individual responsibility of welfare Feliciana Rajevska and Olga Rajevska

348

21 The Maltese welfare system: Hybrid wine in rightist bottles? With two-sided labels? Charles Pace

367

22 The Dutch participatory state: Shift from a welfare system of collective solidarity towards individual responsibility in a participatory society Minna van Gerven

387

23 Politics of welfare: The Polish welfare system in the first decades of the 21st century Renata Siemienska and Anna Domaradzka

404

24 The Portuguese welfare system: A late European welfare system under permanent stress José António Pereirinha and Maria Clara Murteira

424

25 The Romanian welfare system: From the shadow of equality to the dazzle of dualisation Cristina Raţ, Livia Popescu and Valentina Ivan

445

26 The Swedish welfare system: The neoliberal turn and most recent struggles over decentralised top-down re-regulation Sven E.O. Hort, Lisa Kings and Zhanna Kravchenko

466

27 Restructuring the Slovenian welfare system: Between economic pressures and future challenges Maša Filipovič Hrast and Tatjana Rakar

483

28 The Slovak welfare system: From turbulent times to stability Ondrej Botek

502

29 The United Kingdom: New devolved welfare systems in Britain Christopher Deeming

522

PART 3

EU social policy and comparative perspectives

543

30 European Union social policy: Facing deepening economic integration and demand for a more social Europe with continuity and cautiousness Miriam Hartlapp

545 ix

Contents

31 The development of welfare state spending in the EU, 1995–2015: A quantitative comparative analysis Karsten Mause

560

32 Landscapes in motion: Welfare system reform in 28 European countries, 1998–2018 Sonja Blum and Johanna Kuhlmann

577

x

Tables

1.1 Summary of analysis of welfare system change 2.1 Social protection expenditure, Austria, 1995–2015 2.2 Social protection benefits by function, Austria, 1995–2015 (% of total expenditure) 2.3 Outcome indicators, Austria, 1995–2015 2.4 Major welfare state changes over time in Austria 3.1 Social protection expenditure 3.2 Social protection benefits by function (as % of total expenditures) 3.3 Labour market outcome indicators, Belgium, 1995–2015 3.4 Inequality and poverty indicators, Belgium, 1995–2015 3.5 Welfare system change in Belgium (examples) 4.1 Social protection expenditure 4.2 Social protection benefits by function, Bulgaria, 1995–2015 (% of total expenditure) 4.3 Outcome indicators, Bulgaria, 1995–2015 4.4 Welfare system changes over time, Bulgaria 5.1 Social protection expenditure 5.2 Spending by function in Cyprus since 2000 as a proportion of total social protection expenditure 5.3 Performance indicators 5.4 Welfare system changes over time in Cyprus 6.1 Social protection expenditure: Czech Republic and the EU, 1995–2015 6.2 Social protection benefits by function, Czech Republic, 1995–2015 6.3 Outcome indicators, Czech Republic, 1993–2015 6.4 The overview of the changes in a three-dimensional perspective 7.1 Social protection expenditure 7.2 Social protection benefits according to function, 1995–2015 (% of total expenditure) 7.3 Sources of social budget and total contribution rates, 1991–2015 7.4 Outcome indicators for the German welfare state 1995–2015 – labour market performance, poverty rates, and Gini coefficient 7.5 Welfare system changes over time in Germany 1998–2018 8.1 Social protection expenditure 8.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 8.3 Development in the Gini coefficient of equivalised disposable income and at risk of poverty in selected years since 2000

10 24 25 26 28 40 41 42 43 46 59 60 61 63 75 76 79 80 93 95 96 98 114 115 116 117 119 132 133 134 xi

Tables

  8.4 Unemployment rate of active population in selected years since 2000 135   8.5 Types of change within central policy fields in Denmark – mainly since 2000 137   9.1 Social protection expenditure in Estonia and EU countries in the period of 1999–2015148   9.2 Social protection benefits by function, 2000–2015 (% of total expenditure) 149   9.3 Outcome indicators, 1995–2015 151   9.4 The major social policy changes in Estonia 1997–2018 153 10.1 Social protection expenditure 166 10.2 Social protection benefits by function (% of total expenditure) 167 10.3 Outcome indicators, Spain, 1995–2015 171 10.4 Welfare system changes over time: Spain 173 11.1 Social protection expenditure, Finland, 1995–2015 187 11.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 188 11.3 Outcome indicators, Finland, 1995–2017 189 11.4 Summary of the reform sequences 193 12.1 Social protection expenditure 206 12.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 207 12.3 Summary of analysis of welfare system change in France 209 13.1 Social protection expenditure 223 13.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 224 13.3 Financing of social protection 224 13.4 Outcome indicators on inequality, poverty, deprivation, and unemployment 226 13.5 The main parameters of change in the Greek social protection system 227 14.1 Social protection expenditure 239 14.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 240 14.3 Outcome indicators, 2003–2017 243 14.4 Main characteristics of the reform sequences in Croatia 247 15.1 Social protection expenditure 259 15.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 260 15.3 Outcome indicators, 1995–2015 261 15.4 Main welfare state changes in Hungary 262 15.5 Overview of schemes for unemployed persons (in %) 267 16.1 Social protection expenditure, Ireland and EU28 and EU15, 1995–2015 277 16.2 Social protection benefits by function, Ireland, 1995–2015 278 (% of total expenditure) 16.3 Some outcome indicators, Ireland, 1995–2015 280 16.4 Welfare state changes over time in Ireland (examples) 281 17.1 Social protection expenditure 294 17.2 Social expenditure per function (1995–2015) 295 17.3 Spending on welfare programmes in 2016 (% of GDP) 295 17.4 Selected labour market indicators 2007–2017 297 17.5 Reform sequences since the 1990s 299 18.1 Expenditure on social security 313 18.2 Structure of expenditure on social security by type (%) 314 18.3 Outcome indicators, Lithuania, 1995–2015 315 18.4 Development of the welfare state in Lithuania 317 18.5 Minimum wage increase since 1998 (Euro, %) 320 19.1 Social protection expenditure 329 xii

Tables

19.2 Social protection benefits by function, Luxembourg, 1995–2015 (% of total expenditure) 19.3 Outcome indicators, Luxembourg, 1995–2015 19.4 Evolution of interior employment (labour contract only) (1998–2018) 19.5 Interior employment by residence (labour contract only (1998–2018) 19.6 Luxembourg’s welfare state changes (1998–2018) 20.1 Social protection expenditure 20.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 20.3 Outcome indicators, 1997–2017 20.4 Development of the welfare state in Latvia 20.5 Monthly amounts of social assistance benefits and benchmarks, 2003–2018, EUR 21.1 Social protection expenditure, Malta and EU – total, as % of GDP and in PPS per inhabitant 21.2 Priorities in social protection expenditure, Malta and EU 21.3 Labour cost levels (euro) for industry, construction, and services (except public administration, defence, compulsory social security) 21.4 Various data on performance of Malta’s economy and social protection 21.5 Benefits as % of all benefits, comparing selected countries and EU placed in descending order for 2015: means-tested benefits for 1995 and 2015, cash benefits for 2015 or latest available date 21.6 National equivalised disposable income: Gini coefficients 21.7 Tabulation of main changes in the Maltese welfare system, mid-1990s until 2018 22.1 Social protection expenditure, the Netherlands, 1995–2015 22.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 22.3 Outcome indicators, the Netherlands, 1995–2017 22.4 Summary of the reform sequences 23.1 Social protection expenditure 23.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 23.3 Organisation of Polish social security system 23.4 Welfare state changes over time in Poland 24.1 Social protection expenditure in Portugal 24.2 Social protection benefits by function, Portugal, 1995–2015 (% total expenditure) 24.3 Outcome indicators, Portugal, 2005–2017 24.4 Welfare state changes over time in Portugal after 1996 25.1 Social protection expenditure 25.2 Social protection benefits by function, 2000–2015 (% of total expenditure) 25.3 Outcome indicators, 2000–2017 25.4 The main sequences of social policy change over time in Romania 26.1 Social protection expenditure, Sweden, 1995–2015 26.2 Social protection benefits by function, Sweden, 1995–2015 (% of total expenditure) 26.3 Outcome indicators, Sweden, 1995–2015 26.4 Welfare state changes over time in Sweden (examples) 27.1 Social protection expenditure 27.2 Social protection benefits by function, 1995–2015 (% of total expenditure)

330 332 333 333 334 350 352 353 356 363 371 372 372 373

375 376 377 389 390 392 393 408 409 410 412 427 428 431 432 448 449 451 452 469 470 471 472 485 486 xiii

Tables

27.3 27.4 28.1 28.2

Outcome indicators Welfare system changes over time in Slovenia Social protection expenditures in Slovakia and EU Structure of social protection expenditures by type, 1995–2015 (% of total expenditure) 28.3 Selected performance indicators 28.4 Development of cluster indicator of at risk of poverty or social inclusion 28.5 Reform sequences of the Slovakian welfare system 28.6 Amounts of material need assistance benefit and special allowance in 2016 28.7 Health care and social care system in Slovakia 29.1 UK and EU-15 and EU-28 social protection expenditure, 1995–2015 29.2 Social protection benefits by function, 1995–2015 (% of total expenditure) 29.3 People at risk of poverty (percentage) 29.4 Income inequality 29.5 Changing policy paradigms and changing welfare systems in Britain 29.6 Public expenditure on labour market policies (% of GDP) 29.7 Dwelling by tenure, 2015, percentages 31.1 Total social protection expenditure (in euro per inhabitant) 31.2 Total social protection expenditure (% of GDP) 31.A1 Social benefits ‘family/children’ (euro per inhabitant) 31.A2 Social benefits ‘unemployment’ (euro per inhabitant) 31.A3 Social benefits ‘housing’ (euro per inhabitant) 31.A4 Social benefits ‘social exclusion’ (euro per inhabitant) 31.A5 Social benefits ‘sickness/healthcare and disability’ (euro per inhabitant) 31.A6 Social benefits ‘old age and survivors’ (euro per inhabitant)

xiv

486 491 506 507 509 510 512 516 519 527 528 528 528 530 534 537 561 564 571 572 572 573 574 575

Box

29.1 Referenda results

539

xv

Figures

  3.1 Employment rates for population aged 15–64 by regions, educational attainment, and country of birth, 2017   3.2 Minimum income protection levels for households in various situations relative to the poverty line (net disposable household income as a percentage of the poverty line), 2014   9.1 The importance of the government solving social issues (index with the scale 0–30 for old-age, unemployment, and childcare issues, own calculations based on European Social Survey, 2016)   9.2 Attitudes about equality in society in different European countries and the position of Estonia in 2016 and 2008 (own calculations based on European Social Survey 2016, 2008)   9.3 The organisation of social protection financing in Estonia in 2018 13.1 Administrative structure of social protection 20.1 People at risk of poverty or social exclusion 21.1 Employment in 2000s, ages 20–64, by sex and year 25.1 The evolution of social expenditures in PPS per inhabitant in Romania between 2000 and 2016 27.1 GDP: expenditure on social protection and real GDP growth rate (Slovenia and EU-28) 27.2 At-risk-of-poverty rates by household status and age 30.1 EU social regulations and directives over time (1958–2018) 31.1 Total social protection expenditure (% of GDP) in EU, 1995–2015 31.2 Total social protection expenditure (euro per inhabitant), in EU, 1995–2015

xvi

43

53

146

146 150 226 353 375 447 488 489 549 566 567

Contributors

Jolanta Aidukaite is Chief Researcher at the Lithuanian Social Research Centre. She holds a PhD in sociology from Stockholm University. She has published extensively on social policy, family policy, housing policy, and community mobilisation. Her publications include ‘Welfare Systems of the Baltic States Following the Recent Financial Crisis of 2008–2010: Expansion or Retrenchment?’ (Journal of Baltic Studies, 2019), and ‘The Formation of Social Insurance Institutions of the Baltic States in the Post-Socialist Era’ (Journal of European Social Policy, 2006). Mare Ainsaar (PhD) is a senior research fellow of sociology and social policy at the Institute of

Social Studies at University of Tartu (Finland). Her main research interests are in the fields of social policy and population policy. She has served as a counsellor to three ministers of Population Affairs in Estonia and is a European Social Survey national coordinator. Florian Blank holds a PhD in Political Science, and is Senior Researcher for social policy at the Institute of Economic and Social Research (WSI) of the Hans Böckler Foundation. His main research interests are social insurance systems (in Germany and from a comparative perspective), pension policies, the politics of privatisation and welfare markets, as well as occupational social policies. Sonja Blum is a Researcher and Lecturer at the Institute of Political Science, University of Hagen, and External Research Fellow at the KU Leuven Public Governance Institute. She holds a PhD in Political Science from the University of Münster. Her research focuses on public policy analysis, comparative social policy, family policy, evidence use, and learning in public policy. She has published in journals such as Critical Social Policy, European Policy Analysis, Policy Studies, Social Policy & Administration, and Social Politics and is co-editor of the Annual Review of Leave Policies & Related Research. Ondrej Botek (PhD) is Associate Professor and former Head of the Department of Social Work at University of Trnava and a psychotherapist in a private practice. His research focus is mainly on social policy theory, social welfare and welfare mix, and social economy, as well as social therapy and counselling, cognitive-behavioural psychotherapy, and theory, communication, and intercultural communication. Ondrej is a Fellow of the Royal Society of Arts. He regularly teaches at universities in Vienna, Debrecen, Ostrava, and Katowice and has been lecturing in Australia, Cambodia, Kenya, India, Finland, France, and other countries. Odysseas Christou (PhD) is Assistant Professor in Government, International Law and Inter-

national Relations, and Associate Head of the Department of Law at the University of Nicosia. He previously taught at the University of Texas at Austin, the Texas Lutheran University, and the xvii

Contributors

University of Cyprus. Odysseas has served on numerous research projects commissioned by – among others – the European Commission, the National Science Foundation of the United States, and the Republic of Cyprus on issues of international relations, security, energy, law, and development. Mary Daly is Professor of Sociology and Social Policy at the University of Oxford. She is inter-

ested in and has published widely on the following social policy areas: family policy, gender, care, social policy in Ireland, poverty and welfare, and EU social policy. Much of her work is comparative, in a European and international context. She is a member of a number of networks and boards on topics related to EU social policy, the welfare state, employment, family, and gender and is a former editor of the journal Social Politics. Her latest book is Families and Poverty – ­Everyday Life on a Low Income (co-authored with Grace Kelly, Policy Press, 2015). Christopher Deeming is Senior Lecturer in Social Policy at the University of Strathclyde, Scot-

land, specialising in Comparative and Global Social Policy. His latest work is Reframing Global Social Policy: Social Investment for Sustainable and Inclusive Growth (2019). Paloma de Villota is Professor of Applied Economics at the University Complutense of Madrid. She has, amongst others, done research on taxation and gender budgeting for the European Commission (‘The Impact of the Tax/Benefit System on Women’s Work’) and, in Spain, for the Ministry of Health, Ministry of Equality and the Institute for Fiscal Studies. She has published widely in the areas of taxation, gender budgeting, and social policy in academic journals such as Feminist Economics and in numerous books. Ivana Dobrotić is Marie Curie Fellow at the Department of Social Policy and Intervention,

University of Oxford.There, she runs the project ‘Social and Gender Inequalities in Care: Childcare-Related Policies and Parenting Practices in the Post-Yugoslav Countries and the Role of Policy Ideas.’ Her research is focused on comparative social policy with a particular interest in care policies, gender, and social inequalities. Her recent work has been published in Social Politics and Social Policy & Administration and by Springer and Policy Press. Anna Domaradzka is a sociologist, Assistant Professor, and Associate Director for Research at

Robert Zajonc Institute for Social Studies, University of Warsaw. Her main research interests concern issues of civil society organisations, social movements, and local activism in urban context. She specialises in intersectional and international comparative research in the areas of urban studies and gender sociology and works on several international projects concerning urban development, civil society, and welfare state issues. Her main current research focus is on neighbourhood associations, ‘right to the city’ movement, and social entrepreneurship in comparative perspective. Maša Filipovič Hrast is Senior Researcher and Associate Professor at the Faculty of Social Sciences, University of Ljubljana. She is a member of the sociology department at the Faculty of Social Sciences and lectures at the undergraduate and postgraduate levels. Her research topics are social policy, social inclusion, and care and she has been involved in several international and national research projects linked to social policy and welfare state. Bent Greve is Professor in Social Science with an emphasis on welfare state analysis at the Uni-

versity of Roskilde, Denmark. His research focuses on the welfare state, and social and labour xviii

Contributors

market policy, often from a comparative perspective. Bent Greve is editor of Social Policy & Administration, and his recent books include Long-Term Care for the Elderly in Europe. Development and Prospects (Ed., Routledge), as well as the Routledge Handbook of the Welfare State (Ed., 2nd Edition, Routledge). Igor Guardiancich is Researcher at the Institute of Law, Politics and Development (DIRPOLIS) of the Sant’Anna School of Advanced Studies in Pisa. He holds a PhD in Social and Political Sciences from the European University Institute in Florence. He has worked for several academic institutions and international organisations, most recently as Senior Technical Officer on Social Dialogue in the Governance and Tripartism Department at the International Labour Organisation (ILO). His main research interests are on European social policy, welfare states in Central and Eastern Europe, political economy of transition and integration. He has published widely including articles in Europe-Asia Studies, European Union Politics, Journal of Common Market Studies, Regulation & Governance, and West European Politics. Miriam Hartlapp is Professor for Comparative Politics: Germany and France at the Freie Universität Berlin (FUB). Previously, she held chairs at Leipzig and Bremen University and worked at the Max Planck Institute for the Study of Societies in Cologne, the ILO in Geneva, and the WZB Berlin Social Science Center. Her research focuses on governance in the EU multilevel system, particularly the European Commission and the role of France and Germany in the EU; implementation, (non-)compliance, and enforcement; as well as regulation of economic and social policies. She is co-author of Complying with Europe:The Impact of EU Minimum Harmonisation and Soft Law in the Member States (CUP 2005, winner of the EUSA Best Book in EU Studies Prize 2007) and Which Policy for Europe?: Power and Conflict Inside the European Commission (OUP, 2014). Patrick Hassenteufel is Professor of Political Science at the University of Versailles/Paris-Saclay and works at Printemps (CNRS research centre). His main research field is comparative health policy; he also works more generally on the transformation of European welfare states and on actor-centred policy analysis. He has published in the Journal of European Public Policy, Comparative Politics, Social Policy & Administration, Journal of Health Politics, Policy and Law, Comparative European Politics, Policy and Administration, and various books. Karin Heitzmann is Associate Professor at the Institute for Social Policy, Department of Socioeconomics, and Director of the Research Institute ‘Economics of Inequality – INEQ’ at the WU Vienna University of Economics and Business. Her research interests include welfare state research, social investment, poverty, and inequality. Sven E.O. Hort is Editor-in-Chief of Asian Social Work and Policy Review (Wiley). In 2015, he retired

from the Department of Social Welfare, Seoul National University, Korea. In Sweden he was a Sociology Professor at Linnaeus and Södertörn universities. With Stein Kuhnle he is the editor of Globalizing Welfare: An Evolving Asian-European Dialogue forthcoming from Edward Elgar in 2019. Christina Ioannou (PhD) is Associate Dean of the School of Law of the University of Nicosia, an Associate Professor of European Politics and Labour Law. She is the Editor-in-Chief of The Cyprus Review and has published widely on the areas of labour law, EU, and welfare state politics. Her latest book is Labour Law in Cyprus (2019, Kluwer Law International, The Hague), as part of the International Encyclopedia of Laws Series. xix

Contributors

Valentina Ivan is the Energy Investment Policy Director for an investment fund carrying investments in the CEE region. As an energy policy analyst monitoring and assessing impact of regulatory changes and implementation of EU directives, she is engaged in research studies for public bodies (including DG Energy and national ministries and regulators). She holds an MSc in Comparative Public Policy from University of Edinburgh and a PhD in Economics (Management of Energy Policies) from Bucharest University of Economic Studies. During the academic year 2019/20, she spends her Fulbright Postdoctoral Fellowship with Northern Illinois University, School of Public and Global Affairs. Nicole Kerschen is Senior Researcher in law and political sciences at CNRS in Paris. Her main research interests are the Luxembourg welfare state in history, Europeanisation of economic and social policy, European governance, and the European social model. She is the chair of the administrative board of the Luxembourg Institute for Socio-Economic Research (LISER). Lisa Kings is Senior Lecturer in Social Work at the School of Social Sciences at Södertörn University. She received her PhD in Sociology from Stockholm University in collaboration with Södertörn University in 2011, with a thesis on civil mobilisation in the Swedish urban periphery. Lisa’s research interests include urban theory, civil society, and social movements. Veneta Krasteva (PhD, Sociology) is Assistant Professor at the Institute for the Study of Societies and Knowledge at the Bulgarian Academy of Sciences, Public Policies and Social Changes department. She has participated in research for both national and European projects that explore themes such as new forms of inequality (2011–2014); youth in transition countries (2014–2015); early job insecurity and labour market exclusion in Europe (2015–2018); social exclusion of youth in Europe (2015–2018); as well as youth employment in Bulgaria (2017–2019). Zhanna Kravchenko is Senior Lecturer in Sociology at the School of Social Sciences at Södertörn University. She has published on various aspects of social policy in Russia and Sweden, often from a comparative perspective. She wrote on political, normative, and everyday frameworks for work and care reconciliation; on norms of fatherhood and fathering practices; and on housing policies and their construction of the process of transition to adulthood. Zhanna Kravchenko has recently co-edited a volume on epistemological hierarchisation in feminist knowledge production, Borderlands in European Gender Studies: Beyond the East-West Frontier (forthcoming, Routledge). Johanna Kuhlmann is a Postdoctoral Researcher at the Collaborative Research Centre ‘Global

Dynamics of Social Policy’ (CRC 1342), University of Bremen. She received her PhD from the University of Münster. Her current research focuses on public policy analysis and causal mechanisms of social policy dynamics. She has published in journals such as Policy Studies Journal, Review of Policy Research, Journal of Comparative Policy Analysis: Research and Practice, and European Policy Analysis. Ive Marx is Professor at the University of Antwerp, where he mainly teaches in the Socioeco-

nomic Sciences Program. At the Herman Deleeck Centre for Social Policy, he leads research on social policy, migration, and inequality. He is also a Research Fellow at the Institute of Labor Economics (IZA). Karsten Mause is Assistant Professor of Political Economy in the Department of Political Sci-

ence (IfPol) at the University of Münster, Germany. xx

Contributors

Julija Moskvina is Senior Researcher at the Labour Market Research Institute of the Lithuanian Social Research Centre, with experience in analysis of employment policies and unemployment issues. In her research, she particularly focuses on active labour market policies, vulnerable groups at labour market, labour market transitions, as well as an ageing labour force. Maria Clara Murteira is Professor of Economics at the University of Coimbra, Portugal. Her main research interests are pensions, social security, and the political economy of the welfare state. Her work on these subjects has been published in several book chapters and articles and she authored the book Economia das Pensões (2011). David Natali is Professor of Comparative and EU Politics at the Sant’Anna School of Advanced

Studies of Pisa, and Associate Researcher at the European Social Observatory of Brussels. He holds a doctorate in Political Science from the European University Institute in Florence. He has been involved in several integrated European projects and networks of excellence. His research is mainly centred on a comparative analysis of social policy reforms, EU integration, industrial relations, and the politics of welfare. He teaches at the doctorate programme of the Scuola Normale Superiore (SNS) – Institute of Humanities and Social Sciences in Florence. August Österle is Associate Professor at the Institute for Social Policy, Department of Socioeconomics, WU Vienna University of Economics and Business. He is also Visiting Professor at the Corvinus University Budapest. His research interests include comparative welfare state research, the socio-economics of health and long-term care policies, access to social rights, and crossborder and transnational issues in social policy. Charles Pace is Senior Lecturer in Social Policy at Malta University. His PhD from Leicester University is about remodelling community mental health services to fit the Maltese context. Experienced in mental health social work and reform, he also has interests in adaptive policy transfer, change in the Maltese and international welfare systems, and the provision of housing, social care, and community care, as well as linked human rights and philosophical and epistemological aspects. Bruno Palier is CNRS Research Director at Sciences Po, Centre for European Studies and

Comparative Politics. He holds a PhD in Political Science, and is director of LIEPP (Laboratory for Interdisciplinary Evaluation of Public Policies). He works on the comparative political economy of welfare state reforms and has published numerous articles on welfare reforms in France and in Europe in Global Social Policy, Governance, Journal of European Social Policy, New Political Economy, Politics and Society, Research and Politics, Socio-Economic Review, West European Politics, Social Policy & Administration, Social Politics, and various books. Stefanos Papanastasiou holds a PhD and an MSc in Social Policy Analysis. He is Postdoctoral Researcher at the Department of Social Policy of Panteion University of Social and Political Sciences. Prior to that, he was adjunct lecturer and research associate at the Department of Social Administration of Democritus University of Thrace, as well as researcher at the Observatory of Economic and Social Developments, Labor Institute, Greek General Confederation of Labor (INE/GSEE). Christos Papatheodorou is Professor of Social Policy at the Panteion University (Greece). He

is a graduate in Economics from the University of Athens and holds an MSc in Social Policy xxi

Contributors

Analysis from the University of Bath and a PhD from the London School of Economics and Political Science (LSE). His research interests and publications are in the fields of political economy of social policy, social and economic inequality, poverty, macroeconomic environment and social protection, and functional and personal distribution of income. José António Pereirinha is retired Full Professor (‘Catedrático’) of Welfare Economics and Public

Policy at the University of Lisbon and full-time researcher at the Research Centre on Economic History (University of Lisbon). He earned his PhD in Development Studies from ISS, Erasmus University of Rotterdam, and his Agregação (‘habilitation’) in Economics from the University of Lisbon. José’s research focuses on inequality and poverty analysis, human needs, and welfare state, and his work has been published in several books and academic journals such as Ler História, Journal of Income Distribution, Journal of Iberian and Latin American Economic History, and Review of Socio-Economics. Livia Popescu, doctor in Sociology, was Professor at the Department of Social Work, BabesBolyai University, Cluj, Romania, until her retirement in 2018. She published nationally and internationally on welfare reform in Romania and the consequences of the economic crisis on social policies. She coordinated research projects on social inclusion, health, and long-term care in Romania. As an expert of several EC networks, she reported and evaluated the social inclusion policies as well as the health and pension schemes from the equal opportunities perspective. Feliciana Rajevska is Senior Researcher at the Institute of Social, Economic and Humanitar-

ian Research at Vidzeme University of Applied Sciences (Latvia), and Professor Emeritus. Her research interests include Latvian and European social policy and welfare states, policy analysis, and policy process. She has been widely published, especially on social policy in Latvia, and was the head of several national research projects. Olga Rajevska is Researcher at the Scientific Institute of Economics and Management, the Fac-

ulty of Business, Management and Economics of the University of Latvia. She holds a PhD in Public Administration. Her research interests and publications are in the field of pension policy, social inclusion, social justice, combatting poverty, and income inequality. At present, she works on the postdoctoral research project ‘Institutional Design and Performance of the Fourth Pension Pillar in Latvia, Baltic States and Europe’. Tatjana Rakar is Researcher and Assistant Professor at the University of Ljubljana, Faculty of Social Sciences, Centre for Welfare Studies. She teaches at the Department of Sociology at the undergraduate and postgraduate levels. Her fields of research involve studies in social policy, family policy, and third sector developments, where she has been involved in several national and international research projects. Cristina Raţ is Lecturer at the Sociology Department of the Babeş-Bolyai University, Cluj, Romania, teaching courses on class inequality and social policies. Her research interests include the relation between social inequalities and welfare states, family policies, poverty and social exclusion, marginalised Roma communities, and precarious work. She earned her PhD at the Babeş-Bolyai University in 2008 and holds an MA in Sociology from the Central European University. She benefited from doctoral and post-doctoral fellowships at the University of Oxford (2003–2004), IRES-CEPS (2007), and the Aleksanteri Institute Helsinki (2010). xxii

Contributors

Vojtěch Ripka is Researcher at the International Institute of Political Science at Masaryk Uni-

versity and also at the Institute for the Study of Totalitarian Regimes in Prague. In his work, he aims to combine historiography with political science and apply that in history education. His key research interests are politics of welfare and politics of memory in the contemporary history of Central and Eastern Europe. Ave Roots is Research Fellow of Social Policy at the Institute of Social Studies at University of

Tartu. She received her PhD in Sociology at the University of Tartu. Her main research interests are labour market, gender segregation, social mobility, inequality, socioeconomic inequality in health, and access to health care. Juho Saari holds a PhD in Social Policy, and is Professor of Social and Health Policy at Tampere University, where he is also Dean of the Faculty of Social Sciences. He has been, among others, chair of the Inequality Working Group (2016–2018) and a rapporteur on the future of welfare state (2018–2019), both at the Prime Minister’s Office in Finland. His research focuses on the different dimension of social policy and social and health divisions. Klaus Schubert is Senior Professor of Political Science at the Institute of Political Science,

University of Münster. His research interests focus on comparative social policy, policy analysis, integration research, and pluralism. He co-edited Challenges to European Welfare Systems (2016, Springer), Policy Analysis in Germany (2013, Policy Press), as well as the first edition of the Handbook of European Welfare Systems (2009, Routledge), and is the co-editor of the journal European Policy Analysis (EPA). Renata Siemienska is a sociologist, Full Professor, and Head of the Center of Interdisciplinary Gender Studies at the R.B. Zajonc Institute for Social Studies, University of Warsaw. She holds the UNESCO chair ‘Women, Society and Development’ at the University of Warsaw, and the chair of Sociology of Social Change at M. Grzegorzewska University in Warsaw. She has published on comparative cross-national value systems, ethnic relations, women’s public participation, socialisation, system of education, family, gender inequality, and the welfare system. She has been involved in several cross-national studies – the World Values Survey, and several European Commission projects, such as ‘WILCO – Welfare Innovations at the Local Level in Favor of Cohesion’ (7th FP). Tomáš Sirovátka is Professor of Social Policy at the Faculty of Social Studies, and Head of the

Institute for Public Policy and Social Work at Masaryk University. He published in international journals such as Journal of European Social Policy, Social Policy & Administration, International Journal of Sociology and Social Policy, Journal of Comparative Policy Analysis, International Journal of Social Welfare, and European Journal of Social Security. He contributed to comparative books on employment and social policy and co-edited several books, including Effective Interventions for Unemployed Young People in Europe. Social Innovation or Paradigm Shift? (Routledge, 2018). Daiva Skuciene is Associate Professor at Vilnius University. Her research area covers welfare states, especially pension policy, social insurance, income inequality, and poverty. Her works have been published in academic journals such as European Policy Analysis and Human Affairs. Rumiana Stoilova is Professor at the Institute for the Study of Societies and Knowledge at

the Bulgarian Academy of Sciences. She is the Bulgarian team leader of the project ‘Social xxiii

Contributors

Disparities and Regional Differences in School-to-Work Transitions in Bulgaria’ (2012–2015); and of the project ‘Negotiating Early Job-Insecurity and Labour Market Exclusion in Europe’ (2015–2018). Rumiana Stoilova has written two monographs, Gender and Stratification (2012) and Inequalities and Community Integration (2001), and more than 90 articles, published amongst others in Czech Sociological Review and Sociological Problems. Katalin Tausz is Professor of Social Policy at Eötvös Loránd University, Budapest. She studied philosophy, literature, and sociology. She has taught courses on the welfare state, poverty, contemporary Hungarian social policy, social assistance, and child welfare. Her main research areas are child poverty, the Hungarian social protection system, and disability studies. Avo Trumm (PhD) is Research Fellow of Information Management and Analysis at the Institute

of Social Studies, Tartu University. He has published on issues related to social transformations, stratification, welfare problems and income inequalities, social policy analysis, and social impact assessment. He has been involved as researcher and expert in numerous national and international research projects and policy development programmes. Liina-Kaisa Tynkkynen holds a PhD in Health and Social Policy and is Assistant Professor at Tampere University. Her research focuses on health systems and health care policy with a special interest in health care reforms and private services. Lien Van Cant is Researcher at the Herman Deleeck Centre for Social Policy at the University

of Antwerp. Minna van Gerven is Assistant Professor of Sociology of Governance at Twente University. She

has published widely on social policy change and European and global social policy. Her recent work has been published in journals such as Global Social Policy, Social Policy & Administration, and Policy and Politics. Susana Vázquez-Cupeiro is Associate Professor in the Department of Applied Sociology at the Faculty of Education of the Complutense University of Madrid. Her research focuses on the sociology of education and the sociology of gender. Recent publications include ‘Gendered Management in Spanish Universities: Functional Segregation Among Vice-Rectors’ in Gender and Education and ‘Online Feminist Practice, Participatory Activism and Public Policies Against Gender-Based Violence in Spain’ in Feminist Theory.

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Preface

Ten years after its first publication, this completely revised edition of the Handbook focuses anew on the diversity among European welfare systems and – as a considerable step forward – analyses the different dynamics they have been facing in the last two decades. Thus, in addition to rich descriptions of the 28 national welfare systems (at the time of writing) and their status quo, the question of social policy change – indicating processes of reform, more specifically restructuring, retrenchment, and expansion – over time and in different policy sectors is the main topic of this Handbook. The first section of the Handbook consists of an introductory chapter that recapitulates recent trends in comparative welfare state research and develops a three-dimensional approach for analysing welfare system change.The resulting framework guides the analysis of the country studies, which follow in the second section of the Handbook. The 28 country studies are generally uniformly structured and vary primarily in details specific to the countries. After a short historical introduction, the general structures of the 28 welfare systems are described: What are national priorities? Who pays and administrates the welfare systems? And what can be said about their performance? At the centre of each chapter stands (1) an overview of welfare system change over time summarised in clearly arranged tables and (2) a detailed description of main developments in specific policy fields (e.g. pensions, labour market, unemployment, health, family, social assistance, long-term care). A short outlook on current developments, questions, and problems concludes each of the 28 country studies. Three chapters form the third and final section of the Handbook: First, an analysis of EU social policy demonstrates that European welfare systems, as the title summarised, are ‘facing deepening economic integration and demand for a more social Europe with continuity and cautiousness’. Social policy continues to be shaped by domestic factors, and at the EU level, economic integration continues to dominate over social integration. At the same time, demand for Europe’s social role is high. Second, in a quantitative comparison of the development of European welfare systems (based on Eurostat social protection expenditure data), it is asked (a) whether the time span between 1995 and 2015 has been a period of retrenchment, and (b) whether processes of convergence between European welfare systems can be found. The short answer to both questions is: no.Yet the chapter also emphasises European welfare system diversity and the need for in-depth country case studies in order to observe and measure their qualitative or structural changes. A third chapter of the final section thus is based on the findings of the country chapters and presents a comparative analysis of the welfare system changes since the late 1990s. Obviously, there are a couple of external events that have heavily stimulated reforms in the different identified sequences in some (but not all) member states – e.g. accession to the EU, migration processes, the financial crisis after 2008. But to a large degree, the individual reform paths reflect xxv

Preface

national peculiarities. In the period of investigation all policy sectors show a differing mixture of retrenchment, expansion, and restructuring, and national reform ideas originate from (unorthodoxical!) reference of Keynesianism, neoliberalism, and social investment. This does not only result in welfare continuity or change, but also welfare reversal, meaning that certain welfare reforms (partly) re-establish an earlier situation. The studies throughout this Handbook demonstrate not only considerable diversity, dynamics, and change within and among European welfare systems, but also a rather high degree of political and economic adaptivity. In other words, European welfare systems are working effectively as ‘complex adaptive systems’. It is only a small step from accepting this to raising the question, what and how we can learn from each other’s different experiences – and studying welfare policies with a ‘pragmatist’ view could probably help. Whoever has worked on a project of this scale will appreciate the fact that the editors have a large number of long-standing colleagues, and a couple of new colleagues that joined our perennial research group, upon whom they can rely. Our thanks go to Routledge for inviting us to prepare this second edition, and particularly to Gerhard Boomgaarden and Diana Ciobotea for accompanying this book project in such a supportive manner. We would like to thank Kate Backhaus and Sylvia Schott for their support in organising an author workshop in May 2018 in Münster. Finally, this project would not have been possible without the help of Stephan Cordes, Artur Eibauer, Henning Heinemann, Mascha Liening, and Paul-Philipp Schnase. Summer 2019 Klaus Schubert, University of Münster Sonja Blum, FernUniversität Hagen (University of Hagen) Johanna Kuhlmann, University of Bremen

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Part 1

Introduction

1 Reform pathways of European welfare systems Analysing change and continuity in a broadened geographical and temporal perspective Johanna Kuhlmann and Sonja Blum

1 Introduction1 ‘The welfare state is at once one of the great structural uniformities of modern society and, paradoxically, one of its most striking diversities’, Harold Wilensky stated in his famous comparative analysis of welfare state development (1975, p. 1).What he observed more than 40 years ago still holds true today, especially when the focus is on Europe: Today, all European countries provide some form of welfare system, albeit in considerably different ways. For European citizens, the provision of welfare to cushion the social vicissitudes and risks has become an important component of their life and a crucial achievement of the 19th century and especially the 20th century, with the Bismarckian social insurance laws from the 1880s, the Beveridgean National Health Service from 1948, and the instalment of parental leave rights in the Nordic countries during the 1970s forming cases in point. These and similar policies have significantly shaped our present understanding of the welfare state and often also served as reference points for the development of European welfare systems.What is more, welfare states are not unrelated entities: Rather, interdependencies have proven to be important, and regularly social policies from one country serve as a role model for other countries. And yet despite these similar points of reference and frequently similar challenges and contexts, European welfare systems have by no means converged: Rather, welfare state development is still significantly shaped by national factors. Welfare states are not only diverse, but also dynamic, consistently being challenged by both exogenous and endogenous factors.The Second World War, the oil shock (1974), the collapse of the Soviet Union (1990), and the global financial crisis (from 2007) can be named as important turning points, which resulted in considerable changes in the trajectories of European welfare states (Castles et al., 2010). Welfare states have also been shaped by demographic, societal, and political developments, such as increasing life expectancy, changes of traditional family models, and transformations in party systems, with the recent rise of right-wing populist parties being a notable example (Röth et al., 2018). 3

Johanna Kuhlmann and Sonja Blum

These changing pictures of the welfare state influence how it is researched: Although the question of stability and change has for a long time been debated in comparative welfare state research (Pierson, 1994; Palier, 2010b; Béland and Powell, 2016; Streeck and Thelen, 2005), both the theoretical concepts for analysing stability and change and the empirical findings regarding the actual scope of change in different welfare systems are quite diverse. As Castles et al. (2010, p. 5) summarised, ‘there is hardly a variable which has not been regarded as influential’ with regard to how and why welfare states come into being, and how and why they change over time. To name but a few, factors that have been identified as influential include socio-economic pressure (Wilensky, 1975), political parties (Schmidt, 1978), power resources of capital and labour (Korpi, 1983), political institutions (Immergut, 1992), ideas (Hall, 1993), religion (van Kersbergen and Manow, 2009), transnational interdependencies (Rodgers, 1998) – the list could be continued to the point of exhaustion (see also Kuhlmann, 2019). This variety makes a mapping and, even more so, testing of these factors quite challenging. In the first edition of this Handbook of European Welfare Systems, a review of comparative welfare state research to date (Schubert et al., 2009a; see also Auth et al., 2018) identified, though with much overlapping, three main directions: The first was the development of welfare state categories and clusters; the second the analysis of retrenchment and other welfare state transformations; the third the question of convergence or path-dependency between the welfare states. Reviews – especially of such a broad and mature field as comparative welfare state research – can only be written in retrospect and with some time lag. Trying to look at the ‘major strands’ of current welfare state research, the wood may be impossible to see for the trees. Now, ten years after the first edition, the strands seem to have taken some different shape and directions: Welfare state typologies are still discussed and widely used, but we feel that this issue no longer dominates the debate. The same might be said for possible convergence processes between welfare states. The debate on path-dependency has gained traction since the famous observation by Streeck and Thelen (2005) that incremental changes can – over time – result in transformative changes, which also implies that reform processes in welfare states can to some extent be path-dependent, but this does not exclude the possibility of resulting in overall convergence.Vis-à-vis these two areas, the literature investigating welfare state transformations has kept or even expanded its dominance (see e.g. Bonoli and Natali, 2012; Hemerijck, 2013; Taylor-Gooby et al., 2017) (see Section 2 for a more detailed assessment of the development of the literature over time). Against this backdrop, the aim of this chapter is to develop an analytical framework that allows capturing the changes that welfare systems – European welfare systems in particular – have been experiencing.Thus, while the Handbook character of this volume is kept, as all chapters briefly present the main characteristics of the national welfare systems, our aim is to pay particular attention to the dynamics of European welfare systems in the last two decades. Two conceptual underpinnings guide our understanding of welfare system change and the empirical analyses: First, by including all 28 EU member states at the time of writing this chapter, we argue that understanding the change of European welfare systems benefits from a broadened geographical perspective that also includes ‘unusual suspects’ of comparative welfare state research. Second, and partly interrelated to the first, we adopt a procedural perspective of welfare system change. Such a perspective acknowledges that ‘reference points’ against which to measure and qualify welfare state change are country-specific (and certainly not always directed at the postwar ‘golden age’) and that timing and process matter for welfare state reform (see e.g. Pierson, 2004; Palier, 2010b). Against this backdrop, the chapter develops a three-dimensional approach for analysing welfare system change, thereby recognising that changes of welfare systems can cover many dimensions and questions – a fact that has become widely known in comparative 4

Reform pathways of European welfare systems

welfare state research as the ‘dependent variable problem’ (Green-Pedersen, 2004; Clasen and Siegel, 2007; Pierson, 1994). The following section will take a brief retrospect at the comparative welfare state literature over time. In Section 3, we conceptualise welfare system change along three dimensions, which will be taken up in all country chapters and also drive our qualitative comparative analysis (see Blum and Kuhlmann, this volume). Section 4 draws some general conclusions.

2 Trends in comparative welfare state research: a very brief retrospect of the literature Theories of the welfare state have mainly been developed since the 1950s (Castles et al., 2010): Going hand in hand with the ‘golden age’ of the welfare state, these theories primarily focused on welfare state expansion. The ‘welfare modelling business’ (Abrahamson, 1999), which Schubert et al. (2009a) identified as the first contemporary trend of comparative welfare state research, reaches back to the 1950s but gained traction in the 1970s, particularly with Titmuss’ (1972) distinction of the residual welfare model, the industrial achievement-performance model, and the institutional redistributive model. With the marginal and institutional welfare types, Korpi (1980) developed two poles to which the individual states largely could be attributed. In retrospective, this line of research seems to have had its heydays during the 1990s and early 2000s, when Esping-Andersen’s (1990) ground-breaking publication, The Three Worlds of Welfare Capitalism, became the most important basis of discussion for many years. Indeed, his distinction of a social-democratic, liberal, and conservative welfare regime type still enriches and provokes the debates (see e.g. Ferrara, 1996; Manow, 2002; Bambra, 2005; Emmenegger et al., 2015), but has at the same time been heavily criticised. This is partly due to the fact that additional ‘worlds of welfare capitalism’ have been identified, which are in the European context especially the ‘Mediterranean world’, and post-socialist countries which are either conceptualised as their own group or as constituting a subgroup, e.g. within the Bismarckian welfare systems (Arts and Gelissen, 2010; Palier, 2010b). Other scholars have criticised that the typology lacks a gender dimension (Sainsbury, 1999). From the late 1980s, the second strand of comparative welfare state research identified by Schubert et al. (2009a) gained traction, namely the analysis of retrenchment (or, more general, welfare state transformations). Pierson’s (1994, 2002) works on a ‘dismantling’ of the welfare state and a climate of ‘permanent austerity’ have received much attention ever since. A basic common feature of large parts of this literature has been the notion of a welfare state ‘crisis’ (see e.g. Flora, 1985; Svallfors and Taylor-Gooby, 1999; Huber and Stephens, 2001). Since the end of the 1990s, the crisis discourse was associated with the globalisation debate and newly revived by getting closely involved with the nexus of globalisation-welfare state (Esping-Andersen, 1996a; Crouch, 2000; Scharpf, 2000). In view of increasing international competition, the welfare state would thus seem in need of revision (Brady et al., 2005) or even completely outdated (Zürn, 2003). The notion of a quantitative dismantling of welfare state policy noticeably gains significance with the question of a qualitative dysfunctionality – whether national welfare systems can still be controlled and the state is experiencing a loss of sovereignty with processes of Europeanisation and globalisation (see e.g. Crouch, 2000; Castles, 2004; Ferrera, 2005). Surprisingly, however, despite the described climate of ‘permanent austerity’ and attempts to cut back social benefits, scholars stated that, overall, welfare states remained remarkably stable (Pierson, 1994), which was characterised in the debate as ‘welfare state resilience’ (Starke, 2006) and falls in the third strand of comparative welfare state research as identified by Schubert et al. (2009a), namely the question of convergence or path dependence. 5

Johanna Kuhlmann and Sonja Blum

Beginning from around the mid-2000s, the debate on path dependence has considerably changed, as the notion of ‘frozen’ welfare state landscapes (Esping-Andersen, 1996b), status quo maintenance, and reform incapability particularly of the conservative regime type was overhauled by empirical realities (Palier and Martin, 2007; Palier, 2010a; Häusermann, 2010), and encompassing changes have been proven across different social-policy sectors, such as pension, unemployment, and family policies (Palier, 2010a). The dualisation debate has added another facet to this literature, referring to a labour market where the rights of core workers (so-called insiders) are being maintained, while a growing group of workers at the margin of the labour market (so-called outsiders) is less protected by social insurance arrangements (see e.g. Emmenegger et al., 2012). Yet the observation of welfare state change did not remain limited to conservative welfare states: Significant departures from the status quo have also been identified for welfare states traditionally assigned to other regime types (Cerami and Vanhuysse, 2009; Nyby et al., 2018). While most of the research on path-dependency engages in in-depth case studies of specific welfare states, convergence approaches have mostly relied on quantitative data, analysing whether and in what ways welfare states are getting closer to each other (Starke et al., 2008; Schmitt and Starke, 2011). During the past years, the ‘crisis and transformation’ literature has been again a central feature of the debate, putting developments after the financial and economic crises starting in 2008 and thereabouts into focus. In this context, research has shown that European welfare systems are confronted with similar challenges but react to them in very different ways (Schubert et al., 2016; Blum et al., 2014; van Kersbergen et al., 2014). Last but not least, what was ten years ago still rated as a ‘sub-theme’ of the literature strand on retrenchment and other transformations of the welfare state, namely research on ‘new social risks’ (Bonoli, 2005) and a ‘new welfare state’ (Esping-Andersen et al., 2002; Taylor-Gooby, 2004; Bonoli and Natali, 2012), has since its emergence in the late 1990s gained in importance and now constitutes a literature strand on its own, being strongly connected to the ‘social investment state’ (Morel et al., 2012; Hemerijck, 2017) – a debate that we will take up in the next section.

3  Conceptualising welfare system change In this section, we will develop a framework that guides the analysis in the chapters of this book. Like in the first edition of this Handbook, we focus on welfare systems (rather than welfare states in a more narrow sense) as the main level of analysis, indicating ‘all welfare arrangements relevant to secure social risks and to open up new social possibilities’ (Schubert et al., 2009a, p. 21, emphasis in original). First, as a foundation, we will stress why the analysis of welfare system change benefits from a broadened geographical and a procedural perspective (Section 3.1). On this basis, we are going to outline our three-dimensional analytical approach, which includes a content dimension, an ideational dimension, and an output dimension of change (Section 3.2). Section 3.3 summarises the elements of this developed analytical framework.

3.1  Welfare system change in geographical and temporal perspective It has been highlighted how the past few decades were marked by developments that have significantly changed the picture of Europe – reaching from the end of the Cold War, over the globalisation process of the world market, to the dynamics of the European integration process itself. On the one hand, the criticism of the ‘three worlds of welfare capitalism’ as a regime typology was fuelled by the Eastern enlargement in 2004, when eight Central and Eastern European countries plus two Mediterranean countries joined the EU (Deacon, 2000; Aidukaite, 2004; Kvist, 2004). All in all, however, the ‘methodological nationalism’ (Beck and Grande, 2004) and 6

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methodological centralism, whereby the majority of comparative welfare state research focused on the state as single player and on European core countries, has decreased but not vanished (but see e.g. Cerami and Vanhuysse, 2009; Orenstein, 2008). When it comes to investigating welfare state transformations in comparative perspective, the countries studied or used as evidence remained relatively small for a long time. While EspingAndersen’s regime typology has been criticised for its narrow geographical focus (Ferrera, 1996; Arts and Gelissen, 2010), it is still today one of the primary grounds for case selection. Moreover, there is even amongst this group a tendency to select some countries (such as Germany, Sweden, and the UK as representatives of the three regime types) much more than others (Schubert et al., 2009b). Only slowly, comparative welfare state research has expanded its focus to other regions in and beyond central Europe. In addition, the discussion of case selection in comparative welfare state research typically refers to welfare state types or regimes but seems much less extended to the discussion on welfare state transformations as such. As Béland and Powell (2016, p. 130) highlight, particularly with regard to the literature on welfare state change, ‘much of the scholarship on social policy continuity and change focuses on one policy area, one country, one continent (mainly Europe), or one welfare regime at the time’. Against that backdrop, studying welfare system change benefits from including also ‘unusual suspects’ into the analysis. This is done in this Handbook by including all 28 EU welfare systems into the analysis. Admittedly, this does not counter the strong European bias in comparative welfare state research. However, by including countries that have attracted less attention by social policy scholars, we aim to broaden the geographical perspective on the transformation of European welfare systems. The second argument is directed at the procedural perspective. Adopting a dynamic perspective to welfare system change implies focusing on the timing of policymaking. Rather than focusing exclusively on outputs and comparing these outputs at different points in time, we acknowledge that the process of (welfare system) reforms plays an important role for assessing overall (welfare system) change (Pierson, 2004; Howlett and Goetz, 2014). At the same time, reforms in one policy field at a particular point in time can constitute spillover effects for other policy fields in subsequent sequences. Overall, understanding the timing of changes matters. Scholars often engage in sequencing or periodisation when they adopt a temporal perspective on welfare state development. When it comes to Western welfare states, the distinction of four phases has become rather unquestioned. It consists of a formation phase of the welfare state ranging from the 1880s to the First World War, the interwar period where the role of the state in providing welfare gained momentum, the ‘golden age’ of the welfare state, commonly characterised as a phase of welfare state expansion, and the phase following the oil crisis in 1973, which has been described as dominated by retrenchment (Obinger and Petersen, 2019, p. 11). Nullmeier and Kaufmann have highlighted that periodisations are always ‘interpretations of history’ (2010, p. 82) that depend on the criteria being adopted for this purpose. Still, and somewhat surprisingly, the ‘welfare sequencing business’ has received surprisingly little attention in comparative welfare state research (ibid.). We are interested in sequences in order to determine the changes that welfare states have been experiencing with regard to their social policies. A prerequisite for this exercise is to identify a particular time frame. Sabatier (2007, p. 3) has prominently argued that a period of ‘a decade or more’ must be studied to identify policy change, ‘as that is the minimum duration of most policy cycles, from emergence of a problem through sufficient experience with implementation’. In determining reference points for welfare system change, Seeleib-Kaiser (2016, p. 220) recommends ‘to take a longer time period into consideration . . ., as an analysis of short time periods will inevitably tend to have a stability bias’. 7

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As mentioned before, when talking about welfare state transformation, the – explicit or implicit – point of reference is mostly still the ‘golden age’ (Esping-Andersen, 1996a) of the welfare state. It is the mid-1970s, often associated with the external shock of the oil crisis, which is seen as the ‘new phase’ within welfare state development that put an end to the ‘short dream of sustained prosperity’. From a theoretical and methodological viewpoint, it is of course necessary to identify such a reference point. Taking the ‘golden age’, however, as reference point (against which to measure change) does not apply to the majority of European welfare systems (Schubert et al., 2009a). Rather, some countries, e.g. those that have experienced changes of their political system, may have very different ‘reference points’ to measure change (e.g. Southern welfare systems such as Portugal, Spain, or Greece; or Central and Eastern European welfare systems such as Croatia or Hungary). In addition, there might have been a period of continuous transformations after these ‘system shifts’, so that the attempt to identify a reference year could be quite difficult or not possible at all. Moreover, also the ‘usual suspects’ of comparative welfare state research have been affected by significant breaches over the past decades, such as e.g. Germany with its reunification in 1990, or the future UK after Brexit. This volume therefore does not focus on established periodisation of the welfare state but tries to identify sequences that characterise developments in European welfare systems over the last 20 years (1998–2018). We are aware that selecting this period is again an interpretation, which might give the ongoing 21st century undue credit for the relevance of welfare state development in the last decades. However, we feel that a focus on the last two decades is relevant, as it captures the period where important societal changes have become virulent (such as ‘new social risks’), and important changes in social policy instruments and ideas have been identified (Bonoli and Natali, 2012, Hemerijck, 2017,Taylor-Gooby et al., 2017).What is more, this period has been characterised by both ‘black swans’ (Castles, 2010), such as first and foremost the global financial crisis, and new actor constellations in social policy (see e.g. Afonso, 2015; Adam and Papatheodorou, 2016.) Identifying different reform sequences is not a trivial task at all. In fact, to be able to identify and distinguish different reform sequences, a qualitative assessment based on deep case knowledge is necessary. In order to trace the timing of welfare system change, the authors of the country chapters distinguish different reform sequences, which can be defined as ‘a temporally ordered set of events that takes place in a given context’ (Falleti and Mahoney, 2015, p. 213). These reform sequences are rather determined by the welfare system’s developments in holistic view than individual policy sectors, though it is clear that different policy sectors can be driven by different trends (e.g. retrenchment dominating in pension policy, but expansion in family policy). In such situations, the authors of the country chapters decide which trends in which policy sectors were crucial for characterising the overall changes during the particular sequence. Regarding events, we focus on welfare state reforms.The exact number of reform sequences can differ across countries and will be identified by the authors based on a qualitative assessment of the respective country. The crucial dimension that drives the identification of reform sequences is the first dimension of the framework outlined in Section 3.2, namely the regulations of the reform, more specifically an assessment if retrenchment, expansion, or restructuring can be identified as the dominant reform trends within the welfare system. If this dimension is not sufficient for identifying sequences (for example if retrenchment is the only trend that can be observed in the whole time frame), sequences are identified by taking into account additional information based on the other two dimensions of the analytical framework (i.e. ideas and/or type of change). While we are especially interested in the developments since the turn of the century, we leave it up to our country experts to define the exact starting point of their analysis. While it might in some countries be perfectly reasonable to start the analysis in 1998, for other 8

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countries it might be more adequate to start a few years earlier (or later). This does not weaken our analysis, but helps to get the full context of welfare state development in the last 20 years.

3.2 A three-dimensional approach for analysing welfare system change In welfare state research, the question ‘how to conceptualize, operationalize and measure change within welfare states’ (Clasen and Siegel, 2007, p. 4) has been discussed prominently and labelled as the ‘dependent variable problem’. While the question seems to be particularly pressing in times of increasing data availability, Green-Pedersen (2004, 2007) as well as Clasen and Siegel (2007) have argued that the dependent variable problem should, to begin with, be considered a theoretical problem. Based on existing literature, we will develop a three-dimensional approach to guide the analyses of welfare state change in the country studies. These three are changes of regulations, changes of ideas, and types of change. A similar multi-dimensional attempt to analyse welfare state reform, albeit exclusively in Continental welfare states, has been made by Palier (2010b), who distinguishes the context and the diagnosis of problems, the content of reforms as well as the type of change that these reforms indicate, the politics of reform with a focus on actors and actor constellations, and the outcomes of reforms, which are analysed with regard to both the policy and the politics dimensions. Compared to Palier’s encompassing framework, our framework is more limited in scope, as it focuses exclusively on the policy dimension. It has repeatedly been pointed out that welfare systems differ substantially with regard to the policy sectors that are considered. Housing, for example, constitutes a core policy area in the United Kingdom but is rather subordinate in many other countries (Fahey and Norris, 2010). While some countries have established encompassing long-term care policies, this risk remains in the realm of the family in other welfare systems (Österle and Heitzmann, 2016). In addition, the question to what extent education should be considered a ‘welfare issue’ is a matter of debate (Busemeyer and Nikolai, 2010).What follows from this is that the identified criteria for measuring welfare system change will be applied to partly different policy sectors, depending on their relevance in the different welfare systems – that can, of course, also shift over time (as, for example, the remarkable expansion of family policy in many welfare systems illustrates). Core policy sectors that all country chapters will investigate are old-age, labour market and unemployment, healthcare and family policy as well as social assistance. Other sectors – such as housing, education, disability, and long-term care – will only be included if they constitute a core part of the respective welfare system. Table 1.1 summarises our conceptual considerations, highlighting the main questions and analytical dimensions that each of the chapters will pursue. As already mentioned, we focus on regulations, with regard to changing rules and the direction of these changes (the latter driving the identification of sequences), ideas, and the process and output of change. The following subsections will explore these categories in more detail.

Dimension 1: regulations Measuring welfare state change (as well as its determinants) in terms of its quantitative dimension is regarded as problematic at least since Esping-Andersen’s well-known argument that it ‘is difficult to imagine that anyone struggled for spending per se’ (1990, p. 21). Briefly, EspingAndersen’s is a social-rights-based approach, focusing on social stratification and mainly decommodification as the degree of labour-market independence enabled through social policies. Palier (2010b; see also Palier and Martin, 2007) proposes four principal parameters to study 9

Johanna Kuhlmann and Sonja Blum Table 1.1  Summary of analysis of welfare system change Time frame: Policy sector: Three-dimensional approach for analysing welfare system change Reform Policy fields Ideas Type of change sequence with reform Regulations activity Step 1: Step 2 (driving such as Step 1 Step 2 output: beneficiaries/ benefit scope/ financing

Example: 1999– 2008

Example: Family policy

the identification of sequences): expansion/ retrenchment/ restructuring

Keynesianism/ process: continuity/ neoliberalism/ incremental/ discontinuity social abrupt (reversal) investment (or others)

Example: Number Example: Example: Example: of beneficiaries Restructuring Reforms Abrupt reduced, reflect benefit scope some social increased, investment financing ideas unchanged, decentralisation

Example: Rather discontinuity

changes in ‘welfare institutions’ (Palier, 2010b, p. 23): the rules and criteria governing eligibility and entitlement; the form taken by benefits; the financing mechanisms; and, finally, the organisation and management of the scheme. Thus, when it comes to changing rules of welfare systems, we can look first at how reforms change regulations on (1) beneficiaries and the eligibility rules (see also for the following points Palier, 2010b).This may include lightening or tightening eligibility criteria (e.g. length of previous employment to qualify for employment-based benefits), but, taking into account Pierson’s (1996) focus on means-tested benefits, an important qualifying component of the beneficiary rules is also whether benefits are provided universally or whether means-testing is applied (see Clasen and Clegg, 2007; Dobrotić and Blum, 2019). Second, it is important to look at changes regarding the (2) benefit scope (e.g. type of benefit (cash, service, etc.), benefit level). A third category concerns (3) the financing of the system (e.g. tax-based, contribution-based, etc.). Last but not least, the (4) governance structures come into focus.2 In addition to analysing the different policies separately, it is in a second step important to assess the overall scope of the observed reforms in order to assess the level of change. Palier (2010b, p. 26f) notes: ‘Characteristics of a program before and after a reform – the specific combination of the four institutional variables – then serve as objective criteria to reveal change.’ With regard to change, the central question for the regulations dimension is: Have welfare systems been dominated by expansion or retrenchment? In contrast to expansion, which used to characterise welfare state development in most Western welfare states until the mid-1970s, scholars have identified welfare state retrenchment as a central trend since then (Pierson, 1994, 1996; Starke, 2006). At the same time, it is important to note that efforts to expand welfare benefits or services have been identified, too. Amongst others, this applies to policies protecting against ‘new social risks’, such as work-family policies (van Gerven, 2008; Häusermann, 2006; Blum et al., 2014). Scholars have also pointed out that the concepts of expansion and retrenchment do not fully cover welfare system change. Often, reforms are not adequately described by expansion versus retrenchment, but may imply a more ‘qualitative’ restructuring of welfare 10

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(which e.g. cannot be ‘measured’ as either expansion or retrenchment, or where reforms involve expansionary and retrenching elements which counterbalance each other) (see also Borosch et al., 2016).3

Dimension 2: ideas Reforms do not only introduce new regulations or modify existing regulations that guide the provision of welfare in one policy field. They are also connected to general principles and ideas of providing welfare that underlie each policy. Scholars such as Hall (1993) and Sabatier (1993) have argued that the idea of discontinuity or major shifts in the welfare state mostly goes beyond the reform of instrument settings, welfare state institutions, or financing, however significant those may be. Rather, each reform usually includes an ideational notion and reference to the change of fundamental paradigms and principles underlying the welfare arrangements. Often, these ideas are reflected in different narrative stories of welfare state reform (Blum and Kuhlmann, 2019). A paradigm is defined by Hall (1993, p. 279) as follows: Policymakers customarily work within a framework of ideas and standards that specifies not only the goals of policy and the kind of instruments that can be used to attain them, but also the very nature of the problems they are meant to be addressing. . . . I am going to call this framework a policy paradigm. Morel et al. (2012) have made a well-known distinction between the three paradigms of Keynesianism, Neoliberalism, and Social Investment, which is capable of capturing different ideas when it comes to social policy. To begin with, the Keynesian paradigm sees social policy as an important factor for promoting economic growth (Morel et al., 2012, p. 6). For example, in times of economic downturn, the wages of workers are kept on a high level, and it is also invested in workers’ qualifications in order to keep a qualified labour force that pays off for subsequent times of economic growth. Keynesianism can be seen as the dominant paradigm between the 1930s and 1970s and has witnessed a short revival during the financial crisis after 2007, when stimulus packages and policy instruments such as short-term work were adopted in some countries (see e.g. Zohlnhöfer, 2011). Generally, however, since the economic crisis following the oil shock 1974, Keynesianism as the dominant paradigm was replaced by monetarism. In contrast to the Keynesian paradigm, the neoliberal paradigm reinterprets social policy not as a promoter but as an obstacle to economic growth. Although public expenditure is generally expected to be low, social policy should not be completely dismantled but rather focus on activation (Morel et al., 2012, p. 8). Social investment can be considered a third paradigm. Similar to Keynesianism, it stresses the ‘productive potential’ (Morel et al., 2012, p. 8) of social policy, but conceptualises the welfare state quite differently from Keynesianism:The welfare state is seen as an active promoter of social amelioration by adapting policies ‘that both invest in human capital development . . . and that help to make efficient use of human capital . . . while fostering greater social inclusion’ (Morel et al., 2012, p. 2). The social investment paradigm has become prominent since the late 1990s (ibid.) and has especially been promoted by the European Commission as a political strategy (Nolan, 2013), while the corresponding ideas have a much longer history, particularly in the Nordic welfare systems. While all paradigms have their specific time (Kingdon, 1995), social policy reforms since the turn of the century are by no means only guided by ideas of social investment. Rather, reforms in European welfare systems map a complex picture of policies reflecting different – and partly 11

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also contradictory – paradigms. In addition, there are numerous distinctions of principles and paradigms in social policies, which may also be more specific within broader categories (see also e.g. Clasen and van Oorschot, 2002) or apply only to certain countries, regions, or policy sectors (such as familialism, activating social policy, or libertarian paternalism).

Dimension 3: type of change To complement our assessment of welfare system change, the third dimension aims to qualify the extent of changes that are being observed in the content and the ideational dimension. In this dimension, we expand our analytical focus beyond single reforms and policy sectors and ask how the analysed changes in rules (and, accordingly, ideas) contribute to overall change. Following Streeck and Thelen (2005), we may distinguish different outputs of change, but also the processes leading towards them. Regarding the process of change, the central question is whether welfare system change predominantly takes place incrementally, i.e. by slow and gradual adaptations of the status quo (Lindblom, 1959), or abruptly, i.e. by fast and at first glance encompassing changes. Although incremental change seems to be most frequent in welfare systems (Pierson, 1994; Hinrichs and Kangas, 2003; Streeck and Thelen, 2005), abrupt welfare system change does also take place (Rüb, 2014). Regarding the output of change, the magnitude of reforms is very often addressed but much less often neatly defined and systematically tested (Seeleib-Kaiser, 2016; Béland and Powell, 2016). Different labels have been introduced in the comparative welfare state and policy analysis literature to classify two types of developments. The first type focuses on continuity. It has been analysed with differing analytical and theoretical foci and described with terms such as programmatic reform (Pierson, 1994) or policy adjustment (van Gerven, 2008). Continuity does not preclude change (Streeck and Thelen, 2005), but those policy changes are mostly minor and path-dependent. They may – in the language of Peter Hall (1993) – adapt instrument settings or introduce new instruments, but not (or, at least, not immediately) change the fundamental systemic principles or leitmotifs. The second type focuses on discontinuity or change. It has been labelled as structural reform (Pierson, 1994), radical reform (Bonoli, 2012), system shift (Hinrichs and Kangas, 2003), or path-breaking change (Ross, 2008). The common idea of these concepts is that of a major policy transformation. Only if policy instruments are renewed in response to an altered guiding interpretive framework and corresponding goals on a given policy field, Hall (1993) speaks of third-order, fundamental policy changes. These can be conceptualised as paradigm shifts, breaking with the paradigm that has guided policymaking in the past and – in a process following different stages, leading to the increasing delegitimisation of the previous paradigm and debates of alternatives – introducing a new one. If we consider the reform process (incremental or abrupt) and the reform magnitude together, it is important to note that incremental change does not presuppose the output of a reform process in the form of stability.4 The same holds true for abrupt changes, which can be quickly reversed by returning to the status quo, thus demarcating only short-lived critical junctures and indicating continuity. If a reversal does not take place, abrupt changes can also result in discontinuity (Streeck and Thelen, 2005, pp. 8–9). This last summary of Streeck and Thelen’s considerations of change already introduces a term, which is rarely explicated in the literature on (social policy) transformations: If we take the broadened temporal and thus procedural perspective seriously, we may not only ask ‘when is a change big enough to be a system shift?’ (Hinrichs and Kangas, 2003), but also ‘when is a change long-lived enough to (still) be a system shift?’ The corresponding output type can be 12

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called policy reversal. Policy reversal may be less studied due to the belief that once ‘a system starts in one direction than another, it is unlikely to reverse itself and start down the path previously foregone’ (Kingdon, 1995 as cited by Sokhey, 2017, p. 20).5 On the other hand, notions and question of ‘regress’ (Korpi, 2006), ‘backward steps’ (Henninger and Wahl, 2004), or ‘course corrections’ (Blum and Kuhlmann, 2016) are quite common in the welfare state change literature. In a way, the whole ‘dismantling’ and ‘restructuring’ of the welfare state can be read – partly – as a story of reversal. Still, policy reversal remains invisible on the (non-procedural) change-versuscontinuity continuum.

4 Conclusions European welfare systems are highly diverse, and existing regime typologies and categorisations fall short to provide an adequate picture: This was one core finding of the first edition of this Handbook of European Welfare Systems, and it still holds true today, confirmed by a number of comparative welfare state studies that have been conducted in the last ten years. However, while the assumption of diversity of European welfare systems continues to be a key underpinning of this second edition, we felt that an inventory of European welfare systems alone fell short to provide a full characterisation. Rather, the dynamics of European welfare systems are crucial for their understanding. The welfare systems of European countries are not set in stone: They follow complex, sometimes inconsistent, but always very particular reform paths that are shaped by a variety of factors. This chapter has developed an analytical framework that allows describing these trajectories of change. By differentiating between crucial policy sectors and analysing welfare system changes with regard to regulations, ideas, and the scope of change, the aim of the chapter thus was to provide a basis for describing change of the 28 different European welfare systems that are included in this volume. In a second step, it should also enable the qualitative comparison of change in European welfare systems over time (see Blum and Kuhlmann, 2020). Most analyses of welfare system change cannot be ‘finalised’ in a satisfactory manner, as change more often than not does not end at a certain point in time. Each analysis of ‘change’ is therefore at first glance likely to have an expiration date. However, the last decade has provided significant evidence that the ‘adaptive capacities of welfare states’ (Hemerijck, 2013, p. 1) are indeed crucial for characterising European welfare systems. Thus, besides their diversity, maybe their capacity to change can be named as a second defining feature of European welfare systems.

Notes 1 The authors would like to thank all the colleagues who have considerably helped to strengthen the analytical framework developed in this chapter at the author workshop in Münster in May 2018, and for detailed comments on an earlier version, particularly Florian Blank, Ivana Dobrotić, and Minna van Gerven. 2 Admittedly, reforms are not the only indicator for welfare state change. In his analysis of social policy in the USA, Hacker (2004) has shown that a decrease in social protection might not only be the result of reforms but rather of an absence of reform in a changing (societal) context of welfare provision. This moves the analytical focus from changing rules to changing functions of welfare states (see also Campbell, 2010). 3 As Pierson (2001, p. 421) notes: ‘In a context where actors have complex motives, and the dependent variable is so heterogeneous, attempts to reduce change to a single dimension will be counterproductive.’ He instead proposes to analyse welfare state change in three dimensions: (1) re-commodification, which means ‘to restrict the alternatives to participation in the labour market, either by tightening eligibility or cutting benefits’ (Pierson, 2001, p. 422), (2) cost containment, indicating a ‘fight against spending per 13

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se’ (Pierson, 2001, p. 423), and (3) recalibration, indicating ‘reforms which seek to make contemporary welfare states more consistent with contemporary goals and demands for social provision’ (p. 425), either by rationalisation, which is the ‘modification of programmes in line with new ideas about how to achieve established goals’ (ibid.), or updating, which means adaptations to societal changes (ibid.). 4 In fact, scholars such as particularly Streeck and Thelen (2005, pp. 8–9) have stressed that incremental processes involve both the possibility of continuity, namely when existing institutions are only slightly adapted in order to be maintained, and discontinuity, when many incremental changes accumulate to a departure from a previous path – a process which they call ‘gradual transformation’ (Streeck and Thelen, 2005, p. 9) and for which they have systematised different concepts such as layering, drift, conversion, displacement, and exhaustion. 5 But there can be exceptions, as Sokhey writes with regard to her empirical field of study: ‘Pension privatization – a radical, potentially path-departing reform – was reversed in about a third of the countries in which it was introduced’ (Sokhey, 2017, p. 3).

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K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Springer International Publishing, Cham, pp. 769–791. Brady, D., Beckfield, J. and Seeleib-Kaiser, M. (2005), “Economic Globalization and the Welfare State in Affluent Democracies, 1975–2001”, American Sociological Review,Vol. 70 No. 6, pp. 921–948. Busemeyer, M.R. and Nikolai, R. (2010), “Education”, in Castles, F.G., Leibfried, S., Lewis, J., Obinger, H. and Pierson, C. (Eds.), The Oxford Handbook of the Welfare State, Oxford University Press, Oxford, pp. 494–510. Campbell, J.L. (2010), “Institutional Reproduction and Change”, in Morgan, G., Campbell, J.L., Crouch, C., Pedersen, O. and Whitley, R. (Eds.), The Oxford Handbook of Comparative Institutional Analysis, Oxford University Press, Oxford, pp. 87–115. Castles, F.G. (2004), The Future of the Welfare State, Crisis Myths and Crisis Realities, Oxford University Press, Oxford. Castles, F.G. (2010), “Black Swans and Elephants on the Move: The Impact of Emergencies on the Welfare State”, Journal of European Social Policy,Vol. 20 No. 2, pp. 91–101. Castles, S., Leibfried, S., Lewis, J., Obinger, H. and Pierson, C. (2010), “Introduction”, in Castles, S., Leibfried, S., Lewis, J., Obinger, H. and Pierson, C. (Eds.), The Oxford Handbook of the Welfare State, Oxford University Press, Oxford, pp. 1–15. Cerami, A. and Vanhuysse, P. (2009), Post-communist Welfare Pathways:Theorizing Social Policy Transformations in Central and Eastern Europe, Palgrave Macmillan, London. Clasen, J. and Clegg, D. (2007), “Levels and Levers of Conditionality: Measuring Change Within Welfare States”, in Clasen, J. and Siegel, N.A. (Eds.), Investigating Welfare State Change: The ‘Dependent Variable Problem’ in Comparative Analysis, Edward Elgar, Cheltenham, Northampton, pp. 166–197. Clasen, J. and Siegel, N.A. (2007), “Comparative Welfare State Analysis and the ‘Dependent Variable Problem’ ”, in Clasen, J. and Siegel, N.A. (Eds.), Investigating Welfare State Change:The ‘Dependent Variable Problem’ in Comparative Analysis, Edward Elgar, Cheltenham, Northampton, pp. 3–12. Clasen, J. and Van Oorschot,W. (2002),“Changing Principles in European Social Security”, European Journal of Social Security,Vol. 4 No. 2, pp. 89–115. Crouch, C. (2000), “Die europäische(n) Gesellschaft(en) unter dem Druck der Globalisierung”, in Aust, A., Leitner, S. and Lessenich, S. (Eds.), Sozialmodell Europa: Konturen eines Phänomens, Springer, Wiesbaden, pp. 77–99. Deacon, B. (2000), “Eastern European Welfare States: The Impact of the Politics of Globalization”, Journal of European Social Policy,Vol. 10 No. 2, pp. 146–161. Dobrotic, I. and Blum, S. (2019), “A Social Right? Access to Leave and Its Relation to Parents’ Labour Market Position”, in Moss, P., Duvander, A. and Koslowski, A. (Eds.), Parental Leave and Beyond: Recent International Developments, Current Issues and Future Directions, Policy Press, Bristol, pp. 261–280. Emmenegger, P., Häusermann, S., Palier, B. and Seeleib-Kaiser, M. (Eds.) (2012), The Age of Dualization:The Changing Face of Inequality in Deindustrializing Societies, Oxford University Press, Oxford. Emmenegger, P., Kvist, J., Marx, P. and Petersen, K. (2015), “Three Worlds of Welfare Capitalism: The making of a classic”, Journal of European Social Policy,Vol. 25 No. 1, pp. 3–13. Esping-Andersen, G. (1990), The Three Worlds of Welfare Capitalism, Polity Press, Cambridge. Esping-Andersen, G. (1996a), “After the Golden Age? Welfare State Dilemmas in a Global Economy”, in Esping-Andersen, G. (Ed.), Welfare States in Transition: National Adaptations in Global Economies, Sage, London, pp. 1–31. Esping-Andersen, G. (1996b), “Welfare States Without Work, the Impasse of Labour Shedding and Familialism in Continental European Social Policy”, in Esping-Andersen, G. (Ed.), Welfare States in Transition: National Adaptations in Global Economies, Sage, London, pp. 66–87. Esping-Andersen, G., Gallie, D., Hemerijck, A. and Myles, J. (Eds.) (2002), Why we Need a New Welfare State, Oxford University Press, Oxford. Fahey,T. and Norris, M. (2010), “Housing”, in Castles, S., Leibfried, S., Lewis, J., Obinger, H. and Pierson, C. (Eds.), The Oxford Handbook of the Welfare State, Oxford University Press, Oxford, pp. 479–494. Falleti, T.G. and Mahoney, J. (2015), “The Comparative Sequential Method”, in Mahoney, J. and Thelen, K. (Eds.), Advances in Comparative-historical Analysis, Cambridge University Press, Cambridge, pp. 211–239. 15

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18

Part 2

Country studies

2 Austrification in welfare system change? An analysis of welfare system developments in Austria between 1998 and 2018 August Österle and Karin Heitzmann

1 Introduction In the comparative welfare state literature, Austria has been described as a corporatist, conservative, continental, or male-breadwinner welfare state (e.g. Esping-Andersen, 1990; Sainsbury, 1999). The definition of social rights is characterised by a close employment and a close family nexus. The welfare system is built on the main pillar of a social insurance system covering pensions, healthcare, unemployment, and accidents. Here, financing is based on income-related contributions from employers and employees, with larger shares of tax funds used in health and pension schemes. Universal programmes as the second pillar of the Austrian welfare model dominate specific areas, most notably care-related policies and education. The third pillar, poverty relief, follows the social assistance principle (Österle and Heitzmann, 2009). The roots of the Austrian welfare system date back to the 1880s, when work accident and sickness insurance were introduced as the first two branches of the social insurance system (Tálos, 1981). Mandatory insurance, self-administration, and close employment links have been established as key principles of the model and are still valid up until today. With old age insurance in 1907 and unemployment insurance in 1920, the third and fourth branches of the Austrian welfare system were established. After World War II, the social insurance orientation was reinstated and reinforced. In 1955, social insurance legislation was consolidated and harmonised by establishing the ASVG (Allgemeines Sozialversicherungsgesetz) as the common legal base. But only in the 1960s, the system was extended to farmers and the self-employed. Overall, extensions in personal and material coverage dominated the welfare state agenda until the 1960s. The post-war welfare state with major extensions until the 1960s can hence be viewed as a reference point for changes since. With the 1970s’ economic crisis, financial limitations to expansions became an issue, even though until the 1990s there were still important extensions in welfare programmes, including health insurance coverage, the introduction of a comprehensive longterm care scheme, and the extension of social insurance coverage to new forms of atypical employment (Österle and Heitzmann, 2009). From the mid-1990s, references to demographic challenges, issues of fiscal sustainability, and more recently global implications of the financial 21

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and economic crisis increasingly dominated social policies (Obinger and Tálos, 2010). Generally, Austria is assessed as a strongly consensus-oriented democracy with a strong role of social partners and a long history of continuity in welfare state policies in general and in specific policy fields. This chapter will assess whether this still is the case. It is the objective of this chapter to review the changes to the Austrian welfare system in the past 20 years (1998–2018). More specifically, and following the rationale of the book, it studies changes in the instrument settings, it analyses potential changes in underlying paradigms and principles, and it assesses the type of changes with a view to their processes and character. For the Austrian case, the analysis of developments 1998–2018 distinguishes between four main reform periods (see Section 3.1).These sequences are shaped by a mix of socio-economic factors, political developments, and dominant ideas. As will be shown, they correspond highly with changes in coalition governments. In terms of policy outcomes, divisions are often less clear-cut as will be discussed in more detail below. Historically, this has been described by using Austro- as a prefix, as in Austro-Keynesianism, taking some ideas of a particular ideology, but without letting this particular ideology become the dominant one. This chapter argues that ‘Austrification’ remains a feature of the developments, even when external crises or major political changes might lead to expectations of more paradigmatic changes. Against this background, the period of welfare state developments over the past 20 years can be divided into four major sequences. The first period already started 1995 and lasted until 2000. As already mentioned, from the mid-1990s, references to demographic challenges and budgetary limitations increasingly shape social policy agendas. In addition, in 1995 Austria became an EU member state. The Maastricht criteria requiring budget consolidation was one of the dominant issues in the early years as a member state. The second period is 2000–2006, when Austria was governed by the so-called black-blue coalition, a centre-right coalition between the conservative party (ÖVP, the ‘blacks’) and the Austrian right-wing party FPÖ (the ‘blues’). Involving the FPÖ in the government was strongly opposed by opposition parties and protestors on national levels but also by governments in many other EU member states. While the conservative party and the social democratic party always were strongly connected with social partners, a critical stance towards social partnership was one of the main targets of the FPÖ programme. In addition, the change in FPÖ leadership (Haider took over party leadership in 1986), led to a re-enforcement of the nationalist orientation and a weakening of the liberal orientation. With that, immigration (the ‘Ausländerthema’) moved to the centre of the FPÖ agenda. The ÖVP instead delimited itself from the previous grand coalition by emphasising change of structural rigidities and privatisation, or, more generally, ‘more private, less state’ (a notion emphasised by then chancellor Schüssel). The third period starts early 2007 with the return of the (no longer so) grand coalition between the social democratic party (SPÖ) and the conservative party. This third period was marked by two major international developments. Firstly, the global financial crisis with huge implications in many European welfare states had also hit the Austrian economy, but to a lesser extent. It dominated the political agenda, but without leading to major one-directional social policy changes. Later on, the large inflow of refugees in 2015 and the positions taken by political parties had huge impacts. While Austria first followed Merkel’s approach in Germany, the coalition government soon became critical of that path. There are strong indications that in 2018 Austria moved into a fourth period. In early 2018, after a change in the party leadership of the conservative party that was followed by national elections in autumn 2017, Austria has seen the return of the ‘black-blue coalition’ – with chancellor Kurz in charge. This period is still in an early stage. However, legal initiatives of the first year of this coalition government have clearly emphasised a redefinition and retrenchment of social rights of migrants (and different groups of migrants), an emphasis on 22

Analysis of welfare system developments in Austria

the concept of (un)deservingness, and attempts to change institutional configurations (e.g. a weakening of the role of social partners). In what follows, we first illustrate the general structures of the Austrian welfare state and its development over the past 20 years. Then, we analyse welfare state changes in the four reform periods, with a view to an overall characterisation of these changes and with a view to developments in specific social policy fields. Finally, the main characteristics of the Austrian social policy developments are summarised in a concluding chapter.

2  General structures of the Austrian welfare system In this section, the general structures of the Austrian welfare system will be described. A more detailed overview of these general characteristics can be found in the first edition of this Handbook (see Österle and Heitzmann, 2009, in Schubert et al., 2009).

2.1 Priorities In terms of expenditures, public social protection spending in Austria amounted to 29.8% of GDP in 2015.This compares to an EU-28 average of 28.6% (in 2014). In a historical perspective, social expenditure as a proportion of GDP has experienced only some volatility from the mid1990s onwards. Starting from a value of 28.9% in 1995, it achieved a low in 2007 (27%), only to start rising again due to the financial crisis of 2008. From 1995 to 2015, the rate has increased by 0.9 percentage points (see Table 2.1). In a European perspective, Austria ranks seventh in terms of these expenditures, succeeded by some Nordic countries, some conservative welfare states, and Italy. Its expenditure rate is, however, far beyond the levels in the Central Eastern European member states. Judged by the total amount spent on social protection, data suggest that – after a short period of stability from 1995 to 1997/1998 – social protection expenditures increased steadily, achieving their peak in 2015 with €103 billion. The same is true regarding expenditures per capita (purchasing power parities). In 2015, Austria ranks third in the EU-28, only outpaced by Denmark and Luxembourg. With regard to expenditure by function, pensions (including survivors’ pensions) account for almost 50% of the total budget, a level only exceeded by few other EU member states. This already large share and the expected demographic developments make the pension system a major target for cost containment considerations. The same is true for ‘sickness/healthcare and disability’ which consumes roughly a third of total social expenditure. All other areas account for the remaining fifth of the total budget. It includes expenditure for families and children (about 9% of total social expenditure), unemployment (about 6%), and housing and social exclusion (about 2%, see Table 2.2). Overall, the dominance of the insurance principle suggests that (former) employees are at the focus of the Austrian welfare state. In addition, universal benefits are granted to families with children and people in need of health or long-term care. Being a conservative welfare state, a key concept of the Austrian welfare state is the preservation of status differentials. This is mirrored by the principle of equivalence concerning contributions paid and benefits received in many branches of social insurance benefits. However, due to various exceptions made to this principle and many non-insurance-based transfers, income inequality in Austria is comparatively low – at a similar level as in many Scandinavian welfare states (e.g. OECD, 2017, pp. 7f; see also Section 2.3). The distribution of wealth instead is one of the most unequal ones in Europe (e.g. OECD, 2017, p. 10). The lack of wealth-related taxes is but one explanation for this imbalance 23

53,213.72 53,946.10 53,143.33 54,568.17 57,896.69 59,675.72 61,631.73 64,036.02 66,473.33 68,626.26 71,056.05 73,764.26 76,713.21 80,994.13 85,155.72 87,637.19 89,397.37 92,908.66 95,988.39 99,250.44 102,725.09

28.9 28.9 28.3 28.0 28.4 27.9 27.9 28.2 28.7 28.3 28.0 27.5 27.0 27.6 29.6 29.6 28.8 29.2 29.6 29.8 29.8

5,682.28 5,959.88 6,150.42 6,434.15 6,817.21 7,192.64 7,208.66 7,540.72 7,811.32 8,056.65 8,407.95 8,706.10 8,897.04 9,091.87 9,287.37 9,593.73 9,674.82 10,120.95 10,370.70 10,638.78 11,146.21

: : : : : : : : : : : : : 3,387,028.75(p) 3,533,143.94(p) 3,667,547.18(p) 3,735,088.49(p) 3,859,799.72(p) 3,913,655.87(p) 4,016,755.91(p) :

Total (mio €)

PPS per inhab.

Total (mio €)

% GDP

EU-28

Austria

Source: Eurostat, 2018a; (p): provisional value

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 2.1  Social protection expenditure, Austria, 1995–2015

: : : : : : : : : : : : : 25.9(p) 28.7(p) 28.6(p) 28.3(p) 28.7(p) 28.8(p) 28.6(p) :

% GDP : : : : : : : : : : : : : 6,757.67(p) 7,028.04(p) 7,279.52(p) 7,417.84(p) 7,649.10(p) 7,733.21(p) 7,912.48(p) :

PPS per inhab. 1,869,415.56 1,971,768.55 2,048,453.88 2,110,012.32 2,214,943.56 2,347,326.14(p) 2,449,980.98(p) 2,562,471.09(p) 2,657,662.71(p) 2,771,854.86(p) 2,889,500.99(p) 3,007,885.73(p) 3,118,525.82(p) 3,195,211.33(p) 3,344,902.25(p) 3,467,209.30(p) 3,533,100.02(p) 3,656,348.31(p) 3,705,912.85(p) 3,806,673.98(p) 4,000,226.25

Total (mio €)

EU-15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26.0 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3

% GDP

4,688.71 4,924.63 5,112.87 5,262.37 5,500.34 5,837.71(p) 6,080.56(p) 6,319.12(p) 6,493.72(p) 6,725.22(p) 7,013.25(p) 7,270.41(p) 7,487.35(p) 7,658.60(p) 7,928.97(p) 8,171.41(p) 8,310.18(p) 8,537.54(p) 8,619.55(p) 8,796.65(p) 9,179.54

PPS per inhab.

Analysis of welfare system developments in Austria Table 2.2  Social protection benefits by function, Austria, 1995–2015 (% of total expenditure)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

100 97.16 11.58 5.56 0.25 1.46 33.93 44.38

100 97.06 10.98 4.69 0.36 1.05 33.88 46.1

100 96.87 10.84 5.58 0.43 1.26 32.82 45.94

100 97.3 10.5 5.48 0.53 1.29 31.83 47.68

100 97.4 9.33 5.5 0.4 1.88 31.16 49.14

Source: Eurostat, 2018b

(e.g. Schratzenstaller, 2015), as is the low level of social mobility between classes, for example in terms of educational attainment (e.g. Altzinger et al., 2013).

2.2  Funding and administrative structure As a conservative welfare state, the principle of federalism is valued highly in Austria. While this is a historical fact, it is also true at present. The nine federal provinces in Austria are in charge of organising many social and healthcare services (e.g. childcare, long-term care, hospitals, housing) and few cash transfers (e.g. minimum income benefit). The provinces use their governing power with the effect that provision is quite diverse in a country with only some eight million inhabitants. Despite their governing power, however, the Austrian Länder do not have many of their own resources. Rather, they depend on financial means granted to them by the state. The underlying contract for this financial compensation (Finanzausgleich) usually is established for a multi-year period. Thus, unexpected increases of expenditures within this period are particularly problematic for the provinces (e.g. an unexpected large number of refugees in 2015). Typical for a conservative welfare state, corporatism plays an important role in Austria. Even though the role of the social partners has changed in the last two decades, they remain a strong partner of the government and an important regulator and administrator of important branches of the Austrian social security system (Rathgeb, 2017; Paster, 2013; Tálos, 2006). As mentioned earlier, the SPÖ as well as the ÖVP have close links to the social partners, whereas the FPÖ is more critical against this type of shadow government. Austria also has a long tradition of cooperation between the public and the third sector (Pennerstorfer et al., 2013). This particularly refers to social services, which often are provided by third sector organisations and financed by state institutions (Heitzmann, 2010; Dawid and Heitzmann, 2015). In the last two decades, cooperation between the two actors has become more formalised, evidenced, for example, by a gradual replacement of subsidies as a means of finance through performance-related payments. Professionalisation, accountability, and new public management have become important guidelines for third sector organisations more generally (Meyer and Simsa, 2013). In contrast to third sector organisations, for-profit organisations still do play a minor role in the provision of social services in Austria. In recent years, however, the relevance of occupational welfare has gained in importance, particularly concerning occupational pensions (Social Affairs Ministry, 2016, pp. 162f). 25

August Österle and Karin Heitzmann

2.3 Performance Austria’s welfare state performance regarding several macro-indicators is pretty good in a comparative perspective (Obinger, 2015). This refers, for example, to a relatively high employment rate, which is, for a conservative welfare state, also high for women (see Table 2.3). However, females in Austria have one of the largest part-time employment rates for women in the EU. This suggests that the role of women as a secondary earner (and a primary carer) is continued rather than challenged. In addition to comparatively high part-time rates of women, Austria has also one of the largest gender pay gaps (based on gross hourly earnings) in the European Union. It amounted to 21.7% in 2016. This compares to an EU average of 16.2%. Even though unemployment has risen in recent years in Austria, it still has a lower rate than most EU member states.This particularly refers to youth unemployment, but also to unemployment of the elderly or long-term unemployment. In terms of poverty and inequality, Austria performs well with the exception of wealth inequality, which is one of the highest in the EU (Murtin and d’Ercole, 2015; OECD, 2017). The future performance of the Austrian welfare state depends on various challenges, most notably demographic developments (see also Österle and Heitzmann, 2016). An ever-increasing life expectancy (amounting to 83.6 years for women and 78.6 years for men born in 2015) and a notoriously low fertility rate (achieving a level of 1.49 in 2015) are particularly challenging for the Austrian pension system, but also the health and long-term care scheme (European Commission, 2018). Not least due to changing family formations, informal care provision is challenged too – while provisions for the reconciliation of care and employment are still scarce, particularly outside the big cities (see also later in this chapter). Currently, as will be shown in Section 3, demand is in part covered by migrant care workers, particularly concerning longterm care. The large inflow of refugees and migrants in 2015 has the potential of relaxing the tense relationship concerning the old age dependency rate. This, however, will only be the case

Table 2.3  Outcome indicators, Austria, 1995–2015

Employment rate (15–64 years) Female employment rate Part-time employment rate Female part-time employment rate Gender pay gap Unemployment rate (15–74 years) Youth unemployment rate (15–24 years) Elderly unemployment rate (55–64 years) Gini coefficient of equivalised disposable household income At risk of poverty and social exclusion At-risk-of-poverty rate In households with no or very low work intensity Severely deprived Wealth inequality Share of top 1% of wealth Share of top 10% of wealth Share of bottom 60% of wealth

1995

2000

2005

2010

2015

68.7 58.9 14.0 27.4

68.3 59.4 16.4 32.3

3.7 5.2 3.8 27

3.5 5.1 5.2 24

67.4(a) 61.1(a) 21.3(a) 39.5(a) 25.5(b) 5.6(a) 11.0(a) 4.0(a) 26(a) 17.4 12.6 7.3 3.5

70.8 65.7 25.3 43.8 24.0 4.8 9.5 2.5 28 18.9(a) 14.7(a) 7.8(a) 4.3(a) (2011) 24 62 7

71.1 67.1 28.2 47.4 21.7 5.7 10.6 4.7 27 18.3 13.9 8.2 3.6 (2014) 26 56 8

Source: Eurostat, 2018c; OECD, 2017; Statistik Austria, 2018; own calculations; (a): break in time series, (b): 2006

26

Analysis of welfare system developments in Austria

if migrant workers are included as full members of the labour market – a necessity that is challenged by the increasingly sceptical attitudes towards migrants in Austria.

3  Welfare system change across policy sectors 3.1  Overview of welfare system change over time Over the past two decades, since 1998, Austria has seen retrenchment and expansion in social policies, but reforms – in a comparative perspective – have been more incremental and less path-departing than in other European countries (for a summary of major examples of reforms see Table 2.4). At the same time, Austria has performed comparatively well in terms of major outcome indicators. It did so at the beginning of these two decades and still does so in recent years. In terms of types of reforms, Austria has a long tradition of incremental reforms and of continuity in welfare state developments. There are cases where major reforms were implemented more abruptly, and there are examples of more considerable discontinuity or reversal, but even in these examples continuity was still important. The 2003–2004 pension reform is an example that a major reform was put into a legal frame more abruptly, while the implementation is very long term.The reform implies considerable retrenchment in the level of benefits, but not a discontinuity in the underlying principles of old age policy. Also, two important changes to the long-term care system have been quite abrupt, namely the legalisation of 24-hour care and the abolishment of recourse to assets of nursing home residents. In these cases, however, the reform is not the result of a long-standing discussion and was not on the agenda of the government, but political pressure right before national elections led to a broad agreement on the respective issues. The introduction of a new childcare benefit scheme in 2001 exemplifies a major discontinuity (from an insurance-based benefit to a universal benefit), but at the same time continuity in terms of familialistic orientation. Some reforms stand out in terms of larger steps that were taken and that exemplify dominant ideas in the respective sequence, but an overall paradigmatic change has not taken place. (More details of the reforms are discussed in Section 3.2.) In terms of underlying ideas, economic and social policies in the 1970s have often been described as Austro-Keynesianism, indicating that policymaking was following Keynesian ideas, but to a lesser extent than in other welfare states. This was the case even though Austria had a socialist government in that period. Consensus orientation, a conservative tradition, and very close involvement of social partners are seen as the reasons for this Austrification of ideas. Similarly, from the 1980s, the shift towards ideas of supply-side economics was less pronounced in this country. And the analysis in this chapter suggests that Austrification still is a matter. In the past two decades, Austria did not see a general neoliberal reorientation or a general reinforcement of Keynesian ideas. And, the social investment terminology is playing a much smaller role in the policymaking discourse in this country compared to others (Heitzmann and Wukovitsch, 2015). The assessment provides examples for Keynesian, for neoliberal, and for social investment orientation, but there is no strong trend in one direction. This typical Austrian way of action between different dominant ideologies has previously been labelled as Janus-faced (Obinger and Tálos, 2010) or as Alpenmodel (Unger and Heitzmann, 2003). Our analysis suggests that it is not so much the grand ideological ideas (such as Keynesianism or neoliberalism) that shape policymaking and regulations as outcomes in the Austrian case, but that the country rather takes up certain ideas, such as activation, cost containment, familialism, harmonisation, or deservingness and applies and combines them in a conservative way. The outcome of the latest sequence, which only just began, is still open. Apart from attempts to change institutional configurations, issues of (un)deservingness, so far largely along the lines of migration status, became a major 27

universal childcare benefit reducing passive labour market benefits/ enhancing sanctions

pension policy

family policy labour market policy

2000–2006

2018–

2007–2017

pension harmonisation

labour market policy

1995–2000

flexible childcare benefit

family policy

tightening eligibility in social assistance price-adjustment of family benefits paid cross-border merging unemployment assistance and means-tested benefit scheme (proposal) 12-hour work day

poverty policy family policy

labour market policy

labour market policy

merging social health insurance funds

health policy

family policy

legalisation of 24h care abolishing recourse to assets of users harmonisation/incentives for labour market participation provision of childcare facilities

long-term care policy long-term care policy poverty policy

active labour market programmes

restructuring

retrenchment retrenchment/ restructuring retrenchment/ restructuring

restructuring

restructuring

expansion

restructuring expansion restructuring

harmonisation/ retrenchment/ restructuring restructuring/ expansion retrenchment

expansion

flexibility

(un)deservingness

cost containment/ harmonisation (un)deservingness (un)deservingness

activation/ harmonisation reconciliation/ social investment reconciliation

legalisation

familialism cost containment/ activation

cost containment

activation

such as Keynesianism/ Neoliberalism/ Social Investment

Step 1: beneficiaries/benefit scope/ financing

Step 2: expansion/ retrenchment/ restructuring

Ideas

Regulations

Three-dimensional approach for analysing welfare system change

Policy sector: policy fields with reform activity

Time frame: Reform sequence

Table 2.4  Major welfare state changes over time in Austria

abrupt

abrupt

abrupt abrupt

abrupt

incremental

incremental

abrupt abrupt abrupt/incremental

abrupt in establishing/ long-term in implementation abrupt incremental

incremental

Step 1: process incremental/ abrupt

Type of change

discontinuity

discontinuity

reversal discontinuity

discontinuity

continuity

discontinuity

continuity discontinuity discontinuity

discontinuity continuity

continuity

continuity

Step 2: output continuity/ discontinuity/ reversal

Analysis of welfare system developments in Austria

idea underlying legislative proposals and legal acts in the first year of the ÖVP/FPÖ government.This is in line with a characterisation of the FPÖ social policy profile as welfare chauvinist (Ennser-Jedanistik, 2016).

3.2  Analysis of main developments by policy sector Pension policy Public pensions account for about 50% of total public social expenditure in this country, a level beyond most other European countries. With a view to demographic changes and an early effective retirement age in this country, pension policies have been on the agenda of welfare state debates since the mid-1990s. Predominantly, the pension system builds on compulsory social insurance as the main pillar. An additional tax-funded scheme ensures a minimum pension for those who are eligible for a public pension. If that is not the case, minimum income benefit applies. Employer-based insurance and voluntary private insurance have been extended in the past two decades, but their share in pension payments is still relatively low. The most important reform in pension policies took place in 2003 and 2004, with the introduction of the General Pension Act (Schulze and Schludi, 2007). It addressed two major issues: different pension systems for different groups in society and financial sustainability.The reform led – and over a long transition period will lead – to a more harmonised policy for different groups. And it involves various cost containment and retrenchment measures. One main example is that in the future the calculation of pensions will be determined by the previous income in the ‘best’ 480 income months for all recipients of a public pension. The respective transformation is under way and will be applicable to everyone from 2028 with substantial implications for the level of public pensions. Overall, the 2003–2004 reforms reflect continuity in that they do not paradigmatically change the employment nexus in the pension system; they even reinforce it. However, in the long run, they have considerable retrenchment effects. The reforms can also be characterised as abrupt, even though the financial sustainability of pension policies and the harmonisation of schemes was on the agenda for many years. The style of the then centre-right government was often described with the ‘speed kills’ notion (referring to a statement by the chairman of the MPs of the conservative party), that is, presenting a major reform agenda, strictly limiting time for debate that is legally required, and then pushing through the reform (Tálos, 2006). Other changes to the pension system involve the adjustment of the retirement age for men and women (currently 65 and 60, respectively). The adjustment to 65 becomes effective in halfyear steps from 2024 until 2033 and was agreed upon in the EU accession treaty. In particular, after the financial crisis, proposals have been made to start the adjustment process earlier than 2024, but these proposals never found broader consensus. Other policies again are implemented in a more incremental way. Most importantly, this applies to measures increasing effective retirement age by abolishing or changing early retirement options. These options – historically not least a measure to relief labour markets – led to substantial differences between official retirement age (65 for men and 60 for women) and effective retirement age in Austria. Different from changes to effective retirement age, a change of regular retirement age so far was not a major policy concern in Austria. It is argued that increasing the effective retirement age should be given priority before considering an increase in regular retirement age. Budgetary pressure and widely acknowledged implications of the demographic changes for the pension system have facilitated reforms in this policy area. But the rhetoric of the unsustainability of the pension system has also received strong resistance from arguments that with successful labour market policies and effective immigration policies the pension system will in effect be sustainable. 29

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Labour market and unemployment policy In a comparative perspective, unemployment in Austria is traditionally low, amounting to 5.5% in 2017. In a historical perspective, however, this compares to even lower rates in the 1990s. Up until the 1980s, keeping unemployment low was the major economic goal. Consequently, the labour market was highly protected. Employment problems were shifted to other policy areas, most notably by encouraging early retirement and providing for employment in state-run industries. In the 1980s and 1990s, however, budget consolidation and liberalisation became new priorities. As a result, the protective shields of the labour market have been renounced gradually (Unger and Heitzmann, 2003).This qualifies as a change of political goals – and thus as a change of ideas or ideologies concerning social policy and social security. As low unemployment lost its political priority and budget consolidation became more relevant, problems of the labour market that were so far shifted to other social security areas have been shifted back. From the mid-1990s onwards, retrenchment affected unemployment insurance, evidenced by two austerity packages implemented in 1995 and 1996. As a result, benefits have been reduced and sanctions have been tightened.The ÖVP/FPÖ government that has been in power from 2000 onwards has intensified retrenchment. Moreover, it increasingly relied on the activation of the unemployed: a policy paradigm not least influenced by the Lisbon agenda of the EU (Obinger and Tálos, 2010, p. 116). As mentioned above, the ÖVP/FPÖ government also made provisions to reduce early retirement – which as an effect enhanced labour market pressures for the elderly.The same is true with more recent reforms, implemented by the SPÖ/ÖVP government in 2014 concerning invalidity pensions: Rather than providing for early retirement, beneficiaries receive rehabilitation benefits – with the aim of reintegration into the labour market. Consequently, unemployment of the elderly (55–64 years) doubled from 2.5% in 2010 to 5% in 2016 (achieving a level of 4.2% in 2017). The SPÖ/ÖVP coalition government in power from 2006/07 onwards, however, also did implement some expansions to the system, e.g. providing for the coverage of some groups of the self-employed in unemployment insurance. More importantly, maybe, the government reinvolved the social partners in decision-making, which was less the case during the ÖVP/FPÖ coalition (Obinger and Tálos, 2010, p. 118). Active labour market policies only became more relevant when Austria became a member of the EU in 1995, not least to achieve financial means from the European structural funds (Tálos and Badelt, 1999). Active labour market policies (e.g. the expansion of short-term work and educational leave) were also a chief way of diving through the financial crisis in 2008 and 2009 (Österle and Heitzmann, 2016). While their proportion increased from 13% of total unemployment expenditures in 1995, it amounted to 29% in 2010 and has decreased since to 26% in 2015. The increasing focus on this type of labour market policies signifies a move towards more (re-) qualification, more activation, and a work-first approach in Austria during the two last decades. However, as the lesson from the financial crisis suggests, active labour market policies also are used as a means to relieve pressures from the labour market. Despite periods of both retrenchment and expansions, the passive components of labour market policies in Austria have not undergone major reforms within the last two decades. Unemployment benefit (Arbeitslosengeld), an insurance-based benefit, and unemployment assistance (Notstandshilfe), an insurance-based but means-tested benefit granted after unemployment benefit has expired, make up the two-tiered cash transfer system relevant for the unemployed with a history of insured employment. Even though there have been amendments to eligibility criteria and benefit levels, these changes do not qualify as a discontinuity or reversal of passive labour market policies, but rather as means to reduce expenditures and enhance incentives of the unemployed to quickly re-enter into employment. However, the new centre-right government 30

Analysis of welfare system developments in Austria

has announced that it will abolish unemployment assistance and merge it with unemployment benefit and minimum income benefit (see also ÖVP/FPÖ, 2017, p. 143). How this will take place has yet to be seen. Current debates indicate a direction similar to other policy fields: tightening criteria for those with smaller periods of insurance contributions (which also limits access for recent immigrants) and unemployment benefits on a diminishing scale. This could involve shifting part of the previous unemployment assistance to the unemployment benefit scheme and another part to social assistance. Another labour market reform has already been implemented. This allows employers to extend maximum work hours from 10 to 12 per day and from 50 to 60 per week. Apart from critique on the regulation itself, unions and opposition parties argue that this is a prime example for the new governance mode not involving social partners.

Healthcare policy Healthcare is the policy area where continuity is most pronounced, even in the past two decades when the Maastricht criteria or the financial crisis made the consolidation of public budgets a key concern. Cost concerns and calls for cost containment have been on the agenda since the mid-1990s, not least because expenditure levels and the use of resources (most importantly in the hospital sector) are beyond OECD average. At the same time, however, the healthcare system in this country was repeatedly described as highly regarded and of above average performance (OECD, 2011; Österle, 2013b). With regard to citizens’ satisfaction, the 2013 Eurobarometer survey shows that 96% of the population value the system as very good or good; according to EU-SILC data the level of unmet need for medical examination for financial, geographic, or waiting time reasons is lowest in the EU member state region in 2016 (OECD, 2018). The Austrian healthcare system is organised in nine regional social insurance funds, four employment-related insurance funds (for self-employed, farmers, public employees, and employees in the rail and mining sector), and five company insurance funds. Financing is based on insurance contributions made by employers and employees (accounting for about 45%), tax funding (30%), and private co-payments and out-of-pocket payments as well as private insurance (25%). Similar to other policy areas such as family policies and long-term care policies, responsibilities are split between state, provinces, and – in the case of healthcare – social insurance funds. These split competences in governance and funding are seen as a major source of inefficiencies in the Austrian healthcare system. Hence, reform efforts in the 1998–2018 period have been largely driven by a combination of cost containment concerns and the concerns about the steering power in the system. Changes are incremental and characterised by continuity (Bachner et al., 2018; Österle, 2013b). For example, the 2005–2008 reform agenda made an attempt to improve coordination and cooperation among state level, provincial level, and social insurance funds through establishing novel coordinating bodies, introducing the Austrian structural health plan replacing an earlier hospital and major equipment plan, and developing a more coherent quality strategy. The 2008–2013 reform agenda reinforced the respective aims and added new elements such as electronic patient documentation. However, actual reform efforts often remained slow. The economic crisis, and growing public debt, has intensified calls for more substantial reforms for cost containment in the health sector. An austerity programme published in February 2012 presented a challenging cost containment target for the 2012–2016 period, which finally led to the Health Reform Act that passed Parliament in 2013. At the core of the 2013 health reform is a system of health objectives for the provision, funding, quality, structures, and processes in healthcare. Again, the reform did not change the roles of national level, provincial levels, and social insurance funds in 31

August Österle and Karin Heitzmann

the healthcare system, but it has introduced new modes of cooperation and coordination, linked to a system of healthcare objectives, monitoring, reporting, and sanctioning. Different from earlier periods, healthcare reform seems to become a highly controversial and less consensus-oriented issue with the new centre-right government. It has already proposed to reduce the number of social health insurance funds by merging the nine provincial funds and by merging the health insurance fund for the self-employed and the one for farmers. The government argues that this will improve efficiency and lead to a more harmonised system of provisions, while opposition parties and other stakeholders argue that the reform is mainly about shifting the power balance away from the representatives of workers in the insurance system.The reform has become a highly controversial issue, not only between government and opposition parties, but also between central and federal levels.

Family policy Family policy is the major non-insurance-based social policy sector in Austria. Being a conservative welfare state, family care is expected to be provided informally and indeed by women. This unpaid work is supported (and reinforced) by different types of public support. The latter includes various universal cash transfers, but also provisions to cover unemployed carers by social insurance provisions. Despite increasing female labour market participation and extended family support, including an increase of institutionalised childcare facilities, family work is still seen as women’s responsibility, often resulting in a double burden of care and employment. It is not least this difficulty which leads to low fertility rates in Austria (1.49 in 2015) and high female parttime rates (47.4% in 2015). Broad ranges of both monetary and in-kind benefits subsidise family expenditures. Monetary benefits are related to the birth of a child, child caring, and periods of education. Tax benefits provide an additional alleviation for families with children differentiated by family type. In-kind benefits include free education, the subsidisation of childcare facilities, and, in a wider perspective, medical co-insurance and subsidised transportation for minors. Both economic pressures on families and political pressures from supranational and international organisations imposed some modifications of the conservative family policy regime in Austria, which, however, may be characterised as a ‘slow mover’ (Morgan, 2012, p. 169) or a laggard in this respect. Blum (2010) called it a kind of ‘muddled modernization’, partly farreaching changes, but still building on existing schemes and ideas. In terms of major reforms during the last two decades, two developments stick out. The first refers to childcare benefit (Kinderbetreuungsgeld). In 2001, during the first ÖVP/FPÖ coalition government, the benefit has been transformed from an insurance-based benefit to a universal benefit. Further reforms from 2008 onwards, under the governance of the SPÖ/ÖVP coalition, allowed for more options concerning the length and level of universal childcare benefit. Parents could also opt for an income-related payment granted for a maximum of 12 months, if only one partner takes on parental leave, and 14 months, if both parents take on parental leave (for details see International Network on Leave Policies & Research, 2018). These modifications have been made to achieve both shorter parental leave absences and higher incentives for fathers to take on parental leave. From 2017 onwards, a childcare allowance account has been installed, allowing parents to decide individually, for how many days they wish to receive the benefit. Depending on whether one or both parents are taking parental leave, they may choose a period between 365 days and 1,063 days – thus enhancing choice for families. The second major development refers to an increased provision of childcare facilities from the late 1990s onwards. The political rationale behind this movement was not least the aim to achieve the Barcelona targets set by the European Council in 2002. They required EU member 32

Analysis of welfare system developments in Austria

states to provide childcare for at least 33% of children under the age of 3 years, and for at least 90% of children aged between 3 years and mandatory school age. Even though these targets ought to have been achieved by 2010, Austria only managed to achieve the second one so far. In 2016, only 25.4% of children below the age of 3 are in childcare – however, with profound differences between the Austrian Länder in terms of coverage rates, but also in terms of opening hours of available facilities. Provision tends to be good in big cities, but much more scattered in the rural areas. The main rationale for increasing coverage rates, and the implementation of one obligatory year in the kindergarten prior to elementary school that has been established in 2010, is, arguably, to ease reconciliation of work and family obligations for parents rather than investing in early childhood education. The latter is evidenced by the fact that employees for kindergartens still do not require an academic training – unlike in most other member states of the European Union. Despite these and other changes, Austria remains a conservative welfare state with a strong emphasis on family care that is predominantly provided by women. This is evidenced by low rates of fathers on parental leave (4% in both 2008 and 2016; data from Statistik Austria). Even though the rates of fathers on parental leave are higher regarding both the shorter options of parental leave (15 + 3 months: 7% and 12 + 2 months: 9%), and the income-related option (12 + 2 months: 6%), these proportions remained pretty stable from 2008/2010 onwards. The gender division in terms of care work and paid work is also mirrored by high employment rates of fathers with children under 15 years (aged 25–49 years: 96% in 2017) and low rates of mothers (79%), as well as low part-time rates of fathers (7%) and high rates of mothers (73%). Moreover, while the proportion of parents who choose the longest period of childcare benefits in 2016 has decreased from 84% to 50% between 2008 and 2016, still half of the parents choose to stay away from the labour market for a comparatively long time – which not only affects current incomes, but also future social insurance benefits. Overall, thus, the amendments made to the system of family policies have not changed the conservative logic of the Austrian welfare state much: It still is deeply rooted in conservative normative attitudes (on attitudes towards parental employment see Kapella and Rille-Pfeifer, 2007; Buber-Ennser and Panova, 2014). The current coalition government in power since early 2018 has already implemented a new element in family policy, which emphasises the national orientation. Even though migrant workers are entitled to universal family benefit (Familienbeihilfe) according to EU social security coordination rules, the government adopted this benefit for children living outside of Austria. Accordingly, from January 2019, the level of the benefit will be defined by the cost of living in the residence country of the children, leading to lower benefits for families in Central and Eastern Europe, but also higher benefits for a few Northern European countries. This proposal was included in the government programme under the heading of ‘fairness and justice’ (ÖVP/ FPÖ, 2017, p. 100). Outside the coalition government, there seems broad consensus that this is in contradiction to EU law and will lead to an infringement procedure by the EU.

Policies targeted to the poor Maybe the most profound policy shift concerning benefits targeted to the poor in Austria in recent years refers to the introduction of a minimum income benefit (Bedarfsorientierte Mindestsicherung) in 2010 and 2011. However, the implementation of this benefit does not qualify as an abrupt policy shift. Rather, it was the end of a long consultation process at the national and federal levels (Otter and Pfeil, 2011). The new benefit largely replaced social assistance benefits that had been in place since the 1970s. Even though minimum income benefit remains a competence of the Austrian Länder rather than the nation state, parts of the scheme have been 33

August Österle and Karin Heitzmann

harmonised, most notably benefit levels. In addition, there is a much stronger commitment to activate recipients of working age to (re)enter the workforce. Therefore, collaboration between social welfare offices and the employment centres of the Austrian public employment service has been intensified, suggesting a work-first approach and at least some movement towards social investment of working-aged people that are further away from the labour market. As mentioned earlier, expenditures for means-tested benefits, including minimum income benefit, are comparatively low in Austria. Despite their insignificance in terms of expenditures, they appear to be more often at the focus of political and public discourses than policy fields that consume much higher budgets.This has been the case only recently, after a large number of refugees entered Austria in 2015. It has been argued in the public debate that the generous Austrian welfare system works like a pull factor for refugees, who thus choose to come to this country rather than to remain in less generous welfare states. It has also been felt as unjust by many that people get support from the welfare state without having contributed to its finance. It was not least this sentiment of undeservingness that ended the period of harmonisation concerning minimum income benefit in 2016: From then on, some provinces implemented regulations that yet again led to differences in provision across the country – with several provinces providing lower benefits for migrants. It was also the sentiment of undeservingness that ultimately led to the installation of the current ÖVP/FPÖ government, which promised a less generous treatment of refugees and migrant workers. Preliminary proposals for a nationwide reform have been put forward late 2018. Accordingly, criteria for the new benefit, which is renamed to social assistance as before 2010, will be tightened for immigrants, and benefits will be lowered for families with three or more children. Rather than providing for a minimum income, which provinces must guarantee, the threshold of the new benefit is a maximum level. Provinces are allowed to provide less support, but not more.

Long-term care policy The current Austrian long-term care system builds on a paradigmatic reform in 1993, moving from social assistance to more universal orientation, while containing the traditional familialistic orientation. In that year, a comparatively generous, universal, and tax-funded cash benefit (Pflegegeld) for those in need of long-term care was introduced. It is defined as a contribution to care-related expenditure, but – different from personal budget arrangements – there are no binding requirements on how to spend benefits. As a second pillar of the long-term care regime, the 1993 reform started considerable extensions in service coverage, most importantly in home care. After 1993, changes that were made to the cash for care system and to the provision of social services were only gradual. Also, measures to support informal carers were extended gradually over the past 20 years. From the mid-1990s, but more significantly from the early 2000s, families increasingly turned to employing migrant care workers in private households to provide the necessary care and support to people in need of care. The arrangement is commonly called 24-hour care. Care workers are almost exclusively from Central Eastern European countries and are employed in private households.Typically, two workers replace each other in two- to four-week shifts in Austria before returning home for the same period. Up until 2006, respective arrangements were made quite openly, but outside labour and social security regulations, the illegality was silently accepted. In the summer of 2006, before the national elections in autumn of that year, the illegality suddenly became a major political concern. Legalisation of the arrangement and ensuring affordability soon became broad consensus among political parties and the ground for political action right after the elections. The legalisation of 24-hour care in 2007 added a major new 34

Analysis of welfare system developments in Austria

pillar to the long-term care system (Österle, 2013a). Allowing for a regular frame for migrant care work in private households, without substantially increasing costs for private households, was achieved by allowing a self-employment option and by a new means-tested subsidy that should help in covering additional costs arising from social insurance contributions that care workers have to make (Österle, 2013a). The regularisation in terms of take-up is a success. The number of 24-hour care workers – most of them from Slovakia and Romania – has increased each year (Österle, 2018). But the self-employment mode with very little regulation makes it a precarious work relationship and one that involves a substantial risk for de-professionalisation in the long-term care sector (Österle, 2018). The 2007 reform was an abrupt change, driven by a broad pre-election consensus after the illegality of the arrangement became a major political issue. It added a major new element to the long-term care system, but also reflects continuity in terms of family orientation. From a public policy perspective, it is an option that helps the financial sustainability agenda as it requires substantially less public financial support compared to a situation where the respective provisions would be covered by traditional home or residential care services. A similar pre-election phenomenon emerged in 2017. An initiative to abolish recourse to the assets of users when moving to a nursing home found broad support by political parties. Right before the elections in September 2017, the respective law abolishing recourse to assets went through Parliament. This not only has huge financial implications for users, it also changes incentives for nursing home use and substantially increases financial pressure for public budgets, more specifically that of provinces. Given that the allocation of responsibilities in providing and funding long-term care is based on a state-provinces treaty, central and provincial levels are negotiating a redistribution of the financial volume.

4 Conclusion Becoming a new EU member state in 1995, increasingly recognising the demographic changes, facing the implications of the international financial crisis, and a large inflow of refugees in 2015 are major context variables for welfare state developments in the 1998–2018 period in Austria. Overall, developments are still characterised by continuity and a dominance of incremental and gradual changes. Even in case of more fundamental changes, such as the pension reform (as an example for retrenchment) or the introduction of the childcare benefit (as an example for expansion), Austria did not break with traditions (social insurance) and dominant orientations (familialism). In our view, changes over the past two decades do not reflect a stricter neoliberal, Keynesian, or social investment perspective but rather seem to combine elements of all of these approaches in the traditional consensus orientation (even in periods that seemed to break with this tradition), hence an Austrification of welfare state change. However, the most recent developments indicate that with the return of the centre-right government in early 2018, substantial reorientations are taking place. Firstly, the government seeks to change institutional configurations. Examples include the reform of social health insurance and the weakening of the role of social partners. So far less concrete, it also attempts to change responsibilities of federal and provincial governments. Secondly, with limiting the involvement of social partners and doing reform rather than seeking consensus, a new mode of governance characterises the first year of the centre-right coalition government.Thirdly, a national orientation (‘Austrians first’) and stressing concepts of (un)deservingness are gaining ground in social policymaking. Limiting immigration and more strictly differentiating social rights for different groups of migrants are at the core of legal acts and many legislative proposals in the first year of this government. These include 35

August Österle and Karin Heitzmann

limitations for specific groups of migrants in social assistance schemes, funding for active labour market policies, educational programmes, and the adjustment of family benefits for children not living in Austria. If Austrification was understood as a moderation of international trends, this does not apply to current developments.

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OECD. (2011), OECD Economic Surveys. Austria, OECD, Paris. OECD. (2017), Understanding the Socio-economic Divide in Europe, OECD, Paris. OECD. (2018), Health at a Glance. Europe 2018. State of Health in the EU Cycle, OECD, Paris. Österle, A. (2013a), “Long-term Care Reform in Austria, Emergence and Development of a New Welfare State Pillar”, in Ranci, C. and Pavolini, E. (Eds.), Reforms in Long-term Care Policies in Europe, Springer, New York, pp. 159–177. Österle, A. (2013b), “Austria: A Healthcare System Between Continuity and Gradual Changes”, in Pavolini, E. and Guillen, M. (Eds.), Health Care Systems in Europe under Austerity: Institutional Reforms and Performance, Palgrave Macmillan, London, pp. 147–168. Österle, A. (2018), “Employing Migrant Care Workers for 24-hour Care in Private Households in Austria: Benefits and Risks for the Long-term Care System”, in Christensen, K. and Pilling, D. (Eds.), The Routledge Handbook of Social Care Work Around the World, Routledge, New York, pp. 130–141. Österle, A. and Heitzmann, K. (2009), “Welfare State Development in Austria: Strong Traditions Meet New Challenges”, in Schubert, K., Hegelich, S. and Bazant, U. (Eds.), The Handbook of European Welfare Systems, Routledge, New York, pp. 31–48. Österle, A. and Heitzmann, K. (2016), “Reforming the Austrian Welfare System: Facing Demographic and Economic Challenges in a Federal Welfare State”, in Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Springer, New York, pp. 11–35. Otter, A. and Pfeil, W.J. (2011), “Chronologie der Entwicklung der Bedarfsorientierten Mindestsicherung”, in Pfeil, W. and Wöss, J. (Eds.), Handbuch Bedarfsorientierte Mindestsicherung, ÖGB Verlag, Wien, pp. 209–221. ÖVP/FPÖ. (2017), Zusammen. Für unser Österreich: Regierungsprogramm 2017–2022, Wien. Paster, T. (2013), “Why Did Austrian Business Oppose Welfare Cuts? How the Organization of Interests Shapes Business Attitudes Toward Social Partnership”, Comparative Political Studies, Vol. 47 No. 7, pp. 966–992. Pennerstorfer, A., Schneider, U. and Badelt, C. (2013), “Der Nonprofit-Sektor in Österreich”, in Simsa, R., Meyer, M. and Badelt, C. (Eds.), Handbuch der Nonprofit-Organisation: Strukturen und Management, Schäffer-Poeschel, Stuttgart, pp. 55–75. Rathgeb, P. (2017), “Relying on Weak Governments: Austrian Trade Unions and the Politics of Smoothed Dualization”, Austrian Journal of Political Science,Vol. 45 No. 3, pp. 45–55. Sainsbury, D. (Ed.) (1999), Gender and Welfare State Regimes, Oxford University Press, Oxford. Schratzenstaller, M. (2015), “Vermögensbezogene Steuern: Die österreichische Perspektive”, WISO, Vol. 38 No. 1, pp. 33–62. Schubert, K., Hegelich, S. and Bazant, U. (Eds.) (2009), The Handbook of European Welfare Systems, Routledge, New York. Schulze, I. and Schludi, M. (2007), “Austria: From Electoral Cartels to Competitive Coalition-building”, in Immergut, E.M., Anderson, K.M. and Schulze, I. (Eds.), The Handbook of West European Pension Politics, Oxford University Press, Oxford, pp. 555–604. Social Affairs Ministry (=Federal Ministry of Labour, Social Affairs and Consumer Protection). (2016), The Austrian Welfare State: Benefits, Expenditure and Financing 2016, Social Affairs Ministry,Vienna. Statistik Austria. (2018), “People and Society”, available at: www.statistik.at/web_en/statistics/index.html (accessed 10 October 2018). Tálos, E. (1981), Staatliche Sozialpolitik in Österreich: Rekonstruktion und Analyse,Verlag für Gesellschaftskritik, Wien. Tálos, E. (2006), Sozialstaat Österreich zwischen Kontinuität und Umbau. Eine Bilanz der ÖVP/FPÖ/BZÖRegierung,Verlag für Sozialwissenschaften, Wiesbaden. Tálos, E. and Badelt, C. (1999), “Austrian Social Policy and the EU”, Journal of European Social Policy,Vol. 9 No. 4, pp. 351–361. Unger, B. and Heitzmann, K. (2003), “The Adjustment Path of the Austrian Welfare State: Back to Bismarck?” Journal of European Social Policy,Vol. 13 No. 4, pp. 371–387.

37

3 Belgium’s welfare system Still lagging after all these years Ive Marx and Lien Van Cant

1 Introduction Belgium is a difficult country in the context of a book like this one. It is not a country where change tends to happen through big legislative interventions. Rather there is a pattern of incremental, piece-by-piece change that does not lend itself to concise description. In part, that owes to Belgium’s complex multi-layered governance structure. In addition to the continued devolution of power towards sub-national entities, trade unions and employers’ organisations – the social partners – remain powerful and retain high levels of autonomy, including in the governance of social security, education, health care, and other parts of the welfare system. Directly related to this is the fact that much of Belgium’s extensive welfare state is not codified in law. The law sets the broad framework, but the actual policy details are codified in so-called royal and ministerial decrees that do not require parliamentary debate or approval. That makes Belgium’s welfare state easily amendable but not in a way that is easily observable, even for insiders. Change happens but as a general rule through a multitude of often apparently administrative-technical alterations and changes. In some policy areas, like pensions, these can accumulate to significant change over time. This chapter is about how the Belgian welfare state has evolved in the past three decades. It would be hard to identify consecutive sequences of reforms characterised by distinct period-specific objectives and policy rationales. Broadly speaking, the past three decades have been shaped by concurrent concerns and long-stretched incremental reform processes. A paramount concern has been cost containment. Growing numbers of claimants in schemes like unemployment, early retirement, and sickness have necessitated this, especially since economic upturns failed to reduce caseloads. At the same time the welfare state has taken on new functions, responding to new social risks and needs, such as in the areas of work-life or ageing. That has gone to some extent at the cost of the old core function of income maintenance. Activation has featured very strongly in policy discourse from the early 2000s onwards, but its implementation has remained hesitant and ineffective. We start with a general discussion of Belgium’s welfare state before moving on to the various subsectors.

38

Belgium’s welfare system

2  General structures of the Belgian welfare system In this section, the general structures of the Belgian welfare system will be described. A more detailed overview of these general characteristics can be found in the first edition of this Handbook (see Marx, 2009).

2.1 Priorities Belgium’s welfare state is usually categorised as Bismarckian in that social rights derive mainly from one’s position in the labour market. Occupational category matters; there are different provisions for contracted workers, civil servants, and the self-employed. Rights also tend to depend on contribution histories and past earnings. Some of the newer provisions – such as long-term care insurance – are citizenship-based. Even among the larger welfare states, Belgium stands out in having a large and highly redistributive welfare system, which contributes to its low and stable inequality rates (Van Rie and Marx, 2013; Nolan et al., 2014). As Table 3.1 shows, Belgium allocates a relatively sizeable share of its domestic production to public social expenditure. Compared to an EU28 average of 28.6%, Belgium ranks third in terms of these expenditures. Public social expenditure data for Belgium reveal a pattern of stability. From 1995 to 2015, the share in total domestic production fluctuates between 27% and 30%, with a slightly upward trend.The recession of 2008 had a clear impact, both on GDP and some branches of expenditure, with an upward tick in 2008 and 2009. Contrary to some other countries, expenditure control did not become a major preoccupation. This was in part because Belgium was embroiled in a political crisis at the time and did not have a government.This made Belgium relatively resilient during the crisis; there was no cost cutting and the system contained many automatic stabilisers (e.g. highly progressive taxes and a short-time working scheme). Not surprisingly, however, public debt started to rise again in 2008 for the first time since 1993 (Marx and Schuerman, 2016). As has been said, the share of social spending in GDP has remained relatively stable over time. Below this stability, however, a few shifts occurred. By tradition, Belgian social spending is strongly geared towards cash transfers, with unemployment benefits constituting a fairly large branch. However, recent figures show a drop in expenditure share.The successive unemployment benefit reforms might explain this reduction in unemployment budget. The benefit was made digressive over time, the eligibility criteria were strengthened, and sanctioning was increased, leading to a growing number of benefit expansions (Marchal and Van Mechelen, 2017). Expenditure on health care increased, driving a shift to more in-kind expenditure. In-kind benefits generally became to represent a growing share of social expenditure. In some cases, the data suggest that these are redistributive: Lower income groups benefit proportionally more from health care, secondary education, and social housing.Yet, there are also a number of Matthew effects: Expenditure on childcare and tertiary education is strongly concentrated among households with higher income (Van Rie and Marx, 2013).The share of old age expenditure continues to rise, driven by the ageing population, increased female participation, and maturing pensions. Growing expenditure on pensions is to some extent offset by decreases in other sectors, such as survivor pensions and child benefits.

2.2  Funding and administrative structure There is no ‘Belgian’ welfare system in the sense that important sectors of its welfare system are governed and administered at the regional level, following successive steps towards devolution

39

59,474.29  60,592.79  59,644.57  60,583.88  62,917.75  64,537.19  68,701.92  72,145.85  76,332.77  80,509.26  83,551.42  86,792.24  90,470.78  98,240.38  104,598.54  107,312.02  112,532.67  114,643.08  117,996.84  120,896.21  124,543.44

26.9  27.3  26.5  26.0  25.8  25.0  25.8  26.2  27.0  27.0  26.8  26.6  26.2  27.7  30.0  29.4  29.7  29.6  30.1  30.2  30.3

5,052.63 5,294.36 5,452.55 5,483.97 5,700.74 6,111.88 6,411.69 6,788.68 6,993.74 7,267.84 7,551.97 7,743.45 7,883.79 8,254.41 8,525.94 8,800.54 9,067.51 9,252.54 9,525.22 9,901.30 10,381.62

:  :  :  :  :  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p) 

Total

PPS per inhab.

Total

% GDP

eu28

be

Source: Eurostat, 2018; (p): provisional value

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 3.1  Social protection expenditure

:  :  :  :  :  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p) 

% GDP :  :  :  :  :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p) 

PPS per inhab. 1,869,415.56  1,971,768.55  2,048,453.88  2,110,012.32  2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25

Total

eu15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3

% GDP

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54

PPS per inhab.

Belgium’s welfare system Table 3.2  Social protection benefits by function (as % of total expenditures)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

100 94.64 8.31 12.31 0 2.56 30.72 40.74

100 95.21 8.06 11.4 0.13 2.74 32.18 40.7

100 95.52 7.58 12.41 0.24 2.95 33.56 38.78

100 95 7.53 12.42 0.73 2.71 33.82 37.78

100 95.79 7.02 10.21 0.77 2.23 35.79 39.77

Source: Eurostat, 2018

towards the regions. Each consecutive round of state reform has granted additional powers to the regions. This is most notably the case for sectors like education and training, job placement, youth, elderly and invalidity care, etc. With the exception of long-term care insurance and child benefits, social security remains a federal competency. The same applies to wage setting and, to a large extent, labour market and economic regulation. Taxes and social security contributions remain for the main part federal, but here too the role of the regions has been expanding. A legacy of decades of inter-regional and linguistic conflict has created a complex and still not fully mature federal system in which competencies remain allocated in a way which almost inevitably precludes a high degree of policy consistency. Even at the different levels of government, competencies tend to be scattered across different ministries and departments in order to satisfy political balances. Effective budget coordination tends to be another policy challenge for the same reason.

2.3 Performance While Belgium’s unemployment rate is just below the EU average, its employment rate remains among the lowest of the European welfare systems – as shown in Table 3.3. Despite substantial job creation, the employment rate target of 73.2%, in the light of the Europe 2020 strategy, is still out of reach (European Commission, 2018). Belgium has just about the highest rate of household joblessness in the EU. At the same time, as reported by the European Commission (2018), the vacancy rate is among the highest in the EU suggesting a high level of skill mismatches. One consequence of this low labour market participation is that a relatively large number of people at working age rely on some type of income support. Another consequence is that the share of the population paying taxes and social security contributions is relatively small, imposing heavy burdens on those that do. Part-time work, on the other hand, as a share of total employment has risen substantially and steadily in Belgium, from less than one out of ten workers in the early 1980s to nearly one out of four in the late 2000s. The number of part-time employees was not strongly affected by the recession of 2008, while in most other countries this was the case. While men have caught up, part-time work remains dominated by women (Horemans, 2016). The gradual growth of non-standard employment is one of the most fundamental structural labour market changes in Western countries (ILO, 2016). As Marx and Van Cant (2018) highlight, Belgium appears to be one of the exceptions in this respect. Albeit a slight increase can 41

Ive Marx and Lien Van Cant Table 3.3  Labour market outcome indicators, Belgium, 1995–2015 1995

2000

2005

2010

2015

Employment rate (15–64y) Female ER Male ER

56.3 45.4 66.9

60.9 51.9 69.8

61.1 53.8 68.3

62 56 67.2

61.8 58 65.5

Part-time ER Involuntary part-time ER Female Part-time ER Female involuntary part-time ER

13.6 29.1 29.8 27.9

20.6 22.3 39.8 21

21.7 16.5 40.4 15.5

23.7 11.4 42.1 10.5

24.3 10 41.4 8.6

5.3

8.6

9.3

9.9

12.4

12.7 21.5

8.5 15.2

9.5 21.5 4.4

8.5 22.4 4.6

7.8 22.1 5.6

Temporary employment Unemployment rate (15–64y) Youth ER (15–24y) Elderly UR (55–64y) Source: Eurostat, 2018

be noted, there is not much evidence of dramatic growth in temporary or precarious work, not even during the recession of 2008. To the extent that there have been trends towards more flexibility in the sphere of contract type, working time, and work organisation, these have been negotiated rather than politically imposed. After an upward trend before and during the crisis, youth unemployment has been falling again. The number of inactive people 15–24 years old is still above the EU28 average (19.3% compared to 16.8% in 2017). The same holds for the employment rate of older workers (increased yet below the EU average). Belgium’s relative incapacity to reform social security to improve work incentives is nowhere more evident than if one looks at early retirement. There are few European countries where so few people work after the age of 55. While unemployment is just below EU average, labour market outcomes shelter strong disparities. Inactivity and unemployment are largely concentrated among low-qualified young people with a migrant background, older workers, single parents, and people with disabilities. The findings for these groups are stronger than is the case in other European member states (European Commission, 2018). Figure 3.1 shows that young people leaving school with no or few formal qualifications face dismal job prospects. Hence, the European Commission (2018) remarks in its latest report that Belgium compares a good overall education performance with high educational inequalities. The report warns that this gap between the employment rates of low-, medium-, and highskilled workers is among the widest in the EU in all three regions and well above the level in neighbouring welfare states. Another worrying fact is that only half of immigrants born outside the EU are employed in Belgium. The employment gap between migrants and natives is very high by international comparison. The latest OECD research report demonstrates, moreover, that young people (15–29 years) born outside Belgium are twice as likely to be a so-called ‘NEET’ (not in employment, education, or training). There are also persistent regional and local differences in employment outcomes. No European country has such diverse labour market outcomes within such a confined geographical scale. The main differences is between the Flemish- and the French-speaking parts of the country, but even within regions the differences are considerable. Various sources and studies have shown Belgium to be among the few rich countries not to have seen growing income inequality over the course of the past two decades (OECD, 2011, 42

Belgium’s welfare system 90

82.2

80 70

65.8

67.8

70.7

67.8

60

65.8

64.7

58.2

50

45.9

50 40

30 20 10 0 Total

Flemish Brussels Walloon region capital region region

ISCED 0- ISCED 3- ISCED 52 4 8

Belgium Other EU28

Extra EU28

Figure 3.1 Employment rates for population aged 15–64 by regions, educational attainment, and country of birth, 2017

Table 3.4  Inequality and poverty indicators, Belgium, 1995–2015 1995 Gini coefficient of equivalised disposable household income Gender pay gap AROP

2000 0.3

16

AROP in HH with no or very low work intensity Child poverty Wealth inequality (Gini coefficient) share of top 1% of wealth share of top 10% of wealth share of bottom 60% of wealth

2005 0.28

13.6

11.5

13

14.9 (2006) 56.3 15.3

2010

2015

0.266

0.262

7

4.7

14.5

14.9

55.4 18.3

58.5 18 (2014) 0.589 10.06 22.5 18.99

0.608 12.8 44.02 17.17

Sources: Eurostat, 2018, OECD statistics, Kuypers and Marx (2017) Note: The unadjusted gender wage gap is defined as the difference between median wages of men and women relative to the median wages of men.

2015;Van Rie and Marx, 2013; Kuypers and Marx, 2015, Nolan et al., 2014). In addition, living standards have increased steadily, including during the recent crisis period. Automatic stabilisers, such as extensive short-time compensation schemes, proved instrumental in sheltering the Belgian population from its adverse impacts (Marx and Schuerman, 2016). Furthermore, the gender wage gap in Belgium, whilst still significant, has narrowed considerably. The difference between men’s and women’s median wages (OECD data) was 13.6% of men’s median wage in 2000, and decreased to 4.7% in 2015.The gap is widest among the oldest 43

Ive Marx and Lien Van Cant

age categories and narrower among the youngest. From an international perspective, Belgium performs in this regard very well. With just under 15% of its population at risk of poverty, Belgium takes an average position, which stands somewhat at odds with Belgium’s remarkably low overall level of income inequality. Moreover, certain groups have a higher poverty rate than the EU average. Poverty levels of people aged 0–59 living in a household with no or very low labour market activity is rising and much higher compared to other countries. In 2017, 70.4%, a record number, of people living in such a household are considered poor. Child poverty is also comparatively high (and on the rise), which is mainly driven by the number of children in quasi-jobless households. Among people of working age, the risk to become poor is rising significantly for those with low educational attainment. The risk is even rising for those who are mid-skilled (FOD Sociale Zekerheid, 2017). Belgium, furthermore, has one of the largest gaps between the risk of poverty or social exclusion for persons with disabilities and those without (European Commission, 2018). It is worth pointing out, however, that at around 5%, Belgium’s in-work poverty rate ranks consistently among the lowest of industrialised nations. Yet, while still enjoying a moderately low poverty rate, Belgium has been slipping down the tables during the last decade. Belgium has an expensive welfare system, which nevertheless is becoming less and less effective in achieving its primary objective of providing people with adequate minimum income protection, especially to those who find themselves excluded from the labour market.

3  Welfare system change across policy sectors 3.1  Overview of welfare system change over time As we already mentioned in the introduction, welfare state change in Belgium has never happened through big sudden interventions hitting deeply, and profoundly altering the working principles of the system. Institutional and policy change in Belgium has tended to happen in gradual and incremental ways.That has partly to do with Belgium’s complex multi-layered governance structure. In addition, the social partners – organised along multiple ideological pillars – wield significant influence in shaping social and economic policy through their institutionalised decision and/or advisory roles.This fragmentation of power in the political field as well as in the industrial relations field makes any kind of major, coordinated shift very hard to achieve, as there are simply too many veto players. Belgium is often considered a prime example of an ‘immovable object’ meeting ‘irresistible forces’. Yet it bears stressing that Belgium’s social concertation system has often proved more adaptive than it may appear from the outside. Change tends to occur incrementally, through numerous small changes. The pace of change may appear glacial at times, but there have been many demonstrable shifts. Recapping briefly what happened during the 1980s and 1990s, the economic recession and restructuring brought on by the oil price shocks hit the Belgian economy exceptionally hard. In order to prevent a social carnage, priority was given to providing adequate social protection. Belgium’s social security system transformed from a system in the Bismarckian mould into one in which there is an overriding emphasis on minimum income protection and universal coverage. This is most evident if one looks at the main scheme providing income protection to those at working age: the unemployment insurance system, as documented in Marx (2007). The shift towards more adequate minimum income protection started to run into systemic limits, and cost concerns became paramount. Real benefit levels, however, became largely 44

Belgium’s welfare system

stagnant. In addition, the late 1980s were an era of strong real wage growth, and consequently benefits dropped rapidly relative to wages and overall living standards. The 1990s marked a clear shift in emphasis. Activation became the new policy paradigm (Marchal, 2017). The administrations of Prime Minister (PM) Dehaene I and II, covering the period 1992–1999, were preoccupied with ensuring that Belgium became a member of the monetary union, as stipulated in the Maastricht Treaty. With fiscal consolidation the prime objective, social insurance contributions and personal income taxes were increased substantially. Under the liberal-socialist Verhofstadt I and II cabinets, Belgium enjoyed an economic upswing (1999–2007) and allowed welfare adjustments of social transfers. Considerable increases in unemployment benefits and, to a lesser extent, pensions also happened. The next political legislatures were remarkable in that three prime ministers were at the helm of the federal government in short succession (Verhofstadt III,Van Rompuy, and Leterme) while the financial crisis rocked the world economy. Belgium became an unlikely beacon of resilience and stability in this time of unprecedented economic turbulence. Belgium weathered the storm of the economic crisis well for a number of reasons. First, because of the effectiveness of its automatic stabilisers, notably in the form of work time reduction compensation schemes. Also, additional crisis packages were institutionalised, including increases in benefit replacements rates, tax cuts for low wage earners, and measures to reduce non-wage labour costs for employers.The crisis may have accelerated or intensified a number of reforms without however representing a path-breaking event. Owing to the Belgian extensive welfare system, a (mild) drop in GDP did not result in a sharp rise in unemployment or a strong drop in consumption levels. Furthermore, the peculiarity of Belgium not having a government for an extended period also helped in a totally unintended but eventually beneficial way.Whereas other countries took a turn towards austerity, Belgium’s spending remained stable by default. This happened because the interim government did not have the power or the inclination to cut spending in a drastic way. In short, the past decades were marked by a transition towards a welfare state with a stronger emphasis on activation, minimum income protection, and attention to new social risks such as lone parenthood and long-term unemployment. There has been an expansion of spending on employment subsidies and childcare provisions (Van Mechelen et al., 2013). Additionally, the government has aimed to limit early exit options, be it without much success.Table 3.5 provides an overview of some of the changes.

3.2  Analysis of main developments by policy sector Pension policy The Belgian pension system is organised along three pillars: a pay-as-you-go financed public pension system supplemented with voluntary occupational and private pension schemes. The first compulsory pillar of Belgium’s pensions system consists of three main social insurance regimes, for wage earners (including those employed in the non-profit sector), the selfemployed, and civil servants respectively. Of Bismarckian design, the compulsory pillar system for employees is funded through social contributions and co-governed by the social partners. Retirement pensions are, in principle, dependent on duration of the career, gross earnings over these years, and household composition. However, maximum pension entitlements have become an increasingly smaller fraction of real past earnings for people with above average earnings. At the same time, more and more 45

Child benefit reform

Education Labour market policy Pension

Family

After 2015

2008–2014

2000–2007

Cost containment combined with redistributive measures Expansion of childcare Activation and sanctions Unemployment benefit tightening Promoting equal access to education Intensified monitoring and stronger regressivity in unemployment Promoting equal access to education Tax shift Pension reform

Health care

Family Social assistance Labour market policy Education Labour market policy

Active labour market programmes

Labour market policy

1995–2000

Step 1

Regulations

Expansion Restructuring Retrenchment and restructuring Restructuring

Retrenchment and restructuring Expansion Retrenchment Retrenchment Expansion Retrenchment

Expansion

Step 2

Social investment

Equal opportunity Activation and job creation Cost containment

Social investment and activation Activation Activation and cost containment Equal opportunity Cost containment/activation

Cost containment

Reducing caseloads and activation

Ideas

Three-dimensional approach for analysing welfare system change

Policy sector

Time frame

Table 3.5  Welfare system change in Belgium (examples)

Abrupt

Incremental Incremental Incremental

Incremental Incremental Incremental Incremental Incremental

Incremental

Incremental

Step 1: Process

Discontinuity

Continuity Discontinuity Discontinuity

Discontinuity Discontinuity Discontinuity Continuity Continuity

Continuity

Continuity

Step 2: Output

Types of change

Belgium’s welfare system

people have come to gain entitlements based on activities that are deemed ‘equivalent’. A peculiar feature of the Belgian wage-earners scheme, therefore, is that periods of the life spent on replacement income (unemployment benefits, disability benefits, worker’s compensation, etc.) are treated in a fully equivalent way to work periods. Recent government reforms, however, have changed the pension formula affecting periods spent on social insurance benefits. At the same time, employees’ pensions have eroded compared to average living standards, as from 1982 onwards, pensions were no longer indexed to wages but to prices. Since 2002, however, additional welfare adaptations were introduced adapting pensions to catch up with the increase in average salaries (Decoster et al., 2015). A means-tested minimum income guarantee for the elderly acts as a final safety net. Pension systems all across Europe are under pressure while being confronted with major challenges.The Belgian pension system is no exception to this rule, on the contrary. Old age benefits, already comprising the heaviest burden on the welfare state (see Table 3.2), are to increase further. One of the reasons why Belgium is particularly vulnerable is that it is among the EU countries with the lowest employment rates among older workers due to generous early exit options. These have been addressed by successive recent reforms which have tightened age and career requirement and strengthened availability for work requirements. The current government has formally decided that the retirement age is to rise to 66 in 2025 and to 67 in 2030. Another measure to increase employment of the elderly, and to broaden the coverage for the second pension pillar, is that, as of 1 January 2015, employment income earned by pensioners beyond the age of 65 or after 45 years of working is no longer subject to any limit. Survivor’s pensions are also being reformed by progressively raising the minimum qualification age from 50 years in 2025 to 55 years in 2030. In the public sector, the government started to progressively eliminate the years of study from the calculation of the minimum career length required for early retirement. The public pension scheme is being brought in line with the one for private sector employees.These pension reforms sparked fierce protest from social partners, resulting in several national trade union demonstrations and strikes (Ajzen, 2015). Low activity rates among older workers also owe to steep seniority pay (Cockx et al., 2017) and weak engagement in life-long learning activities. A recent law seeks to encourage firms to step up their training. Still, at 48.3% in 2017 and a gap of almost 10% with the EU28 average, older workers’ employment remains low (Eurostat, based on LFS, 2018). The Belgian government is also planning the introduction of a new way of calculating pensions, based on a ‘notional point’ system: Pension points would be earned depending on the number of years worked and income earned, with improved minimum rights and maintained maxima. Related to this is the automatic linkage of the legal pension age to life expectancy. However, the actual decision seems to be being passed on to the next government(s). The pension reforms recently enacted were a first significant step to address risks related to the long-term cost of ageing. Nevertheless, recent projections still point to large increases in long-term expenditure for both pensions and long-term care. Sustainability of public finances, including pensions, will remain a challenge.

Labour market and unemployment policy Spending on unemployment insurance benefits is among the highest in Europe, as is the proportion of people receiving some kind of unemployment benefit (Table 3.2). This ‘welfare without work’ conundrum emerged in the wake of the 1970s recession. The first oil shock marked a fundamental and dramatic change not only in the magnitude but also in the nature of the unemployment risk. In response to this, Belgium’s unemployment insurance system started to 47

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undergo a radical transformation: It evolved from a social insurance system pretty much in the classic Bismarckian mould into a minimum income protection system (Marx, 2009). The dire state of Belgium public finances amid rising dependency levels made expenditure control the major political preoccupation during the 1990s. The active welfare state fitted this purpose naturally. Belgium became a relatively high spender on active labour market programmes (ALMP), which is reflected in the continued lowering of social security contributions, investment in job subsidies, and public employment programmes. Also marking this turn-around was the introduction, in 1996, of the so-called Competitiveness Law. A monitoring system was introduced, benchmarking Belgian wage developments against those in main trading competitors and neighbouring countries Germany, France, and the Netherlands. In addition, ‘make work pay’ policies were introduced. The so-called Belgian ‘Work Bonus’, introduced in 2005, reduced personal social security contributions for low wage workers. At the same time unemployment benefit levels eroded quite substantially for a while because of incomplete adjustments for wage or even price increases (due to a series of indexation freezes). From 2001 onwards, however, the minimum and maximum unemployment benefits started to increase over time, hereby outpacing the average wage growth, especially for singles and cohabitants. Decoster et al. (2015) find that higher out-of-work benefits, especially unemployment benefits, crowded out the positive effect of the introduction of the work bonus on work incentives for people at the bottom of the distribution. Under the government headed by socialist Eio Di Rupo, unemployment benefits were made more digressive over time while eligibility criteria were tightened. Considering this vast expansion of active labour market measures of all sorts, Belgian’s (relatively) low employment rates are all the more remarkable while putting further pressure on the affordability of the system. A remaining bottleneck in this respect are the high disincentives to work. In recent years, the targeted measures to reduce the tax wedge on labour have significantly increased the net income of employees, especially those on low wage. Despite these measures the tax wedge for a single household earning the average wage remained among the EU’s highest in 2016 (54%), although it has declined since 2015 (55.3%). The dependency trap for low wage earners (67% of the average wage for a single household) is also one of the EU’s highest. High tax disincentives for second earners – mainly women – remain as well, resulting in a high number of women working part-time. In addition, and highly unusual in Europe, unemployment insurance benefits remain unlimited in time, which makes it difficult to introduce more purposeful benefit stringency.The automatic indexation mechanism, enabling wages and benefits to be adjusted in line with recorded inflation, is not yet reformed – despite repeated recommendations on behalf of the European Commission and international organisations such as the IMF and OECD. The unemployment benefit system, moreover, even saw further expansions, such as an augmentation of the short-time working schemes to white-collar workers as a crisis measure. Also, while most OECD countries carried out regulatory reforms promoting flexibility, Belgium remains among the more strictly regulated OECD countries (European Commission, 2014).This is reflected in the exceptionally low incidence of non-regular forms of employment.

Health care policy Health policy in Belgium relies on shared responsibility of both the federal authorities and sub-national governments (regions and communities). Belgium is characterised by a system of compulsory health insurance, covering nearly the entire population and providing comprehensive insurance (except for some restrictions for the self-employed). It is organised through six private, non-profit sickness funds and one public sickness fund. Membership of a sickness fund 48

Belgium’s welfare system

is compulsory, but the choice of the sickness fund itself is free. The sickness funds developed historically along religious and political lines.The largest ones, the Christian and Socialist Mutualities, together insure about 69% of the population (Jaarverslag RIZIV, 2017). Hospital care is provided either by public hospitals or by private non-profit hospitals (Schokkaert and Van de Voorde, 2005). The federal authorities are responsible for regulating the compulsory health insurance and hospitals, including the setting of minimum standards, legislating professional qualifications and registering and controlling prices of pharmaceuticals. The regions and communities are responsible for health promotion and prevention, providing maternity and child health care, social services, community care as well as coordination and collaboration in primary health care and palliative care, and financing hospital investment. The National Institute for Health and Disability Insurance manages the compulsory health insurance and allocates a prospective budget to the sickness funds to finance the health care costs of their members. Hence, despite the fact that the choice of the sickness fund itself is free, the cover and contribution rates of the insurance and contribution are identical across all funds. To encourage cost containment, sickness funds have to fund 25% of their deficit (in case of overspending) out of their own reserves since 1995. In March 2017, the Belgian Parliament agreed on a reform regarding the funding of social security, including health care. The reform aims to better control the growth in public health spending by promoting greater accountability among the social partners and to transfer some of the tax burden from social security contributions to other forms of taxation such as value-added taxes (OECD/EOHSP, 2017). The expenditure on health care has been gradually increasing over time: In 1980 the expenditure was about 5% of the GDP, while in 2015 the expenses amounted to 10.5%. This makes Belgium a very high spender on health policies, as the OECD average is 1.3% of GDP in 2013 (OECD/EOHSP, 2017). Belgium’s health insurance covers a comprehensive but ‘no-frills’ package of medical services and reimburses about three quarter of the expenses incurred.The reimbursement to patients for the costs of services depends on the type of service provided, the income and social status of the patient, and the accumulated amount of co-payments already paid in a given year (with a maximum ceiling). Public spending accounts for about 77% of overall health spending, which is close to the EU average. The remaining spending is paid directly out of pocket by households (18% of overall health spending) and – to a much smaller extent – through private health insurance (5%). The ‘maximum bill’ provision ensures that people will never spend an excessive proportion of their income on partially or non-covered health care expenditures. People with a preferential reimbursement status, for which entitlement is based on social status or taxable gross annual income, have lower co-payments (up to 90% of medical costs are covered when eligible). Since January 2015, access to preferential reimbursement status is proactively proposed by sickness funds in order to remove barriers to health care accessibility (OECD/EOHSP, 2017). Since the beginning of 2008, moreover, the coverage in the general scheme and the scheme for the self-employed have become similar, since both are protected against minor risks (Gerkens and Merkur, 2010). Verbist and Lefebure (2007), nevertheless, show that Belgium’s health care system is strongly redistributive, in that lower income categories contribute less while having higher needs for health care. The recent country report on Belgium submitted by the European Commission (2018) stresses that access to quality health care is still an issue for vulnerable groups. Compared to other EU countries, the self-reported unmet health needs are high in the lowest income quintile and have been rising in recent years. The difference between the fifth and the first income quintile in the level of unmet needs for medical care has increased steadily since 2011, 49

Ive Marx and Lien Van Cant

reaching 6.8 percentage points in 2015 (sixth highest in EU) and 7.4 percentage points in 2016. Non-take-up or deteriorated income situations could be possible explanations. The latest OECD/EOHSP (2017) health profile report comes to similar conclusions. While the average level of unmet care needs is low, Belgium reports large inequalities. Low-income people more often forgo health examinations due to transaction or information costs (e.g. travelling distance or waiting time) compared to high-income people. On the longer term, forgone health care may jeopardise health status and increase health inequalities.

Family policy Until recently, the system of family allowances and child benefits did not undergo any major or even minor reforms, except for occasional suspensions of automatic indexation. The child benefit system that is currently in place, and which is administered by the regions since July 2014, is a quasi-universal system. It grew out of various separately organised schemes for employees, civil servants, and the self-employed, which were later coordinated. The system provides child benefits to every child, regardless of parental income. It is however characterised by a strong degree of rank progressivity, meaning that benefit amounts increase substantially with the rank of the child in the household. The amount of the child benefit also increases with the age of the child. An argument in favour of this strong rank progressivity can be found in the fact that these provisions only partially cover the costs of having children. According to this view, strong rank progressivity should keep the increasing weight of non-covered costs that accompanies an increasing number of children bearable. In 2007, two extra supplements besides the age component were introduced. The first one is the ‘back-to-school premium’, paid out in August and available for all children eligible for a child benefit.The second one is a means-tested supplement, depending on the rank of the child, granted to single parent households who receive a standard child benefit (Decoster et al., 2015). However, over the past decades, even though child benefits have been adjusted to account for changes in purchasing power, they have not kept pace with living standard increases. Consequently, compared to national income or net wages, a creeping but steady purchasing power erosion of these amounts has taken place. This is especially problematic for families whose incomes are at the bottom of the distribution. As Eurostat statistics consistently show (see Table 3.4), children are at a comparatively high risk of poverty in Belgium despite the fact that overall household income inequality is low. The sixth state reform presented a unique opportunity to recalibrate the existing system towards one that is more effective in alleviating child poverty. The Flemish government, for example, has vowed to halve child poverty. One of the most important decisions in 2016 concerned the new system of child benefits in Flanders. Brussels and Wallonia have still to decide on their respective systems. Only Flanders thus has so far presented a fully fledged new system which will be introduced gradually from January 2019 onwards. Existing rights will remain in place. The new rules will only apply to children born after the formal introduction of the new scheme. The others will retain their rights. The new Flemish system has a basic principle at its core: namely, that every child should be treated equally, be it that there will be targeted supplements for those most in need. One important implication of this is that the rank progressivity that used to exist in the old system will disappear, i.e. the child benefit will no longer progressively increase with the number of children within any given family. The basic amount per child (EUR 1,100 at birth and EUR 160 per month) is higher than the amount for the first child in the old system, which means 50

Belgium’s welfare system

that households with one or two children will gain.The new system will be far less beneficial to households with three or more children. Limited supplemental amounts will be given to certain categories and households below certain taxable income thresholds. Microsimulation analysis has been performed to look at the likely impact of the new child benefit system on poverty, especially child poverty (Van Lancker et al., 2016). As is to be expected, the new system will do little to reduce child poverty. About one in ten Flemish children will remain at risk at poverty, as is the case in the old system. The new system will do little to reduce child poverty among those most at risk, for example children growing up in single parent households. Regarding childcare facilities, Belgium has reached the Barcelona targets as half the children younger than 3 are in childcare, as are 99% of those between 3 and 6 years old (the minimum compulsory school age). Notwithstanding the fact that the male breadwinner model still reigns supreme in the Belgian welfare system, childcare provisions for working parents have been expanded markedly.There is a formal and well-regulated system of care for very young children both in the form of institutionalised day-care centres as in the form of subsidised ‘care mothers’. From 2.5 years onwards, childcare is basically free and linked to the school system. However, as the European Commission (2018) marks, capacity problems seem to be emerging as waiting lists remain long, particularly in the larger cities. This may pose a particular barrier to less skilled parents taking up jobs in the services sector where hours are often irregular. Hence, affordable full coverage is an important policy objective in all communities.

Education Education is organised and financed through the three communities: the Dutch, the French, and the German speaking. Both the provinces and municipalities as well the communities ensure the provision of education. A large part of the educational system is in non-governmental hands, which are for the large part subsidised and hence regulated and monitored by the Community governments. This broad organisational structure applies to virtually all educational levels and sectors. Preschool education, extensively used though not compulsory, is provided to children from the age of 2 and a half until the age of 6. Primary schooling is obligatory from 6 years of age and is relatively undiversified; only children with special needs are catered for separately. Secondary education, in contrast, is more diversified. Pupils can pursue general secondary education, but they can also opt for technical, vocational, or arts secondary education. Successful completion of a secondary education trajectory opens the way to tertiary education, which can be pursued at university level or non-university level. Belgium has experienced a major educational expansion over the course of recent decades, resulting in a considerable rise in expenditure on education (leaving aside the stagnation in educational expenditure between 2008 and 2009). A clear rise of higher secondary and tertiary graduates among younger age categories can be identified, whereby women in younger generations now have higher rates of tertiary attainment than men. The Belgian educational systems are notable, however, for their very strong intergenerational reproduction. As the European Commission (2018) puts it: Belgium combines good overall education performance with major educational inequalities. Children with a disadvantaged background, including those with a migrant background, do not have equal opportunities to access quality education.This is already evident in preschool as the (small) proportion of children who do not attend school until they are 6 mainly have a migrant background. Furthermore, whilst Belgium performs above average on top achievers (OECD, 2018), disadvantaged groups are underrepresented amongst top achievers in science, mathematics, and reading. 51

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Hence, promoting equal access to education, higher education in particular, has always been a concern and it has become even more of a priority in recent times. It is for this reason that primary and secondary education is provided at no direct cost to the parents and that fees for higher education are kept very low. There is a system for providing financial support to children from low-income households. In Flanders, the Decree for Promoting Equal Opportunity in Education (2008) provides extra support to schools with a high density of pupils from weaker socio-economic backgrounds. An evaluation of this equal opportunity policy, however, found no overall improvement but identified success factors enabling policy to be improved and adapted to take account of growing pupil diversity (e.g. parents’ involvement and a student follow-up system). Since 2012, moreover, enrolment policy in the Flemish community has required all schools to reserve a share of places for both disadvantaged and advantaged pupils. The first positive impacts on social mix have been observed (European Commission, 2018). As for early school leavers, the ‘Right to Social Integration’ (RMI) amended the legal framework in order to enable social assistance beneficiaries to combine welfare receipt and secondary or tertiary education. However, the RMI does not provide incentives for local welfare offices to actually stimulate early school leavers to improve their educational attainment. Additionally, for people excluded from the labour market, training opportunities have been expanded substantially.They can now take part in, for example, the IBO-programme (‘Individuele Beroepsopleiding’) which provides on-the-job training for the less skilled. In December 2013, a Youth Guarantee Scheme was implemented in order to reduce the number of NEETs aged 15–24 years.Three in five of those leaving the scheme were known to be in employment, education, or training six months later (European Commission, 2018). Despite these measures, participation and attainment in education continue to show strong gradients by socio-economic parental background. These outcomes are very worrying as the relative employment prospects of people with low levels of education and/or migration background are among the worst in the EU (Eurostat, 2018). Inequality in education thus is reflected in labour market outcomes. The European Commission indicates that while there is some progress made in ensuring that most disadvantaged groups have equal opportunities to education (and vocational training), progress is only limited regarding ensuring equal labour market opportunities (European Commission, 2018). Moreover, as growth in the school population is one of the highest in the EU and the share of disadvantaged groups will increase, challenges in education will become more difficult to address. Yet, both the Flemish and the French communities have embarked on major reforms of their education systems (e.g. French speaking community’s Pacte d’Excellence 2015–2030). Their implementation is planned over the next decade and beyond and intend to improve equity, basic competences, and vocational training.

Social assistance In this last section we focus on the final safety net the Belgian welfare state guarantees as a matter of social right. Those who are not (or no longer, due to time limits or sanctions) eligible for social insurance need to fall back on the safety layer of the welfare state: residual minimum income protection. Eligibility is tied to need instead of previous contributions (which is the case in the social security schemes). Belgium’s final safety net is ensured through three laws enacted around the late 1960s and early 1970s: the law on social assistance, which instituted a minimum income guarantee to all citizens, the law on guaranteed child benefit, and the law on the guaranteed minimum income pension. In addition to these statutory rights, additional support is 52

Belgium’s welfare system 120 100 80 60 40 20 0 Single

Couple (single earner)

Single parent

Social assistance

Couple (single earner) with children

Single

Couple (single earner)

Single parent

Disability

Couple (single earner) with children

Single

Couple (single earner)

Minimum pension

Figure 3.2 Minimum income protection levels for households in various situations relative to the poverty line (net disposable household income as a percentage of the poverty line), 2014

offered by the social worker and the local welfare agency. Finally, additional income support is provided to people with a handicap. In contrast to other European countries, the number of social assistance claimants remained low for a long time. This owed mainly to the coverage of Belgium’s unemployment insurance system. However, the increasingly precarious labour market trajectories of migrants, low-skilled, young people, and lone parents has increased the number of people who fall through the cracks of more traditional welfare state provisions (Cantillon and Buysse, 2016; Marchal, 2017; Marx, 2007). The final safety net, moreover, has not been able to escape the activation tide that has washed over the welfare state. Whereas social assistance was never fully free from activity requirements, the ongoing recalibration of the welfare state did result in changes to the conditionality and generosity of the Belgian social floor. Each claimant of social assistance became obliged to seek work and be available for suitable work. Just as within social insurance, claimants are actively pushed and coached to re-enter the labour market (Marchal and Van Mechelen, 2017). As migration, socio-demographic changes, and labour market conditions continue to make it harder to fulfil the (increasingly restrictive) access conditions to traditional welfare state provisions, social assistance is likely to become ever more relevant. There is, moreover, no statutory mechanism driving benefit increases. Just as is the case for many social insurance benefits, social assistance levels in Belgium are far below the poverty threshold (Figure 3.2). Despite moderate increases in the past, out-of-work benefits have become too low to protect against relative income poverty, which might explain the relatively high poverty rates shown in Table 3.4. The federal government maintains its commitment to raise the level of benefits to the level of the poverty threshold.Whether this will ever happen remains doubtful.

4 Outlook Long seen as a prime case of lethargic immobility in a world of rapidly evolving welfare state change, Belgium’s welfare state acquired some level of admiration during the Great Recession 53

Ive Marx and Lien Van Cant

precisely because of its ‘successful’ inertia. However, its structural shortcomings cannot be masked. While Belgium still features a comprehensive social protection system, its sustainability continues to be challenged. Public expenditure is already among the highest in Europe, and it is projected to rise because of an ageing population. While the Belgian welfare state stands out in having a low and stable overall income inequality, its labour market is not sufficiently inclusive. Employment rates remain very low and welfare dependency rates high, also among the active age population. Furthermore, for a country with a comparatively low level of income inequality and a comparatively high level of social spending, most of it channelled through social insurance systems co-governed by workers and employers, Belgium is confronted with a comparatively high level of relative income poverty. Belgium’s social model has thus not shown itself sufficiently capable to deal with the root problems of sluggish job growth, unemployment, and poverty, especially among those at active age. In conclusion, a recalibration towards a modern, effective, and sustainable welfare system remains largely elusive. That is not to say that nothing has happened, as we have discussed here. Cost cutting has been a continuing preoccupation over the past three decades. At the same time and in response to post-industrial challenges, Belgium’s welfare state has taken on some new functions in such areas as the reconciliation of work and family life. A flexible legal framework and innovative redeployment were crucial factors for the observed incremental change processes. However, that mode of piecemeal adaptation has come at a cost in terms of policy consistency and transparency. Moreover, the pace of gradual change remains simply too slow to ensure successful adaptation.

References Ajzen, M. (2015), “Belgium: Turbulent Industrial Relations Follow New Government Agreement”, available at: www.eurofound.europa.eu/observatories/eurwork/articles/industrial-relations/belgiumturbulent-industrial-relations-follow-new-government-agreement (accessed 16 November 2018). Cantillon, B. and Buysse, L. (2016), De staat van de welvaartsstaat, Acco, Leuven. Cockx, B., Dejemeppe, M. and Van der Linden, B. (2017), “L’emploi des seniors en Belgique: quelles politiques pour quels effets?” available at: www.belspo.be/belspo/fedra/TA/TA44_Report.pdf (accessed 16 November 2018). Decoster, A., Perelman, S., Vandelannoote, D., Vanheukelom, T. & Verbist, G. (2015), “A bird’s eye view on 20 years of tax-benefit reforms in Belgium”, Centre for Economic Studies, KU Leuven. European Commission. (2014), “Industrial Relations in Europe 2014”, Publications Office of the European Union, Luxembourg. European Commission. (2018), “Country Report Belgium 2018: Assessment of Progress on Structural Reforms, Prevention and Correction of Macroeconomic Imbalances, and Results of In-depth Reviews Under Regulation (EU) No 1176/2011”, Brussels. Eurostat. (2018), “Social Expenditure Database”, available at: https://ec.europa.eu/eurostat/data/database (accessed 10 October 2018). FOD Sociale Zekerheid. (2017), “The Evolution of the Social Situation and Social Protection in Belgium 2017: Monitoring the Social Situation in Belgium and the Progress Towards the Social Objectives and the Priorities of the National Reform Programme and the NSR”, available at: https://socialsecurity. belgium.be/sites/default/files/analysis-social-situation-and-protection-belgium-2017-en.pdf (accessed 16 November 2018). Gerkens, S. and Merkur, S. (2010), “Belgium: Health System Review”, Health Systems in Transition, Vol. 12 No. 5, pp. 1–266. Horemans, J. (2016), Half a Job,Twice as Poor: Empirical Investigations into the Role of Earnings, Family Composition, and Institutions as Factors Underlying:The Poverty Risk of Part-timers Across Europe, PhD, University of Antwerp. 54

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ILO (International Labour Organisation). (2016), Non-standard Employment Around the World: Understanding Challenges, Shaping Prospects, International Labour Office, Geneva. Kuypers, S. and Marx, I. (2017), “De verdeling van de vermogens in België: een actualisering”, available at: www.centrumvoorsociaalbeleid.be/sites/default/files/D%202017%206104%2 001_ juni2 017.pdf (accessed 16 November 2018). Marchal, S. (2017), The Social Floor: Essays on Minimum Income Protection, PhD, University of Antwerp. Marchal, S. and Van Mechelen, N. (2017), “A New Kid in Town? Active Inclusion Elements in European Minimum Income Schemes”, Social Policy & Administration,Vol. 51 No. 1, pp. 171–194. Marx, I. (2007), A New Social Question? On Minimum Income Protection in the Postindustrial Era, Amsterdam University Press, Amsterdam. Marx, I. (2009), “Belgium: A Post-Bismarckian Welfare State Looking for Legitimacy, Sustainability and a Way Out of ‘Welfare Without Work’ ”, in Schubert, K., Hegelich, S. and Bazant, U. (Eds.), The Handbook of European Welfare Systems, Routledge, New York, pp. 49–64. Marx, I. and Kuypers, S. (2015), “Social Concertation and Middle Class Stability in Belgium”, in VaughanWhitehead, D. (Ed.), Europe’s Disappearing Middle Class? Evidence from the World of Work. International Labour Organisation, Geneva. Marx, I. and Schuerman, N. (2016), “BELGIUM, or How Inertia Can Have Unexpected Benefits in Times of Crisis”, in Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Springer, Switzerland, pp. 37–57. Marx, I. and Van Cant, L. (2018), “Belgium: Is Robust Social Concentration Providing a Busser Against Growing Inequality?” in Vaughan-Whitehead, D. (Ed.), Reducing Inequalities in Europe: How Industrial Relations and Labour Policies Can Close the Gap, Edward Elgar Publishing, Cheltenham, pp. 116–167. Nolan, B., Salverda,W., Checchi, D., Marx, I., McKnight, A.,Tóth, I. and Werfhorst, H. (Eds.) (2014), Changing Inequalities and Societal Impacts in Rich Countries:Thirty Countries’ Experiences, Oxford University Press, Oxford. OECD. (2011), Divided We Stand:Why Inequality Keeps Rising, OECD Publishing, Paris. OECD. (2015), Employment Outlook 2015: Activation Policies for More Inclusive Labour Markets, OECD Publishing, Paris. OECD/European Observatory on Health Systems and Policies (2017), Belgium: Country Health Profile 2017, State of Health in the EU, OECD Publishing, Paris/European Observatory on Health Systems and Policies, Brussels. OECD. (2018), Education at a Glance 2018: OECD Indicators, OECD Publishing, Paris. RIZIV. (2017), Jaarverslag 2017, available at: https://www.inami.fgov.be/nl/publicaties/jv2017/Paginas/ default.aspx#.XYtrvkYzYdU Schokkaert, E. and Van de Voorde, C. (2005), “Health Care Reform in Belgium”, Health Economics,Vol. 14, pp. 25–39. Van Lancker, W., Vinck, J. and Cantillon, B. (2016), De armoede- en verdelingsimpact van de nieuwe Vlaamse kinderbijslag: een analyse van het akkoord van de Vlaamse Regering van 28 mei 2016, Centrum voor Sociaal Beleid Herman Deleeck, Universiteit Antwerpen, Universiteit Antwerpen, Berichten. Van Mechelen, N., Bogaerts, K. and Schuerman, N. (2013), “Measuring Belgium’s Social Investment Turn: The At-risk Household Approach”, Flemosi Discussion Paper. Van Rie,T. and Marx, I. (2013), Growing Inequalities’ Impacts (GINI): Country Report on Belgium, GINI Country Reports Belgium, AIAS, Amsterdam Institute for Advanced Labour Studies. Verbist, G. and Lefebure, S. (2007), “Accurate Income Measurement for the Assessment of Public Policies (AIM-AP).The distributional impact of health care services in Belgium”, available at: https://www.iser. essex.ac.uk/files/msu/emod/aim-ap/deliverables/AIM-AP1.3c.pdf

55

4 The Bulgarian welfare system Reforms and their effects on inequalities and vulnerable groups between 1997 and 2018 Rumiana Stoilova and Veneta Krasteva

1  Introduction: changes to the Bulgarian welfare system Discontinuity has prevailed over continuity in the reforms made to the Bulgarian welfare system. The historical account could be divided into five main periods: from the re-establishment of the Bulgarian state in 1878 to the advent of communism in 1944, then from 1944 to the end of communism in 1989, from 1989 to the 1997 economic crisis, from 1997 to Bulgaria’s full EU membership in 2007, and from 2007 to the present (Hristov, 2007; Stoilova, 2009). The first law for social assistance was enforced in 1934. This was the first normative act in which the state made a commitment to the regulation of social assistance activities (Hadjiiski, 2002). Some authors (Cerami and Stanescu, 2009) have found traces of a Bismarckian understanding of social solidarity in Bulgaria at the beginning of the 20th century, when legislation concerning health and sickness insurance (in 1918) and old-age insurance (in 1924) was established. However, as Cerami and Stanescu (2009, p. 114) point out, as these welfare institutions were introduced in an agrarian society with very low (or even lacking) industrial modernisation, they did not correspond to the needs of the majority of the Bulgarian (rural) population. After 1944 and until 1989, the Communist Party came to power in Bulgaria and a state socialist welfare model was established with universal and egalitarian principles. Orenstein(2008) comments on four key characteristics of the Communist-era welfare states: Full employment was linked to a wider payroll-tax base and to lower demands for state social assistance; citizens were provided with universal medical care, old-age and disability pensions, and maternity and family benefits; and basic foodstuffs, housing, and vacation homes were provided and subsidised by the welfare state. Social enterprise provisions served as a form of ‘vertical integration’. However, it must be noted, ‘Communist regimes used their control over the distribution of social benefits to punish opponents and reward supporters in a systematic manner, turning the welfare state into a finely tuned mechanism for differential distribution’ (Orenstein,2008, p. 82). The principle of party-mindedness, or of service to the party, is fundamental to the society. In line with this, certain categories of people received much more than others and were granted specific social services (State Gazette, 1965, 1979). The principle of institutionalism and collectivism were added to this (Hadjiiski, 2002). All these principles underwent radical change in the period of post-Communist transformation. The 56

The Bulgarian welfare system

principle of party-mindedness was entirely excluded from the laws. Institutional care provided for children and elderly people who require long-term care featured a shift towards social services delivered in the community. Solidarity, understood as a consciously made individual choice in favour of others, became a central value in contrast to the principle of collectivism. The post-Communist welfare states changed in three major ways: the elimination of most price subsidies, the end of full employment, and the transformation of state-owned enterprises into profit-making entities (Orenstein,2008). The elimination of subsidies for basic goods and services led to increased poverty among people with low education levels, who were the first to lose their jobs during the process of privatisation. High poverty rates among large groups of people and high levels of income inequality in the country still remain basic problems for the welfare state. This has imposed the need to seek support from international financial institutions, especially from the International Monetary Fund (IMF), whose requirements for providing financial assistance obliged the state to meet specific conditions of economic and financial policy (conducting reforms in the pension and welfare systems and privatising state property) and to achieve certain economic parameters. In the post-Communist European countries, including Bulgaria, transnational actors (the IMF, the World Bank, and after EU accession – the European Commission) played a decisive role regarding the implementation of reforms undertaken in the mid-1990s, including those in the welfare sphere. This was true not only of pension reform but also concerned the standards of restructuring in the spheres of health services and paying out unemployment benefits. Bulgaria has been commended in Europe for the exemplary way it coped with the financial crisis in 2009–2013, maintaining good financial discipline and avoiding any significant budget deficit. However, critics from the trade unions point out that the strong restrictions on budget expenditures, adopted as an anti-crisis measure, decreased the government’s capacity to a minimum in terms of compensating for negative labour market effects and reducing unemployment (Tomev, 2012). With an average score of 4.19, Bulgaria holds the very unsatisfactory 26th place in the EU Social Justice Index ranking for 2017 (Schraad-Tischler et al., 2017, p. 92). Revealing the reasons for that unsatisfactory performance will require deeper investigation. In this chapter, we analyse the period of 1997–2018, during which deep reforms were carried out in the Bulgarian welfare system, including reforms of the pension system, labour market policies and social assistance, healthcare, family policies, and education. Our aim is to evaluate the changes made, focusing on the main sequences and ideas, and pose the question, Why have the reforms not led to lower inequalities or a higher level of justice perceived by citizens?

2  General structures of the Bulgarian welfare system In this section, the general structures of the Bulgarian welfare system will be described.A more detailed overview can be found in the first edition of this Handbook (see Stoilova, 2009, in Schubert et al., 2009). Some of the conclusions drawn ten years ago are still valid. For example, the welfare gap still exists. It was identified within the spheres featuring a private-public mix alongside strong and widespread private elements. Wage inequality both in the country and between it and other EU member states remains a problem that is a push factor for emigration. Return migration is an issue that requires complex measures, starting with wage reform, but corruption should not be overlooked either.

2.1 Priorities Priorities in the ongoing welfare reforms are linked to the major risks for the sustainability of Bulgarian society, as identified in the European Semester Country Report for Bulgaria 2018 (European Commission, 2018, pp. 30–38). The population is ageing and shrinking fast. This 57

Rumiana Stoilova and Veneta Krasteva

means that fewer workers and a rising old-age dependency ratio are presenting barriers to economic growth. Disparities between urban and rural areas and between the different regions are high. In rural areas, the rates of unemployment and of young people not engaged in employment, education, or training, as well as the risks of poverty, social exclusion, and early school leaving, are far above EU and national averages. In the field of social protection and inclusion, the impact of social transfers (other than pensions) on poverty reduction is assessed as very low and insufficient. Participation in active labour market policies (ALMPs) remains limited. Low participation in adult learning remains a critical issue, given the skills shortages in the country. Health insurance coverage is still a challenge. The healthcare system remains hospital-centred. The situation of health professionals is uneven and requires closer monitoring and reforms towards early prevention. Economic crises and globalisation are a precondition for decreased expenditures on the part of the welfare state and have caused authors to use the term ‘retrenchment’ (Starke, 2008). Social expenditures as a percentage of GDP have been growing constantly in Bulgaria over the course of its accession as a full EU member and afterwards, but their level remains considerably lower than the EU average. Expenditures for social protection in 2008 amounted to 14.7% of GDP, while the average for the EU28 was 25.9%. During the country’s years of EU membership, this share has grown slightly but still remains quite low, totalling 18.5% in 2014 (see Table 4.1). The levels in Eastern and Central European countries in 2014 were significantly lower in contrast to the average levels for the EU28: Hungary, 19.9%; the Czech Republic, 19.7%; Romania, 14.8%. By measuring government expenditure as a share of GDP, Bulgaria comes close to the postCommunist countries classified under the Central Europe welfare model, but when referring to the indicators for income inequality, Bulgaria exceeds the average across those countries referred to as the Eastern Europe welfare model (McMenamin, 2003). With respect to expenditure by function, pensions account for almost half of the total budget (in 2010 this even exceeded 50%), followed by expenditures on ‘sickness/healthcare and disability’ – more than 30% of total social expenditures. The less than 20% remaining have been distributed over the years with significant variety between families and children, unemployment, and social exclusion (see Table 4.2). A high proportion of pensioners, low fertility rates, and emigration of the active population are stable negative demographic tendencies. The median age of the population is high (42.5 years). The old-age dependency ratio, defined as the ratio between the total number of elderly persons at a generally economically inactive age (65 and over) and the number of persons of working age (from 15 to 64), was 31.8% for Bulgaria in 2017, above the EU average of 29.9%. These unfavourable demographic trends exert strong negative pressure on the welfare system. In this context, a gradual raise in the retirement age has been implemented; a relatively low payout has been set for pensions; and the state contributes to about 50% of National Social Security Institute (NSSI) funding.

2.2  Funding and administrative structure Since 1996, social insurance activity has been centralised and managed by the National Social Security Institute, accountable for its activity to the National Assembly. The NSSI is a legal entity consisting of a head office in Sofia and local offices in all 28 district centres of the country. Attached to it is a supervisory board composed of national representative organisations of social partners. The NSSI assumes payment of all relief and benefit payments, which are part of the State Social Insurance (SSI). The budget autonomy principle has been implemented, and the NSSI has its own revenue and expenditures. In 2006 a separation was made between the 58

3,511.36 3,762.68 4,353.37 5,482.73 6,006.50 6,502.64 6,816.21 6,954.88 7,384.79 7,910.80 8,084.47

14.7 13.8 13.4 14.7 16.1 17.0 16.5 16.6 17.6 18.5 17.9

: : : : : : : : : : 1,255.60 1,266.16 1,407.16 1,635.71 1,714.33 1,921.70 2,038.08 2,116.15 2,301.13 2,568.22 2,675.23

: : : : : : : : : : : : : 3,387,028.75(p) 3,533,143.94(p) 3,667,547.18(p) 3,735,088.49(p) 3,859,799.72(p) 3,913,655.87(p) 4,016,755.91(p) :

Total (mio €)

PPS per inhab.

Total (mio €)

% GDP

eu28

bg

Source: Eurostat, 2018a, code [spr_exp_sum];last update: 9.10.2018;(p): provisional value

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 4.1  Social protection expenditure

: : : : : : : : : : : : : 25.9(p) 28.7(p) 28.6(p) 28.3(p) 28.6(p) 28.8(p) 28.5(p) :

% GDP : : : : : : : : : : : : : 6,757.287(p) 7,027.57(p) 7,280.26(p) 7,418.07(p) 7,647.80(p) 7,731.73(p) 7,911.41(p) :

PPS per inhab. 1,869,415.56 1,971,768.55 2,048,451.79 2,110,010.25 2,214,820.86 2,349,300.89(p) 2,451,984.56(p) 2,561,887.22(p) 2,657,000.47(p) 2,771,150.22(p) 2,888,705.29(p) 3,007,098.76(p) 3,117,421.33(p) 3,194,885.05(p) 3,344,535.43(p) 3,467,467.29(p) 3,533,112.21(p) 3,655,628.14(p) 3,705,141.34(p) 3,806,155.08(p) 4,000,059.06

Total (mio €)

eu15

26.5 26.6 26.2 25.8 25.8 25.6(p) 25.7(p) 26(p) 26.5(p) 26.4(p) 26.5(p) 26.2(p) 25.8(p) 26.6(p) 29.4(p) 29.3(p) 29.1(p) 29.5(p) 29.6(p) 29.4(p) 29.3

% GDP

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,842.87(p)  6,085.57(p)  6,317.97(p)  6,492.41(p)  6,723.80(p)  7,011.61(p)  7,268.79(p)  7,484.99(p)  7,658.12(p)  7,928.41(p)  8,172.30(p)  8,310.45(p)  8,536.00(p)  8,617.79(p)  8,795.39(p)  9,179.15

PPS per inhab.

Rumiana Stoilova and Veneta Krasteva Table 4.2  Social protection benefits by function, Bulgaria, 1995–2015 (% of total expenditure)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

: : : : : : : :

: : : : : : : :

100 96.58 6.57 1.82 0.01 2.62 36.16 49.39

100 97.13 11.36 3.33 0 1.41 30.96 50.07

100 97.12 10.63 2.82 0 1.54 33.37 48.75

Source: Eurostat, 2018a, code [spr_exp_sum];last update: 9.10.2018

institutional responsibilities for SSI duties related to revenue (then shifted to the National Revenue Agency) and expenditure (carried out by NSSI). The basic normative document regulating the system, the Compulsory Insurance Code, was adopted at the end of 1999 and came into effect on 1 January 2000 (after 2003, it was renamed the Social Insurance Code). The main changes were the introduction of a fund-based organisation of the State Social Insurance and the separation of funds for pensions, labour accidents and professional illnesses, general illness and maternity, professional qualification, and unemployment. The principles of social insurance in Bulgaria are compulsory and universal insurance; solidarity between insured persons; equal treatment of insured persons; social dialogue in the management of the social insurance system; and fund-based organisation of social insurance resources. The social insurance system in Bulgaria has a mixed type of organisation: The management and use of resources is centralised while the formation of resources is at the expense of the insured. A basic requirement for receiving material assistance from the SSI is that the person should have engaged in labour activity under contract and that during this period the person or the employer should have made periodical social insurance contributions. The size of the benefits received depends on the length of time and the size of the social insurance payments made before the occurrence of the defined risk. Typical for Central and Eastern European countries is the large share of employer contributions to their employees’ social insurance payments (McMenamin, 2003, p. 110). The direction of reform is towards a change in the ratio of social insurance payments to the SSI funds made by the employer and the employee. Workers’ proportional contributions to the social insurance system have grown in this period: in 2002–2004 the employer to employee ratio was 75:25, in 2005 it was 70:30, in 2006 it was 65:35, and in 2007 it was 60:40. Since 1 January 2018, the size of the insurance contribution to the pension fund has become 56 for the insurer and 44 for the insured person. The budget for State Social Insurance Act has introduced categories for the minimum and maximum insurance incomes, which are defined each year.1

2.3 Performance There has been constant, though slow, growth of the country’s GDP since the beginning of this century. However, the per capita GDP (7,100 euros for 2017) is still very low compared with other EU member states (29,900 euros in the EU28). In 2017, the GDP amounted to 50,429 million euros. This represented actual growth of 3.6% compared with 2016. From 2009 until 2011, the country followed a series of budget constraints, cutting the budget deficit in half 60

The Bulgarian welfare system Table 4.3  Outcome indicators, Bulgaria, 1995–2015 1995

2000

2005

2010

2015

Employment rate (15–64 years)   Female employment rate Part-time employment rate   Female part-time employment rate

: : : :

50.04 46.3 : :

55.8 51.6 1.8 2.2

59.8 56.4 2.2 2.2

62.9 59.8 2.2 2.5

Gender pay gap

:

:

:

Unemployment rate (15–74 years)   Youth unemployment rate (15–24 years)   Elderly unemployment rate (55–64 years)

: : :

16.2 33.3 12.2

10.1 22.3(b) 8.6(b)

Gini coefficient of equivalised disposable household income

:

25

At-risk-of poverty and social exclusion   At-risk-of-poverty rate   In hh with no or very low work intensity   Severely deprived

14

13.0 (b)

15.4

10.3 21.9(b) 9.0(b) (b)

9.2 21.6 8.7

:

33.2

37

: : : :

49.2 20.7 8.0 45.7

41.3 22.0 11.6 34.2

Sources: Eurostat, 2018b; (b) break in time series

and maintaining it at half the European average. This measure secured stability in the public finance sector. In 2011, with deficit levels of 2% GDP, Bulgaria even outperformed the Maastricht criteria of a 3% deficit. The country’s budget deficit was 4.3% in 2009, after which it consistently decreased, falling to 3.2% in 2010, 2.0% in 2011, and 0.5% in 2012 (Eurostat data). The unemployment rate was 10.1% in 2010 (see Table 4.3). Until 2005, unemployment levels were steadily decreasing. However, during the world financial crisis, unemployment rates among young people (under 25 years of age) began to grow, reaching 21.6% in 2015 and later decreasing to 12.9% in 2017. Employment rates, including among women, increased significantly between 2000 and 2015. The gender employment gap is low (European Commission, 2018, p. 31). Part-time jobs have increased slightly; their share in Bulgaria is very low. Female part-time employment is also very low, at 2.5% in 2015. The dual-earner model is the most prevalent one. The youth unemployment rate decreased from 33.3% in 2000 to 21.6% in 2015; however, this level remains high compared with other member states.Young people do not yet fully share in the benefits of an improving labour market. Over half of youth not engaged in employment, education, or training are low-skilled, and the rate of young Roma who report not being engaged in either work or education remains very high (65%), in particular for girls (European Commission, 2018, p. 32). A recent study on emigration as a sequence in the school to work transition in Bulgaria has shown that intentions to emigrate are more prevalent among people who have emigrated before and come back, only to end up economically inactive. This fact is important for understanding the large number of young people who are not in education or employment (NEETs). Short-term labour migration is one possible explanation for the large numbers of NEETs in Bulgaria.Young people are motivated to work abroad due to existing East–West wage differences. After returning to their home country, many of them look for their next job opportunity abroad instead of improving their education and qualifications, which could in turn improve their labour market chances in their home country (Stoilova and Dimitrova, 2017). Income levels have grown across all income strata following Bulgaria’s accession to the EU in 2007. Gross disposable household income per capita is increasing fast, but social inequalities have grown and a high level of poverty persists, especially among the elderly, those living in less 61

Rumiana Stoilova and Veneta Krasteva

populated areas, and the Roma ethnic minority. The largest growth in income between 2006 and 2014 was seen in the higher-income group, where the median household income increased by 60%. In comparison, the income for the middle- and lower-income groups went up by 55% (Stoilova and Staneva, 2017). Income inequality was at 25% in 2000, then reached 37% in 2005, and finally increased to 40.2% in 2017 as measured by the Gini coefficient.The rising Gini coefficient indicates an increased polarisation of income. Income inequality in Bulgaria is among the highest in the EU. Bulgaria is in the unfavourable group of countries which experienced a shrinking middle class between 2009 and 2015, including the largest decrease in households with children in the middle-income groups (Siegmann, 2017). This considerably high level of inequality compared with other EU countries indicates that one of the basic functions of the welfare state, reducing income inequalities and poverty, is not being fulfilled successfully and requires further reforms. The wealth inequality measured by the bank deposits is also substantial:91.9% of households own 25% of the value of all deposits, while the remaining 8% of households are in possession of 75% of this value – the top 1.2% hold 37.4% of the value of household deposits (Peshev, 2015, p. 29).2 Rising inequality and poverty, especially among the elderly, is a serious challenge to the Bulgarian welfare state. Pensioners in Bulgaria are in a considerably less favourable position than those in Western European countries. In Bulgaria 83% of pensioners’ household income derives from pensions (NSI, 2017, p. 113), which shows the important role pensions have for elderly people. According to Eurostat data, in 2017 48.9% of the population aged over 65 was at risk for poverty and social exclusion.3 The average pension in Bulgaria in July 2018 was 374 BGN (191 euros), a sum that is very close to the poverty line, which was 321 BGN (164 euros) in 2018.The feeling that there is no justice in society and the low trust in institutions and others undermine democracy, giving power to populist and anti-establishment actors.

3  Welfare system change across policy sectors 3.1  Overview of welfare system changes over time At the end of the 20th century, a series of continuous changes began in Bulgaria, both in the regulation and in the basic concepts of the social insurance system (see Table 4.4).These changes to the state’s social policy followed the neoliberal ideas of reducing state contributions, decreasing the number of beneficiaries receiving support, prolonging the duration of working careers on the labour market, activating inactive people, and shifting from social benefits to employment. Private service provider activities became possible across all social spheres. At the start of the period under study, these changes were abrupt, as they arrived in place of the system – inherited from socialism – of universal and equal benefits and the state’s monopoly over the distribution of resources. Since 2008, changes in the social sphere have continued to follow the initial ideas set down at the start of the period, only in a more gradual way.

3.2  Analysis of main developments by policy sector Pension system Until the end of the 20th century, the pension system in Bulgaria was of a solidarity type, including expenditure-coverage funding. Under the new code of 1999, a deep, paradigmatic change was made to this system.There was marked discontinuity with the previous one and it became a three-pillar system. Apart from the compulsory state social insurance contributions to collective 62

2014–2019

2008–2013

Expansion Expansion

Retrenchment Retrenchment

Integration of health and social services

Social assistance Healthcare policy

Family policy

Educational policy

Pension policy Labour market policy

Retrenchment

Restructuring Expansion

Retrenchment

Cost containment Activation Harmonisation Individualisation Cost containment

Neoliberalism Social investment perspective Activation Activation Harmonisation

Retrenchment Decentralisation Retrenchment

Binding benefits assistance with obligation to work or inclusion in training Significant decrease of expenditures and beneficiaries in ALMP measures Increasing the time period for calculating the benefits amount; high child benefits only for the first year; caretaker payments Stricter requirements for access to social assistance; links between benefits and activation measures; deinstitutionalisation of childcare Increased limit for higher pensions YG-young people 15–29; more funds envisaged for policies for employment and social inclusion Introducing principles of dual vocational training in vocational education; lowering compulsory pre-school starting age; National Strategy for Lifelong Learning Stimulating early return to work; tax concessions; Increasing calculation time period for benefit amount Integrating measures for quality services in long-term care

Social assistance

Neoliberalism Activation Cost containment Activation Cost containment Activation Activation

Retrenchment Restructuring

Family benefits made subject to means-testing Implementing the principle of delegated budgets

Retrenchment

Neoliberalism Cost containment Neoliberalism Activation Cost containment Decentralisation

Restructuring Retrenchment Restructuring

Private responsibilities in addition to public; restricting access to free healthcare services Incentives for labour market participation

Healthcare policy Labour market policy Family policy Educational policy Social assistance Labour market policy Family policy

Continuity

Continuity Continuity

Continuity (still evolving) Continuity Continuity Continuity

Incremental

Incremental Incremental

Incremental

Incremental Incremental Incremental

Incremental

Continuity

Continuity

Abrupt

Abrupt

Discontinuity Discontinuity (still evolving) Discontinuity Abrupt Abrupt

Abrupt

Abrupt in establishment; long-term in implementation Abrupt

Neoliberalism

Retrenchment and Restructuring

From one-pillar to three-pillar pension system; stricter requirements for access to pension

Pension policy

Discontinuity (still evolving) Discontinuity

Discontinuity

Step 1: process incremental/ abrupt

such as Keynesianism/ Neoliberalism/ Social Investment

Step 2: expansion/ retrenchment/ restructuring

Step 1: beneficiaries/benefit scope/financing

1997–2007

Step 2: output continuity/ discontinuity/reversal

Type of change

Ideas

Three-dimensional approach to analysing welfare system change

Regulations

Sector: Policy fields with reform activity

Time frame: Reform sequence

Table 4.4  Welfare system changes over time, Bulgaria

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funds, additional compulsory pension insurance was introduced in private funds (universal and professional); these capital-coverage funds are accumulated in individual accounts. Universal funds are financed through contributions made by the employer and employee, while the professional funds (for professions with difficult working conditions) are based only on employer contributions. The third pillar of the pension system is voluntary additional pension insurance, whereby citizens over the age of 16 can insure themselves a pension at their own expense. In addition to old-age pensions, disability pensions and survivor pensions are also available; lighter retirement conditions are set for people working under difficult work conditions (for instance, the possibility of early retirement). The so-called social pensions are given to people who lack the necessary length of service for pension insurance. Significant changes have occurred with regard to the insurance requirements for age and length of service: A ‘point’ system has been established and it is envisaged that the length of service and retirement age will gradually grow – to 37 and 40 years for women and men, respectively, in 2027. The current pension system in Bulgaria creates a very low replacement ratio, which additionally increases the risk of poverty among the elderly. For 2018, the replacement coefficient in Bulgaria is predicted to be 42.3% and is expected to fall to 40% by 2030 (NSSI, 2016). These values are much lower than the net pension replacement rate for EU countries in general, which is 71% (OECD, 2018). Transfer payments from the state budget to the NSSI remain high. Since 2009, due to the decreased number of insured persons and the lower-than-planned insurance income entering the treasury, the state has functioned as a ‘third insurer’, providing 12% of the insurance income for each insured person to the pension fund (NSSI, 2013, p. 89). Although the state’s considerable participation in the NSSI budget continues, an increase in the upper limit of pensions is envisaged starting from the beginning of 2019. However, this will be linked to the maximum social insurance income for the year (40% of it). There will also be a limit on the personal coefficient, which will thus limit the size of newly granted pensions. The policy of different Bulgarian governments regarding the pension system, according to researchers (Draganov, 2015; Minev, 2011), has led to the prolongation of existing inequalities (in income, on the labour market, between genders, etc.) and to increased vulnerability to poverty for a large part of the population in Bulgaria.

Labour market policy During the 1990s, labour market policies responded mainly through passive measures. After 2000, a shift towards active measures took place. Assistance was no longer universal, targeting specific groups on the labour market. A number of programmes (both employment initiatives and trainings) were launched in 2002 and 2003 with the aim of integrating people from vulnerable groups onto the labour market. After 2008, despite the lowered demand for labour, increasing unemployment, and job insecurity in the country, expenditures for active labour market measures decreased drastically. The number of participants in active measures also decreased – new participants in 2010 were half as many as those in 2008. Although expenditures for active measures by 2013 had reached their 2008 levels, the number of people entering initiatives towards labour market activation remained lower than during the pre-crisis period. Restricted resources during the crisis were allotted for subsidising employment rather than qualification and training, i.e. the focus was on providing incentives to enter or return to the labour market, an approach that is in line with the neoliberal paradigm (Morel et al., 2012). The idea of expanding the active character of policies is a change based on the idea of prioritising 64

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activation over generous public expenditures for unemployment benefits. This approach has been gradually implemented in Bulgaria since the year 2000 in connection with the EU integration process, but has been met with a number of difficulties related, above all, to changes in the sources and size of funding for the initiatives. These changes were most perceptible in the years following 2008, when state funding sharply declined at the expense of the European Social Fund, a trend that was unable to reduce the consequences of unfavourable labour market conditions and the generally difficult economic situation of the country during that period (Jeliazkova et al., 2018, p. 16). The effectiveness of labour market policies is also being hampered by the weak unemployment protection system in Bulgaria, as registered by the EC: ‘The unemployment benefits coverage is particularly low, hindering the effectiveness of activation measures’ (European Commission, 2016, p. 32). The application of the European Youth Guarantee after 2014 represents an admission of the need for state interventions to improve this situation, especially among vulnerable groups. We see increased funding for programmes aimed at both direct job creation and training; this is in line with the ideas behind the social investment perspective. However, only 12% of NEETs aged 15–24 were enrolled in the Youth Guarantee at any point during 2016, a decrease from 2014. Only 40.5% of those leaving the scheme took up a job offer within four months (European Commission, 2018, p. 33).

Educational policy and lifelong learning Several serious problems in education which influence welfare system provisions are high rates of NEETs (15.3% in Bulgaria, compared with an EU average of 10.9% for 2017); the high unemployment rate among people leaving formal education with only a basic education level (21.9%, compared with an EU average of 15.1%); and the generally low level of adult participation in lifelong learning (LLL) (2.3%, compared with the EU average of 11.7%, for 2016). Since the start of the 21st century, the education system in Bulgaria has been characterised by continuous changes, yet these reforms are not complete. The most fundamental change was in its mode of financing. In 2007, it was decided that funding would be decentralised by implementing the principle of delegated budgets, whereby ‘the money follows the student’.This measure aimed to enlarge the autonomy of educational institutions. A new Pre-school and School Education Act was adopted in 2016.This act introduces greater flexibility, grants freedom to school programmes, regulates various forms of training (distance, combined training), and envisages centres for personal development and forms of individualised assistance to schoolchildren.The starting age for compulsory pre-school enrolment was reduced to four years.This measure aims to reduce the number of children not encompassed by the educational system – especially children of Roma origin, whose integration is a serious problem for the country (European Commission, 2017). The general trend in education is moving towards better adaptation to the requirements of business and labour market demands. This trend is reflected in the adoption of the dual vocational training principle in 2015, the provision of internships, and the identification – in secondary and tertiary education – of priority specialties (including the provision of financial incentives for them) that are in demand on the labour market. The most relevant strategic documents pertaining to adult education are the National Strategy for Lifelong Learning for 2014–2020, its related action plans, and the Strategy for the Development of Vocational Education and Training in the Republic of Bulgaria for 2015–2020.There was a trending increase in LLL participation during the 2011–2014 period. However, by 2015, the proportion of people participating in formal or non-formal education training had fallen to 65

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just 2% (according to the Labour Force Survey, which measures participation over the previous four weeks). This highlights the need for active labour market measures that focus on additional training and qualification, to which long-term employment is conditional (Boyadjieva et al., 2013). Since 2011, the costs of training have steadily increased and the share of funds allotted for this have risen to 15.1% of total expenditures on active labour market policies. In 2016, the share of the budget allotted for training was the highest it had been since 2004, amounting to almost one-third of the total expenditures on active labour market policies. An assessment of the active labour market measures of 2015 has indicated the comparatively high net effect (15%) of programmes for adult training. Two recommendations made in the assessment were to continue the programmes and measures for acquiring a professional qualification that is in demand on the labour market and to continue the training programmes for unemployed persons, through which they can obtain knowledge and skills corresponding to labour market demands (Atanassov, 2015).

Healthcare policy Healthcare reform in Bulgaria began with the adoption of the Health Act in 1998. Before its start, the state budget covered the treatment and all required medications and supplies for patients.The reform made a shift from budgetary funding to health insurance. All Bulgarian citizens are now obliged to pay health insurance contributions. Exceptions include children, regular students, youth in specialised institutions, and recipients of monthly social benefits or targeted heating allowances paid for by the state. All other people, regardless of their employment status, have to pay for their health insurance each month. If they fail to do so during three months of the past 36 months, they lose their health insurance rights. In order to recover them, they have to pay all due contributions for the period of the last 60 months – an impossible amount to be collected from people belonging to vulnerable groups. Three levels of health services were established with the requirement to obtain referrals, thereby restricting free access. The first level is that of general practitioners who carry out initial examinations and treatment and, if necessary, refer the patient to a specialist or hospital. The second level also pertains to the pre-hospital sector, as it consists of specialists who can direct the patient to hospital treatment or to another specialist. The third level is hospital care. Health insurance covers costs only when the insured person has received a referral from their personal doctor or a specialist. In fact, the requirement to obtain a referral restricts free access to health services, since general practitioners and specialists have a limited number of referrals to give. The management of the healthcare system is centralised. The basic institution financing healthcare in Bulgaria is the National Health Insurance Fund, while private funds also play a complementary role. The participation of citizens’ and patients’ organisations is greatly limited. Reforms in healthcare funding are based on the principle of ‘the money follows the patient’, i.e. the distribution of public resources is in accordance with the number of patients and performed activities. Hospital institutions have thus become commercial enterprises. There is a growing rate of services being paid for by patients (Ivkov et al., 2017). Because of all these changes, a considerable part of the population has restricted access to free medical services. Those who do have access are not satisfied with the level of medical assistance received, as the technical equipment in public health centres is outdated, members of staff are not sufficiently motivated, and additional payments for medical services on the part of patients is a widespread practice (Center for the Study of Democracy, 2007, p. 5). There is a process currently in place towards integrating health and social services, e.g. a proportion of curative (acute 66

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treatment) hospital beds is to be transformed into long-term care beds (European Commission, 2018, p. 36). The central policy focus is on cost containment. It is no surprise that in 2017 the Bulgarian Parliament elected a financier as Minister of Healthcare.

Family policy The basic normative act regulating social assistance for families is the Family Allowances Act (2002). Until 2002, families received financial support from the state for raising a child up to 18 years of age on a universal basis. After that year, family benefits were made subject to means testing. The threshold has been raised over the years but remains very low. The National Social Security Institute pays the child benefits, as this is a matter of insurance rights for mothers, taking into account the size of insurance contributions made during employment. The Social Insurance Code regulates the benefits for pregnancy, maternity, and raising a young child. The right to benefits is tied to previous length of service (at least 12 months) and the respective contributions made to the General Illness and Maternity Fund. The amount of benefits to be paid is determined by the average daily gross remuneration or the average daily insurance income for 24 calendar months preceding the month of the start of pregnancy or childbirth leave. There has been an evident tendency to increase the period upon which the amount of benefits is calculated: until 2012, it was 12 months; until the end of 2016, it was 18 months; and at present it is 24 months. Cost containment is the idea behind this prolongation of the required period. Mothers who do not meet the required conditions (have not paid social insurance for risk of general illness and pregnancy) are entitled to welfare benefits of a very low level (in the amount of 100 leva,4 approximately €50, per month) until the child reaches one year of age. In addition, the mother is entitled to a one-off financial assistance payment upon childbirth regardless of her income. There is a differentiation of this amount for the first child, for a second child, and for a third or subsequent child. Differentiating the size of childbirth benefits depending on the birth order of children has provoked many objections and has been attacked as discriminatory. The aim of this measure is to provide an incentive for the birth of a second child – something problematic in many cases for dual-earner families experiencing difficulty in finding the proper work-family balance. Bulgaria ranks as one of the European countries with the longest duration of paid maternity – up to 58 weeks (Jurviste et al., 2016). Child benefits amount to 90% of the mean gross salary or the mean insurance income received before the birth of the child and are paid for one year after birth. The paternity leave is two weeks and begins right after the birth of the child. Until the child is two years of age the mother (or the father) has the right to parental leave with monthly benefit rate. Until 2009, the amount of benefits paid until the child reached two years of age was linked to the minimum wage. During the financial crisis and up to now, the size of these benefits has not been corrected despite an increase in the minimum wage.The idea behind this is the activation of mothers. For mothers returning to work in the first year of the child (since 2017), the law envisages – in addition to their regular salary – the right to financial benefits in the amount of 50 percent of the normal monthly benefits for parents taking leave (Dimitrova et al., 2018). There is possibility the maternity (after the child has reached the age of six months) and the parental leaves to be transferred to the father or to grandparents if they have social security for the risk of pregnancy and general illness for at least 12 months. The long duration of maternity and parental leaves in Bulgaria can explain the low formal childcare participation rates (less than 3 years). In 2017, the level of attendance at formal services 67

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in Bulgaria is well below the EU average – 9.4% compared to 34.3%.5 In addition, the low participation rate could be explained by the shortage of kindergarten places in the large cities and the capital, and the low rates in the pre-school training of children from minority groups, especially the Roma. In Bulgaria, pre-school education is obligatory for 5- and 6-year-olds (Dimitrova et al., 2018, p. 87). This can explain the higher enrolment rate (79.4%in 2016/2017) for children aged three to six in childcare institutions compared to childcare participation rate of children under 3. Pre-primary education expenditure in Bulgaria increased from 0.74% per GDP in 2008 to 1.05% in 2017. The highest ranking of Bulgaria on the EU Social Justice Index 2017 is its third position by percentage of the GDP used for public expenditure namely on pre-primary education (Schraad-Tischler et al., 2017, p. 92). Pre-school care for children has two advantages: the early socialisation of children and the improved chances of full employment for the parents.The latter contributes considerably to gender equality in Bulgaria.

Social assistance Social assistance is financed by the state through the state budget and is free of charge for beneficiaries. Social assistance is provided to the most vulnerable groups. It is calculated based on the minimum guaranteed income, which is quite low. Besides social assistance benefits, the Social Assistance Act, adopted in 1998, also defines social services. These are decentralised; the principle of subsidiarity is applied here, and all services fall under the responsibility of the state, which delegates their implementation to the municipalities. All municipalities receive support depending on the number of beneficiaries, which is an advantage for poorer municipalities. State standards have been introduced for the social services being provided; as for the activities, these are carried out by the non-governmental sector. The activation approach is incorporated into the social protection system too.With the amendments made to the Social Assistance Act of 2003, the provision of monthly social assistance became tied to performing community service work. The receipt of social assistance is conditional upon registration in the local offices of the Employment Agency, which has led to a considerable number of people dropping out of the social assistance system. Since 2008, that rule was extended – registration in the territorial divisions of the Employment Agency should last at least six months before submitting the application for social assistance; this includes the obligation not to refuse offered work or inclusion in different courses like literacy training or acquiring professional qualifications or key competencies.The recipients of monthly social benefits are included in local authorities’ programmes that provide community services – they work four hours a day for a period of 14 days. If the recipient of monthly social assistance refuses an offer of paid work, his/her assistance is suspended for two months, and in case of repeated refusal, for a period of two years. A significant change began after 2010 involving the deinstitutionalisation of children and the development of alternative forms of childcare, situated in a family environment, and providing services in the community. Some at-risk groups targeted by these measures are children and youth living in specialised institutions or in residential communities, placed in foster families, or living with relatives; and children and youth leaving specialised institutions for children. Such children are provided with protected homes where care is provided by foster parents; for youth of mature age, the rent for municipal housing is paid. An action plan for the implementation of the National Long-Term Care Strategy (2018– 2021), adopted in January 2018, envisages integrated measures for the provision of quality services for long-term care of vulnerable people. There is ongoing work being done regarding 68

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disability reform. The authorities are considering the separation of medical and employability assessments of disability (European Commission, 2018, p. 38). This has, in practice, achieved mixed results. On the one hand, with an aim at activation, the quotas for hiring people with disabilities have been increased; on the other hand, the legal defence of people with disabilities against dismissal has been revoked.

4 Outlook Finally, after focusing on the main stages, ideas, and actors in the social system reforms in Bulgaria, we return to the initial question: Why have the reforms not led to lower inequalities or a higher level of justice perceived by citizens? A neoliberal approach in the sphere of social policies appears to have had many unexpected negative effects in Bulgaria. These are a direct result of putting economic efficiency on top and neglecting the social effects on poverty and inequality levels. The deep reforms carried out during 1999–2018 have included reforms of the pension system, labour market policies, social assistance, healthcare, family policies, and education. These changes have been abrupt and represent discontinuity with the previous state-dominated socialist system.The role of international actors has been very significant, represented at the beginning by the World Bank and IMF and then after 2007 by the European Commission. The big difference between Bulgaria and the old member states regarding the share of government social expenditures as a share of GDP gives rise to the conclusion that the EU applies minimal criteria for social assistance in new member states, including Bulgaria. Tripartism in the country is under pressure. Dialogue between trade unions, employer organisations, and the government is difficult.The trade unions’ role as guarantor of the social rights of workers will, in the future, include a change in strategy that involves a shift towards bipartism in Bulgaria that would situate them vis-à-vis the government (Delteil and Kirov, 2017, p. 200). In 2010, the trade unions and the state co-signed a list of 59 anti-crisis measures, albeit simultaneously approving the adoption of two EU regulations that decreased the impact of these measures: (1) on home workers and (2) on teleworking (implementation of the agreement between European social partners on distance working of 16 July 2002). Two features of continuing education which lead to increasing rather than decreasing inequality in society have yet not been overcome: (1) there is low participation among the people most in need of education, i.e. the unemployed, persons with low education and qualification levels, those with disabilities, and ethnic minorities; and (2) continuing education is mostly funded by trainees or employers (Holford, 2018). In order to neutralise these two negative characteristics, there is a need for public funding of training programmes that would motivate and assist low-educated people to invest time and efforts into acquiring additional qualifications. This would also ensure some means of financial support for the participants in these programmes. The general concept of cost containment when not accompanied by the maintenance of a high quality of care and service, as applied in the above reforms to the social system, is a cause for disappointment on the part of citizens. Our analysis has indicated that the principles of social investment should continue to be applied and developed in the future, rather than those of the neoliberal paradigm which require minimal state involvement. The social investment concept, as Morel et al. (2012) have indicated, is mainly based on the understanding that social policies must respond to dramatic changes in the economy and in the social order by providing opportunities for training, fostering the development of human capital, and promoting the creation of ‘quality jobs’. 69

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Acknowledgements The authors acknowledge the support of Project ENLIVEN, which received funding from the European Union’s Horizon 2020 Programme under grant agreement no 693989, and the support of Project ‘Specificities of Youth Employment in Bulgaria’, funded by the Programme for support of young researchers and doctoral students in Bulgarian Academy of Sciences – 2017 under grant agreement no 17–174/03.08.2017.

Notes 1 In 2018, the minimum social insurance income was 510 leva (around €260), and the maximum was 2,600 leva (€1,330); by comparison, in 2008 they were lower – respectively 240 leva (€123) and 2,000 leva (€1,022). Since 2019, the minimum social insurance income and the maximum social insurance income are enhanced, respectively to 560 leva (€286) and to 3,000 leva (€1,534). 2 Peshev made these calculations based on data from the Bulgarian National Bank (BNB). 3 Eurostat. People at risk of poverty or social exclusion by age and sex, code [ilc_peps01]. Last update: 04-06-2018. 4 All benefits effective in 2019 were converted into the euro using the currency converter of the European Central Bank on 13 June 2019, see https://sdw.ecb.europa.eu/curConverter.do?node=9693519. 5 Eurostat, Children aged less than 3 years in formal childcare, code [tepsr_sp210]. Last update: 19-03-2019.

References Atanassov, A. (2015), “Ex Post Evaluation of the Effects of Active Policy at the Labour Market on Individual Level”, available at: www.mlsp.government.bg/ckfinder/userfiles/files/politiki/zaetost/strategii%20 izsledvaniq%20otchet/Final_Report_en.pdf (accessed 21 October 2018). Boyadjieva, P., Milenkova, V., Gornev, G., Petkova, K. and Nenkova, D. (2013), “The Lifelong Learning Hybrid: The Case of Bulgaria”, in Saar, E., Ure, O.B. and Holford, J. (Eds.), Lifelong Learning in Europe: National Patterns and Challenges, Edward Elgar, Cheltenham, pp. 304–326. Center for the Study of Democracy. (2007), Corruption in the Health System in Bulgaria, CSD, Sofia. Cerami, A. and Stanescu, S. (2009), “Welfare State Transformations in Bulgaria and Romania”, in Cerami, A. and Vanhuysse, P. (Eds.), Post-communist Welfare Pathways:Theorizing Social Policy Transformations in Central and Eastern Europe, Palgrave Macmillan, London, pp. 112–126. Delteil,V. and Kirov,V.(2017), “Building and Reshaping Social Dialogue in the CEECs: From Formal Europeanization to New Dependencies in Bulgaria and Romania”, in Delteil,V. and Kirov,V. (Eds.), Labour and Social Transformations in Central and Eastern Europe: Europeanization and Beyond, Routledge, Abingdon, and New York, pp. 185–207. Dimitrova, E., Kotzeva, T. and Ilieva, K. (2018), “Information on Leave Policy and Research: Country Report-Bulgaria”, International Network on Leave Policies & Research, available at: www.leavenetwork. org/leave-policies-research/country-reports/ (accessed 26 March 2019). Draganov, D. (2015), The Role of Pension Policy in the Reduction of Poverty Among the Elderly, unpublished dissertation, ISSK at BAS. European Commission. (2016), “Country Report Bulgaria 2016: Including an In-depth Review on the Prevention and Correction of Macroeconomic Imbalances”, available at: https://ec.europa.eu/info/ sites/info/files/cr2016_bulgaria_en.pdf (accessed 21 October 2018). European Commission. (2017), “Education and Training Monitor 2017: Bulgaria”, available at: https:// ec.europa.eu/education/sites/education/files/monitor2017-bg_en.pdf (accessed 21 October 2018). European Commission. (2018), “2018 European Semester: Assessment of Progress on Structural Reforms, Prevention and Correction of Macroeconomic Imbalances, and Results of In-depth Reviews Under Regulation (EU) No 1176/2011, Country Report Bulgaria”, available at: https://ec.europa.eu/ info/sites/info/files/2018-european-semester-country-report-bulgaria-en.pdf (accessed 23 November 2018). 70

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Eurostat. (2018a), “Social Protection Expenditure Database”, available at: https://ec.europa.eu/eurostat/ data/database (accessed 10 October 2018). Eurostat. (2018b),“Population and Social Conditions Database”, available at: https://ec.europa.eu/eurostat/ data/database. Hadjiiski, G. (2002), “Historical Development of Social Assistance in Bulgaria”, Pedagogik, No. 3, pp. 5–10. Holford, J. (2018), “Foreword”, in Cabus, S., Ilieva-Trichkova, P. and Stefanik, M. (Eds.), A Pseudo-panel Dataset on Lifelong Learning Participation, ENLIVEN- Encouraging Lifelong Learning for an Inclusive and Vibrant Europe, available at: https://h2020enliven.org/ (accessed 21 October 2018). Hristov, T. (2007), “Social Inequality and Why It Matters for the Economic and Democratic Development of Europe and Its Citizens: Post-communist Central and Eastern Europe in Comparative Perspective”, Deliverable 2, Eurequal, available at: https://eurequal.politics.ox.ac.uk/papers/eurequal%20desk%20 research%20bulgaria.pdf (accessed 23 November 2018). Ivkov, B., Atanassov, A., Seykova, S., Toneva, Z., Todorova, S., Popivanov, P., Draganov, D., Yankov, I. and Ampirska, T. (2017), Out-of-pocket Expenditures on Health and Health Inequalities, UNWE, Sofia. Jeliazkova, M., Minev, D., Draganov, D., Krasteva, V. and Stoilov, A. (2018), Youth Employment Policies in Bulgaria, EXCEPT Working Papers, WP No 27, Tallinn University, Tallinn, available at: www.exceptproject.eu/working-papers/ (accessed 21 October 2018). Jurviste, U., Prpic, M. and Sabbati, G. (2016), “Maternity and Paternity Leave in the EU”, available at: www.europarl.europa.eu/RegData/etudes/ATAG/2016/593543/EPRS_ATA(2016)593543_EN.pdf (accessed 23 October 2018). McMenamin, I. (2003), Is There an East-central European Variety of Democratic Capitalism? A Twenty-two Country Cluster Analysis, Working Papers in International Studies Series, 5. Centre for International Studies, Dublin City University, Dublin, available at: http://doras.dcu.ie/2119/ (accessed 21 October 2018). Minev, D. (2011), The Crisis of Public Policies in Developed Countries, Alia, Troyan, Bulgaria. Morel, N., Palier, B. and Palme, J. (2012), “Beyond the Welfare State as We Knew It?” in Morel, N., Palier, B. and Palme, L. (Eds.), Towards a Social Investment Welfare State? Ideas, Policies and Challenges, Policy Press, Bristol, pp. 1–30. National Social Security Institute. (2013), State Social Insurance in 2012, Sofia (in Bulgarian). National Social Security Institute. (2016), “Annual Actuary Report”, Sofia, available at: www.noi.bg/ aboutbg/st/analyses/332-otheranalyzes/4138-agd16 (accessed 21 October 2018). National Statistical Institute. (2017), Household Budgets in the Republic of Bulgaria 2016, Sofia, available at: www.nsi.bg/bg/ (accessed 21 October 2018). OECD. (2018), “Net Pension Replacement Rates”, available at: www.oecd-ilibrary.org (accessed 21 October 2018). Orenstein, M. (2008), “Post Communist Welfare States”, Journal of Democracy,Vol. 19 No. 4, pp. 80–94. Peshev, P. (2015), “Analysis of the Wealth Inequality Dynamics in Bulgaria: Different Approach”, Economic Alternatives,Vol. 1 No. 4, pp. 29–33. Schraad-Tischler, D., Schiller, C., Heller, S. and Siemer, N. (2017), Social Justice in the EU – Index Report 2017, Bertelsmann Stiftung, Gütersloh, available at: www.bertelsmann-stiftung.de/(accessed 21 October 2018). Siegmann, A. (2017), “Statistical Overview”, in Siegmann, A. and Schäfer, M. (Eds.), No Robots:The Position of Middle-class Households in Nine European Countries, CDA Research Institute, Konrad Adenauer Stiftung, Wilfried Martens Centre for European Studies, Netherlands, pp. 13–24. Starke, P. (2008), Radical Welfare State Retrenchment: A Comparative Analysis, Palgrave Macmillan, New York. State Gazette. (1965), “Regulations for Management of Establishments for Social Care”, No. 91, available at: https://dv.parliament.bg/DVWeb/index.faces (accessed 21 October 2018). State Gazette. (1979), “Regulations for Monetary Assistance and Privileges”, No. 100, available at: https:// dv.parliament.bg/DVWeb/index.faces (accessed 21 October 2018). Stoilova, R. (2009), “Impacts of the Reforms of the Welfare State in Bulgaria After 1989 on Stratification, Solidarity and Integration of Groups of Risk”, in Schubert, K., Hegelich, S. and Bazant, U. (Eds.), The Handbook of European Welfare Systems, Routledge, Abingdon, New York, pp. 65–82. 71

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Stoilova, R. and Dimitrova, E. (2017), “Emigration from the Perspective of School to Work Transition in Bulgaria (online)”, Czech Sociological Review, pp. 903–933, available at: http://sreview.soc.cas.cz/en (accessed 29 April 2019). Stoilova, R. and Staneva, M. (2017), “The Middle Class in Bulgaria”, in Siegmann, A. and Schäfer, M. (Eds.), No Robots: The Position of Middle-class Households in Nine European Countries, CDA Research Institute, Konrad Adenauer Stiftung, Wilfried Martens Centre for European Studies, Netherlands, pp. 25–46. Tomev, L. (2012), “The Impact of the Crisis on the Labour Market in Bulgaria”, in Sotirov, M. (Ed.), Economic Dimensions and Social Effects of the Global Crisis, Paisii Hilendarski University Publishing House, Plovdiv, pp. 147–155.

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5 The restructuring of the Cypriot welfare system Will the new provision system prove to be a success? Odysseas Christou and Christina Ioannou

1 Introduction: historical overview and changes of the Cypriot welfare system The Republic of Cyprus gained its independence from British colonial rule in 1960. Yet the establishment of a Social Service can be traced back to the colonial era, and more specifically to 1946, when legislation was enacted to regulate the supervision of juvenile offenders, the aftercare of reform-school boys, and the protection of deprived children. In 1952, the Social Welfare Services Department was established aimed at providing social services to needy families, children, the elderly, offenders, and generally to vulnerable groups. In 1953, the scheme for providing financial assistance was introduced to help fight extreme poverty. This formed the basis for implementing programmes aimed at caring for the elderly, the disabled, and single mothers. In addition, the Adoption Law of 1954 and the Children’s Law in 1956 contained provisions for dealing with the problem of caring and nursing for children who were deprived of protection and for the establishment of children’s houses, hostels, and other institutions (Republic of Cyprus, 2014). While the period between the mid-1940s and 1960 was marked by the gradual formation of a Social Service Department, after independence the government started committing itself more actively in the social policy domain, with health and education being the two primary concerns. At the same time, Social Welfare Services started building bonds with international organisations and bodies, such as the United Nations, the Council of Europe, and the International Social Service (Republic of Cyprus, 2014).The period 1962–1972 was focused on the establishment of programmes for covering the needs of pre-school children and the elderly, with the programme of Community Work and Youth Services being introduced in 1968.1 Between 1972 and 1974, attention turned to the upgrading of the services provided for children and families, including day-care programmes. All these were interrupted, however, by the Turkish invasion of Cyprus in 1974. The years immediately following the invasion saw a swelling of public assistance services. Government welfare focused on the provision of long-term housing, health services, free 73

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secondary education, a wage-related social insurance scheme, scholarships and loans for needy students to study abroad, infrastructural projects (new schools and hospitals), and other welfare institutions such as children and youth homes, hostels, and day-care centres (The Republic of Cyprus, 1994, p. 159). By 1981 Cyprus clearly defined its social policy with three basic objectives: (1) to secure a minimum acceptable standard of living for all citizens; (2) to attain a more equitable distribution of national income and tax burden between different income groups and between regions, with special emphasis attached on improving the income position of the displaced; and (3) to implement and improve existing social programmes through the introduction of new institutions. It can be argued that throughout its recent history, the country has had to adapt to numerous challenges that put different demands upon the welfare system: British rule, independence, Turkish invasion, EU accession, and the more recent financial crisis with all the related repercussions. Flexibility and adaptation to challenges have constituted key leitmotifs in the history of the Cypriot state in general and in the development of the Cypriot welfare state in particular (Shekeris et al., 2009, p. 85). In this account, we focus on the last 20 years of change (1998–2018) and the multiple social risks that the government had to deal with and respond to during this period, through a set of changes in policy instruments and general social reforms. Within this general time frame, the reform sequences identified are the following: 1 2 3 4

1998–2004: The EU accession process 2004–2013: Early post-accession period 2013–2016: Financial crisis and austerity/introduction of the guaranteed minimum income (GMI) in 2014 2016–: Post-memorandum period

2  General structures of the Cypriot welfare system In this section, the general structures of the Cypriot welfare system will be described. A more detailed overview of these general characteristics can be found in the first edition of this Handbook (see Shekeris et al., 2009).

2.1 Priorities In terms of expenditures, public social protection spending in Cyprus amounted to 21.8% of GDP in 2015, which is significantly lower than the EU-28 average of 28.6% and the Euro area average of 29.6% in 2014. In a historical perspective, social expenditure as a proportion of GDP has experienced a steadily increasing trend since the beginning of the millennium. Starting from a value of 13.7% in 1995, it reached its highest rate of 24.3% in 2013. It is noteworthy that despite the onset of the global financial crisis in 2008, the increase continued unabated up to 2013 when the terms of the memorandum of understanding (MoU) were imposed with the associated austerity measures targeting the sector. Thereafter, a steady reduction has been taking place both in absolute terms and as a ratio of total spending. From a European comparative perspective, Cyprus ranked 16th among the EU-28 in 2014 – the most recent year for which full comparative data are available – in terms of these expenditures, with mainly Eastern European states ranking lower. In terms of the total amount spent on social protection, the data exhibit a similar trend as presented in Table 5.1 with a steady increase until the imposition of the terms of the MoU in 74

1,476.72  1,599.70  1,803.65  2,149.84  2,285.81  2,495.57  2,718.57  2,889.55  3,337.39  3,564.50  3,847.28  4,251.93  4,343.22  4,381.63  3,818.70  3,873.74 

13.7  13.8  14.9  16.7  16.4  16.6  16.7  16.4  17.6  19.1  19.9  21.5  22.3  24.2  21.7  21.8

: : : : : 2,510.31 2,650.48 2,926.56 3,376.38 3,510.82 3,793.11 4,016.65 4,372.07 4,760.82 4,796.29 4,904.90 5,215.13 5,233.85 5,339.64 4,870.76 5,210.34

:  :  :  :  :  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p) 

Total

Total

% GDP PPS per inhab.

eu28

cy

Source: Eurostat, 2018

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 5.1  Social protection expenditure

PPS per inhab. :  :  :  :  :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p) 

% GDP :  :  :  :  :  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p) 

1,869,415.56  1,971,768.55  2,048,453.88  2,110,012.32  2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25

Total

eu15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3 

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54 

% GDP PPS per inhab. :  :  :  :  :  1,809,984.03(p)  1,896,458.79(p)  2,002,941.59(p)  2,092,264.03(p)  2,166,810.73(p)  2,245,973.46(p)  2,333,814.89(p)  2,427,267.35(p)  2,551,297.84(p)  2,722,019.12(p)  2,787,113.62(p)  2,830,629.13(p)  2,885,568.51(p)  2,948,213.28(p)  3,009,360.75(p)  3,079,067.39 

Total

eu19

:  :  :  :  :  25.7(p)  25.8(p)  26.3(p)  26.7(p)  26.5(p)  26.5(p)  26.2(p)  25.8(p)  26.5(p)  29.3(p)  29.2(p)  28.9(p)  29.3(p)  29.7(p)  29.6(p)  29.2

% GDP

:  :  :  :  :  5,776.33(p)  5,988.21(p)  6,291.45(p)  6,387.43(p)  6,571.93(p)  6,853.29(p)  7,101.18(p)  7,353.58(p)  7,508.64(p)  7,792.02(p)  8,039.18(p)  8,176.08(p)  8,410.09(p)  8,554.29(p)  8,784.03(p)  9,130.47 

PPS per inhab.

Odysseas Christou and Christina Ioannou Table 5.2  Spending by function in Cyprus since 2000 as a proportion of total social protection expenditure

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

: : : : : : : :

100 98.46 6.26 7.17 3.1 4.01 30.41 47.52

100 97.9 11.55 5.96 2.23 4.35 28.42 45.38

100 98.45 9.61 4.81 5.05 6.95 25.93 46.1

100 97.8 6.04 5.57 1.67 5.84 24.98 53.71

Sources: Eurostat, 2018

2013, reaching their peak in that year with €4.38 billion. The same trend is reflected in expenditures per capita, which reached a peak of €5,083.46. The European comparison of per capita expenditures presents a stark bifurcated disparity, whereby Northern European states typically spend more than €10,000, whereas Eastern and Southern European states tend to spend less than €5,000. Cyprus falls marginally in the latter category and ranks 14th in the EU-28 as measured in 2014 prices. With regard to expenditure by function, pensions (including survivors’ pensions) accounted for almost 54% of the total budget in 2015; this amount exceeds the EU-28 average of 46.5% by a significant margin. Additionally, it is exceeded by few other EU member states.This already large share presents a growing burden on the pension system and by extension the welfare model, especially given the projected demographic trends. Cyprus has exhibited a sub-­replacement fertility rate since 1995, and the latest demographic report of 2016 indicates a total fertility rate of 1.37 for that year, a figure barely above the lowest level of 1.34 among EU member states reported by Italy and Spain. The specific proportions of different fields over time are presented in Table 5.2. The policy field of ‘sickness/healthcare and disability’ accounts for about a fourth of total social expenditure. That is the lowest share of total spending among the EU-28, which exhibit an average of 34.8% by about 10%. Healthcare reform has been a perennial political debate in Cyprus with the current process of creating a universal health insurance system (referred to by its acronym GESY) ongoing since the initial legislation for its creation in 2001. Following the changes that were implemented under the MoU and subsequent negotiations among relevant stakeholders, the final version of the system was passed by the legislature in 2017. It is on course to be implemented in 2020. The remainder of the budget includes expenditure for families and children, unemployment, and social exclusion, with each category occupying about 6% of the budget, while housing takes up less than 2% of total expenditure.

2.2  Funding and administrative structure The labour market structure of Cyprus has been defined by cooperation between three parties: trade unions, employers’ representatives, and the government. Organised interests – in the form of organised employers and organised labour – have traditionally played a central role in the policymaking process. This tripartite system of interest intermediation, the ‘Cypriot Corporatist Model’ (Ioannou, 2009), works in institutional practice by workers being represented through their trade unions and employers through either or both of the two main employers’ 76

Restructuring of the Cypriot welfare system

organisations of the island.The government is represented through the Ministry of Labour,Welfare and Social Insurance. Thus, corporatist practices have successfully governed policymaking in the industrial field of the country for years. The introduction of the GMI in July 2014 has been the cornerstone of the complete reform of the welfare system in Cyprus. As a part of welfare reform, the administration of all welfare benefits was centralised and transferred to the Ministry of Labour, Welfare and Social Insurance wherein the Registry of Benefits was created employing a means testing mechanism for the implementation of the new scheme. Beyond the overhaul of the administrative structure, the new scheme also involved the reprioritisation of policy-related initiatives as elaborated later. The Ministry faces specific challenges in the implementation of these social policies. Staffing levels of the various departments and services of the Ministry are inadequate, while in some cases, such as the Department of Labour and the Welfare Benefits Administration Service, staffing levels are very low because of the freezing of all hiring in the public sector due to the memorandum of understanding (MoU). In addition, the reduction of unemployment is heavily dependent on the rate of growth of the economy. Due to the mature and successful nature of the tripartite corporatist system in Cyprus, certain labour and welfare reforms need to be discussed and agreed with the social partners before they can be implemented. In the post-MoU period, economic growth has been encouraging in 2016 and 2017, even though current market prices GDP per capita has yet to return to pre-MoU levels, which peaked in 2011. While the 5.8% growth of 2017 was not replicated in 2018, which is estimated at 3.9%, the ability of the state to respond to the previously mentioned challenges remains likely. The same applies to the staffing issues, as the restrictive measures of the MoU were progressively eased in the transitional period.

2.3 Performance From the early 1980s until the late 2000s, the island had prided itself on its particularly low unemployment rate that rarely exceeded 5%. At the onset of the local effects of the global crisis in 2009, Cyprus saw an unprecedented steady increase in unemployment that eventually reached 16.7% in the second quarter of 2013 as presented in Table 5.3 along with all other performance indicators. This rapidly rising unemployment rate had been anticipated to some extent within the MoU, constituting the rationale for the implemented labour market reforms. These were intended to mitigate the impact of the crisis on employment by urging the government to limit the occurrence of long-term and youth unemployment, facilitate occupational mobility, and contribute to improving the future resilience of the Cypriot economy in the face of adverse economic effects. Even more alarming was the soaring youth unemployment rate; in 2008 the average youth unemployment rate was only 9%, whereas it reached 38.9% in 2013. In the post-MoU period and under the new GMI scheme, unemployment has been steadily declining.While it has not returned to the traditionally low levels described previously, the 2018 level bottomed out at approximately 7.5% with a positive outlook towards the maintenance of such levels in the future. This compares favourably to the EU-28 average of 8.1%, especially in comparison to other member states under the European Stability Mechanism that have been unable to curb the effects of the crisis and ensuing adjustment programmes on unemployment to the same degree.The same positive trend is observed in youth unemployment, although not to the same degree. The reduction to 24.7% in 2017 is still problematic, especially in comparison to the EU average that has almost returned to a pre-crisis level of 16.8% in 2017. The disparity suggests that expectations of career prospects for those entering the labour market for the first 77

Odysseas Christou and Christina Ioannou

time are not encouraging and may lead to additional adverse long-term trends, such as youth brain drain. Cyprus has traditionally had a significant gender disparity in earnings. Its reported gender pay gap of 21.8% in 2005 was one of the largest in the European Union. Encouragingly, the reported rate of 14.8% in 2018 compares favourably to the EU average of 16.2%. In 2008, 23.3% of the population faced the risk of poverty. The ratio peaked in 2015 at 28.9%, which illustrates that the effects of the provisions of the MoU exhibited a time lag. One of the most striking effects of the implementation of the GMI has been poverty risk faced by the elderly (those above 65 years of age). In 2009, the ratio reported was 46.4%; it has since fallen sharply in the post-MoU era with a reported ratio of 21.6% in 2017, which is much more in line with the EU average of 17.3% as reported in 2016. The differential rates of risk of poverty with respect to gender have traditionally been disadvantageous to women, and the same pattern emerges in the latest available data. In 2017, 16.8% of women faced the risk of poverty as opposed to 14.6% of men. The reduction of the gender gap in this respect, in addition to the general reduction in the population, are both encouraging trends. Furthermore, non-EU nationals residing in Cyprus were at greater risk of poverty and social exclusion (42.7% in 2017) than people who were born either in Cyprus (22.7%) or in any other EU country (28.6%). In other areas, whereas the post-MoU period has exhibited positive trends, there has not been a return to pre-crisis levels. Such areas include the percentage of population living in households with very low work intensity that is reported at 9.4% in 2017 (compared to less than 5% prior to the crisis). In fact, there has been a widening of the gender gap, as women are more vulnerable than they had been pre-crisis in comparison to men. The same pattern characterises the percentage of the population in severe material deprivation that is reported at 11.5% in 2017. The worst disparity to pre-crisis levels is with respect to the percentage of population in arrears with mortgage, rent, utility bills, or hire purchase due to financial difficulties that rose to an alarming 34.2% in 2014 in total and to a staggering 54% for single-parent households. While those rates have been respectively reduced to 24.8% and 46.2% by 2017, they remained far in excess of the observed values pre-crisis such as 14.1% and 32.8% respectively in 2008. Income distribution metrics are more encouraging with both the Gini coefficient (30.8 in 2017) and income quintile share ratio (S80/S20) (4.6 in 2017) returning to pre-crisis levels and in relative parity to the EU averages of 31 and 5.2 respectively as reported in 2016.These trends are particularly reassuring, as a major fear in the implementation of austerity measures as part of the provisions of the MoU was a widening disparity in wealth dispersion. According to the latest World Health Organization data published in 2018, life expectancy in Cyprus is 78.4 for men and 83.1 for women, and total life expectancy is at 80 years, which is on par with EU averages and therefore presents similar demographic challenges associated with high life expectancy and low fertility. The fertility rate of 1.32 reported in 2017 is one of the lowest in the EU (average of 1.6) and represents a significant future challenge not only to the financing of the pension system, but also to the health and long-term care scheme. Net migration in Cyprus had been positive from 1983 to 2011. Especially in the immediate post-accession period after 2004, there was an accelerating trend of inward migration, most prominently in the years 2008 to 2011 when inward migration as annual mid-year population growth rate exceeded 2.5%. An effect of the crisis was that the resulting uncertainty rendered Cyprus a relatively riskier proposition for migrants, especially with respect to employment as the primary motivating factor. As a result, net migration was negative for the period 2012–2015. The trend has reversed again as of 2016, and net migration has become positive again. In 2017, it was estimated at 6,200, corresponding to 1.2% growth rate. 78

Restructuring of the Cypriot welfare system Table 5.3  Performance indicators

Employment rate, 20–64 Female employment rate, 20–64 Part-time employment rate, 15–64 Gender pay gap Unemployment rate, 15–74 Youth unemployment rate, 15–24 Gini coefficient S80/S20 ratio At-risk of social exclusion At risk of poverty Severe material deprivation Low work intensity households

1995

2000

2005

2010

2015

2017

2018

71.2 56.5

71.2 59.1

74.4 63.8 6.6 21.8 4.6

75 68.8 8.3 16.8 6.3 30.1 4.5 24.6 15.6 11.2 4.9

70.8 66.2 12.2 13.9 11.1 19 30.8 4.6 25.2 15.7 11.5 9.4

74.9    70 12.1 14.8 7.5 19

28.8 4.3 25.4 16.1 4.4

67.9 64 13 14 15 22.2 33.6 5.2 28.9 16.2 15.4 10.9

Source: Eurostat (2019a); Cyprus Statistical Service; own calculations

3  Welfare system change across policy sectors2 3.1  Overview of welfare system change over time The Cypriot welfare system has been through four distinct periods of transformation as presented in Table 5.4. These periods were marked by two major transformative events as well as their aftermath: Cyprus’ accession to the European Union in 2004 and the onset of the financial crisis in 2013. The 1994–1998 Strategic Development Plan (Planning Bureau, 1995, p. 6) was designed under guidelines that emphasised the convergence of the policies of Cyprus in the socio-economic sector with those of the EU. In the social policy field, the country’s accession to the EU in May 2004 was preceded by a rigorous process of harmonisation with the acquis communautaire in the period 1998–2004, during which a significant bulk of EU directives were transposed in the Cypriot legal system with relation to Chapter 13 of the community acquis: Employment and Social Policy (Ioannou, 2008–9). The Cypriot case is an anomaly in this respect due to the specificities of its political situation; the long-standing division of the island and the expectation that a quick and smooth integration in the EU would maximise the possibility that the process would also serve as a catalyst for the solution of the country’s fundamental political issue (Ioannou, 2007). As a result, the process was largely apoliticised and not subjected to a theoretical, ideological, and practical assessment of its transformative aspects with respect to social welfare. Instead, harmonisation was regarded as a necessary condition for the attainment of the higher political goal of solving the Cyprus problem. There was no fundamental shift in the philosophy of the existing welfare state model, especially in all areas that fell outside of the remit of the acquis communautaire. Following accession, the major objective of the Strategic Development Plan 2004–2006 was the rapid adaptation to the fast-changing international economic conditions through the adjustment and modernisation of structures and the promotion of the human factor as the main competitive advantage. Selection of a growth process which does not place dilemmas between development and social inclusion. (Republic of Cyprus, 2004) 79

Policy sectors

Step 1

Regulations

Restructuring and retrenchment

Restructuring and retrenchment

Incremental

Incremental

Step 1 process

Types of Change

Austerity measures, Abrupt neoliberal reforms, shrinkage of public sector Austerity measures, More neoliberal reforms, incremental maintenance of than public sector previous era

Expansion without Beveridgean extensive restructuring Expansion of cost Beveridgean allocation

Step 2

Ideas

Three-dimensional approach for analysing welfare system change

Harmonisation of sectors Legislative adaptation with no fundamental change 2004–2013: Post Harmonisation of sectors Procedural adaptation accession with no fundamental change 2013–2016: Financial Social welfare provision Means-tested GMI crisis and austerity/ Centralisation of social introduction of GMI welfare organisation (2014) management 2016–: PostHealth care Health care reform memorandum period Introduction of General Healthcare System (exp. 2019–2020)

1998–2004: The EU accession process

Time frame

Table 5.4  Welfare system changes over time in Cyprus

Continuity of the approach of the previous era/ discontinuity in relation to traditional approach

Discontinuity

Continuity with emphasis on harmonisation to acquis communautaire Continuity with previous era

Step 2 output

Restructuring of the Cypriot welfare system

The period until 2013 was a time of economic affluence in which the Cypriot welfare system expanded. The period immediately prior to and after accession exhibited rapid economic growth with an average annual percentage change to the country’s GDP of 7.7% between 1998 and 2008. A negative side effect of this persistent trend over this ten-year period was that the concurrent alarming growth of the burden of public sector financing and its underlying unsustainability were masked by the state’s ability to finance its problem in the short run. As a result, addressing the deficiencies of the system was put off.To illustrate the magnitude of the problem, the growth of public sector expenditure over the same period was at an average of 9%. Thus, even though the economy was growing consistently and impressively, the burden of the public sector was growing at a comparatively higher rate. With the onset of the financial crisis in Cyprus, the threat posed by the trajectories of economic growth and public sector burden described previously had to be faced immediately.With the comparative rates of growth and spending between 1998 and 2008, the average general government balance as a percentage of GDP stood at −1.9%. As the crisis hit the Cypriot economy in 2009 with a corresponding economic stagnation, that figure grew to −5.4% in the space of a single year and stood in that range until 2013. With corrective measures not being taken until that time to address this existential threat to public financing and with the compounding effect of the banking crisis, the imbalance went to −9% in 2014. The period was marked by the ‘haircut’ of deposits in Cypriot banks in March 2013 and the MoU between the European Commission (EC) and the Republic of Cyprus, which followed. More specifically, on 2 April 2013 Cyprus reached an agreement with the troika on an economic adjustment programme aimed at addressing the country’s financial, fiscal, and structural imbalances. The programme covered the period 2013–2016, and it included, amongst other things, an extensive restructuring and downsizing of the banking sector – enhanced with the bail-in of uninsured depositors – fiscal consolidation, structural reforms, and privatisations (Christou and Ioannou, 2013). The MoU and the introduction of its austerity measures have considerably shaken the very foundations of the welfare system in Cyprus that, as Pashardes (2003, p. 18) clarifies, ‘was rooted in the Beveridge principles of flat contributions and benefits’. The MoU in simple and clear terms underlines that within its aims is: to ensure efficient use of public funds within the welfare system, while at the same time ensuring an appropriate balance between welfare benefits and incentives to take up work . . ., the authorities will carry out a reform of the welfare system to be implemented and applied. (European Commission, 2013, p. 91) The cornerstone of welfare reform in this period came in 2014 with the introduction of the guaranteed minimum income (GMI). This lies today at the core of the Cypriot welfare system, as there has been a complete readjustment of welfare benefits aiming primarily to ensure that no person or family lives under the absolute poverty threshold as analysed previously. Accordingly, a social impact assessment regarding the introduction of the GMI and the readjustment of welfare benefits was carried out in 2013–2014. According to the various decision parameter inputs and the relevant outputs of the models, the objectives were defined as reducing the number of people living in absolute poverty with a focus on the most vulnerable, lifting the number of households above the relevant poverty threshold, and maintaining near neutral budget for welfare during the adjustment period. The incidence of poverty (as share of poor in the general population) was predicted to decrease by 3.2%, with more emphasis on vulnerable groups, while the intensity of poverty (the 81

Odysseas Christou and Christina Ioannou

distance between the income of the poor and the relative poverty threshold) was predicted to decrease by 16.8%, with decreases up to 32.7% for the most vulnerable groups. Finally, the most significant effect was measured on the number of households living under the absolute poverty threshold, where a reduction of 70% was predicted.With the introduction of the GMI, it is now placed at the core of the welfare system in a way that the other welfare benefits (child support, low-income pensioner support, lone parent support) are taken into account along with other income sources in order to determine the eligibility for GMI. Koutsampelas’ (2016) assessment is that the scheme represents a positive step that provides adequate income support but can be supplemented and revised by the adoption of best practices of other European states with more experience and maturity in similar social protection systems.

3.2  Analysis of main developments by policy sector Old-age policy The pension system in Cyprus is almost entirely public. Occupational pension plans, which provide supplementary pensionable benefits to their members, are much rarer. Pension schemes include the General Social Insurance Scheme (GSIS)3 that comprises the Social Pension Scheme (SPS) and the Special Allowance to Pensioners (SAP), the Government Employee Pension Scheme (GEPS)4 including other Public Sector Employees Pension Schemes, and Voluntary Provident Funds (VPFs)5 (Mannaris, 2012). The main source of retirement income for the majority of the workforce is the GSIS. This, however, does not suffice for an adequate, safe, and sustainable pension income. Over the years the GSIS has become financially unsustainable and has been forecast ‘to rise from about 9 percent of GDP in 2010 to about 16.5 percent of GDP by 2050 and drive public pension expenditures to be among the largest in the EU’ (Simone, 2011). The challenges it has been facing in recent years have been complex and multifaceted including the decrease of fertility, increasing longevity, inadequate financing, and inherent design flaws. The funding of the pension schemes, its replacement rates, the overall level of pension benefits, and the retirement age have been primary points of contention in multiple debates in recent years, as the problem of the long-term financial viability of the scheme has intensified. The MoU eventually tackled this issue directly. It did so by cutting pension spending, introducing measures for ensuring the long-term financial viability of the pension system through 2060, and limiting the fiscal subsidy to the GSIS for credited contributions for current and future pensioners and non-contributory pensions (Petmesidou, 2012, p. 15).

Labour market and unemployment policy Cyprus traditionally enjoyed a low unemployment rate compared to its EU counterparts. This was linked to a relatively high level of trade union organisation. According to official government statistics, trade union membership was 55% to 58% of the total number of employees in 2009. This high trade union membership was for years concurrent with very high employment rates. Following the onset of the financial crisis, the implementation of austerity measures, and the rise in unemployment, trade union organisation largely decreased and the influence of trade unions was increasingly challenged. The crisis has had a profound effect on the labour market; it revealed the structural problems of limited diversification, the engagement in low added value activities and the lack of investment in innovation and new technologies leading subsequently to low productivity, the 82

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economy being highly sensitive to cost and vulnerable to external shocks and employing low skilled workforce. (Republic of Cyprus, 2013, p. 7) The MoU specifically called for labour market reforms as a way of mitigating long-term and youth unemployment, facilitating occupational mobility, and contributing to improving the future resilience of the Cypriot economy in the face of adverse economic shocks. The employment national target set was 75%–77% of the population aged 20–64 to be employed by 2020 (Republic of Cyprus, 2013, p. 6). The objectives outlined by the MoU were (1) to reform the wage indexation system to ensure improvements in competitiveness and productivity; (2) to reform public assistance to achieve more balance, support the most vulnerable, strengthen activation policies, and contain the public finance impact of rising unemployment; (3) to attenuate adverse competitiveness and employment effects (European Commission, 2013, p. 92). Cypriot authorities also agreed to introduce reforms to the country’s framework of setting wages. Following a progressive scale of wage cuts in 2012 and streamlining of allowances in 2013 with a full year effect of 1.2% of GDP, an additional 3% horizontal wage cut took place in the public sector in January 2014 that constituted a reduction of 0.4% of GDP. The cost of living allowance (COLA) system was suspended with the aim to induce adjustment in real wages and to help reflect better developments in labour productivity and competitiveness. Following Cyprus’ successful exit from the MoU, these measures have been progressively scaled back with the return of COLA and the end of systematic wage cuts in the public sector.

Healthcare policy A traditional characteristic of the welfare system in Cyprus was that each of its component parts varied in financing sources.This was addressed in the fundamental transformation of the welfare system with the introduction of the GMI in 2014 as analysed previously. Cyprus is about to introduce a comprehensive National Health Insurance Scheme (NHIS) which has been a matter of political and social debate for many years. Despite this, health provision receives a substantial share of public expenditure, and the standard of health of the general population can be regarded as quite high (Astarita, 2003, p. 6). The medical needs of the population are met through public and private health provision, and a number of targeted schemes. Government provision of health care is funded out of general taxation, and public health care provision is free for those who are eligible.6 There also exist a number of health schemes subsidised by employers and trade unions. Cypriots in need of medical care that cannot be provided locally at the national level may be sent abroad to receive the appropriate treatment at government expense.7 The private health sector is open to all those who can afford to pay for their treatment.8 In addition to these, a number of special schemes cover specific sections of the population. These include primary health care services provided by the trade unions to employees and their dependents. They use both the public and the private sector whenever secondary or tertiary care services are needed through a partial reimbursement of medical expenses. Furthermore, there are a number of employer-sponsored arrangements, all of which provide free medical care mainly through public health facilities. Apart from curative provision, the public services – in cooperation with other ministries and the municipal authorities – deal with the provision of preventative health services.9 Statutory benefits are funded through general taxation and are means tested.10 The provision of these services is governed by the ‘Government Medical Institutions and Services General Regulations of 2000’ (Pashardes, 2003, p. 83). 83

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The Cypriot welfare state also faces challenges regarding the organisation and management of the health care system that has been depicted as obsolete and deficient. Moreover, it has a huge array of private health facilities, without any effective control by the government or formal coordination with public healthcare, which may foster ‘duplication, waste of resources and poor quality of services’ (Petmesidou, 2012, p. 7). Over the years, the health care system has been relatively sheltered and unscathed from public scrutiny and as such has expanded unabated by reforms (Official Journal of the European Union, 2012, p. 17). The unwillingness and resistance to reform can largely be attributed to the multiplicity of interests in the field. As early as 2001, the law for introducing a General Health System was enacted with the aim of rationalising and improving healthcare (Official Journal of the European Union, 2012, p. 15). However, since then very little has been done as targets were ‘dropped as unrealistic and political stalemate dominated’ (Official Journal of the European Union, 2012, p. 15). The fact that there has not been, until now, pressure from society towards any radical reforms can be recognised by the fact that the majority of beneficiaries have been using private healthcare services instead of public healthcare that is either free or provided at a reduced cost. Until 2012, around 85% of the population is eligible. However, only 40% of the population use public healthcare services, mainly due to the inefficiencies and long waiting times . . . [whereas] around two thirds of the total healthcare cost in Cyprus is covered by the private sector. (Official Journal of the European Union, 2012, p. 17) This fragmentation between the public and private sectors of healthcare provision has led to an unequal distribution of services, large inequities in access to care, and a general lack of regulation of both care capacity and quality. However, the crisis and the MoU with its austerity policy measures have begun reversing the flow towards private healthcare. Cyprus has historically expended little on healthcare; expenditure as a share of GDP is one of the lowest among EU countries at about 6% and well below the EU average. However, it has been increasing at a higher rate than nominal GDP, making healthcare reform more urgent. In light of the imminent crisis, various measures in 2011 and 2012 had been taken that aimed at cost containment (Theodorou et al., 2012). The MoU specifically outlined changes to the healthcare system, through the introduction or increase of fees in various areas, in an attempt to create a sustainable healthcare system. It specified a contribution (1.5% of gross salaries) by public servants and public servant pensioners as well as an increase in the fees for medical services for non-beneficiaries by 30% and the fees for usage of higher levels of care. It further underlined the need to re-evaluate the category system, limiting access to chronic disease patients, and introduced financial disincentives for using emergency care services in non-urgent situations, while at the same time minimising the provision of medically unnecessary laboratory tests and pharmaceuticals (European Commission, 2013, p. 83).

Family policy Cyprus is a country in which childcare is traditionally provided within the household by the nuclear family (mainly the mother)11 and/or the extended family network. The Department of Social Welfare Services has developed mechanisms to provide counselling and other services for the support of family members in their roles and responsibilities but also to prevent as well as 84

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treat family violence and delinquent behaviour. Programmes also exist for helping old persons and persons with disabilities. Furthermore, the department offers preventive and child protective services that include adoption, foster care, and residential care for children and juvenile delinquency (Pashardes, 2003, p. 70). The state administers a number of grants for family assistance. The marriage grant is divided equally between the spouses and is payable irrespective of category of insurance. The conditions for the payment of a marriage grant are identical to the sickness benefit. The maternity grant is payable either to the mother’s or the father’s insurance, irrespective of their category of insurance. In line with its pledge for reforms, the Government of Cyprus has already begun working on streamlining by merging and phasing out current benefits as well as on focusing various social transfers to reduce the total number of beneficiaries while protecting the most vulnerable. This was addressed through the introduction of a common definition of income sources, financial assets, and movable and immovable property to be taken into account for means testing. This involved the lowering of income thresholds, accounting for wealth, and broadening the sources of income. Family and child benefits without exception are within these parameters set out by the troika compelling conformity with the parameters established. Salary caps have been imposed for higher education students based on salary ceilings and the number of children (i.e. more than three). Other family benefits such as marriage grant and maternity grant cash benefits were maintained, whereas the orphan grant and funeral grant were frozen until 2016. Reforms and austerity measures undertaken in 2011 as part of the run-up to the MoU led to a reduction in household income in addition to the salary cuts and redundancy schemes implemented by many private enterprises. Further to this, there has been an increase in different forms of taxation; namely, property tax, the statutory corporate income tax, tax on interest income, the levy on deposits raised by banks and credit institutions, as well as an overhaul of the tax system for motor vehicles. Of importance also was the clause for the reduction of expenditure on various housing schemes. On the basis of the MoU, a Comprehensive Housing Scheme was adopted that discontinued the special grant for acquiring a first residence and the provision of loans and loan guarantees related to house construction and acquisition under all governmentadministered housing schemes (European Commission, 2013, p. 80). It must be highlighted that in 2011, the government initiated a first round of austerity cuts that affected households located in the middle and upper strata of the income distribution. The post-MoU era, with the taxes imposed and the restrictions implemented on the welfare system, is expected to continue to affect low-income households (Koutsampelas and Polycarpou, 2013).

Long-term care Long-term care remains rather underdeveloped in Cyprus, as to a large extent, this has been traditionally provided within the household and the nuclear and extended family network (Pashardes, 2003, p. 73). However, progressive changes in family patterns have challenged this tendency. The nuclear family of the 1970s and 1980s is gradually being eroded with an increase in family violence, separation, and divorce (Shekeris et al., 2009, p. 94). Moreover, the accelerating demographic ageing has further exacerbated the issue. However, even though the issue of long-term care has been rapidly escalating in significance due to the societal and family changes, it has not been commonly addressed in public debate. Despite the fact that it has been subject to numerous reports,12 there is a lot of room for development. In terms of social welfare support, the focus is on elderly people with ‘insufficient incomes to meet their basic and special needs’ (Petmesidou, 2012, p. 21). Benefits are in terms of monetary 85

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aid stemming from public assistance schemes and directly used for services from the private sector or the district offices of the Social Welfare Services. Public opinion has been opposed on numerous occasions to fragmentary arrangements to contain the issue. However, reforms are long overdue and necessary, given that Cyprus is lagging behind many of its EU counterparts (Petmesidou, 2012, p. 23). Moreover, a systematic process for determining and addressing needs is lacking, severely constraining policy options on this issue (Petmesidou, 2012, p. 23).

Poverty and Social Exclusion Poverty and social exclusion were traditionally not considered as major issues by both public opinion and policymakers in Cyprus. Reasons include the small size and population of the island, its largely homogeneous society, its comparatively high levels of literacy, and – above all – its traditional low levels of unemployment. Furthermore, the aforementioned strong family bonds and associated ‘informal’ network may also account for this.

4 Outlook Main and future challenges As a result of the extensive overhaul of the welfare system in Cyprus that was centred around the introduction of the GMI model, and the centralisation of welfare administration discussed previously, the stated aim of the new initiative is that no person or family will live below the absolute poverty threshold while providing for care and assistance, disabilities, or other special needs. The revised priorities of the newly introduced policy are: • Targeted unemployment activation measures and other active labour market policies, including training and subsidised employment • Further reducing the high level of unemployment, especially concerning young persons • The provision of more services, instead of more cash benefits, for groups of the population such as the elderly and the persons with disabilities • The reorganisation of the Social Welfare Services for more effective provision of social welfare services support and social intervention • The protection of employee rights, such as right to contract, working hours and overtime, overtime pay, paid leave • The protection of legal and declared work and the combating of undeclared work Additionally, a number of challenges remain for the Cypriot welfare state and for the management of public finances in general because of the crises. Reform of regulation of the labour market: The Ministry of Labour, Welfare and Social Insurance has been undertaking a series of initiatives in order to assess the current conditions of the labour market and the extent to which reforms can lead to more effective regulation of the sector. Ultimately, the aim is to reduce unemployment to pre-crisis levels, especially in light of the reorganisation of the management structure of social welfare provisions and its centralisation under the Ministry. The main areas of focus concern a more robust categorisation of the definition of the statuses of individuals as to their position in the labour market, as well as the optimisation of administrative services in this sector.13 Health:The adoption of a universal national health care plan has been long and hotly debated in Cyprus. The resumption of efforts to implement the plan that is currently proposed by the 86

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Anastassiades administration had been put on hold after the 2018 re-election of the president to a second term in office that was immediately followed by a cabinet reshuffle. The initiative has regained momentum under the current cabinet in order to proceed to definitive administrative proposals for the existing legislative framework that has been awaiting implementation since 2001. Recent research findings reinforce and emphasise the urgent need for the implementation of the General Health System. Pittokopitou-Papiri et al. (2017, p. 14) focus on the weaknesses of Cyprus’ health system, indicating both the extent of the operation of a black economy and the lack of user satisfaction in the provision of public health services, which inevitably lead to the increased use of private health services and out-of-pocket payments. Woutersa and Kanavosa (2015) identify the same deficiencies and patterns of inefficiency in the coordination between public and private provision with respect to pharmaceutical policies.14 Petrou and Vandoros (2018) argue that, while the reforms imposed on the health care sector under the provisions of the MoU were actually beneficial to the sector, the move towards a universal health care provision system is urgently needed.15 Demographic, ageing, and migratory pressures on the welfare state and public spending in general: One of the long-term effects of the crisis has been the issue of persistently high levels of unemployment in the under 25 population, leading to a widespread perception of a lack of career opportunities. Correspondingly, this has led to a brain drain as highly educated young Cypriots opt to either leave the country or remain abroad in pursuit of career options after their university studies, which is an alarming prospect, as Cypriots have traditionally tended to pursue tertiary education in Greece and the UK and increasingly in the USA over recent decades. This trend further exacerbates the already worrisome tendencies of population ageing, low fertility rates, and increases in life expectancy as discussed previously. The total effect of all these phenomena is the expectation of an ever-shrinking workforce being called upon to provide for a growing population of social welfare recipients and is likely to present the most acute long-term challenge to the sustainability of the existing social welfare model. Lingering effects of the financial crisis as it relates to the burden posed on public financing and the welfare system: While the structural causes that brought the Cypriot public sector into crisis have been largely addressed and are in their generality beyond the scope of this research, there are a number of lingering issues, the sustainability of which remains in question. While the structural reform of the banking sector has created a much more sustainable set of conditions for the largest bank – the Bank of Cyprus after its incorporation of Laiki Bank – questions remain over the sustainability of smaller banks that may face the same conditions of susceptibility of the aforementioned banks during the crisis. A number of mergers and acquisitions have been proposed – and in some cases enacted – in order to mitigate this potential threat. The greatest challenge in this respect is that one of the components of the crisis – the prohibitively high ratio of non-performing loans – has not been resolved even though many steps have been taken that at least partially address the threat (Clerides et al., 2017; Meager, 2015). While this is not a direct effect of social welfare reform, the contagion effect from a future financial crisis would certainly compromise the capability of the public sector to finance social security and welfare provision.

Concluding remarks It is too early to reach definitive conclusions about the effect of the wholesale adoption of a new social welfare provision model with the emphasis on the GMI method. An early assessment yields positive signs as initial indications suggest more effective and universal provision at a 87

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comparatively lower cost. However, many effects of the crisis linger even after the restructuring of welfare provision; for example, Chrysostomou et al. (2017) find that a food basket that fulfils physical and non-physical needs is not affordable among low-income families that receive the GMI scheme in Cyprus, especially in households with children.16 A number of social condition indicators with respect to levels of poverty, inequality, and social exclusion have reacted positively in the short term as they have converged to EU averages but they remain higher than what their levels have traditionally been in Cyprus. Social risk indicators remain alarming, although it is difficult to assess them in the long term, as data had not been collected on them prior to Cyprus’ accession to the EU. Unemployment is gradually converging to EU averages as well, although it remains alarming for the under 25 with the corresponding widespread uncertainties over career paths and the risk of an extended brain drain.

Notes 1 The program of Community Work and Youth Services was aimed at improving the organisation of communities and voluntary organizations. 2 For an in-depth discussion, see Christou et al. (2016). 3 The GSIS was designed to provide benefits for sickness, unemployment, old-age pension, employment injury, maternity, invalidity, and benefits to survivors. 4 GEPS are specifically for government and semi-government sector employees and are financed almost entirely by general taxation on a pay-as-you-go basis. 5 The majority of private sector employees have no supplementary pension protection or are covered by other VPFs that may take the form of defined contribution provident funds. These have serious weaknesses in terms of their effectiveness as retirement income vehicles. 6 The groups formally covered by this scheme are government employees, individuals earning less than €10,300 per annum, households earning less than €17,300 per annum, and households with more than three children. Individuals with an income between €10,300 and €15,700 per annum, and households with an income between €17,300 and €24,300 per annum, have health care provided at 50% of the prescribed rates.Those designated as poor are entitled to free services. Based on these criteria, about 55% of the population has access to free or reduced rate public health care services (Pashardes, 2003, p. 84). 7 For non-citizens, healthcare services – except emergency treatment – are charged at full cost during the first six months of residence. 8 A wide range of outpatient services is offered, and even though there is a more limited scope for services than in the public sector, various clinics have developed specific specialised facilities, such as kidney transplants, which are often used by the government to treat eligible patients (Pashardes, 2003, pp. 21–22). 9 These are in the form of health education, inoculations, control of epidemics and infectious diseases, the disposal of sewage, and control of the quality of drinking water and food, among others. 10 This does not apply, however, to government employees, families with three or more children, those in need of emergency treatment, and certain categories of chronically ill persons. 11 For a more detailed analysis on this, as well as on work-life balance in Cyprus, see Dimarellis and Ioannou (2018). 12 See, for example, E.E.T.A.A. (2008). 13 These findings are the result of consultancy meetings between the authors and the Ministry of Labour, Welfare and Social Insurance. 14 See also Petrou and Vandoros (2015). 15 See also Cylus et al. (2013). 16 See also Chrysostomou and Andreou (2017).

References Astarita, G. (2003), Welfare in the Mediterranean Countries: Republic of Cyprus, Centre for Administrative Innovation in the Euro-Mediterranean Region, Napoli. Christou, O. and Ioannou, C. (2013), Social Cohesion and the State in Times of Austerity: Cyprus, Friedrich Ebert Foundation, available at: http://library.fes.de/pdf-files/id/10424.pdf (accessed 21 March 2019). 88

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Christou, O., Ioannou, C. and Shekeris, A. (2016), “The Cypriot Welfare State at a Time of Crisis”, in Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Springer International Publishing, Cham, pp. 79–104. Chrysostomou, S. and Andreou, S. (2017), “Do Low-Income Cypriots Experience Food Stress? The Cost of a Healthy Food Basket Relative to Guaranteed Minimum Income in Nicosia, Cyprus”, Nutrition and Dietetics,Vol. 74 No. 2, pp. 167–174. Chrysostomou, S., Andreou, S. and Polycarpou, A. (2017), “Developing a Food Basket for Fulfilling Physical and Non-physical Needs in Cyprus: Is It Affordable?” European Journal of Public Health,Vol. 27 No. 3, pp. 553–558. Clerides, M., Kammas, M. and Kyriacou, G. (2017), “The Cyprus Experience in Dealing with Private Sector NPLs”, in Monokroussos, P. and Gortsos, C. (Eds.), Non-performing Loans and Resolving Private Sector Insolvency, Palgrave Macmillan, Cham, pp. 127–156. Cylus, J., Papanicolas, I., Constantinou, E. and Theodorou, M. (2013),“Moving Forward: Lessons for Cyprus as It Implements Its Health Insurance Scheme”, Health Policy,Vol. 110 No. 1, pp. 1–5. Dimarellis, K. and Ioannou, C. (2018), “Equal Treatment of Women and Men in Employment: An Analysis of the Cypriot and the Greek Legal Frameworks”, The Cyprus Review,Vol. 30 No. 1, pp. 259–274. E.E.T.A.A. (Hellenic Agency for Local Development and Local Government) (2008), The Role of Local Authorities in Promoting Care Policies for Reconciling Work and Family Life, Social Welfare Service/Ministry of Labour and Social Insurance, Nicosia. European Commission. (2013), The Economic Adjustment Programme for Cyprus, Directorate-general for Economic and Financial Affairs, Brussels, available at: http://ec.europa.eu/economy_finance/publications/ occasional_paper/2013/pdf/ocp149_en.pdf (accessed 28 March 2019). Eurostat. (2018), “Social Protection Expenditure Database”, available at: https://ec.europa.eu/eurostat/ data/database (accessed 10 October 2018). Eurostat. (2019a), “Employment and Activity by Sex and Age – Annual Data [Online data file]”, available at: https://ec.europa.eu/eurostat/data/database?p_p_id=NavTreeportletprod_WAR_Nav Treeportletprod_INSTANCE_nPqeVbPXRmWQ&p_p_lifecycle=0&p_p_state=normal&p_p_ mode=view&p_p_col_id=column-2&p_p_col_pos=1&p_p_col_count=2# (accessed 28 February 2019). Ioannou, C. (2007), The ‘Eager Europeanisation’ of Cypriot Social Policy: When Accession becomes a ‘National Goal’, PhD Diss., University of Manchester. Ioannou, C. (2008–9), “The Europeanisation of Cypriot Social Policy: An ‘Apolitical’ Europeanisation Process”, Journal of Modern Hellenism,Vol. 25 No. 6, pp. 97–128. Ioannou, C. (2009), “The Development of the ‘Cypriot Corporatist Model’: The Emergence of a ‘Corporatist Culture’ and Its Impact on the Process of Europeanisation”, Cyprus and European Law Review,Vol. 10, pp. 700–736. Koutsampelas, C. (2016), “The Cypriot GMI Scheme and Comparisons with Other European Countries”, Cyprus Economic Policy Review,Vol. 10 No. 1, pp. 3–26. Koutsampelas, C. and Polycarpou, A. (2013), “Austerity and the Income Distribution:The Case of Cyprus”, EUROMOD Working Paper, No. EM 4/13, pp. 1–23. Mannaris, P. (2012), “The Cypriot Pension System: Adequacy and Sustainability”, Cyprus Economic Policy Review,Vol. 6 No. 2, pp. 49–58. Meager, L. (2015), “Cyprus Reforms Tackle Bad Debt Surplus”, International Financial Law Review,Vol. 35 No. 2 [online] (accessed 21 March 2019). Official Journal of the European Union. (2012), “Council Recommendation of 10 July 2012 on the National Reform Programme 2012 of Cyprus and Delivering a Council Opinion on the Stability Programme of Cyprus, 2012–2015 (2012/C 219/04)”, available at: https://eur-lex.europa.eu/ legal-content/EN/TXT/PDF/?uri=CELEX:32012H0724(04)&from=EN (accessed 21 March 2019). Pashardes, P. (2003), Study on the Social Protection Systems in the 13 Applicant Countries: Cyprus Country Study, European Commission – DG Employment, Social Affairs and Inclusion, Brussels. Petmesidou, M. (2012), Annual National Report 2012: Pensions, Health Care and Long-term Care, European Commission – DG Employment, Social Affairs and Inclusion, Brussels. 89

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Petrou, P. and Vandoros, S. (2015), “Cyprus in Crisis: Recent Changes in the Pharmaceutical Market and Options for Further Reforms without Sacrificing Access to or Quality of Treatment”, Health Policy, Vol. 119 No. 5, pp. 563–568. Petrou, P. and Vandoros, S. (2018), “Healthcare Reforms in Cyprus 2013–2017: Does the Crisis Mark the End of the Healthcare Sector as We Know It?” Health Policy,Vol. 122 No. 2, pp. 75–80. Pittokopitou-Papiri, I., Jelastopulu, E., Andrioti, D. and Charalambous, G. (2017), “Estimation of Private Health Expenditure in Cyprus”, Journal of Medical Education and Training,Vol. 4, pp. 14–18. Planning Bureau. (1995), Strategic Development Plan 1994–1998. Press and Information Office, Nicosia. Republic of Cyprus. (1994), Cyprus, Press and Information Office, Nicosia. Republic of Cyprus. (2004), National Action Plan for Social Inclusion: 2004–2006, Ministry of Labour and Social Insurance, Nicosia. Republic of Cyprus. (2013), National Reform Programme of Cyprus: 2013, Ministry of Finance, Nicosia. Republic of Cyprus. (2014), “Social Welfare Services; Historical Background”, available at: www.mlsi.gov. cy/mlsi/sws/sws.nsf/dmlhistory_en/dmlhistory_en?OpenDocument (accessed 21 March 2019). Shekeris, A., Ioannou, C. and Panagiotopoulos, C. (2009), “Welfare Adaptation in a Divided State: The Cypriot Welfare System”, in Schubert, K., Hegelich, S. and Bazant, U. (Eds.), The Handbook of European Welfare Systems, Routledge, New York, pp. 83–100. Simone, A.S. (2011), “The Cypriot Pension System: Issues and Reform Options”, Cyprus Economic Policy Review,Vol. 5 No. 2, pp. 3–34. Theodorou, M., Charalambous, C., Petrou, C. and Cylus, J. (2012),“Cyprus Health System Review”, Health Systems in Transition,Vol. 14 No. 6, pp. 1–128. Woutersa, O.J. and Kanavosa, P.G. (2015), “Transitioning to a National Health System in Cyprus: A Stakeholder Analysis of Pharmaceutical Policy Reform”, Bulletin of the World Health Organization, Vol. 93, pp. 606–613.

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6 Hybridisation and diversification Welfare system developments between 1993 and 2018 in the Czech Republic Tomáš Sirovátka and Vojteˇch Ripka

1 Introduction Czech Republic represents a post-communist hybrid (‘recombinant’) welfare state regime that combines Bismarckian, neoliberal, and social democratic elements (Cerami, 2006, 2010; Inglot, 2008; Hemerijck, 2013;Vanhuysse, 2009). In the Czech case, Bismarckian social insurance schemes providing almost universal coverage are combined with rather low-level but redistributive contributory and non-contributory benefits, conservative principles in family policies, and less complex labour market policies and social services. Its conservative Bismarckian core was inherited from the pre-war period (Cerami, 2006; Inglot, 2008) and modified by the communists who implemented more uniform elements as well as work-place related measures. After 1989, the post-communist governments imposed rather modest standards in social insurance combined with selective and targeted measures. Though the welfare mix is not expensive in terms of overall spending, it still has been generous enough to effectively alleviate poverty. This was recognised as a trajectory towards a ‘low social expenditure’ welfare state (Armingeon, 2006) interpreted as embedded neoliberalism (Bohle and Greskovits, 2007) based on generous, but essentially ad hoc, and targeted benefits providing some safety nets (Vanhuysse, 2007, p. 508). At the same time, the Czech welfare state moved step by step into a more liberal, residual direction: Through reduction of benefit levels and a series of partial reforms (Saxonberg and Sirovátka, 2009), it still provides broad access to social benefits and services. The modern Czech welfare system originated with the Taaffe reform of 1888–1889, which included accident health insurance, health insurance for workers, and labour protection (Grandner, 1994, p. 6; Rákosník and Tomeš, 2012, pp. 51–82). It was built on a strict principle of occupational classification with different conditions. The inter-war democratic Czechoslovakia was by 1925 one of the few European states with complex social policies (Kárník, 2003, p. 522). Not only was the Ghent system, which imposed responsibility for unemployment benefits on both trade unions and the government, implemented, but the occupation-based social insurance system was relatively comprehensive and from 1926 onwards it included old age pensions, disability pensions, and sickness benefits, beginning from the third day of illness-related incapacity (CˇSSZ, 2004). After the Second World War, the Czechoslovak government built on the pre-war tradition, legislating a new law on social insurance in 1948, a Beveridge-style shift from the existing tradition 91

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(Arnoldová, 2004, p. 81). However, the communist government that gained power in 1948 established a centralised, state monopolist system in social security and public services, financed from the state budget, which aimed to guarantee full security for all.These were complemented with a continuation of the 1939–1945 full employment policy of the Nazi occupation that turned employment into a duty. Employment and wages were determined by central plans (Tomeš, 2001, p. 202; Ripka, 2013). After 1989, the social security system was reformed towards more transparency in the financing of the specific schemes and included a plurality of actors. At the same time, emergency measures such as the social safety net (social assistance), employment services, unemployment insurance, and active labour market policies were adopted. After the country split between the Czech and Slovak Republics in 1993, some systemic reforms followed in pensions and family benefits. In the Czech Republic, strong neoliberal discourse dominated, pushed through by Prime Minister Václav Klaus, leader of the leading ODS party (centre-right). The pension reform of 1995 not only increased the retirement age to 62 (men) and 57–61 (women) but also implemented a flat-rate element into the benefit formula that made the scheme highly redistributive and not particularly advantageous for the middle and higher income brackets (Ripka and Mareš, 2009, pp. 110–111), incentivising them to opt for supplementary private schemes. These were enacted in 2004 with strong support from the public budget. Children benefits and housing benefits have been reshaped to be income tested, aiming for better targeting of family benefit packages and poverty prevention. Although these reforms bear a neoliberal imprint, they established effective tools of protection for pensioners and children against poverty. Beyond the initial stage of institutional building and emergency measures (1989–1992), we distinguish four periods of development of the Czech welfare state before 2018:1 neoliberal continuity (1993–1998)2, social democratic turn (1998–2006), attempts for neoliberal reversal (2007–2013), and pragmatic stabilisation (2014–2018). The sequence and substance of these phases were not guided by any clear policy concept or ideas.They were rather shaped by external, situational factors such as the political profile of the government and the election cycle, economic development, and EU membership (2004), and internal factors, such as the strength of the institutional legacy and path dependency in different social policy sectors. Still, none of these reforms represented a fundamental departure from the status quo that would change the direction or substance of the Czech welfare state. The Czech welfare system remains a hybrid of a Bismarckian/social-democratic/neoliberal welfare state, where neoliberal reforms brought shifts mostly in those policy areas in which the institutional legacy is not so strong. Policy reversals sometimes followed with the changes of governments, but these were not significant. In this chapter, we will first characterise the general structures of the Czech welfare state and its development over the past 20 years. We then analyse changes in the four reform periods over the past 25 years in specific social policy areas. Finally, we summarise the key features and direction of the development of the Czech welfare state and assess the direction of social policy changes.

2  General structures of the Czech welfare system In this section, we characterise the general structures of the Czech welfare system. A more general description of these characteristics was presented in the first edition of this Handbook (see Mareš and Ripka, 2009).

2.1 Priorities In terms of social expenditure, the Czech welfare system belongs to the family of post-communist welfare states that consistently keep social expenditure low (see Table 6.1). Compared to 92

7,367.82  8,595.13  9,365.76  10,265.14  10,842.72  11,999.87  13,429.39  16,149.05  16,376.10  17,106.31  19,724.03  21,840.26  24,379.18  28,869.24  29,887.53  31,402.80  32,905.18  32,996.15  31,828.63  30,805.00  31,937.14

16.1  16.3  17.2  17.2  17.8  18.0  17.8  18.6  18.6  17.8  18.0  17.6  17.6  17.9  20.1  20.0  20.1  20.4  20.2  19.7  19.0

Note: Data for 1993–1994 are not available.

1,927.05 2,122.98 2,287.50 2,365.53 2,545.02 2,722.69 2,935.63 3,068.58 3,309.79 3,307.81 3,576.68 3,677.74 4,024.17 4,103.40 4,435.22 4,501.11 4,546.47 4,690.80 4,778.69 5,021.77 5,190.79

:  :  :  :  :  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p)  :

Total (mio €)

PPS per inhab.

Total (mio €)

% GDP

eu28

Czech Rep.

Source: Eurostat, 2018; (p): provisional value

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 6.1  Social protection expenditure: Czech Republic and the EU, 1995–2015

:  :  :  :  :  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p)  :

% GDP :  :  :  :  :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p)  :

PPS per inhab. 1,869,415.56  1,971,768.55  2,048,453.88  2,110,012.32  2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25

Total (mio €)

eu15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3 

% GDP

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54 

PPS per inhab.

Tomáš Sirovátka and Vojteˇch Ripka

the EU average of 28%–29% of GDP, it was about one-third lower (19%–20% of GDP) in 2010 and 2015. There are two key implications of this low expenditure trajectory that results from the combination of the Bismarckian tradition and the communist legacy: First, social services remain underfinanced in the long term. Second, social insurance benefits (pensions, sickness, unemployment, maternity) are designed at low replacement rates from the position of the middle and higher income brackets. On the other hand, they are strongly redistributive in effect and universal in access. Nevertheless, between 1995 and 2015, the share of social expenditure increased by nearly three percentage points (pp) (from 16.1% to 19%).The first increase occurred between 1995 and 2000, when social expenditure consistently increased from 16.1% to 18% of GDP both during the period of the centre-right government and the Social Democrat–led government (since 1998). This increase was partly due to increasing expenditures on old age pensions (an effect of population ageing) and to early retirement, which was used more widely to alleviate unemployment risks during the economic slow-down in 1997–1999. The second increase came between 2008 and 2009 (from 17.9% to 20.1%). The main reason for this was that the GDP dropped by 4%, thus increasing the share of social expenditure ‘automatically’. Another factor that added to the increase was growth in unemployment that, among other things, again triggered an increase in early retirement and other compensations for the impacts of the economic crisis. On the other hand, neoliberal social policies (social reform austerity package) implemented from 2007 by the centre-right government halted any further increases. The structure of social expenditure is highly influenced by the low expenditure trajectory combined with the Bismarckian tradition (transfer heavy, service light welfare state). Inevitably, old social risks3 (old age and sickness/healthcare/disability) represent the major part (83%) of total spending, effectively outpacing expenditures on unemployment, social exclusion, and housing (see Table 6.2). Against this background, the EU and the OECD repeatedly recommend reforming the pension policy and increasing efficiency in healthcare in order to reduce social spending in these areas (Ripka and Mareš, 2016, pp. 120–121). Over time, expenditures on old age and survivors benefits increased considerably (by 7.5 pp between 1995 and 2015), while expenditures on sickness, healthcare, and disability decreased (by 6 pp). Similarly, expenditures on family policy decreased by 3 pp, mainly between 1995 and 2000 due to the reform of family-related benefits (see later in the chapter) and again in 2008 due to the social reform austerity package, similarly to expenditures on social exclusion. However, total expenditures remain on the average of the EU-28 due to an emphasis on some social transfers such as the parental benefit that may be provided until a child reaches the age of 4. Expenditures on unemployment remain low, partly due to a relatively low unemployment rate, to the low coverage of the unemployed by unemployment benefits, and to the few measures of active labour market policy. Expenditures on healthcare in relative terms dropped between 1995 and 2000 because of healthcare financing regulations implemented in 1997, such as the shift from fee-for-service to capitation fee, etc. They dropped again between 2005 and 2010 due to cuts in sick pay implemented with the social reform austerity package, the main reform being a three-day waiting period for sick pay since 2009 and the reduction of the replacement rate of sick pay in 2010. Support for affordable rented housing has remained negligible over the long term.4 Currently, transfers for the elderly, sick, parents, and the unemployed come mostly in the form of income-related social insurance benefits. Non-contributory transfers to families and children are provided mainly based on an income test (except for the universal parental benefit): child benefits, contributions to housing costs, birth grants, and funeral benefits. These are based on the principle of residence (MPSV, 2018a). Social assistance benefits (contributions towards 94

Hybridisation and diversification Table 6.2  Social protection benefits by function, Czech Republic, 1995–2015

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

EU28 2010

100 96.65 11.52 2.2 0.02 1.28 43.14 38.5

100 96.82 8.19 3.35 0.63 2.62 40.06 41.97

100 96.74 9.67 3.37 0.43 2.58 40.54 40.15

100 96.87 9.96 3.91 0.54 1.08 37.39 43.99

100 97.14 8.52 2.61 1.42 1.46 37.18 45.95

100 95.92 8.28 5.77 1.97 1.87 34.94 43.08

Source: Eurostat, 2018 Note: Data for 1993–1994 are not available.

living costs, supplements to housing costs, and extraordinary income support) are means tested (MPSV, 2018b). Consequently, the welfare system, although not very generous in protecting the accustomed standard of living for middle income or more affluent social groups, seems to be effective in alleviating poverty risks that are considerably lower than in the EU on average.5 However, some groups are affected by poverty risk disproportionally, such as the unemployed or single parent households.

2.2  Funding and administrative structure The funding of the welfare state is centralised.The social insurance fund, which is a separate part of the government budget, is managed by the Social Security Administration. Employers contribute 31.5% and employees contribute 6.5% of wages/salaries. Healthcare is covered by health insurance funds and managed by seven health insurance companies. Employers contribute 9% of salaries/wages and employees contribute 4.5%. Social and health contributions are high in the Czech Republic (48% of wages/salaries), mirroring the Bismarckian foundations of the Czech welfare state. The average tax wedge is among the eight to ten highest in OECD European countries, while the average is 35.9% (OECD, 2018a). Non-contributory benefits and other social expenditure in-kind/services are financed from general taxation, mostly from the central budget, with a minor part contributed by regions and municipalities in the field of social services. The benefits are delivered by the Employment Office (local contact points). Social services and social work is managed by regional and local authorities and delivered by them directly and/or by non-governmental and by for-profit organisations. Private (for-profit, non-profit) organisations also play a role in the delivery of employment services, active labour market policies, and social inclusion, as well as in early education, childcare, and elder care.

2.3 Performance The Czech welfare state performs quite satisfactorily in terms of labour market indicators (see Table 6.3). Employment rates (total, female, elderly) and unemployment rates (total, youth, elderly) are better than the EU average. The employment rate is 4.5 pp above the EU average, reaching the 70% mark in 2015. The unemployment rate in 2015 was one of the lowest in the EU (5.1%), 4.3 pp below the average. 95

Tomáš Sirovátka and Vojteˇch Ripka Table 6.3  Outcome indicators, Czech Republic, 1993–2015 (1993) 1995 Employment rate (15–64) Female employment rate Elderly employment rate (55–64) Part-time employment rate Female part-time employment rate Gender pay gap Gender employment penalty (20–49, child(ren) 0–6) Unemployment rate (15–64) Unemployment rate (under 25) Elderly unemployment rate (55–64) At risk of poverty and social exclusion At risk of poverty At risk of poverty before social transfers (pensions excluded) In household with very low work intensity Severely deprived

: : : :

(4.3) 4.0 (8.4) 7.8

2000

2005

2010

2015

EU28 2015

65.0 56.9 36.3 4.7 8.6

64.8 56.3 44.5 4.4 8.0 23.3x 46.8 7.9 19.3 5.2 19.6 10.4 21.2

65.0 56.3 46.5 5.1 9.1 20.9 45.2 7.3 18.3 6.5 14.4 9.0 18.1

70.2 62.4 55.5 5.3 9.3 21.5 42.9 5.1 12.6 4.4 14.0 9.7 16.8

65.7 60.4 53.3 19.6 32.1 16.2 16.8 9.4 20.6 7.0 23.8 17.3 26.1

8.9 11.8

6.4 6.2

6.8 5.6

10.7 8.1

8.8 17.0 5.3

Source: (Eurostat, 2018), own calculations Note: x = 2007; empty cells – data not available.

The total employment rate has increased by 5 pp since 2000, the female employment rate increased by 3.5 pp. The elderly employment rate has increased by about 19 pp during the past 15 years and it is above the EU average, mainly due to the rapidly increasing statutory pension age, for both men and women. The unemployment rate was still 1 pp higher in 2015 than in 1995 and the youth unemployment rate was 3.8 pp higher (12.6%), although it was 8 pp below the EU average. In the long term, some groups have remained disadvantaged; these include the disabled and low skilled, but not migrants. Similarly, figures on social exclusion indicators are considerably better than in the EU on average. At risk of poverty is among the lowest in the EU all the time (around 10%).The composite indicator of risk of social exclusion decreased by 5 pp during the past ten years and remains 10 pp below the EU average, while the indicators of severe material deprivation and very low work intensity are also decreasing and below the EU average. The low risks of poverty may be attributed to the almost full coverage of the population by social insurance benefits and their redistributive effects (mainly this is the case of pensions), targeted family benefits and the guaranteed minimum income scheme, and the extremely low pre-transfer risk of poverty (this is due to the relative equality of market incomes), which is nearly 10 pp below the EU average and the lowest in Europe.6 However, gender inequality, in spite of growing female employment rates, seems to be a problem:The gender pay gap is 5 pp higher than in the EU on average.The child employment penalty is among the highest in the EU: 43% against the EU average of 17%. This is due to the long parental leave that is only used exceptionally by men, the lack of affordable childcare, and the low usage of part-time work:7 only 9% of working women against 32% in the EU-28 on average.8 Gender equality represents a challenge for the country, as does the ageing population and low fertility rates. The increasing pressures on the pension system and healthcare/long-term care are 96

Hybridisation and diversification

an obstacle to social investments into childcare, housing, or labour market measures for the most vulnerable, which in turn can have negative impacts on the demography and labour market participation of some groups.

3  Welfare system change across policy sectors 3.1  Overview of welfare system change over time The ‘natural’ starting point of the period dates rather back to the year 1993 when the Czech Republic became independent due to the dissolution of Czechoslovakia into two separate states. Together with the fall of the communist regime in 1989, it marks a critical juncture unseen and unmatched with the upcoming twists and turns. A crucial problem in assessing the changes and continuities of the welfare system stems from the relatively low inner consistency of the periods we have identified. Despite the fact that the 1993–1997 period is marked with neoliberal doctrine, the 1998–2006 period with a socialdemocratic one, the 2007–2013 period turning again to neoliberal doctrine, and the 2014–2018 period being largely situational or pragmatic, these labels are far from accurate and fall apart when studying detailed policies and their ideological underpinnings. If we are still to identify the periods with more inner consistency, the social democratic expansion from 1998 to 2006 and the moderate neoliberal shift in the years 2007–2013 would be the most suitable candidates. However, with the situational and pragmatic scraping of the latter reforms and cost-containment measures from 2014 on, the legacy of these two periods does not seem to be lasting, with one important exception. In social services, and later in family policy and early childcare and education and primary education, a rather hidden (not on the primary agenda) trend of individualisation and diversification towards increasing clients’ choice occurred from 2005 on. This trend consisted in an increased role of client choice, which brought with it a transferability of entitlements followed by the deinstitutionalisation of some services, ranging from a shift from large nursing homes to foster care and large mental healthcare facilities to community-based alternatives. This process marks a departure from the paternalistic practices inherited from the exceptionally large role of the state in the provision of social services during the communist regime. While the principle is obvious, the ideas and practical steps might seem at times neoliberal (quasi-markets and direct payments to service consumers) or empowerment-based social investment, as this measure brought more universal and stronger support for elder care. The main driving force behind most of the changes, with the exception of the moderate neoliberal drive from 2007 to 2013, is a social consensus based on low unemployment and a high level of income equality attained by relatively low wages and strong redistributive measures. This core has remained largely intact over time (Vanhuysse, 2006; Orenstein, 2008; Cerami and Vanhuysse, 2009) and the moderate neoliberal shift might be seen as an unsuccessful temporary departure. Two major external factors have made considerable imprints on Czech social policy. The most important by far is the economic development, especially the aforementioned two larger economic crises in 1997–1999 and 2009–2011. The other external factor, the European Social Funds and the funds that preceded them, do not look substantial in their amount, but due to their relative ‘unboundedness’ in the face of the largely mandatory expenses of the social policy sector, they may play an important role within social investment (Ripka, 2010, pp. 464–465). In some of the areas (such as housing policy), the amount of redistribution exceeds the nominal measures by far, but their effects have yet to be seen (Avram, 2017). Table 6.4 gives an overview of the main changes in the Czech welfare system. 97

Lower replacement rates

Unemployment benefits Family policy

2007–2013

Family policy Social assistance Sick pay Unemployment benefits Tax bonuses increased Family policy Parental benefit Healthcare

Social services/ LTC

Labour market policy Social assistance

Family policy (benefits made income tested)

Family policy

1998–2006

Pension reform (increased pension age, changed benefit formula, third pillar)

Pensions

1993–1997

Individualisation, choice Neoliberalism Cost containment

Restructuring Retrenchment

Flexible parental leave (regarding time frame) Out-of-pocket fees

Cost containment, deinstitutionalisation, clients’ choice, universalism Cost containment Neoliberalism

Protection, activation, Europeanisation Cost containment, protection, and activation

Neoliberalism Cost containment Pragmatism (aiming for the protection of the vulnerable, seeking the legitimacy of reforms) Neoliberalism Cost containment Pragmatism (protection, legitimacy) Neoliberalism Cost containment Equality, redistribution, universalism

Retrenchment

Retrenchment Restructuring Conditionality Restructuring

Expansion

Expansion

Retrenchment

Retrenchment Restructuring

Retrenchment Restructuring

type

Ideas

‘Social reform’ = cutting benefits, restricting eligibility

Increasing benefits, extension of eligible families (1998, 2006) Increase of unemployment benefits (1999, 2004) Reducing benefits, adjusting to housing costs Implementing care benefit

provisions

Regulations

Dimensions of change

Policy sector

Time frame

Table 6.4  The overview of the changes in a three-dimensional perspective

Incremental

Incremental

Incremental

Abrupt

Incremental

Incremental

Incremental

Incremental

Incremental/Abrupt (potentially – if the direction of reform was to continue in the future) Incremental/Abrupt (potentially)

process

Type of change

Discontinuity/ reversal

Continuity

Discontinuity/ reversal

Continuity

Discontinuity/ reversal Continuity

Discontinuity/ reversal

Continuity

Continuity

Continuity

output

2014–2018

Pensions

Social assistance

Family policy

Family policy

Family policy

Active labour market policies

Second pillar, increase in adequacy of replacement rate Increasing overall effort (staffing, expenditure, new instruments) Increasing benefits and eligibility Child-minding groups Act (alternative childcare to kindergarten) Guarantee of pre-school education and childcare Public service reimplemented Second pillar cancelled Improved revaluation of pensions Corrected increases of pension age

Workfare Centralisation of PES (in decisionmaking) Privatisation (private job mediation legislated)

Active labour market policies/Public Employment Services

Pensions

Public service scheme

Social assistance

Expansion Restructuring Retrenchment Conditionality Restructuring Expansion

Expansion Restructuring

Expansion

Expansion

Restructuring

Retrenchment Conditionality Retrenchment Conditionality Retrenchment Restructuring

Cost containment Activation Pragmatism Redistribution

Social investment

Social investment (EU funds in consideration)

Redistribution

Social investments (EU funds in consideration)

Neoliberalism

Activation Neoliberalism Neoliberalism Cost containment Marketisation

Activation

Abrupt

Incremental

Abrupt

Incremental

Incremental

Incremental

Abrupt (potentially)

Abrupt (potentially)

Abrupt (potentially)

Incremental

Discontinuity

Continuity

Discontinuity

Discontinuity

Discontinuity

Discontinuity

Discontinuity

Discontinuity

Discontinuity

Continuity

Tomáš Sirovátka and Vojteˇch Ripka

3.2  Analysis of main developments by policy sector Old age policy The pension system in the Czech Republic has been a contentious arena. However, despite a number of attempts, no dramatic change occurred between 1994 and 2008. The system is based on the principles of solidarity and merit and uses the social insurance as its funding basis. Social contributions are compulsory for employees, while the self-employed are obliged to make only minimum contributions. Contributions give the legal right to pensions. The pension scheme does not concern just the old age group, but also those on partial or full disability, widow(er)s, and orphans. It is predominantly pay-as-you-go (PAYG) with minor individual funds. The contributions amount to 28% of the wage increased to its current level in 2004 due to large deficits in the pension fund. The system is overseen by the Ministry of Labour and Social Affairs (MLSA); daily operations are run by the Regional Social Security Administration, a network of agencies under the ministry. The second pillar (or the third pillar under the system of the World Bank) consists of additional (personal and voluntary) pension insurance introduced in 1994. The programme is conducted with private funds. Contributions are moderately supported by the state in the form of direct support and by tax allowances. The private funds, which provide ‘additional pension insurance’, are regulated by the government and the overall contributions. Though it currently encompasses half of the working population, it amounts only to 0.1% of old age pensioners’ income (ECDG, 2018b, p. 26). The retirement age is set to steadily shift and the mechanism has been steadily increasing by two months each year since 1995 (currently, the pensionable age is 63 years for men and 62 for women). The ceilings for this mechanism had been shifting in uneven steps until 2011, when the ceiling was abolished by the moderate neoliberal government. In 2018, the cap of 65 years, set in 2008, has returned.These changes reacted to a steady, but in European measures extremely fast, rise in life expectancy (Ripka and Mareš, 2016, pp. 110–111). A long and confusing debate on the future of the PAYG system materialised in rather small parametrical shifts, unlike in the neighbouring countries of Poland and Hungary (Adascalitei and Domonkos, 2015). But there were two exceptions. The first deviance from continuity came from the discrepancy between the formal construction of the social insurance and its highly redistributive effects, weakening the principle of merit (adequacy of income replacement) to a level that was successfully challenged at the constitutional court in 2010 (Ústavní soud České republiky, 2010). This led to a relatively swift change in the formula for pension benefit calculations based on average income, increasing the ceilings for reduction of income slightly (Ripka and Mareš, 2016, p. 120). The second anomaly came as an abrupt change introducing a second pillar based on a voluntary opt-out scheme with state contribution in 2013. Its abrupt introduction (based only on a minimum political majority) and its ill-conceived format resulting in a very small participation rate (80,000 participants) made it easy for the new government to scrap it without any adequate alternative in 2015. It seems that since 1994, despite numerous successive attempts at systemic change in old age pensions, no vision has been strong enough to effect a lasting change.

Labour market and unemployment policy In labour market policies, several policy reversals were more frequent than in the other areas, and led, together with social assistance reforms, to a ‘third order change’9 towards a neoliberal labour market regime. Firstly, while in 1993 the unemployment insurance system provided a maximum 100

Hybridisation and diversification

benefit level at 1.5 times the subsistence minimum level for an individual for a period of six months (replacement rate of 60% for the first three months and 50% thereafter), the neoliberal Czech government of Václav Klaus decreased the replacement rate in 1997 to 50% for the initial period and to 40% for another three months. The government led by the Social Democrats, who came to power in 1998, only slightly reversed the neoliberal trend. In 1999 it raised the ceiling for unemployment benefits from 1.5 to 2.5 times the subsistence minimum (and from 1.8 to 2.8 times the subsistence minimum for ALMP participants). When joining the EU in 2004, the government increased the benefit rate during the second three months of unemployment from 40% to 45% of net income in order to meet the demands of ILO treaty no. 168.The duration of unemployment benefits was prolonged to nine and twelve months for those above 50/55 years. On the other hand, the government increased conditionality, and administrative pressures on the unemployed followed. The core ideas behind these changes were better protection of the regular/deserving workers, but also increasing pressures on the marginal/undeserving workforce (in line with neoliberal discourse). Another wave of policies that accentuated activation occurred as the centre-right came back into power in 2007: It shortened the benefit period by one month, although it increased the replacement rates for the first two months (to 65% of the replacement rate). In 2011, the re-elected neoliberal government introduced an abrupt policy change in the form of strong workfare measures: After two months, the unemployed could be required to take part in public service activities for at least 20 hours per week in order to earn the right to unemployment benefits. Neither the caretaker government from 2013 nor the government led by the Social Democrats from 2014 changed any of the other measures. However, the workfare measure (public service as a condition for unemployment benefit entitlement) was abolished by the Constitutional Court shortly after it was implemented in 2012. In active labour market policies (ALMPs), the Czech Republic followed a strategy of low policy effort (both in terms of expenditure and labour market participants) during the 1990s as well as during the first half of the 2000s: Protection of existing jobs for the core labour force was a priority since the early 1990s. In 2005, the expenditure on ALMP measures (except for labour market services and administration) represented 0.112% of the GDP against the EU-28 average of 0.521%, but in 2010 (during the centre-right government) it increased to 0.211% with the anti-cyclical measures during the crisis. Still, the re-elected neoliberal government cut expenditures to 0.136% of GDP in 2012. At the same time, during 2011, the number of Public Employment Services (PES) employees was reduced from 8,136 to 6,237 in spite of the increasing unemployment rate (Úřad práce, 2014).These restrictions in ALMPs may also be considered as abrupt policy change in line with neoliberal ideas of non-intervention into the market. The reversal in policy trend (in terms of incremental change) arrived with the caretaker government of 2013 and with the new Social Democrat–led government. The expenditure on ALMPs increased to 0.241% of the GDP in 2014 and to 0.306% of the GDP in 2015 (data from Eurostat, 2018), while ESF-financed measures represented the lion’s share. Similarly, the number of the ALMP participants increased between 2012 and 2015, from 1.02% of the workforce to 1.68% of the workforce (OECD, 2018). The staffing of Labor offices was also increased but still did not restore the capacity before the reform of 2011. In this final stage of development, the concept of social investment seems to implicitly underpin the policies (with the aims to improve employment and economic performance). To sum up, in the area of labour market policies, the changes over time went rather towards a market-liberal system, but they also explicitly followed the aims of protecting the regular labour force (1998–2006) and social investment in the last stage (2014–2018). These changes represent 101

Tomáš Sirovátka and Vojteˇch Ripka

second order changes, and when combined with social assistance reforms they constitute a base for third order change.

Social assistance Shortly after market reforms were initiated in the early 1990s, a social safety net was created as protection against their expected impacts. In November 1991, this safety net prioritised protective objectives by providing good access and generous replacement rates.The Czech centre-right government of 1993 did not change much except for softening obligations for the revaluation of the subsistence minimum (from 5% to 10% of CPI growth), as it considered social assistance as an important pillar of social security in line with the neoliberal concept of the welfare state. In the 1998–2006 period, the centre-left government continued in its protective approach, but it also initiated a slight policy reversal towards activation. The reform of social assistance (SA) in 2006 was aimed at providing adequate minimum guarantees, while increasing incentives in order to activate welfare recipients (MPSV/MLSA, 2005;Vládní návrh, 2005). The main reason for this was the increasing number of social assistance recipients during the economic slow-down of 1997–1999 and neoliberal discourse on undeserving recipients, widespread in the media and among the professionals/policymakers. Positive work incentives in the form of earnings regardless of income were implemented: Since 2007, only 70% of income from work and 80% of income from sickness and unemployment benefits have been taken into account when testing for the means of subsistence. The reform of SA differentiated, based on a job search test, between ‘deserving’ recipients and ‘undeserving’ recipients (provided at most with restricted SA benefits; this existence minimum was one-third lower compared to the subsistence minimum). In the second period, 2007–2013, the neoliberal trend of activation became explicit, leading finally to a potentially abrupt change if it had been successfully implemented. The ‘social reform’ acts of August 2007 cancelled the automatic indexation of the subsistence and existence minimums based on inflation rate; this became the sole discretion of the government. Hence, the revaluation of the subsistence/existence minimum took place only in 2008 when the value-added tax (VAT) was increased. Entitlements to SA benefits were substantially cut in January 2009. After six months, SA benefit recipients were automatically entitled only to an existence minimum instead of the subsistence minimum. When they participated in public works for a total of 20–30 hours per month, they were entitled to a subsistence minimum plus a supplement of 30% of the difference between the subsistence and the existence minimum. When they worked in the programme for 30 hours or more per month, they were entitled to the subsistence minimum plus a supplement of half the difference between the subsistence minimum and the existence minimum (MLSA/MPSV, 2010). Due to the economic crisis, the average monthly number of SA recipient households increased from 65,000 households in 2008 to 161,000 in 2014 (MPSV/MLSA, 2015). The new activation measures adopted in 2011 potentially represented an abrupt policy change, although in line with the existing trend: It was an explicit workfare measure (see the previous section). Positive incentives in the form of bonuses to the subsistence minimum or the existence minimum in case of participation in public service were cancelled. In the third period, 2014–2018, the activation trend continued: In February 2017 the measure of public service was reimplemented as it was designed in 2009, while revaluation of subsistence/existence minimum was neglected in spite of faster inflation and rising housing costs. Overall, in social assistance, the neoliberal trend was apparent in all periods, emphasising activation of the recipients. The cumulative incremental changes were leading to the shift from protection towards activation when taking the whole 1998–2018 period into consideration. In 102

Hybridisation and diversification

consequence of the continuity of the incremental changes and in combination with the changes in labour market policies, third order/abrupt change emerged.

Family policies While under communist rule, the state attempted to play the main caregiving role; after 1989, the state shifted responsibility to the family: Most of the nursery schools for children under 3 were closed down. This development, known as re-familiarisation (Hantrais, 2004), continued during 1998–2018. In 1995 an extra year was added to flat-rate paid parental leave, so that parents could stay at home for four years. At the same time, in line with a targeted approach, family benefits were made income tested. These included the child benefit (available for households with income less than 3 times the subsistence minimum, the level depending on income), the housing benefit, and the additional child benefit (social supplement) for those households below 1.6 times the subsistence minimum level. Parental benefits were set at 1.1 times the subsistence minimum level but remained universal. In the following development stage (1998–2006), the Social Democrat–led government increased benefit levels and accessibility. This was only possible in 2006 due to the economic slow-down and the necessity to meet Maastricht fiscal criteria for joining the EU in 2004. Before the new elections in 2006, the Social Democrat–led government suggested doubling the parental benefit (and linking it to 40% of the average wage), making the child benefit accessible to a larger number of families (below four times more than the subsistence minimum) and increasing the birth grant. These suggestions won the support of the opposition parties. In the second stage (2007–2013), the social reform by the centre-right government cut several family-related benefits:The child allowance/benefit was made accessible only for households below 2.4 times more than the subsistence minimum, and in 2011 the social allowance was cancelled. The birth allowance that used to be a universal benefit was cut down slightly for the first child and more radically for the second child and subsequent children. Since 2011, it has been limited to women having their first child and only then if their family income is not higher than 2.4 times the living minimum. In 2007, the government introduced a three-tier system of parental leave. Parents can choose between (a) ‘fast track’, (until a child is 2 years old, increased benefit), (b) ‘classical track’, (until 3 years, benefit at the initial level), or (c) ‘slow track’, (classic basic level of support until the child reaches 21 months, followed by a lower level until the child reaches 48 months) (MPSV CR, 2007). Beginning in 2012, the parental allowance has been provided until it amounts to 220,000 CZK (approx. EUR 8,800)10 and/or the child reaches 4 years (MPSV, 2012). The monthly benefit may also not exceed 11,500 CZK (approx. EUR 460, i.e. 60% of the wage average). The reforms represented incremental changes only, although dictated by neoliberal ideas of permanent austerity combined with conservatism and shared preferences for more individual choice. In the third stage (2014–2018), the government’s December 2014 Action Plan for Support of Economic Growth and Employment in the Czech Republic (Úřad vlády ČR, 2014) stressed support for social investments with an emphasis on active labour market policies, early education, and childcare. Since April 2013, municipalities can establish facilities for children under 3 years of age based on the Act on Child Groups. The act was prepared by MLSA during the previous centre-right government aiming to deinstitutionalise childcare by providing alternatives to nurseries and kindergartens. This measure, implemented in 2015, has been massively financed from the European Social Fund (ESF) and brought additional Early Childhood Education and Care capacity. In March 2018, there were 600 children’s groups (MPSV/MLSA, 2018) – our estimate for the resulting number of enrolled children is about 9,000 children in total.This 103

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is, however, only a minor portion of children seeking a place in kindergartens: Each year about 100,000 applications are submitted.11 The most important policy shift was that the new Education Act from 2016 brought an obligatory year of pre-school education (with free access), which was first implemented in the 2017/2018 school year with yearly steps until 2020/2021 school year, when the right should have been extended to 2-year-olds (MŠMT/MEYS, 2015). However, as the Social Democrats lost their leading position in government with elections in 2017, the measure was softened in 2018: The right for kindergarten placement for children of 2 years (to 3 years) of age was revoked, in line with the re-familiarisation strategy. In 2015, the child allowance was increased and made accessible to a broader group of lowerincome families, as was the birth grant, if they fell below the reference income of up to 2.7 times (originally 2.4 times) the household subsistence level. Since February 2018, one week of paid paternal leave was implemented, and the benefit is provided at the level of sick pay. To sum up, family policy consistently followed a re-familiarisation path during the period, while incorporating some neoliberal elements (selectivism based on income testing), and, at the end of the period, social investment ideas and measures appeared. We assess the developments as a slight second order change, as the new instruments/measures appeared but they did not represent a departure from the already existing trend/developments.

Healthcare and long-term care Similar to family policies, Czech healthcare policies went in a conservative direction after 1989. Health insurance funds pay the main healthcare expenses, and they are not allowed to make profits. The first post-communist government allowed the privatisation of doctors’ practices in many areas as well as the creation of new insurance funds. Still, the goal of providing free or cheap healthcare to the entire population remained in the forefront. Although by the end of 1993, about 90% of general practitioners and about 70% of paediatricians and adolescent-care physicians had private practices (Vepřek et al., 1995, p. 57), by 1996 private hospitals constituted only 8.3% of the total number of beds, and this share doubled over the next 20 years. With 16.6% share, the proportion is still relatively low (ÚZIS, 1997; ÚZIS, 2017). During the periods of 1993–1998 and 1998–2006, the grounds of the healthcare system implemented during 1989–1992 remained intact. Both the centre-right and centre-left governments provided universal service, accessible for all, with one important exception: There was an abrupt change in long-term care that was based on the idea of the choice/empowerment of clients. The objective of this expansion of eldercare was to meet the increasing demand for eldercare and was also aimed at cost containment. Actually, in 2006, the Social Democrat–led government replaced the benefits provided to long-term carers and the disability pension benefit that went to the ill by providing a new benefit that goes directly to the long-term ill, which allows them to decide to use the benefit to pay for informal home care or to pay for professional social services (care allowance). The amount of the benefit is based on the ‘dependence level’. This reform passed through the government thanks to support from the main non-governmental organisation (NGO) in this field, the National Council of Disabled Czech Republic, as well as from the main opposition party (ODS) (Hutař and Krása, 2006), as it promised to make longterm care (LTC) more accessible while increasing clients’ choice. In the second stage, the centre-right government of 2007 (2007–2013) followed more clearly the neoliberal ideas, underpinned with the austerity discourse. Beginning in January 2008, patients had to pay a fee of approximately €1.20 for each visit to the doctor, drug prescription, or hospital stay (with no exemptions for children or pensioners). This measure faced wide-scale 104

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resistance both from the opposition parties and from civil society (NGOs and trade unions) (Saxonberg and Sirovátka, 2009). In the regional elections in autumn 2008, Social Democrats promised to scrap the fees in the regions that they would win, which they delivered by compensating the users of health services for the fees. Then the centre-right government coalition responded to this by softening the fee requirements for children as well as for seniors over 65, and the new centre-right government re-elected in 2010 continued very carefully in their ‘partial’ healthcare reforms. Another austerity measure was the new law from 2009 that denies sickness benefits during the first three days of illness to people who become ill.12 At the same time, it was decided to lower sickness and maternity benefits from the previous level of 66% to 60% of the previous income. For those sick longer than three months, the drop was greater: from 72% to 60% (Act No. 487/2009 Coll.). In the third stage (2014–2018), the Social Democrat–led government continued to soften the formerly accepted measures. They cancelled patients’ fees (except for the fee for emergency health services) in 2014, and continued to improve conditions for the deinstitutionalisation of long-term care by supporting informal carers. A bill lowering the annual ceiling on the maximum drug co-payment expenditure for the elderly and children passed the legislation process in 2017 (before the parliamentary elections). Also, unprecedented increases in nurses’ and social services workers’ salaries were adopted (about 20%). Since June 2018, in line with social investment ideas, the position of informal carers was supported by a new sickness insurance allowance called the ‘long-term caregiver’s allowance’. This allowance compensates for the loss of earned income from work that had to be interrupted, and it is capped at 90 days. The carer/employee is guaranteed to return to the same job. However, although this issue has long been discussed, no progress has been achieved regarding the systemic integration of healthcare and long-term care. There is a ‘responsibility split’ between the healthcare sector and the social care sector that has led to great differences in the costs of care for clients: Clients pay a major part of social care/long-term care in pensioner’s homes, while the care in healthcare facilities is covered from public health insurance. As a result, people who need social care are often hospitalised, because although social services are available, they may be economically prohibitive. To sum up, in the healthcare and long-term care sectors, there was a strong continuity in the Bismarckian tradition combined with universalism in access to care (communist legacy) and only first order changes emerged. Neoliberal ideas did not win out in policymaking, but the reform of LTC combined universalism in access and free choice principles, leading to second order change.

4 Outlook During the past 20 years, the Czech welfare state followed a hybridisation path, combining the elements of the Bismarckian and post-communist legacy with both neoliberal and redistributive ideas, but without any strong concept or idea behind it. Instead, short-term electoral gains were the motive for the changes, apart from strong path dependency. Actually, the Czech governments of any colour consistently combined the aims of social protection and redistribution with the objective of keeping social expenditure at a low or moderate level at most. The other reason why the changes were rather incremental was that the governments often did not hold a strong majority in Parliament and/or strong support within the coalition to push through more systemic, abrupt policy reforms. A more pervasive attempt at a neoliberal shift in social policy emerged in the 2007–2012 period. However, the successive governments beginning in 2013 soon cancelled most of the radical changes adopted. 105

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The legacies were less influential in the labour market policies and social assistance that are relatively new policy fields in the Czech context: The changes were more profound there than in pension, healthcare, and family policies (compare also Saxonberg et al., 2013). The main challenges faced by the Czech welfare state emerge from an ageing population and changes in labour market and societal structures: These changes increase the financial strain on the pension system and necessitate diversification that would bring more savings into the system (like second pillar), and on the healthcare system that needs to be overhauled in order to increase efficiency. At the same time, there is a need for social investments that would help to fully develop childcare, long-term care, employment policies, and social housing. However, the outlook is that trends of hybridisation and diversification will continue, bringing rather incremental changes. Such cumulative changes may lead over time to significant discontinuity: This is indicated recently in family policies, and it was the case in labour market policies and social assistance. The current minority government formed by the populist entrepreneurial party ANO 2011 and the Social Democrats, with the support of the Communists, does not offer much leads to trace a basis of their consensus. In June 2018, this new government coalition announced the intention to establish a commission on pension reform, general support to families and social services, reintroducing sick pay during the first three days (Government Statement, 2018). Apart from a pledge for some expansion, no particular path may reasonably be predicted. The other thing is that the new minority government seems to be fragile for several reasons; the consequences of an eventual government change on changes in the welfare state are also likely.

Acknowledgements This work was supported by the Czech Grant Agency under Grant 21263S ‘Welfare Attitudes in Post-Crisis Europe’.

Notes 1 Cf. the sequencing of Klimentová and Thelenová (2014). 2 We start our analysis in 1993 because in this year the Czech Republic was established (split off Czechoslovakia) and some systemic reforms were adopted during 1993–1995 on which the following periods were built. 3 Cf. Bonoli (2005). 4 Discussions on the Act on Social Housing that should change this have been carried out since 2013, and the act is under preparation, accompanied by controversies (Lux, 2017). 5 In 2015, the proportion of people at risk of poverty was 9.7% in the Czech Republic compared to the EU average of 17.3%. Not only was pre-transfer poverty (when pensions are not considered as transfers) considerably low (16.8%) compared to the EU average of 26.1%, but the effectiveness of the transfers in alleviating poverty was also much better (42% against 33.7% on average in the EU); see the Eurostat database. 6 A specific problem – not apparent in data on income poverty – in the Czech Republic seems to be indebtedness: According to recent data from March 2018, 9.1% of the population face distraint orders. This figure could increase the at-risk-of-poverty indicator by estimates of 4 pp (Biben, 2018). Though there is no international comparison available, distraint often makes affected people reluctant to take a formal job opportunity (they would simply repay only debts by their salaries) and rather dependent on social assistance and informal incomes. 7 It is low for a number of reasons, mainly since it is not preferred by households as it does not pay off (marginal effective tax rates are high while earnings are rather low). 8 For data see the Eurostat database. 9 According to Hall (1993), first order policy change introduces small changes to the existing instruments, second order change brings in new policy instruments, whereas third order policy change brings new policy objectives. 106

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10 Exchange rate as of 2012, see https://sdw.ecb.europa.eu/curConverter.do?sourceAmount= 220000.0&sourceCurrency=CZK&targetCurrency=EUR&inputDate=13-06-2019&submitConvert. x=129&submitConvert.y=9. 11 For data see msmt.cz. 12 This austerity measure was rescinded in October 2018, in effect from January 2019.

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7 The German welfare system The calm after the storm Florian Blank

1 Introduction: historical perspective and changes in the German welfare system The modern German welfare state has its origins in the 1880s when nationwide statutory social insurance schemes – health insurance in 1883, occupational accident insurance in 1884, and pensions and invalidity insurance in 1889 – were established. Germany is considered both a pioneer of modern social policy in general (Schmidt, 2005, p. 21) and at the same time often serves as the reference case (Palier and Martin, 2007, p. 537; Hinrichs, 2010, p. 45) for the continental, conservative, or Bismarckian family of welfare states, signified by social insurance schemes, the aim of preserving the status of (male) employees, and a strong connection between welfare and employment. Core features of the Bismarckian welfare system persist until today, even though they have been subject to numerous, sometimes far-reaching reforms during recent decades (Schmidt, 2014; Nullmeier, 2014). Germany is also one of the most developed welfare states, not least with respect to the level of public expenditure on social issues (Schmidt, 2014, p. 227). The social problem to which modern German social policies initially responded was the ‘worker’s question’ (for the following account see Kaufmann, 2003; Schmidt, 2005). In the context of changing economic and social structures and living conditions, modern social policies were borne out of attempts to deal with the labour movement (social insurance complemented the repressive Anti-Socialist Law of 1878), in addition to paternalist concerns and faith-based impulses to care for the weak and vulnerable. Also, the establishment of insurance schemes was intended to keep workers from the humiliating poverty relief system. The years after the establishment of social insurance schemes witnessed an increase in the (low) benefits and the inclusion of new groups of employees, even though the administrative distinction between occupational groups (such as workers, white-collar workers, and artisans) remained a feature of public social insurance for decades to come and in some respects until today. At the core of the newly established system was a close link between social security and employment. Benefits from social insurance schemes had to be earned; they were not granted based on citizenship. So therefore, the problem solved by the new institutions was not that of

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poverty, but the problems faced by workers and employees; social policies were, and continue to be, geared more towards wage replacement for formerly employed persons and not so much towards redistribution. While the system of mandatory public social insurance for workers was certainly an innovation, the German welfare system continued to bear traces of earlier attempts to deal with growing social problems. Hence, the social insurance system existed side-by-side with other providers of social protection such as insurances or societies, cooperatives (for example of trades), churches, local authorities, and companies, and some specific public programmes (Schmidt, 2005, pp. 21–22). This tradition of welfare provision by a multitude of actors can be seen to shape the German welfare system until today as non-governmental organisations continue to play an important role in the provision of social services. The welfare state underwent many reforms and transformations in the wake of the troublesome history of Germany in the 20th century. Nevertheless, some of its key elements survived, namely the role of social insurance schemes – to which unemployment insurance was added in 1927 and long-term care insurance in 1995 – and the work-welfare nexus. While the decades after World War II saw an expansion of benefits and also of coverage, the direction social policy reforms took in recent decades is far from clear. Some authors stress the overall stability of the German welfare system, but nevertheless acknowledge the addition of ‘side paths’ to the German way of organising social security (Schmidt, 2014, p. 233). Others even question the appropriateness of the label ‘Bismarckian’ (Seeleib-Kaiser, 2016; Hinrichs, 2010).1 It will be one of the tasks of this chapter to show discuss whether core elements of the German welfare state remain structurally intact. This concerns not least the role of social insurance systems in the German system of welfare provision, but also the work-welfare nexus, which has been reinterpreted (but not surrendered). This chapter focuses on the development of the German welfare state in the past two decades, i.e. the years 1998–2018. These two decades can roughly be divided into two phases of reform.2 The first phase under scrutiny includes the period of the red-green coalition government headed by Gerhard Schröder (1998–2005) and the first years of the first grand coalition government headed by conservative Angela Merkel (2005–2009). After a short phase of ‘traditional’ social policies in 1998/1999, this period saw a multitude of transformative changes in various policy fields up to 2008. Even though many reforms included cuts of benefits, changes cannot and should not only be assessed as ‘simple’ retrenchment, for often they brought a new quality to social policies, which justifies talking of a paradigm change or system shift. Until today, some of the decisions, especially in the fields of pensions and unemployment insurance, have led to criticism and influence German policies and politics.3 The background to this period included high unemployment and the attempt to stabilise social insurance contribution rates, which were seen as damaging to the German economy, as well as the wish to increase efficiency in welfare provision. Other major debates that continue until today are linked to demographic change and economic transformations. The second period (2009–2018) was one of relative stability and incremental reforms, even during and after the financial crisis of 2009–2010. Conservative Chancellor Angela Merkel has governed with the Social Democrats (2005–2009), the Liberal Party (2009–2013), and again with the Social Democrats (since 2013). Social policies in this period were influenced by both the prior reforms (that made larger reform attempts often seem unnecessary) and a strong economic performance that contributed to a good development of the labour market. The latter even made it possible to make some corrections to earlier reforms. In sum, the

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reforms of the first period are often seen as the most important, and they shape German political debate until this day. The changes the German welfare state has experienced, and is continuing to experience today, can hardly be summarised under a single heading. Some developments may be labelled as a retrenchment and restructuring, but at the same time some programmes, especially social services, were further developed. Some reforms brought a qualitative change to the system of welfare provision when the production and distribution of welfare benefits was partially privatised. And while some reforms led to abrupt, fundamental changes, they were nevertheless embedded in an ongoing general debate that culminated in these reforms. In the following sections, general features and developments of the German welfare state in the years 1998–2018 are described. This is followed by an analysis of specific policies. The main findings are summarised in the last section.

2  General structures of the German welfare system In this section, the general structures of the German welfare system will be described. A more detailed overview of these general characteristics can be found in the first edition of this Handbook (see Hegelich and Meyer, 2009).

2.1 Priorities As noted in the introduction, the German welfare state continues to bear traces of its Bismarckian origins. Access to social benefits is based either on a legal status of residence or on social insurance contributions, which follow from employment or other situations in one’s life course that are treated somewhat similar to employment (such as care work).4 The connection between work and welfare shapes the German welfare state in many respects: first, as a general norm that leads to a focus on employees’ needs, and at the same time stresses both the value of work and the need to work; second with respect to the benefits and funding of the welfare state as can be shown by national statistics (see Section 2.2); and finally with respect to political and economic consequences of this approach, as the connection between work and social security links social policies directly to the economy, e.g. leads to attempts to cut contribution rates in order to decrease non-wage labour costs. Its focus on wage replacement and status maintenance has contributed to an assessment of the German welfare state as being strong in transfers but weak in the provision of social services (Schmidt, 1999, p. 8; Kaufmann, 2003, pp. 304, 307). Indeed, the state has a limited role in the direct provision of social services. These are provided by charities, for-profit companies, and public (often municipal) institutions. This setting of welfare provision has changed in the past two decades because of the introduction of market mechanisms (Nullmeier, 2002) and other reforms. Even though the state concentrates more on a regulating role than on the active provision of services, it should be kept in mind that the system of social insurance plays a significant role in granting access to social services (statutory health insurance and long-term care insurance), or even in directly providing them (employment services, rehabilitation measures provided by the statutory pension insurance). It is also said that the German welfare system in total provides a comparatively small amount of social services. This fits the observation that for a long time, the German welfare system rested on the ‘family-wage-earner model’, which leaves the responsibility for the provision of some services to families, and here particularly women (Bleses and Seeleib-Kaiser,

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The German welfare system

2004, pp. 23–25). Although the significance of social services has increased in recent times, the picture is far from clear. With respect to expenditures for social services there has been an increase, but at the same time established services – such as healthcare – are under constant pressure to be more efficient and to save costs. New rights, as in the case of childcare, coexist with the assumption that families are responsible for care work. And while increasing numbers of people are working in the social sector, they work often under conditions that are problematic (Blank and Schulz, 2015). From a comparative perspective (Germany compared to EU-15/EU-19/EU-28, 2015), Germany deviates from the mean by spending a smaller share on unemployment and ‘old age/ survivors’ and more on families/children and ‘sickness/healthcare and disability’. Total social spending as a percentage of GDP is a little above average compared to EU-28 countries and below average compared to EU-15 and EU-19. Spending in purchasing power standards (PPS) per inhabitant is above average. Table 7.1 shows the development of total expenditures, expenditures as PPS per inhabitant, and spending as a percentage of GDP. Total expenditures and spending per inhabitant increased nearly every year. Spending as a percentage of GDP ranged between 26.8% (2007) and 30.5% (2009). An increase in the years 1995–2003 was followed by a decrease until 2007. From 2008 to 2009 there was a massive increase that affected both total social expenditures and the relation to GDP, as the GDP dropped during the same period as social expenditures increased. The years since the financial crisis were signified by a somewhat stable level of spending. Focusing more closely on policy areas (cf. Table 7.2), it can be shown that in 2015 the biggest share of total social expenditure was spent on ‘sickness/healthcare and disability’ (41.02% of total expenditures). This share increased after the mid-2000s by six percentage points. At the same time the share of spending on ‘old age and survivors’ decreased. Family/children-related expenditures had increased since the mid-1990s but remained fairly stable after 2000. Spending on unemployment decreased. The reasons for these developments are to be found in both political decisions (such as retrenchment measures) and general socio-economic developments such as the favourable performance of the German labour market.

2.2  Funding and administrative structure Funding of welfare provision stems mainly from social insurance contributions and the governmental budget (federal, Länder, or municipalities), but also other sources such as direct payments from private households. Regarding public or publicly induced welfare provision as documented in the government’s social budget (Federal Ministry of Labour and Social Affairs, 2018), contributions borne by employers and employees are the most important part, albeit the principle of parity was or has been abolished in some branches of social insurance. During recent decades, the state’s direct role in financing social expenditures has increased to about 33% (including subsidies to social insurance), while the employers’ share has decreased. This development is not least due to the attempt to cut contribution rates (or to limit increases), as high non-wage labour costs are seen as damaging to the German economy.5 Subsidies to the social insurance from general tax revenue are not only paid as a reimbursement for general social tasks fulfilled by social insurance institutions, but also serve as a substitute for insurance contributions. Contribution rates saw a general increase in the years after reunification, but have remained on a level below 40% in recent years.

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546,054.83  566,278.52  554,186.82  566,182.57  591,208.18  608,011.08  625,615.48  647,958.75  660,919.65  659,287.95  665,549.62  665,640.88  674,222.40  694,464.63  751,182.31  768,797.13  773,584.76  791,313.99  819,865.24  848,964.97  885,436.75(p)

5,705.00 6,135.88 6,246.46 6,419.48 6,806.10 7,068.43 7,231.00 7,501.95 7,687.42 7,787.32 7,945.20 7,987.03 8,196.43 8,278.58 8,771.19 9,120.33 9,423.53 9,724.50 9,913.96 10,329.81 10,818.99

27.5  28.7  28.3  28.2  28.6  28.7  28.7  29.3  29.8  29.0  28.9  27.8  26.8  27.1  30.5  29.8  28.6  28.7  29.0  28.9  29.0(p) 

:  :  :  :  :  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p) 

Total (mio €)

PPS per inhab.

Total (mio €)

% GDP

eu28

de

Source: Eurostat, 2018, code spr_exp_sum; (p): provisional value

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

Table 7.1  Social protection expenditure

:  :  :  :  :  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p) 

% GDP :  :  :  :  :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p) 

PPS per inhab. 1,869,415.56  1,971,768.55  2,048,453.88  2,110,012.32  2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25

Total (mio €)

eu15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3 

% GDP

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54 

PPS per inhab.

The German welfare system Table 7.2  Social protection benefits according to function, 1995–2015 (% of total expenditure)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

100 96.14 7.83 8.18 0.98 0.85 38.61 39.69

100 96.39 10.95 7.22 1.08 0.52 36.53 40.09

100 96.11 10.42 7.03 2.18 0.52 35.02 40.95

100 95.55 10.52 5.51 2.21 0.47 38.43 38.41

100 95.74 10.86 3.51 1.9 1 41.02 37.44

Source: Eurostat, 2018, code spr_exp_sum

While contribution rates to the statutory health insurance and long-term care insurance have increased, contributions to the statutory pension insurance and unemployment insurance have decreased. This was a consequence of reforms, but also of the favourable performance of the German labour market (Table 7.3). A look at the social budget or at the social insurance schemes alone is not sufficient, however, to fully understand the amount of social expenditures and recent dynamics in financing.Welfare state reforms of recent years have contained elements of privatisation; they shifted part of the costs to private households (as in the case of healthcare) or left it to citizens to decide whether they want to invest in additional private insurance schemes (such as private pension plans). The governance and administration of the German welfare system are signified by a complex set of actors and administrative bodies. The social insurance schemes are organised as public, non-state bodies (Parafisci) with mechanisms of self-administration involving representatives of the insured and the employers (Klenk, 2012). Social services are only to a small degree provided by social insurance institutions, rather they are provided by non-profit organisations, for-profit companies, and public institutions that conclude contracts with the financing bodies. The reforms of recent decades have altered the rules of the game and led to a transformation not only of the relations between actors but also of actors themselves: Corporatist interactions were amended and sometimes replaced by market mechanisms leading to competition of ­providers (‘welfare markets’; Nullmeier, 2002) and ‘choice’ for users (Blank, 2009); charities turned into charitable companies; public institutions were reformed, limiting the power of the self-administration and introducing instruments of new public management to the point where public health insurance funds compete with each other and can go into insolvency (Klenk, 2012); public institutions such as hospitals were privatised, i.e. either turned into publicly owned companies or sold; new players entered the game such as insurance companies; finally, employers, employers’ associations, and trade unions play a new role in social policymaking in some policy areas (Blank, 2018).

2.3 Performance It has often been argued that social insurance schemes protect labour market insiders (especially male workers) and let outsiders depend on residual welfare systems if they do not profit indirectly from a spouse’s or a relative’s insider status. In addition to benefit levels, a crucial dimension for the performance of Bismarckian welfare states is thus the coverage of social insurance which can be regulated politically (up to the point of universal social insurance schemes) but

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26.5 31.7 35.5 33.2

State subsidies

32.0 30.0 25.6 26.0

Employers: factual contributions 10.3  8.3  7.8  8.5

Employers: assumed contributions 23.6 22.4 21.8 23.0

Contributions of employees

Sources of the total social budget, percentage of total revenues

1.1 1.2 1.7 1.7

Contributions of selfemployed persons 1.9 2.7 4.4 4.5

Contributions of recipients of social benefits

1.4 1.3 1.3 1.4

Contributions of other insured persons

36.86 41.07 39.55 39.48

Total contribution rate

Development of contribution rates: employees’ and employers’ share combined; healthcare insurance contribution rate including employees’ average additional contribution (see Deutsche Rentenversicherung Bund, 2018, p. 262 for details); long-term care insurance without special contribution of childless persons of 0.25 percentage points). Value for 1991 from April–December.

Source of social budget: Federal Ministry of Labour and Social Affairs 2018, p. 14. Data up to 2008 and from 2009 are not directly comparable since private health insurance schemes are included in the social budget from 2009 onwards. Assumed contributions represent the value of some benefits directly provided by employers.

1991 2000 2010 2015

Year

Table 7.3  Sources of social budget and total contribution rates, 1991–2015

The German welfare system

also follows on from the performance of the labour market, which is the main gate to access insurance schemes. Here, Germany has been experiencing a positive development (Table 7.4). The general upturn of the economy has contributed to an all-time high in employment subject to social insurance contributions (both absolute and relative; Destatis, various years); more persons than ever before are contributing to the social insurance schemes and thus are gaining entitlements to benefits. It is noteworthy that while employment subject to social insurance is more widespread than ever before, total employment including self-employment has shown an even higher increase (sozialpolitik-aktuell.de, 2019b). As a share of total employed persons, the percentage of employed persons subject to social insurance dropped to 67% in the mid-2000s and increased only recently to 73% (2017). The number of employees subject to social insurance working full-time decreased and even an upturn in recent years did not lead to a new maximum. This development is mirrored in the nearly constant increase in part-time workers. While the latter may be legally fully entitled to social insurance benefits, shorter work-hours lead to lower contributions and thus to lower cash benefits. Also, precarious employment and non-protected selfemployment remain widespread. At the same time, the benefit levels and/or duration of benefit receipt were reduced, so long-term and stable employment careers have become even more necessary than before in order to reach acceptable levels of individual benefits. Consequently, while there is more inclusion in the social insurance schemes, membership leads to lower benefits as compared to earlier decades. Welfare state reforms have met warnings of growing poverty among older persons and persons who are not integrated in the labour market or only integrated to a low level. While Germany’s poverty rate (total) is slightly below the European average, German citizens have increasingly had to face material hardships since the beginning of the millennium (Table 7.4). This is matched by a more general trend in material distribution, as the Gini coefficient has been increasing since 2000, pointing to rising inequality. However, this trend cannot be traced back to social policies in a narrow understanding alone, as tax policies, wage development, and other factors contribute to the development of material distribution (Table 7.4).

Table 7.4 Outcome indicators for the German welfare state 1995–2015 – labour market performance, poverty rates, and Gini coefficient 1995

2000

2005

2010

2015

Employment rate (persons 15–64 years old; percentage of total population) Part-time work (percentage of total dependent employment) Unemployment rate (percentage of dependent employment w/o military)

64.6

65.4

65.4

71.0

73.8 (b)

16.3

19.8

24.5

26.7

28.7 (b)

10.4

10.7

13.0

 8.6

 7.1

Poverty rate: total   16 years or under   16–64 years   65 years and over

15 18 14 15

10 13 10 10

12.2 11.6 12 13.4

15.6 17.2 15.8 14.1

16.7 14.6 17.2 16.5

Gini coefficient

29

25

26.1

29.3

30.1

Source: Destatis, 2019, codes 12211–0001, 12211–0011, own calculations; sozialpolitik-aktuell.de, 2019a; Eurostat, 2019, codes ilc_li02, ilc_di12; (b): break in time series

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3  Welfare system change across policy sectors 3.1  Overview of welfare system change over time The German welfare state has been experiencing various kinds of changes during the past two decades. Outright retrenchment has been met with some careful expansion, and at the same time qualitative changes have pointed in different directions. While there has been a focus on the expansion of social services, it has also to be noted that the social insurance-based transfer schemes continue to be the backbone of benefit provision (even though weakened as compared to the 1990s). The period under scrutiny in this chapter was influenced by the experience of widespread unemployment in the wake of the German unification up to the mid-2000s. The economic and financial crisis of 2008/2009, however, left few traces in the German economy and in social policymaking (Blum and Kuhlmann, 2016). As noted in the introduction, the two decades 1998–2018 can roughly be divided into two phases that are signified most of all by different levels of reform activities and in the case of some policies also different directions: The first period includes the years 1998–2008, the years of the red-green coalition government led by social democrat Gerhard Schröder and part of the first grand coalition government headed by conservative Chancellor Merkel. In this phase, major reforms were enacted that make some observers conclude that the German welfare state now significantly differs from its earlier shape.The second phase (2008–2018) under the chancellorship of Merkel differs from the first phase more with respect to the actual level of reform activities than with respect to the principles and assumptions underlying policymaking. Social policy reforms in this second phase more often than not follow the trail marked by the preceding government even though sometimes even minor steps towards a re-evaluation or revision of reforms of the first phase took place. A reason for this relative stability may be found in the economic environment during these years, but also in the continuity of central actors: After electoral losses in 2005, the Social Democrat Party joined the conservative CDU/CSU as a junior partner in the governments of 2005–2009 and since 2013, and in these years kept responsibility for the Ministry of Labour and Social Affairs. Only in the years 2009–2013 was the junior partner the liberal FDP. On a general level, the somewhat heterogeneous objectives and assumptions underlying both the policy changes in the first phase as well as the relative stability in the second one, include: •

•

• •

The objective (which sometimes seems to have the characteristics of an obsession) to keep social insurance contribution rates below 40% as a means to keeping non-wage labour costs low and therefore the acceptance of cuts in benefits. A confirmation and at the same time a reinterpretation of work as the core norm of the German welfare state. This refers to activation policies as well as to the reassessment of care work as a basis for entitlements in the statutory pension insurance. At the same time work was devalued, as low-paid, low-quality jobs are now part of the labour market. The trust in market mechanisms in the provision of goods and services as a means to enhancing efficiency and ‘choice’ and the need to regulate these new welfare markets. In some areas, the continuation of and infrequent, cautious returns to ‘traditional’ approaches to social policy (and even de-commodification), especially in the years since 2013.

Even though some of the major reforms of the past two decades were realised by the red-green government or during the early years of the chancellorship of Merkel, paradigmatic changes were often in line with ongoing debates that culminated in these policy changes in the early 2000s. Table 7.5 summarises the most important changes. 118

cuts in benefits, activation turn (continued), termination of unemployment assistance

increased co-payments, cuts in benefits, regulative policies, abolishment of parity expansion and cuts in transfers, expansion of time rights; later new design of benefits, new rights to service provision termination of unemployment assistance, new benefits for unemployed and their families, and older or invalid persons regulation of welfare market, neglect of benefits (real devaluation)

Unemployment

Healthcare

Long-term care

Social assistance

Family benefits

cuts in benefits levels, privatisation/shift to multi-pillarmodel, increase in retirement age

Pensions

1998–2008

Step 1: beneficiaries/benefit scope/financing/organisation and management

Regulations

restructuring, retrenchment by neglect, minor expansion

retrenchment/ restructuring

restructuring, expansion

retrenchment, restructuring

retrenchment, restructuring

retrenchment, restructuring

Step 2: expansion/ retrenchment/ restructuring

Three-dimensional approach to analysing welfare state change

Policy sector: Policy fields with reform activity

Time frame: Reform sequence

Table 7.5  Welfare system changes over time in Germany 1998–2018

market regulation, choice

cost containment, efficiency

cost containment (non-wage labour costs), reaction to demographic change activation/supplyside oriented labour market policy cost containment, choice, efficiency activation, investment

Ideas

incremental

abrupt

incremental, abrupt

incremental

abrupt, but building on a general trend

abrupt, albeit in line with predecessor government’s plans

Step1: process incremental/ abrupt

Type of change

(Continued)

discontinuity (as regards unemployment benefits II) continuity

continuity, later discontinuity

continuity

discontinuity

discontinuity

Step 2: output continuity/ discontinuity (reversal)

Pensions

2009–2018

regulative policies, changes to financing

adjustments of instruments

minor reforms due to court rulings, exclusion of nonGerman nationals under certain conditions

adjustment of benefits, attempt to support private insurance

Family benefits

Social assistance

Long-term care

minor improvements in benefits/ early exit options minor adjustments, regulation of short-time work, minimum wage

Step 1: beneficiaries/benefit scope/financing/organisation and management

Regulations

expansion, restructuring

restructuring, retrenchment

minor adjustment

expansion, temporary use of instruments during crisis restructuring

minor expansion

Step 2: expansion/ retrenchment/ restructuring

Three-dimensional approach to analysing welfare state change

Healthcare

Unemployment

Policy sector: Policy fields with reform activity

Time frame: Reform sequence

Table 7.5  (Continued)

efficiency, ‘traditional’ social policies activation, reconciliation changing deservingness perceptions (exclusion/ welfare chauvinism) deservingness, choice

‘traditional’ social policy ‘crisis-corporatism’, Keynesianism

Ideas

incremental

Incremental

incremental

incremental, abrupt (reaction to crisis) incremental

incremental

Step1: process incremental/ abrupt

Type of change

continuity

continuity

continuity

continuity, minor reversal continuity, discontinuity (minimum wage) continuity reversal

Step 2: output continuity/ discontinuity (reversal)

The German welfare system

3.2  Analysis of main developments by policy sector Old-age policy The conservative-liberal government under Chancellor Helmut Kohl (1982–1998) had introduced major changes to the statutory pension insurance in 1989 and 1997 (Frerich and Frey, 1996, pp. 255–256). Parts of the reforms were revoked by the red-green coalition immediately after its inauguration. But later reforms outmatched those of the Kohl government. Especially the 2001 pension reform has often been called a ‘paradigm shift’ (Schmähl, 2007), as the single-pillar system was replaced by a multi-pillar system. While the statutory pension insurance continues to be the core of the pension system, its role was reduced by the reform: In order to lower future increases of contribution rates – which were projected to massively increase as a consequence of demographic change (Schmähl, 2007, pp. 322–323) – the replacement rate of the statutory pension insurance is declining. This was confirmed by another reform in 2004, again with the intention of slowing increases in contributions and benefits. Citizens are now expected to individually close the gap between pre-2001 and projected benefit levels. They are to voluntarily take out funded private pension insurance or use occupational pension schemes. To encourage and support employees and their spouses in doing so, tax breaks and subsidies for old-age saving plans have been introduced. But the multi-pillar model has never been fully accepted by citizens, as can be shown by empirical data; also the assumptions on which calculations of the future benefits of the private pension plans rest were too optimistic (Blank et al., 2016, pp. 5–6). Employers’ organisations and trade unions now play a special role in the new system of old-age security as they are to regulate and provide occupational pensions (Blank, 2018). A second development affects the performance of the statutory pension insurance: Analyses show that younger generations acquire fewer entitlements to benefits than members of older generations (Blank and Schulze Buschoff, 2013). This is a consequence of changed life courses and employment careers that, among other aspects, now include longer spells of unemployment but also longer phases in education. This development is even more problematic because due to reforms such periods receive less compensation in the pension system. During the period of the red-green government, new rules for the fiscal treatment of pensions were established. This means that gradually contributions are exempt from income taxes while pension benefits will be fully taxed in the future. Also, the tax-financed subsidy from the federal budget to the pension insurance was reformed and expanded. After the end of the red-green government, some more reforms affected the pension insurance and the whole system of old-age income provision.The most important was the 2007 decision by the grand coalition to successively increase the retirement age to 67 years.Together with decisions in the field of family policies, this decision marked the end of the period of significant changes. Later decisions such as the reform packages ‘Rentenpaket’ (2014) and ‘Rentenpakt’ (2018), which included improvements in benefits or brought the decline of the general benefit level to a temporary stop, do not match the importance of the earlier reforms.They must be seen as addendums or minor corrections to earlier decisions.

Labour market and unemployment policy The development of the field of labour market and unemployment policies was affected by the consequences of German reunification and the labour market problems especially in eastern Germany (Clasen, 2000, p. 96). Measures taken after reunification were seen 121

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as ‘a withdrawal of the public guarantee that the unemployed worker would maintain his achieved living standard’ (Bleses and Seeleib-Kaiser, 2004, p. 61), a process that was softened as regards unemployed workers with children. Various reforms by the late conservative-liberal government as well as by the red-green government – such as the law on the reform of employment promotion (Arbeitsförderungs-Reformgesetz) of 1997 or the Job-AQTIV Law of 2001 – integrated activating elements in labour market policies and shifted responsibility to the unemployed in line with a reinterpretation of unemployment as a consequence not so much of structural change but more and more as a matter of individual failure (Frerich and Frey, 1996, p. 176). This was done by altering the rules under which jobs were acceptable, by increasing conditionality of benefits in various ways, and by introducing contracts between unemployed and employment agencies and voucher systems for placement services. Among the various reforms, the so-called Hartz laws of 2002/2003 are perceived as the most important – both by its apologists and its opponents – and for some they constituted a change of the character of the German welfare state. Its most important aspect was the termination of the unemployment assistance (Arbeitslosenhilfe), a benefit paid following the unemployment insurance’s unemployment benefit (Arbeitslosengeld). Even though financed through general tax revenues, unemployment assistance benefits were calculated as a form of wage-replacement in relation to prior wages but at a lower level than unemployment benefits. These benefits were conditional on an income test. Unemployed people not eligible for this benefit had to rely on social assistance. One of the main features of the Hartz reforms was the introduction of the new basic income support for job seekers (Arbeitslosengeld II and Sozialgeld), which is a tax-financed, strictly means-tested benefit for job seekers and their families who do not qualify (any more) for insurance benefits. These benefits are attached to increased conditionality criteria. For many unemployed persons – though not for all – this meant a shift away from benefits aimed at guaranteeing maintenance of living standards. This signified ‘a radical divergence from the German system of wage-related welfare’ (Kemmerling and Bruttel, 2006, pp. 9–10; Bleses and Seeleib-Kaiser, 2004, p. 65). The maximum duration of unemployment benefit receipt for older workers was cut in the context of this reform (from max 32 months to max 18 months). However, the whole reform also included other aspects such as benefits for the newly self-employed. In hindsight, the Hartz reforms can be seen as the culmination of a long series of reforms. The period of disruptive changes in labour market policies ended with these reforms that have shaped German politics ever since. After 2005, many reforms were of minor importance compared to the reforms in the phase leading up to 2005 or led to some kind of softening of the latter (Barlen and Bogedan, 2017, p. 206). These include an extension of the period of benefit receipt for older workers (since 2008 older workers can receive unemployment benefits for up to 24 months), and a termination of the subsidisation of the unemployment insurance by the state. An important impulse for a more active stance on labour market policies was the economic crisis. In Germany, short-time work was used as a means of preventing large-scale unemployment. In order to enable companies to use this tool, access was facilitated, the maximum duration extended, and social insurance contributions reduced. These measures were terminated after the crisis (Blank, 2018). Not least, the introduction of a general minimum wage in 2015 has to be mentioned as a means of dealing with a decreasing coverage of collective agreements and an increase of low-wage employment. This may be seen as one of the few examples for farreaching reforms during the second period.

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Healthcare policy Increasing expenditures in the healthcare system (so-called explosion of costs) have led to various attempts to contain costs in the healthcare sector since the late 1970s. The 1992 act for the reform of healthcare (Gesundheitsstrukturgesetz, GSG) is often treated as the beginning of a new era. It brought the introduction of new governing instruments such as competition and new structures of self-management, but also affected those insured and patients directly (e.g. free choice of public health insurance funds). This was accompanied by the possibility for funds to offer various tariffs to the group of voluntary insured. Following legislation included mostly cuts (i.e. increases in co-payments). After some improvements during its first term of office, the policies of the red-green government brought an ‘unequalled advance of privatisation’ (Rosenbrock and Gerlinger, 2006, p. 105) with cuts and increased co-payments (with rules to care for the less well off). Equal treatment of recipients of social assistance was also established, but they factually received the same benefits as they already had before. Liberalisation of tariffs was strengthened again and hence more choice implemented in the system. Later reforms brought minor cuts and expansions of benefits; new regulations with respect to the possibility of leaving the system of mandatory public insurance in favour of private insurance; a general duty to take out insurance as of 2009 with rules to support those who cannot pay premiums to private insurance; and alterations to the contribution system and cuts in co-payments. The system of funding has seen some relevant changes in the past one and a half decades. On the one hand, a state subsidy to the public system of health insurance was introduced in 2004, and was altered a few times in the following years. Parity in bearing contributions was abolished from 2005 onwards by introducing specific contributions to be paid by employees alone (Zusatzbeitrag, Sonderbeitrag), but was re-established in 2019. Finally, a central health fund (Gesundheitsfonds) was introduced in 2009 as a means of dealing with the distribution of revenues among competing statutory health insurance funds. Attempts to improve efficiency were not restricted to giving citizen-consumers more choice. Rather the corporatist mechanisms of decision-making were subjected to repeated political interventions. These targeted both the traditional corporatist actors and bodies, but also the relations of payers and providers, i.e. the health insurance funds and the medical associations and hospitals (Gerlinger and Reiter, 2017a). In sum, the period since the late 1990s has witnessed a number of reforms, some of them significant. However, these do not structure and shape this period in the same way as did the reform of 1992, so it is hard to distinguish different periods of healthcare policymaking in the years 1998–2018. Rather, reforms were either adjustments that were intended to deal with increasing costs in times of unemployment and wage restraint (until the mid-2000s) or must be seen as the ongoing, incremental development of a system that seeks to combine public social policymaking with competition and market mechanisms.

Family policy Since the 1990s, family policies have undergone reorientation. This can be illustrated by the growing number of persons employed in professional childcare services as well as the numbers of day-care facilities and children in these institutions (Blank, 2017, p. 175). This is the result of attempts to deal with the ‘new social risk’ of balancing work and family, and especially the low labour market integration of mothers (Blum, 2017, p. 297). Family policies include not only social services, but also transfers and ‘time rights’. The red-green coalition repeatedly dealt with the expansion of day care, but it was left to the grand coalition of 2005–2009 to introduce a radical change in family policies (Blum, 2017,

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p. 325). This included the objective to provide day care for 35% of children under 3 years until 2013, connected to a legal entitlement to day care for children 1 year and older (2008). The rationale behind these reforms were labour market objectives, i.e. an increase in the labour market integration of mothers, but also educational purposes; day care is increasingly seen from the aspect of early education and social investment rather than simply care.Thus, day care developed not only in quantitative but also in qualitative terms. In addition to the provision of services, family policies seek to compensate financial burdens following on from raising children, and grant ‘time rights’, i.e. rights to adjust working hours or interrupt employment for family reasons. Under the red-green government both transfers and ‘time-rights’ were reformed and expanded, but these policy changes stood in line with the general design of family policies developed before (Blank, 2011). Again, the underlying rationale was to increase labour market participation – as can be seen with respect to family-related benefits in the context of the Hartz reforms, too – but also the attempt to enable families to share care responsibilities more equally between fathers and mothers (Leitner, 2005). As in the case with childcare services, the 2005–2009 grand coalition’s policies on transfers must be seen as a radical departure from prior policies. As of 2007 the central parental benefit (Elterngeld) was newly cast, making the amount of the allowance dependent on the parents’ prior earnings and including ‘father’s months’ (months of benefits receipt that cannot be transferred to the other parent). Later reforms did not match these changes – they must be seen as an attempt to create a conservative counter-weight to policies focused on work and family balance (the Betreuungsgeld that was terminated due to a ruling of the Federal Constitutional Court) or to develop existing programmes (Elterngeld Plus). In sum, family policies fit roughly the two phases of policymaking. However, it was the grand coalition and not so much its red-green predecessor that was responsible for disruptive reforms that signify the end of the first phase.

Social assistance Reforms of the system of social assistance brought differentiation to the policy programmes. This was initiated by the introduction of a special benefit for asylum seekers (1993) and continued with the creation of a specific benefit for elderly and disabled persons (Grundsicherung im Alter und bei Erwerbsminderung, 2003) by the red-green government. The latter benefit must be seen as a variation of the standard social assistance benefits. Major differences between the latter and the Grundsicherung can be found with respect to individualised benefits that are less pronounced in the new programme, and with respect to income thresholds of relatives. These are much higher for the benefits for elderly and disabled persons in order to prevent a non-use out of consideration for one’s children or parents. The Hartz reforms abolished access to the social assistance in a narrow sense for those able to work but introduced the new basic income support for job seekers (Arbeitslosengeld II and Sozialgeld) that resemble social assistance as regards the amount of benefits. The benefits are to cover nearly all expenses except housing and heating, which means that recipients need to save from these benefits to be able to make bigger purchases. Today, social assistance benefits in the legal sense (Hilfe zum Lebensunterhalt) only plays a marginal role due to the fact that job seekers and their families are covered by basic income support for job seekers and older persons and persons not able to work rely on the Grundsicherung. Later reforms affected the benefits, especially the underlying mechanism of calculating the general level of benefits, and the amount of benefits for asylum seekers. Both reforms only followed from rulings of the Federal Constitutional Court which assessed the given regulations as 124

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not being compatible with constitutional guarantees. Finally, the grand coalition of 2013–2017 reacted to perceived ‘social tourism’ and restricted access to basic social benefits for non-German nationals, including EU citizens (Absenger and Blank, 2017). In sum this field was not an area of far-reaching reforms at first glance. Changes are nevertheless relevant as the introduction of a special scheme for old and disabled persons and the related political discourse (Nullmeier, 2014) may be seen as accompanying pension reforms and an implicit acknowledgement that matters of old-age income cannot be treated by the pension insurance alone anymore. And the Hartz reforms – treated previously – can be interpreted as being the expansion of the logic of social assistance schemes to unemployment protection, which prior to the reform was aimed at status maintenance.

Long-term care The long-term care insurance was introduced in 1995. It is the fifth branch of social insurance, its rules for insurance membership and administration being closely connected to the health insurance. The benefits are provided after medical examination at different levels and are aimed at subsidising the costs for individual care. They are not means tested with respect to both income and property of the insured and their actual expenses for long-term care. Professional care services can be acquired on a welfare market with competing for-profit or non-profit providers, but benefits can also be used to organize informal care arrangements. The introduction of the long-term care insurance was to improve the living conditions of people in need of care and to keep persons in need from having to apply for social assistance (and thus to relieve the system of social assistance and the local authorities in charge of social assistance). The introduction of the long-term care insurance caused an increase in the provision of services (employees and institutions; Gerlinger and Reiter, 2017b, pp. 287–288). However, until today it remains a principle of long-term care policies to support relatives of needy persons in providing informal care work (Gerlinger and Reiter, 2017b, p. 283). Reforms since the introduction of this scheme have included the adjustment of benefits and various aspects of the regulation of service provision. However, benefits were not increased until 2008, thus leading to a loss of real value of benefits. Regular adjustment of benefits was introduced only from 2015 onwards. A new scheme for the assessment of needs was introduced from 2017. While recent reforms have brought improvements, they do not counterbalance the initial loss of real value of benefits (Gerlinger and Reiter, 2017b, p. 282). Similar to the pension insurance, the use of private supplementary care insurance is fostered due to a decision made by the conservative-liberal coalition. Finally, increases in contribution rates to the public scheme are partly directed in a specific fund that is to stabilise contribution rates in the future. The short history of the youngest branch of social insurance can thus be roughly divided into two periods: a first period of relative neglect where the new system developed following the initial impulse and where this development was accompanied by regulative measures, and a period of reforms that improved benefits but did not lead to any structural changes.

4 Outlook In the past two decades, the German welfare state has been subject to multiple, often even fundamental reforms. As noted in the last section, these often revolved around a confirmation or new understanding of the work-welfare nexus: They put the necessity to work directly at the centre (unemployment policies), strengthened the need for long employment careers as the base for appropriate benefits (pension policies), or focused on enabling employment (family policies). 125

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While the German welfare state is not as generous with respect to de-commodifying transfers as in earlier decades and moved partly away from the goal of status maintenance, the connection between work and welfare remains strong, and the social insurance schemes continue to play a central role in the system of welfare provision (including the funding of services). While social services have been expanded in certain parts, it may be too early to treat this as a general trend, as healthcare provision is under a constant pressure to rationalise. It is noteworthy that current policymaking both builds on and reacts to decisions that are seen as paradigm shifts, and were often enacted by the red-green government. The phase of stability that began some years after the conservative parties initially joined (and led) the government can be attributed (1) to the fact that many reforms of the predecessor government were the continuation and culmination of earlier policies dating back to the 1982–1998 conservativeliberal government, (2) to the participation of the Social Democrats in government for most of the time, which makes a radical departure from this party’s own decisions difficult, and (3) to the favourable economic development that made it easier not to resort to radical measures in the second period. The recurring reference to the reforms of the early to mid-2000s in politics may hence be because they were not overshadowed by new decisions, which would have served as a new focus point for activism and reform. In addition to a number of smaller and bigger projects that are on the political agenda, the main challenges for German policies will be how to relate the work-centred model of welfare provision to new kinds of work (and not-so-new kinds of ‘bad’ work), and how to achieve sustainability not in narrow economic terms but with respect to a social and political consensus regarding a general approach to social policy, which treats the latter not so much as an economic burden but as a means to create a better society. This may be even more important in case of a probable end of the German ‘labour market miracle’ that will lead to new demands for cost containment policies.

Notes 1 It should be noted that the label ‘Bismarckian’ refers not so much to the Bismarckian origins, but explicitly or implicitly to the welfare state’s heyday in the 1970s. In fact, even the welfare system established in the 1880s was shaped rather differently from Bismarck’s own conceptions (Schmidt, 2005, pp. 32–33). 2 This comes close to Nullmeier’s account (2014, pp. 182–182), which divides the development after reunification in four phases: 1990–1994, 1994–1999, 2000–2007, and 2008–2018. In this chapter, the years 1998–1999 will not be treated separately even though it is acknowledged that the red-green government shifted its stance on social policies during its early years. 3 The nationwide establishment of the left-wing party Die Linke as well as electoral losses of the Social Democrat Party are partly attributed to the social policies of the Social Democrat–led government of 1998–2005. 4 A third kind of benefit provision, Versorgung, is related to specific status, such as civil servants or soldiers, or to the compensation for specific events such as benefits for victims of war and crime. 5 The argument that non-wage labour costs (i.e. especially employers’ social insurance contributions) are a burden to the German economy has featured prominently in the German debate since the 1990s at least (Bäcker, 2006).

References Absenger, N. and Blank, F. (2017), “From Social Myths to Legal Reality: Limiting the Freedom of Movement of EU Citizens”, Politiche Sociali/Social Policies,Vol. 4 No. 3, pp. 469–488. Bäcker, G. (2006), “Im Namen der Lohnnebenkosten – ein Mythos für Sozialabbau”, in Schäfer, C. and Seifert, H. (Eds.), Kein bisschen leise: 60 Jahre WSI,VSA, Hamburg, pp. 271–282.

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Barlen,V. and Bogedan, C. (2017), “Arbeitsmarktpolitik”, in Reiter, R. (Ed.), Sozialpolitik aus politikfeldanalytischer Perspektive, Springer VS, Wiesbaden, pp. 173–220. Blank, F. (2009), “When ‘Choice’ and ‘Choice’ Are Not the Same, Institutional Frameworks of Choice in the German Welfare System”, Social Policy & Administration,Vol. 43 No. 6, pp. 585–600. Blank, F. (2011), Soziale Rechte 1998–2005, Die Wohlfahrtsstaatsreformen der rot-grünen Bundesregierung, VS, Wiesbaden. Blank, F. (2017), “Aufschwung mit Hindernissen – professionelle Sorgearbeit in Deutschland”, WSI Mitteilungen,Vol. 70 No. 3, pp. 173–179. Blank, F. (2018), “With or Without You – Occupational Welfare and Public Social Policies in Germany”, in Natali, D., Pavolini, E. and Vanhercke, B. (Eds.), Occupational Welfare in Europe: Risks, Opportunities and Social Partner Involvement, ETUI/OSE, Brussels, pp. 103–123. Blank, F. and Schulze, S.E. (2015), Soziale Sicherung unter dem Brennglas, Altersarmut und Alterssicherung bei Beschäftigten im deutschen Sozialsektor, Friedrich-Ebert-Stiftung, Bonn. Blank, F. and Schulze Buschoff, K. (2013),“Arbeit, Leistungsgerechtigkeit und Alterssicherung im deutschen Wohlfahrtsstaat”, WSI Mitteilungen,Vol. 66 No. 5, pp. 313–320. Blank, F., Logey, C., Türk, E., Wöss, J. and Zwiener, R. (2016), “Alterssicherung in Deutschland und Österreich:Vom Nachbarn lernen?” WSI Report 27, 1/2016, Düsseldorf. Bleses, P. and Seeleib-Kaiser, M. (2004), The Dual Transformation of the German Welfare State, Palgrave Macmillan, Houndmills, New York. Blum, S. (2017), “Familienpolitik”, in Reiter, R. (Ed.), Sozialpolitik aus politikfeldanalytischer Perspektive, Springer VS, Wiesbaden, pp. 297–340. Blum, S. and Kuhlmann, J. (2016), “Crisis? What Crisis? Restructuring the German Welfare System in Times of Unexpected Prosperity”, in Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Heidelberg, Springer, pp. 133–158. Clasen, J. (2000), “Motives, Means and Opportunities: Reforming Unemployment Compensation in the 1990s”, West European Politics,Vol. 23 No. 2, pp. 89–112. Destatis (Federal Statistical Office). (2009, 2016, 2017), Statistisches Jahrbuch 2009, 2016, 2017, Destatis, Wiesbaden. Destatis. (2019), “Genesis-online Database”, available at: https://www-genesis.destatis.de (accessed 21 March 2019). Deutsche Rentenversicherung Bund. (2018), Rentenversicherung in Zeitreihen, Deutsche Rentenversicherung Bund, Berlin. Eurostat. (2018), “Social Protection Expenditure Database”, available at: https://ec.europa.eu/eurostat/ data/database (accessed 10 October 2018). Eurostat. (2019), “Income and Living Conditions Database”, available at: https://ec.europa.eu/eurostat/ data/database (accessed 21 March 2019). Federal Ministry of Labour and Social Affairs. (2018), Sozialbudget 2017, Federal Ministry of Labour and Social Affairs, Bonn. Frerich, J. and Frey, M. (1996), Handbuch der Geschichte der Sozialpolitik in Deutschland, vol. 3, Sozialpolitik in der Bundesrepublik Deutschland bis zur Herstellung der Deutschen Einheit, Second Edition, Oldenbourg, München. Gerlinger,T. and Reiter, R. (2017a), “Gesundheitspolitik”, in Reiter, R. (Ed.), Sozialpolitik aus politikfeldanalytischer Perspektive, Springer VS, Wiesbaden, pp. 221–274. Gerlinger,T. and Reiter, R. (2017b),“Pflegepolitik”, in Reiter, R. (Ed.), Sozialpolitik aus politikfeldanalytischer Perspektive, Springer VS, Wiesbaden, pp. 275–296. Hegelich, S. and Meyer, H. (2009), “Conflict, Negotiation, Social Peace: The German Welfare System”, in Schubert, K., Hegelich, S. and Bazant, U. (Eds.), The Handbook of European Welfare Systems, Routledge, Oxon, New York, pp. 120–136. Hinrichs, K. (2010), “A Social Insurance State Withers Away: Welfare State Reforms in Germany – Or: Attempts to Turn Around in a Cul-de-sac”, in Palier, B. (Ed.), A Long Goodbye to Bismarck? The Politics if Welfare Reforms in Continental Europe, Amsterdam University Press, Amsterdam, pp. 45–72. Kaufmann, F-X. (2003), Varianten des Wohlfahrtsstaats, Der deutsche Sozialstaat im internationalen Vergleich, Suhrkamp, Frankfurt am Main. 127

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Kemmerling, A. and Bruttel, O. (2006),“ ‘New Politics’ in German Labour Market Policy? The Implications of the Recent Hartz Reforms for the German Welfare State”, West European Politics,Vol. 29 No. 1, pp. 90–112. Klenk,T. (2012), “Deutschland: Korporatistische Selbstverwaltung zwischen Staat und Markt”, in Klenk,T., Weyrauch, P., Haarmann, A. and Nullmeier, F. (Eds.), Abkehr vom Korporatismus? Der Wandel der Sozialversicherungen im europäischen Vergleich, Campus, Frankfurt am Main. Leitner, S. (2005), “Kind und Karriere für alle? Geschlechts- und schichtspezifische Effekte rot-grüner Familienpolitik”, in Blätter für deutsche und internationale Politik,Vol. 50 No. 8, pp. 958–964. Nullmeier, F. (2002), “Auf dem Weg zu Wohlfahrtsmärkten?” in Süß, W. (Ed.), Deutschland in den neunziger Jahren, Leske & Budrich, Opladen, pp. 269–281. Nullmeier, F. (2014), “Die Sozialstaatsentwicklung im vereinten Deutschland: Sozialpolitik der Jahre 1990 bis 2014”, in Masuch, P, Spellbrink, W., Becker, U. and Leibfried, S. (Eds.), Grundlagen und Herausforderungen des Sozialstaats, Denkschrift 60 Jahre Bundessozialgericht, Erich Schmidt Verlag, Berlin, pp. 181–199. Palier, B. and Martin, C. (2007), “Editorial Introduction, From ‘a Frozen Landscape’ to Structural Reform: The Sequential Transformation of Bismarckian Welfare Systems”, Social Policy & Administration, Vol. 41 No. 6, pp. 535–554. Rosenbrock, R. and Gerlinger, T. (2006), Gesundheitspolitik: Eine systematische Einführung, Second Edition, Hans Huber, Bern. Schmähl, W. (2007), “Dismantling an Earnings-related Social Pension Scheme: Germany’s New Pension Policy”, Journal of Social Policy,Vol. 36 No. 2, pp. 319–340. Schmidt, M.G. (1999), Immer noch auf dem ‘mittleren Weg’? Deutschlands Politische Ökonomie am Ende des 20. Jahrhunderts, Universität Bremen/Zentrum für Sozialpolitik, ZeS-arbeitspapier, July, Bremen. Schmidt, M.G. (2005), Sozialpolitik in Deutschland, Historische Entwicklung und internationaler Vergleich, Third Edition,VS, Wiesbaden. Schmidt, M.G. (2014), “Noch immer auf dem ‘mittleren Weg’? Deutschland seit den 1990er-jahren”, in Masuch, P., Spellbrink, W., Becker, U. and Leibfried, S. (Eds.), Grundlagen und Herausforderungen des Sozialstaats, Denkschrift 60 Jahre Bundessozialgericht, Erich Schmidt Verlag, Berlin, pp. 221–240. Seeleib-Kaiser, M. (2016), “The End of the Conservative German Welfare State Model”, Social Policy & Administration,Vol. 50 No. 2, pp. 219–240. sozialpolitik-aktuell.de. (2019a), “Arbeitslosenzahlen und Arbeitslosenquoten 1975–2017”, available at: www.sozialpolitik-aktuell.de/tl_files/sozialpolitik-aktuell/_Politikfelder/Arbeitsmarkt/Datensammlung/ PDF-Dateien/tabIV23.pdf (accessed 21 March 2019). sozialpolitik-aktuell.de. (2019b), “Erwerbstätige und sozialversicherungspflichtig Beschäftigte 1992–2017 in Mio. und in % (Index 1992 =100)”, available at: www.sozialpolitik-aktuell.de/tl_files/sozialpolitikaktuell/_Politikfelder/Arbeitsmarkt/Datensammlung/PDF-Dateien/abbIV2.pdf (accessed 21 March 2019).

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8 Denmark – a universal welfare system with restricted austerity Bent Greve

1 Introduction: historical perspective and change of the Danish welfare system Denmark has a long tradition of developing towards a universal, comprehensive welfare state, with a strong focus on equality, flexicurity, and involvement of social partners in policy development. Historically, class compromise between workers and farmers, including consensual development, has been central (Baldwin, 1990). Denmark also belongs to the countries with a strong increase in spending on welfare in the golden days of welfare growth in the 1960s and until the first oil-price crisis in 1973. Furthermore, this was at a time when a large number of women entered the labour market, and a gradual stronger focus on gender equality evolved. Denmark has thus, at least since Esping-Andersen’s path-breaking work, been considered as belonging to the Nordic, social democratic, Keynesian type of welfare state. The development, as a consequence of its consensual nature, has often been with a strong path-dependency as most changes have been done by agreement among most political parties, and often following the work of commissions in preparing the ground for the suggested changes (Greve, 2018; Schubert et al., 2016). This chapter focuses on the development since the beginning of this century when a new liberal government came into power in 2001. However, in places it will take a longer time perspective in order to understand changes in the Danish welfare state. Furthermore, there has historically been a focus on active labour market policy and on equality – not only economic equality, but also equal treatment of men and women, albeit with changes in recent years (Kvist and Kangas, 2019). Denmark still has a high level of employment for both men and women and a comparatively low level of unemployment. Recent years have further seen that more people stay longer on the labour market than previously, which has also been one of the stated political aims of changes to the welfare systems and implies a later average age of retirement. In 2017, 25% of men and 10% of women were still on the labour market at the age of 67 (KMD, 2018). Denmark, together with the other Nordic countries, was among the first welfare states to have a focus on state delivery and financing of welfare services, including day care for children and long-term care (LTC). There has also been a broad safety net with relatively generous 129

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welfare benefits related to the traditional social risks (unemployment, old age, work injury, sickness), but also support to help with new social risk (Taylor-Gooby, 2004), such as combining work and family life. This has been possible due to a comparatively high level of taxes and duties (Greve, 2017b), although the cost is not always the highest if voluntary social spending and the impact of the taxation of benefits are included (Adema and Ladaique, 2009).1 Occupational welfare might also mean that the picture is not as simple as depicted by using public spending only (Haynes, 2011; and for a recent update, see Greve, 2018a). Naturally, a core question is whether Denmark can still be categorised as a generous, decommodifying, and universalistic welfare state (Kvist and Greve, 2011; Greve, 2016). One might perhaps argue that the Danish welfare state has moved towards being more welfare chauvinistic and less egalitarian in recent years, as a consequence – among other things – of the influence of the party Dansk Folkeparti (this is covered later in the chapter). Further, the active labour market policy might have got a stronger focus on work-first instead of the development of human capital. Despite these changes in certain social policy fields, the administrative structure of the Danish welfare state system seems, to a large extent, to be not substantially changed, notwithstanding the stronger focus not only on work-first, but also that migrants’ and refugees’ benefits should be lower, making it less attractive for them to go to Denmark. The change in governance structure in 2007, however, resulted in a more decentralised activation system, as the activation system became part of the responsibilities of the local governments, albeit with only limited room for local differences as the rule continued to be determined centrally. Since 2012, more benefits are not only legally decided by the state, but also administered by a state body (Udbetaling Danmark). In this way one can argue that welfare services today are mainly dealt with by municipalities, risking a variation in the level of service, which is dependent, within limits, on the local political priorities and economic options (see more in Section 2) in Denmark. This has given rise to debates on geographical differences in access to welfare services. The normative basis of the Danish welfare state can be understood as being a Christian secularized society with a strong work ethic (Petersen, 2017). Petersen also argued that the development in Denmark from 1973 to 1993 was a time of debate on the crisis of legitimacy, including whether the taxpayer got value for money. This was partly in the wake of the oil-price crisis where Keynesian demand management seemingly had not been able to reduce unemployment, and this combined with high inflation and low economic growth influenced the legitimacy of economic and welfare state policy. The time from 1993 to 2001 was a period when rights and options were replaced by rights and duties, but also a time when a possible Keynesian type of economic steering was again used to increase overall economic activity in Denmark (labelled Kick-Start). Then, during a right-wing government from 2001 to 2011, there was a movement towards ‘Incentives in the limelight’ (ibid., p. 152), which, see later, implied stronger focus on using economic incentives, part of which was a ceiling on the level of specific means-tested benefits. Lastly, since 2011, there has been a stronger focus on the ‘necessary policy’, including what was labelled the ‘competition state’, for example that one could not blame the government for the changes as they were necessary in order to continue to have a strong welfare state. Thus, the nation moved from being a welfare state with a strong focus on solidarity towards a welfare state questioning who is deserving and where work-first and duties are central for understanding what is happening in the Danish welfare state. Therefore, this provides the background for the following presentation and understanding of the change in the structures and performance of the Danish welfare state. 130

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2  General structures of the Danish welfare system In this section, the general structures of the Danish welfare system are described. A more detailed overview of these general characteristics can be found in the first edition of this Handbook (Schubert et al., 2009).

2.1 Priorities The Danish welfare system is, in principle, a highly decentralised system, with 98 municipalities having day-to-day responsibility for welfare services, albeit with five regions being responsible for the main part of health care. Municipalities have the right, within overall limits, to set a local income tax, which in 2018 varied between 22.5% and 27.8%.2 This follows an idea that, locally, one can vary the quality of services based upon local preferences if those in the local area are willing to pay the necessary income tax. There are state block grants that, in principle, aim at ensuring that the same options are available in all municipalities. Regulation by the state means that municipalities are obliged to deliver welfare services, but with the possible right to local variations within certain limits. Income benefits levels and eligibility criteria are decided by the state, and the main part of income transfers is now also administered by the state, meaning that income benefits follow fixed rules and are rights based. There are a few discretionary benefits, such as some related to people with disability. The main parts of the benefits are classified as taxable income, with family allowances as a central exception. Overall, this also means that the role of the decentralised welfare state in Denmark is mainly related to the provision of welfare service. Table 8.2 shows the distribution of spending on different social policy areas since 1995. The development across areas shows changes which indicate that spending on old age and survivors has relatively increased as a consequence of the demographic development of more elderly. However (see also later), earlier changes to the Danish pension system have reduced the pressure on public spending on old age pensions, although there has been an increase to cover the need for care (within either LTC or the health care system, Greve, 2017a). Therefore, the increase in spending on health care can be at least partly explained by the demographic development, but also the use of new types of drugs and a stronger focus on, for example, cancer treatment have had an impact. The spending on family/children reflects the continuous high level of coverage in relation to care for children and has remained at the same relatively high level since 2000. The development in spending on unemployment from 1995 to 2005 reflects a strong decline in the unemployment level and that the economy was close to full employment in Denmark before the financial crisis. The continued decline since then is due to a shortening of the time it is possible to get unemployment benefit, a shorter time on early retirement benefit, and a gradual reduction in the real level of the unemployment benefit (see also Section 3). In the last few years, as described in more detail later, there has been a positive development in the employment rate, which has also reduced the spending in relation hereto. Given that the overall spending is 100%, part of the increase in the other fields also reflects the changes in spending on unemployment benefit, meaning that one needs to be cautious about the overall direction of change because part of the change is due to cyclical development in the overall economic development. Table 8.1 shows the development in spending since 1995 in Denmark and the EU measured in various ways. Overall, the table shows a relatively stable development, with spending around 29%–32% of gross domestic product (GDP) over the time in question, with a strong increase after the financial crisis, which in 2015 had still not been reduced. But, as argued previously, because of 131

44,374.88  45,334.40  45,337.52  46,579.18  48,679.66  50,108.50  52,382.22  54,858.63  58,216.40  60,533.54  62,703.74  63,962.44  67,851.96(b)  69,776.82  75,573.10  78,887.41  79,454.91  81,442.04  84,182.75  87,181.75  87,741.65

5,830.67 6,026.93 6,230.80 6,469.16 6,626.15 6,885.05 6,965.16 7,285.14 7,490.25 7,853.03 8,136.36 8,432.80 9,188.14 9,175.38 9,655.90 10,157.37 10,195.07 10,400.56 10,763.95 11,149.21 11,435.50

31.4  30.7  29.6  29.5  29.2  28.1  28.5  28.9  30.1  29.9  29.5  28.4  29.1(b)  28.9  32.7  32.4  32.1  32.0  32.5  32.8  32.3

:  :  :  :  :  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p) 

:  :  :  :  :  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p) 

% GDP

Source: Eurostat, 2018, spr_exp_sum and spr_exp_gdp; accessed 10 October 2018; (p): provisional

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Total mill. Euro

PPS per inhab.

Total mio Euro

% GDP

eu28

Denmark

Table 8.1  Social protection expenditure

:  :  :  :  :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p) 

PPS per inhab. 1,869,415.56  1,971,768.55  2,048,453.88  2,110,012.32  2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25

Total mio. Euro.

eu15

26.5 26.6 26.2 25.8 25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3 

% GDP

4,688.71  4,924.63  5,112.87  5,262.37  5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54 

PPS per inhab.

Denmark – a universal welfare system Table 8.2  Social protection benefits by function, 1995–2015 (% of total expenditure)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

1995

2000

2005

2010

2015

100 97.23 12.03 14.35 2.38 4.24 27.6 36.63

100 97.18 12.76 10.24 2.3 3.62 31.26 37.01

100 97.2 12.57 8.34 2.34 3.31 34.16 36.49

100 96.66 12.47 5.99 2.07 3.55 33.7 38.87

100 96.33 10.76 4.7 2.18 4.54 32.01 42.15

Source: Eurostat, 2018, spr_exp_sum; accessed 10 October 2018

the increase in employment and the reduction in the unemployment rate, it is expected to be reduced in the following years. When comparing Denmark with other countries, one needs to be aware that in the Danish system most benefits are taxable income, so that net spending is considerably lower than indicated in Table 8.1. In 2014 (latest data available, 10 October 2018), the net spending percentage was 26.2% of GDP, for example 6.1% lower than gross spending as reported in Table 8.1. There is no overall tendency towards retrenchment indicated by the data. This is confirmed by the fact that spending in fixed 2010 prices increased from €12,855 per inhabitant in 2005 to €14,710 in 2015. However, as argued later, this does not mean that there have not been sections and parts of the welfare state where there has been retrenchment in benefits or, further, that the level of services might vary across municipalities. A recent analysis from the Ministry of Finance confirms the picture, but also that real growth was higher from 2000 to 2010 (around 1.5 percentage points per year) than in 2010 to 2017, where it was 1 percentage point per year (Finansministeriet, 2018a). Given that public spending consists of both fixed and variable costs, if change in the demographic composition is taken into consideration, this means that there has been a decline for certain groups. More people using childcare and taking an education as well as an increasing number of elderly are all factors that can help explain the growth. This possible risk of a discussion about retrenchment in certain policy areas despite the changes witnessed by individual citizens might be due to the fact that, overall, the real growth in spending does not take into consideration demography change and, further, that if the growth is spent on new initiatives, indicating that even at the real macro-level growth takes place, this might not be felt at the micro-level. Thus, analysing data based on macro-indicators might not inform on the full story of changes to the Danish welfare state, even if available data points to the fact that more money has been available.

2.2  Funding and administrative structure Overall in Denmark there is a constant discussion on whether and how to balance the option of local priorities with equal access to welfare services. Further discussed is whether there is equality in the options to make decisions locally, especially whether the economic options to provide welfare services are the same in all municipalities with the same local decided level of income tax. A conflict between the greater Copenhagen area municipalities and municipalities outside this area often highlights whether the same possibilities exist in all parts of Denmark. The block grant system means that even if the administration is decentralised, the state pays the majority of the welfare expenditures in Denmark. A report in 2018 has put forward 133

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suggestions for change in the way block grants and other types of support to municipalities can be changed in Denmark (Økonomi og indenrigsministeriet, 2018). Change still depends on the political process which, on the one hand, might help the weaker municipalities, but, on the other hand, might be a problem for municipalities with a large number of migrants, as they, according to the report, have been overcompensated in recent years.3 Besides the welfare responsibilities of local and regional authorities, Denmark still has a Ghent unemployment insurance system, a person who is not a citizen or has no legal residence in Denmark is entitled to unemployment benefit but needs to have paid into an unemployment insurance fund (administered by trade unions), in addition to fulfilling a number of conditions in order both to receive and continue to receive unemployment benefit. The rules and level of benefit are decided by the state, as is what to pay in unemployment insurance premium.Thereby, unemployment benefit is an exception to the universalistic approach in Denmark. The criteria for receiving benefits (see also Section 3), however, means that the conditionality might mean that access to certain benefits (especially minimum income schemes) can be difficult for persons who have not lived in Denmark for a long time. There have been tendencies towards marketisation, or at least the use of private providers, especially in relation to care for the elderly (Greve, 2017a), including competition between public and private providers and increased options for free choice of providers by citizens.

2.3 Performance As mentioned earlier, the Nordic welfare states have been known for their high focus on ­equality – this relates not only to economic equality, but also to access to the labour market and equal pay for men and women. The gender pay gap (unadjusted) was 14.5% in 2016 compared to 17.3% in 2007 (Eurostat, 2018).4 Overall, on the labour market there seems to have been a continuation of relatively high levels of equality, although there are still differences in pay between men and women, partly reflecting different sectorial employment. However, in relation to economic inequality, the development has gone in the direction of increased inequality. Table 8.3 presents information on the development in the Gini coefficient, which can be considered a good measure for the degree of equality, together with data for those at risk of poverty (using 60% of median income). Table 8.3 shows very clearly that there has been an increase in inequality, which is to a large degree the consequence of changes to the tax systems over the last 20 years, but also gradual reductions in replacement rates, especially within the unemployment and social assistance system. Further, since 2008 there has been an increase in the number of people at risk of poverty of 93,000 persons (see source in Table 8.3). Overall, this is a clear indication of the fact that what historically was seen as a landmark of the Nordic welfare states no longer prevails to the same extent as earlier.

Table 8.3 Development in the Gini coefficient of equivalised disposable income and at risk of poverty in selected years since 2000

Gini At risk of poverty

2000

2005

2010

2015

2017

22 (2001) 16.9 (2003)

23.9 17.2

26.9 18.3

27.4 17.7

27.6 17.2

Source: Eurostat, 2018, ilc_di12, accessed 15 October 2018; ilc_peps01, accessed 15 October 2018

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Denmark – a universal welfare system Table 8.4  Unemployment rate of active population in selected years since 2000 Year Unemployment rate All Men Women

2000 2005 2010 2011 2012 2013 2014 2015 2016 2017 4.3 4.3 3.9 4.8

4.8 4.8 4.4 5.3

7.5 7.5 8.4 6.5

7.6 7.6 7.7 7.5

7.5 7.5 7.5 7.5

7.0 7.0 6.7 7.3

6.6 6.6 6.4 6.8

6.2 6.2 5.9 6.4

6.2 6.2 5.8 6.6

5.7 5.7 5.6 5.9

Employment rate 20–64 years of age All 81.6 81.7 81.5 81.4 81.1 80.9 80.9 81.3 82.1 81.3 Men 86.3 85.8 85.3 85.0 84.5 83.9 84.5 85.0 85.2 84.5 Women 76.9 77.6 77.6 77.8 77.7 77.8 77.3 77.5 79.0 78.0 Source: Eurostat, 2018, une_rt_a, accessed 15 October 2018; lfsi_emp_a, accessed 15 October 2018

As can be seen from Table 8.4, unemployment in Denmark was influenced by the financial crisis, but is at a lower level in 2017, which has continued in 2018, according to the monthly indicators of unemployment, which show that as one the measures of performance in the Nordic welfare states Denmark still has a low level of unemployment. It is further still the case that there is a high participation rate on the labour market for both men and women, as can be witnessed from the table, with a slightly higher level for men than for women. Unemployment rates are close to being at a par for men and women, albeit at a slightly higher level for women, except for just after the crisis, when men were harder hit than women. Depending on the indicators of the performance, one might argue that the welfare state in Denmark is developing in either a negative or a positive direction. The negative aspect is the continued increase in inequality where, as measured by the Gini coefficient, Denmark used to be among the most equal countries in the EU. Today, Denmark is placed in the middle. The increase has been from 23.9 in 2005 to 27.6 in 2017; see also Table 8.3. In the same period, the rate of the number of people at risk of poverty has remained the same (17.2%) after having increased during the financial crisis. Other negative developments are the lower replacement rate for unemployment benefit (which had already peaked in 1975; see Ervik et al., 2017) and the ceiling on social assistance, which – together with tax reforms – are the main reasons for the increase in inequality in Denmark. The labour market policy (see also Section 3) has further focused much more strongly on work-first through coercion than in updating human-capital competences compared to what was the historical reason for the active labour market policy (Kvist and Greve, 2011; Greve, 2017b). Policymakers seem especially to be focusing on increasing the labour supply and having strong incentives to work (Økonomi- og Indenrigsministeriet, 2017). These have been the central arguments for the development and changes in the unemployment system, social assistance, and the tax system. There seems to be a core belief that individuals in Denmark are utility maximising individuals, who will only work if the economic incentives to do so are large enough. However, people do not work for money only, but also, being social animals, they are in need of contact with other people (Brooks, 2011). The focus on migrants’ position in the labour market and how to ensure integration hereof was the reason for seven policy interventions in 2015 and 2016 (Finansministeriet, 2018b), often with a negative approach on how to ensure integration in the sense of reducing the inflow of migrants from countries outside the EU. This is despite the fact that, before the financial crisis, there was an increase in the participation rate of migrants on the labour market, as there has also been in recent years where the level of unemployment has reduced. Thus, this points to the fact 135

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that migrants have a weaker position on the labour market, but in good times when demand for labour is high, there is a higher probability of migrants entering the labour market. Part of this might reflect that immigrants, and especially those from non-Western countries, are seen as less deserving, and also that the intentions are to curb the inflow of foreign workers to Denmark (Jørgensen and Thomsen, 2016). In recent years, the employment of migrants has mainly been a consequence of the growing demand for labour, although non-Western migrants’ employment rate in the Danish labour market is still significantly lower than it is for ethnic Danes (47 compared to 74 in the third quarter of 2017 (Finansministeriet, 2018b). There is further a gender divide so that specifically non-Western women in Denmark have a very low level of attachment. Despite the economic recovery being the most likely explanation for the development, the Danish Ministry of Finance (Finansministeriet, 2018b), although not saying that the recovery has not had an impact, argues that the social assistance ceiling and the demand for 225 hours’ work in order for social assistance not to be reduced, together with the lower integration benefit and stronger demand for learning Danish, have increased employment. This is an indication of the belief in economic incentives but also the often negative perception of migrants in the Danish public debate. On the bright side, there has also been a reduction in the overall level of unemployment, so that now the overall number of people working is back to the pre-crisis level; see Table 8.4. Further, there has not been any strong reduction in spending on welfare, especially not within the field of health care and LTC. There has been demand for increased productivity which, as this has already been in existence for many years, has meant that different groups find that their working conditions have deteriorated. Overall, public finance is solid, and thus there is no need for a strong reduction in spending.

3  Welfare system change across policy sectors 3.1  Overview of welfare system change over time Table 8.5 shows an interpretation of changes to central policy areas within the Danish welfare state, mainly with a focus since 2000, albeit a longer time frame is used for pensions. Sequencing is difficult, as the types of changes have been different, which to a certain extent might reflect different support for different parts of the welfare states. However, in line with ‘Incentives in the limelight’ (discussed earlier), there was an argument on the ‘necessary’ policy to cope with change in demography and globalisation towards a strong focus on ‘it should pay to work’. The year 2001 is central due to an incoming liberal government (together with the conservative party) which ruled until 2011, when a Social Democrat–led government (together with the Liberal Left and Danish People’s Party (leaving the government in 2014)) came into power. In 2015 after the election, a new government led by the Liberal Party was formed, which in 2016 was joined by the conservative and the liberal alliance. Part of the explanation for the choice of periods also reflects a structural reform in 2009 reducing the number of municipalities and establishing five regions instead of 14 counties. The regions’ tasks were further reduced compared to previously, so by now mainly encompassing hospitals. Some of the changes are done as visible instruments (shorter eligibility and other changes in regulation for access) and others are done more invisibly (such as indexation rules meaning lower development in benefits) (Jensen et al., 2018). For Denmark, Jensen et al. (2018) argue that when looking into changes from 1974 to 2014, there has been an expansion in pensions and cutbacks in unemployment benefit, thereby pointing to the fact that austerity might be possible within one area while at the same time expanding in other areas. 136

Time frame

1990–2017

2011–2017

2001–2017

2007–2017

2011–2017

Policy sector

Pension

Long-term care

Social assistance

Health Care

Unemployment benefit

Structural reform, local municipalities more involved in prevention – health care packages Shorter time unemployment and early retirement benefit

Ceiling and demand for work

Long-term reduction in number of beneficiaries and increase in the age before being eligible for state old age pension Rehabilitation, prevention

Benefit etc.

Regulations

Dimensional approach

Stronger focus on work-first, indexation rate lower, overall implying retrenchment in the level of benefits

Restructuring, slightly expansion

Expansion of occupational-based pension, retrenchment in state pension, except for those eligible for a specific pension allowance Expansion of rehabilitation, retrenchment in hours for care Retrenchment, chauvinistic approach, work-first

Expansion/Retrenchment

Table 8.5  Types of change within central policy fields in Denmark – mainly since 2000

Neoliberal

Welfare chauvinism, populism, but also social investment

Neoliberal

Social investment

Neoliberal, but also expansion for those most in need

Ideas

Abrupt, first implemented, then discontinued, then implemented again Continued increase in spending, but also continued demand for increase in effectiveness Continuity of path set in late 1990s

Incremental

Incremental – including continuity as well as discontinuity

Type of change

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Overall, the picture is mixed as to what kind of changes have taken place within the Danish welfare state: a combination of continuity and discontinuity, and with changes that reflect a stronger focus on benefits to those deserving (the old and sick), and less to those unemployed and on social assistance. Overall, there has also been more money available since the millennium, but seemingly a stronger focus on health care and the elderly as the main beneficiaries of benefits. Therefore, one can argue that there is no specific sequence in the development, but it follows more specific policy sectors with varying degrees of legitimacy and support in Denmark to the various policy sectors. Next is a discussion on change in the Danish welfare state system, split into the main policy sectors, but also related to where there have been important changes since 2001, albeit with pensions as an example of an earlier change.There is also an in-depth discussion of the variation and type of development across the sectors.

3.2  Analysis of main developments by policy sector Pensions Denmark has been one of the countries with early reforms within the pension system (GoulAndersen et al., 2017), causing a building up of the funded pension system as part of collective agreements since the early 1990s, which at the time of the decision was mainly seen as a supplement to the public pension system (Goul-Andersen, 2011). There has been a gradual expansion of the level of occupational pension saving through the collective bargaining system. Besides that, as part of a tax reform in 1993, a means test for the state supplementary pension for all income and a means test for the basic pension for labour income above a certain threshold were introduced. The implication is that the pressure on public sector spending within the pension area has been less strong despite a growing number of elderly, because the gradual maturity of the occupational-based funded pension system means that fewer are eligible for the pension supplement. The test for the wage income (for those who continue to work) meant in 2015 that approximately 7.5% had the basic pension reduced. For the pension supplement (which is, as already mentioned, reduced for all income above a threshold), 64.8% of single pensioners received the full supplement, and for couples the figure was 59%.5 The reduction is higher among the youngest of those eligible for pension and pension supplement, which is an indicator that occupational pensions have not yet fully matured; but when they have matured, the proportion of citizens getting only the basic pension will increase. In 2003, a specific limited amount of money (ældrechecken) to those who have nothing besides the state pension was enacted, based on a demand from the Danish People’s Party, indicating that it prefers to spend money on what it sees as deserving, such as the elderly. In 2018, this figure is 17,200 Danish Kroner6 (€2,303) before tax. The expected demographic pressure in Denmark, as well as in other countries, was part of the reason for a recommendation from a welfare commission in 20067 to suggest an increase in the pension age. It has since been decided to gradually increase the pension age; it is now 65 (2018) for both men and women, but from 2019 to 2022 it will increase by half a year per year to 67 years, and then it will be raised to 68. Overall, the construction of a multi-layered pension system in Denmark has not been done overnight, but has formed a gradual shift of the path, meaning that more Danes get only the state basic pension and not the pension supplement, and thereby the pension system is less universalistic than it used to be. However, the combination of a funded and PAYG system also means that low income earners have a relatively high replacement rate when leaving the labour market, because the level of the state pension ensures this 138

Denmark – a universal welfare system

to a greater extent than for high income earners, given it is a fixed absolute amount, thereby including a more market-based approach to pensions. The way indexation is done, and also in relation to the pension system, means a gradual lower level of benefit, as 0.3% is taken away to a fund financing projects for those most in need.This has been abolished from 2020 and onwards. From 2007 to 2016 the percentages of pensioners having an occupational-based or private paid pension increased from 37% to 54%.8 Lastly, there has been a tightening of the conditions for receiving old age pension for those not having worked and lived in Denmark for most of their lives. There is, though, still 15% of the population who do not save into a pension fund over a five-year period. They are mainly the self-employed, people on income transfers and employed in the private sector, and people with little or no education (Finansministeriet, 2017). Some of the self-employed have ‘saved’ in their private company, and might not be at risk of a low living standard in old age, but for others this is not the case. Overall participation on the labour market will be important in order to have savings for pensions and thereby the overall level of economic options when reaching the age of retirement. Thereby, despite the existing high level of replacement rate for low-income earners, the historical universalistic system is today a mix of universalistic and market-based system within the framework of collective agreements, also meaning partly a continuation of inequalities on the labour market into pension age.

Labour market policy Labour market policy has been, as also argued at the beginning of the chapter, a central policy field in Denmark. Welfare reforms and changes in recent years have focused on how to increase the labour supply, including a reduction in, and postponement of, the option to take early retirement, so that from 2007 to 2017 the number in the relevant age group on early retirement benefit has decreased from 37% to 21% in 2017.This change was enacted in a compromise between the Liberal-led government and the Danish People’s Party and the Liberal Left (which later were in the Social Democrat–led government). At the same time the average age of exit from the labour market has changed from 62.5 years in 2007 to 65.2 years in 2017.9 The trend for later retirement is expected to continue due to a combination of the change in the pension and early retirement systems, but also due to better health conditions than previously for many people, and lastly the current low level of unemployment makes it possible for people to continue on the labour market. This might also increase the risk that for those who, for various reasons, are not able to stay so long on the labour market – their economic conditions when retiring are at risk, as they will then have saved less within the funded pension system. Given that the ability to stay on the labour market is highly dependent on the educational attainment level, this can cause a further rise in inequality in Denmark in the years to come. At the same time, there has been a gradual reduction in the generosity of the unemployment benefit, whilst conditions for receiving unemployment benefit have been tightened, and the length one can receive benefit has also been reduced from four to two years, even though it might be up to three years if the person had some work when unemployed. For every one hour of work, two hours of benefit can be achieved, with a total maximum of three years on unemployment benefit. This has left more people relying on social assistance, which in contrast to unemployment benefit is means tested in the Danish system, and where the individual’s possible right to benefit is also depending on a spouse’s income (see further later). A change in the rule in 2017 brought about the potential risk that those not having any work for a four-month period will have one day without any unemployment benefit (meaning a lower level of benefits for the week), and they will need to work 148 hours within the four-month period to avoid this. This combined with a slower increase in the level of benefit than in prices and wages has caused a 139

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decrease in the replacement rate. It has been argued that this should help in increasing the labour supply, in that it ‘pays to work’.The reduction in the level of replacement rate has further caused an increase in the number of persons having a supplementary private unemployment insurance, so that in 2017, 273,000 people had some, compared to around 80,000 ten years earlier.10 Overall, the activation has focused on any work and work-first, and less on, as in previous times, upskilling and an increase in human capital, thereby having a more liberal approach than traditionally in the universal Danish welfare state. Economic incentives as a way of getting people to take any job have also been part of the development. This also means that one can argue that there has been a weakening of the Danish flexicurity model (Bekker and Mailand, 2018).

Health and long-term care policy Health care policy has traditionally been a high-spending area in the Danish welfare state, although life expectancy is lagging behind other industrialised countries, though in recent years catching up has taken place. Hospitals are the central responsibility of the five regions, but within strong legal, institutional, and economic control from the state.11 This includes demand for how fast treatment shall be done, and that there shall be specific ways to have a treatment package, for example, in relation to heart and cancer diseases.There are user charges with regard to medicine, dentists, physiotherapy, and a few other professions, but not for general practitioners, and there is a ceiling on the payment for medicine and lower charges for people with chronic illness. An example of the reduction of the universality is that from 2005 to 2016 there has been a strong increase in the number of people having health care insurance, from 472,721 to 1,856,072, and with payments increasing from 0.5 billion Danish Kroner (approximately €66,954,123) to close to 2 billion Danish Kroner (about €267,816,492).12 Those with private insurance might get faster treatment by private hospitals and/or to have to pay less. This seems especially the case in relation to physiotherapy and psychological support. In this way, the universality of the Danish welfare state has been under pressure in recent years. However, there is broad political support for health care, as this is often used late in life, and thereby native citizens, especially, often have this need. Thereby, among voters, it is also seen as an important area and is supported by the populist parties. LTC policy has been rather stable, and the data do not necessarily lend support to retrenchment, given that not only are the elderly in Denmark living longer, but they also in general have better health. Furthermore, there has been a development towards using welfare technology to support the elderly, as well a stronger focus on prevention (Greve, 2017a), as the elderly are seen as a deserving group. At the institutional level, this can be witnessed by the Law on Social Service §83a, which came into force on 1 January 2015, based upon a broad political agreement in the Danish Parliament in 2014 on the future of home care. It has the intention and obligation for local municipalities to try to rehabilitate in such a way that each elderly person is able to take care of him- or herself.This is because the expectation is that the rehabilitation is able to reduce or even eliminate the need for support. If this is not the case, then the elderly shall continue to have the care provided by the local municipality. The development was based upon evaluation showing the positive impact for workers, users, and the local economy. It started with one municipality testing the rehabilitation approach in 2009. A report evaluated the rehabilitative efforts in a municipality in Denmark, which has since given its name to the model for rehabilitation in Denmark (i.e. Fredericia model). This is done by, for example, instead of physically washing up the dishes, helping the elderly to find a way to do the washing up, or to train or give physiotherapy thereby enabling the elderly to do functions 140

Denmark – a universal welfare system

which have been lost due to ageing or sickness. The report on this experiment estimated that rehabilitation reduced the cost per service user by 13.9%. Of those participating (408 patients) in the first years, 45% needed no help after the intervention, 40% needed less help, and 15% needed the same as in the ordinary home help care (Kjellberg, 2011). Recently, there has been evaluation of other approaches to rehabilitation (Kjelberg and Ibsen, 2016; Sundhedsstyrelsen, 2017). Rehabilitation became obligatory based upon these evaluations. Discussions on loneliness among the elderly, a more dignified life for the elderly, etc. are part of the debates on the future of LTC policy in Denmark. Furthermore, how to support informal carers is on the agenda, due also to the impact on the quality of life for those having to support another person for many hours per week. Given that the elderly are often Danish citizens and are seen as deserving, this helps in explaining the often populist approach to, and the argument for, more money for elderly care; although also the change in demography indicates a need for more spending. This trend is seen not only in Denmark, but also more generally throughout Europe (Greve, 2019). Thus health care and LTC do not follow a sequence of more focus on market-based solutions, but have a stronger focus resembling welfare investment and continuation of the universalistic approach to welfare – in contrast to the previous description related to health and LTC. Changes have further been incremental and, except for the structural reform of municipalities, have continued along the historical path.

Family policy Family policy is a field in which there has been only limited change in recent years. A core reason is that most children (close to 100% of children aged around 1) already attend day care for children,13 and this has been the case for many years. Furthermore, family benefits overall have not been changed in recent years, although an income test was introduced in 2014 reducing the benefit with 2% when income exceeds 765,800 Danish Kroner (€102,547) (2018 limit), so that for every 100 Kroner (€13) above the limit, the reduction will be 2 Kroner (€0.27). In addition, the leave system is relatively unchanged.There is, however, still focus on how to ensure leave for fathers other than at the present level, and a more gender-equal approach in the use of the leave system (see also Bloksgaard and Rostgaard, 2018). The system is also an example of a combination of public and occupational welfare, as in most collective agreements there will be full wage income during the first six months after giving birth to a child. Thus, this has been a stable system with only limited change the last 15–20 years.

Social assistance Social assistance in Denmark is means tested, and one is not allowed to have wealth above 10,000 Danish Kroner (€1,339) for a single person and 20,000 Danish Kroner (€2,678) for a married couple. It is further the case that with regard to this benefit, married people are obliged to support each other. In April 2016 a benefit ceiling for social assistance recipients was implemented. It includes the following benefits: social assistance, integration benefit, educational allowance, and specific means-tested benefits, such as housing benefit, housing grant, and the scheme for reduced payment of day care. It cannot be reduced to below the level of social assistance, and not reduced by more than the sum of specific support and housing benefit. The ceiling applies to those who have not worked for at least 225 hours of ordinary unsupported work within a period of twelve months prior to receiving the benefit. How strong the reduction in benefit is depends on whether the person is single or married/co-habiting, as well as on the number of 141

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children. There are further several differences in the level of benefit depending on age, number of children, etc. Persons with disabilities living in specific housing types (e.g. institutional homes) are not affected. Besides this, the rule is that if you have not stayed in Denmark for seven out of the last eight years, you will be given an integration benefit at the level of educational benefit, which is lower than social assistance. Based upon an agreement in February 2018, this will be changed to nine out of ten years, and further there will be a demand that the person has been working at least 2.5 years out of the last ten years for those applying for social assistance in the future. When implemented, this agreement will also mean that those who worked abroad for many years will only have the lower integration benefit if returning to Denmark. Furthermore, they will also only be eligible for a lower state pension depending on the number of years they have stayed in Denmark. Thus, this is an area with a neoliberal trait and retrenchment, albeit also for a short while during the Social Democrat–led government the ceiling was abolished. The overall idea has further been a strong focus on economic incentives as a way to increase labour market participation, albeit without a clear idea as to whether this would work.

4  Future development It is tough to make predictions, especially about the future, as a Danish proverb says. Thus, the following is an interpretation of how the system will develop, given the developments in the last five to ten years. The need for priorities can be a central aspect of the development, and this seems especially to be with a focus on a work-first approach combined with a focus on health care and support (care and pension) for the elderly. The stronger focus in recent years on and perceptions of who shall be eligible for benefits has challenged the Danish welfare state’s overall universality and generosity, and seemingly with a tendency towards migrants and refugees being seen as less deserving than others. Therefore, to a varying degree, change has been enacted, meaning that especially welfare benefits, if possible, are targeted towards ‘native’ Danes. The demand to have lived in Denmark for a longer time in order to receive the higher benefit within the social assistance system is one indicator of this development. Another is that, in the years to come, there will be a similar demand in relation to unemployment benefit.14 This also implies that inequality has been on the rise, and the policy change from 2016 to 2017 especially was negative for those in the second and third income percentile as a consequence of the reduction in means-tested benefits (EUROMOD, 2018). As long as there is a perception that some people (migrants and refugees) are moving to Denmark because of the higher level of income transfers particularly, then one might foresee a continued reduction in benefit, which is because of the demand to live in Denmark and the principles for indexation, which have already been decided.The discourse relates both to asylum seekers and to the use of migrant workers in Denmark, and is reflected in a number of, often symbolic, changes in legislation related to the field of migration and asylum seekers. Thus, welfare chauvinism (e.g. to support mainly natives) seems to be an issue in the future development of the universal Danish welfare state, making it less universalistic. At the same time, there is seemingly strong support that health care and support to people in old age should be high. Thus, one could argue that what we are actually witnessing is restricted austerity in the sense that part of the welfare state is continuously developed and expanded, whereas other parts of the welfare state are witnessing austerity depending on the types of measure. The austerity is often done in small bits or by gradual decay in the form of limited indexation of the benefit, so it is not in line with inflation or wage development, leaving those 142

Denmark – a universal welfare system

more or less permanently outside the labour market with a lower living standard compared to others.This will also implicitly cause a growing level of inequality in the previously highly equal Danish welfare state.

Notes 1 For the most recent data, see www.oecd.org/social/expenditure.htm 2 Data used in the article are from www.dst.dk, unless otherwise stated. 3 The political parties did not reach agreement in spring 2018 and, therefore, no changes will be enacted for 2019, although changes due to new statistical knowledge will be included with a two-year implementation period. 4 Eurostat, accessed 15 October 2018, using Industry, construction and services (except activities of households as employers and extra-territorial organisations and bodies). 5 This is the author’s own calculations based upon the Statistical Yearbook, 2017, p. 98. 6 All benefits effective in 2019 were converted into euro using the currency converter of the European Central Bank on 13 June 2019, see: https://sdw.ecb.europa.eu/curConverter.do?node=9693519 7 See the report: www.fm.dk/publikationer/velfaerdskommissionen/2008/rapporter-fra-velfaerdskom missionen/analyserapport, accessed 23 December 2018. 8 Data are from www.forsikringogpension.dk/statistik/modtagere-af-pensionsudbetalinger/, accessed 15 October 2018. 9 Exit age comes from www.forsikringogpension.dk/statistik/tilbagetraekningsalder-fra-arbejdsmarkedetaarstal/, accessed 15 October 2018. 10 See www.forsikringogpension.dk/statistik/arbejdsloeshedsforsikring/, accessed 15 October 2018. 11 There is an ongoing discussion on whether it is efficient, and health care is expected to be a core issue in the general election to be held in 2019. 12 Data are from www.forsikringogpension.dk/presse/Statistik_og_Analyse/statistik/forsikring/antalpolicer/ Sider/Sundhedsforsikring_Antal_forsikrede_praemier_erstatninger.aspx, accessed 21 October 2018. 13 Data are from the Statistics Yearbook; the latest is 2017. 14 Although here, due to EU rules, living in other EU member states will also count towards the seven out of the twelve years.

References Adema, W. and Ladaique, M. (2009), How Expensive Is the Welfare States? Gross and Net Indicators in the OECD Social Expenditure Database (SOCX), OECD Social, Employment and Migration Working Papers no. 92, Paris, OECD. Baldwin, P. (1990), The Politics of Social Solidarity: Class Bases of the European Welfare State 1875–1975, Cambridge University Press, Cambridge. Bekker, S. and Mailand, M. (2018), “The European Flexicurity Concept and the Dutch and Danish Flexicurity Models: How Have the Managed the Great Recession?” Social Policy & Administration, Vol. 53 No. 1, pp. 142–155. DOI: 10.1111/spol.12441. Bloksgaard, L. and Rostgaard, T. (2018), “Denmark Country Note”, in Blum, S., Koslowski, A., Macht, A. and Moss, P. (2018), International Review of Leave Policies and Research 2018, available at: http://www. leavenetwork.org/lp_and_r_reports/2. Brooks, D. (2011), The Social Animal:The Hidden Sources of Love, Character and Achievements, Random House, New York. Ervik, R., Kildal, N. and Nilssen, E. (2017), New Contractualism in European Welfare State Policies, Routledge, Oxon. EUROMOD. (2018), Effects of Tax-benefit Policy Changes Across the Income Distribution of the EU-28 Countries: 2016–2017, EUROMOD Working Paper 4/18, Institute for Social and Economic Research, University of Essex. Eurostat. (2018), “Social Protection Expenditure Database”, available at: https://ec.europa.eu/eurostat/ data/database (accessed 10 October 2018). Finansministeriet (2017), Det danske pensionssystem nu og i fremtiden. København, Finansministeriet. 143

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Finansministeriet. (2018a), Økonomisk Analyse: Udviklingen i de offentlige udgifter fra 2000–2017. Maj, 2018, Finansministeriet, København. Finansministeriet. (2018b), Økonomisk Analyse: Beskæftigelsen Stiger Blandt Ikke-vestlige Indvandrere, Finansministeriet, København. Goul-Andersen, J. (2011), “Welfare State Transformations in an Affluent Scandinavian State: The Case of Denmark”, in Seeleib-Kaiser, M. (Ed.), Welfare State Transformations in Comparative Perspectives, Palgrave Macmillan, Basingstoke, pp. 33–55. Goul-Andersen, J., Schoyen, M. and Hvinden, B. (2017), “Changing Scandinavian Welfare States: Which Way Forward?” in Taylor-Gooby, P., Leruth, B. and Chung, H. (Eds.), After Austerity Welfare State Transformation After the Great Recession, Oxford University Press, Oxford, pp. 89–114. Greve, B. (2016). “Denmark: Still a nordic welfare state after the changes of recent years?” in Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.), Challenges to European Welfare Systems, Springer International Publishing, Cham, Heidelberg, pp. 159–176. Greve, B. (2017a), Long-term Care for the Elderly in Europe: Development and Prospects, Routledge, Oxon. Greve, B. (2017b), “Reflecting on Nordic Welfare States: Continuity or Social Change?” in Kennet, P. and Lendvari-Bainton, N. (Eds.), Handbook of European Social Policy, Edward Elgar, Cheltenham. Greve, B. (2018), “At the Heart of the Nordic Occupational Welfare Model: Occupational Welfare Trajectories in Sweden and Denmark”, Social Policy & Administration,Vol. 52 No. 2, pp. 508–518. Greve, B. (2019), The Routledge Handbook of the Welfare State, Second Edition, Routledge, Oxon. Haynes, P. (2011), “Are Scandinavian Countries Different? A Comparison of Relative Incomes for Older People in OECD Nations”, Social Policy & Administration,Vol. 45 No. 2, pp. 114–130. Jensen, C., Arndt, C., Lee, S. and Wenzelburger, G. 2018. “Policy Instruments and Welfare State Reform”, Journal of European Social Policy,Vol. 28 No. 2, pp. 161–76. Jørgensen, M. and Thomsen, T. (2016), “Deservingness in the Danish Context: Welfare Chauvinism in Times of Crisis”, Critical Social Policy,Vol. 36 No. 3, pp. 330–351. Kjellberg, J. and Ibsen, R. (2016), Rehabiliterende hjemmepleje efter Roskilde-modellen: En analyse af de økonomiske konsekvenser af Roskilde-modellen for rehabilitering, KORA, København. Kjellberg, P.K. et al. (2011), Fra pleje og omsorg til rehabilitering: Erfaringer fra Frederica Kommune, DSI, København. KMD. (2018), Pårørende på arbejdsmarkedet, KMD, København, available at: www.kmd.dk. Kvist, J. and Greve, B. (2011), “Has the Nordic Model Been Transformed?” Social Policy and Administration, Vol. 45 No. 2, pp. 146–160. Kvist, J. and Kangas, O. (2019), “Nordic Welfare States”, in Greve, B. (Ed.), The Routledge Handbook of the Welfare State, Second Edition, Routledge, Oxon. Økonomi- og indenrigsministeriet. (2017), Fordeling og incitamenter, Økonomi- og Indenrigsministeriet, København. Økonomi- og indenrigsministeriet. (2018), Afrapportering fra finansieringsudvalget, Økonomi og Indenrigsministeriet, København. Petersen, J.H. (2017), “From Unilateral Towards Reciprocal Social Policies”, in Ervik, R., Kildal, N. and Nilssen, E. (2018), New Contractualism in European Welfare State Policies, Routledge, Oxon. Schubert, K., Hegelich, S. and Bazant, U. (Eds.) (2009), The Handbook of European Welfare Systems, Routledge, Oxon. Schubert, K., de Villota, P. and Kuhlmann, J. (Eds.) (2016), Challenges to European Welfare Systems, Springer International Publishing, Cham, Heidelberg. Sundhedsstyrelsen. (2017), Rehabilitering på ældreområdet: Hvad fortæller danske undersøgelse os om kommunernes arbejde med rehabilitering I hjemmeplejen? Sundhedsstyrelsen, København. Taylor-Gooby, P. (2004), New Risks, New Welfare: The Transformation of the European Welfare State, Oxford University Press, Oxford.

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9 The welfare system in Estonia Between liberalism and solidarity Mare Ainsaar, Ave Roots and Avo Trumm

1 Introduction: historical perspective and major changes in the Estonian welfare system The history of Estonian social policy started in mid-19th century when the first legal basis for community-centred social assistance was established. According to the Rural Law of 1857, rural communities became responsible for providing social assistance on their territory for orphans, the disabled, and the elderly if they lacked an income, property, or wealthy relatives (Kotka, 1996). However, the modern social protection system in Estonia was founded only in the 1920s after the formation of the independent Republic of Estonia in 1918. From 1918 to 1949, the state had succeeded in creating systems of pension, health care, labour protection, social assistance, and tenancy, which were organised and financed by the state and local municipalities (Kõre, 1998). After the incorporation of Estonia into the Soviet Union in 1940, all Estonian laws were abolished and a Soviet-type social policy was enforced instead. The social protection system under the socialist regime was funded mainly by contributions from employers to the state budget. There was a system of comprehensive social protection based on full employment, and additional targeted services were often provided at the enterprise level. The former state-socialist system provided old-age pensions, access to health care, family support, relatively generous social care, and subsidies for housing and basic goods. There was a limited emphasis on cash allowances and a greater emphasis on services such as free medical care, childcare, and education for everybody. However, the different social policy functions experienced diverse development trajectories (see for example Trumm and Ainsaar, 2009). Starting from 1992, Estonia transformed its social policy ideology from the Soviet unified labour-based ideology into a new mixed welfare system. The current social policy in Estonia has been influenced by many things: the legacy of the past, prevailing right-wing governments, lessons learned from the Nordic welfare traditions, normative guidelines from the European Union, as well as influence from other international agencies. The Estonian social protection model has been often classified as a liberal or Bismarckian low-spending type (Bazant and Schubert, 2009; Põder and Kerem, 2009). The legacy of the ‘state-socialist welfare traditions’ has left a remarkable imprint on the current social policy system. Estonia’s present social protection system has elements from the previous system, like the prevalence of employers’ contributions in social policy funding and a relatively 145

Mare Ainsaar, Ave Roots, and Avo Trumm

developed system of childcare. Right-wing governments and trust in free market economic policies shaped the general policy environment of Estonia in the 1990s and its vision about equality in society in particular. History has also shaped the principal conception about the role of government in securing the subsistence of all people (Kandla et al., 2000). European Social Survey data from 2016 show that Estonian people rely continuously on the government for social issues (Figure 9.1), and this level of acceptance of government support has persisted for at least the last ten years in Estonia. At the same time, social equity occupies a rather low position in Estonian society (Figure 9.2). This and the belief in the power of individual efforts can partly be explained as the opposition

Figure 9.1 The importance of the government solving social issues (index with the scale 0–30 for old-age, unemployment, and childcare issues, own calculations based on European Social Survey, 2016)

Figure 9.2 Attitudes about equality in society in different European countries and the position of Estonia in 2016 and 2008 (own calculations based on European Social Survey 2016, 2008) 146

The welfare system in Estonia

reaction to the previous ‘all-equal Soviet Union’ policy. The establishment of the ‘free market economy’ was a high priority of different right-wing government coalitions in the 1990s, proceeding from the understanding that the obligation of the state is to ensure equal opportunities for everybody to develop their individual capacities and at the same time the understanding that the realisation of those opportunities provided by the state is the responsibility of the recipients themselves. However, despite the general liberal policy image of Estonia, the different fields of social policy follow different values (Ainsaar, 2002).

1.1  The socio-economic context of the Estonian welfare system The macroeconomic environment, population issues, and political preferences are essential factors shaping the social policy environment. In addition, developments in the labour market have had a considerable impact on social policy changes. The economic performance of the country largely determines the opportunities, needs, and constraints of the social protection system – in terms of supply as well as demand. Since the 1990s, we can distinguish three periods of social policy environment formation.The years 1989–1996 are connected to the collapse of the socialist system, the economic decline, and the initial steps in building a new type of social protection system.The years 1997–2009 represent a period of stabilisation and growth of the economy, combined with gradual development of different domains of social policy. The demographic situation significantly influenced the development of several social policy areas like pensions, health care, and family policy in Estonia. Although many countries are worried about the sustainability of their population, a true total population decline has manifested in only a few countries in Europe, including Estonia (Ainsaar and Rootalu, 2016).The 2009 global economic crisis has been followed by economic growth and stability. Although Estonia suffered from one of the worst economic downturns in Europe during the recession, the political stability, availability of the state reserve, and low level of public debt mitigated the situation, preventing bigger cuts (Ainsaar and Kesselmann, 2016). To conclude, the contemporary social protection system of Estonia is grounded on the former universalistic socialist-type of welfare state and has been reformed in the turmoil of rapid changes, due to new emerging social problems, demographic, ideological and political changes, and economic constraints. The outcome of this process has been influenced by the experience of neighbouring Scandinavian countries, contradicting simultaneous liberal and social attitudes and trade-offs between needs and resources.

2  General structure of the Estonian welfare system In this section, the general structure of the Estonian welfare system will be described. A more detailed historical overview can be found in Trumm and Ainsaar (2009).

2.1 Priorities The level of a state’s social protection is generally characterised by the relative share of funding given to social protection in the GDP and the total expenditure on its inhabitants. The social protection level is low according to both criteria in Estonia.The absolute social expenditure per capita in Estonia shows signs of growth but it still forms only about 29% of the EU-28 average. This determines largely the opportunities of the population of Estonia to benefit from the social protection system. On average, social expenditures in the EU-28 countries were 28.6% of GDP, but only 15.1% in Estonia in 2014. Because of the considerably low GDP per capita, the social expenditure per individual is even lower – about three times lower than the EU average. 147

824.78  853.78  906.04  984.52  1,093.37  1,258.64  1,404.00  1,623.83  1,945.87  2,424.72  2,656.04  2,589.57  2,605.53  2,693.49  2,810.04  2,988.58  3,328.60 

15.3  13.8  13.0  12.7  12.6  13.0  12.5  12.0  12.0  14.7  18.8  17.6  15.6  15.0  14.8  15.1  16.4 

1,191.94 1,229.41 1,236.73 1,352.21 1,465.25 1,658.01 1,812.48 1,970.76 2,240.91 2,636.99 2,947.07 2,944.75 2,918.48 3,012.76 3,051.16 3,252.15 3,665.58

:  :  :  :  :  :  :  :  :  3,387,028.75(p)  3,533,143.94(p)  3,667,547.18(p)  3,735,088.49(p)  3,859,799.72(p)  3,913,655.87(p)  4,016,755.91(p) 

Total (mio €)

PPS per inhab.

Total (mio €)

% GDP

eu28

EE

Source: Eurostat, 2018; (p): provisional value

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Year

:  :  :  :  :  :  :  :  :  25.9(p)  28.7(p)  28.6(p)  28.3(p)  28.7(p)  28.8(p)  28.6(p) 

% GDP :  :  :  :  :  :  :  :  :  6,757.67(p)  7,028.04(p)  7,279.52(p)  7,417.84(p)  7,649.10(p)  7,733.21(p)  7,912.48(p) 

PPS per inhab.

Table 9.1  Social protection expenditure in Estonia and EU countries in the period of 1999–2015

2,214,943.56  2,347,326.14(p)  2,449,980.98(p)  2,562,471.09(p)  2,657,662.71(p)  2,771,854.86(p)  2,889,500.99(p)  3,007,885.73(p)  3,118,525.82(p)  3,195,211.33(p)  3,344,902.25(p)  3,467,209.30(p)  3,533,100.02(p)  3,656,348.31(p)  3,705,912.85(p)  3,806,673.98(p)  4,000,226.25(p) 

Total (mio €)

eu15

25.8 25.5 25.7 26 26.5 26.4 26.6 26.2 25.9 26.6 29.4 29.4 29.1 29.5 29.7 29.5 29.3

% GDP

5,500.34  5,837.71(p)  6,080.56(p)  6,319.12(p)  6,493.72(p)  6,725.22(p)  7,013.25(p)  7,270.41(p)  7,487.35(p)  7,658.60(p)  7,928.97(p)  8,171.41(p)  8,310.18(p)  8,537.54(p)  8,619.55(p)  8,796.65(p)  9,179.54(p) 

PPS per inhab.

The welfare system in Estonia

Following the change of social expenditure within the period of 1999–2015, the annual expenditure per inhabitant has shown a constant increase, from 1,192 euros per inhabitant in 1999 to 3,666 in 2015. In addition, the share of the social expenditures from GDP is higher in the last decade compared to previous years. It has increased from 15.3% in 1999 to 16.4% in 2015 (Table 9.1). The share of means-tested benefits is very low – around 0.1% of GDP – in Estonia. Although Bismarckian principles are shaping the current social protection system of Estonia, the principles of universalism are also a characteristic of the system. Many social security systems follow solidarity principles, and tax-based revenues are distributed to a broader range of recipients. Occupational and totally private insurance schemes are rare in Estonia. Old-age pensions are the only social policy domain where private banks have an essential role in determining the output of social policy. Estonia, similar to most EU countries, spends the majority of its social protection resources on old-age pensions and sickness/health care (Table 9.2).Their combined share is about 80% of total spending on benefits. The share of benefits for sickness and families with children from the total social protection expenditures in Estonia is higher than the EU-19 average, while benefits for the unemployed, housing, and social exclusion constitute a lower percentage than the EU average. The most significant aberration in the Estonian social protection expenditure is the very low proportion spent on housing and social exclusion policy. Housing subsidies exist but they are merged into the system of social assistance benefits, which also takes into account housing cost needs. Moreover, the percentage of GDP used for both active and passive labour market policies used to be the lowest in Europe. During the economic crisis, this percentage increased and then decreased again. On the other hand, the percentage of benefits delivered to families and children is a remarkably high portion of the GDP and all social expenditures (around 13%) in Estonia, and is comparable to the Nordic welfare standard (Denmark 12.9%; Finland 11.6%; Sweden 9.8%).

2.2  Funding and administrative structure Estonia is largely a centrally managed social security system, where the majority of social policy decisions are made at the governmental and parliamentary levels. In accordance with the State Government Act, the field of social protection is within the competence of the Ministry of Social Affairs. Since 2014, two cabinet ministers have worked in this ministry – the Minister of Social Protection and the Minister of Health and Labour.The post of Special Minister of Population Affairs under the State Chancellery was abolished during the economic crisis in 2009. Childcare policy is under the responsibility of the Ministry of Education and Science and is shared with the Ministry of Social

Table 9.2  Social protection benefits by function, 2000–2015 (% of total expenditure)

Total expenditure Social protection benefits Family/children Unemployment Housing Social exclusion n.e.c. Sickness/healthcare and disability Old age and survivors

2000

2005

2010

2015

100 98.43 11.74 1.26 0.7 1.99 38.11 44.63

100 98.53 11.97 1.3 0.23 0.96 40.72 43.35

100 98.92 12.61 4.19 0.28 0.81 37.31 43.72

100 98.81 12.61 2.68 0.16 0.55 39.45 43.36

Source: Eurostat, 2018

149

Mare Ainsaar, Ave Roots, and Avo Trumm

Affairs, which sees work and family policy as related issues.Within the area of administration of the Ministry of Social Affairs, several semi-independent government-related agencies act – the Social Insurance Board, the Health Insurance Fund, and the Unemployment Insurance Fund – which are responsible for the administration of different branches of social protection. In the European Union the social protection systems are financed mostly by employers and the government (35% by employers and about 40% by the government) and individual contributions comprise about 15% of the total resources for social protection (Eurostat). Estonia is different in that the social protection system is almost exclusively financed by a social tax payed by employers (78% of all expenses) and by the central and local government structures (20%). The individuals in Estonia directly cover only 1% of social protection expenditures.The general principles of social protection financing in Estonia are presented in Figure 9.3. One of the core elements of the financing of social expenditures is the social tax in Estonia. It is paid by the employer for each employee and by the government every month for insured persons (children, elderly, unemployed, and employees, whose loss of capacity for work has been assessed at 40% or more and other categories), and it is 33% of their gross earnings, of which 20% comprises pension insurance and 13% health insurance. The collection of the tax is organised by the Tax and Customs Board. The aim of the compulsory unemployment insurance premium is to insure employees against unemployment, collective termination of employment contracts, and the insolvency of the employer. Unemployment insurance must be paid to the employee based on the wages and other remuneration paid to natural persons on a contractual basis. The payment obligation is distributed between the insured party – the employee (1.6% in 2018 from their gross salary) – and the employee’s unemployment insurance premium (0.8% in 2018). The second and third pillar of pension insurance is managed though different private pension funds provided by the bank. The payment is automatically deducted from the worker’s salary by the employer and the government makes an extra contribution to funds of the second pillar for every person contributing privately.

Other taxes, revenues

State and local gov budgets

Poverty Family

Health Insurance Fund Social tax

Private pension insurance

Unemployment insurance

Social Insurance Board

Disability

Private pension funds

Old age

Unemployment Insurance Fund

Unemployment

Figure 9.3  The organisation of social protection financing in Estonia in 2018 Source: Authors’ compilation

150

Health

The welfare system in Estonia

Poverty and family policy are financed mainly by local or central government budgets. Disabilityrelated social protection comes from diverse sources depending on the function of the support.

2.3 Performance The social protection system of Estonia in general is not selective or targeted in terms of conditionality. All benefits are exclusively provided for permanent residents of Estonia or persons ‘equalised’ with residents. The insurance-based benefits by definition require a specific payment by the insured.The means test is applied only for subsistence benefits and for the unemployment allowance. The general level of overall generosity of the social protection system of Estonia is low. Estonia has been a predominantly emigrating country, and immigrant-related welfare provision has not been a significant issue in the country. The outcomes and efficiency of the social protection system can be estimated by different indicators (Table 9.3). Despite the improvement in several output variables, Estonia is among the countries with rather high and stable levels of income inequality in the European Union. The Gini coefficient in 1998 was 0.38; the same indicator for 2005 was 0.34 and 0.33 in 2016 (Eurostat). High level of income inequality in Estonia can be interpreted in two ways. On the one hand, high income inequality per se is one of the main determinants for tasks of social policy. On the other hand, the current level of inequality indicates a particular inefficiency in the system Table 9.3  Outcome indicators, 1995–2015 1995

2000

2005

2010

2015

Employment rate (15–64 years)   Female employment rate (15–64 years) Part-time employment rate (15–64 years)   Female part-time employment rate (15–64 years)

65.5 60.6 7.4 9.2

60.3 57.3 8.8 11.7

64.2 62.8 6.8 9.1

61.0 60.7 9.8 13.4

71.5 68.4 9.5 13.4

Gender pay gap

26.8

24.2

30.0

Unemployment rate (15–74 years)

14.6

8.0

  Youth unemployment rate (15–24 years)   Elderly unemployment rate (55–64 years)

9.6 (1997) 14.4 6.2

22.9 22.2 (2011) 16.7 6.2

23.0 11.5

15.1 5.4

32.9 16.3

13.1 6.0

Gini coefficient of equivalised disposable household income

36

36

33.4

32.0

32.7

25.9 21.7 18.3 15.8 (2006) 9.5 9.0 12.4 9.0

24.2 21.6

At risk of poverty and social exclusion (%)   At-risk-of-poverty rate   In hh with no or very low work intensity (% of age