Whether Social Protections in Europe Are too Generous - Term Paper Example

19-03-2007 Social Protection Social protection systems broadly defines the collective intervention of society to protect citizens from vulnerabilities, sustain their well being and enhance their capabilities in managing risks (Brundtland Report, 1987). These systems have proved successful in reducing vulnerabilities for the vast majority of the population and ensuring that the structural adjustment associated with continued economic growth did not translate into unacceptable consequences for the well being of vulnerable groups. The social protection systems of most countries developed in a context characterized by high economic growth, low employment, strong national states, and limited international competition faced by domestic firms. These social protection systems also generated high levels of expenditure, which weighed heavily on public budgets. High levels of public expenditures on social protection had their roots in decisions made to create and extend public programmes in the field of education, health, old age and other areas. Basically overall level of social expenditures in motivating reforms is the way in which these expenditures are distributed among the population (Lynch, 2001). The forces of globalization and technological progress also affect social protection. While both of these factors have improved economic efficiency and living standards, they have also increased cost- competitions among firms, and generated pressures to reduce the cost of social protection. The various national systems of social protection are deeply rooted in the member states of the European union. Social convergence with the EU has since long been an important goal. In accordance with the European council Decision establishing the social protection committee, it acts as a forum for exchange regarding policy developments in respect of achievement of four objectives endorsed by the council to enhance policy cooperation in the area of social protection, namely: to make work pay and provide secure income; to make pension safe and pension systems sustainable; to promote social inclusion; to ensure high quality and sustainable health care. Series of mandates have been handed down by the European Council Progress has not been achieved at the same rate across the different policy branches. Progress has been strongest in the domain of social inclusion with the submission of national action plans by the member states in June 2001. A similar stage should have been reached in respect of national pension strategy reports in which the social protection committee has worked jointly with the economic policy committee. Cooperative exchange in the area of health care and long-term care for the elderly has been started. But above all going through different development in the area of social protection policies in Europe, it has not been very clear that expenditure on social protection systems have positive or negative impact on overall developments. It has been the point of discussion for long whether more spending automatically leads to a better quality of social protection or not. Though more spending on social protection system overstressed the overall economic system of the EU member states depending on the overall developments of the nation states. EU acknowledges the importance of the social dimension of the European integration process. They expected social progress to result from economic integration. The most important regulation in this field regulation (883/2004); on the coordination of social security system sheltering to migrant workers was passed after the free movement of workers. As Leibfried and Pierson (1996) note this regulation has together with accompanying law of the court, restricted the sovereignty of member states in social policy. Member states have accepted a certain degree of commitment in terms of social protection and adopted two recommendations i.e. common criteria concerning sufficient resources and social assistance to social protection systems and convergence of social protection objectives and policies. Member states also face common problems, such as ageing of population, unemployment, changing family structures and poverty; common objectives must act as pointers to the way social protection systems are modified to take account of these problems, jobs summit in Luxembourg at the end of 1997, can be seen as an implementation of the convergence strategy emphasize on to improve the employability of those out of work. This reflects a change in orientation of systems of social protection a shift towards a more active policy, designed to get people into employment rather than merely transferring income to those who are out of work. Though crucial in modernizing social protection, this change in orientation does not have implications for benefits levels, converge and eligibility criteria i.e. for the scope and generosity of national systems. EU set the strategic goal to become the most competitive and dynamic knowledge based economy with sustainable economic growth and social cohesion. The economic and social agendas were thus explicitly coupled. To modernize social model and to ensure long-term sustainability of the social security/protection systems in the light of the ageing process, people’s participation rates as well as generosity of the nation states should be increased. Social policies remain the responsibility of member states under the principle of subsidiary. Best practices are disseminated and bench marking is used. Member states should implement action plans for competing poverty and social exclusion and to define common objectives on social indicators. The indicators include financial poverty, income inequality, long-term unemployment, and regional variation in employment rates, life expectancy and poor health. Some consider these common indicators and the national plans for social inclusion as significant progress towards integration along the social dimension (Atkinson, 2002). While De Mooij and Tang (2003) argue that lack of binding agreements may also render coordination of social policy ineffective. It has been argued for long that economic development of nation states plays a crucial role in framing its social protection policies. It has been seen either ways. According to a well-known argument, economic development undermines traditional solidarities in family and local structures (Chassard & Quintin, 1993). Higher level of income also offers the possibility to develop a system of social security with adequate protection levels. At least the funding of such a system will become easier and nation states become generous. So European integration promotes economic development by reducing uncertainty, lowering risk premiums and improving investment opportunities results in generous social protection system. Economic integration as well functioning of internal market stimulate migration flows and provoked by differences in levels of social protection, averse selection problems occurs. Individual beneficiaries will be attracted to countries with generous social protection systems, while net contributors are deterred by the high tax- burden, resulting the social protection systems confronted with increasing outlays as well as a narrowing financial base, which will ultimately result in lower protection levels (Sandmo, 2001). In the case of economic integration and higher transparency the competitive position of countries with relatively generous protection systems could be damaged, results in lowering protection level race to the bottom. In the end social protection may indeed converge at a very low level called social dumping or wage dumping argument (Sinn, 2003:89). Number of studies investigated the relation between the degree of openness of economics, competitiveness and the level of social expenditure on protection (Rodrik, 1998; Agell, 1999, Krueger, 2000, De Grauwe and Polan, 2003). These studies find out that countries, which are more prone to external competitive pressures, have on average higher expenditure ratios. Though EU countries, especially EU-15 have higher expenditure in respect to other parts of the world but in real terms in recent years it’s declining or remains almost stagnate. Scharpf (1999) observes a strong correlation between GDP per capita and social expenditure ratio in EU. By and large richer member states have proportionally larger public social expenditure then less rich countries. So in EU the social protection system is direct consequence of its economic condition. It cannot be termed as too generous. If the EU has aimed at sustainable development of overall geographical region uniformly, it has to be generous in its social protection policies. Generous unemployment protection is important in so far as it allows workers to turndown job offers outside their previous industry. Two components of unemployment protection a high replacement ratio and secure benefits guarantee return on skill investment sufficient to compensate for economic fluctuations. So in EU, promoted by the high rates of unemployment and a concern to ensure that people are encouraged to be employed rather than choose to live on benefits, the member states have undertaken to implement reforms. Member states provide support for the reconciliation of work and family life, child benefits, maternity & paternity leaves, career allowance, pension rights etc. Member states adopted family allowance, childcare or adopted child Tax credit etc. Member countries adopted various reforms to encourage employment, prolong working lives etc. which shows that almost all the member states trying to evolves sustainable social protection policies whether it be employment, social inclusion, ensuring greater effectiveness and efficiency through reorganization, prioritization and the development of incentive structures for users and providers, strengthening the role of health promotion and dieses prevention policies, systematic use of charges and co-payments as well as reduction in fees, targeted at disadvantages groups, promotes active lifestyle and healthy ageing developing indicators and accreditation systems, involve patients promotes choice and technologies progress etc. This shows and presents a picture that EU social protection system is too generous but if we scan through its economy and its requirements as well as inclusion of social requirements EU has to take care of certain areas where considerable progress has to be made. The review of Lisbon strategy revealed an implementation gap between member states committed to and the policy effort to implement them. The problem areas are labor market participation, which is generally low, modernization of social protection system, disadvantages in education and training, child poverty, assistance to families, housing access to quality services and integration of people with disabilities, ethnic minorities and immigrations. Intervention was also necessary in light of the concentration of multiple disadvantages in certain urban and rural communities. The European commission in Jan. 2006 formulated new framework which identified challenges for social protection and inclusion policies, are to promote social cohesion and equal opportunities for all through adequate accessible, financially sustainable, adaptable and efficient social protection systems and inclusion policies, to integrate closely with Lisbon objectives on achieving greater economic growth and more and better jobs and with EU is sustainable development strategy and finally social protection and inclusion policies should support growth and employment objectives and, conversely, growth and employment policies should support social objectives. For social protection schemes a holistic approach is required which focus on sustainability, monitoring the effectiveness and efficiency of systems, policies and finding mechanisms, the distribution of spending across different branches and the balance between public provision and self reliance. With regard to pension schemes it is necessary to further highlight the interlink ages between the three broad objectives of adequacy, sustainability and modernization of pension systems, continue to remove disincentives and strengthen incentives for working longer, improve the way in which both employers and labor market treats older worker, monitor the trends towards a decline in replacement rates, take better account of new forms of working and of career breaks ensure that women can build up their own pension rights, ensure that private pension schemes are affordable and secure and complement public schemes. With regards to health care and long care, EU proposed that there is need for greater coherence and better coordination between different types of care, to strengthen role of family doctors and financial sustainability. EU also proposed different measures to face the challenges in relation to fighting poverty and exclusion highlights on better main streaming, better governance, better links between structural funds. So it has been clearly evident that through social protection policies and existing system in EU is more developed than outside EU and some may call it generous but if we correlate it with economic development, we find that social protection policies are not enough to cover up the requirements of the people in EU.EU social protection policies and system needs to be re looked with reference to its revised Lisbon strategy and effective monitoring and evaluation is very much needed to strengthen it. References: 1. Agell, J. (1999), On the benefits from rigid labour markets: norms, market failures, and social insurance, The Economic Journal 109, p. F143-F164. 2. Atkinson, A.B. (2002), ‘Social Inclusion and the European Union’, in Journal of Common Market studies, vol. 40, nr 4, p. 625-643. 3. The "Brundtland Report" in 1987 linked social protection and sustainable development, stressing that social protection systems for the elderly (by providing people with forms of security other than large numbers of children) were essential to limit population growth and the resulting environmental pressures (WCED, 1987). 4. Chassard, Y., and O. Quintin (1993), ‘Towards a Convergence of Social Policies’, in J. Berghman and B. Cantillon (eds), The European Face of Social Security: Essays in Honour of H. Deleeck, Avebury, Aldershot, p. 337-355. 5. De Grauwe, P. and M. Polan, (2003). Globalisation and Social Spending, CESifo working paper no. 885, march. 6. European Commission (2001a), "Promoting a European Framework for Corporate Social Responsibility.Green Paper", Directorate-General for Employment and Social Affairs, Brussels. 7. European Commission (2001b), "A Sustainable Europe for a Better World: A European Union Strategy for Sustainable Development", http://europa.eu.int/eur- lex/en/com/cnc/2001/com2001_0264en01.pdf, Brussels. 8. Krueger, A.B. (2000), From Bismarck to Maastricht: The March to European Union and the Labor Compact, Labour Economics 7, p. 117-134. 9. Leibfried, S. and P. Pierson (1996), Social Policy, in: H. Wallace and W. Wallace (eds.), Policy Making in the European Union, Oxford, Oxford University Press, p. 185-207. 10. Lynch J. (2001), “The Age-Orientation of Social Policy Regimes in OECD Countries”, Journal of Social Policy, No. 30, 3, Cambridge University Press, Cambridge. 11. Mooij, R. de, and P. Tang (2003), Four Futures of Europe, CPB, The Hague. 12. OECD Social, Employment And Migration Working Papers No. 12 Towards Sustainable Development: the Role of Social Protection DELSA/ELSA/WD/SEM(2003)12, Organisation for Economic Co-operation and Development 19-Aug-2003. 13. Rodrik, D. (1998), Why do more open economies have bigger governments?, Journal of Political Economy, 166(5), p. 997-1032. 14. Sandmo, A. (2001), ‘Globalisation and the Welfare State: More Inequality, Less Redistribution?’ in D. Pieters (ed.), European Social Security and Global Politics, Kluwer Law International, The Hague 2001, p. 45-60. 15. Scharpf, F. (1999), Governing in Europe: Effective and Democratic?, Oxford University Press, Oxford. 16. Sinn, H-W. (2003), The New Systems Competition, Blackwell Publishing. Read More