PAPER FOR PRESENTATION
TO THE CONFERENCE ON
Changing Social Policies
for Low-Income Families and Less-Skilled Workers
in the EU and the U.S.
University of Michigan
National Poverty Center
Gerald R. Ford School of Public Policy
& European Union Center
Ann Arbor, MI, April 7-8, 2005
Contribution to the Analysis
of Social Policy in Europe
Ferran Brunet Cid
Universitat Autònoma de Barcelona
&
Mar López Rancaño
Universidad Nacional de Educación a Distancia
CONTRIBUTION TO THE ANALYSIS OF SOCIAL POLICY IN EUROPE
Ferran Brunet Cid & Mar López Rancaño
Abstract
This paper considers the social policies in contemporary Europe. The presentation is
organized in four sections. First, we discuss the emerging Europe, the new unity based on
democracy and the market economy, the special European Union formula, and comparisons with
America. Second, we analyze the dynamics of the European economy, the convergence process, the
gaps between United States in productivity and standard of living, competitiveness issues, and the
emergence of a new European economy and new European policy mix.
Third, we consider European social conditions, the stationary and aging population, Europe’s
low employment rate and permanently high unemployment. European economic growth could draw
on two major sources: the labor reserves and reforms in factor, product and service markets. In a
monetary union, advanced industrial relations should promote labor mobility and salary flexibility.
The social security systems permit the redistribution and cohesion which defines the European
model.
Fourth, for the new Europe, the structural reform strategy is the way forward for the
challenge of European economic policy and social policy: more and better jobs thanks to
sustainable growth in a dynamic and competitive knowledge-based economy, favoring greater
social cohesion.
Keywords: Europe, Social Policy, Economic Policy, Economic Performance, European Integration.
JEL F15, I30, J21, O52.
Ferran Brunet Cid
Universitat Autònoma de Barcelona
Faculty of Economics, University Campus
Building B, Suite B3-98
E-08193 Bellaterra, Spain
Phone 011-34-93-581-4580
ferran.brunet@uab.es
Mar López Rancaño
Universidad Nacional de Educación a Distancia
Faculty of Economics, Vapor Universitari
Colom 114
E-08221 Terrassa, Spain
Phone 011-34-93-783-0755
lopezrm@diba.es
2
Contents
I. Europe and the Emerging European Union
A. The Emerging Europe
B. The European Union Way
C. America vs. Europe: Dreams or Realities, Models & Development
D. The Old and the New Europe
II. The Dynamics of the European Economy
A. Long Term Dynamics
B. Convergence and Catching-up in Production
C. The Gap between Productivity and the Standard of Living
D. Low European Employment Rates and European Competitiveness
E. The New European Economy and the New Policy Mix
F. The Sources of European Growth: New Economy, Labor Reserves, and
Structural Reforms
III. The European Social Conditions and the European Social System
A. Towards a Stationary Population: The Problems of an Aging Society
B. The Low European Employment Rate
C. …and the Permanently High European Unemployment Rate
D. Labor Market and Salaries: Immobility and Inflexibility
E. The Social Security Systems
F. Distribution and Re-distribution: Trends in Stocks and Income
G. Discussion on the American/European Economic/Social Model
IV. On European Social Policies
A. Structures and Competences of Social Policy in Europe
B. Social Policy, Economic Policy, and other EU Policies
C. The Lisbon Strategy for Structural Reform, Competitiveness, and
Employment
D. The Common Task of European Economic Policy and European Social
Policy: The Employment
V. Conclusions
On Europe and the European Union
On the European Economy and the Economic Policy
On European Society and Social Policies
References
3
I. Europe and the Emerging European Union
What is Europe? What is it to be European? Finding answers to these questions is not so simple. What route
should Europe follow? What is the best approach for the West: modernity and/or post-modernity?
A. The emerging Europe
Europe is at a sweet moment of its contemporary history. On May 1st 2004, ten new countries joined the
European Union. The division of Europe into two opposing political and economic systems is now a thing
of the past. The European integration process forging a new political and economic Union has been a major
success, due to the ‘miracle’ of economic growth during the second half of the 20th century and, then, the
quiet death of the Soviet Union and real socialism. For Europeans the European Union (EU) has emerged as
the means to maintain freedom and improve economic and social conditions.
The EU now comprises two types of countries: the 15 Western European Member States (MS) and the
ten new Central and Eastern European MS. These new MS represent 16.2 per cent of the overall EU
population, 22.8 per cent of total EU territory, and 4.6 per cent of total EU Gross Domestic Product (GDP);
yet their average GDP per capita is 52.6 per cent of the EU15 average. The EU10 have major development
and structural problems.
The EU15 share a long common history –including many great and even world wars– and are relatively
well integrated, though less so in cultural and political terms. Its MS abide by the EU rules –European laws
prevailing from the MS laws. The Treaty establishing a Constitution for Europe which is now being
presented for ratification by MS codify the European legal system and underlines the visibility and
effectiveness of European rights.
Europe has largely been a recipient of the output of the United States of America (USA, US), from US
aid in the Second World War to the European democracies against Nazi Germany to the contemporary US
corporate presence, investments, trade flows, technological advances, culture, politics, and news. The global
instability of recent years has clouded transatlantic relationships, yet the soft power (Keohane & Nye, 2001,
and Nye, 2002) of the US in Europe is solid. European countries share many structures, syste ms and
institutions, while there are differences to country size, to long separate histories –perhaps wars, to different
languages and cultures. The different MS cultures and institutions are essentially different combinations of
the same ingredients.
B. The European Union Way
The EU’s7 development has been highly successful. It is precisely this success that has led to certain
problems: all the neighboring countries are knocking at the EU door, keen to become MS and acquire the
stability, democracy and standard of living denied to them for centuries.
The objectives of the EU are accumulative, from peace to human rights, economic growth and
sustainability, as reflected in the European Constitution. The European unification process is political in its
objectives and in its means, but its implementation is first and foremost economic: gradualism is a feature
of the EU. EU development is guided by a number of steering principles: non discrimination for reasons of
nationality, equal treatment for all, transparency, respect for difference, minority cultures and diversity,
subsidiarity. (Constitution for Europe, 2004)
The EU functions along the lines of a confederal institution: the Council of the Union comprising State
ministers on the relevant topic, assisted by a directly-elected Parliament (since 1979). The European
7
The EU develops from 1950 by six States (France, Germany, Italy, the Netherlands, Belgium, and Luxembourg) that
created successively the European Communities and was enlarged by some other States (Great Britain, Ireland,
Denmark, Greece, Portugal, Spain, Sweden, Finland, and Austria). It include the almost territory of Western Europe.
In 2004 eight States of Central and East Europe (Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland,
Slovenia, Slovakia) and two islands of the Mediterranean sea (Cyprus and Malta) adheres to the EU and form the
EU25. Bulgaria, Romania, some countries of the former Yugoslavia, as Croatia, and Turkey would enlarge the EU.
4
Commission proposes and executes the common policies and regulations, and the legality of all is
supervised and ensured by the Court of Justice. There is a Court of Auditors, an Economic and Social
Committee, a Committee of the Regions and the European Central Bank. All this institutional framework
reflects the implicit aim of the founding MS to achieve European integration on a federal basis.
The main channel for EU action is the regulation. European law enacted by the Council or Commission
prevails over individual MS law, and is direct in effect. Here we can appreciate a democratic deficit, which
will continue to be insurmountable as long as the EU remains confederal. The EU budget is limited to 1.24
per cent of GDP and this causes an administrative deficit: it does not have the means to meet its ambitions.
European ambitions go far beyond EU means. Almost half of the EU budget goes towards funding the
Common Agricultural Policy (which fixes prices) and a third is redistributed under the Common Regional
Policy. The remaining European policies, such as competition, industry, foreign trade, and monetary policy
are also the exclusive competence of the EU and generate a large body of EU-wide binding regulations. In
social issues, in justice and policing, and in foreign affairs, individual MS still hold the main powers. Interstate coordination is developing slowly.
The nature of the European integration process (Brunet, 2004) tends to intensify EU policies. European
enlargement reinforces the Common policies, as seen in regional and structural policies with the first
(Atlantic MS), second and third (Mediterranean countries), and fourth enlargement (Baltic countries). The
recent entry of Central and Eastern European countries is in many ways a political enlargement. The
institutional arrangements required to manage an EU of 25 and more MS are partially determined by the
European Constitution. However, a contradiction is beginning to emerge between enlargement and
intensification. The number and diversity of members is affecting the integration process. Quantity tends to
have a bearing on quality.
Now the question is the future functioning of the EU and whether the proposed future enlargements to
include non European and widely diverse countries in terms of economics, culture, language, religion and
nationalist sentiment will accentuate or not the contradiction between enlargement and intensification.
Should such enlargements occur, the EU will change its very nature, the federal objective will disappear,
the States will enact their own laws, and the European dream of a political federation based on freedom will
vanish in a nightmare of confused civilizations. (Garton Ash, 2004).
The EU’s limitations may also be its assets. Non federal but inter-state unanimity is frequently required
for action and rarely achieved. Lengthy discussions often end in an impasse and lack of action. This is
welcome when the action proposed is war. Peace is always preferable to war. But in other cases, an impasse
represents a serious problem. (Elazar, 1991, and Calleo, 2001).
C. America vs. Europe: Dreams or Realities, Models & Development
The emergence of a Europe engaged in a process of unification invites us to reread its history, economy,
politics, society, in a half-scientific, half ideological bid to define its spirit, its identity, the reality of Europe.
Is Europe reality or dream? Is it the last possible utopia or will it eventually lead to mere confusion?
Excellence is always perceived as being obtained from afar: America, utopia, God, … Intellectual
rapport between America and Europe is perhaps not the outcome of objective criteria so much as ideas and
feelings, attraction or/and repulsion. 8 America is always the mirror of Europe, and occasionally Europe may
be the mirror of America. For this reason, we Europeanists like America. For the Europeans the dream was
(and is)… America; for some Americans the dream is (or will be) Europe. For the Europeanist dream the
future of Europe is America or the US, for some Americans the American dream is Europe or the EU.
In this way America and Europe seem to be in contrast. Which of the two dreams is best? The
American dream, the American way of life? Or the European dream, the European social model? The
American frontier or Euroland? Recently Jeremy Rifkin states this contraposition (Rifkin, 2004) : the
European dream excels the American dream. The American dream may have been excellent; however,
Rifkin sustains, Europe now represents all that is best about that dream and it will spread it to the entire
world.
This European dream is welcome; all the more welcome if it is the work of an American analyst
(Rifkin). People may need dreams and ideals if they are to develop. 9 Certainly, the EU faces a challenge in
8
From philosophy to transatlantic affairs, from Alexis de Tocqueville (1835-1840) to Kagan (2003), Read (2004) and
Reid (2004).
9
Renewing the historical sentence “We have created Italy, now we need to create the Italian people”, now it’s said:
“We have created Europe, now we need to create the European people”. Economic integration (market, capital) and
some social and political measures (free circulation of people, a new additional European common law and some
5
shaping a common identity, while the US does not. However, reality contradicts the dream, although this is
of the essence of dreams and reality: being different, even in opposition.
What is Europe and what is a European? Europe must also face the challenges posed by unity and
diversity. At least 51 independent states occupy territorial space in the continent of Europe, a fact which
complicates things for the European Security Conference; just as EU25 complicates things for the European
Union. 10 In Europe we have doubts and must ask questions such as ‘Who are we?’ (Huntington, 2004). In
Europe, we have the problem of knowing exactly what Europe is. Europe is not defined by political
frontiers or by territory, not by a single language, culture or history. Rather what bind European countries
are their common and parallel development and a convergence to similar patterns.
D. The Old and the New Europe
This is a cliché. All Europe is old, historical; yet all in Europe is new, contemporary. The contradiction
between Europe as community and Europe as diversity is decreasing due to convergence. Not only will the
future common policies be different, policies changed before the accession of the new MS, from the mid
1990’s on, as the aspirants abandoned their socialist systems and entered accession negotiations with the
EU. But European regional policy –the most European ‘social’ policy– is no longer what it used to be,
especially in terms of benefits for the original 15 MS. ‘Europe’, i.e., the EU, today comprises two major
groups of countries: the 15 older MS and the 10 new MS.
These two groups of MS represent very different economic and social conditions: on the one hand, the
problems of contemporary advanced capitalism –the most similar to the issues facing American society–
and on the other, the problems of transition and developing capitalism. The social conditions of 15
advanced MS generate maturity problems (aging, structural reforms). The social conditions of the 10
transition MS generate problems of changing social relations, stark social disequilibria and development.
Thus, the EU comprises a group of MS with mass consumption and welfare states, and a group of MS
undergoing economic upheaval and social restructuring. In strategic and political terms, the new MS adopt
attitudes which are more transatlantic in outlook than some of the original EU states.
common institutions), favors this community. Nevertheless the fragmentation of Europe in languages, cultural
expressions, and politic life make this a large process. (Brunet, 2005)
10
The differences between the European countries are enormous: Turkey have a GDP per capita of 25.4 per cent of
medium of the EU15, Luxembourg the 194.6 per cent, Spain the 87.3 per cent, Poland the 42.2 per cent.
6
Table 1
Economic and Social Issues and Problems in the European Union –
the original 15 old developed MS and the 10 new developing MS
Economic
ü Economic Integration
Entire
ü Activity and Employment Rate
European ü The gap between GDP per employee
Union
(productivity) and GDP pc (living standard)
ü Energy dependence
ü Low productivity, Less competitiveness
ü Unemployment
ü Lower employment creation
The
ü Structural reforms
original 15
ü Delocation and regional and industrial
MS
crisis
ü Stagnation of real salaries
ü Rigidity, Euro-pessimism
ü Transition to capitalist and market forms:
privatization of activities.
ü Transition from agriculture (and industry)
The 10
to service sector.
new
ü Integration with the other EU MS:
developing
ü Integration in a monetary union
MS
ü Growth of mass consumption
Social
ü Labor market: lack of mobility and salary
inflexibility
ü Aging
ü Low quality employment
ü Housing: high prices and indebtedness
ü Immigration from non European countries
ü Limit regressivity in distribution
ü Poverty and minoritie s: integration,
multiculturality
ü Education performance and lifelong
learning
ü The social changes deriving from social
and political change.
ü Privatization
ü Introducing competition
ü Emigration to old developed SM
ü Limiting market excesses
ü Consolidation of Social Security Systems
ü Ideological and justice problems, drugs and
crime
7
II. The Dynamics of the European Economy
Europe’s catching up on American productivity came to a stop in 1990. The gap between US and EU
standards of living is growing due to low European employment rates. The EU has important sources of
growth, e.g., labor reserves and structural reforms needed to improve competitiveness. A new integrated
European economy may emerge, more integrated and competitive, together with a new European policy
mix, and a stable monetary policy.
A. Long Term Dynamics
From a long term perspective, economic development may be represented as the growth of Gross Domestic
Product (GDP) and employment. The difference between GDP and employment, productivity, is a strategic
indicator of development, reflecting capacity to produce. As shown in figure 1, the profiles of Europe and
America could hardly differ more:
- In America the growth of employment explains the growth of GDP
- In Europe the growth of productivity explains the growth of GDP.
Figure 1
Trends in American and European Growth:
GDP, employment, and productivity, 1960-2005
GDP (saw)
Employment (columns)
Productivity (curve)
Europe
EU15
6
5
4
3
2
1
0
-1
-2
-3
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
USA
6
5
4
3
2
1
0
-1
-2
-3
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Data from Commission (many years), Eurostat (2005), OECD (many years, 2005a), and US fedstat (2005).
8
Figure 2
Economic Convergence Process.
Catching- up between America and Europe:
EU and Major European Countries, 1950-2005
Panel A. Europe
110
USA = 100
100
84
90
80
67
72
72
68
60
59
58
71
75
69 68 71
Europe EU15
40
GDP per capita
30
GDP per worked hour
20
Panel B. Major European Countries
110
100
USA = 100
90
80
70
Major European
Countries
60
50
40
82
69
70
50
91 90 90
86
D GDPpc
F GDPpc
I GDPpc
UK GDPpc
E GDPpc
EU15 GDPpc
D GDPpwh
F GDPpwh
I GDPpwh
UK GDPpwh
E GDPpwh
EU15 GDPpwh
From this dynamic we can postulate three
shared temporal phases:
a) The ‘miracle’ phase 1960-1975: with
annual growth rates surpassing 6 per cent.
b) Long-term
recession
1975-1990:
deindustrialization, some years growth,
employment and productivity were in
negative figures.
c) Recovery phase 1990-2005: with three
sub-phases 1990-1 to 1995, the buoyant
1996-2000 and then after 2000-1.
To sum up, from high growth rates to low
growth rates, to booming economy to
stationary economy. From the indicators
considered, we can establish:
- GDP growth: in general, the growth of
GDP dropped from levels of 6 per cent per
year during the 1960’s to 2-3 per cent at
present.
- Employment growth: employment dropped
many years. Comparison of GDP and
employment growth (saw and columns,
respectively) shows that employment explains
most US growth. In the EU however,
employment frequently falls whereas in
America it grows.
- Productivity growth: considered as the
difference between growth of GDP and
growth of employment, productivity growth is
the cause of the growth of GDP in the EU.
Thus, Europe reduces the economic gap
between itself and the US by means of high
productivity growth, investment and by
reducing employment.
We can draw important conclusions regarding
these two economic zones:
- Europe: GDP growth is due to growth in
productivity. EU growths are relatively stable.
- America: GDP growth is due to growth in
employment. US growth rates are more
unstable, and some indicators even show
decreases for various years.
B. Convergence and Catching-up in
Production
The consequence of Europe’s greater growth
is convergence, reduction of the gap. Figure 2
sets out the convergence process. Two
20
indicators are used: GDP per hour worked
and GDP per capita. The first expresses
productive capacity, the second consumption
level. Examination of the economic evolution
Data from Council of Economic Advisers (many years), Eurostat
of America and Europe permits us to draw
(2005), and OECD (many years).
many conclusions:
- GDP per worked hour rises from 59 per
cent in 1950 to 91 per cent in 1990. But this convergence in productivity ends in 1990.
30
9
- Comparison of European and American GDP per capita shows stability between 67 and 75 per cent.
- Thus the economic gap between Europe and America in productivity fell until 1990, but the gap in per
capita consumption levels was maintained.
- Thus the question for the European economy is why the gap between productiv ity and consumption per
capita?
- Analyzing the evolution of major European countries such as Germany, France, Italy, Great Britain and
Spain (as in Panel B of figure 2), we find an accentuation of the trends: economic convergence is so strong,
especially in productivity, that American levels are even surpassed,
- Three periods are evident in the economic dynamics of all the represented countries: in 1975, enormous
growth and catching-up; the 1980’s, where per capita consumption does not match production, and the
1990’s and after 2000, where the major new American growth is in contrast to Europe’s relative slump.
Convergence between the EU and the US, Europe’s catching-up on America, is not only in
economic performances but also in economic structures, e.g. in competition and enterprise law. (Wilensky,
2002) Convergence is also occurring in other areas, society and politics, for instance. The US and the EU15
have economies based on capitalist and market structures, and democratic societies with high productivity
levels. This permits a system of economic relations devoted to mass consumption, the welfare state and
well-being.
C. The Gap between Productivity and the Standard of Living
Having examined growth trends in Europe and America, and the catching-up and convergence phenomena,
it is now of interest to analyze differences between productivity and standards of living. For this we will
draw on the conceptual framework set out in figure 3. As many people are aware, salaries and productivity
in some EU countries are higher than in the US. (US Bureau of Labor, 2005) Yet European GDP per capita
is a third lower than the US figure.
Certainly, Europeans work fewer hours per year than Americans, they ‘prefer leisure’ (Gordon, 2002,
2004a, & 2004b). However, a closer look reveals that Europe’s activity rate is 10% lower, the employment
rate 15% lower, and the female employment rate 20% lower (OECD, 2003a). Figure 3 shows a double
process:
- From productivity per employee to standard of living, income drops 47 per cent in America and 51 per
cent in Europe.
- Europe is lagging behind: productivity is 22% lower and standard of living 28% lower.
Other aspects can also be determined from this diagram. European salaries are higher than in the US (+
5.8 %) and productivity per employee is lower in Europe (-22 %). Health spending is higher in the US
(although public funding of this spending is lower), education spending is similar and spending on pensions
lower. The result is that social spending in the US amounts to 33% of GDP and to 34.1% in the UE.
Consumption of electricity and materials is much higher in the US than in Europe, as is capitalization.
Pollution and waste is also higher in the US. The European employment rate (60.2 % of the population
between 15 and 64 years of age) is much lower than that of the US (70.1 %).
D. Low European Employment Rates and European Competitiveness
The lower European employment rate is the origin of the gap between the productivity of the European
economy (similar to that of the US) and Europe’s standard of living (a third lower): due to a lower
employment rate, European production is 10 per cent less than the US figure, and the proportion receiving a
pension is 10 per cent higher (OECD, 2004a) (see figure 3).
10
Figure 3
Productivity vs. Living Standards in America and Europe
USA
EU 15
1
19.2 $/h
Wage
(per worked hour in industry)
20.3 $/h
Higher Wage Costs
in Europe
2
1,867 h
x Worked Hours
(annual average per employee)
1,610 h
Fewer Worked Hours
in Europe
$32,370
+ Other Costs
(Raw Materials, Amortization,
Surplus, …)
$20,183
3
$68,216
Index 100
= Productivity
per employee and year
Index USA = 100
Index 78
70.1 %
X Employment Rate
60.2 %
4
5
$52,383
The Female Employment rate is even 10% lower
than the general rate
Unemployed
4.7 %
7.5 %
(in % of Active Population)
12.6 + 13.9 +
6.5 = 33.0 %
Pensions + Health + Education
(in % of GDP)
18.2 + 10.7 +
5.2 = 34.1 %
$36,100
= PIB per capita
$26,000
Index 53
Productivity Index USA = 100
Index 38
Nº: 6
Human Development Index
Ranking
Nº: 5
to 23
6
Lower productivity
in Europe: -22 %
Weak Productive Capacity
in Europe
Higher Unemployment
in Europe
Social Expenditure
Levels are similar
Thus, European GDP per
capita is only 38 % of the
American figure
The main data correspond to 2004
Data from Eurostat (2005), ICPSR (2005), United Nations (2004), and US fedstat (2005).
11
The gap between productivity (GDP per worked hour) and the standard of living (GDP per capita) is
the price Europeans pay for the European welfare state, which is generous with the non active. And perhaps
it is also the price paid for an economic policy which is not sufficiently efficient to create jobs, favor growth
and accumulation and investment of capital.
These are average values. Analysis of the European employment rate could also be taken to the level of
age, gender and individual country. We find that the lower European employment rate tends to be
concentrated in certain groupings and areas:
- In younger and older age groups. This is one of the more evident differences in employment patterns
between the EU and the US. European unemployment among those seeking their first job and among older
ex-employees is markedly higher.
- Among females; the female employment rate being ten per cent lower than the general rate. Female
inactivity and unemployment rates double the general rates.
- In the Mediterranean countries. In Italy, Spain, Portugal and Greece, general employment rates are
around 50 per cent, female employment rates being around 42 per cent.11
In 1992 the European Commission headed by Jacques Delors published a White Paper on competition,
occupation and growth known as the European Growth Initiative (Delors, dir., 1993). Prepared in the
context of the resurgence of European vigor following the Single European Act and in the aftermath of the
1975-1985 recession, this initiative placed a priority on employment. Increased employment demands
growth and growth demands competitiveness. Krugman (1994) responded with a paper that earned him
celebrity –competitiveness can be a dangerous obsession, he said. Through a combination of approaches,
Krugman’s paper warned of the main European problem: the lower the general employment rates, the
higher the unemployment rate. As a consequence, Europe has less productive capacity and higher social
expenses.
Europe’s problems are its aging population, its low employment rate, especially among woman, both
young and old, its high unemployment rates, its low number of worked hours and its limited competition in
basic activities (European Commission, many years). The gap between real and potential GDP is an
accurate reflection of these economic problems.
E. The New European Economy and the New Policy Mix
The European economy looks new: a monetary union between 12 MS, a more integrated product market, a
new policy mix. As we see, GDP growth fizzled out somewhat but social and territorial cohesion continues
to work. The new European economy is also the product of the new European policy mix in the style of the
‘Washington consensus’ and the OECD recommendations. The Maastricht criteria for access to the
European monetary union involves strict limits on inflation, interest rates, budget deficit and public debt,
unemployment and salary costs. Maintenance of the Maastricht criteria after monetary union is the basis of
the Pact for Growth and Stability and of the Stability and Convergence Program (European Commission,
DG Economic and Financial Affairs, 2005). The bases of the new European policy mix are the MS: the
European level, and the such institutions as the Council, the Commission and the European Central Bank
only work in subsidiary way.
In an effort to overcome the basic structural deficits generated by the 1975-1985 recession in the
labor market (unemployment), finance (inflation), the public sector (budget deficit and public debt), and
partly as a result of the new liberal winds in economic policy arriving from America, the new European
policy mix prepared the way for structural reforms, making them more acceptable in a context of stability,
cohesion and context.
This new European policy mix, national and cooperative, is performing successfully in terms of price
and foreign trade stability. Even if the euro exchange rate is not used as a commercial instrument, Europe
has a positive current balance. This is undoubtedly an important and positive difference in Europe’s favor as
opposed to the US case. However, some EU countries are beginning to show signs of difficulties with the
foreign trade balance, including France. The continuity of the dollar shutdown may cause major problems
for the EU (European Central Bank, 2005, and Blanchard, Giavazzi, and Sa, 2005). Comparing salaries, the
European position was untenable, especially in tradable manufactures –even in comparison with the US,
where salary levels are also very high. Maastricht established that MS public deficits must be under 3 per
cent of GDP, yet budget discipline is never seriously discussed in proposed reforms of the Stability Pact.
11
Eurostat (2004b).
12
In terms of the three sides of the economic triangle, the new European economy and policy mix works
well in terms of stability and cohesion, but there is room for improvement in the area of economic growth
(Viñals, 2005). In the short and medium term, the European economy is stable, as are macroeconomic and
microeconomic considerations. Social and regional cohesion is also well-founded, aided by MS social
security systems and EU structural funds for regional investment. The problem it seems, is clearly growth
and employment.
Despite the Krugman (1994) position, productivity and competitiveness are of major concern to certain
agents.12 Competition by price, in fact by cost, especially labor cost –hourly salary, has a direct effect on
tradable manufactures with a similar level of technology and labor component. (Aiginger and Landesmann,
2002) In fact, although it is less competitive, the EU has a foreign current surplus, whereas the US has a
large deficit. (Council of Economic Advisers, many years, and European Commission, many years a).
F. The Sources of European Growth: New Economy, Labor Reserves, and
Structural Reforms
The so called ‘New Economy’ modifies the conditions of growth: capital-technology investment and the
innovation capacity of the entrepreneurial system are critical. (Rodrigues, 2002) The New Economy
accentuates the role of technological aspects and labor-saving investments, and thus increases the European
employment problem and the technology gap with America. (van Ark and Others, 2003) This explains why
European economic performance was worse after 2000, and why convergence ceased.
Figure 4
Policy Mix Performance in America and Europe
Panel A
Panel B
Source: European Central Bank (2005).
Europe’s growth has one main source and a number of secondary sources. The main source is its large
unemployed labor force. Thirty-two million additional workers need to be employed to match the US
employment rate. The other sources of European growth are productivity-related: technology, leading to
more sharply focused research and development investment, and regulation that facilitates competition in
factor, product and services markets, especially in labor and industrial relations. 13 (OECD, 2003a, Nicoletti
and Others, 2001, and Baily and Kirkegaard, 2004)
12
There is a very competitive industry to produce reports on country competitiveness: See some of this excellent
products: Conference Board (2005), European Commission (many years), Hughes (2005), International Labour Office
(2005), ICON Group International, Inc. (2004), International Institute for Management Development (2004), NTC
Research (2004), O’Mahony and van Ark, eds. (2004), Sharpe (2003), US Labor Statistics (2005), and World
Economic Forum (2004).
13
For America an evident source of growth as per Europe is employment, which should be the economy in energy and
material consumption, certainly disproportioned and not sustainable. (World Resources Institute, 1997 and 2004)
13
This was the purpose of the proposals accorded in 2000 by the European Council in Lisbon: “to become
the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic
growth with more and better jobs and greater social cohesion, and respect for the environment.” (Council of
the EU, 2000). 14 To realize this “strategic goal for the next decade”, the EU established a program of
structural reforms until 2010 to create jobs by ensuring full competition in all markets, generating growth
and raising employment.
The Lisbon strategy added decisively to European economic policy. The problem is that the EU does
not have the instruments to implement this strategy. The MS have a number of instruments but also face the
traditional social opposition to changes and no incentives.15 The European economy needs to create
employment if it is not only to maintain its current economic conditions with a minimum of growth but also
to converge to the US level. Employment is the major challenge facing European industrial restructuring.
Globalization and EU enlargement to East and Central Europe will increase relocation problems.
14
See the Lisbon strategy special website <http://europa.eu.int/growthandjobs/index_en.htm>.
15
EU Economic Policy Committee (various years) and European Commission - DG for Economic and Financial
Affairs (2005b).
14
III. The European Social Conditions and the European Social System
This section will consider five social factors which are related to the dynamics of the economy and which
influence European social conditions. These are the population, employment, the labor market, social
security and distribution.
Figure 5
Employment and Unemployment Rates
Dynamics in America and Europe, 1960-2005
Panel A. Employment Rate
in per cent of potential active population
75
USA
70
65
EU15
60
Panel B. Unemployment Rate
in per cent of active population
12
EU15
10
8
6
4
USA
2
0
Data from OECD (2005) and US Bureau of the Census
(2005).
A. Towards a Stationary Population: The
Problems of an Ag ing Society
Europe is heading towards a stationary population.
Fertility does not assure reproduction of the
European population. What are the consequences of
this? Short-term, the process of population aging has
already led to relative increases in the 15-64 agegroup, i.e., the potential active population. This is
why advanced countries experience an increase in the
active population, and perhaps an increase in the
numbers in employment also. (Rand Corporation,
2004)
The decrease in European birth rates is
compensated to some extent by immigration from
third countries. As in the US, European immigration
has its problems, the main one being the illegal
nature of much of the immigration. This makes
immigration-related issues a delicate issue, subject to
the dictates of what is politically correct. But there is
evidence that European social conditions and polic ies
are changing due to the immigration phenomenon.
(Eurostat, 2004a and 2004b)
Naturally , the scale of this immigration is not
only due to the aging Western societies but also to
globalization of the world economy, to relatively
open borders, social and economic breakdown in the
origin countries, and political conditions that do not
permit persecution of illegal immigrants. In addition,
in Europe with its free internal circulation of citizens,
there is a flow between permissive and prohibitive
MS. Immigrants tend to enter via the more
permissive MS, then make their way to more
attractive EU countries.
The aging population requires more personal
care, leading to increased social services and health
spending. (Mc Morrow and Roeger, 1999) The
impact of an aging population on the social security
systems is important, threatening the base of Western
welfare systems. (OECD, 2000)
The directly economic s-related aspects of social
conditions in Western Europe are relatively stable .
This is the case of class distribution, salarization rate,
distribution by activity sectors, and territoria l
distribution. The major changes to this situation are
brought about by factory closure and relocation,
normally to non European countries.
15
B. The Low European Employment Rate
The dynamics of employment, the number and proportion of employed persons, are strategic economic and
social variable s. They affect production capacity and consumption constraints. The relation between those
in employment and the population aged 15-64 years, the general employment rate, is low in Europe. The
gap between European and US employment rates was as high as 15 per cent in the 1990’s. (Eurostat, 2004a)
Figure 5 shows the evolution of EU and US employment rates over recent decades. Over the 1970-1995
period, European employment rates fell from 65 to 60 per cent. Indeed, Europe has only just recovered the
initial rate. In the US the situation is the opposite: from 1970 to 2000, the employment rate grew by ten
points, later dropping to 70 per cent.
As seen earlier, the US economy has a great capacity to create employment. (Wilensky, 1992) The EU
economy creates unemployment, growth in GDP being due to productivity gains and catching-up. The
employment rate evolves in the opposite direction to its complement, the unemployment rate. What
underlies such low employment/high unemployment rates? Is it regulations that militate against job
creation, or insufficient growth? And, if so, what is the cause of the shortfall in growth? Over-regulation?
Excessively high salaries? (Schettkat, 2003, and Cox and Alm, 2004).
Combining age and sex statistics reveals some important details : employment is lower among the
younger and older cohorts than among the middle -aged. Among women, the years of highest fertility are the
years with the lowest employment rates. In fact, the most serious employment problem is among females of
reproductive age. Adding country details to the mix reveals that the main employment problems are among
females in Southern European countries, Portugal Spain, Italy and Greece, with employment rates between
42.1 and 47.8 per cent; in the US the figure is 70.7 per cent.
C. …and the Permanently High European Unemployment Rate
The other side of the employment coin is unemployment, Europe’s main social, economic and politic al
problem. It continues to be high, especially in the afore-mentioned South European countries. The
hysteresis effect meant that unemployment stayed high after recession had ended (OECD, 2002).
In this situation, it is clear that it is necessary to move away from passive policies e.g., subsidies, to
active policies that improve the skills and employability of the unemployed. The maintenance of
employment rate differentials between countries reflects the immobility of the European labor force. Calls
for labor market reforms to favor flexibility are widespread. The unemployment problem has led to many
interventions in the form of modified work contracts. That labor market reform is needed seems
unquestionable. However, in social and economic policy the gap between statement and action, objectives
and results, is vast. Analysis of unemployment –and thus Economic Policy Analysis and proposals– was
largely changed with the introduction of :
- The Philips Curve, originally a relationship opposing unemployment and price inflation. This offers a
range of possibilities to policy makers: selecting the combination of unemployment and inflation they wish
to explore.
- The notion of a natural unemployment rate, proceeding to the more neo-classical approaches, and of a
Non-Accelerating Inflation Rate of Unemployment (NAIRU) and a Non-Accelerating Wage Rate of
Unemployment (NAWRU). Calculations of these rates shows a substantial difference from the effective
unemployment rate that the policy mix should achieve (European Commission, many years).
D. Labor M and Salaries: Immobility and Inflexibility
The European labor market is not one: nor indeed is it even 25; for not only is each state a case apart, in
many cases there are also intra-state regional labor markets. European workers are in effect decidedly
immobile.19 This contemporary immobility is in contrast with previous times when European immigrants
were numerous, not only in America but also in other European countries, even after the Second World
War. Now immigration is a matter of non-EU countries.
Salary inflexibility is the other threat to the European labor market. The concept of salary flexibility –
either upward in response to growth or downward with drops in productivity, or to business, supply and
demand factors is not accepted by European unions. Under these two problems , Europe cannot aspire to
become an optimum monetary zone, despite the monetary union in existence since 1999.
The hourly salary in some European countries surpasses the average American figure (US Bureau of
Labor, 2005, OECD, 2005b, and ILO, 2005). As we know (see figure 2), hours worked in the EU15 are also
19
Only 1.6 per cent of Europeans live in a different country to the one in which they were born (OECD, 2003b).
16
fewer than in the US. This is why European
productivity per employee remains below the
American level. Related to salaries, the European
questions are as follows:
- To what extent are salaries linked to the dynamics of
productivity?
- High personal taxation rates and social security
payments have the effect of raising salaries, especially
in less well paid categories, thus limiting
employability. In this light, the European Commission
has been calling for some time now on MS to limit
social welfare payments in the case of the low paid.
EU productivity downturns are structural in nature.
The bulk of the deterioration results from an outdated
and inflexible industrial structure which has been slow
to adapt to the intensifying pressures of globalization
and rapid technological change (Denis and Others,
2005). The EU’s productivity problems are driven by
the combined effect of:
- An excessive focus on low and medium-technology
industries (with declining productivity growth rates
and a globalization-induced contraction in investment
levels);
- An inability to seriously challenge US dominance in
large areas of the ICT industry, as reflected ni the
relatively small scale of its ICT production sector; and
finally,
- Its apparent slowness in reaping the productivity
enhancing benefits of ICT in a range of ICT-linked
industries, although measurement issues severely
hinder assessment of the gains from ICT production
and diffusion.
Most labor market policies aim to flexibilize
access to and exit from employment. It is interesting to
see how each MS labor market performs. Better results
are obtained by countries in which labor market reform
began early and in which active rather than passive
policies were applied. This is the case of the United
Kingdom and the Baltic countries, respectively.
(Schulmeister,
2000,
and
Madsen,
2002).
Undoubtedly, labor market reform is the main
challenge in European States. The power of the unions
limits changes in a system designed under conditions
of full employment and lower levels of social
protection.
E. The Social Security Systems
Figure 6
Employment Rates
in a Range of Countries
45
50
55
60
65
70
75
United States
Japan
Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
EU 15
Czech Republic
Estonia
Cyprus
Latvia
Lithuania
Hungary
Malta
Poland
Slovenia
Slovakia
EU 25
Bulgaria
Romania
Croatia
1992
2005
Turkey
The European welfare state is based on redistribution
of income produced by the tax and social security
Eurostat common definition of employment in per cent of
system (SSS). The MS SSS are guided by distributive
potentially active population 15-64 years.
criteria and not by capitalization. In Europe, there is a
Data from Eurostat (2005).
multiplicity of State SSS: each system is independent
but all are similar, in that their function is to redistribute income between the active and inactive population.
European SSS are currently undergoing reform, with introduction of private and capitalization criteria. But
the task is beyond the capacity of the financial system as the funds needed for capitalization would be
enormous. (Feldstein and Siebert, eds., 2002, and Wolff, 2002b) Furthermore, SSS capitalization involves a
political obligation to develop a non contributive fund, which is difficult to finance. This
17
explains the relative stability of the contemporary SSS. The
aging population will accentuate the SSS financing
problem. The SSS redistributive function will be more
evident and this will make capitalization
more difficult. (Krugman, 2005 )
In contemporary economies the financial impact of the
SSS is huge. Public pensions represent just slightly less than
a quarter of GDP, and those receiving pensions represent
50.7 per cent of the population aged 15-64 years (see figure
7 and Atkinson, 2000)
Figure 7
Social Public Expenditure
and Pensioners in EU and US
Panel A. Social Public Expenditure
In per cent of total GDP
D
E
I
UK
EU
US
J OECD
12,6
13,5
14,6
17,2
14,2
Panel B. Pensioners
Percentage of non working pensioners and those
receiving a complete pension in per cent of the 15-64
years population
E
What are the trends in (re)distribution? The primary
distribution of income follows the trends of increased
production and productivity to bring about an absolute
increase in salaries and profits, leading to a widening of the
gaps between rich and poor and greater inequality in income
and stock distribution. US20 and European data (Atkinson,
2002) provide evidence of a double process: an increased
gap in stock distribution and a decreasing gap in final
income distribution.
16,8
17,4
18,9
D
F. Distribution and Re-distribution: Trends in
Stocks and Income
F
UK
US
J
20,8
26,3
33,7
What are the distributive impacts of economic development
and of the policy mix on distribution? Are there changes in
social structures due to the new (European) economy, the
new (European, economic and social) policy (mix)? The
ratio of total income of the highest-earning 20 % of the
population (top quintile) to that received by the lowestearning 20 % (lowest quintile) evolved for EU15 from 5.1
in 1998 to 4.4 in 2003 (European Commission, 2005a).
There are different ways to fight poverty. (Alesina and
Glaeser, 2005)
As in the US, EU15 population risk-of-poverty is
decreasing. Those with an equivalized disposable income
set at 60 % of the national average equivalized disposable
income before social transfers represented 26 per cent in
1995 and 24 % in 2001. If we consider income after social
transfers the figures are 17 per cent in 1995 and 15 per cent
in 2001. (European Commission, 2005a). Remember the
scale of the redistribution impact is 9 per cent of disposable
income.
39,3
48,3
50,5
G. Discussion on the
Economic/Social Model
American/European
A typical American and European discussion is along the
lines of does America’s/Europe’s Economic/Social
model/reality provide better economic performance/wellbeing? The basis of this discussion, whether among lay
people or academics, is the idea that America performs
better economically whereas Europe wins in social terms. European catching-up on America ceased in the
1970’s in terms of GDP per capita and in GDP per employee after 2000.
The gap between GDP per hour of work and GDP per capita finances Europe’s lower employment rate
and its social protection. With productivity per employee at 20 per cent lower than that of the US, Western
Data for 2003 from Eurostat (many years b), OECD
(2004 and 2005b), and US fedStat (2005).
20
See Katz (1990), Jones and Weinberg (2000), Karger and Stoesz (2001), Wolff (2002a), Appelbaum, Bernhardt &
Murname (eds.) (2003), and Baumol and Others (2003).
18
Europe works less time and supports a higher unemployed, inactive, retired and pensioned population, thus
having a per capita GDP which comes in at a third lower than the American.
EU 15 performs less well than the US in economic terms, its production per employee and per capita thus
being lower; its social protection and redistributive institutions lead to a more egalitarian final distribution
of the lower consumption levels. Social cohesion is perhaps greater in Europe, but at a consumption level
which is lower than the US.
As we shall see, European Social Policy is not one, but 15, and even 25 with the new MS. And what is
most surprising about these social policies is their similarity despite their independence from one another.
And what we find in social policy, we also find in education and in health. 21 The major contemporary
question is whether the ‘European social model’ is the problem or the solution? The ‘European social
model’ is a consequence of the special economic and social conditions existing in Europe after the Second
World War: a major social conflict arising from the division of Europe into two political, social and
economic areas. (Aiginger, 2004).
Europe may aspire to American economic performance; America may aspire to match Europe’s social
cohesion. However, of course, the economy and society are intertwined: you cannot choose the American
model for economic issues and the European for the social dimension. It is probably the financial impact of
the ‘European social model’ that underlies the European shortfall with respect to American standards of
production and living.
21
Estevez-Abe, Iversen, and Soskice (2001) and Michie and Sheenan (2003).
19
IV. On European Social Policies
Some aspects of European social policy will be considered here: the structures and competence of European
MS social policies, the impact of European economic policy, contradictions with other policies, new paths
in European development and European policies.
A. Structures and Competences of Social Policy in Europe
According to the sovereignty and subsidiarity principles, the EU has limited competences in social policy. 22
Unions, salaries and SSS are all matters for the individual MS. Nevertheless the application of the non
discrimination by nationality principle to labor gave rise to the second economic liberty: the free circulation
of salaried workers, latter extended to include the entire European citizenship as provided for by the
European Union Treaty (1993). To realize this principle, coordination of MS SSS went ahead under the
terms of international labor law. Now Europeans are covered by the SSS of their own MS in all other MS,
and can choose to collect and spend their pensions in the EU country of their choice.
The EU also has important competences regarding safety conditions at work, in professional education,
and in equal treatment for both genders. The European Commission applies its administrative power to
many other matters, including poverty and lower income groups (compensative approach), cancer and
personal rights (demonstrative approach). EU social policy issues are set out in tables 2 and 3.
The major issues of social policy (pensions, health, and education) and their orientation (expansive,
regressive, deregulation, privatization, etc.) remain at State level. Also, if there is any new trend in Europe
regarding allocation of competences in social policy matters, it is from top-down, i.e., from MS to regional
and local level, as opposed to bottom-up, from MS to EU. In Europe, social protection is universal, and
mainly covered by the MS SSS. Each MS fixes citizens’ entitlements and also funding mechanisms. No
harmonization is needed, except in the area of working conditions affecting manufacturing costs. Thus
some important social areas, as well as immigration policy and family policy, remain underdeveloped:
population, housing policy, social compensatory services may not exist in some European countries.
however, social dumping is not occurring, MS competences in the labor market, salaries, and SSS are not
managed to improve the MS share of European manufacture.
The combination of all these questions could be potentially explosive: the European Union is suffering
from a social deficit. The EU, rather than an institution with an interest in social matters and people, should
really be seen as focused on economic and State interests. However, although the European Union
continues to fail to exercise major social policy(ies), the citizens of Europe are highly enthused by the
European integration process.
B. Social Policy, Economic Policy, and other EU Policies
The EU plays little major role in social policy and this has no means of change. There is one exception to
this. The EU needs to implement a strong employment policy –unemployment being Europe’s most
pressing problem. And it is at precisely EU level where this policy can best be implemented. However, this
policy has had few immediate or visible effects, and perhaps would require such politically difficult
measures as policies aiming to strengthen competitiveness. This unpopularity is what underlies the
reluctance to undertake structural reforms in Europe. (Bourrinet and Nazet-Allouche, 2005)
The main objective of European economic policy is the same as that of European social policy:
employment. And the way to achieve employment is through growth, reform of the labor market, making it
more flexible and promoting labor mobility and salary fle xibility, and through increasing competition in
product and service markets.
In socio-political debate, economic policy frequently appears to be in opposition to social policy:
resources should be assigned elsewhere. In fact, the opposition is not between all economic policy and all
social policy, but between a style of economic policy and a style of social policy. However, can an orthodox
economic policy favor an innovative social policy?
20
The aim of economic policy is to maintain growth at a level between 2 and 4 per cent per annum.
Stabilization is the second Western objective. In a micro sense (price stability) and in a macro sense
(counter cycle), this means no inflation and no unemployment. (Boyer, 2002, and Solow, dir., 2002).
Orthodox policy mixes are combinations of no public deficit, veritable cost, no price inflation, no tax bands,
privatization, responsibility, and private-sector criteria in public management.
Freedom to make choices within economic policy is limited. In advanced countries the deindustrialization crisis was seen as a crisis of supply, thus economic policy turns to the supply side and to
monetarism. The new Western rightwing political orientation works to consolidate this policy. The fall of
the Berlin wall and real socialism around the world, and the move towards a global economy make the new
economic policy unassailable.
C. The Lisbon Strategy for Structural Reform, Competitiveness, and Employment
In fact there is a program of Economic Policy: Europe needs structural reforms permitting it to increase
employment and competition. Labor market reform to activate employment policies was among the
essential features of this structural policy. Another major component was support for research and
development investment.
Table 2
European Union Social Policies
Priorities and Objectives
The Social Agenda
Employment
European employment strategy (EES)
Employment analysis
EURES: European employment services
Local development
Inclusive Society
Social situation and demography
Social inclusion
Social protection in the EU
MISSOC: Social Protection in the Member States
Anti-discrimination and Relations with Civil Society
Civil Society
European Social Fund
European social fund (ESF)
EQUAL: Community initiatives
Innovative measures
Working conditions and work organizations
Social dialogue
Corporate social responsibility
Labour law and work organization
Health & safety at work
Free movement of workers
Coordination of social security schemes
Disability issues
Gender Equality
Equality between women and men
Horizontal activities
Enlargement
International Affairs
Knowledge society
Evaluation
Socio-Economic Research
Source: European Commission - Directorate General of Employment, Social Affairs and Equal Opportunities .
21
EU Policies
EU Objectives
Table 3. European Union Social Policy: Context & Developments
Competition Monetary
Internal
Agriculture Justice &
Regional
& Economic Policies (a)
Common
Home
Policy
Union
Policy
Affairs
Domestic
Price Stability /
Market: the
Growth /
Four Economic Employment /
Liberties /
Financial
Competitivenes intermediaries
s / The Lisbon
Strategy
Law (Regula tions): Rules
EU Instruments
of Products and
Processes / MS
Cooperation in
Lisbon Strategy
EU Budget
..
ü
EU
Social
Policy
Develo
pments
**
Derived
from / or
related with
other
EU
policies
Derived
from Social
Policy
Objectives
Law &
European
System of
Central Banks
..
üFinancial
ConPrice
and vergence to MoneCost
tary Union: the MasCompetitivenes tricht Criteria *
(1993-1999).ü
s Reports.
Stability and Growth
Pact (1999-).üBroad
Economic
Policy
Guidelines.
Common MarProduction /
ket and StructuRural
ral Reforms on Development
Energy, Industry, Technology,
Transport /
Environmental
sustainability
Law
Law
(Directives) &
(Regulations)
Budget
& Budget
(Minimum
Price
Guarantee &
Subsidies)
6.5 %
üIncome
Costs.
Maintenance.
üWork
Conditions.
Social
Policy
European
Policy on
Security and
Cooperation /
Development /
Cooperation
Jobs,
Cohesion, &
Productivity
Social
Cohesion /
Convergence /
Restructuring /
Competitivenes
s
Foreign
Exchange
Law (MS)
Budget
European
Common
Tariff
..
34.7 %
..
üEuropean
Citizenship.
üOlder Farmers. üFree
üSocial and circulation
implications.
Land
Implications.
üEuropean Growth Initiative: Growth, Employment, and Competition
üSocial Agenda of the European Commission (2005-2010).
üNational Employment Action Plans.
üGuidelines for MS Employment Policies.
üSkills: 10 % EU Budget = 0.1 % EU GDP.
External
Policies
A Common
Space of
Freedom,
Security and
Justice: The
46.7 %
üAdjustment
Trade
(1992-1999).
üStructural
Policies:
Objectives
1
(development), 2
(restructuring) &
3 (employment &
skills).
Cooperation
Law
between MS / (Directives) &
Aid / No EuroBudget
pean Diplomatic
Service
6.6 %
üSocial and Rights Clauses.
üYearly
Reports and Publications: Employment in Europe,
Industrial Relations in Europe / The Social Situation in Europe /
The Joint Employment Report / Equality and Non-discrimination
Report / Convergence Report / Price & Cost Competitiveness
Report.
üQuarterly
**
Reports and Publications: Structural Indicators /
European Employment Observatory Review.
3.2 %
EU
So
cia
l
Pol
icy
De
Derive
vel
d from
op
Social
Policy
me
Objecti nts
ves
**
Derive
d from /
or
related
with
other
EU
policies
** See also Table 2. Data from Brunet (2005), Calleo (2001), European Parliament – Directorate General for Research (2004), and European Commission – Directorate General of Employment, Social Affairs
and Equal Opportunities website <http://europa.eu.int/comm/dgs/employment_social/index_en.htm>.
22
The Lisbon Strategy does not set individual
targets for economic performance. However, a
sound economy is a precondition for achieving its
objectives. That is why particular emphasis has
been placed on the Stability and Growth Pact and
on structural reforms intended to raise the growth
and employment potential of the Union. The
Lisbon approach implies:
- That if the Lisbon measures are implemented
against a sound macro-economic background, an
average growth rate of around 3 per cent per year
should be a realistic prospect.
- That Member States’ budgets are kept close to
balance or in surplus over the medium term,
ensuring the long-term sustainability of public
finances.
- That public expenditure is redirected towards
increasing the relative importance of capital
accumulation (physical and human) and
supporting research and development, innovation,
and information and communication technology.
The Lisbon objectives in terms of
employment, as expressed in the European
Employment Strategy, cover the three overarching
objectives of full employment, improving quality
and productivity at work, and strengthening social
cohesion. This in specific terms means:
- An overall employment rate of 70 per cent in
2010 (67 per cent in 2005).
Figure 8
Productivity & Standard of Livin g
in a Range of Countries
GDP per employed and GDP per capita, in $ PPP, 2004
0
00
70
0
00
60
0
00
50
0
00
40
0
00
30
0
00
20
0
00
10
0
The key elements of the Lisbon strategy are as
follows:
- Effective Internal Market: to complete the
Single European Act.
- Free and fair trade: to open the European
economy to the world.
- Better regulation: to improve European
governance.
- Improving European infrastructure: a twofold
objective, competitiveness and employment.
- Investing in Research and Development - the
New Economy.
- Boosting innovation
- Creating a strong industrial base: the basis for
competitiveness.
- More and better jobs : to increase employment.
- Adaptable workforce: mobility and flexibility
in the labor market.
- Better education and skills : overcoming the
challenges in education.
United States
Japan
EU 15
Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Czech Republic
Estonia
Cyprus
Latvia
Lithuania
Hungary
Malta
Poland
Slovenia
Slovakia
GDP per employed
Bulgaria
Romania
Croatia
GDP per capita
Turkey
Eurostat definition of unemployment in per cent of active population 15 -64 years.
Data from Eurostat (2005).
- A female employment rate of 60 per cent in 2010 (57 per cent in 2005).
- An employment rate for older workers (aged 55-64) in 2010 of 50 per cent.
- An increase by 2010 of five years in the average age at which people leave the labor market.
- Availability of childcare by 2010 for 90 per cent of children between 3 years and compulsory school-going
age, and 33 per cent of children under 3 years.
For MS four priority areas were identified: a) Attracting more people into employment; b) Increasing the
adaptability of workers and enterprises; c) Investing in human capital and making life-long learning a reality;
and d) Improving the implementation of reforms through better governance. (European Commission, 2003
and 2005)
But development of the Lisbon strategy has been very slow due to Euro-pessimism, the preparations for the
EU enlargement to the East,24 the difficulties in transatlantic relations over recent years, and the growing
differences between the MS. The need to pursue the Lisbon strategy was widely agreed. However, the reaction
against reforms in Germany, France and other countries hindered progress. Two official reports propose a relaunching of the Lisbon strategy, first on EU budget prospects (Sapir, dir., 2003), second on European
economic reforms (Kok, dir., 2004).
D. The Common Task of European Economic Policy and European Social Policy: The
Employment
There is a European consensus: employment is Europe’s priority. The problem is how to solve it: by growth
or by regulation, by promoting economic dynamism or protecting social benefits? When the approach has
been settled, they key will be promotion of the conditions which will increase growth. And again, a question
will arise: what is the correct balance between EU and MS action?
This is a paradigmatic situation of social policies: in Europe there is unanimity regarding analyses and
objectives, but there is no means to act, to progress. The central role of employment policy and structural
reforms is evident yet there is no action at MS or EU level. Thus progress is extremely slow (see figure 6 and
the annex). In this situation, there is no contradiction between the objectives of economic policy and social
policy –i.e., structural reform and employment.
But the problem is the limitations of social policies: their entry into conflict with other sector policies, the
trade-off between:
- Social policy and regional policy: both serve for cohesion and inclusion objectives. Yet, as seen in table 3,
the financial impact of regional policy is greater than that of social policy. Social policies are the competence
of MS.
- Social policy and industrial policy: The EU does not have a strong industrial policy. There is an implicit
industrial policy due to competition policy and sector difficulties. European industrial policy comprises
foreign protection, social compensation and the common actions supporting research and development.
- Social policy and trade policy: Social protection needs foreign protection but trade policy exigencies affect
the employment and thus social cohesion. (Baily and Lawrence, 2004, and Baily and Kirkegaard, 2004)
However, consensus exists concerning the need to complete the traditional social policies (passive, social
security, unemployment) with the advanced social policies (active, employment and specific by age, sex, and
condition: aging, poverty, low income, less skilled, immigration). The more active employment-oriented
policies produce the best results in employment creation.
24
The new MS are in transition to some strong ports: merchant economy, political democracy, and EU rules . (van Ark
and Piatkowski, 2004 )
24
V. Conclusions
We present our conclusions to the Conference in the form of a series of epigraphs. The reader is
asked to bear in mind the contextual setting for each. The conclusions are set out in three separate
fields and total thirty ep igraphs.
On Europe and the EU
I. Europe and Social Policy: Identity questions. Problems: created by non identity. Solutions: will
emerge from complexity, from preservation of the small and the different.
II. The EU’s objectives are peace, democracy, personal, human and civil rights, non discrimination,
growth, competition, welfare, sustainability. An Economic Union from 1956-7, a Political Union
from 1991-3, and a Monetary Union from 1999.
III. The unique nature of the EU: Inter-State (international) origins and Direct (domestic) effects.
IV. The first priority in EU development is the Economy. Procedural patterns in the EU: State
consensus, Gradualism, non MS nationality discrimination, subsidiarity. Instruments of the EU:
law, budget: 1% GDP.
V. The EU had a number of ‘deficits’: democratic, social and administrative. There is also a policy
deficit, especially in economic policy and in social policy.
VI. The EU: a Non-Identified Political Object or a Post-modern State? It is an Open and Transparent
new level of Administrative Policy.
VII. There is an EU Contradiction between Enlargement (more countries, the World) and Intensification
(concentration and effectiveness of policies).
VIII. 25 MS and maybe more: the economic, social, cultural and politic differences and interests may be
so large as to sterilize the common purposes.
IX. There are great problems associated with EU dynamics.
On the European Economy and the Economic Policy
X. Economic Dynamics: Growth in GDP, Employment Stagnation and Catching-up in Productivity.
XI. Dialectics of the EU vs US: EU: less growth, more social cohesion and stability. US: greater
capacity, especially in technology and economics, more competition.
XII. Analysis of the Gap between Productivity (GDP per hour worked US=100, EU= 78) and Standard
of Living (GDP per capita US=100, EU= 48.7). The gap EU/US in economic performance is
important and growing.
XIII. The Sources of European Growth: Increasing Employment Rate, Structural Reform and Integration
of Economies and Policies.
XIV. The New Western Policy Mix: from correcting Structural Deficits (unemployment, inflation, public
deficit and foreign trade deficit) to a European Monetary Policy, and towards a Cooperative
European Economic Policy.
XV. A New European Economy: more integrated, with a growing European Economic Policy.
XVI. Is there an Optimal Monetary Area? Impact of European Monetary Union on the Labor Market and
on Social Policy.
25
XVII. The European Labor Market: Geographical Immobility and Salary Inflexibility. There are at least
25 MS labor markets, although more since there are regional and city-specific markets.
On European Society and Social Policies
XVIII. Europe vs America: Dreams and Nightmares, Models and Realities, Ideas and Analysis.
XIX. The Central position of the MS (25) in European Social Policy and Welfare.
XX. Does Social Cohesion exist? Is the EU a Political Union or is it tending towards an Alliance of
Civilizations? It may end up where it began: a Free Trade Area.
XXI. The Structure of European Employment: lower participation by Women, and Younger and Older
Workers.
XXII. The American Job Machine vs the European Unemployment Machine: What are the consequences
of American Dynamism and European Protectionism?
XXIII. (Re)distribution affects 4.5 per cent of GDP: this offsets concentratio n but poverty survives for 5/15
per cent of the EU MS population.
XXIV. The central role of employment policy in European developments and policy.
XXV. The Lisbon Strategy: Structural Reforms of factor, product and service markets to generate
employment, grow th and social cohesion in the most economically competitive and high
performing area of the world.
XXVI. Equilibrium between MS Social Dumping and EU Social Harmonization.
XXVII. From Welfare to Workfare? From passive to active employment policies. Innovation and good
practices in MS.
XXVIII. The European Social Model: SSS (public health and pensions), education, labor market regulation.
XXIX. Complementarities in European policy objectives: growth, employment, stability, social cohesion,
domestic protection and foreign trade protection, sustainability, non-discrimination.
XXX. Trade-off between European policy instruments: EU vs MS, regulation vs budget, economy vs
social, social vs industrial, social vs regional.
ó
ó
ó
26
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