The European Social Model in times of Economic Crisis
and Austerity Policies
Bruxelles 27-28 February 2014
Italy
Continuity and change
in welfare state retrenchment
Annamaria Simonazzi
Sapienza University of Rome
and
Fondazione G. Brodolini
Before the crisis
• Slow growth
• Social protection: lack of universal coverage; highly segmented;
relying heavily on the family
• Labour market reforms: flexibility at the margin increased
segmentation and precariousness for new entrants
• Public debt: perverse redistribution
Public debt: constantly above 100% of GDP since the ’90
Service of the debt:
1990-1997
Constantly above 10% of GDP
2000s
Hovering around 5% of GDP
Public and Primary deficits
The legacy of the debt:
Fiscal consolidation
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No stimulus measures:
2008-2010 fiscal stimulus % of GDP
Italy: 0.3%
main advanced economies: 3.4% (IMF)
Policies lacking coherence and design
– dictated by the need to reassure the «markets» (and the European authorities);
– designed without a general framework;
– and with scant consideration for long-term consequences (TINA)
Cuts in social spending:
- block on turnover:
public employment: -8% since 2006, 70% of whom in
education (BI 2013)
- Cuts in social funds and financial transfers to local authorities
Increase in direct and indirect taxation
2013: tax/GDP: 31.6% overall fiscal burden/GDP: 45.4%
Families: welfare of (first and) last resort
Macroeconomic consequences of fiscal austerity
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The economic (and financial) crisis combined with fiscal austerity deepened the crisis 2008-2013:
GDP declined by 8% ; Industrial production: 26%; Investment: 28%
Employment: no universal relief measures
- Cassa integrazione - for workers on «typical» contracts: half a million
workers)
- labour shedding (temporary contracts)
- involuntary part-time (female employment)
Fall in disposable income (+ uncertainty)  Private consumption: - 5.1% over the period, of
which - 4.3% in 2012
Erosion of savings and decline in the saving rate, concentrated on the lowest quintile,
households of young people and tenants
Households’ wealth has diminished by 5.7% (1/3 of GDP) since 2008 (BI estimates) : (in 2010-11
the wealth to income ratio was 8.01 for Italian households and 4.48 for German ones (HFCS).
And overall inequality in wealth distribution has increased: the richest 10% owns about 50% of
total wealth.
A steep increase in poverty and vulnerability
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Missing: policies to counter poverty and social exclusion
The income distribution has become more fragmented and unequal between and
within social classes, within wage earners (working poor and working rich), and inside
families.
The share of severely deprived households (defined has families having 4 or more out
of 9 indicators of severe material deprivation)
– 6.9% in 2010; 11.2% in 2011; 14.3% in 2012. (more than 7 points in 3 years)
Limited role of social transfers to reduce relative poverty: 19.7% compared with 35.2%
for the EU27 (not because of scant resources but lack of universality of social
protection and inefficient use of resources: Baldini et al.2013).
Families’ impoverishment: reinforcing inequality, reducing
social cohesion and growth
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Families are caught between increasing demands (cuts in welfare, decrease
in income, increase in unemployment) and decreased redistributive
capabilities  decumulation of previous savings
Increasing reliance on families as insurers against social risks tends to
reinforce social inequality, because of the strongly unequal distribution of
income and savings (social mobility)
Fragmentation of society poses serious problems to policy since it affects
social cohesion and political support to redistribution via taxation
Macroeconomic implications: national solvency (households’ wealth as
collateral for public debt), reduction in the quantity and quality of
consumption affects demand and growth
Long-term, supply-side consequences of fiscal
austerity and erosion of WS
The welfare state as a “productive factor” and long-term unsustainability of the current
policies
•Cuts in social services and reconciliation policies
– employment and female labour supply
– fertility rate and demographic sustainability (pension system, LTC)
•(Youth) long-term unemployment and fragmented careers
– Decay of skills
– Delay in family formation
– Fall in income and pensions rights
•Cuts in current expenditure: reduces social investment (e.g. education and human
capital) affecting up-grading of the economic system
•Drop in income, consumption, investment and public spending: domestic demand in
support of firms’ survival erosion of productive basis
•Unless policies are reversed: quiet collapse