European Social Model(s):
From Crisis to Reform
Patrick MARDELLAT ©
Dr. Prof. In Economics
Institut d'Etudes Politiques de Lille - F
Contents:
1. Welfare States in perspectives
2. Problems and Challenges
3. Social Model and Competitiveness
4. EU integration of Social Systems?
II. Problems and Challenges
1. Poor economic performance
2. Unemployment
3. Ageing population
4. Globalization
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Productivity performance in Europe and Japan relative to the USA
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Comment
Output per person is a third higher in the United States than in
Europe. In ‘The Economic Future of Europe’, JEP (2004) 18(4):
3-26, O. Blanchard explains that about half of this advantage is
bacause more Americans are in work than Europeans, and in
Europe, those who have a job work fewer hours per year. But
even if we take this into account, productivity as measured by
GDP per hour is still 17% higher in the US.
The next chart shows the annual hours worked per worker in
2005. The OECD average hours worked per worker in
employment is 1719, but in the EU the average is 1624.
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Annual hours worked1 per worker in OECD countries, 2005
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Labour productivity growth in Europe & in the United States
(growth of GDP per hour worked)
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Comment
Since 1945 Europeans wer narrowing the
productivity gap and converging with the United
States. But since 1995, this no longer the case:
the United States are facing an acceleration in
their productivity growth that has not been
matched in Europe. On average European output
per hour growth has been 1 percentage point
lower than the United States since 1995.
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
How can Europe improve its relative position?
To improve its relative position to the US, EU has to innovate and make
efforts in R&D. In 2000, EU leaders commited to the objective of making
Europe ‘the most dynamic and competitive knowledge-based economy in
the world, capable of sustainable growth, with more and better jobs,
greater social cohesion and respect for the environment.’ This is the socalled Lisbon strategy, which goal was supposed to be achieved by 2010.
The central strategy was based on policies to encourage investment in
human capital:
• making innovation a top policy: R&D was intended to increase to 3%
of GDP
• making Europe more attractive to researchers
• improving the business climate
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Benchmarking EU innovation performance
Patents per million population
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Comment
The chart shows patent per million population as a measure of output innovation.
Patents in the figure are defined as triadic patent families that is as patents taken
at the European Patent Office (EPO), the Japanese Patent Office and the US
Patent and Trademark Office to protect the same invention. The data shown
reveal that the EU as a whole lags behind Japan and the US. Only Finland and
Switzerland overtook Japan and the US.
The next figure shows that between 1996 and 2001, the EU has been caught up
by Japan. EU is loosing ground: in 2001 EU share decreased to 26% while all the
other shares increased.
The European Patent system has been reformed to become more competitive
and user-friendly, notably by reducing the translation costs. The London
Agreement will enter into force in the first half of 2008 and will introduce a costattractive post-grant translation regime for all European patents.
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Triadic Patent families for EU-27, US, JP and others, as a % of world
total, 1996 and 2001
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
R&D expenditure in % of GDP
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
Comment
Looking to R&D expenditure shows that EU is lagging behind Japan and
the US, with a ratio of R&D to GDP always under 2%, far under the
Lisbon target of 3% of GDP. We also see that China is rapidly catchning
up with the rest of the world, particularly compared to the EU.
If we take a look to the structure of the R&D expenditure in terms of
experimental development, which is directed at the production of
new materials, products and devices or the introduction of new
processes, systems and services, applied research and basic
research, in the next figure, we see that Japan and the US spend more
on experimental development than the EU. Thus the R&D effort in Japan
and the US is more market directed than the European one.
Problems and Challenges
1.Economic
Performance 2.Unemployment 3.Ageing Population 4.Globalization
1.Economic Performance
R&D expenditure by type of activity as a %, EU-27, Japan, US 2003
Problems and Challenges
1.Economic Performance 2.Unemployment
2.Unemployment 3.Ageing Population 4.Globalization
Unemployment is a European Problem
Unemployment is very much a European problem. In
the next figure we see that the Eurozone members’
U-rate rose sharply and almost continously since
1970, despite the consolidation of an integrated
economy whose size and complexity has converged
with that of the US. It contrasts heavily with the US
experience of fluctuating and declining
unemployment.
Problems and Challenges
1.Economic Performance 2.Unemployment
2.Unemployment 3.Ageing Population 4.Globalization
Unemployment rate in continental EU and the US
Standardized U-rates,
OECD Outlook data
base.
EU-12 are the
countries who
adopted the €.
Problems and Challenges
1.Economic Performance 2.Unemployement
2.Unemployment 3.Ageing Population 4.Globalization
Plural Forms of European Unemployment
Standardized Urates, OECD
Economic
Outlook data
base, except
Southern Spain
and Andalousia.
Problems and Challenges
1.Economic Performance 2.Unemployement
2.Unemployment 3.Ageing Population 4.Globalization
Comment
Unemployment is not uniform accross the EU and
also accross European members’ regions, as it is
to see with the special case of Spain. U-rates are
higher in Southern EU countries and also higher
in southern regions of EU member states. But
there are also countries in the EU that have lower
unemployment rates than the US, which is the
cas for the Netherlands.
Problems and Challenges
1.Economic Performance 2.Unemployement
2.Unemployment 3.Ageing Population 4.Globalization
Employment Protection Legislation and Youth & Adult
Unemployment. (1999)
Problems and Challenges
1.Economic Performance 2.Unemployement
2.Unemployment 3.Ageing Population 4.Globalization
Comment
One of the factors of differentials in U-rates is the strigency
of european labour protection. Of course labour market
performances are influenced by many institutional factors,
and especially the quality of the vocational training system,
which explains the relatively better outcomes of the
Austrian and German labour market performance. But
countries with extra stringent EPL, such as France and Italy,
tend to have higher youth unemployment rate than those
where job security provision are mild, like, as iti is here to
see, the UK.
Problems and Challenges
1.Economic Performance 2.Unemployement
2.Unemployment 3.Ageing Population 4.Globalization
Unit Labour Costs in manufacturing
This chart shows the ratio
of gross wages per worker
in manufacturing.
Constant in Germany after
monetary unification;
decrease since 2002 in the
US as a result of strong
output growth and higher
productivity; sharp
increase in the Netherlands
and Italy where
productivity failed to keep
pace: as a result U-rates
increased dramaticall.
OECD Economic Outlook
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
The Problem of Ageing
Ageing is a common contemporary phenomenon in the industrial
countries which may undermine the survival of the welfare state. The
population of the European countries is forecast to age dramatically:
the share of the elderly, and in particular the very old (80+), will
increase substantially.
The problem is that it is of course the 65+ers who are the main
beneficiaries of social protection expenditure through pensions,
health-care and long-term care. The share of the working age
population (15-64) is squeezing. As a result a much smaller population
of working age will have to support a much larger elderly population.
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
Trends in the population age structure EU-25
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
Population trends have a relative inertia. They result of
many years of birth rates and life expectancy evolutions.
They cannot be easily changed, nor by sudden change in
fertility rates or increase in immigration rates.
So these changes in the population age structure will
require long-term policy concertation and reforms,
especially in the field of employment and social
protection.
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
Old age-dependency ratio is defined as the ratio of the
population aged 60 and more to those work-aged (1559). It relates the number of individuals that are likely to
be dependent on the support of others for their income
(pensioned) to those who work. The working age
population is expected to support an increasing number
of old people. See next chart.
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
Problems and Challenges
1.Economic Performance
Population 4.Globalization
2.Unemployment 3.Ageing
3.Ageing Population
Older workers employment rate: need to improve
labour supply. (Goal of Lisbon strategy)
Problems and Challenges
1.Economic Performance
2.Unemployment 3.Ageing Population 4.Globalization
4.Globalization
Globalization challenges the EU
welfare states
Globalization – the growing integration of
economies and societies around the world –
generates international tax competition.
Consequence:
erosion in the tax base,
especially on capital = another blow to the
finances of the social security systems in EU.
Problems and Challenges
1.Economic Performance
2.Unemployment 3.Ageing Population 4.Globalization
4.Globalization
Globalization is a tax problem for three reasons
“Globalization is a tax problem for three reasons. First,
firms have more freedom over where to locate… . This will
make it harder for a country to tax much more heavily than
its competitors… . Second, globalization makes it hard to
decide where a company should pay tax, regardless of
where it is based… . This gives them plenty of scope to
reduce tax bills by shifting operations around or by crafting
transfer-pricing… . Third, globalization nibbles away at the
edges of taxes on individuals. It is harder to tax personal
income because skilled professional workers are more
mobile than they were two decades ago.” The Economist,
May, 31, 1997.
Problems and Challenges
1.Economic Performance
2.Unemployment 3.Ageing Population 4.Globalization
4.Globalization
Reforms on the run
Globalization has reduced the room of manœuvre of
national economic policy, and the combined forces of
ageing, unemployment, low economic performance and
globalization seem to be too strong for the welfare state
and its social security system to survive in its present
size.
Most of the European countries have embarked in recent
years on a track of reforms, trimming the generosity of
their pension and other welfare-state programs like
unemployment benefits or health care. The rules of these
reforms seem to be the same all over EU countries: raise
retirement age and curtail benefits.
Problems and Challenges
1.Economic Performance
2.Unemployment 3.Ageing Population 4.Globalization
4.Globalization
In July 2003, France decided to require public sector workers (onefourth of the French workforce) to contribute to the state pension
system for 40 years, instead of 37.5 years. Germany raised its
retirement age from 63 to 65, and is currently contemplating raising
it further to 67 between 2011 and 2035, wich is already the case in
Sweden.
Curtailing social benefits is usually accomplished by abandoning
wage-indexation or GDP growth indexation in favour of priceindexation. Price-indexation is less generous to pensioners and
health-car system beneficiaries than price-indexation as real wages
rise over time according to productivity increases.
Problems and Challenges
1.Economic Performance
2.Unemployment 3.Ageing Population 4.Globalization
4.Globalization
Thank you for your attention
Do you have any questions?
Problems and Challenges