Download Strong policy intervention and the automatic stabilizers embedded in

MEMO/10/62
Brussels, 4 March 2010
Joint Report on Social Protection and Social Inclusion 2010
What is the Joint Report and what does it cover?
The Joint Report reviews the main trends in social protection and social inclusion across the
EU and at national level. It is the outcome of a process involving the European Commission
and the Council. A central role in preparing the discussion in the Council on the annual Joint
Report is played by the Social Protection Committee. The Treaty-based Committee promotes
cooperation between Member States and with the Commission in the framework of the Open
Method of Co-ordination on social inclusion, health care and long-term care as well as
pensions.
The 2010 report draws on the lessons of the crisis and from a decade of EU strategy for
growth and jobs to reflect on the social policies that are needed to ensure a lasting recovery
while also helping to address long-term structural challenges.
The EU's system of common objectives, assessment and reporting for social protection and
inclusion – the 'open method of coordination' – operates in tandem with the EU Strategy for
Growth and Jobs. The Joint Report on Social Protection and Social Inclusion is presented to
EU leaders and feeds into the conclusions of the Spring European Council.
What has been the social impact of the economic crisis so far?
Strong policy intervention and the automatic stabilisers embedded in European welfare
systems have limited the economic and social impact of the worst recession in decades.
Social expenditure is expected to rise by 3 percentage points of GDP between 2007 and
2011.
However, the human cost of the crisis is difficult to fully evaluate as yet. The impact on labour
markets and on the population, notably the most vulnerable is still unfolding. Unemployment
in the EU reached 9.6% in December 2009 and the Commission forecasts that it might rise
further to 10.2% by the end of 2010. The rate is more than double for young workers (21%)
and migrants (19.1%).
With 4.6 million more unemployed than out the outset of the crisis, many households have
seen their income drop and are more exposed to the risks of poverty and over-indebtedness.
The loss of earnings affects all family members, and especially children and other
dependants. Young people are particularly affected by the lack of job opportunities.
Unemployment rates may stay high for some time, with the attendant risks of long-term
unemployment and exclusion.
In the context of the joint social monitoring of the crisis, countries reported growing numbers
of unemployment benefit recipients during 2008 and into the fourth quarter of 2009.
Countries also reported strong increases in the numbers of social assistance claimants in the
second and third quarters of 2009. The pressure on last-resort schemes depends both on
how strongly the crisis hit the different countries, and on the varying coverage and duration of
unemployment schemes.
1
According to a Eurobarometer survey conducted in the autumn of 2009, citizens’ perceptions
are that the economic crisis has a serious impact on their lives. About one fifth of Europeans
say their households are facing financial difficulties and a similar percentage say that, on
occasion, they have had no money to settle ordinary bills or to buy food in the last 12
months.
Economic and employment growth did not help reducing poverty overall
In 2009, the SPC looked back at 10 years of Lisbon strategy for growth and jobs 1 in order to
draw lessons for the future EU2020 strategy. One of the main messages is that there is no
trickle down: despite economic and employment growth, the original objective of reducing
poverty significantly was not met. EU harmonised poverty trends that are now available show
that at EU-25 level, the at-risk-of poverty rate stagnated at 16% between 2005 and 2008.
Over the period both children and the elderly experienced risks of poverty by 3 percentage
points higher than the overall population. In-work poverty at EU level also remained stable at
8%, while the risk of poverty of the unemployed rose significantly during the period from 39%
to 44%, mainly due to an increase in the old Member States. Changes in the characteristics
of the unemployed and changes to the unemployment benefit schemes (increased
conditionality, shortened duration) aimed at making work pay may explain this increase.
Figure 1a: At-risk-of-poverty rate2, total, by age and by employment status; 2005-08
EU-25
45
40
35
30
25
20
15
10
5
0
2005
All
2006
Children
2007
Elderly
Employed
2008
Unemployed
Source: SILC 2005-2008
When looking at the old Member States (EU-15) and the Member States who joined in 2004
(NMS10) separately, the data shows that in the EU-15 the elderly (65+) are at higher risk of
poverty than both children and working age population (20% against respectively 18% and
15%). This relation remained stable over the period. On the contrary, in the NMS10 the
elderly experienced much lower risks of poverty than children and the working age
population (8% against 25% and 17% respectively).
1
SPC(2009). "Growth Jobs and social progress: a contribution to the evaluation of the social dimension of the
Lisbon Strategy"
2
The annual national at-risk-of poverty threshold is set at 60% of the national median income per equivalent adult. The total
household disposable income is the total net monetary income received by the household and its members, i.e. all income
from work, private income from investment and property, all social transfers received directly including old-age pensions, net of
any taxes and social contributions paid. Indirect social transfers, loan interest payments, transfers paid to other households,
receipts in kind and imputed rent for owner-occupied accommodation are not taken into account. The income reference period is
2007 for all countries except the UK (2008) and Ireland (last twelve months). The income per equivalent adult is calculated by
dividing the total household income by its weighted size (1.0 to the first adult, 0.5 to other 14+, and 0.3 to <14).
2
Figure 1b: At-risk-of-poverty rate, total, by and by employment status; 2005-08
NMS-10
EU-15
50
50
40
40
30
30
20
20
10
10
0
0
2005
2006
2007
All
Children
Elderly
Unemployed
2008
Employed
2005
2006
2007
All
Children
Elderly
Unemployed
2008
Employed
Source: SILC 2005-2008
Has the crisis had the same impact across EU member states?
The scope, magnitude and effects of the crisis vary greatly across the Union. Large drops in
GDP triggered dramatic rises in unemployment in some countries, while in others job losses
were contained. The capacity of EU welfare systems to address the rising demand for social
security also varies. Some Member States have major holes in their safety nets, and not all
governments have the financial room for manoeuvre to let automatic stabiliser function fully.
Members States policy responses also varied in size and emphasis. A Commission estimate
shows that spending on overall recovery measures varies from less than 1% of GDP in HU,
LT, BG and EL to more than 3.5% in Spain, Finland and Germany. According to the Autumn
Commission economic forecast, social expenditure in the EU is expected to increase by 3.2
percentage points of GDP between 2007 and 2010.
The need to contain the rise in public spending calls for enhancing the quality of intervention,
and setting clearer priorities. This means more effective and efficient social inclusion and
social protection, in line with the principles of access for all, adequacy and sustainability.
Do all member states enjoy the same level of social protection? What are the
consequences?
The size and structure of social protection varied greatly, as illustrated in Figure 1. Bulgaria,
the Baltic States and Romania devote less than 15% of their GDP to expenditure on social
benefits, while France and Sweden spend 28% of their GDP. Social protection plays a
redistributive role over the life-cycle, notably through pensions, insuring people against social
risks and helping reduce poverty.
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Figure 2: Expenditure on social protection benefits - gross, by function, in % of GDP — 2007
35
30
Old age and survivors
Sickness/Health care
Disability
Family/Children
Unemployment
Housing and Social exclusion n.e.c.
25
20
15
10
5
0
eu27 lv ee ro lt bg sk ie pl mt cz cy lu es si hu pt gr fi uk it de nl at be dk fr se
Source: Eurostat – ESSPROS 2007
Generally, richer countries spend a larger share of their GDP on social protection, and
periods of economic growth had allowed many governments in the EU to devote more
resources to social policy intervention. However, countries with similar levels of social
spending achieve very different results in terms of poverty reduction. In some cases public
transfers allow a drastic reduction of the poverty risk (up to 60% in some Nordic countries
and Hungary). In other cases this impact is below 15%. This is because the pre-transfers
level of poverty, composition of expenditure and quality of interventions also play an
important role. This highlights the potential for efficiency gains in social spending. Active
inclusion strategies combining income support, access to the labour market and quality
services have been identified as effective poverty reduction strategies. They can reconcile
the goals of fighting poverty, increasing labour market participation, and enhancing efficiency
of social spending.
4
How many Europeans are at risk of poverty?
In 2008, 17% of the EU population was at risk of poverty, living on less than 60% of the
national median income. The aggregate figure hides marked differences across Member
States, ranging from 9-12% in the Czech Republic, the Netherlands, Slovakia, Denmark,
Hungary, Austria, Slovenia and Sweden to 20-26% in Spain, Greece, Lithuania, Bulgaria
Romania and Latvia. These differences result from varying levels of solidarity and labour
market inclusion across EU countries.
Being at risk of poverty relates to very different living standards across the EU, as illustrated
by the large differences in the levels of poverty thresholds apparent in figure 2 (right axis).
Even when corrected for differences in the cost of living, poverty thresholds are five times
higher in the UK at the top of the ranking after Luxembourg than in the two countries at the
bottom (Romania and Bulgaria).
Material deprivation rates complement the picture given through the at-risk of poverty rates
by providing an estimate of the proportion of people whose living conditions are severely
affected by a lack of resources. This new indicator, adopted by the SPC in 2009 is a
headcount of the number of people who cannot afford to pay their rent, mortgage or utility
bills, keep their home adequately warm, face unexpected expenses, eat meat or proteins
regularly, go on holiday, or cannot afford to buy a television, a washing machine, a car or a
telephone3.
17% of Europeans live in these difficult conditions. However, in Bulgaria, Latvia, Hungary,
Poland and Romania more than 30% of people are affected. These disparities in material
deprivation rates reflect the large differences in GDP per capita that remain between EU
countries. This emphasizes that the fight against poverty in the EU will benefit from greater
economic growth as well as from greater territorial cohesion within the EU.
3
The indicator recently adopted by the social protection committee measures the percentage of the
population that cannot afford at least 3 of the 9 items quoted above.
5
Figure 3: At-risk-of poverty and material deprivation rates (%) and at-risk-of-poverty thresholds
(€-PPS per year for a single household); 2008
60
18000
At-risk-of-poverty rate (left axis)
Material deprivation rate (left axis)
Value of thresholds for a single household (right axis)
15000
40
12000
30
9000
20
6000
10
3000
0
In Purchasing Power Standards
% of total population
50
0
EU EUNMS cz nl sk se dk at si hu lu fr
27 15 10
fi be de mt ie cy pl pt uk ee it es el lt bg ro lv
Source: EU-SILC (2008). Material deprivation data for Denmark refers to 2007
What does the report reveal about housing exclusion?
2009 was the focus year on homelessness and housing exclusion within the social OMC.
Work in this context revealed that the shortage of adequate housing is a long-standing
problem in most European countries. With the crisis and rise in unemployment, some
countries also reported more defaults on housing loans and repossessions. The cost and
quality of housing is an important element of living standards. 38% of people at-risk of
poverty spend a very large share (i.e. more than 40%) of their disposable income on housing
– as against 19% of the overall population.
People at risk of poverty also tend to face worse housing conditions than the rest of the
population with over 27% living in overcrowded accommodation (as against 15% of the
overall population). 38% are suffering from at least one housing deprivation problem (against
22%). Recent national data on rough sleepers and on people without accommodation give
a mixed picture, but show that the situation has worsened in a number of countries.
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Figure 4: Share of housing costs in total household income net of housing allowances — 2007
60
50
40
30
poor
non-poor
Total
20
10
E
E
H
U
C
Z
P
L
S
K
E
L
U
K
D
K
N
L
B
S
IT
LT
LV
FI
FR
A
T
E
E
IE
P
T
C
Y
S
I
M
T
E
S
LU
E
U
25
0
Source: EUROSTAT; EU-SILC 2007
Notes: data on DE omitted because key components of the housing cost variable are missing.
Have pensioners been hit by the crisis?
Cushioned by the steady incomes from pension systems today's pensioners have been
relatively little affected so far. Still, the crisis and lower growth prospects are likely to impact
on all types of pension schemes and aggravate the ageing challenge. Moreover, though the
bulk of pension income will continue to be provided by public pay-as-you-go schemes
pension systems are changing and the entitlements of future retirees will be more sensitive
to the volatilities of financial and labour markets.
Will future pensioners be more affected by developments in the labour
markets?
As the role of funded pensions grows and public pensions increasingly will be based on lifetime earnings-related contributions, future pension adequacy will rest on a combination of
returns in financial markets and the ability of labour markets to deliver opportunities for
longer and less broken contributory careers. Variations in the ability of funded schemes to
weather the present crisis show that differences in design, regulation and investment
strategy matter. Long-term unemployment and other interruptions in normal earnings can
negatively affect the accrual of entitlements and reduce individual pensions. Given this,
opportunities should be provided for people to extend their working lives and minimise
employment interruptions. At the same time a better balance for pension savers between
security, affordability and returns also needs to be achieved.
In 2007, the employment rate for older workers in the EU-27 was 45% compared to 37% in
2001, and 12 countries now exceed the 50% target (Denmark, Germany, Estonia, Ireland,
Cyprus, Latvia, Lithuania, the Netherlands, Portugal, Finland, Sweden, and the UK).
However, the target is still far away for a group of countries where the employment rate for
older workers is around 30%. When a number of Member States consider increasing the
pensionable age in the wake of the crisis it is primarily to restore a balance between working
years and years spent in retirement.
7
Figure 5: Employment rates of older workers (55-64) in the EU-15 (1992-2008) and the EU-27
(1997-2008)
60
55
eu27
eu15
eu27 (male)
eu15 (male)
eu27 (female)
eu15 (female)
50
45
40
35
30
25
20
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Eurostat
What are the potential effects of the economic crisis on health?
Data on the health impacts of the crisis are still sparse, but experience shows that downturns
increase risks to mental and physical health and that negative effects can emerge over time.
Health status is influenced by the extent and duration of economic and social deterioration.
Indirect effects may come as budget constraints make it difficult to respond to rising
healthcare needs.
A sudden increase in insecurity is a stress factor affecting the population at large. Job
uncertainty, restructuring and long-term unemployment significantly affect mental health, are
linked to suicide, alcohol and drug abuse, increase the risk of cardiovascular disease and
impact on mortality. Moreover, lower household income can delay and inhibit recourse to
care. This underlines the need to promote labour market inclusion in order to prevent health
risks.
Why is more effectiveness and efficiency needed in healthcare?
In general, healthcare expenditure represents a significant share of Member States’ financial
resources. On average, Member States spend about 9 % of GDP on health, including both
public and private outlays, which varies from 5% in Estonia to 11% in France. Average
expenditure has grown by about 1pp of GDP over the past decade. A large part comes from
public sources (EU average of 75 %). The size and growth of health costs have prompted
calls for health systems to obtain better value for money. And with increasing needs and
tighter budgets following the crisis improving effectiveness and efficiency take on a new
urgency. Public budgets in most Member States are likely to be constrained for years, calling
for prioritisation and greater effectiveness and efficiency.
8
Total, public and private expenditure on health as % of GDP,
2007 or latest available
100
90
% of GDP
10,0
80
70
8,0
60
6,0
50
40
4,0
30
20
2,0
10
0,0
0
*
27 BE BG CZ DK DE EE IE EL ES FR
EU
IT CY LV LT LU HU MT NL AT PL PT RO SK
SI
% of total expenditure on health
12,0
FI SE UK
Private expenditure as %of GDP
Public expenditure % GDP
Public expenditure as % of total expenditure on health
Obviously expenditure is driven by a complex set of factors. Key structural drivers include
new technologies, rising expectations, the increase in unhealthy behaviours and notably
population ageing. According to the 2009 EPC/EC projections, EU public health expenditure
will rise by 1.7 percentage points of GDP by 2060 due to population ageing, i.e. a 25 %
increase with respect to current spending. These costs however can be halved by improving
the health status of the elderly (i.e. postponing the onset of disease). Differences between
schemes in terms of expenditure and relative prices therefore prompt questions about
financing, delivery structures and priorities (e.g. on prevention versus treatment). It is crucial
to understand where potential effectiveness and efficiency gains can be made and greater
value for money may be attained.
But the health sector also holds great potential for job creation, vital to strategies for returning
to sustainable growth and employment. Along with long-term care it accounts for nearly 10%
of total employment, and with an ageing population demand for health and social services
will grow.
9