Growth Strategies and Welfare Reforms in Europe

In this article, we develop an analytical framework to study how economies and welfare systems have been adapted to the common challenges of post-industrialization, financialization, and the knowledge economy. We show that, despite the global interconnectedness of modern economies, national trajectories of growth and policy-making remain distinct. Our explanation focuses on the pursuit of different growth strategies in contemporary advanced capitalist economies. Growth strategies are in large parts welfare reforms. Governments use the policy tools of the welfare state such as employment policy, housing policy, pensions, minimum wages and education as facilitators for growth. They pursue them in different ways depending on the growth regime their economies are embedded in. The articles starts with an overview of two key concepts used to build our argument: i) the complementary relationship between national growth and welfare regimes and ii) growth strategies through which growth and welfare regimes are reformed in the new era of globalization, ICT and financialization driven growth. It then provides an overview of five main ideal-typical growth regimes that have developed in advanced capitalist economies: the dynamic services export-led growth regime, the high-quality manufacturing export-led, the FDI-financed export-led, the financebased domestic demand-led and the public-financed domestic demand-led ones. Finally, it analyses the ties between growth strategies and welfare reforms and thus identifies five main types of welfare state reforms strategies: dualization of welfare, social investment, fiscal and social attractiveness, commodification of welfare, and social protectionism. Within the Eurozone, because of external pressure, the latter strategy has been transformed into a «competitive impoverishment» strategy for Southern European countries.

Toward a post‐neoliberal social citizenship?

This dissertation compares the political economy of pension systems and reforms in four Central, Eastern and Southeastern European countries, Croatia, Hungary, Poland and Slovenia. The study employs a historical institutionalist framework to analyse the policies, actors and institutions that characterised the period between the collapse of socialism and 2008. Similar to other transition economies, Central, Eastern and Southeastern European countries inherited inequitable public pension systems that already under socialism experienced severe financial strains. These pressures became unsustainable during the transition to a market economy. Already ill-prepared to withstand the longterm effects of demographic ageing, in the context of acute labour market crises, these schemes were overstretched to the point of breakdown. As a result, the region’s retirement schemes underwent three reform phases. Before the mid-1990s, local policymakers tried to solve the crisis via parametric adjustments. When that failed, a debate on systemic change launched the second, structural reform phase, which culminated in the adoption of paradigmatic reforms in a number of countries in the late 1990s. Although the outcomes vary, Central, Eastern and Southeastern European countries eagerly embraced the new pension orthodoxy of the time, which prescribed a shift to partial funding and a stricter link between contributions and benefits. There then followed a third implementation phase, which saw a fine-tuning of these schemes and the emergence of unforeseen and sometimes critical problems. The unprecedented scope and depth of this transformation has elicited a vast academic literature. Existing research mainly focuses on the first two phases in the attempt to explain how reforms were possible and what interests and motives pushed them forward. What remains largely unexplored is the fate of the new reformed systems and the sources of their current problems. This dissertation fills the gap by encompassing all three reform periods. After providing an overview of the early reform phases and exploring the surprising feasibility in certain countries of paradigmatic reform, this study focuses on the third period to show that reform outcomes may not only be fiscally or socially unsustainable, but also that under certain conditions they become vulnerable to shifts in political power. This study’s principal argument is that successful pension reform implies the rewriting of the underlying social contract. This means that reformers should adopt inclusive rather to unilateral modes of policymaking, and take into consideration the interests and expectations of the broader polity in formulating their policy proposals. Failing that, reforms may not be accompanied by sufficient incentives to ensure ongoing political support at all levels. This line of thinking contrasts with claims in the literature that favour the unconstrained executive model, which is deemed more effective in terms of reform capacity, or others which emphasize the significant tradeoffs between a reform’s responsiveness to socioeconomic challenges and its political sustainability over time. Jury: Nicholas Barr (LSE), Martin Kohli (EUI) – Igor Guardiancich – Tine Stanovnik (Uni. Ljubljana), Martin Rhodes (Univ. Denver/formerly EUI) Igor Guardiancich graduated in Economics at the Universita di Trieste in 2001 and obtained his Master’s degree in Political Economy of Transition at the London School of Economics in 2003. The following year he joined the European University Institute. His working and research experience includes periods spent at the European Commission (DG Enlargement), at the International Labour Organisation, at the European Trade Union Institute. As for his academic involvement, in 2007 he was a visiting fellow at the Central European University in Budapest and at the Centrum Europejskie Natolin in Warsaw. He collaborates with various research networks, such as RECWOWE, Reconciling Work and Welfare in Europe, on the interplay between flexicurity and old-age pensions and the ERSTE Foundation Social Research Fellowship ‘Generations in Dialogue’, on social inclusion and pensions in former Yugoslavia. He is currently employed in a project on pension reforms for the Belgian government through the Observatoire social europeen in Brussels and started working as academic collaborator on higher education issues at the Academic Careers Observatory of the Max Weber Program in Florence.

For over half a century, the development of the welfare state has served as the principal means by which left-progressive governments have reconciled the pursuit of efficiency with the pursuit of equity. From a Keynesian perspective, welfare spending—and the taxes that financed it—provided an “automatic stabilizer,” smoothing aggregate demand in the face of fluctuations in the business cycle. From a corporatist perspective, welfare spending greased the wheels of “political exchange,” compensating powerful, mobilized labor movements for their acceptance of wage restraint. And even during the initial years of neoliberalism, welfare spending helped secure popular acquiescence to market reform, making intensified international competition and job loss more acceptable to the masses. In the 1990s, however, in the age of globalization, heightened concerns about budget deficits, and retiring baby boomers, welfare spending has come under intense pressure. The fact that the left is in power in an unprecedented number of European countries—France, Italy, Britain, the Netherlands, Sweden, and now Germany—is not necessarily grounds for celebration. As luck would have it, leftist electoral planets have entered into alignment at precisely the moment when fiscal constraints have become extremely tight. With welfare expansion giving way

The welfare state and the capitalist economy: rhe successive Keynesian, supply-side and social investment social policy paradigms. - lnstitutional change and common paths in social policies: from supply side policies to a social investment strategy? - Institutional change: the Three Worlds of welfare reforms in the last two decades in Europe. - What about the crisis?

This chapter by Joe Leung and Yuebin Xu discusses pension reform in China and questions whether the government’s pension policies effectively promote social investments that produce future benefits to elders. Facing the challenges of the ageing population, escalating pension payments and imminent declining workforce, China has to formulate a sustainable, adequate and affordable pension system. Using pension reforms as an example, this chapter illustrates that harmonizing pension reforms are regarded as the key instrument of social investment strategy to promote economic performance. Pension reforms are pivotal to restructure the labor market, facilitate labour mobility and integration across regions, occupational sectors, and rural and urban areas, as well as to enhance the quality of human capital. In short, a modernized economy has to be accompanied by a universal and equitable social security system. Key words: social investment, international social welfare, pensions, social protection, China

Discussion

Abstract. Background: Welfare benefit policies have important implications for public health. They aim to reduce the risk of poverty, promote employment for people who can work, and help maintain the livelihood of people who are not able to work due to unemployment, disability or old age. They may help reduce the economic and health consequences of recessions, however the 2008 recession and subsequent rise in government debt has also led to welfare reforms that reduce access to and adequacy of welfare benefits. This thesis uses the recent recession and subsequent welfare reforms in the UK as natural experiments to investigate the relationship between recession, welfare benefit policies and mental health. Study design: I use routine administrative and survey data for England and systematic review methods to investigate the impact of the recession on mental health and the impact of welfare benefit reforms on mental health and employment. Study 1 reflects on the methodological challenges of investigating natural policy experiments such as those outlined in this thesis. Study 2 investigates the impact of initial rises in unemployment during the recession on suicides, Study 3 investigates trends in self-reported mental health problems during and after the recession when welfare reforms were introduced. Study 4 investigates the mental health effects of a specific policy introduced from 2010 to use a new tougher assessment to reassess the eligibility of disability benefit claimants. Study 5 presents a systematic review of international evidence investigating the employment effects of changes to the eligibility and adequacy of out-of-work disability benefits. Study 6 investigates the employment effects of the disability benefit reassessment policy in England. Results: The onset of the 2008 recession in England and subsequent rise in unemployment was associated with a rise in suicides. The association between increases in unemployment and rises in suicides was stronger in the 2008 recession than it had been in the previous 1990s recession, suggesting that welfare policies may have been less effective at reducing the mental health impact of unemployment. The trend in suicides however continued to increase between 2010 and 2013 even after unemployment peaked and began to decline. The prevalence of reported mental health problems also increased from 2009. Whilst unemployment trends explained some of the initial increase in reported mental health problems, it did not explain the continued increase and widening of inequalities from 2010 to 2013. The policy introduced in 2010 to reassess the eligibility of disability benefit claimants was associated with adverse trends in mental health, including a further rise in suicides, self reported mental health problems and antidepressant prescribing. A systematic review of international evidence indicated that similar policies did not generally increase employment, but rather moved people from disability benefits onto other benefits. The disability benefit reassessment policy introduced in 2010 appears to have moved people with mental health problems from inactivity into unemployment, but there was no evidence that it had improved the employment chances of people out-of-work with mental or physical health problems. Conclusion: It is likely the 2008 recession had an adverse impact on mental health. This may have been greater than it would otherwise have been because of changes to the welfare system over recent decades. Welfare benefit reforms since the recession have then potentially exacerbated this situation, and may have led to further adverse trends in mental health that particularly affected the most disadvantaged groups. These welfare policies have not led to improved employment chances for people out-of-work with health problems, suggesting that the harms may outweigh any benefits. These policies have been associated with an increase in the numbers of people out-of-work with mental health problems potentially leading to greater reliance on welfare in the future.

Every reform, however necessary will. . . be carried to an excess, that itself will need reforming. --Samuel Taylor Coleridge No one can deny the need for welfare reform. The current U.S. welfare system discourages work and independence, replaces pride with stigma, and exiles poor people from community life. However, the reform embodied in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) goes too far. Rather than invest another $10 billion in America's welfare program, which the Clinton administration pledged in 1994, the new law cuts nearly $55 billion in federal dollars over the next six years. Nearly all of the savings will come from reductions in the Food Stamp program, Supplemental Security Income (SSI), and assistance to legal immigrants. Scheduled to go into effect next year, P.L. 104-193 introduces several major changes that almost certainly will harm people in need of public assistance. At the same time, the new law ushers in a few changes that could make parts of the system work for the better. FEDERAL BLOCK GRANT One major change in the welfare system will be the shift from categorical funding to a federal block grant. Aid to Families with Dependent Children (AFDC), emergency assistance, and the Job Opportunities and Basic Skills Training program will be replaced with the Temporary Assistance for Needy Families (TANF) block grant. TANF will give states broad authority to create and manage their own welfare programs. In congressional testimony governors argued that states know better than Washington how to put people to work and get them off welfare. Several impressive reforms that originated in the states backed up their argument. However, TANF will probably slow down rather than speed up welfare reform. Before the new law states could design their own welfare programs only if Washington approved a waiver to federal requirements. This approach began to pay off in the Clinton administration when the federal government got more flexible with waivers, and states were treated as partners in welfare reform. Stalemates between the two levels of government gave way to compromise, which resulted in some meaningful reforms. This sort of compromise will be difficult now. As written, the new law nearly eliminates the federal government as a partner in welfare reform. Hence, the U.S. welfare system may soon become a hodgepodge of funding levels and eligibility requirements--50 states all doing different things--with national chaos outpacing reform. States also post a poor track record with federal block grants, falling far short of the mark in community-based mental health care and struggling now with the federal block grant for child welfare (nearly half of the states are under court supervision for not taking proper care of children who had been abused or neglected) (Some Look at the Welfare Plan, 1996). This track record will likely get worse with the welfare block grant. The federal government now pays 55 percent of all AFDC benefits, with no cap on the number of recipients. Under the new law, states will receive a fixed sum from the federal government regardless of the number of recipients. Over the next six years, this cost-saving measure will cut by one-third the total amount of federal funding that would have been used to support state welfare programs under current law (NASW, 1996). Another impediment to reform is the provision that permits states to cut their own welfare spending up to 25 percent without suffering any federal penalty. In the past, if states reduced such spending, they lost as much or more ill federal support. The new law gives states an open invitation to take money out of their welfare programs. Not all states will bend to this temptation, but sonic will. It is much easier for states to cut welfare benefits than to raise taxes for welfare reform. WORK AND POVERTY Replacing guaranteed cash payments with strings-attached assistance may prove the most significant change ushered in by the new law. …

The objective of this paper is to examine and analyze empirically whether the Central and Eastern Europe countries` reformed pension systems are providing adequate and safe pensions. Starting in 1990s, most Central and Eastern European countries radically reformed their pension systems. The rising optimism initiates many studies where the advantages of the reforms were in the focus. The global financial crisis negatively affects the reformed pension systems. As a response, the policy makers in few of those countries decided to set up different measures: increasing or reducing the pension contribution for alleviating the fiscal deficit or encouraging the employment, adapting the contribution rate and allowing individuals to switch back to the old system. These last changes in the pension systems have triggered the following question: How much and in which way the implementation and experiences gained with the functioning of the reform pension system will have impact in the future pension adequacy and sustainability of the pension system?

The objective of this paper is to examine and analyze empirically whether the Central and Eastern Europe countries` reformed pension systems are providing adequate and safe pensions. Starting in 1990s, most Central and Eastern European countries radically reformed their pension systems. The rising optimism initiates many studies where the advantages of the reforms were in the focus.The global financial crisis negatively affects the reformed pension systems. As a response, the policy makers in few of those countries decided to set up different measures: increasing or reducing the pension contribution for alleviating the fiscal deficit or encouraging the employment, adapting the contribution rate and allowing individuals to switch back to the old system. These last changes in the pension systems have triggered the following question: How much and in which way the implementation and experiences gained with the functioning of the reform pension system will have impact in the future pension adequacy and sustainability of the pension system?

The purpose of the paper is to analyse and evaluate the financial situation of elderly households in Central and Eastern European (CEE) countries. Current demographic trends simultaneously with reforms of pension systems in the CEE region may lead to an increasing number of elderly households being exposed to poverty risk. In this study, Ward’s method and the method of standardised sums were applied to classify and order the examined countries according to the financial standing of elderly households. The obtained results allow us to identify countries with similar financial situations for elderly households in 2007, 2010 and 2013, and changes in clusters and ranking over the analysed period. The main findings show that the financial situation of the elderly in CEE countries is very differentiated and changeable, however over the analysed period the financial standing of the elderly seems to be most similar in Poland and Slovakia as well as Estonia, Latvia and Lithuania.

Recent research by the Council of Economic Advisers (1997) and Ziliak, Figlio, Davis, and Connolly (1997) provides substantively different estimates of the impact of the macroeconomy and welfare reform in accounting for the recent decline in AFDC caseloads. In this paper we conduct an extensive reconciliation between the findings in the CEA and Ziliak et al. In addition, we also address the issue of how welfare recipiency might respond in the event of a recession via a dynamic simulation model. Lastly, we examine the possibility of interactions between the macroeconomy and welfare reform. Using the data and sample period employed by the CEA, our reconciliation suggests that the differences in results between the CEA and Ziliak et al. emanate largely from the treatment of dynamics. The primary consequence of controlling for caseload dynamics is to reduce the role of welfare reform relative to the macroeconomy in accounting for the decline in AFDC caseloads. Once we control for dynamics, we attribute up to 75 percent of the 1993 to 1996 caseload decline to the macroeconomy and at most 1 percent to welfare reform. Our dynamic simulations underscore the cyclical sensitivity of welfare recipiency -- a 2 percentage point increase in the unemployment rate leads up to an 11.7 percent increase in welfare recipiency after four years. Finally, the results from interactions between the macroeconomy and welfare reform indicate that pre-TANF welfare reform required a robust economy (i.e. low unemployment rates) in order to have a negative impact on recipiency rates.

Will welfare reform increase unemployment and reduce wages? The answer depends in part on how much welfare reform increases labor supply. This paper considers the labor supply effects of the welfare reforms that have occurred since 1993, when President Clinton entered office with a promise to end welfare as we know it. The paper reviews previous estimates, and provides new estimates, of how many additional labor force participants have entered the labor force due to welfare reform. I estimate that welfare reform from 1993-96 increased the U.S. labor force by between 100,000 and 300,000 persons. Between 1996, when the major federal welfare reform bill was enacted, and 1998, welfare reform has probably increased the U.S. labor force by at least another 300,000 persons. Assuming current policy trends continue, welfare reform may add another half-million to one-million labor force participants between 1998 and 2005. The cumulative impact of welfare reform from 1993-2005 is likely to add between one and one-and-a-half million persons to the U.S. labor force. This additional labor supply is not huge compared to the U.S. labor force, so welfare reform is unlikely to have large long-run effects on overall wages and unemployment. However, this additional labor supply is large compared to likely growth in labor demand for less-educated women over the 1993-2005 period. As a result, welfare reform is likely to have significant effects on the wages and unemployment rates of less-educated women during the 1993-2005 period.

Congress must reauthorize the sweeping 1996 welfare reform legislation by October 1, 2002. A number of issues that were prominent in the 1995-96 battle over welfare reform are likely to resurface in the debate over reauthorization. Among those issues are the five-year time limit, provisions to reduce out-of-wedlock births, the adequacy of child care funding, problems with Medicaid and food stamp receipt by working families, and work requirements. Funding levels are also certain to be controversial. Fiscal conservatives will try to lower grant spending levels, while states will seek to maintain them and gain additional discretion in the use of funds. Finally, a movement to encourage states to promote marriage among low-income families is already taking shape. The need for reauthorization presents an opportunity to assess what welfare reform has accomplished and what remains to be done. The New World of Welfare is an attempt to frame the policy debate for reauthorization, and to inform the policy discussion among the states and at the federal level, especially by drawing lessons from research on the effects of welfare reform. In the book, a diverse set of welfare experts uliberal and conservative, academic and nonacademic uengage in rigorous debate on topics ranging from work experience programs, to job availability, to child well-being, to family formation. In order to provide a comprehensive overview of the current state of research on welfare reform, the contributors cover subjects including work and wages, effects of reform on family income and poverty, the politics of conservative welfare reform, sanctions and time limits, financial work incentives for low-wage earners, the use of medicaid and food stamps, welfare-to-work, child support, child care, and welfare reform and immigration. Preparation of the volume was supported by funds from the Annie E. Casey Foundation and the Charles Stewart Mott Foundation. Contributors include Thomas L. Gais, Richard P. Nathan, and Irene Lurie (Rockefeller Inistitute, SUNY-Albany), Thomas Kaplan (University of Wisconsin), Lucie Schmidt (University of Michigan), Charles Murray (American Enterprise Institute), Hugh Heclo (George Mason University), Lawrence M. Mead (NYU), ), Julie Strawn, Mark Greenberg, and Steve Savner (Center for Law and Social Policy), Ladonna Pavetti (Mathematica Policy Research), Dan Bloom (Manpower Demonstration Research Corp.), Charles Michalopoulos and Gordon Berlin (Manpower Demonstraton Research Corporation), Jason A. Turner (Commissioner of Welfare, State of New York), Thomas Main (Baruch College of the City University of New York), Sheila Zedlewski and Pamela Loprest (Urban Institute), Robert Greenstein and Jocelyn Guyer (Center on Budget and Policy Priorities), George Borjas (Harvard University), Greg Duncan and Lindsay Chase-Landsdale (Northwestern University), Wade F. Horn (National Fatherhood Initiative), Isabel V. Sawhill (Brookings Institution, Irwin Garfinkel (Columbia University), Douglas Besharov and Nazanin Samari (American Enterprise Institute), Lynn A. Karoly, Jacob A. Klerman, and Jeannette A. Rogowski (RAND Corp.).