Social Europe Towards a more inclusive Europe by 2020 GINI mid-term conference Budapest 23 March 2012 László Andor Commissioner for Employment, Social Affairs and Inclusion Cartoon by Nicholson from “The Australian” newspaper:

Social Europe Structure 1. Different types of inequality and trends 2. EU response to inequality Europe 2020 Strategy and the European Semester Cohesion policy Social experimentation 3. Challenges in the context of 2020 Coping with the crisis Discrepancies between EU headline and national targets Addressing inequality's causes or its consequences? 4. Conclusion

Social Europe The scourge of inequality "An imbalance between rich and poor is the oldest and most fatal ailment of all republics." —Plutarch "there should exist among the citizens neither extreme poverty nor, again, excessive wealth, for both are productive of great evil" —Plato

Social Europe Inequality's many facets Absolute income, relative income, (un)employment… Education early school-leavers: range from 4.9% (CZ) to 36.9% (MT); in ES 10 pp more males than females Health Unmet need for healthcare (too expensive): 5% in lowest quintile, 0.3% in top quintile Life expectancy of tertiary-educated CZ male: 80 years against 62 years for CZ male with basic education EU-27 (now)EC-9 (mid-1970s) GDP/head (PPS EU= 100)45 to to 113 (IE 56) Unemployment4.0% to 23.3%2.9% to 9.6% Gini24 to 3724 to 36 Soc. exp. (% of GDP)11% to 30% 21% to 29% (excluding IE and IT)

Social Europe EU trends - income inequality Degree of inequality (Gini) UK: back to historical high IE: historical low (increase in 2010 after long descent) IT: comparable to 1980 EL: comparable to 1967 Source: UN-SWIIDv3

Social Europe Trends in net income inequality in BRIC, Mediterranean countries, USA and Japan (Gini) Over the last 30 years: - Significant decrease from very high levels: Brazil and most Mediterranean countries - Increase in countries with lower levels of inequality -- Russia, China, Israel and USA Current level of income inequality in USA, BRIC and Mediterranean countries is still considerably higher than in Europe

Social Europe Inequality and civic engagement

Social Europe 2. EU response to inequality Europe 2020 and the European semester Cohesion policy Social experimentation

Social Europe Europe 2020: integrated strategy for smart, sustainable and inclusive growth Three EU targets most related to inclusive growth: Raising employment rate (20-64 age group) to 75% At least 20 million fewer people at risk of poverty or social exclusion < 10% early school-leavers & at least 40% with tertiary education qualification Supported especially by three flagship initiatives: Agenda for New Skills and Jobs Youth on the Move European Platform against Poverty and Social Exclusion Aim of the Platform: "to ensure social and territorial cohesion such that the benefits of growth and jobs are widely shared, and people experiencing poverty and social exclusion are enabled to live in dignity and take an active part in society."

Social Europe : 1 st European Semester priorities Prerequisites for growth: Rigorous fiscal consolidation Correcting macro-economic imbalances Stability of financial sector Mobilising labour markets: Making work more attractive Reforming pension systems Getting the unemployed back to work Balancing security and flexibility Frontloading growth: Tapping the potential of the Single Market Attracting private capital Cost-effective access to energy 2012: 2nd European Semester priorities Pursuing growth-friendly fiscal consolidation Restoring normal lending to the economy Promoting growth and competitiveness Modernising public administration Tackling unemployment and the social consequences of the crisis Mobilising labour for growth Supporting employment, especially among the young Protecting the vulnerable

Social Europe 2012 in detail: protecting the vulnerable Continue improving the effectiveness of social protection systems Implement active inclusion policies Ensure access to services to support integration into the labour market and society Monitor distributional impact of reforms Pay attention to the needs of the most vulnerable in any tax shift

Social Europe Cohesion policy after 2014 – potentially stronger impact on inequality Alignment of cohesion policy with Europe 2020 Thematic concentration, including on: Employment & labour mobility Social inclusion & combating poverty Education, skills & lifelong learning Minimum 25% share for ESF within cohesion policy Minimum 20% share of ESF in each MS for social inclusion More effective: conditionality, stronger focus on results More efficient & accessible: simplification for beneficiaries

Social Europe Spawning and spreading new solutions: social experimentation Testing innovative solutions for addressing social challenges: First on a small scale, with impact evaluation Then scaling up, if they prove effective €100 million proposed in the Commission- managed Programme for Social Change and Innovation E.g. Revenu de solidarité active in France, first tested in 33 out of the 101 "départements"

Social Europe 3. Challenges with an eye to 2020 Crisis and inequality – what future? Lack of ambition in national targets Are we tackling the root causes of inequality? Employment package

Social Europe Quantiles of the household gross income distribution, UK Quantiles of the household net income distribution, UK Income inequality and crisis History: Inequality may widen during (Blundell and Hetheridge) and after (Atkinson and Morelli) recessions

Social Europe Disposable income inequality did not increase in the early phase of the crisis (role of capital income, for instance) (ESDE, 2011; Jenkins et al., 2011) Medium to longer term effects may be harsher (ESDE, 2011) as a result of fiscal consolidation measures (Jenkins et al., 2011) Is it different this time?

Social Europe Discrepancy between EU headline and national targets: Employment Now: North-west versus the rest, EU-27 average: 69% Target: raise employment to 75% National commitments: 74%

Social Europe Poverty and exclusion Now: South/East divide, 115 million at risk of poverty or social exclusion Target: at least 20 million fewer National commitments: 12 million

Social Europe Addressing inequality's causes or its consequences? Preventing inequality "Social investment" – education, health, social minimum, active ageing support, LLL … Policies influencing original income distribution Labour market policy Equal opportunities policy Taxation and redistribution Remediation Much spending (incl. health & social protection expenditure), albeit necessary, addresses the consequences Reducing existing inequality: taxation, redistribution

Social Europe Addressing the causes of inequality – social investment, in-kind services Beyond disposable income inequality: in-kind benefits reduce inequality by a further fifth Education, training and healthcare are investments! Source: ESDE (2011) Distribution of in-kind benefits by quintiles

Social Europe Addressing the causes: labour market polarisation Before the crisis More jobs created in low- and high-wage segments During the crisis More jobs lost in middle- wage segments Source: Eurostat EU LFS, Fernández-Macías (2010) Source: Eurofound, ESDE

Social Europe Addressing the causes: in-work poverty Source: DG EMPL calculations based on EU SILC 2009 Labour market reasons for in-work poverty: - Low wages (LV) - Low participation, low work intensity (DE) Redistribution also matters: - benefits do not always compensate for cost of a child (ES) Relative importance of factors for in-work poverty

Social Europe Addressing inequality more effectively - taxes : Big reduction in top income tax rates – EU average down from 47.3% to 37.8% Since 2008 increase in top income tax rate in EL, ES, PT, UK, … OECD (2012): Reducing income inequality while boosting growth? Re-assessment of tax expenditures that benefit mainly high-income groups Reduce distortive tax relief on capital taxation Annual Growth Survey 2012, Euro Plus Pact Source: European Commission

Social Europe Addressing more effectively – taxes and transfers Correlation between social protection expenditure and redistributive effect of taxes and transfers Similar expenditure can go with big differences in inequality reduction

Social Europe Choosing fairer consolidation options Estimated impact of austerity measures on households by income quintile: changes to income components and VAT increases Measures affecting disposable income of households have been progressive in Greece, regressive in Portugal and relatively neutral in Estonia Taking VAT increase into account, the picture changes significantly for Greece, making austerity measures less progressive The effect of the crisis on household income, potentially very significant and regressive, is not represented in the graphs Source: Sutherland et al, 2011

Social Europe 4. Summary conclusions Fairness of reforms is crucial to social acceptance of policies and stability of our democracies Inequalities have many dimensions – to tackle them we need a range of policies that address both the causes and the consequences: social investment fairer and more effective tax and transfer system Cohesion policy, employment and social policy and social innovation have an important role in preventing and mitigating inequality Research most welcome, e.g. on crisis impact, effects of interventions, trade-offs

Social Europe Thank you for your attention