European Roundtable VI1 Stretching the Safety Net: Is the European Welfare State in Crisis? European Roundtable VI April 8, 2006

European Roundtable VI2 Names on welfare … Gerhard Schröder Dominique de Villepin Kurt Biedenkopf Wolfgang Clement Tony Judt Fritz Scharpf Jürgen Habermas

European Roundtable VI3 Overview The background: Different conceptions of the state in Europe and the US A case in point: Welfare policies in Germany Challenges to the welfare state Comparative perspectives on the welfare state What’s so good about the welfare state?

European Roundtable VI4 1. The background: Different conceptions of the state in Europe and the US

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European Roundtable VI7 2. A case in point: Welfare policies in Germany The scope and volume of the German welfare state Course correction: The “Agenda 2010”

European Roundtable VI8 Social Data: Germany, Indicator Population (million) Employed (% of pop.) Unemployed (% of employable) Women in labor force (%) White collar (% of labor) Blue collar (% of labor)

European Roundtable VI9 The major elements of the German welfare state (1) Insurance-based benefits –Social security (old age) pensions –Unemployment insurance –Mandatory health insurance –Mandatory hospice insurance Contract-based benefits: Company pensions

European Roundtable VI10 The major elements of the German welfare state (2) Need-based benefits –Social assistance (including housing, clothing, Christmas allowances) –Unemployment assistance (after exhaustion of unemployment insurance) Policy-based benefits –Child allowances –Educational services and financial assistance

European Roundtable VI11 Welfare Data: Germany IndicatorUnit Total welfare Billion € Total welfare % of GDP Employee Contribut. % of wages

European Roundtable VI12 Number of Welfare Recipients: Germany, (in million) Service Pensions Unemployment benefits Child subsidies Social welfare

European Roundtable VI13 Increase in Welfare Payments: Germany, (Billion €) Service Pensions Medical care Unemployment Child subsidies Social welfare

European Roundtable VI14 Contributions to Social Security Pension Fund: Germany, 2003 Premiums: 19.5% of wages (equally shared between employer and employee) Wage limits for assessing premiums: –Western Germany: € –Eastern Germany: € Revenue of pension fund: –Premiums: 75% –Federal subsidy: 25%

European Roundtable VI15 “AGENDA 2010” (Germany 2003): Major Reform Items (1) Tax Reform (previously>1/1/04>1/1/05): –Lowest tax bracket: 19.9 > 16 > 15% –Highest tax bracket: 48.5 > 45 > 42 Modest loosening of job security (esp. for small firms): facilitating termination More flexibility for mini jobs

European Roundtable VI16 “AGENDA 2010” (Germany 2003): Major Reform Items (2) Tightening unemployment compensation –Unemployment insurance: 18 > 12 months –Combine unemployment assistance with social welfare –Any reasonable job offer must be accepted Reducing health care benefits –Copayments of 10% for physicians, prescriptions, hospital (min.€5/max.€10 per service, max. 2% of gross income/year)

European Roundtable VI17 “AGENDA 2010” (Germany 2003): Major Reform Items (3) Scaling down social security benefits –No increase of payments in 2004 –“Sustainability Factor” for adjusting future pay levels to ratio contributors/recipients –Cap premiums (now 19.5%) at 20/22% (’20/’30) –Increase age of eligibility to 63 (67 in 2035?) –Enhance employment opportunities for older workers

European Roundtable VI18 3. Challenges to the welfare state More people are in need of welfare: –There are more older people –More people need (increasingly costly) medical care –More people are (longer) unemployed Resources remain (at best) constant –Largely stagnant economies –Shifts in ratio of working to retired population –Contributory schemes drive up cost of labor –Limits to tax increases

19 The Ageing of Germany

20 Ratio of population 65 and over to the labor force, 2000 and 2020 (OECD)

21 Total tax revenue (as % of GDP), 2003

European Roundtable VI23 4. Some comparative perspectives on the welfare state

European Roundtable VI24 Public social expenditures, 1998 Countryas % of GDPas % of public expenditure France Germany UK USA

Public social expenditure (as % of GDP) 2001 (OECD)

European Roundtable VI26 Unemployment Compensation, 1998 Countryas % of GDPas % of public expenditure France Germany UK USA

European Roundtable VI27 Public Health Benefits, 1998 Countryas % of GDPas % of public expenditure France Germany UK USA

Public and private health expenditure (US-$ per capita) 2003 (OECD)

Infant Mortality (deaths per 1000 live births), 2003

European Roundtable VI30 5. What’s so good about the welfare state?

European Roundtable VI31 The welfare state and its socio- economic context: Some evidence (1) RelationshipCorrelatesCorrelation Welfare and poverty Social expenditure rate/Poverty rate -.74 Change in welfare/poverty Δ Social exp.rate/ Δ poverty rate -.66 Welfare and income inequity Social exp. rate/ Income distribution -.79

European Roundtable VI32 The welfare state and its socio- economic context: Some evidence (2) RelationshipCorrelatesCorrelation Welfare and civic engagem’t Social expenditure rate/% of volunteers +.23 Welfare and criminality (1) Social expend. rate/ # of prison staff per 100 k population -.60 Welfare and criminality (2) Social expend. rate/ # of police per 100k -.79

European Roundtable VI33 The European Roundtable Website: ERT_website.htm ERT_website.htm

European Roundtable VI34 THE SPEAKERS Marina Bourgain, European University Institute, Florence; University of California at Santa Cruz Isabela Mares, Department of Political Science, Stanford University Jonah Levy, Department of Political Science, University of California at Berkeley

European Roundtable VI35 PRESENTATIONS Marina Bourgain: “Stretching the Safety Net Beyond National Boundaries: The Welfare State and the Role of the EU” Isabela Mares: “Business Interests, Wage Bargaining, and the Political Economy of Employment and Unemployment in Europe” Jonah Levy: “On the Compatibility of Economic Liberalism and Welfare Policies”