The post-crisis European social model: Developing or dismantling social investments?

Abstract

This paper offers a theoretical and empirical contribution to our understanding of the changing European social models in wake of the economic crisis and the promotion of social investments by the European Commission. Theoretically, the article provides a conceptual framework for comparative macro-analysis of social investments that takes into account how social investment policies and returns vary over the life-course and are interdependent. Empirically, the article uses this conceptual framework to examine whether EU policy strategies and national welfare reforms follow a social investment approach. Analysing developments of social investment strategies and policies in three life-stages, the article finds that many EU strategies embody elements of a social investment strategy whereas the impact of the crisis on the national level differs across countries, life-stages, and policies. In most countries, the overall policy impact of the crisis seems to be small on childcare coverage, large on youth polarization, and to increase retirement ages. The crisis will be felt in years to come with reduced life-income for younger cohorts, lower fertility laying the ground for intergenerational conflicts, and migration of skilled youth implying returns of social investments made in southern parts of Europe benefitting northern parts. That said, the overall evidence points towards social investments taking a larger role in Europe after the crisis. However, the result is unlikely to become a uniform European social investment model as the countries most in need of social investments are also the countries least likely to develop high-quality social investments.

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The post-crisis European social model:
developing or dismantling social
investments?
Jon Kvist a
a Centre for Welfare State Research, Department of Political
Science , University of Southern Denmark , Odense , Denmark
Published online: 24 Jun 2013.
To cite this article: Jon Kvist (2013) The post-crisis European social model: developing or
dismantling social investments?, Journal of International and Comparative Social Policy, 29:1,
91-107, DOI: 10.1080/21699763.2013.809666
To link to this article: http://dx.doi.org/10.1080/21699763.2013.809666
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The post-crisis European social model: developing or dismantling social
investments?
Jon Kvist*
Centre for Welfare State Research, Department of Political Science, University of Southern Denmark,
Odense, Denmark
(Received 28 February 2013; final version received 24 May 2013)
This paper offers a theoretical and empirical contribution to our understanding of the
changing European social models in wake of the economic crisis and the promotion
of social investments by the European Commission. Theoretically, the article provides
a conceptual framework for comparative macro-analysis of social investments that
takes into account how social investment policies and returns vary over the life-
course and are interdependent. Empirically, the article uses this conceptual framework
to examine whether EU policy strategies and national welfare reforms follow a social
investment approach. Analysing developments of social investment strategies and
policies in three life-stages, the article finds that many EU strategies embody
elements of a social investment strategy whereas the impact of the crisis on the
national level differs across countries, life-stages, and policies. In most countries, the
overall policy impact of the crisis seems to be small on childcare coverage, large on
youth polarization, and to increase retirement ages. The crisis will be felt in years to
come with reduced life-income for younger cohorts, lower fertility laying the ground
for intergenerational conflicts, and migration of skilled youth implying returns of
social investments made in southern parts of Europe benefitting northern parts. That
said, the overall evidence points towards social investments taking a larger role in
Europe after the crisis. However, the result is unlikely to become a uniform European
social investment model as the countries most in need of social investments are also
the countries least likely to develop high-quality social investments.
Keywords: social investments; Europeanization; European integration; crisis; welfare
state reforms; social policy; skill formation and usage
Introduction
The economic crisis and ageing populations call into question the fate of social policy in
Europe. In February 2012 the President of the European Central Bank, Mario Draghi,
declared the European social model dead, calling for structural reforms to increase youth
employment in particular (Wall Street Journal, 2012). Disagreeing that the European
social model is dead, the President of the European Commission, José Manuel Barroso,
nevertheless also called for a change in social policy in his State of the Union address in
September 2012. However, Barroso’s call was not for less social policy but for modernizing
social protection systems: “Indeed, it is precisely those countries with the most effective
© 2013 Taylor & Francis
*Email: jon@sam.sdu.dk
Journal of International and Comparative Social Policy, 2013
Vol. 29, No. 1, 91–107, http://dx.doi.org/10.1080/21699763.2013.809666
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social protection systems and with the most developed social partnerships that are amongst
the most successful, and competitive economies in the world”(Barroso, 2012, p. 4).
Half a year later, in March 2013, the European Commission (2013a) launched its pro-
posal, the Social Investment Package, for how countries can modernize their social protec-
tion system to “benefit individuals’prosperity, boost the economy and help the EU emerge
from the crisis stronger, more cohesive, and more competitive”(p. 2). In the Social Invest-
ment Package the Commission sets out a frame for social investments and recommends that
EU countries invest in children (European Commission, 2013a, 2013b). Under headings
such as “the new welfare state”,“productive social policy”, and “the enabling welfare
state”, the European Union and other international agencies such as the OECD and the
IMF –along with scholars dating back to the 1930s in Sweden –have promoted similar
thoughts (see Esping-Andersen, Gallic, Hemerijck, & Myles, 2002; Fouarge, 2003;
Gilbert & Gilbert, 1989; Jenson, 2010; Morel, Palier, & Palme, 2012; OECD 2011).
Whilst the social investment agenda is thus not new in itself, the launch of the Social Invest-
ment Package represents the attempt of the Commission to change the social policy agenda
in Europe away from chiefly cost-cutting exercises to also contain forward-looking
elements. Because the Commission’s Communication and Recommendation neither has
legal binding effects on member states nor is enforceable through sanctions, we cannot
take for granted that coming national reforms will follow the social investment blueprint
for welfare reform more widely than earlier efforts.
Fortunately, we do not need to wait to assess whether the European crisis and the Com-
mission’s recent policy call will have a positive or negative impact on social investments.
Many elements in the social investment package were already promoted in the Europe
2020: A Strategy for Smart, Sustainable and Inclusive Growth (EU2020) from 2010, as
well as in earlier strategies on employment, pensions, social inclusion, education, and on
health and long-term care (European Commission, 2010). For example, the EU2020 strat-
egy contains headline targets on employment, research and development, education, and
poverty. All these strategies follow the open method of coordination (OMC), by which
the Council of Ministers sets common targets –with some countries also specifying national
targets –and leaves it to the countries themselves to decide on the means for achieving these
targets.
Previous studies on European integration, new modes of governance and Europeaniza-
tion disagree on the impact of the OMC on national social policy reform (de la Porte &
Pochet, 2012). Some scholars find that the OMC leads to discursive convergence as Euro-
pean countries come closer to a common understanding of policy problems and solutions
(for example, Zeitlin, 2009). Other scholars find it difficult to attribute policy change, if
any, to the OMC (for example, Kröger, 2009).
However, there is an emerging consensus in European integration and Europeanization
studies that the impact of the European Union on national social policy can no longer be
attributed solely to the OMC. The European Court of Justice, EU enlargement, the Internal
Market, and the Economic Monetary Union all potentially affect national social policy over
time (Kvist & Saari 2007; Leibfried & Pierson, 1995; Martinsen & Falkner, 2011).
Comparative welfare state research generally agrees that there are three types of welfare
models in Europe and that although most welfare reform may be incremental, it can
accumulate over time to cause fundamental change (Esping-Andersen, 2009; Mahoney
& Thelen, 2009). In ideal-typical terms, social protection in the Anglo-Saxon model pro-
vides a safety net, a minimum income, for everyone through social assistance. In addition,
the continental European welfare model compensates loss of income in case of social risks
through social insurance for wage earners. The Nordic model is distinct through its
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emphasis on extensive educational, social and labour-market services that help prevent
social risks from occurring in the first place. In reality, however, all EU countries have
parts of all three welfare models to varying degrees. The comparative welfare state literature
shows no consensus as to whether policy developments over the last two decades have led
to convergence, either to some common EU standard or in the form of countries coming
closer to each other.
The economic crisis has changed the conditions for both sets of literature. At the EU
level, the often slow-moving, incremental processes have been complemented with
rapidly legislated, extensive macro-economic coordination, with immediate direct effects
and severe sanction possibilities for non-compliance. On 8 November 2011, EU national
governments adopted a stronger framework for economic coordination, the “six-pack”.
On 9 December 2011, the 17 “euro countries”adopted the Finance Pact. The budget rule
in the Finance Pact stipulates that public finances must be either in balance or in surplus.
Yearly deficits cannot exceed 0.5% of gross domestic product (GDP), a share down from
3% in the Stability and Growth Pact, and with the possibility of fines up to 0.1% of
GDP. The debt rule in the Finance Pact stipulates that debt above the maximum 60% of
GDP (given by the Stability and Growth Pact) must be brought down by 1/20 per year.
At the national level, governments in many EU countries are engaging in extensive struc-
tural reforms, including those of taxes, labour markets and social policy; that is, reforms
hitherto seen as impossible. Recent policy reform at both the EU and the national levels
are a far cry from being slow, incremental or without effects on social policy.
In all, we know surprisingly little about the policy impact of the current economic
crisis.
1
Most studies in a rapidly growing body of “crisis literature”deal with the socio-
economic or macro-economic impact of the crisis. These studies examine the direct
effects of the crisis on the level and distribution of social and economic problems across
different labour-market sectors and different socio-economic groups (see Callan et al.,
2011; European Commission, 2013c; Hurley, Enrique, & Storrie, 2013). Nonetheless,
few studies examine the changes at the policy level or analyse their consequences. This
paper contributes to filling this gap by examining the impact of the crisis on the policy
development of a social investment strategy in Europe.
The question remains whether recent national policy reforms develop the European
national social models into social investment states or whether both the crisis and ageing
populations have prevented such a development. To answer this question, this article has
both a theoretical and an empirical part. Theoretically, the article provides a conceptual fra-
mework for comparative macro-analysis of social investment policies and returns, to better
evaluate whether current policy reforms constitute a development or a dismantlement of
social investment policies. Empirically, the article examines whether EU policy strategies
and national welfare reforms follow a social investment approach. The focus is less on
how much national governments cut or save but rather whether policies develop social
investments or not. We define “social investments”as policies that primarily bring about
more of, or an improvement in, skills formation, maintenance, or use. We define “disman-
tlement”as policy changes that cut social expenditures in the short to medium term, with no
regard for these same three factors.
The next section, Method and data, describes, first, the design of a study involving com-
parisons of social investment policies and returns over time of EU strategies and cross-
nationally in three stages of the life-course; and, second, the rationale for choosing nine
indicators on social investments in children and youth, persons of working age, and the
elderly, to provide a valid and robust picture of recent policy trends. The following
section sets out the social investment approach as a framework for analysis. This framework
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is then applied in three sections, each analysing social investment policies in one of these
three stages of the life-course. Finally, we discuss whether current policy developments
indicate a development or a dismantlement of a Social Europe based on a social investment
strategy. We do so by comparing findings from the three analyses and situating them in the
context of current European economics and demographics.
Method and data
We investigate the nature and scope of recent EU strategies and reforms in Europe by
comparing the situation and developments cross-nationally in the 27 EU Member States
(EU27). To examine whether the economic crisis changed the nature of social policies
we compare the situation before and after the crisis, which we for the sake of convenience
set to start in 2008. Only by comparing the situation in the period before and after the crisis
can we establish whether the recent developments constitute a continuation or a change of
course.
We investigate the changing nature of welfare reforms and their social effects by estab-
lishing a framework for analysing social investment policies over the life-course (for more
details, see next section). This framework highlights different types of social investment
policies as well as their associated social and economic effects or returns.
We analyse developments in three stages of the life-course: childhood and youth,
working age, and old age. Thereby we increase validity as we can study policy issues
that are at the core of a social investment strategy and of the EU strategies dominant in
the first half of the 2000s and in EU2020. We also make results more robust by comparing
findings across the three stages.
Measures of expenditures, outcomes and policy design each have their own particular
advantages and drawbacks for the study of policy change and its effects. However, in times
of crisis many such conventional measures of social policy reforms and effects are of little
use. Social expenditure as a share of GDP is a particularly bad measure in a time of crisis.
The nominator, social expenditure, may rise because of higher unemployment and not
better social policies or well-being. The denominator, GDP, may decrease because of a
worsened economic situation. In fact, there was a steep 6.5% rise from 2008 to 2009 in
per-capita social protection expenditure that matched a 6.1% drop in EU27 GDP (Eurostat,
2012a). What is more, expenditure data also inform little about policy effects such as
the benefit adequacy and incentives or distributional outcome (Stiglitz, Sen, & Fitoussi,
2010).
Unfortunately, many outcome indicators are also ill-suited to study policies and the
effects of crisis. First of all, many indicators have a time lag between policy change and
effect and between the occurrence of phenomena and reporting. Secondly, many
outcome indicators are conflated because they not only measure effects of policy
change but also other aspects like the effects of the economic crisis and of demographic
change. Most inequality measures are relative to a moving standard. When the
economy goes astray, the economic situation may deteriorate for both the target popu-
lation and the general population so that negative effects may not show up in the rela-
tive measures.
We have selected indicators to measure whether the social investment approach is
gaining or losing ground. The indicators provide information on different aspects of the
social investment approach such as skill creation, maintenance and use as well as
returns. There are three indicators for each life-stage, two of which are on social investment
policies and one indicator is on social investment returns or outcomes.
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The social investment approach to welfare reform
By whom, where and when you are born affects your life-chances. This implies a loss of
human capital among those unfortunate to be born with a socially less privileged back-
ground, in economic dire times, in areas of social or economic disarray, or, as is often
the case, in a combination of the three. Reducing social inequalities may in many instances
be cost-effective; that is, there is not a trade-off between equity and efficiency (Esping-
Andersen, 2009; Stiglitz, 2012). Indeed the Nordic countries have, as Barroso (2012)
called for in his State of Union address, shown that effective social protection systems
and strong partnerships makes it possible to be both competitive and socially cohesive.
The social investment perspective reflects to some extent, we will argue, a Nordic perspec-
tive on welfare policies as not only being about expenditures and compensation, but also
investments in human capital and risk-promoting measures (for the Nordic welfare
model, see Kvist, Fritzel, Hvinden, & Kangas, 2012). However, social investment thinking
also has legacies outside the Nordic countries (see Jenson, 2010; Morel et al., 2012).
There are two constitutive dimensions to the social investment strategy, the inputs or
social investment policies and the outputs or the returns of social investment policies
(see Figure 1). A third dimension relates to the mechanisms, mainly on the micro-level,
through which policies create and maintain skills and their best possible use. The social
investment strategy takes into account that human capital is produced over the life-
course by families, firms and various state interventions.
The social investment approach therefore spans a range of policies over the life-course
(see Figure 1). In early childhood, childcare and pre-school education make up an important
part of social investment as succeeding policies rest on the cognitive skills learned in these
formative years. For youth, primary, secondary and tertiary education provides general and
more specific skills. Two distinct policy packages targets persons of working age. The first
package of childcare and social care serves to allow carers to partake in the labour market.
Figure 1. A life-course perspective on social investment policies and their returns.
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The second package of life-long learning and active labour-market policies updates skills to
accommodate changing labour demands. In old age, various policies aim to enable the
elderly to use their resources and skills better and longer in the labour market and in
society more generally.
Both the scope and type of returns on social investment policies differ over the life-
course (see Figure 1). As for other investments, the rate of return tends to be larger the
longer the span to benefit from investments. For example, childcare may give larger
returns than rehabilitation of older workers. In the early years, returns are mainly cognitive
and social in nature. Formal qualifications are acquired in the educational system and in
vocational training systems. Childcare and elderly care does not per se give new qualifica-
tions to persons of working age with care-dependent family, but allow traditional carers to
reconcile work and family life, and thereby support returns in terms of both production and
reproduction. Returns on home help and healthcare for the elderly are increased self-
reliance and participation in society.
Finally, Figure 1 shows the dynamic nature of the social investment strategy. Skills
acquired in one stage of the life-course give the basis for acquiring and using skills in
the next life-stage. With early cognitive skills the fundament is established for learning
over the rest of the life. The cognitive and formal qualifications acquired during childhood
and youth hopefully meet skill demands in the labour market where returns also take a mon-
etary form as revenue to the exchequer and to insurance and saving schemes. Encompassing
labour markets and active ageing policies contributes to fewer early exits and to better
health status among the elderly, reducing the need and costs of social care and healthcare.
In the next three sections on, respectively, childhood and youth, working age, and old
age, we use this framework to analyse developments of, first, EU policy strategies and,
second, national policy reforms.
Childhood and youth
Returns on social investments in childhood and youth are mainly social and cognitive. They
lay the ground for future learning; learning on later stages in life depend on these early
investments. Because skill formation is dynamic and because skill demands increase, it
is crucial to establish good cognitive and social skills in childhood.
Skills are created both by family and societal institutions. Children benefit from their
families and hence policies to allow child–parent interaction are important. Policies sup-
porting family investments in children’s cognitive and social skills are chiefly parental
leave and child family allowances. Policies making up state-subsidized investments in chil-
dren are childcare and early education. Childcare and early education also enable traditional
carers to better use their skills in the labour market.
At the Barcelona 2002 Summit the emphasis was on the reconciling work and family
life which in the EU2020 strategy was complemented with the goal to invest in children.
Hence, in Barcelona, EU Member States agreed to:
remove disincentives to female labour force participation and strive, taking into account the
demand for child care services and in line with the national patterns of childcare provision,
to provide childcare by 2010 to at least 90% of children between 3 years old and the mandatory
school age and at least 33% of children under 3 years of age. (European Council, 2002, p. 12)
Childcare increased almost everywhere in the 2000s (see Table 1). However, Denmark and
Sweden were the only countries who met the 90% in 2010 with Estonia at 84% getting
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close. But other countries are catching up, most notably latecomer Germany who expanded
full-time coverage from 26% in 2005 to 46% in 2010 and 44% in 2011.
In contrast, Greece early experienced a marked drop from 34% in 2005 to 26% in 2008
to 22% in 2010, but seems to be bouncing back with 32% in 2011. Also Belgium, Bulgaria
and Latvia seem to be bouncing back after a marked decrease soon after the financial crisis
in 2008.
Part-time childcare has been converted into full-time care in many countries but not all.
The Netherlands and Ireland are the only EU countries with less than 20% full-time cover-
age and both countries still have significant part-time coverage (Eurostat, 2013a).
Childcare coverage only measures one dimension of social investment in children. The
coverage rate does not say anything about the distribution or quality of childcare. In general
one can expect returns of childcare for all children, but the largest returns for the public
exchequer may come from investments in children from families who are least likely to
stimulate cognitive skills and in children from dysfunctional families that are a determinant
for child participation in crime and other costly behaviours (Heckman & Masterov, 2007).
The quality of childcare is likely to have gone down in recent years. To make ends meet,
local authorities responsible for formal care arrangements may ask for higher user fees,
Table 1. Formal childcare and early childhood education (children aged three years to minimum
compulsory school age): percentage of all children in the same age group, 2000–2011.
Formal childcare Early childhood education
2005 2008 2010 2011 2000 2008 2010 2011
EU27 –43 45 47 85.2 91.2 92.4 –
Belgium 48 74 63 66 99.1 99.5 99.1 98.7
Bulgaria 53 61 50 58 73.4 78.4 79.2 79.9
Czech Republic 40 36 39 45 90.0 90.9 88.7 88.1
Denmark
a
95 97 98 97 95.7 91.8 91.1 –
Germany 26 36 46 44 82.6 95.6 96.2 96.4
Estonia 69 84 86 83 87.0 95.1 89.8
Ireland 14 13 17 14 ––85.4 98.5
Greece 34 26 23 32 69.3 70.2 73.5
Spain 40 45 50 41 100.0 99.0 99.4 100.0
France 39 44 47 52 100.0 100.0 100.0 100.0
Italy 70 72 70 75 100.0 98.8 97.1 –
Cyprus 38 44 46 38 64.7 88.5 87.7 –
Latvia 60 67 59 66 65.4 88.9 87.4 88.1
Lithuania 46 55 58 56 60.6 77.8 78.3 77.8
Luxembourg 11
b
23
b
37 27 94.7 94.3 94.6 –
Hungary 49 52 65 59 93.9 94.6 94.3 94.5
Malta 23
b
49 49 44 100.0 97.8 89.0 –
The Netherlands 7 12 15 13 99.5 99.5 99.6 –
Austria 16 20 26 28 84.6 90.3 92.1 94.3
Poland 22 27 32 34 58.3 67.5 76.3 80.1
Portugal 18
b
69 68 74 78.9 87.0 89.3 –
Romania –17 17
b
11
b
67.6 82.8 82.1 82.0
Slovenia 67 72 77 81 85.2 90.4 92.0 92.9
Slovakia 57 53 64 62 76.1 79.1 77.5 77.5
Finland
a
69 73 73 74 55.2 70.9 73.1 74.0
Sweden
a
95 97 97 97 83.6 94.6 95.1 95.3
United Kingdom 24 20 22 27 100.0 97.3 96.7 97.1
Notes:
a
Nordic formal childcare information for three to five year olds.
b
Unreliable data according to Eurostat.
Sources: Eurostat (2013a, 2013b). Nordic countries: NOSOSKO (2010, 2012).
Journal of International and Comparative Social Policy 97
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close down programmes or lower the quality. In all cases, the social impact will affect less
privileged groups more than privileged groups and will result in smaller social investments.
At the rhetorical level the social investment approach got a larger role in the EU2020
strategy than in the Barcelona strategy, but in operational terms got a smaller role. Rhetori-
cally, investing in children was now an explicit target in itself and not simply a side-effect to
reconciling work and family life. Operationally, the EU2020 strategy changed the age group
from three to four years of age, changed from “childcare”to “early childhood education”,
and increased the share from 90 to 95%. The higher age dilutes the social investments as
micro-level research has shown that, as a rule of thumb, the earlier interventions are
made, the better results (Heckman & Masterov, 2007, p. 447).
Also the less ambitious measure makes many countries with familialistic traditions and
orientations in policies look better. Former outliers, Ireland and the Netherlands, are now
firmly in the group with coverage rates above the EU2020 goal of 95% coverage (see
Table 1). The EU27 has moved closer to its goal from 85.2% in 2000 to 92.4% in 2010.
The largest increases are found in Cyprus, Latvia, Lithuania, Finland, Poland, Germany,
Sweden and Portugal. Only Malta and Estonia see marked reductions in the first crisis
years from 2008 to 2010.
For youth, both the OMC in Education and Training starting in 2003 and, later, EU2020
sought to reduce school drop-outs to below 10% and to increase the share of youth in
Table 2. Young people aged 18–24 not in employment and not in any education and training:
percentage share, 2008–2011.
2008 2009 2010 2011
EU27 13.9 16.1 16.5 16.7
Belgium 13.3 14.5 14.3 14.8
Bulgaria 21.6 24.0 27.8 27.9
Czech Republic 8.9 11.2 11.4 10.6
Denmark 5.7 7.0 8.3 8.4
Germany 11.8 12.1 11.4 10.2
Estonia 11.1 19.4 19.1 14.7
Ireland 17.4 23.1 24.0 23.9
Greece 15.9 17.3 20.6 24.4
Spain 17.0 22.6 22.4 23.1
France 13.5 16.5 16.3 15.9
Italy 20.7 22.4 24.2 25.2
Cyprus 13.4 14.6 16.7 20.7
Latvia 13.9 21.8 22.5 19.3
Lithuania 12.3 16.9 18.2 16.8
Luxembourg 8.6 7.5 6.9 6.5
Hungary 15.3 17.9 16.5 17.7
Malta 8.5 11.0 10.7 11.7
The Netherlands 4.6 5.6 5.8 5.0
Austria 8.7 9.5 8.8 8.3
Poland 12.3 13.8 14.5 15.5
Portugal 12.7 13.9 14.8 16.0
Romania 13.4 16.5 20.0 20.9
Slovenia 7.9 9.2 8.9 8.8
Slovakia 14.4 16.6 18.6 18.2
Finland 9.9 12.9 12.5 11.7
Sweden 10.7 13.1 10.6 10.3
United Kingdom 15.4 17.1 17.7 18.4
Source: Eurostat (2012b).
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education. Between 2006 and 2011 school drop-outs fell by 2.0 percentage points in the
EU27 to 13.5% of those aged 18–24 (Eurostat, 2013c).
The crisis has a dramatic impact on youth becoming more excluded from society. The
youth unemployment rate rose from 15.5% to 21.4% between 2008 and 2011 (Eurostat,
2013d). For EU27 the share of 15–24 year olds neither in education, employment or train-
ing rose by 2.8 percentage points from 2008 to 2011 (see Table 2). With one in six youth
in 2011 out of work, education and training the social investment strategy has a long
way to go.
Table 2 shows a marked increase for youth not in employment, education or training in
almost all countries after 2008. Portugal, Italy, Ireland, Greece and Spain are worst off, fol-
lowed by the United Kingdom and the Baltic countries. In 2011, about one in four youth
were not in work, education or training in Bulgaria, Italy, Greece, Ireland and Spain. The
only countries reporting a decrease are Germany, and to a lesser extent Slovenia, Austria
and Sweden. Only five countries –the Netherlands, Luxembourg, Austria, Denmark and
Slovenia –have less than one in 10 youth out of work, education and training.
Working age
For persons of working age, two types of social investment policy packages are discernible.
The policy package concerned with reconciling work and family life to support returns in
terms of more children born and higher labour supply among traditional carers is in part
covered by the analysis of childcare above. In this section we therefore focus on the
second policy package aimed at adults’acquisition and maintenance of skills through
further education, namely tertiary education, life-long learning and active labour-market
policies.
In the OMC Education and Training, the target was to raise secondary education attain-
ment to at least 80%. The EU2020 strategy has a target of 40% taking a university education
with national targets varying from 26% in Italy to 60% in Ireland. Table 3 shows wide
cross-national differences in the attainment of tertiary education by 30–34 year olds. In
2012 only one in five had a university degree in Italy and Romania compared with one
in two in Ireland.
Tertiary educational attainments expanded markedly from 2000 onwards. Nineteen of
the EU27 countries have double-digit increases, with Luxembourg, Poland and Ireland
standing out with more than 20 percentage point increases from 2000 to 2012 (see
Table 3). Only five countries have small increases: Greece and Austria from a low level,
Lithuania and Finland from a high level, and Germany from a medium level.
The expansion in tertiary education attainment continued after the crisis in 2008. There
is a standstill or a slight reduction in only seven countries. This rise may continue as youth
have a strong incentive to take further education in times of economic crisis and lack of
demand on their labour. A countervailing force may be if budget cuts result in fewer uni-
versity places. In any case, although having qualifications is a necessary part of a social
investment strategy, it is not sufficient for the returns to materialize. For that, a demand
for jobs with qualifications is also needed.
Life-long learning aims to up-skill and re-skill workers in view of changing labour
markets and technologies. Both the OMC Education and Training and the EU2020 strat-
egy have a target for life-long learning of 15% receiving training over a one-month
period. Only five countries meet this target (see Table 3). Almost one in three Danish
workers receive training, one in four Finns and Swedes, and one in six Dutch and
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British. With less than one in 10 workers receiving training, there are 10 countries that
are far from the target.
Country developments for life-long learning are diverse. There are no signs of life-long
learning progressing along a common trajectory. In other words, there has been no sign of
life-long learning becoming an integral part of a European social investment strategy prior
to the crisis nor are there any shared crisis responses in life-long learning policies.
Fertility is partly driven by the economic cycle and policies such as childcare, child
family allowances and childcare leaves (OECD, 2011). This helps explain that fertility
was on the increase in many countries who expanded their childcare as described earlier.
But 10 years of gradual increases in fertility was abruptly stopped and in some countries
even reversed in 2008 (see Table 4).
A stable population development requires a total fertility rate of 2.07 children per
woman. Few countries are close to this target. Today, Ireland, France, the United
Kingdom and the Nordic countries are closest while the Central, Eastern and Southern
European countries are far from it. The crisis stopped an otherwise positive development
in most countries. However, only a few countries dropped to their 2000 levels. This only
Table 3. Tertiary educational attainment (percentage share of age group 30–34) and life-long
learning (percentage share of 25–64 year olds who received training in the preceding four-week
period), 2000–2012.
Tertiary education Lifelong education
2000 2008 2011 2012 2000 2008 2011 2012
EU27 22.4 31.0 34.6 35.8 7.1 9.4 8.9 9.0
Belgium 35.2 42.9 42.6 43.9 6.2 6.8 7.1 6.6
Bulgaria 19.5 27.1 27.3 26.9 –1.4 1.2 1.5
Czech Republic 13.7 15.4 23.8 25.6 –7.8 11.4 10.8
Denmark 32.1 39.2 41.2 43.0 19.4 29.9 32.3 31.6
Germany 25.7 27.7 30.7 31.9 5.2 7.9 7.8 7.9
Estonia 30.8 34.1 40.3 39.1 6.5 9.8 12.0 12.9
Ireland 27.5 46.1 49.4 51.1 –7.1 6.8 7.1
Greece 25.4 25.6 28.9 30.9 1.0 2.9 2.4 2.9
Spain 29.2 39.8 40.6 40.1 4.5 10.4 10.8 10.7
France 27.4 41.2 43.4 43.6 2.8 6.0 5.5 5.7
Italy 11.6 19.2 20.3 21.7 4.8 6.3 5.7 6.6
Cyprus 31.1 47.1 45.8 49.9 3.1 8.5 7.5 7.4
Latvia 18.6 27.0 35.7 37.0 –6.8 5.0 7.0
Lithuania 42.6 39.9 45.4 48.7 2.8 4.9 5.9 5.2
Luxembourg 21.2 39.8 48.2 49.6 4.8 8.5 13.6 13.9
Hungary 14.8 22.4 28.1 29.9 2.9 3.1 2.7 2.8
Malta 7.4 20.9 21.1 22.4 4.5 6.3 6.6 7.0
The Netherlands 26.5 40.2 41.1 42.3 15.5 17.0 16.7 16.5
Austria –22.2 23.8 26.3 8.3 13.2 13.4 14.1
Poland 12.5 29.7 36.9 39.1 –4.7 4.5 4.5
Portugal 11.3 21.6 26.1 27.2 3.4 5.3 11.6 10.6
Romania 8.9 16.0 20.4 21.8 0.9 1.5 1.6 1.4
Slovenia 18.5 30.9 37.9 39.2 –13.9 15.9 13.8
Slovakia 10.6 15.8 23.4 23.7 –3.3 3.9 3.1
Finland 40.3 45.7 46.0 45.8 17.5 23.1 23.8 24.5
Sweden 31.8 42.0 47.5 47.9 21.6 22.2 25.0 26.7
United Kingdom 29.0 39.7 45.8 47.1 20.5 19.9 15.8 15.8
Source: Eurostat (2013e, 2013f).
100 J. Kvist
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goes for Denmark at a relatively high level and for Cyprus, Luxembourg, Malta, Poland,
Portugal, Romania and Hungary at relatively low levels.
Old age
The social investment perspective in old age is about maintaining and using the skills of the
elderly, particularly in the labour market but also in society more generally. Pension reforms
and other reforms making working life longer vis-à-vis time spent in retirement are key for
the use of skills. Long-term care and especially activating policies for the elderly are impor-
tant for the maintenance of skills, not only occupational but also physical and psychological
skills, or health to reduce costs of social services and healthcare.
With ageing populations and old-age pensions making up the biggest single expenditure
in all EU27 countries it is no surprise that pension reform is pivotal in welfare reforms. The
challenge of ageing populations predates the crisis and was on the agenda also in the 1990s.
Most notably Italy, Germany and Sweden undertook reforms, but in many countries reforms
did not materialize.
In 2001 in Stockholm, the European Council (2001) encouraged Member States to
reduce debt at a fast pace; to raise employment rates and productivity; and to reform pen-
sions, healthcare and long-term care systems. This council also announced the coming of an
Table 4. Total fertility rate: number of children per woman, 2000–2011.
2000 2008 2011
EU27 –1.60 1.57
Belgium 1.67 1.86 1.81
Bulgaria 1.26 1.48 1.51
Czech Republic 1.14 1.50 1.43
Denmark 1.77 1.89 1.75
Germany 1.38 1.38 1.36
Estonia 1.38 1.65 1.52
Ireland 1.89 2.07 2.05
Greece 1.26 1.51 1.42
Spain 1.23 1.46 1.36
France 1.89 2.01 2.01
Italy 1.26 1.42 1.40
Cyprus 1.64 1.46 1.35
Latvia .. 1.44 1.34
Lithuania 1.39 1.47 1.76
Luxembourg 1.76 1.61 1.52
Hungary 1.32 1.35 1.23
Malta 1.70 1.44 1.49
The Netherlands 1.72 1.77 1.76
Austria 1.36 1.41 1.42
Poland 1.35 1.39 1.30
Portugal 1.55 1.37 1.35
Romania 1.31 1.35 1.25
Slovenia 1.26 1.53 1.56
Slovakia 1.30 1.32 1.45
Finland 1.73 1.85 1.83
Sweden 1.54 1.91 1.90
United Kingdom 1.64 1.96 1.96
Source: Eurostat (2012c).
Journal of International and Comparative Social Policy 101
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OMC for pensions (today contained in OMC Social Protection and Social Inclusion) that
from 2003 onwards advocates countries to make pension systems that provide adequate,
sustainable and modern benefits. “Adequate”means benefits preventing a life in poverty,
“sustainable”means that the pension system is not so lavish that it busts, and “modern”
that persons earn their own pension rights and not as dependents.
Responding to the crisis, almost all countries adopted pension reforms or advanced the
start of such reforms. Table 5 shows initiatives between 2008 and 2012 aimed at rising
Table 5. Reforms of retirement ages, 2008–2012.
Country Reform
Belgium Minimum early retirement age increased from 60 years in 2013 to 62 years in 2016
Minimum number of career years increased from 35 to 40 years
Bulgaria Increase of age for regular pension to 65 years for men in 2017 and to 63 years for
women in 2016
Increase of age for minimum pension to 67 years by 2021
Czech Republic Gradual increase of retirement age to 65 years by 2031 and longer mandatory
insurance period
Denmark Earlier start of increase of retirement age from 65 to 67 years by 2022
Earlier increase of age for voluntary early exit benefit from 62 to 64 years by 2023
Germany Gradual increase of retirement age from 65 to 67 years by 2031
Estonia Increase of pension age to 65 years by 2026
Ireland State pension age from 65 to 68 years by 2028
Public-sector retirement age to follow state pen
Greece Retirement age 65 years for both men and women
Increase of minimum age for retirement after 40 years of work to 60 years
Spain Statutory from 65 to 67 years by 2020
Minimum and early retirement age from 61 to 63 years
France Earlier increase of age for full pension from 65 to 67 years by 2022
Earlier increase of minimum retirement age from 60 to 62 years by 2017
Italy Faster increase of statutory retirement age for women in public sector to 65 years
in 2012
Cyprus Stricter conditions for early retirement and rise of contribution period
Latvia Increase from 62 to 65 years by 2021
Luxembourg No changes to official retirement ages at 65 years (and between 57 and 60 years for
early retirement), but changed benefit formulae from 2013 reward
postponement of retirement
Hungary Gradual elimination of early retirement schemes from 2012
Malta 2006 reform increase retirement age gradually to 62 years in 2014 to 65 years in
2016
The Netherlands Increase of retirement age from 65 to 66 years in 2020 and linked to life
expectancy afterwards
Austria Contributory years increased from 37.5 to 40 years
Poland Gradual increase of out months per year to 67 years for men by 2020 and for
women by 2040
Portugal No increase since reform in 2007
Romania Increase to 65 years (men) and 63 years (women)
Slovakia Reform proposals to increase retirement age currently at 62 years for men and 57–
61 years for women (depends on number of children) failed in the period
Finland Age limit for part-time pension increased from 58 to 60 years
Minimum age for unemployment early exit raised from 57 to 58 years
Sweden –
United Kingdom State pension age to 66 years by 2020
Public sector from 60 to 65 years
102 J. Kvist
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retirement ages. In this period alone 18 countries decided to raise their pension age or
advance introducing higher pension ages, and four countries increased contribution or
work periods.
In addition, many countries have introduced demographic quotients whereby parts of
longevity increases translate into higher retirement ages (European Commission & Econ-
omic Policy Committee, 2012). Finally, many countries reform early exit schemes and
reward later retirement.
As many of these measures were adopted before the crisis, made stricter by the policy
responses to the crisis, and because the crisis lead workers to stick with their jobs for longer,
most countries see small rises of their average exit ages (see Table 6). Even though there
were marked differences in the average exit age from 58.8 years of age in Slovakia to
64.4 years in Sweden in 2010, all countries increased their average exit age since 2001.
This is independent of the starting point. The rise in Sweden from 62.1 years in 2001 to
64.4 years in 2010 shows that there is still a large potential of raising labour-force partici-
pation in almost all countries.
As pension reforms are phased in, still more countries will see retirement ages increase,
although dampened by possible rises in exit of the old aged in other benefit schemes. The
reaction in pension reforms has not been one of labour shedding by easier access to early
exit schemes as was a dominant strategy in many countries in earlier crises (Ebbinghaus,
Table 6. Average exit age from the labour force, 2001–2010.
2001 2005 2008 2009 2010
EU27 59.9 61.0 61.4 61.4 61.5
Belgium 56.8 60.6 –––
Bulgaria –60.2 –––
Czech Republic 58.9 60.6 60.6 60.5 60.5
Denmark 61.6 61.0 61.3 62.3 62.3
Germany 60.6 –61.7 62.2 62.4
Estonia 61.1 61.7 62.1 62.6 ..
Ireland 63.2 64.1 –––
Greece –61.7 61.4 61.5 ..
Spain 60.3 62.4 62.6 62.3 62.3
France 58.1 59.0 59.3 60.0 60.2
Italy 59.8 59.7 60.8 60.1 60.4
Cyprus 62.3 ––62.8 –
Latvia 62.4 62.1 62.7 ––
Lithuania 58.9 60.0 –– –
Luxembourg 56.8 59.4 –––
Hungary 57.6 59.8 –59.3 59.7
Malta 57.6 58.8 59.8 60.3 60.5
The Netherlands 60.9 61.5 63.2 63.5 –
Austria 59.2 59.9 –– –
Poland 56.6 59.5 –––
Portugal 61.9 63.1 –––
Romania 59.8 63.0 –––
Slovenia –58.5 –––
Slovakia 57.5 59.2 –58.8 –
Finland 61.4 61.7 –61.7 –
Sweden 62.1 63.6 63.8 64.3 64.4
United Kingdom 62.0 62.6 63.1 63.0 –
Source: Eurostat (2012d).
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2006). The long-term effect of the pension reforms will in most countries indeed be more
sustainable pension systems with later retirement on average for most coming generations
of old-age pensioners, with reduced generosity for some of these. In social investment
terms, the period of returns is gradually growing in most countries, which inter alia is a
good thing.
Concluding remarks
Ageing populations and the economic crisis have led to massive reforms at both the national
and supranational levels. National governments engage in social policy reforms and face
less room for discretion in public finance policies due to new stricter EU macro-economic
coordination and due to risk of high sovereign risk premiums, outright bankruptcy or
demands from international bodies. Austerity measures have gone so far that the European
Commission calls for national governments to modernize their social protection system,
rather than just cutting them down, following a social investment strategy.
In this article we have provided an analytical framework for macro-comparisons of
social investment policies and returns. We have subsequently shown how many EU strat-
egies –those of the OMC and the EU2020 strategy –already embody elements of a social
investment strategy. On this basis we have analysed whether national policy responses to
the crisis, ageing and the various EU strategies point towards development or dismantle-
ment of social investments in Europe.
The analysis of social investments in childhood suggests that the crisis so far has not
resulted in cuts in places in childcare or early childhood education when measured by
their coverage rates. Five countries see large decreases in either childcare or early childhood
education, but the general trend is one of expansion of coverage. The present evidence,
however, does not allow us to assess the development in the quality of care and education.
Quality is likely to have gone down in most countries as economic resources may have gone
down at the same time as intakes of children went up. To the extent this is the case, children
are likely to obtain less social and cognitive skills, thereby hampering their educational
achievements and labour-market performance later in life and thereby also the sustainability
of future welfare societies.
The analysis of social investments in youth showed that a large and growing share
of European youth is not in employment, education or training. Germany and, less so,
Luxembourg were the only two countries experiencing a falling share of youth becoming
marginalized from society. In the most crisis-ridden countries between one in five and
one in four youth are neither using their skills in work or creating or maintaining their
skills through education or training. This points towards a large share of a generation
being lost.
The analysis of social investments in people of working age indicates a marked increase
of tertiary education in almost all countries both before and after the crisis occurred.
Increasing shares of young people take tertiary education, which means not only that the
EU2020 strategy of 40% with tertiary education is likely to be met but also there are
more people with more skills, which bodes well for the future. However, the maintenance
of skills through life-long learning does not follow a similar upward-going trajectory as for
tertiary education. Indeed, large cross-national variation and divergent developmental trend
point to no particular shared European strategy on the national level and it is very unlikely
that the EU2020 target of 15% with life-long learning will be met.
The analysis of social investments in old age indicates that the ageing population
and crisis response in pension reforms differ from previous responses in economic
104 J. Kvist
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downturns. Compensating losers of globalization with social benefits like early exits or
earlier pensions is no longer used. Instead, fewer early exit possibilities and higher retire-
ment ages are meant to secure longer periods of work, periods of returns on social
investments.
The three analyses indicate that the impact of the crisis differs across countries, policies
and life-stages. In some cases the crisis seem to have little impact as in the continued
expansion of childcare and early childhood education or even a positive impact as when
more youth takes tertiary education. For youth and the prime aged, the crisis leads to a
continuation, and in some countries even a stronger, polarization or dualization between
low-skilled and high-skilled youth as larger shares of youth do not get work, employment
and training and larger shares get tertiary education. For old age, the crisis has led to
pension reforms that unequivocally aim to higher retirement ages, which may have been
on the agenda or adopted before the crisis, but which after the crisis have been tightened
or advanced in time.
Even when the crisis recedes its effects will continue to be felt for years to come, in part
due to the current policies of austerity. Our analysis points to two types of long-term effects,
namely cohort effects and intergenerational effects. Cohort effects occur because the great
recession combined with lower benefits, more ineffective employment policies and a large
share of youth outside work, education and training make the young cohort poorer and with
smaller life-income than would have been the case without the crisis. The implications are
fewer returns on social investments in this generation and thus a worsening of the national
public finances and social cohesion.
Intergenerational effects occur because the great recession and less favourable child
family policies result in lower fertility and thus smaller future generations of potential
workers laying the ground for intergenerational conflicts.
There are at least two sets of contextual factors having a great say on the impact of social
investment policies, namely demographic and economic factors. Demographically we
witness how the intra-EU migration from east to west since 2004 is increasingly sup-
plemented by south–north migration (European Commission, 2013d). Especially, youth
move from the south to countries with better employment prospects. Again those mobile
tend to be among the best skilled, leading to a depletion of skills in sending countries
and more skills in the receiving countries. Put differently, the social investments made in
southern parts of Europe make returns in northern parts of Europe. Migration highlights
the importance of labour-market developments.
Changes in the labour market have implications for skills policies. Already before the
crisis, new jobs were in many countries concentrated in high or low pay levels primarily in
the service sector. The crisis led to marked destruction of medium-paid jobs in construction
and manufacturing and new jobs were still more demanding. Increasing skill demands
coupled with fewer investments in skills signals greater future inequalities and less competi-
tive and socially cohesive societies.
For economic reasons the countries most in need for social investments are also the
countries least likely to develop high-quality social investments. Indeed, the prospects of
a social investment state looks bleak in a handful of countries, most notably Greece and
Romania, where social investment policy development has come to a halt and social pro-
blems are high. That said, the overall evidence points towards social investments taking
a larger role in tomorrow’s welfare societies in Europe. The traditional social insurance
model is making way in the crucial area of old-age pensions to allow for longer periods
of returns that can help finance more and better social investments in children and youth.
Journal of International and Comparative Social Policy 105
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Note
1. The term “crisis”has different meanings within various academic disciplines. We use “crisis”in a
Schumpeterian sense to mean exogenous shock, although we are aware that many causes of the
crisis are endogenous, such as private or public indebtedness, demographic changes or lack of
earlier reforms of pension and labour markets.
Notes on contributor
Jon Kvist is a professor in the Centre for Welfare State Research, Department of Political Science, at
the University of Southern Denmark. Kvist does comparative welfare state research, EU studies, and
comparative methodology, for more see www.jonkvist.com.
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