Social Cohesion and Social Policy: Does

income inequality matter?

Sarah CarpentierIve Marx

Karel Van den Bosch

Centre for Social Policy Herman Deleeck

Brussels, May 15th 2008

Outline

1. Social cohesion in policy: definitions, indicators

2. Does income inequality matter ? 3. The production of equality, or the

puzzle of egalitarianism4. Conclusion

1. Social cohesion in policy: definitions and

indicators

Social cohesion as a goal of social policyBy several policy actors• Local (e.g. UK)• Regional (e.g. Walloon region)• National (e.g. Canada)• Supranational (e.g. EU, OECD,

Council of Europe)

Council of Europe (2005)

• Definition = a society’s ability to secure the long-term well-

being of al its members

Four central principles– Fair and equal access to ressources– Individual and collective dignity– Autonomy of the individual – Participation in community life

Social, economic, cultural, political cohesion & sustainability

Council of Europe (2005)

• Indicators four levels of analysis (from general to specific)– Main indicators: social cohesion trend– Indicators of public actions which are

constituents of well-being (shared responsibility)

– Specific life domains (employment, income, housing)

– Sensitive situations & vulnerable groups=> Beyond inequality and poverty measures,

but remain key indicators

OECD (2006)

• Definition – No definition – Pathologies inform about a lack of cohesion – Central concept: social development – Fostering social cohesion: a policy goal

besides of enhancing self-sufficiency, equity & health

Economic and social well-being(and sustainability)

OECD (2006)

• Indicators – Aim: capturing changes in outcomes

that social policies try to influence with limited ressources

– 3 types of indicators • Social context• Social status (outcomes)• Societal response

OECD (2006)

• Indicators – Social cohesion indicators:

social status• Overall well-being (life satisfaction)• Societal dysfunctions (suicide, work accidents)• Social conflict (strikes)• Political parcipation (voting) and trust

societal response• Number of prisoners

– Main social development indicators: employment and unemployment, inequality, poverty and deprivation

EU

• No explicit definition • 2 main conceptualisations,

rooted in historically developed policies– EU regional cohesion policy – EU social cohesion pillar of the

Lisbonstrategy

EU Regional Social Cohesion Policy

• Definition – Economic, social and territorial cohesion:

reducing economic and social disparities between regions to create an economic space attractive to invest and to work in

– Social cohesion • poorly stressed • Seen as integration in the labour market

Economic and territorial cohesion (and sustainability)

EU Regional Social Cohesion Policy

• Indicators: GDP• Policy: Structural Funds and

Cohesion Fund second largest budget item EU 2007-2013: 350 billion euro (+ 150 billion euro of public/private national means)

Lisbon strategy –social cohesion

• Lisbon strategy (2000):To become the most competitive and dynamic knowledge-based economy in 2010 with– A strong economic growth– More and better jobs – Greater social cohesion – Sustainability (2001, Göteborg)

economic and social cohesion (and sustainability)

Lisbon strategy –social cohesion

• No explicit definition of social cohesion Social cohesion = European social model – No clear concept, assumes (Jepsen & Serrano

Pascual): - Dichotomy with US- Integration of economy and social policy

- Covers solidarity embodied by (Jeanotte)- Universal social protection system- Regulation for market correction- Social dialogue

OMC: social protection and social exclusion prevail

Lisbon strategy –social cohesion

• Indicators– Outcome indicators (in line with subsidiarity principle)

(also social spending and context indicators are asked) – 3 level structure:

• 1st level: key indicators Commonly agreed • 2nd level: in-depth indicators• 3rd level: Nation-specific indicators

– Consists of • Indicators on inequality and (relative) poverty: very prominent!• Indicators about life domains (employment, health, education,

housing)• Breakdowns for vulnerable groups

Lisbon strategy –social cohesion

• Policy: – Reports (in line with subsidiarity)

• Member states: National Strategic Reports on Social Protection and Social Inclusion

• EU: Joint Report Social Protection & Social Inclusionhttp://ec.europa.eu/employment_social/spsi/

the_process_en.htm

– Aims at coordination through agenda-setting and mutual learning

Concluding

- Social cohesion has multiple meanings in policy use

- Differences in breadth of dimensions included- Hence, also multiple ways of measuring- Although, generally acknowledged as multi-

dimensional phenomenon, reduction of inequality and poverty presents consensus dimension (= seen as threats) (cf. Jeanotte)

- Indicators about poverty and income inequality (and to a lesser extent labour market participation and unemployment) are prominently used

2. Does income inequality matter?

2. Does income inequality matter?

• Evidently, policy makers say ‘yes’, but why?

• Income inequality is multi-faceted phenomenon: – Result (indicator) of inequities (exclusions)– Result of factors without normative bearing– Cause of bad things (see below)

• Current income is:– only (important) part of– yet good indicator

• of wider inequality in economic resources

2. Does income inequality matter?

• Income inequality does not necessarily imply relative poverty, but the two are in fact closely related.

S80_S20

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PO

V_O

EC

30

20

10

0

US

UK

Turkey

Sw eden

Spain

Portugal

Poland

Norw ayNetherl

Mexico

Luxembourg

Italy

Ireland

Hungary

Greece

Germany

FranceFinland

Denmark

Czech R

Canada

Belgium

Austria

Australia

2. Does income inequality matter?

• Effects of income inequality on other life-domains area of intense research and debate.

• On the one hand, Burtless and Jencks (2003): “the effects of inequality on economic growth, health, and equality of opportunity are modest and uncertain in rich countries”

2. Does income inequality matter?

• On the other hand, Wilkinson (2007): “many problems associated with relative deprivation are more prevalent in more unequal societies … this may be true of morbidity and mortality, obesity, teenage birth rates, mental illness, homicide, low trust, low social capital, hostility and racism”

• Some illustrations of this follow:

2. Does income inequality matter?

• Income inequality and rate of mental illness:

2. Does income inequality matter?

• Income inequality and educational achievement:

2. Does income inequality matter?

• Income inequality and imprisonment:

2. Does income inequality matter?

• However,• Causal mechanisms remain obscure

– Wilkinson: low position breeds stress

• Relationships disappear (or are reversed) in ‘panel-of-countries’ approach, i.e. no link between changes in income inequality and bad outcomes.

3. The production of equality,

or,The Puzzle of

Egalitarianism

3. The Puzzle of Egalitarianism

• How can public policy promote greater equality (less inequality, less relative poverty)?

• Three broad strategies:1. Income redistribution through social

insurance or social assistance2. Providing goods & services free or at

reduced cost (health care, education, housing)

3. Investing in market-income generating abilities of individuals, esp. children

3. The Puzzle of Egalitarianism

• Despite the ‘Active Welfare State’ etc. most resources go to the 1st (and 2nd strategy).

• Also, doubts about the effectiveness of the Activation Strategy

• The question is then:Does income redistribution reduce inequality?

• Looking at simple cross-country correlations, the question is yes.

3. The Puzzle of Egalitarianism• high social expenditure implies a low rate

of relative poverty.

4

6

8

10

12

14

16

18

0 5 10 15 20

social expenditure (% of GNP)

wor

king

-age

pov

erty

rate

(% w

orki

ng-a

ge p

op.)

USA

Italy

CanadaUK

GermanyAustralia

Austria

France

Belgium

Netherlands Sweden

Finland

3. The Puzzle of Egalitarianism

• But: problem of counterfactual: what would have been the level of inequality in the absence of social expenditure?

– Not necessarily the same across countries– Counterfactual problem has basically no

solution

• Suggestive evidence: Inequality in wages is negatively related to social expenditure

3. The Puzzle of Egalitarianism

– fewer low paid workers, more social expenditure

0

5

10

15

20

0 10 20 30

low pay incidence (% full-time workers)

soci

al e

xpen

ditu

re (%

GN

P)

Sweden

Finland

Belgium

Netherlands

Germany

France

AustraliaAustriaSwitzerland

Italy

UK

Canada

USA

3. The Puzzle of Egalitarianism

• Possible reasons for this relationship: – second-order effects of high benefits

and high taxes and contributions. – high wage dispersion, large market

inequalities make redistribution difficult • (social insurance for the self-employed in

Belgium)

– high level of solidariy (social cohesion?), embedded in institutions, produces low wage dispersion and enables high level of income redistribution.

3. The Puzzle of Egalitarianism

• In supranational social cohesion policies: Inequality (and poverty) are common dimensions in defintion and indicators

• Effect of income inequality on other life domains is area of intense research and debate

• Suggestive evidence that income redistribution reduces inequality

4. Conclusion

• Inequality (and poverty) constitute a consensus dimension in definitions and indicators used by social policy actors

• Effect of income inequality on other life-domains is area of intense research and debate

• Suggestive evidence that income redistribution reduce inequality