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Chapter2

SocialProgramsintheUnitedStatesandWesternEurope:AnIntroduction

LaneKenworthyNovember3,2016

2.0.INTRODUCTION

Socialpolicyaimstoalleviaterisk,ensureaminimallydecentstandardofliving,enhancecapabilities,andfacilitatethesharingofprosperity.Itincludesprogramstohelpwithold-age,survivorship,unemployment,returningtoemployment,health,incapacity,housing,family,andotherrisksandconditions.

Howhavetheseprogramsdevelopedoverthepastcentury,andparticularlyinrecentdecades?Whatsimilaritiesanddifferencesdoweobserveacrosstheworld'srichlongstanding-democraticcountries?Liketheotherchaptersinthisvolume,thisonefocusesontheUnitedStatesandfifteenEuropeancountries(theEU-15):Austria,Belgium,Denmark,Finland,France,Germany,Greece,Ireland,Italy,Luxembourg,theNetherlands,Portugal,Spain,Sweden,andtheUnitedKingdom.Otheraffluentdemocraticnations—Australia,Canada,Japan,Korea,NewZealand,Norway,andSwitzerland—aren'tincluded.

OfparticularinterestiswhethertheUSwelfarestateisexceptional—alaggardinthescopeandgenerosityofitssocialprograms.Topreview,thereisonenotablerespectinwhichtheUnitedStatesisnotalaggard:itstotalsocialspending,includingbothpublicandprivateexpenditures,isonparwiththatofmanywesternEuropeancountries,andhigherthansome(Gilbert2010;Adema,Fron,andLadaique2014).Moreover,evenifwefocusonpublicexpenditures,therangeofvariationwithintheEU-15

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islargerthanthevariationbetweenwesternEuropeandtheUnitedStates(Alber2010;AlberandGilbert2010).

YetAmerica'ssocialprogramsdodifferinimportantwaysfromthoseofmanyotheraffluentnations.TheUShasfewerpublicprograms(nosicknessinsuranceorpaidparentalleave).Someoftheprogramsithasareonthelowendintermsofgenerosity.Itreliesheavilyonprivatespendinginthetwomostexpensiveprogramareas:pensionsandhealthcare.Itsspendingonhealthfarexceedsthatofanyotherrichnation.Ithasanextensivearrayofmeans-testedprograms,fromTANFtoFoodStampstotheEarnedIncomeTaxCredittodisabilitybenefits.Itencouragesemploymentbutprovideslimitedsupportforthosewhostruggleinthelabormarket.IntheserespectsAmerica'swelfarestateisindeedexceptional.

Thischapterproceedsasfollows.Section2.1examinesthegenerosityandsizeofthewelfarestateinEuropeandtheUS.Section2.2looksatspecificprogramareas.Section2.3considersminimumincomeprotection.Insection2.4Iexploreuniversalismandtargeting.Section2.5examinestheshiftingoalsfromdecommodificationtoactivation.Finally,insection2.6IconsiderthelikelytrajectoryofAmericansocialpolicyincomingdecades.

2.1.WELFARESTATES

Aspeoplegetmoreaffluent,theytendtobewillingtospendmoreoninsuranceandonenhancingfairness.Large-scalepublicinsuranceprogramsoriginatedinthelate1800s,becamecommonplacein1930s,andweresignificantlyexpandedovertheensuinghalfcentury(Hicks1999;HuberandStephens2001;KuhnleandSander2010).Sincethemid-1980stherehasbeenconsiderablechangeinthesizeandgenerosityofsocialprograms,butlittleornooverallincrease.

TheSocialInsuranceEntitlementsDatasetfromtheSwedishInstituteforSocialResearchatStockholmUniversityhasreliableestimatesofsocialprogramgenerositybeginningin1930.Figure2.1showsameasureofbenefitgenerosityforpublicpensions.Thepointhereisn'ttofocusonpensionsperse,butrathertogiveasenseofthelong-runpatternsforatypicalpublicinsuranceprogram.Inmostoftheworld'srichcountriespublicpensionswerecreatedasanationalprogramduringorshortlyaftertheGreatDepressioninthe1930s.Theyweremadesteadilymoregenerousthroughthemid-1980s.Sincethenthelevelofgenerosityhasleveledoffandevendecreasedslightly.

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AnothermeasureofsocialprogramscomesfromLyleScruggs,DetlefJahn,andKatiKuitto.Theirmeasurecoversthreeprograms:pensions,unemploymentinsurance,andsicknessinsurance.Foreachcountrytheyscorethesizeofthebenefit,itsduration,andtheshareoftherelevantgroupthatiscovered.Theythencombinetheseintoanoverallmeasureofprogramgenerosity.Theyusethesetocalculateanaveragemeasureofgenerosityforthethreeprograms.Thesedata,availablebeginningin1971,areshowninfigure2.2.Theytoosuggestariseingenerositythroughthemid-1980s.Insomecountriesprogramgenerositycontinuedtoincreasebeyondthatpoint,butinmanyitflattenedoutandinafewitdecreased.

Figure2.1.Generosityofatypicalpublicinsuranceprogram

Publicpensionaveragenetreplacementrateforasinglepersonorcouplewhoearnedanaverageproductionworker'swage.Greece,Luxembourg,Portugal,andSpainaren'tincludedinthecountryaverageduetoinsufficientdata.Datasource:SocialInsuranceEntitlementsDataset(SIED),providedaspartoftheSocialPolicyIndicatorsDatabase(SPIN),versionJune2015,seriespx2indst.

Thin lines: countriesThick line: 12-country averageLow

High

1930 1985 2010Year

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Figure2.2.Generosityofpublicpensions,unemploymentcompensation,andsicknesscompensation

Thegenerositymeasureisanaverageforthethreeprograms.Itincludesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.LuxembourgandPortugalaren'tincludedinthecountryaverageduetoinsufficientdata.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriestotgen.

Figure2.3.Publicexpendituresonsocialprograms

ShareofGDP.Grossexpenditures.Includesspendingonoldage,survivors,unemployment,activelabormarket,health,incapacity,housing,family,andothersocialprograms.Datasource:OECD,SocialExpenditureDatabase.

Thin lines: countriesThick line: 14-country averageLow

High

1930 1985 2010Year

Thin lines: countriesThick line: 16-country average0

32%

1930 1985 2010Year

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Athirdmeasureofsocialprograms—themostwidelyusedbysocialscientists—ishowmuchmoneyacountryspendsonthem,usuallyexpressedasashareofgrossdomesticproduct(GDP).TheOECDhasdatabeginningin1980forgrosspublicexpendituresonsocialprograms.Thisisamorecomprehensivemeasurethanthoseshowninfigures2.1and2.2inthatitcoversallsocialprogramsratherthanonlyafew.Itincludesgovernmentspendingonbenefitsandservicesrelatedtoold-age,survivors,unemployment,activelabormarket,health,incapacity,family,housing,andavarietyofotherprograms.(Thereisacaseforincludingeducation,buttheOECDdoesn't.SeeGarfinkel,Rainwater,andSmeeding2010.)Figure2.3showsthatinmostcountriesthismeasurewaseitherflatorincreasedalittlefrom1985to2005.Itthenjumpedupnearlyeverywhereduringandafterthe2008-09economiccrisis,duetothefallinGDP(thedenominator)andariseinpaymentsforunemploymentandincapacity.

Whataboutdifferencesacrosscountries?HereIfocusonthecontrastbetweenwesternEuropeandtheUS.TheUnitedStatesiscommonlyconsideredalaggardinpublicsocialprograms:ithasfewerprograms(nopublicsicknessinsuranceorpaidparentalleave,forexample)andtheprogramsitdoeshavetendtobelessgenerousthaninmanyotheraffluentcountries.Thatisn'tsurprising,astheUSisatthelowendwithrespecttomanyofthekeycausesofpublicsocialprogramgenerosity—politicalinstitutions,economicstructures,organizedinterestgroups,publicopinion,andmore(Hicks1999;HuberandStephens2001).

Yetthisisonlypartofthestory.IntheUnitedStatesasizableamountofmoneyisspentonprivatesocialprograms.Thebiggestofthesearefirms'expendituresonhealthinsuranceandpensionsfortheiremployees.Also,thelargespendinglevelsinsomeaffluentcountriesaremisleadingbecausethebenefitsthatarepaidtoindividualsorhouseholdsaretaxable,sosomeofthemoneygoesrightbacktothegovernment.Moreover,householdsspendsomeoftheirbenefitsonitemsthataresubjecttoconsumptiontaxes,whichmeansevenmoreofthemoneyreturnstothegovernment.Amoreaccuratemeasureofsocialspendingisthereforepublicnet(ratherthangross)expendituresplusprivateexpenditures(Howard1997;Hacker2002;Gilbert2010;Adema,Fron,andLadaique2014).

Thesedataareshownontheverticalaxisinfigure2.4,withthemorefamiliarpublicgrossspendingdataonthehorizontalaxis.Thereissomeshiftingofpositionsaswemovefromthehorizontalaxismeasuretotheverticalaxisonthisgraph.Forinstance,Finland,Denmark,andSwedendropdownabitintheranking.That'sbecausetheyareamongthemost

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aggressivein"clawingback"cashbenefitsbysubjectingthosebenefitstoincometaxandbyimposingheavyconsumptiontaxes.

Figure2.4.Socialprogramexpenditures:publicnetplusprivateexpendituresbypublicgrossexpenditures

ShareofGDP.Thedataarefor2013.Includesspendingonoldage,survivors,unemployment,activelabormarket,health,incapacity,housing,family,andothersocialprograms.Datasource:OECD,SocialExpenditureDatabase.Thisupdatesandextendsfigure1inAlber2010.

TheUnitedStatesstandsoutasthecountryforwhichthechoiceofmeasuremakesthebiggestdifference.Publicgrosssocialexpenditurestotaljust19%ofGDPintheUS,puttingitatthelowendamongtherichnations.America'stotalforpublicnetplusprivatesocialexpenditures,bycontrast,is29%ofGDP,andit'soneofthetopspendersonthismeasure.ThedifferenceowesalittletoAmerica'slessertaxationofbenefits,butit'smainlyafunctionofthelargequantityofprivatesocialspendingintheUS,whichfarexceedsthatinanyoftheothernations.

SoisAmericaalaggard?Ifwefocusonpublicsocialspending,theanswerisyes.Ifwe'reinterestedintotalsocialspending,theanswerisno.

IstheUSwelfarestatecategoricallydistinctfromothers,asGøstaEsping-Andersensuggestedinhis1990bookTheThreeWorldsofWelfareCapitalism?Ordoesitlieatoneendofacontinuum—differentindegreeratherthaninkind?InthedecadessinceEsping-Andersen'sbookappeared,therehavebeennumerousreassessmentsandcritiquesofhisthreeworldstypology(CastlesandMitchell1993;Esping-Andersen1999;HicksandKenworthy2003;ArtsandGelissen2010;Schröder2013).Butintheend,itmaynotmattermuch.Thethreeworldstypologyisseldom

Aus

BelDen

Fin

Fr

GerGre

Ire

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NthPorSp

SweUK

US

10

20

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ic n

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usedforanalyticalpurposes—forinstance,asahypothesizedcause.Insteaditserveschieflyasadatareductiondevice,withthreeworldsstandinginfortwentyorsocountries.Anddebatesaboutdifferenceintypeversusdifferenceindegreemaydistractsocialscientistsfrominvestigatingmoreinterestingandimportantquestions,suchashowsocialprogramswork,howtheyhavechanged,andwithwhateffects.

2.2.PROGRAMS

Let'sturnfromtheaggregatepicturetoindividualprogramareas(seealsoCastles2008;ObingerandWagschal2010).TheOECD,whichisthesourceoftheexpendituredataforsocialprograms,organizesthemintoninecategories:old-age,survivors,unemployment,activelabormarket,health,incapacity,housing,family,and"other."Thedataareavailablebeginningin1980.I'llfocusonpublicgrossexpenditures,sinceformostcountriesthesegiveaprettyaccurateportraitoftotalspendingandpublicnetspendingdataaren'tavailableformostprogramsinmostcountries.

Incomeinourretirementyearscancomefromavarietyofsources,mostnotablypersonalsavings,anemployerpension,orsaleofassets(suchasahome).Butformanypeoplethesearen'tsufficienttoensureadequateresources,soallrichnationshaveoneormorepublicprogramstosupplementmitigatepovertyinoldage.Publicpensionscomeinvariousforms.Earnings-basedprogramspayanamountproportionaltoaverageorpeakearningsduringtheworkcareer.Typicallytheseguaranteeabenefitamount("definedbenefit"),butsometimesonlythecontributionamountispredetermined,withthebenefitdeterminedbybothcontributionandperformanceoftheinvestment("definedcontribution")."Basic"pensionschemespayaflatrateoranamountdeterminedbythenumberofyearsofwork."Targeted"programsadjustthepaymentbasedontheperson'sincomeorassetsinretirement."Minimum"pensionsadjustbasedonothersourcesofpensionincome,ratherthanontotalincomeorassets.Manycountriescombinetwoormoreoftheseprograms(OECD2015).

Pensionstypicallyaremainlyfundedviasocialcontributionsorpayrolltaxesthatareearmarkedforthisprogram.IntheUnitedStates,theSocialSecurityprogramisfundedbyataxof12.4%ofanemployee'swage,withhalfpaidbytheemployeeandhalfbytheemployer.Insomecountriesthecontributionisconsiderablylarger,totalingmorethan40%ofthewage.

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Figure2.5showspublicexpendituresonold-ageprogramsasashareofGDP.Mostofthisisonpensions,butthiscategoryalsoincludesspendingonservicesfortheelderlysuchasrehabilitationandhome-help,aswellasotherbenefitsinkind.ThebiggestspendersarethecontinentalandsouthernEuropeancountries,includingItaly,France,Greece,Austria,andPortugal.TheUnitedStatesistowardthelowend,butitisn'tparticularlyexceptional.

Pensionsareoneofthetwobiggest-spendingcategoriesofsocialprogram.Asofthemostrecentyearofdata,theaverageamongthecountriesshowninfigure2.5was9%ofGDP.Inmanycountries,pensionexpenditureshaveincreasedsincethemid-1980s.Inmost,however,thisriseisn'taresultofincreasesinprogramgenerosity.Instead,it'safunctionofpopulationaging—agrowingshareofthepopulationisage65orolder.Thecountrytrendsinfigure2.6,whichisbasedonprogramdetailsratherthanthequantityofexpenditures,confirmthatprogramgenerosityhasbeenlargelyflatsincearound1980.

Figure2.5.Publicexpendituresonold-ageprograms

ShareofGDP.Grossexpenditures.Datasource:OECD,SocialExpenditureDatabase.

US

It

Fr, Aus, PorFin, Gre

DenSwe, SpBel, Ger

Lux, Nth, Swi

Ire

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14%

1970 80 90 2000 10Year

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Figure2.6.Generosityofpublicpensions

Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriespgen.

Paymentstothewidowsofdeadsoldierswereoneoftheearliestpublicassistanceprogramsinmanyrichnations.Todaymostofthesecountriesprovidecashbenefitsand/orservicestovariouscategoriesofsurvivors.Oftenthistakestheformofapension.Figure2.7showspublicspendingonsurvivorsbenefitsandservices.HeretoothecontinentalandsouthernEuropeancountrieshavethehighestspendinglevels.TheUnitedStatesagainistowardthebottom.Expendituresonsurvivorsaremuchsmallerthanonretirees.Buttheyarefarfromtrivial,averaging1%ofGDPacrossthesecountriesandreachingashighas3%insome.Theseexpenditureshavetendedtobeflatoverthepastgeneration.(Theexpenditurechartsinthissectionofthechapterallusethesamerangeofvaluesontheverticalaxisinordertofacilitatecomparisonofspendinglevels.)

US

Por, Bel, Fr, Gre, ItSp, Aus, IreNth, Fin, Den, Swe

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Ger

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Figure2.7.Publicexpendituresonsurvivorsprograms


Unemploymentinsuranceprovidestemporarycashassistancetopeoplewhohavelostajobinvoluntarily.Accesstotheprogramusuallyhingesonfulfillingcriteriasuchasminimumlengthofemploymentandminimalearningslevel.IntheUnitedStates,onlyabout40%ofunemployedpersonstypicallyqualifyforunemploymentbenefits.

Thebenefitleveltypicallyisproportionaltopriorearnings.Replacementrateshavevariedfromaslowas10%toashighas90%intherichnations.IntheUnitedStates,theyhaveaveragedaround60%overthepastgeneration.

Durationofbenefitreceiptalsovarieswidely.IntheUS,theformallimitis26weeks.Instateswheretheunemploymentsituationhasworsenedsignificantly,theseareextendedby13or20weeks.Andduringnationalrecessionsthefederalgovernmenttypicallyprovidesmoneytoextendeligibilitytoafullyear.InsomeEuropeancountries,eligibilityinthepasthasbeenineffectunlimitedinduration.Inrecentdecadesmanycountrieshavemovedtoshortenthis.

Thefundsforunemploymentinsurancetypicallycomefromsocialcontributionsorpayrolltaxesorfromgeneralrevenues.IntheUnitedStates,employerspayadedicatedtaxtothefederalandstategovernments,andstategovernmentsadministertheprogram.Insomecountriestheunemploymentbenefitsystemisadministeredbyunionsandemployersratherthanbythegovernment.Infourofthesecountries

US

It, SpGre, Aus, Bel, Ger, LuxPor, Fr

FinIre, Swe, Nth, UK, Den0

3

14%

1970 80 90 2000 10Year

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—Belgium,Denmark,Finland,andSweden—accesstothesystemrequiresbeingamemberofaunion.Notsurprisingly,unionizationlevelshaveremainedhigherinthesenationsthaninotherrichdemocracies.

Publicexpendituresonunemploymentcompensationareshowninfigure2.8.Theyaccountforlessthan2%ofGDPinmostnations,andlessthan1%inmany.Unemploymentspendingtendstomovewiththeeconomy—fallingduringgrowthperiods,risingduringrecessions.Ifweignorethesefluctuations,thetrendinmostcountrieshasbeenflat.

Figure2.8.Publicexpendituresonunemploymentcompensation


Theflatover-timepatternalsoisinevidenceifweuseameasurebasedonprogramdetails,showninfigure2.9.NoteworthyhereisthattheUnitedStatesstandsinthemiddleofthepack,ratherthanatthelowend.ThisismainlybecausetheunemploymentinsuranceeligibilitycriteriaandreplacementrateintheUSareaveragerelativetootherrichnations.ThestinginessoftheUSprogramliesmainlyinitsshortduration.ThelowexpenditurelevelintheUnitedStates(figure2.8)alsoowestothefactthatmanyAmericansfindanewjobcomparativelyrapidly(Gangl2006).

US

Bel, SpIreFin, It, Fr, Nth, Por, LuxAus, Ger, Gre

Swe, UK, Den0

4

14%

1970 80 90 2000 10Year

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Figure2.9.Generosityofunemploymentcompensation

Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriesugen.

Tohelppeoplewhoareunemployedoroutofworkforotherreasons,richnationsoffermorethanjustmonetarycompensation.Theyalsoprovidearangeofservicessuchasretraining,helpwithjobplacement,assistanceinmovingtoanewlocation,andspecialservicesforparticularlyvulnerablegroupssuchasyoungpersonsandthedisabled.Theseservicesareusuallyreferredtoas"activelabormarket"programs.Researchontheeffectivenessofretrainingandjobplacementassistancehasyieldedmixedresults,butarecentmeta-analysisfindsgenerallypositivefindingsofmedium-term(three-year)impactonlikelihoodofemployment(Card,Kluve,andWeber2015).

Figure2.10showsthatpublicexpendituresonactivelabormarketprogramstendtoberelativelymodest,thoughDenmark,Sweden,theNetherlands,andFinlandspend1%to2%ofGDPonthem.DespitethecentralityofpaidworkinAmericanculture,theUSisatthelowendofthespectrumintheresourcesitdevotestothesekindsofemploymentsupports(BarnowandSmith2015).

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Figure2.10.Publicexpendituresonactivelabormarketprograms


Afterold-ageprograms,healthcareisthelargestspendingcategoryofpublicsocialexpenditure,accountingonaveragefor7%ofGDPasofthemostrecentyearofavailabledata.Figure2.11showsthecountrypatterns.Healthalsoisthecategoryinwhichspendinghasincreasedmostinrecentdecades.

Figure2.11.Publicexpendituresonhealth


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Den, Swe13 others

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Wecanseetheriseinhealthspendingevenmoreclearlyifprivateexpendituresareincluded,asinfigure2.12.HeretheUnitedStateshassteadilypulledawayfromallotheraffluentdemocraciessincearound1980,anditnowstandsquiteapart.PublicspendingonhealthisrelativelyhighintheUS,andwhenweaddprivatespendingtheUStotalfarexceedsthatofeveryothercountry.

Figure2.12.Total(publicandprivate)expendituresonhealth

ShareofGDP.Grossexpenditures.Datasource:OECD.

Arelatedbutseparatecategoryisforincapacityduetodisability,sickness,oroccupationalinjury.Figure2.13showsthattheNordiccountriesarethebiggestspendersinthisarea,at4-5%ofGDP.TheUnitedStatesisatthelowend,withexpenditurestotalingalittleover1%ofGDP.That'spartlybecausetheUShasnopublicsicknessinsurance(paidsickleave)program,asfigure2.14indicates.Incapacityprogramshaveseenlittlechangeingenerosityoverthepastgeneration.ThelonenoteworthyexceptionistheNetherlands;itsdisabilityprogram,whichwasexceptionallygenerousinthe1980s,hasbeenscaledbackinrecentdecades.

US

Ger, Nth, Swe, FrDen, Bel, AusGre, Por, Sp, It, FinUK, Ire

Lux

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17%

1970 80 90 2000 10Year

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Figure2.13.Publicexpendituresonincapacity(disability,sickness,occupationalinjury)programs


Figure2.14.Generosityofsicknesscompensation

Includesprogrameligibilitycriteria,coverage,waitingperiod,benefitreplacementrate,andbenefitduration.Dataaren'tavailableforLuxembourg.Datasource:LyleScruggs,DetlefJahn,andKatiKuitto,ComparativeWelfareEntitlementsDataSet2,version2014-03,seriessgen.

Allrichcountriesprovidesomehelpwithhousing,mainlyintheformofpublichousingandrentalassistance.Asfigure2.15shows,spendingin

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Den, SweFinNth, Bel, Lux, SpAus, Ger, Ire, UKPor, Fr, It

Gre0

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SweBel, Nth, GerDen, Fr, Fin

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thisareaismodestalmosteverywhere,at1%ofGDPorless.Ithaschangedlittleovertime.

Figure2.15.Publicexpendituresonhousingprograms


Spendingonfamiliesincludescashbenefitsandtaxallowances,provisionorsubsidizationofchildcareandpreschool,andotherfamilyservices.Asfigure2.16shows,heretootheNordiccountriesareamongbiggestspenders.TheUnitedStates,despiteitsdeepculturalattachmenttostrongfamilies,isatthebottom.Assistancetofamiliesis,alongwithhealthcare,thechiefareainwhichsocialprogramshavetendedtobecomemoregenerousinrecentdecades.Thespendingtotalissmallerthanforhealth,andtherisehasbeenmoremodest,butitisreal.

USUKFr, Den, Fin, Ger

10 others0

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1970 80 90 2000 10Year

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Figure2.16.Publicexpendituresonfamilyprograms


ThelastoftheOECD'ssocialspendingcategoriesisacatch-all"other"group.Theseexpendituresarerelativelysmall,andthey'vebeenlargelyconstantoverthepastgeneration(notshownhere).

Tosummarize:Pensionsandhealtharebyfarthelargestsourcesofexpenditureonpublicsocialprograms.Healthandfamilyaretheonlytwoareaswithnoteworthyincreasesinspendingduringthepastgeneration.Mostothershavebeenflatordecreasedmodestly.TheUnitedStatesisabigspenderonhealthcare;whenprivateexpendituresareincluded,America'shealthcarespendingdwarfsthatofanyotherrichnation.Inalmostallotherareasofpublicsocialprogramexpenditure,Americaisatornearthebottomofthepack.

2.3.MINIMUMINCOMEPROTECTION

Fortheleastwell-off,governmenttransfersareanimportantsourceofincome.Nomatterhowmuchwemightwantworking-agedhouseholdstobeself-sufficient,thereinevitablywillbeanontrivialfractionthathavesignificantlabormarketdisadvantages—disability,familyconstraint,geographicvulnerabilitytostructuralunemployment,andmore—andsorelywhollyorpartlyonincomefrompublicsocialprograms.Itisn'tsurprising,therefore,thatcountriesinwhichthelevelofpublicminimumincomeprotectionishighertendtohavelowerincidenceofmaterialdeprivation(Nelson2012).Norshouldwebesurprisedthatinrecent

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decades,risingincomesforhouseholdsinthebottomfourthhavetendedtodependonincreasesingovernmenttransfers(Kenworthy2011,ch.2).

Howgenerousistheminimumincomeprotectionintheworld'srichnations?KennethNelsonhasassembledameasurethatincludessocialassistance,childbenefits,housingbenefits,andrefundabletaxcreditsforhouseholdswithlittleornomarketincome(seealsoMarxandNelson2012).Figure2.17showstheseamountsasof2013.Thelevelofgenerosityvariesmarkedly,from$25,000atthehighendtolessthan$10,000atthelowend.TheUnitedStatesisoneoftheleastgenerousinthegroup.

Figure2.17.Minimumincomeprotection,2013

Includessocialassistance,childbenefits,housingbenefits,andrefundabletaxcredits.Averageofbenefitsforasinglepersons,aloneparentwithtwodependentchildren,andatwo-parentfamilywithtwochildren.Datasource:KennethNelson,SocialAssistanceandMinimumIncomeProtectionDataset(SAMIP),providedaspartoftheSocialPolicyIndicatorDatabase(SPIN),StockholmUniversity,versionApril2015,seriesMIPavey.

2.4.UNIVERSALISMANDTARGETING

Generosityisonlyoneaspectofsocialprograms.Anotheristheirdistribution.Hereacommondistinctionisbetweenprogramsthatareuniversalisticandthosethataretargeted.Auniversalprogramprovidesasimilarquantityofincomeorservicestohouseholdsupanddownthe

0 10,000 $20,000PorSpUSFrUKBelSwe

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incomeladder.Inotherwords,itprovidesasmuchtothoseinthemiddleandperhapseventothoseatthetopasitdoestothepoor.Atargetedprogramgivesmoretothepoorthantothemiddleclassorthewell-to-do.

Figure2.18showsthedegreeoftargetingoruniversalismineachnationaccordingtoastandardmeasure:anindexofconcentration.Themeasurerangesfrom-1ifthepooresthouseholdgetsallofthegovernmenttransferincome(targeted)to0ifallhouseholdsgetanequalamountoftransferincome(universal).Itcanbepositiveifbetter-offhouseholdsgetmoreincomethanpoorhouseholds.Greece,Austria,Italy,France,andSpainhavetheleast-targetedpublictransfers,whiletheUnitedKingdomandDenmarkmakethegreatestuseoftargeting.

Figure2.18.Targetingoruniversalismofpublicsocialprogramtransfers,mid-2000s

Concentrationcoefficientforgovernmenttransfers.Portugalisomittedduetolackofdata.Datasource:IveMarx,LinaSalanauskaite,andGerlindeVerbist,''TheParadoxofRedistributionRevisited,"DiscussionPaper7414,InstitutefortheStudyofLabour(IZA),2013,tableA.1,usingLuxembourgIncomeStudydata.

Perhapssurprisingly,theUnitedStatesisinthemiddleofthepackratherthanatthetargetingendofthespectrum.TheUShaslongbeentheposterchildfortargeting.Thestandardreferenceistoitschiefsocialassistanceprogram,knownasAidtoFamilieswithDependentChildren

Targeting UniversalismUKDenIreBelSweFinGerUSNthLuxSpFrIt

AusGre

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(AFDC)until1996andTemporaryAssistanceforNeedyFamilies(TANF)sincethen.AFDC/TANFismeans-testedandhasallofthefeaturescommonlyassociatedwith"poorrelief":adegradingin-personapplicationprocess,extensivediscretionbycaseworkers,andheavystigma.ButAFDC/TANFisarelativelysmallpartoftheAmericanwelfarestate,particularlysincethemid-1990swelfarereform.TheshareofAmericansreceivingTANFhasdroppedtolessthan2%.FoodStamps,theotherprincipalmeans-testedbenefitforlow-incomehouseholds,gotoabout15%ofthepopulation.

ThesetwoprogramsaredwarfedbytheEarnedIncomeTaxCredit(EITC),whichgoestonearly25%ofAmericansandpaysmuchmoretothetypicalrecipientthanFoodStampsdoes.TheEITCismeans-tested,butitsbenefitsgoonlytothosewithsomeearnings,soitsrecipientstendtobehigherontheincomeladderthanAFDC/TANFandFoodStampsrecipients.EachoftheseprogramsinturnpaysoutfarlessthanthelargestUSpublictransferprogram—SocialSecurity.Likepublicpensionsinmostcountries,SocialSecuritybenefitsareroughlyproportionaltoearnings,soalotofthemoneyendsupgoingtomiddle-classandaffluenthouseholds.AndwhereasAFDC/TANFbenefitshaveshrunkovertime,SocialSecuritybenefitgenerosityhasincreased.ThelargeandgrowingsizeofthepublicpensionprogramrelativetoothergovernmenttransfersisakeyreasonAmerica’stransfersystemisscoredasmoderatelyuniversalistic.

Howdoesthedistributionofgovernmenttransfersrelatetotheirgenerosity?Universalistictransfersaremoregenerousbydefinition,inthesensethattheygotomoreofacountry'shouseholdsthandotargetedtransfers.Inaddition,wemightexpectuniversalprogramstohavehigherbenefitlevelsandlessstingyeligibilityanddurationrules,becausetheywilltendtobeperceivedasprogramsfortheentirecitizenryratherthanforanarrowandpoliticallyweakgroup(KorpiandPalme1998).Figure2.19plotsameasureoftransfergenerosity—governmenttransfersasashareofhouseholdincome—bythetargeting-universalismmeasure.Asexpected,transferuniversalismispositivelycorrelatedwithtransfergenerosity(seealsoKenworthy2014,figure4.19).TheUnitedStatesstandsapartfromtheothercountriesbecauseofitslowpublicsocialprogramgenerosity.

Sodoesuniversalismyieldgreaterredistribution?Ontheonehand,universalprogramstendtobemoregenerous.Ontheother,thebenefitsarespreadacrossthecitizenry,ratherthanfocusedonthepoor,whichshouldreducetheirredistributiveimpact.Ifwecompareacrossnations,itturnsoutthatinthe1980stherewasapositiveassociationbetween

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universalismandredistribution,butsince2000therehasbeennoassociationineitherdirection(Kenworthy2011,ch.6;Marxetal2013).

Figure2.19.Generosityofpublicsocialprogramtransfersbytheirdegreeofuniversalism,mid-2000s

Transfergenerosity:governmenttransfersasashareofhouseholdincome.Targeting-universalism:concentrationcoefficientforgovernmenttransfers.Portugalisomittedduetolackofdata.Datasource:IveMarx,LinaSalanauskaite,andGerlindeVerbist,''TheParadoxofRedistributionRevisited,"DiscussionPaper7414,InstitutefortheStudyofLabour(IZA),2013,tableA.1,usingLuxembourgIncomeStudydata.

Hasthedegreeofuniversalismingovernmenttransferschangedovertime?Notmuch.DenmarkhasshiftedfromtheuniversalismendtogreatertargetingandtheUnitedStateshasmovedintheoppositedirection,butinmostcountriesweobservelittlenoteworthymovementinrecentdecades(Kenworthy2011,ch.6).

Whataboutthedistributionofpublicservices?Services,suchashealthcare,aremorelikelythantransferstobeuniversalratherthantargetedtohouseholdswithlowincome.Onestudyfindsthattheredistributiveeffectofservices,onaverage,isonlyaboutone-quartertoone-halfthatoftransfers,dependingonthemeasureused(OECD2008,ch.9).

2.5.FROMDECOMMODIFICATIONTOSOCIALINVESTMENT

Socialscientistsandpolicymakerstraditionallyhaveviewedthewelfarestateasameansofachievingeconomicsecurityandredistribution.Socialprogramsprovidemoneyandservicestoindividualsandhouseholdsin

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ordertoinsureagainstmarket-basedrisksandreducemarket-generatedinequalityandpoverty(Esping-Andersen1990).Inthepasttwodecades,however,athirdgoalhasbecomeprominent:employment.Policyreformsandinnovationshavemoreandmoreaimedtoincreasepaidwork(Morel,Palier,andPalme2012;Hemerijck2013,2016).Thisapproachiscommonlyreferredtoas"activation"or"socialinvestment."

Employmentpromotionisn'tnovel.Swedeninthe1950sputinplaceasetofactivelabormarketprograms,includingretraining,jobplacementassistance,andpublicsectorjobsasalastresort.What'snewisthecentralityofactivationinmodernsocialpolicy.

Theactivationturnhasanumberofcauses(Esping-Andersen1999,2008;Ferrera,Hemerijck,andRhodes2000;ScharpfandSchmidt2000;Esping-Andersenetal.2002;Koketal.2003;Kenworthy2004,2008;OECD2005,2009).Thechiefone,arguably,isthefactthattheretirementofthebabyboomgenerationwillincreasepensionandhealthcarecostsatthesametimethatcapitalmobilityhasmadeincreasingtaxratesmoredifficult.Gettingmorecitizensintopaidworkmeansgreaterpayrollandincometaxrevenue,withoutrequiringanincreaseintaxrates,anditalsomeanslowerexpendituresonsocialassistance,unemploymentcompensation,andrelatedprograms.Otherconsiderationsandaimspushingpolicymakerstowardemploymentpromotionincludepovertyreduction,socialinclusion,fairness,women'sindependenceandfulfillment,subjectivewell-being,andencouragementbyexternalorganizationssuchastheOECDandtheEU.

Thepolicytoolsusedtopursueactivationarewide-ranging(Kenworthy2008,2010).Someimposerequirements,whileothersprovideincentives.Someworkonthedemandside,attemptingtoincreasehiringbyemployers,whileotherstrytoincreasethesupplyofthoseseekingemployment.Someareaimedbroadly,attheentireworking-agepopulation,whereasothersaretargetedatparticulargroupsforwhichtheemploymentrateislow,suchaswomen,thosenearretirementage,theyoung,personswithlimitededucationand/orskills,immigrants,andpeoplewithdisabilities.Someaimtoincreaseemploymentdirectly,whileothersattempttoimprovepeople'scapabilities,undertheassumptionthatthiswillindirectlybringaboutgreateremployment.

Ineveryrichcountry,personswithmoreeducationaremorelikelytobeemployed,soacommonstrategyforincreasingemploymentistoimproveeducationalattainmentand/orthequalityofschooling.Policymakershaveattemptedtodothisinavarietyofways:subsidizingearlyeducation;improvingelementaryandsecondaryschoolingviaincreased

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funding,greatercentralizationordecentralizationofdecisionmaking,heightenedteacheraccountability,schoolchoice,andothers;increasingopportunityforcollegeattendanceviareducedcostsand/orincreasedaccesstograntsandloans.Somecountriesalsohaveenhancedopportunityfor"lifelonglearning"viaretraining,subsidiesforreturntoschooling,accesstoonlineeducation,andothers.

Benefitprogramswitheasyeligibilityconditions,generouspayments,andlengthydurationmaydiscourageemployment.Somenationshavetightenedeligibilitycriteria,reducedbenefitlevels,madebenefitreceiptconditionalonparticipationintrainingoremployment("workfare"),and/orshortenedthedurationofreceipt.

PublicassistancewithfindingnewemploymenthaslongbeenakeyfeatureofSwedishactivelabormarketpolicy.Sincethemid-1990sitsusehasbecomemorewidespread.Atrendinrecentyearshasbeentowardindividualizedassistance:clientsareassignedanindividualcaseworkerwhoevaluatestheirabilitiesandneeds,helpswithbenefitreceipt,overseesthesearchfornewworkandplacementwiththefirm,andmonitorsemploymentoutcomes.

Inareaswherekeysourcesofemploymentarenoteasilyaccessibleviapublictransport,governmentssometimesprovidesubsidiestodefraythecostoftransportationtoandfromwork.

Cashtransfersandtaxcreditstopeopleinpaidworkbutwithlowearningsareincreasinglyprominentinaffluentcountries.TheUnitedStatesandtheUnitedKingdombeganusingsuchemployment-conditionalearningssubsidiesinthe1970s,andinrecentdecadesmostoftheotherrichlongstanding-democraticcountrieshaveadoptedsomeversionofthem.

Publicemploymentcanbeusedasa"lastresort"inprovidingjobsforthoseunabletofindworkintheprivatesector.IntheNordiccountriesandFrance,thegovernmenttypicallyhasaccountedfor25%to30%oftotalemployment,makingthepublicsectoracommonsourceofemploymentwhetherasalastresortorafirstoption.

Part-timejobsareanattractiveoptionforsomepeople,especiallysecondearnersinhouseholds.Inanumberofcountriestheynowaccountforaquarterormoreofallemployment,andintheNetherlandsathird.Someofthisisduetoinabilitytofindasatisfactoryfull-timeposition,butsurveyssuggestmuchofitisbychoice,particularlywherepart-timeemployeeshavethesamewageandbenefitstatusasfull-timers.TheDutchemploymentsuccessstorysincetheearly1980sislargelyoneof

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part-timeemploymentgrowth.Flexibleworkschedulesalsotendtobeattractivetopotentialemployees,againespeciallythosewhowouldbeasecondearnerwithinahousehold.Protectionsforsuchemployeesaswellasfinancialincentivestoemployersforexpandingflexiblework-timeoptionscanhelptoattractthem.

Taxescanmatter.Somecountrieshavemovedtoshiftthetaxburdenawayfrompayrolltaxesinordertoreducenonwagelaborcosts.Also,insomenationsthetaxsystempenalizesacouplewithtwoearnersrelativetothosewithjustoneearner.Reducingthisdisincentivecanhelptoboostemployment,particularlyamongwomen.

Injobswhereproductivityislowanddifficulttoincrease,employersmayhirefewerpeopleifwagesaretoohigh.Loweringthewagefloormaythereforeincreaseemployment.Incountrieswithastatutoryminimumwage,policymakerscandothisdirectly.IntheUnitedStatesandtheNetherlands,theinflation-adjustedvalueofthestatutoryminimumhasbeenallowedtofallsincetheearly1980s.Innationswithoutastatutoryminimumwage,oneresponsehasbeentheformationofformalorinformalsocialpacts,inwhichgovernmentencourageswagerestraintinexchangeforchangesincertainsocialprograms,taxes,oractivelabormarketprograms.

Strongemploymentprotectionregulationsmakeitmoredifficultand/orcostlyforemployerstofireemployees.Sincethemid-1990s,mostofthecontinentalEuropeanandNordiccountrieshavereducedthestiffnessofemploymentprotectionregulations,mainlybyeasingrestrictionsonfixed-term(temporary)employment.

Inthenationsthathaveexperiencedemploymentgrowthsincethe1970s,muchofithasbeenamongwomen.Family-friendlypolicies—particularlypaidparentalleaveandaffordable,good-qualityearlyeducation—areacommonly-usedstrategyforencouragingwomen'semployment.OriginallyconfinedtotheNordiccountriesalongwithBelgiumandFrance,theseprogramsnowareembracedtoonedegreeoranotherbymostaffluentnations.

Hasactivationboostedemploymentrates?Figure2.20showsemploymentratesin1989and2014fortheworking-agepopulationasawhole(age25-64)andforthreegroupsamongwhomemploymenthastendedtobecomparativelylow—prime-working-agewomen,thenear-elderly,andtheleast-educated.(Aproperassessmentwouldincludeemploymenthours,butwelackcross-nationallycomparabledata.)Nearlyallcountrieshavehigheremploymentratesnowthantheydidtwenty-fiveyearsago,despitejustrecentlyemergingfromthedeepest

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economiccrisissincetheGreatDepression.Moreover,SwedenandDenmark,consistentpractitionersofsocialinvestmentsincethe1970s,tendtobeatornearthetopinemployment.Unfortunately,it'simpossibletoknowforcertainhowmuchoftheacross-the-boardemploymentrise,andoftheNordiccountries'comparativesuccess,owestoactivationpolicies.

Figure2.20.Employmentrates

1989istheearliestbusiness-cyclepeakyearforwhichdataareavailablefornearlyallcountries.Datasource:OECD.

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TheUnitedStateshaspursueda"marketliberal"approachtoactivation:alowwagefloor,verylimitedlabormarketregulations,relativelystingygovernmentbenefits,comparativelylowtaxes,littleregulationofproductmarkets,andlimitedsupportforretraining,jobplacement,andwork-familybalance.UptotheturnofthecenturytheUSwasamongtherichworld'sleadersinraisingitsemploymentrate;somecommentatorsreferredglowinglytothe"greatAmericanjobsmachine."Today,however,America'semploymentrecordlooksquitemediocre.Partofthisowestothe2008-09crisisanditsaftermath.Buttheproblembeganearlier.Theperiodafterthe2001recessionfeaturedfeeblejobgrowth,andby2007,thepeakyearpriortothecrisis,theUSemploymentratehadnotyetrecoveredtoits2000level.AnumberofaffluentnationswithmorerobustpublicsocialprogramshavedoneaswellasorbetterthantheUnitedStatesatachievingandmaintainingahighemploymentrate.

2.6.ASOCIALDEMOCRATICUNITEDSTATES?

TheUnitedStatesisalaggardinthesizeandscopeofitspublicsocialprograms.Willitremainso?Thereareplentyofreasonstopresumeitwill.Americansdon'tlikebiggovernment.ThestructureoftheUSpoliticalsystemhindersprogressivepolicychange.Thecountry'scenter-leftpoliticalparty,theDemocraticParty,mightincreasinglystruggletogetelected.Andthebalanceoforganizationalpoweroutsidetheelectoralarenahasswungtotheright.

Despitetheseformidableobstacles,IsuspecttheUnitedStateswillmovetowardsignificantlygreateruseofpublicinsuranceandpublicservices.Halfacenturyfromnow,AmericansocialpolicywilllookalotlikeitcurrentlydoesinDenmarkandSweden(Kenworthy2014,ch.5).Policymakers,perhapswithapushfromorganizedinterestgroupsorthepopulace,willrecognizethebenefitsofalargergovernmentroleinpursuingeconomicsecurity,equalopportunity,andsharedprosperityandwillattempttomovethecountryinthatdirection.Oftentheywillfail.Sometimes,however,theywillsucceed.Progresswillbeincremental,cominginfitsandstarts,butitwillhavestayingpower.Newprogramsandexpansionsofexistingoneswilltendtopersist,becauseprogramsthatworkwellbecomepopularandbecausetheUSpolicymakingprocessmakesitdifficultforopponentsofsocialprogramstoremovethem.Smallstepsandtheoccasionalbigleap,coupledwithlimitedbacksliding,willhavethecumulativeeffectofsignificantlyincreasingthebreadthandgenerosityofgovernmentsocialprograms.

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Thisishowthingshaveplayedoutinthepast100years.Asaresult,intherealmofpublicsocialpolicy,thedistancebetweentheUnitedStatestodayandDenmarkorSwedentodayissmallerthanthedistancebetweentheUSofacenturyagoandtheUStoday.

AnewobstacleistheoppositionalstanceofthecontemporaryRepublicanParty.Inatwo-partypoliticalsystemthatfeaturesmanyvetopoints,aunifiedminoritycanobstructmost,ifnotall,attemptstolegislatenewsocialprograms.ButhistorysuggeststhattheRepublicans'hardturntotherightisunlikelytopersist.

Ofcourse,eveniftheUnitedStatesdoescontinuetoaddandexpandpublicsocialprograms,otheraffluentnationsareunlikelytostandstill.Changesintheeconomy,intechnology,intherisksfacedbyworkersandfamilies,andotherdevelopmentswillalmostcertainlypushpolicymakersinunforeseendirections.Amid-twenty-first-centurysocialdemocraticAmericamightstillhaveawelfarestatethatisrelativelyunusual—perhapsevenexceptional.

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