Social Cohesion and Social Policy Does income inequality

Social Cohesion and Social Policy: Does income inequality matter? Sarah Carpentier Ive Marx Karel Van den Bosch Centre for Social Policy Herman Deleeck Brussels, May 15 th 2008

Outline 1. Social cohesion in policy: definitions, indicators 2. Does income inequality matter ? 3. The production of equality, or the puzzle of egalitarianism 4. Conclusion

1. Social cohesion in policy: definitions and indicators

Social cohesion as a goal of social policy By 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: • 1 st level: key indicators Commonly agreed • 2 nd level: in-depth indicators • 3 rd 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 Inclusion http: //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.

2. Does income inequality matter? • Effects of income inequality on other lifedomains 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 assistance 2. 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 1 st (and 2 nd 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.

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

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 lifedomains is area of intense research and debate Suggestive evidence that income redistribution reduce inequality