For Espanet Stream 3: Social Insecurity and Welfare Institutions - Edinburgh, September, 2012
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For ESPAnet stream 3: Social Insecurity and Welfare Institutions - Edinburgh, September, 2012
Preventing Social Insecurity
Adrian Sinfield
School of Social and Political Science, University of Edinburgh
Working draft for paper to be submitted to International Social Security Review,
so please do not cite or quote without permission
‘It is the guarantee of security that matters most of all’ (ILO, 1984, para. 39). This central objective of Into the 21st Century: The Development of Social Security, the report of the ILO study group led by Pierre Laroque, gives high priority to preventing economic and social insecurity in developing social security, not only rescuing and rehabilitating those already insecure. The structural context within which social security policies have to work, particularly the quality and quantity of employment, and their interaction with other public programmes clearly have a major effect on their ability to prevent.
This paper seeks to argue that there is still much that can be achieved by social security systems with closer attention to what is needed to prevent insecurity and promote personal and collective security. It examines the ways in which the specific contribution that social security and protection can make to preventing social and economic insecurity have become weakened. Reasons for the relative neglect of prevention and the low priority given to it on the policymaking agenda are considered together with the changes that have led to a weakening of the preventive elements in social security systems specifically. Proposals to strengthen the preventive contribution in social security programmes are offered to promote greater debate of these issues.
The benefit collectively as much as individually from more effective prevention deserves particular emphasis, given the shift in many countries towards ‘individualising the social’ (Ferge, 1997) to the neglect of structural policies that promote fuller and better employment. Failure to build prevention into policymaking and to maintain may be part of the reason for the persistence of EU poverty even in the years of improving employment before the recent crises.
The preventive impact of automatic and inbuilt stabilizers
‘The prevention of unemployment by a whole variety of measures should be a high priority for social security policy in the widest sense’ argued the Laroque group a generation ago for it clearly threatens security in market-dominated societies (ILO, 1984, para. 120). This broad strategy clearly requires many policies outside conventional social security, but there is much that it can contribute.
A good benefits system ‘works as an irreplaceable economic, social and political stabilizer in such hard times – both for individual lives and the life of society as a whole’ (ILO, 2011, p. 121). It provides people with ‘the confidence that their level of living and quality of life will not, in so far as is possible, be greatly eroded’ (ILO, 1984, para. 39). The fear of insecurity was well expressed by William Beveridge nearly seventy years ago: ‘beyond the men and women actually unemployed at any moment, are the millions more in work at that moment but never knowing how long that work or any work for them may last’ (Beveridge, 1944, pp 247-8). The knowledge that involuntary loss of a job does not mean automatic loss of income is an important support to those dependent directly or indirectly upon paid work across society. Being insured affects those in work, increasing their willingness to risk changing jobs and reducing the immobility that can, for example, inhibit expansion of new industries because workers from declining industries are fearful of moving. Both trade union and employer responses to changes in companies and in the labour market more generally are likely to be influenced by the degree of protection that is seen to be available to workers.
Benefits for unemployment act as inbuilt and so automatic economic stabilizers that work to support the whole society but the limited amount of recent research has concentrated on their economic value. Debrun and Kapoor’s analysis of data from 49 industrial and developing economies over 40 years led them to their subtitle: ‘automatic stabilizers work, always and everywhere’, ‘strongly contributing to output stability regardless of the type of economy’ (Debrun and Kapoor, 2010, p. 5; ILO, 2011, p. 4). Their partial substitution for earnings helps limit unemployed households’ drop in income and maintain purchasing power in the wider economy so that demand for workers does not fall even further, helping to prevent longer and deeper recessions.
A simulation of experience within the US and across 19 European countries ‘suggest[s] that social transfers, in particular the rather generous systems of unemployment insurance in Europe, play a key role for the stabilization of disposable incomes and household demand and explain a large part of the difference in automatic stabilizers between Europe and the US … Benefits alone absorb 19% of the [unemployment] shock in Europe compared to just 7% in the US’ (Dolls et al., 2012, p. 290; EC, 2012, p. 32). This clear difference emerged particularly sharply when the unequal distribution of unemployment across the labour force was taken into account - a factor not included in past researech so the divergence has not appeared as great.
Marked variations across the states of the USA and within Europe, with clearly lower effects in countries to the south and east, mean the stabilizing impact is by no means uniform or inevitable. ‘The more highly developed the social protection in a system and the more generous the social benefits provided, the greater the effects of automatic stabilizers on the economy are likely to be’ (Euzéby, 2010, p. 74). The preventive support of short-time working benefits, eg the Kürzarbeit programme (Hijzen and Venn, 2011), provides additional stability in some countries (although not included in stabiliser comparisons).
The extent that insecurity is avoided also varies within countries. Some schemes offer better protection to higher-paid occupations and little to groups more marginal to the labour market and generally lower-paid, thus reinforcing core and peripheral polarisation and the social exclusion of certain minorities. Others provide stronger – higher and longer - support for older redundant workers but higher contributory conditions and even age barriers for younger labour market entrants. While the general effect may help to stabilize the economy and prevent worse unemployment, the differential impact across groups can have wider implications politically and socially.
The value and importance of social security in reducing the impact of increased unemployment and preventing further effects both on the individual and the wider society were little discussed in the years leading up to the credit crunch. ‘All in all, our results suggest that policymakers did not take into account the forces of automatic stabilizers when designing active fiscal policy measures to tackle the current economic crisis’ (Dolls et al, 2012, p. 290). ‘At least in the United States and some other countries, one of the sad facts of the so-called reforms in recent decades is that we have been weakening these important automatic astabilizers’ (Stiglitz, 2009, p. 4). The widespread failure to anticipate recent crises amid general governmental and expert euphoria only underlines the value of automatic elements already built in and acting instantly to prevent further problems.
The automatic destabilizing effect of the failure to prevent
Rather than protect against insecurity, the inbuilt effect of systems with low benefits and increased conditionality automatically add to the unsettling, destabilizing effects of increased unemployment. Curiously, poorer benefits and greater concern for work incentives seem to foster a public and political discourse that ‘blames the victim’ out of work (Ryan, 1971). Detailed comparison of 18 ‘rich democracies’ led the US author to find in his own country ‘an unbalanced infatuation with trying to detect welfare disincentives and dependency’ instead of preventing poverty and economic insecurity (Brady, 2009, p. 142). In such countries the fear and shame of being out of work among those worried about losing their jobs is likely to add to general insecurity. With those out of work blamed for high and prolonged unemployment, the divisions and tensions in society grow and preventive strategies become diverted to preventing people remaining on benefits which has reinforced stigma. Yet research is clear that long-term unemployment is much more closely related to the lack of sustained labour demand than to the behaviour of individuals out of work (Webster, 2005).
In fact, poverty out of work is part of ‘a vicious cycle of disadvantage whereby people can be progressively marginalised from the employment structure’. This finding of one major cross-national study of unemployment drawing on European Community Household Panel surveys over time concluded: ‘the central factor underlying this process is poverty. Unemployment heightens the risk of people falling into poverty, and poverty in turn makes it more difficult for people to return to work. This process appears to operate in a similar way across the different countries of the EU’ (Duncan Gallie, Serge Paugam and Sheila Jacobs, 2002, p. ??).
This downward trend is not inevitable and can be prevented by a good benefits system with strong stabilizers. ‘Welfare generosity always has a larger effect on poverty than unemployment’ (Brady, 2009, p. 143; see also Martinez, 2001, p. 446). A comparative study of European Union countries also found: ‘the higher the level of expenditure, the lower the level of poverty’ among those out of work, irrespective of a country’s unemployment level (Cantillon, 2009, p. 232). ‘Rich, high employment countries where social spending is low end up with high poverty. This leads to the conclusion that, if it is possible to attain a low risk of poverty without substantial spending, it has not yet been demonstrated’ (Cantillon, 2009, p. 240; see also Bambra, 2011). So the preventive effectiveness of the automatic stabilizers of social protection is further confirmed by the evidence that low unemployment by itself does not ensure low poverty and so prevent the spread of insecurity.
Maintaining effective prevention
Prevention has not been sufficiently incorporated into basic and routine processes of most benefit systems even in the wealthy EU with its long tradition of social security. Minimum Income Systems by the core team of the EU Network of Independent Experts on Social Inclusion (EUNIE, 2009), shows how far many long-established benefit systems can fail to maintain security. It helps to explain why poverty persisted high in many countries in the better labour market years before the crises as noted by Cantillon (2011).
A prevention-focussed policy agenda requires close attention to changes in key elements as they can become substantial over time. For example, the average UK worker contributed 6.5 per cent of their earnings in the 1970s, today 12 per cent, nearly twice as much (Barber in TUC, 2012, p. 4). Then contributory-based benefits were received by three-quarters of those drawing any benefits while unemployed, now fewer than one-fifth. Maximum insurance benefit duration was cut from twelve to six months, and its value relative to wages fell by one-half to some ten per cent of average earnings. Insurance benefits against sickness and disability have been cut to a maximum of one year. Earnings-related supplements to short-term benefits, additions for dependents, short-time working and reduced benefits for an incomplete contribution record have all been removed. Public support has fallen with opinion polls reporting strong support for reducing benefit levels while the preventive capacity and stabilizing effect of the basic social insurance scheme have been considerably reduced.
The need for adequate benefits and their maintenance
Adequacy to protect against and prevent insecurity needs to be routinely checked, but it has slipped down the priority list in many countries and international agencies with little regular assessment of what benefits are adequate for (Veit-Wilson, 1998 and 1999). On most occasions adequacy is conceived in terms of reducing poverty or averting deprivation, not the more comprehensive and ambitious goal of achieving social and economic security and so preventing poverty in the first place.
Even in tackling poverty there are great differences across similar countries: many ‘socialise the responsibility of preventing citizens from being poor’ much more successfully than others (Brady, 2009, p. 8). ‘The clear conclusion to be drawn from most experts’ reports is that the level of minimum income falls short and often very far short of an adequate income’ (EUNIE, 2009, p. 30). Italy had no nationwide assistance scheme and, even then, Greece had very low payments, and only for families with children (EUNIE, 2009, p. 36). Social insurance benefits have traditionally been more generous than assistance schemes, but have also not been sufficiently maintained.
Preventive effectiveness is very likely to have worsened since, despite some countries’ benefit improvements in response to the credit crunch. First, ‘many member countries prioritise the incentive to work over ensuring an adequate level of income’ (EUNIE, 2009, p. ??), and increasing conditionality means even less attention to adequacy. Second, deficit reduction priorities cut public spending, weakening the automatic stabilizers, particularly in some of the poorest and most indebted countries. Even for the EU as a whole ‘the share of social protection expenditure in GDP is projected to decline slightly in 2011-13’ (EC 2012, p. 32). Benefit cuts are particularly counterproductive, weakening the preventive effect of demand stabilization and increasing the disadvantages of those already most vulnerable to poverty and insecurity.
Routine monitoring and reporting of preventive effectiveness would reveal increased vulnerability to insecurity of certain groups and make clear how far minimum rates fall short of standards needed to protect against poverty for most in most countries. It could help to raise questions about the implications for the long-term costs to the individuals, the state and society. Comparative reviews in particular could lead to greater consideration of the wider context and, for example, the extent to which very low wages hold down minimum benefits.
Preserving the adequacy of benefits over time is vital to sustain their preventive effect. Yet many countries fail to do this, reducing the stabilising effect (EUNIE, 2009, p. 35). The effects of poor uprating barely visible from year to year can be significant over time. ‘Continuing with [current] uprating policies for 20 years, other things staying the same, would result in a near doubling of the child poverty rate’ in the UK. It would also ‘improve public finances by an amount equivalent to 3.6 per cent of national income. … While all groups will be affected, those with the lowest incomes will be hit hardest, causing widening economic inequality’ (Sutherland et al., 2008, pp. ???). Uprating should not be left uninvestigated as a minor technical issue but recognised as one of the most important decisions taken by ministers of finance. (Since then the uprating index for all benefits has been made weaker and child benefits have been frozen, both reducing protection further.)
Across countries ‘no single principle seems to govern uprating procedure. Instead, uprating involves compromise between a number of objectives and policy can fluctuate year-to-year as conditions and political priorities change’ (Sutherland et al., 2008). Long-term insurance benefits, and particularly pensions, are more likely to be adjusted in line with earnings, but other benefits only in line with price inflation, and some fail to get even that protection.
Uprating of earnings-related benefits may also be constrained by maximum ceilings originally set at a sum representing a high or adequate percentage of previous earnings but not since adjusted fully in line with earnings inflation. Once limiting only the highest-paid beneficiaries, the ceiling restricts many more, reducing more general preventive and stabilizing effects. In Sweden the 80 per cent of earnings ceiling for unemployment benefit has not been maintained since 1993 (Sjoberg, 2011, p. 221); in Denmark most unemployed are caught by the ceiling (Goul Andersen, 2011, p. 203). In the United States unemployment insurance ceilings were usually set at a sum equal to half previous earnings but have generally fallen in value over time.
Disregards (other income subject to a ceiling in calculating benefit) deserve special note since most countries spare little, if any, attention for maintaining their value (EUNIE, 2009, p. 12). They may remain unchanged for many years with a further, even if small, reduction in protection for many.
Take-up and administration
Prevention of insecurity and poverty may be weakened if the benefits available are not received, however adequate their level. Even in the EU ‘non-take-up is a very widespread phenomenon that needs to be addressed much more systematically’ (EUNIE, 2009, p. 11): take-up failure renders the claimed ‘quasi-universal coverage … a rather biased perception of reality’ noted the Belgian expert (EUNIE, Belgium, p. 17). A significant shortfall of older people’s take-up of basic benefits in Spain, and even greater in Greece, indicates that ‘greater attention to non-take-up is more urgently needed than ever’ (Matsaganis et al, 2010, p. 23).