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The Fiscal Crisis and the Social Wage in Southern Europe: A Comparative Analysis

This study examines the fiscal structure and social wage in Greece, Spain, Portugal, Italy, France, and EU-15 from 1995 to 2009. It explores the class aspects of the fiscal crisis and investigates the role of workers and social policy in the economic downturn. Additionally, the study analyzes the existence of a distinct Southern European welfare state model and evaluates public expenditures, taxes, and budget deficits as a percentage of GDP.

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The Fiscal Crisis and the Social Wage in Southern Europe: A Comparative Analysis

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  1. The fiscal crisis and the social wage in Southern Europe • Focus on Greece • Compare the fiscal structure of Greece, Spain, Portugal, Italy, France and EU-15 for 1995-2009 • Class aspects of fiscal crisis: Estimate the net social wage (ratio) in Greece and other Southern European countries (Are workers/social policy responsible for the recent economic crisis, the public deficits and the accumulation of public debt in recent years?) • Is there a distinct “Southern European welfare state model”?

  2. Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009)

  3. Public expenditures, taxes and budget deficits as a percentage of GDP in Greece and EU15 (1995-2009) (continued)

  4. Summary of the fiscal structure comparison between Greece and EU-15 1995-2009 • Greek public expenditures slightly less (1.8%) than in EU-15 on average • State revenues much lower (6.0%) • Hence, average annual public deficits (6.5%) in Greece • Wages of state workers the same as in EU • “Welfare state” spending (health, education, social security) less in Greece • Defense, general services, interest (= annual deficit) much higher in Greece • Taxes on income (of non-workers) and tax rates on profits of corporations much less in Greece

  5. Public Education expenditures/GDP Greece and EU-15 1995-2008

  6. Public health expenditures as a percentage of GDP, Greece and EU-15, 1995-2008

  7. Corporate taxes/GDP average 1995-2008 selected EU countries

  8. Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009)

  9. Table 1: Public expenditures, taxes and budget deficits as a percentage of GDP in France Spain Portugal Italy and EU15 (1995-2009) (continued)

  10. Fiscal structure • Greece, Portugal and Spain spend less than the EU average, Italy more, France much more • Greece, Portugal and Spain collect much less than the EU average in revenues, Italy the average, France much more • Inadequate state revenues the reason for public deficits in Greece, Portugal and Spain • Greece, Portugal and Spain lag behind European averages for total and almost all individual tax categories, and Italy is close to those averages. Taxation in France is based heavily on indirect taxes (which offset the lighter taxation on household income and profits bringing tax revenues equal to the EU average) and much higher than average social security contributions • France spends more for wages of public workers, social security and social welfare, Greece and Italy spend more for interest on public debt

  11. Net social wage as the indicator of the class character of the state budget • Radical/Marxist Political economy: Who pays for social spending (directed at workers?) a) Workers themselves b) capital (profits) or c) public budget deficits? Examine if net social wage is positive or negative and its impact on labor discipline productivity (post fiscal) distribution – profitability – accumulation of capital and growth • Mainstream economics: “welfare programs may lead to cumulative deficits and mounting public debts” (Dreze and Malinvaud, 1994, p. 95)

  12. Table 5: Net Social Wage Definitions ==================================================== • Net Social Wage = Labor Benefits – Labor Taxes nsw = lb – lt • Benefit Ratio = Labor Benefits / GDP Lbr = lb / GDP (ec) • Tax Ratio = Labor Taxes / GDP Ltr = lt /GDP (ec) • Net Social Wage Ratio = Net Social Wage / GDP or = Net Social Wage / Employee Compensation • nswr = nsw / GDP = Lbr - Ltr or • nswr = nsw / ec • =================================================

  13. Allocation of benefits from state expenditures to workers

  14. Allocation of benefits from state expenditures to workers (cont’d)

  15. Allocation of taxes to wage laborers

  16. Labor benefit ratio and labor tax ratio

  17. The net social wage ratio (nswr) in Greece, 1995-2008

  18. The net social wage ratio (nswr) in Greece, 1958-1995

  19. Public Debt / GDP

  20. Public Deficits / GDP

  21. Public Debt / Public Revenues

  22. Labor Benefit ratios

  23. Labor Tax ratios

  24. Net social wage ratios

  25. Lbr – Ltr = nswr

  26. Net social wage ratio in selected countries

  27. Average values for net social wage ratio, budget deficit and interest paid on public debt as a percentage of GDP, 1995-2008

  28. Changes in the net social wage ratio = (nsw / gdp) and in the wage share = (w / gdp)

  29. net social wage ratio and wage share, Greece 1995-2008

  30. Public debt/GDP Greece 1960-2010

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