Social Cohesion and Social Policy: Does income inequality matter?

1. 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 15th 2008

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

3. Social cohesion in policy: definitions and indicators

4. 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)

5. 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

6. 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

7. 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)

8. 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

9. 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

10. EU • No explicit definition • 2 main conceptualisations, rooted in historically developed policies • EU regional cohesion policy • EU social cohesion pillar of the Lisbonstrategy

11. 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)

12. 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)

13. 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)

14. 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

15. 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

16. 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

17. 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

18. 2. Does income inequality matter?

19. 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

20. 2. Does income inequality matter? • Income inequality does not necessarily imply relative poverty, but the two are in fact closely related.

21. 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”

22. 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:

23. 2. Does income inequality matter? • Income inequality and rate of mental illness:

24. 2. Does income inequality matter? • Income inequality and educational achievement:

25. 2. Does income inequality matter? • Income inequality and imprisonment:

26. 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.

27. 3. The production of equality, or, The Puzzle of Egalitarianism

28. 3. The Puzzle of Egalitarianism • How can public policy promote greater equality (less inequality, less relative poverty)? • Three broad strategies: • Income redistribution through social insurance or social assistance • Providing goods & services free or at reduced cost (health care, education, housing) • Investing in market-income generating abilities of individuals, esp. children

29. 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.

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

31. 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

32. 3. The Puzzle of Egalitarianism • fewer low paid workers, more social expenditure

33. 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.

34. 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

35. 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