INEQUALITIES IN THE EUROPEAN SEMESTER - Lorenza Antonucci & Francesco Corti - Foundation for ...
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INEQUALITIES IN THE EUROPEAN SEMESTER Lorenza Antonucci & Francesco Corti
ABOUT THE AUTHORS Dr. Lorenza Antonucci is Associate Profes- Dr. Francesco Corti is post-doctoral re- sor at the School of Social Policy of the Uni- searcher at the department of political and so- versity of Birmingham. Her research investi- cial science of the University of Milan and as- gates the impact of European social policies sociate researcher at the Centre for European on people's lives (see Student Lives in Crisis), Policy Studies (CEPS). His research largely with a focus on inequality (e.g. Brexit and in- focuses on European social and employment equality here and here). She's currently con- policies, EU economic governance (notably ducting research on: the welfare state gaps of European Semester), EU budget and social the gig economy and the socio-economic trig- investment. Currently, he is involved in the gers of populism. Horizon2020-funded project EUSOCIALCIT. ACKNOWLEDGEMENTS The authors and foundations involved in this research project would like to thank the participants to the seminars for their constructive feedback and especially the following experts for their highly valuable contributions and inputs: Amandine Crespy, Aleksandra Maatsch, Antoine Mertzeisen, Balint Cocchioni, Björn Hacker, Christian Morabito, Erika Mezger, Estelle Göger, Fabrizio Barca, Filip Tanay, Klára Dobrev, Lieve Fransen, Massimiliano Mascherini, Olivier Bontout, Robin Huguenot-Noël, Santina Bertulessi, Silvia Rainone and Xavier Dutrenit
Copyright © 2020 by FEPS
ISBN: 978-2-930769-43-1
The present study does not represent the views of the European Parliament.
-
an Union. The information contained in this publication does not necessarily
The Foundation for European Progressive Studies (FEPS) is the think tank of the social democratic political family at EU level. Its mission is to develop innovative research, policy advice, training and debates to inspire and inform progressive politics and policies across Europe. FEPS operates as a hub for thinking to facilitate the emergence of progressive answers to the challenges that Europe of organisations that are active in the promotion of progressive values, FEPS also has an extensive network of partners, including renowned universities, scholars, policymakers and activists. FEPS Avenue des Arts, 46, 1000, Bruxelles +32 2 234 69 00 info@feps-europe.eu www.feps-europe.eu DRUŠTVO PROGRESIVA Društvo Progresiva is an association for development of advanced thought in Slovenia. It has the ambition to develop into a central plat- form for people that are linked to the idea of Social Democracy in Slovenia and in the near future to become a progressive "think tank". Close to the political party Social Democrats (SD), but nevertheless independent, Društvo Progresiva embodies a new way of thinking in the social democratic, socialist and labour scene in Slovenia. KALEVI SORSA Kalevi Sorsa Foundation is a social democratic think tank based in Finland. Foundation works at the crossroads of the academic research and policy-making. The current main research areas are reducing inequalities and climate crises and environmental justice. In addition to the policy research Sorsa Foundation works with de- mocracy support projects. SOLIDAR SOLIDAR is a European network of progressive civil society organ- isations working to advance social justice ans sustainable devel- opment in Europe and the world. With over 50 member organisa- tions based in 29 countries (24 of which are EU countries) we form a strong and important alliance based on the values of solidarity, equality, freedom and participation. PIETRO NENNI FONDAZIONE named after the historic leader of the Italian Socialist Party, Pietro Nenni (1891-1980). Alongside research, it carries out an intense cultural activity including exhibitions, training courses, conferences, projects, historical and political publications. The aim is to foster and deepen knowledge about the problems regarding the social, politi- cal, cultural and economic development of modern society.
CONTENTS
FOREWORD 3
EXECUTIVE SUMMARY 5
INTRODUCTION 9
1. TOWARDS AN OPERATIONAL DEFINITION OF ADDRESSING
INEQUALITIES WITHIN THE EUROPEAN SEMESTER 12
1.1 Addressing the growing socio-economic insecurity in
European societies beyond poverty and social exclusion 13
1.3 Considering who pays for state provisions and who receives the rewards 17
2. WHY THE CURRENT EUROPEAN SEMESTER DOES NOT
2.1 Going beyond poverty and social exclusion in the Semester:
the missing focus on social and employment inequality 20
a missed opportunity? 26
VIA THE EUROPEAN SEMESTER 29
Recommendations part 1: Social policy beyond poverty and social exclusion 29
on social policies 31
Recommendations part 3: Prioritise taxation 33
ANNEX I 35
ANNEX II 44
ANNEX III 47
ANNEX IV 49
REFERENCES 51
FOREWORD
By
László Andor, Secretary General of FEPS
Romano Bellissima, President of Fondazione Pietro Nenni
Mojca Kleva Kekuš, President of Društva Progresiva
Mikael Leyi, Secretary General of Solidar
Maria João Rodrigues, President of FEPS
Kaisa Vatanen, Director of the Kalevi Sorsa Foundation
In the last decade, the economic architec- central, for an Annual Growth Survey that now
ture of the European Union has faced major addresses Sustainability as the backbone of a
challenges and had to adapt fast to provide Growth Strategy.
sound responses and remedies to several
crises that undercut the income and the se- That is however not enough, particularly in
curity of many Europeans. Introduced exactly view of the dire consequences of the pan-
a decade ago, the European Semester pro- demic. With a total estimated loss of 13% of
cess soon became the pivotal tool for eco- working hours in Europe and 20% of youth out
nomic coordination in Europe and in essence of work due to COVID-19 (see ILO Monitor),
it epitomizes the way to steer an economic with as much as 6 million people newly unem-
doctrine across the EU, from the Commission ployed (see Eurostat NewsRelease), Euro-
and the Council to national governments and pean Institutions need to go beyond the pro-
budgets. vision of funds. The Next Generation EU and
SURE are good novelties but we must dare to
Initially anchored to the jointly agreed targets change the economic paradigm once for all.
of the Europe 2020 Strategy, it soon aban- So that forward-looking investment, protection
doned the shared goals to focus on the prior- of incomes and quality in public services, such
as health, are not the immediate response to a
crisis but the norm. The goal of the European
public sector.
consolidation. There is no need here to stress
how much that has compromised the ability of As its history undoubtedly shows, the EU is
the European public sector to counteract the able to be a beacon of wellbeing and pros-
- perity for this continent and its leaders should
live up to these expectations. In this respect,
to politics. the European Semester is the focal policy in
which such a new course shall be established.
Indeed, the Semester has evolved and thanks
to the political agenda and Social Scoreboard In line with the European Parliament Report on
enshrined in the European Pillar of Social Combating Inequalites as a lever to boost job
Rights, we have started to see Country Spe- creation and growth -
- equalities threaten the future of the European
vestment and social dialogue. Finally, green project, erode its legitimacy and can damage
and climate concerns have become more
INEQUALITIES IN THE EUROPEAN SEMESTER
3
All too often, Europe has prioritised macro-
economic stability and failed to understand would be to revise the indicators of the Se-
that social stability and cohesion are essential mester to correctly monitor inequality. This
for the political and economic stability that can would imply considering indicators of precar-
deliver on macroeconomic soundness. It is no
longer possible to ignore the distributional ef- opportunities – such as childcare and social or
fects of macroeconomic policy and EU recom- health services.
mendations.
A second consequence would be to start
There is by now overwhelming evidence that using the European Semester framework to
socio-economic well-being is a prerequisite -
for sustainable and inclusive growth and po- es, not the expenditure, but the revenue side.
litical stability. We have learned to admit that
too much inequality is bad for growth; it is now focus on tax issues often; when they do so, it
time to go one step further and recognise that -
equality is the foundation of the type of growth
we want for Europe and for the Europeans.
income taxation, corporate taxation, wealth
It is no surprise that the Covid-19 outbreak and inheritance taxes and environmental tax-
es are instead central mechanisms to address
evenly. The pandemic, as well as its economic inequality and secure opportunities for all.
consequences, jeopardise vulnerable groups
and people experiencing poverty and social As the authors explain, by expanding the fo-
cus from poverty to inequality, from the bot-
do not want to see Europe emerging from this tom of the income distribution to the whole
crisis more unequal than before. distribution of incomes and opportunities,
our Union would be better equipped to ad-
To this end we recommend a strong refocus- dress the sharp decline in socio-economic
conditions that the European middle class is
against inequality; for a healthier society that facing.
delivers healthier economic outcomes.
The economic governance of the European
As the Study by Antonucci & Corti points out, Union has changed fast to adapt to the un-
-
spect to EU internal policies. Much has been the goals of the interventionism and coordi-
said about aligning EU policy action to the nation carried out by the EU via the European
Sustainable Development Goals but very lim- Semester. If we are serious about leaving to
ited steps have been taken to operationalise the next generation of Europeans a more sus-
the SDGs within Europe. This study on In- tainable, socially equitable and economically
inequalities is the way to go.
and should serve as a prism to rethink the Eu-
ropean Semester.
4 INEQUALITIES IN THE EUROPEAN SEMESTEREXECUTIVE SUMMARY
With the launch of the European Pillar of Social property, net wealth and inheritance taxes,
Rights, the Commission has adopted a new VAT and environmental taxes) [Section 1.3].
ambitious social policy framework. The aim is
to support fair and well-functioning labour mar- -
kets and welfare systems, for a renewed pro- sessment of the relevance and the capacity
cess of upward convergence towards better of the indicators currently used by the Eu-
working and living conditions in Europe. De- ropean Commission, to account for the in-
equality dimension in the three policy areas
prominent challenges the Social Pillar aims to -
tackle, the European Semester, the EU coor- vided above, the paper provides an analysis
dination mechanism of socio-economic pol- -
icies, still lacks a comprehensive framework dressed to member states in 2019, with the
to monitor socio-economic inequalities within aim of understanding the distributional impact
member states. We address these drawbacks of the policy reforms based on the current set
and propose a new framework to tackle in- of indicators
equalities in the Semester.
With respect to traditional social and employ-
In Section 1 of this policy paper, we provide ment policies [Section 2.1], we show that the
attention remains on measuring disadvantage
Semester, which serves as a ‘toolkit’ to as- at the bottom of the income distribution, with
most of the indicators and of the recommen-
recommendations are ‘inequality proof’. We dations focused on poverty and social exclu-
sion, i.e. on individuals at the bottom of the
three main policy areas: 1) social and employ- income distribution. By contrast, no attention
ment policies [Section 1.1 is paid to the declining condition of intermedi-
and economic policies [Section 1.2]; and 3) ate segments of the population (the so-called
taxation policies (including labour, corporate ‘squeezed middle). Indicators on job insecuri-
and capital income taxes, taxes on immovable
RECOMMENDATIONS ADDRESSING INEQUALITIES
Policy interventions that address the effects of the socio-economic polarisation of
the society (the declining position of the middle class) both directly (through explicit
social policy mechanisms) and indirectly (through the effect of economic policies
on the social sphere & considering the net effect of taxation
Socio-economic issues Feedback loop The net balance
beyond poverty and between the ‘economic’ between ‘paying in’ and
social exclusion and the ‘social’ ‘getting the rewards
INEQUALITIES IN THE EUROPEAN SEMESTER
5which interest an increasing portion of individ- Finally, with respect to taxation policies [Sec-
uals living in Europe, are missing. Finally, the tion 2.3], we show that the indicators used
focus on inequality of opportunities is missing by the Commission are adequate to the pro-
in social investment areas, such as childcare gressivity of the taxation system. However, our
and the accessibility of social services. analysis shows that the attention of the coun-
-
Concerning the macroeconomic recommen- sivity of personal income taxation is primarily
dations [Section 2.2], our analysis reveals a
persisting focus on budgetary stability and of the labour market, rather than toward re-
debt reduction, in particular in health and pen- distributing resources (especially on middle
and lower-middle groups). Most of the rec-
overall inequality, as well as a limited focus on ommendations do not have an explicit focus
public investment. The current Macroeconom- on progressive taxation, proposing a non-de-
ic Imbalance Procedure (MIP) scoreboard is
devoid of macroeconomic indicators that take addition, we show inconsistences between
into account the inequality dimension. Regard-
(e.g.inheritance and high-income taxation),
highlight that, even though the macroeconom-
recommendations.
not ask for explicit cuts and reductions in pub-
states’ capacity to use public resources to re- above, we propose nine recommendations on
distribute and conduct public investments, by
setting tight constraints and setting the limits address inequalities.
of governments’ initiative.
RECOMMENDATION RECOMMENDATION RECOMMENDATION
GROUP 1 GROUP 2 GROUP 3
Integrate the focus on Consider the redistribu- Link the spending and
social exclusion by tive effects of economic funding sides of the re-
considering the rising policies by creating a distribution mechanisms
socio-economic insecu- bridge between the by considering the re-
rity affecting the majority economic and the social distributive effects of
of the population, in aspects taxation
particular the declining
lower-middle class in
Europe
6 INEQUALITIES IN THE EUROPEAN SEMESTERthe Stability and Growth Pact; c) involve the
1-2-3), we propose to include new indicators social actors in a formalised way in the drafting
in the Semester in order to: a) capture the de- process of the macroeconomic recommenda-
clining quality of work among the majority of tions.
workers (job-status insecurity, job quality and
work representation); b) assess households’ Finally, as concerns the third groups of recom-
mendations (no. 7-8-9), we recommend: a) an
c) measure income and wealth inequality pre expansion and consistent use of progressive
and post taxes. taxation recommendations that are currently
made only for countries with very regressive
In the second group of recommendations (no. taxation arrangements; b) a coordinated ap-
4-5-6), we propose to: a) integrate new auxil- proach to EU tax erosion and taxation dump-
iary indicators in the MIP to monitor household ing; and c) expand the tax base using new
- areas (e.g. environmental taxation) in a pro-
work and especially the expenditure rules of gressive way.
INEQUALITIES IN THE EUROPEAN SEMESTER
7INTRODUCTION
Since its inception, the European Semes- of the current Covid-19 crisis, the Semester
emerges as a potentially powerful instrument
- to steer member states’ national reforms,
mendations (CSRs) and annual growth sur- and especially after the adoption of the new
veys (AGSs) – on the EU’s social outcomes. Recovery and Resilience Facility within Next
Recently, a number of political initiatives have Generation EU. Indeed, the outbreak of the
proposed using the European Semester as pandemic has resulted in an exacerbation of
a mechanism to reduce inequalities (see the existing dynamics of inequality with a decline
European Parliament resolution of 16 Novem-
ber 2017 on ‘Combating inequalities as a lever job tenure and job status insecurity; an emer-
to boost job creation and growth’). gence of ‘invisible’ forms of disadvantage (e.g.
migrants, care workers and gig workers) (Fo-
This policy paper proposes a new framework -
to address inequalities through the European nally, a partial abandonment of previous mac-
Semester by considering three elements that roeconomic paradigms that, as we see below,
are currently overlooked in the way the Euro-
pean Semester is framed: inequality.
1. integrating the focus on social exclusion Our contribution will be framed in the follow-
by considering the rising socio-econom- ing way: after a brief discussion of the context
population, in particular the declining -
lower-middle class in Europe; equalities within the European Semester; the
-
2. ropean Semester and its recommendations
economic policies by creating a bridge through the lens of addressing socio-econom-
between the economic and the social ic inequalities; the third part will propose nine
aspects; recommendations in line with the new frame-
work, including a new set of indicators.
3. linking the spending and funding sides
of the redistribution mechanisms by The context: the shift towards inequality and
the European Pillar of Social Rights
taxation.
Since the mid-1990s, the social policy agen-
Despite the divergence on the qualitative im- da of the EU, inspired by the social investment
pact of the European Semester (Crespy and paradigm, has focused on human capital de-
Menz, 2015 vs Zeitlin and Vanherke, 2018), velopment and on targeting social provisions,
scholars agree that the Semester is an instru- spending around labour market outsiders and
socially excluded individuals. In this frame-
of the EU on member states compared to work, social protection has been a mecha-
pre-existing softer mechanisms, such as the nism that acts to re-include/re-insert individu-
open method of coordination (OMC) and, in als in the labour market (Begg and Berghman,
some respects, the European Social Dialogue 2002: 185). The Europe 2020 strategy and, in
(de la Porte and Heins, 2014). In the context particular, the adoption of the Social Invest-
INEQUALITIES IN THE EUROPEAN SEMESTER
9ment Package (SIP) by the European Com- tion measures. Although at the time of writing
mission in 2013, emphasise the importance
of human capital investment in order to make
social and employment policies, the Semes-
policies in place to include labour market out- ter still remains devoid of a focus on inequali-
siders (European Commission, 2013). As a ty. This does not come as a surprise since the
consequence, in part, of EU pressure, from two narratives that accompanied the Europe-
the late 1990s, European welfare states have an social strategy between 2011 and 2017,
engaged, with varying degrees and following namely Europe 2020 and the SIP, have an
explicit focus on poverty, social exclusion and
of their welfare state interventions toward so- human capital investment.
cial investment (e.g. training schemes; invest-
ment in human capital) (Vandenbroucke and The adoption of the European Pillar of Social
Vleminckx, 2011; Nikolai, 2012; Vaalavuo, Rights (EPSR) however, seems to have opened
2013; Hemerijck, 2013; van Vliet and Wang, a window of opportunity for the EU to adopt a
2015; Kuitto, 2016), even after the 2008 crisis
(van Kersbergen et al, 2014; Kvist, 2013). In Compared to the SIP, in fact, the EPSR includes
many member states the adoption of social some elements that move towards a more en-
investment policies has also been charac- larged vision of social policy: improving the
terised by the concurrent reduction of direct working conditions of labour market insiders;
cash redistribution – that is, all the types of re-instating strong minimum-income univer-
cash support that citizens receive from social
insurance and social assistance schemes –
considered ‘passive’ social policy schemes (gendered) life-course transitions.1 Further-
(Marx, 2013). more, the EPSR partially overcomes the ‘social
policy as mere productive factors’ approach
In this context, the European Semester has, which characterised the SIP, re-establishing a
since its inception, largely promoted the shift role for social policies independent from their
towards the social investment paradigm. The contribution to economic objectives. The anal-
- yses of CSRs addressed to member states be-
tions on social investment were embedded in -
an agenda which prioritised restrictive macro- tention to social protection and inclusion, and
especially a progressive abandonment of the
labour market policies that contributed to the previous approach to social policies based on
creation of an environment that is highly un-
favourable to direct universal cash redistribu- bargain decentralisation that characterised the
The adoption of the European Pillar of Social
Rights (EPSR) seems to have opened a win-
dow of opportunity for the EU to adopt a new
is about allocation of labour and employment over the lifespan, making sure that school-leavers, parents (especially mothers),
unemployed workers, older workers or the disabled can return to work as fast as possible through active labour market policies,
adequate and inclusive income protection. A traditional example is unemployment insurance schemes. The ‘stock’ function refers
to policies aimed at enchaining and maintaining human capital or capabilities over the life-course in an ageing society, by bringing
under one roof adjustable bundles of professional assistance from childcare to elderly care, including skill enhancement and
training services in case of unemployment, as well as health, family and housing support.
10 INEQUALITIES IN THE EUROPEAN SEMESTER-
expenditure rules.
skilling workers, all show a partial shift in fo-
by various authors (Galgóczi et al, 2017; Saba- cus in the Commission’s priorities (Rainone,
to et al, 2018), however, not all the principles 2020). At the same time, the activation of the
of the Social Pillar have been translated into general escape clause, which allows a tem-
measurable indicators in the Semester, nor an porary deviation from the member states’
explicit strategy to go beyond the Europe 2020 budgetary medium-term objectives (MTOs)
agenda and the SIP, with a consequent lack of in order to tackle the pandemic, directly calls
an explicit take on inequality. Furthermore, as into question the governance of the EMU and
indicated by the ‘Social Sustainability’ report opens margins of manoeuvre for a long-term
commissioned by the Employment and Social
(McGuinn et al, 2020), the EPSR presents sev-
eral limitations, such as the lack of targets set has stressed, even more than in the previous
rounds, the importance of public investments.
indicators used. The Commission puts emphasis on ‘produc-
tive’ public expenditure for “stronger and more
In this respect, the crisis caused by the out-
break of the Covid-19 pandemic seems to
have opened a further window of opportunity Commission, 2020c: 5), with the aim of en-
for a revision of the Semester monitoring and suring the provision of essential services, of
recommendations. On the one hand, the so- providing adequate income replacement, and
cio-economic consequences of the current of facilitating greater access to social protec-
crisis have indeed emphasised the need to tion. Despite the partial improvements of this
expand the coverage of social protection last cycle, now the post-Covid-19 agenda also
systems and to protect ample segments of lacks some key elements to address inequality:
the population (new groups as well as those it remains largely focussed on productive ele-
traditionally considered at risk). On the oth- ments of social policy; it lacks an understanding
of the economic-social nexus (i.e. considering
in place by member states to cushion the ef- the long-term macroeconomic implications of
fects of the pandemic has directly called the extending social protection in a macroeconom-
ic framework that is only temporarily suspend-
the expenditure rules. In this respect, the high ed); and it lacks an explicit focus on inequality
concentration of recommendations on extend- (mentioned only for taxation) and on the redis-
ing the coverage of social security systems,
activating automatic stabilisers, strengthening that we set out below to address inequality in
healthcare systems, re-establishing well-func- the European Semester lays the framework to
tioning social dialogue relationships and re- shift the focus in this direction further.
INEQUALITIES IN THE EUROPEAN SEMESTER
111. TOWARDS AN OPERATIONAL DEFINITION
OF ADDRESSING INEQUALITIES WITHIN
THE EUROPEAN SEMESTER
The topic of inequality has attracted a pletho- individuals or households within each Europe-
an member state) and horizontal inequalities
(namely cross-national inequalities, using the
inequality that can be used for reforming the core-periphery divide that is well established
European Semester and that is attached to within the European Studies literature, see An-
- tonucci and Varriale, 2020; Magone et al, 2016).
dress inequality in the framework of the Euro-
pean Semester in the following way: -
equalities in the framework of the European
Policy interventions that address the ef- Semester goes beyond the division between
fects of the socio-economic polarisation ‘economic’ and ‘social’ inequalities, to con-
of society (the declining position of the sider the mutual interaction between the two,
lower-middle segments of the popula- namely the socio-economic aspect of inequal-
tion) both directly (through explicit so- ities. Within this framework, inequalities of out-
cial policy mechanisms) and indirectly comes in economic terms (namely the distri-
- bution of income, wealth etc) are deeply linked
cies on the social sphere). The indirect to inequalities of opportunities that tend to be
element considers the allocation of re- framed in a ‘social way’ (access to education,
sources for redistribution by the state risk of poverty etc). At the same time, inequal-
in order to have a net positive balance ities of opportunities in labour market condi-
between taxation and social provisions tions have clear economic implications, giv-
both intra-generationally and inter-gen- en that they involve the relationship between
erationally. workers and employers (so the economic
interaction between labour and capital). Fi-
-
ty that captures the emerging evidence of the debate on the mechanisms of contributions
declining position of individuals in the middle and on how (through taxation of wealth and
of the wealth and income distribution (Piketty, income) inter-generational and intra-genera-
2014; Milanovic, 2016) and considers how the tional inequalities can be addressed or repro-
European Semester intervenes both directly duced through public policies (see Atkinson,
(through explicit social policies) and indirect- 2014). Our framework to address inequalities
-
posals:
inequalities (variations in outcomes among
12 INEQUALITIES IN THE EUROPEAN SEMESTER1.1 ADDRESSING THE GROWING contracts in the total jobs created within each
country. The highest incidences of temporary
EUROPEAN SOCIETIES BEYOND contracts are in the Netherlands, Poland, Por-
POVERTY AND SOCIAL EXCLUSION tugal, and Spain: between 21 and 27 per cent
of the working age population (which is higher
As mentioned earlier, addressing social exclu- than the OECD average of 11.5 per cent) (ter
sion has been a popular paradigm in EU social Weel, 2018); temporary employment contracts
have also sharply increased in France and It-
(Begg and Berghman, 2002) and then inte- aly (ibid). Furthermore, as described by Gallie
grated into the European Semester, at least in (2017), the 2008 crisis period transformed the
its ‘socialised’ version (Zeitlin and Vanherke, quality of work, leading now to greater work
2018). Quantitative targets for reducing pover- intensity, less autonomy at work and a recon-
ty and social exclusion have been adopted by
the Europe 2020 agenda (reduction of individ- and employers. There is also a more hidden,
and pernicious, form of insecurity concerning
to 20 million by 2020) and these targets have ordinary workers: job status insecurity, or the
been incorporated into the European Semes- growing threat to working conditions of em-
ter, as the governance process of Europe 2020 ployed individuals. This refers to all aspects of
(Copeland and Daly, 2018). Social exclusion
and poverty are so central to the EU social
policy framework that both positive (Jessoula, compensation, a worsening relationship with
2015; Zeitlin and Vanherke, 2018) and more management, an unreasonable work–life bal-
sceptical (Copeland and Daly, 2018) analyses ance, and so on. This ‘hidden form’ of employ-
of the European Semester regard poverty and ment insecurity is becoming highly prevalent
social exclusion as the backbone of European in the workforce (Gallie et al, 2017).
social policy.
In addition to this, we are witnessing the
Why should the EU expand its strategy to ad- speedy development of a new grey area of
dress socio-economic inequality? labour market work, namely informal work,
self-employment or gig economy work. Gig
The social inclusion paradigm was a prod- workers are workers who perform short on-de-
mand ‘tasks’ for customers (the gigs), often
- through the mediation of digital platform busi-
ployment rates and, above all, a much higher nesses. Gig economy workers are general-
capacity of employment to lead to social in-
tegration. In particular, there has since been therefore, in addition to the labour market
an increase in employment insecurity and risks described above, they are also unable to
‘job tenure insecurity’, which is connected to access most labour protection mechanisms
available to employed individuals (Colin and
Palier, 2015). While the size of the gig econo-
Greece, the employment rates in Europe just
before the onset of the Covid-19 crisis were
higher than they were before the crisis of
2008. However, the quality and composition this sector involves about 8-12 per cent of
of the job market and working conditions are workers across Europe (Huws et al, 2017). As
indicated by the report of the CLASS (Centre
increasing share of temporary employment for Labour and Social Studies) think tank, the
INEQUALITIES IN THE EUROPEAN SEMESTER
13-
market insiders.
available to this segment of the population
in particular self-employed workers, workers (Kochhar, 2017; OECD, 2019). The fortunes
in zero-hours contracts, agency workers and of lower-income groups 1991-2010 have also
other casual workers (Shaheen and Jesse,
2020). Milanovic’s (2016) global analysis of income
evolution, the relative loss for middle-income
The increase of self-employment has con- groups in Europe has been greater (Kochhar,
tributed to overall income polarisation, as 2017). This has led authors to theorise about
self-employed individuals are over-represent- the disappearance, or the dramatic decline,
ed at the bottom and the top of the income
distribution (Schneck, 2018). Adding insult to the erosion of middle income and wealth re-
injury, not only were self-employed workers hit turns, explained mostly through the evolution
the hardest by Covid-19 lockdowns, but they of wages (Vaughan-Whitehead, 2016). The
also face barriers in accessing emergency
interventions available to employed workers the ‘squeezed middle’, a term used to de-
(Anderson, 2020). scribe the intermediate social position of ‘or-
dinary’ families with intermediate/upper-in-
- termediate levels of education, and stable
jobs, but which face an increasing challenge
not only labour market outsiders, but also in maintaining their lifestyles (Parker, 2013).
labour market insiders, overcoming the di- These middle-income groups have been
vision between outsiders and insiders in
the social investment agenda. Crucially, it of the European economy after the 2008 cri-
has contributed to the decline of the middle sis (Deutschmann, 2011), as indicated by
class or to the emergence of the so-called
‘squeezed middle’. We now have solid ev- -
idence that the fortunes of the middle-class actions via a bank account; saving to meet
are shrinking in Europe, in particular due to
the loss of aggregate household income by income; investing in a pension; and avoiding
middle-income households between 1991 and reducing debt (Kempson and Collard,
and 2010 in most European countries, as a 2012). As underlined recently by Demertz-
result of declining wages, rents and pensions is et al (2020), European societies are also
The call for an integration between social
-
ploration of how social investment policies
can be potentially extended to the majority of
14 INEQUALITIES IN THE EUROPEAN SEMESTERAn integration between the economic and
social dimensions of the Semester is neces-
sary to consider the net balance of the for-
mer on the latter.
1.2 CONSIDERING THE LOOP
- EFFECT OF ECONOMIC AND
ly to occur during a pandemic. The decline SOCIAL POLICIES
of the middle also has important political ef-
fects: as demonstrated by several publica-
tions (Antonucci et al, 2017; Kurer, 2020), a inequality concerns the divide between the
threat of economic decline (not just material economic and the social, and the neglect of
hardship in itself) among the majority of the their interdependence.
population is also driving support for populist
and anti-establishment formations that tend Crespy and Menz have noted that EU “social
to hold eurosceptic views. policy is becoming increasingly … subsumed
to economic objectives focused on compet-
The stagnant fortunes of low-income groups,
and the declining position of middle-income -
groups, both call for policies that diverge from spy and Menz, 2015: 199–200). According to
business-as-usual. The ‘integrated’ focus on Copeland and Daly, the European Semester
the ‘low’ and ‘middle’ income groups we pro- has contributed to subjugating other policies,
including social policies, to macroeconomic
criteria (budgetary discipline and correcting
provisions. This evolution overcomes the ap- macroeconomic imbalances) (Copeland and
proach centred on targeting and means-test- Daly, 2018 150). The evidence of a sociali-
ing in poverty and social exclusion policies, sation of the European Semester (Jessoula,
which have not succeeded in meeting the Eu- 2015; Zeitlin and Vanherke, 2018) focuses on
rope2020 goals of reducing poverty. As pointed the development of the social policy pillar and
out by several scholars, the targeted approach its increasing importance within the European
Semester framework. An important element
that is missing, however, is the mutual interac-
and reducing inequality through cash transfers tion between the two areas – ‘economic’ and
and mechanisms of compensation; second, ‘social’ – that have been developed as sepa-
- rate silos. What we are proposing is consider-
ty and redistribution policies (Cantillon, 2011; -
Cantillon and Van Lancker, 2013). The call for mester recommendations.
an integration between social investment and
inequalities (Pintelon et al, 2013) requires an To explore the relationship between the social
exploration of how social investment policies and the economic, some authors have anal-
can be potentially extended to the majority of -
the population, including both those at risk of egies. Copeland and Daly (2018), for example,
poverty and the ‘squeezed middle’. have distinguished between social policies
INEQUALITIES IN THE EUROPEAN SEMESTER
15Regressive or progressive
effect of economic
recommendations
ECONOMIC SOCIAL
Social policies to correct
market failures or support
market developments
Figure 1. The interaction between economic and so-
cial policies
oriented to supporting market developments
(pure ‘social investment’ policies) and social -
policies correcting market failures (using the ic CSRs formulated through the European
old ‘redistributive’ framework). Another import- Semester for socio-economic inequalities.
As suggested by Byrne and Ruane (2017),
policies, distinguishing between those that are spending on services reduces inequality and
progressive in terms of social policy impact, therefore cuts in public spending on services
and economic measures that are regressive
packages in Europe by Theodoropolou and SOLIDAR Social Rights Monitor showing a re-
-
ample in Greece), housing, care services and
disability services in many European countries.
Indeed, macroeconomic policies directly af- -
fect spending on services, which are crucial
in reducing inequality. An integration between
the economic and social is necessary to con- countries (OECD, 2018). Our analysis is not
sider the net balance of the European Semes- therefore limited to measuring access to ser-
ter (a macroeconomic imbalance procedure) vices per se (in line with current EU recommen-
on the social sphere. dations), but takes into account the regressive
16 INEQUALITIES IN THE EUROPEAN SEMESTER1.3 CONSIDERING WHO PAYS FOR yond the UK: the falling wage share has oc-
STATE PROVISIONS AND WHO curred across Europe and has been borne
RECEIVES THE REWARDS in the UK and elsewhere in Europe almost
entirely by middle- and lower-paid employ-
ees (in the UK the bottom 60 per cent of
earners, in Germany the bottom 55 per
- cent, in France the bottom 57 per cent and
tion of the dynamic of income inequality (Mila- in Denmark the bottom 65 per cent). The
novic, 2016). As stressed by Atkinson, part of other side of this coin is the fact that the
the importance of the recent focus on wealth share of income accruing to the top 1 per
concerns the need to focus on the inequali- cent and 5 per cent has increased and has
ty of economic resources, going beyond the not been counter-balanced by an increase
focus on inequality of opportunities empha- in taxation focussed on these groups.
sised in the previous social investment focus.
Indeed “even if there were competitive equal- The analysis shows that countries in which
ity of opportunity, the reward structure is too total tax revenues are a relatively high pro-
unequal and that ex post inequality needs to portion of GDP tend to be countries that
have a relatively low degree of inequality
at the reward/paying structure, this dimension (compare this to EU macroeconomic rec-
will consider both who contributes to public ommendations on competitiveness). A
- broad tax revenue is particularly import-
gressive taxation is a crucial element of this
increases access to services, which, as
during the post-second world war period was seen in the previous section, tends to re-
not achieved only through redistribution, but duce overall inequality.
also through progressive taxation (Atkinson,
2014). There has been a regressive shift in the tax
burden, where a higher proportion of total
The analysis of taxation and inequality by By- tax revenues come from consumption rath-
- er than income and from labour (taxation
sive taxation’ means in practice in current wel- on workers) rather than capital.
fare states, by considering direct and indirect
There is a lack of progressivity in wealth tax-
ation. Wealth and inter-generational trans-
- mission of inequality is not bad per se – the
ganise the taxation base and the need to issue is on wealth concentration and on
redistribute towards low- and middle-in- -
come groups in order to reduce overall in- dations on taxation. Wealth dispersion can
equality. The analysis, focussed on the UK, also be used to improve the position of in-
shows that most middle- and low-income dividuals with lower-middle incomes: “The
redistribution of wealth is as much about
proportion of net household income than the encouragement of small savings at the
the richest 10 per cent of households. The bottom as it is about the restriction of ex-
changes that the authors describe go be-
INEQUALITIES IN THE EUROPEAN SEMESTER
172. WHY THE CURRENT EUROPEAN
SEMESTER DOES NOT ADDRESS
RECOMMENDATIONS
- cial inclusion and ‘tackling inequalities’
equality set out above, this second part of the
policy paper proposes an in-depth analysis
of the evolution of the Semester focusing on
the latest cycle 2019. The aim is to trace how group regards those recommendations
the issue of inequality is addressed in three that envisage the retreat of the State as
main policy areas: overall social policies (la- the key provider of social solidarity in
bour market, education and social protection
- and that involve the adoption of ‘re-
cies; and taxation policies (including labour, trenchment’ measures, such as social
corporate and capital income taxes, taxes on
immovable property, net wealth and inheri- strategies, labour-market deregulation
tance taxes, VAT and environmental taxes). To or pension privatisation. The second
group concerns the social-investment
the indicators used in the Joint Employment recommendations, which mainly aim
Report (JER) and the Alert Mechanism Report to prepare, support and equip individ-
(AMR) by DG EMPL, DG ECFIN and DG TAX- uals to increase their chances of par-
UD at the European Commission, in the three ticipating in the labour market. We then
distinguish between recommendations
will be performed by looking at the relevance oriented to the activation of the target-
of the indicators for the item addressed, and ed population (social investment acti-
their capacity to account for the inequality vation) and recommendations whose
dimension of the phenomenon measured. main objective is to provide individuals
Secondly, we perform an analysis of the coun- with skills and capabilities (social in-
vestment upskilling). The third group
member states in 2019, with the aim of under- concerns social inclusion recommen-
standing the distributional impact of the policy dations, which are intended to include
reforms addressed to member states based socially excluded and targeted groups
on the current set of indicators. in various areas (education, access to
healthcare etc). The fourth group iden-
1. With regard to the proposal of address- -
ing socio-economic insecurity beyond distributive impact, namely addressing
poverty, and by drawing and expanding emerging inequalities, redistributing
on Corti (2020), we categorise each rec- resources towards middle- and low-
ommendation contained in the CSRs er-middle groups, and having a positive
into four groups, according to the orien-
tation of the policy prescription: social in the member states (thus beyond so-
retrenchment, social investment, so- cially excluded groups).
INEQUALITIES IN THE EUROPEAN SEMESTER2. inequality of economic resources, by
policies on social policies, we draw on focusing on the progressiveness of the
Theodoropolou and Watt (2011) and -
- vide CSRs on taxation into six groups,
nance and economic policies into two according to their content: i) recommen-
main groups: progressive and regressive dations on aggressive tax planning; ii)
prescriptions. This distinction is based recommendations on labour taxation; iii)
on the overall income distributional ef- recommendations on second earners
fects of reforms of the public budgets or low-income earners’ taxation; iv) rec-
on high, medium or low incomes. We ommendations on wealth related taxes;
v) recommendations on preferential tax
those calling for budgetary cuts to public treatment; and vi) recommendations on
services or government transfers, which -
- ing tax evasion. Based on the expected
ple from lower- to middle-income house- -
holds (e.g. healthcare, pensions and ed- tation of the recommendations in three
ucation). Recommendations calling for a categories: regressive, progressive and
recalibration of welfare expenditure from neutral. Regressive taxation policies re-
traditional universal compensatory pol- fer to measures which lack progressivity,
icy to new targeted social investments i.e. they tend to collect payments or re-
is not regressive per se, but can have a sources from many equally, with a con-
sequent impact on low- to medium-in-
come as well as on high-income groups,
low- and middle-income classes, and of and with unavoidable consequences
the potential expenditure shift from one in terms of the fairness and equity of
the taxation system. Conversely, pro-
progressive recommendations as those gressive taxation policies redistribute
recommendations either calling for an resources in society from one group to
increase in public expenditure on public
services and government transfers that positive impact in terms of inequality re-
- duction (if the transfer is from higher- to
come class or calling for an increase in medium- to lower-income households).
public investments in sectors with high Some examples are the recommenda-
distributional income potential. tions on increasing wealth taxes, recon-
sidering preferential tax treatment, and
3. With regard to the side of who contrib-
Neutral recommendations are those
and is directly or indirectly rewarded by -
it, drawing on Atkinson (2014) and By- equality, such as the recommendations
rne and Ruane (2017), we look at the on tax compliance.
INEQUALITIES IN THE EUROPEAN SEMESTER
192.1 GOING BEYOND POVERTY What emerges in Table 1 is that the only in-
AND SOCIAL EXCLUSION IN THE dicator that explicitly measures economic in-
equality is the ‘Quintile ratio S80/20’, which
ON SOCIAL AND EMPLOYMENT is calculated as the ratio of the total income
INEQUALITY received by the 20 per cent of the population
with the highest income (i.e. top quintile) to
Within the European Semester, several social the income received by the 20 per cent of the
and employment indicators are used to mon- population with the lowest (i.e. bottom quin-
itor the performance of the member states. tile).2 While this indicator has the advantage of
Overall, we can identify three sets of indicators being easy to understand, it potentially omits
used to monitor the social and employment important households in the income hierarchy.
performance of the EU27 member states: the Indeed, since it is based on the outer 20 per
Joint Employment Report (JER) scoreboard, cent at both ends of the income distribution, it
which since 2017 has been based on the Pil- does not consider the whole distribution of in-
lar’s social scoreboard, the Social Protection come. In this respect, Palma (2018) shows that
Performance Monitor (SPPM) scoreboard, the distribution of inequality in Europe largely
and the Employment Performance Monitor concentrates in the bottom 40 per cent plus
(EPM) scoreboard. Table 1 in Annex II of this the top 10 per cent. Accordingly, measures
report presents the full list of social indicators of inequality that are comprehensive and that
used in the framework of the European Se- incorporate the middle groups are not always
mester, divided into three main policy areas: optimal given the prominence of the top and
bottom groups in driving distributional change.
education: childcare, primary to tertiary ed- Palma therefore suggests focussing on the ra-
ucation, adult learning, vocational training; tio of the income of the top 10 percent to the
bottom 40 per cent, or even just the share of
labour market: active labour market policies the top 10 per cent alone (Palma, 2018).
(ALMPs), social security system, wage bar-
- Inequality is not only measured by looking at
tion, gender policies, youth initiatives, pub- the Quintile ratio S80/20. Other important indi-
lic employment service, subsidy schemes, cators are the rate of people at risk of poverty
(AROP), the rate of people living in a house-
hold with a very low work intensity, and the
social protection: social transfer and social rate of people in severe material deprivation.
assistance schemes, social service organ-
isation and access, measures for combat- equivalised disposable income is less than 60
per cent of the median. The second refers to
people, who work less than 20 per cent of their
minimum income, access to healthcare. potential working time. The third indicator re-
The only indicator that explicitly measures
2 The unit of analysis is typically equivalised household income per person, not individual income. Equivalised means household
income per person is adjusted slightly to account for household composition, so two people living together and sharing costs with
a combined income of €50,000 are deemed to have a higher income than the same two people living separately with incomes
of €25,000 each. Children are also deemed to consume less than adults so that a two-adult household with €50,000 has a lower
equivalised income than the same amount spread between an adult and child.
20 INEQUALITIES IN THE EUROPEAN SEMESTERWhile it has the advantage of being easy to
households in the income hierarchy.
- tors that concern employment insecurity (for
sidered by most people to be desirable or even instance, the incidence of atypical/non-stan-
necessary to lead an adequate life. These in- dard jobs on employment, including part-time
dicators are of absolute importance for mea- -
suring inequality of outcomes, and they focus al and seasonal work, self-employed people,
especially on the bottom of the income distri- independent workers and homeworkers) are
bution. They thus look at the most vulnerable missing. Indicators on the distribution of these
in society, namely those living in conditions of forms of employment among low- or high-
poverty and social exclusion. The same holds skilled workers, and more general indicators
true for all the other indicators that are listed on the occupational class of these workers
in Table 1 in the area ‘social protection’ and should be provided in order to measure em-
refer to people at risk of poverty, measured ployment inequalities. More recently, new indi-
in terms of equivalised disposable income, cators have been added, which measure, for
and to people in severe material deprivation. instance, the rate of people in-work at risk of
Despite some concerns in terms of time lag poverty, the rate of involuntary part-time and
and volatility (Istituto per la Ricerca Sociale, temporary employment, and the rate of inac-
2016), the indicators used in the framework of tivity and part-time work due to personal and
the Semester to measure poverty and social family responsibility. However, these indicators
exclusion are widely considered robust and cannot be considered as enough to take into
comparable. account inequalities linked to employment in-
security. The Covid-19 crisis has unveiled how
As we have stressed earlier, however, so- digital literacy and access to computer devic-
cio-economic inequalities are not only linked
to poverty and social exclusion, but also to em- inequalities. Just recently, the Social Score-
board has introduced a new indicator on the
in access to services. level of digital skills among individuals aged
16-74. However, no indicators are included as
With respect to employment security, the
current scoreboard of indicators used for the the medium- to low-income workers.3
Joint Employment Report only partially focus-
es on inequality. The focus mainly rests on un- To prove the point that the current set of indica-
employment and the employment rate. Indica- tors lacks a comprehensive focus on inequali-
-
the Semester.
3 An example is indicators on the population with no access to broadband 100/20, with no internet access and no computer
devices. These indicators, which are provided by the Digital Divide Index, should be integrated.
INEQUALITIES IN THE EUROPEAN SEMESTER
21ty, we analysed the CSRs that were addressed quality of social services and on completing
the minimum inclusion income framework, as
social and employment policies, in particular
dividing recommendations into four policy ar- the integration of minorities, notably Roma,
eas: labour market, social protection, health, for instance in Hungary and Slovakia. Over-
all, however, the approach to inequality in
69% of the recommendations addressed to
member states in the sphere of labour market
focuses on the bottom distribution of income
and employability, and 7% on inclusion of dis- and mainly on marginalised groups.
advantaged groups in the labour market, but
they lack attention to inequalities. Only 21% of In addition to this, there is the problem of in-
the labour market recommendations explicit- equality in access to services. The current
ly address tackling inequalities, and mainly JER scoreboard does not indeed provide a
refer to the need to reduce the fragmentation full account of what we have called inequality
of the labour market, to promote and extend of opportunities. An example is child pover-
adequate social protection for non-standard ty. Addressing inequality of opportunities for
workers, and higher minimum wages. Atten-
tion is paid to the integration of disadvan- that primarily include precariousness of the
taged groups in the labour market, as well as family situation: child material deprivation
to providing personalised active integration and household disposable income, house-
support and facilitating upskilling, supporting hold composition (e.g. children living in sin-
women’s participation in the labour market, gle-adult household), social risks factors (e.g.
and increasing the employment rate of older children in Roma family). Children in a precar-
workers, by strengthening life-long learning. A ious family situation face several inequalities
- that can be measured in terms of inequality
in access to key social services, such as ad-
equate housing (e.g. severe housing depri-
of this policy paper – areas such as the decline vation, living in an overcrowded household,
in job quality, job tenure insecurity and, above house cost overburden), healthcare (e.g. un-
all, job status insecurity. met medical needs), early childhood educa-
tion and care (e.g. level of enrolment in formal
The area of social protection contains a high childcare and pre-primary school), and free
percentage of recommendations address- education (e.g. student performance by eco-
ing social inclusion (73%) and only a mi- nomic background) . At the moment, only two
nor percentage tackling inequalities (23%). indicators in the Semester look at children:
‘children aged less than 3 years old in formal
countering poverty and social exclusion by childcare’ and ‘children at risk of poverty or
guaranteeing adequacy of unemployment social exclusion’. These two indicators, how-
ever, are not enough to address the issue of
For example, Romania received a recom- child inequality. As for the former, the lack of
mendation on increasing the coverage and disaggregated data on access to childcare on
22 INEQUALITIES IN THE EUROPEAN SEMESTERthe socio-economic background of pupils at-
tending early childcare does not allow us to into account income distribution in a large and
measure inequality in access among children
- other indicators used to measure income re-
ing children’s poverty by looking at the indi- distribution mainly focus on the distribution of
cator on the AROP rate is problematic as we income inequalities in the bottom part of the
only consider people falling below 60 per cent population. While this is certainly of great im-
of median income, thus excluding a large part portance, it does not give us a complete over-
of the middle class. By contrast, a good ex- view of inequalities in a given society. Third, a
ample of monitoring inequality in access to large part of the inequalities related to job in-
services is given in the area of education and
training, where accessibility to education is contracts is not measured since indicators are
linked to the socio-economic background of missing. Fourth, while social investment plays
a key and central role in the Semester mon-
prescribe member states to deliver education itoring process, a focus on the inequality of
reform aimed at extending the coverage of opportunities is missing in some policy areas,
education services. such as childcare, where data on participation
in early childcare are not disaggregated by
All in all, we identify four main reasons why -
ability (e.g. out of pocket expenditure) or the
social and employment policies lack a proper accessibility (e.g. geographical, infrastructur-
inequality approach. First, the indicator cho- al) of public services.
sen to actually measure inequality presents
While social investment plays a key and central
INEQUALITIES IN THE EUROPEAN SEMESTER
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