Category Archives: Welfare

Why is Portugal lagging behind all other European countries in educational attainment?

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Average Years of Total Schooling in 27 countries, 1950-2010, Population 25 and over (Source: Barro and Lee)

I don’t have the answer. I have just been playing with Barro and Lee’s dataset on education attainment. As the name indicates, it covers education attainment in 146 countries between 1950 and 2010 for different age groups. The two charts above show the average years of schooling of the population 25 and over since 1950 in 27 countries. I know that the first graph  is difficult to read, but the point is to show Portugal’s outlier status in comparison with all other European countries. With 7.73 years of schooling on average, the Portuguese workforce was the least qualified in the EU in 2010; the average for the countries showed in the graph is 10.62. Portugal started below everybody else in 1950 (compulsory schooling under Salazar was 4 years, and many were simply not enrolled) but I cannot really understand why it is still lagging behind Spain, which started from a similar position, namely a long fascist dictatorship keen on maintaining a docile and uneducated populace.

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The three graphs below show the population (25 and over) between 1950 and 2010 in Portugal, Spain, and Sweden (as a point of comparison for “advanced” countries) by highest degree attained (but not necessarily completed). Even if a higher proportion of the Spanish population had no schooling at all in 1950, this share has been reduced dramatically while it has remained at high levels in Portugal. According to the data, 11.5% of the Portuguese population had no schooling at all in 2010, and 46% had gone through primary schooling only. The corresponding numbers are 1.6 and 25% in Spain, and 1.6 and 11% in Sweden. This happens in spite of the fact that Portugal has a fairly low student-teacher ratio and has invested massively in education over the past few decades. However, as the number of PhDs has exploded, the problem of low skills at the bottom is still huge. As we know, low productivity is a big problem in Southern Europe, and this is probably strongly related to low education levels. Cuts in spending certainly won’t help to solve this problem.

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La Suisse est le pays d’Europe qui redistribue le moins

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Inégalités de revenu avant et après impôts et transferts

AvenirSuisse a publié aujourd’hui une étude sur les inégalités en Suisse, pour contrer l’initiative 1:12. Ils affirment que les inégalités salariales en Suisse sont les plus basses de l’OCDE. D’après les données du Luxemburg Income Study 2005 (le graphe est basé sur les données de Lane Kenworthy, University of Arizona), c’est le cas seulement avant impôts et transferts. Les données datent en peu, mais on ne peut pas s’attendre à des changements fondamentaux. Après impôts et transferts, la Suisse est dans la moyenne en termes d’inégalités de revenu. Ce qui est particulièrement intéressant, c’est que la Suisse est le pays européen qui redistribue le moins, notamment en raison de beaucoup d’éléments régressifs, comme les primes d’assurance maladie. Seuls les Etats-Unis et le Canada redistribuent moins.

MISE A JOUR: J’ai trouvé des données plus récentes dans le récent rapport de l’OCDE sur les inégalités. Les résultats (basés sur ces données) sont similaires. Après impôts et transferts, la Suisse n’est pas plus égalitaire que les pays nordiques, contrairement à ce qui est sous-entendu ici.

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Portugal’s Political Crisis, or the Ordeal of Junior Coalition Partners

On Monday, the Portuguese Finance Minister Vitor Gaspar resigned. Gaspar was the main architect of  Portugal’s austerity drive since its bailout two years ago. His political charisma was akin to a flat bike tyre, but he was considered a major guarantee of credibility for the Troika and Portugal’s creditors. Apparently, he had already asked to resign last year after the constitutional court invalidated a number of the austerity measures contained in his budget for 2013. However, his resignation was then denied by the Prime Minister Pedro Passos Coelho.

Yesterday, the Minister for Foreign Affairs and leader of the minority coalition partner CDS-PP, Paulo Portas also asked to resign to protest against the nomination of Gaspar’s replacement, Maria Luis Albuquerque. Earlier this year, he had already expressed his disagreement with some of the austerity measures carried out by his own government, notably an increase in the taxation of pensions. This would badly hurt his traditional electorate of pensioners, but he acquiesced because it was a condition imposed by the Troika.  Since he is the leader of the minority coalition partner, it would have been difficult to imagine his party staying in the coalition, and early elections were probably the most likely outcome. However, once again, Pedro Passos Coelho refused Portas’s resignation, saying it was premature. Passos Coelho said he wouldn’t resign either despite the unpopularity of his government. We don’t really know what’s going to happen now. Passos Coelho said he would talk to the CDS-PP to maintain a majority, but all its ministers seem to have their resignation letter ready. Nobody knows what’s happening next, but Portuguese bond yields have soared, making another bailout quite likely.

There are two conclusions that can be drawn from this.

First, excessive employment protection may indeed really be a problem in these PIGS countries. Two ministers want to quit (perhaps to do something more productive, like pet food taster or nude cruise worker), and they simply won’t let them. However, this may only apply to ministers, because liberalising the labour market doesn’t seem to improve things for everybody else.

Second, this shows the dilemma of small parties like the CDS-PP when they coalesce with conservative parties that implement austerity. Even if there is no real populist radical right party  (PRRPs) in Portugal, the electorate of the CDS-PP is pretty similar to that of PRRPs elsewhere in Europe: pensioners, farmers and other groups that often depend on government transfers. These parties have electorates that are attached to the welfare state, but they can only coalesce with right-wing parties that are likely to retrench it. As a consequence, they take the blame for policies that they don’t really want in the first place. Something very similar happened with the Austrian FPÖ when they were in a coalition with the conservative ÖVP between 1999 and 2006. They supported a number of retrenchment policies which hurt their own electorate, and the party collapsed in 2002, giving birth to a splinter group, the BZÖ. More recently, in the Netherlands, Geert Wilders’s PVV agreed to support the first (minority) right-wing cabinet of Mark Rutte (VVD) without formally taking part in government. The government engaged  in harsh austerity measures in the aftermath of the financial crisis, and Wilders eventually withdrew his support because of disagreements about the size of austerity measures, notably about pensions, causing the cabinet to fall. In the following elections, the PVV lost a third of its votes. Similarly, even if their electorate is different, the electoral prospects of the Liberal Democrats in the United Kingdom look fairly grim after they had to betray a number of their electoral promises, notably not to raise tuition fees. For these parties, it seems really difficult to hold office and keep voters at the same time.

I have met Pre-distribution. It Wears Clogs, Eats Chocolate, and Works Part-Time.

Predistribution” is Labour’s new policy buzzword. It’s been all over the news. Policy Network has events and publications about it, the BBC talks about it, Ed Milliband talks about it, David Cameron ridicules it. Predistribution is supposed to be the new silver bullet for the centre-left, the agenda that will both create social justice and appeal to voters. But how would it work in the real world?

The traditional tool advocated by the left to ensure more equality has been re-distribution. Basically, you let the market do its thing, tax it, and use cash transfers to redistribute the revenues to the poor. The problem with redistribution is that it can never fully compensate for the externalities that the market creates. Moreover, it is increasingly difficult to sell politically, especially in countries like the United Kingdom. In the UK, the middle class doesn’t really have an interest in redistribution because most social schemes are means-tested, and benefits are mainly targeted at the poor only. If you lose your job, you’ll be entitled to Jobseekers’ allowance (56£ or 71£ a week) independently of your previous income. In fact, the drop between unemployment benefits and middle class incomes is so big that the middle class cannot really count on the welfare state as a safety net. They pay for it but don’t get much in return, which tends to create a hostile attitude towards it despite its residual features. As a result, even left-wing politicians are not so keen on it. For instance, Ed Milliband recently said that he would stick to the welfare cap introduced by the coalition. This is what Swedish sociologists Korpi and Palme called the paradox of redistribution: the more you target benefits at the poor to reduce inequalities, the less you actually reduce them.

Pre-distribution, by contrast, seeks to reduce inequalities within the market, in order to lower the need for redistribution. Because “mopping up” after the market through taxes and transfers is subject to political backlash, you need to get the market to distribute wealth more equally in the first place. The policies needed to make pre-distribution possible, however, are not very clear. Hacker emphasises “getting the macro-economy right”, ensuring “quality public services”, and “discovering a new set of countervailing powers in the market”. As far as one can tell, pre-distribution is a project whose policies still need to be invented. But does it exist in the real world?

Pre-transfer, pre-tax income inequality, 1979-2005

Source: Kenworthy 2009 (http://bit.ly/10u3JXU)

According to data from the Luxemburg Income Study, there are two countries where pre-tax, pre-transfer market inequalities have either decreased or stayed at particularly low levels between 1979 and 2005: the Netherlands and Switzerland (Figure 1). By contrast to Scandinavian countries, which rely quite heavily on taxes and transfers to fight poverty, the Netherlands and – especially – Switzerland do not rely that much on redistribution. In fact, due to strong regressive elements in its transfer and tax system, Switzerland hardly redistributes at all, on par with the US, and its market outcomes are fairly equal in the first place.

In a forthcoming chapter co-authored with Jelle Visser, we outline the mix of policies that have allowed these two countries to achieve low levels of inequality without the high taxes and transfers found in Scandinavia. In a nutshell, the recipe is a combination of high female employment underpinned by access to part-time work, and welfare and skill production regimes which lift incomes in the bottom half. They are good examples of what Kenworthy calls the high-employment road to low inequality, a variant of predistribution.

First, you need high employment rates. The rise of inequality in the West has been underpinned by an increase in the number of high-earners with two incomes, and an increase in the number of low-earners with only one income, or no income at all. These, in turn, need cash transfers. If you reduce the number of households with no or only one income by boosting the employment rate, then you reduce market inequalities. The main tool used to do this in the Netherlands and Switzerland has been part-time employment. These two countries have the two highest proportions of part-time employment in the OECD, and among the highest  female employment rates. These two things go hand-in-hand: since they don’t have the publicly subsidized childcare facilities available in Scandinavian countries, part-time employment has been the main channel for women to access employment. For this, however, you need childcare which makes work pay. If their wages are lower than the cost of childcare, it makes little sense for one of the parents to work.

Second, you need institutions which lift up incomes in the bottom tier of the labour market. This can be done either with earnings-related unemployment insurance which provides for higher reservation wages, a greater role for collective bargaining, or – probably more importantly – greater collective investment in occupational skills. What underpins income inequalities in the UK is the prevalence of a low-skill, low-wage, low-productivity service sector caused by 30 years of de-regulation. There has been a massive expansion of higher education, but skills at the bottom have lagged behind. In the construction sector, for instance, a large part of the workforce is outsourced, formally self-employed to bypass social security contributions, and craftsmen have to be sourced from abroad because companies don’t provide training. In countries like Switzerland or the Netherlands, by contrast, vocational training and apprenticeship systems ensure a higher level of skills at the bottom end of the labour market, and therefore higher wages. Vocational training also provides for particularly low levels of youth unemployment. In the UK, low means-tested benefits lead jobseekers to accept any job as fast as possible, even at lower wages. In continental Europe, earnings-related benefits give more leeway to select better jobs, ensure a better allocation of workers, and prevent wages below the living wage.

These measures do not involve an actual redistribution of wealth, but rather ensure a more equal distribution of it within the market. Because low wages in the UK eventually cost massive amounts of public money through tax credits, better skills at the bottom and easier channels for women’s employment could also be implemented in a context of austerity. Of course, the Dutch and Swiss social models should not be idealized. Dutch households now have the highest mortgage debt in Europe. Austerity policies have now partly undermined some of the policies (e.g. childcare) that had allowed for the employment boom of the 1990s and 2000s. Swiss employment success relies partly on very high levels of immigration which have planted the seeds for the strongest radical right party in Europe. But since the high tax/high transfer policies of Scandinavian countries seem difficult to implement elsewhere, some of their “predistribution” policies may be a more realistic path to follow.