The European social model and its variations

Political and academic discourse includes frequent allusions to an ESM in the sense of a unique form of development, shared by Western European countries and with its own profile and characteristics. For Wood and Gough (Reference Wood and Gough2006), the essence of this model is that many of the security needs of individuals can be provided through formal ‘welfare states’, embracing a combination of pensions and social protection benefits, social services and labour market regulation. Scharpf (Reference Scharpf2002) saw the ‘identity marks’ of the ESM as being generous welfare-state transfers and services together with the social regulation of the economy.

Busch et al (Reference Busch, Hermann, Hinrichs and Schulten2013) held that the ESM primarily encompasses six policy objectives. Only those three objectives related to employment or social protection are highlighted here:

1. i) pursuing a macroeconomic policy aimed at full employment;

2. ii) wage policy, allowing real wage increases to reflect productivity growth, and implementing European minimum wages to reduce the low-wage sector; and

3. iii) underpinning social security systems that provide a high level of protection in pension, health care and family policy, as well as in unemployment benefits.

According to Bilbao-Ubillos (Reference Bilbao-Ubillos2016), the ESM can be seen as a historic attempt by Western Europe to set up a system of equal opportunities (equity) with economic growth (efficiency) grounded on elements such as:

1. 1) a highly developed, publicly funded social protection system that provides citizens with a broad coverage against their main risks and needs (Aidukaite, Reference Aidukaite2009; Busch et al Reference Busch, Hermann, Hinrichs and Schulten2013; Giddens, Reference Giddens2007; Hermann & Mahnkopf, Reference Hermann and Mahnkopf2010; Scharpf, Reference Scharpf2002; Wood & Gough, Reference Wood and Gough2006)

2. 2) A greater social cohesion and equity in the distribution of income (Alber, Reference Alber2006; Jepsen & Serrano Reference Jepsen and Serrano Pascual2005; Moreno and Serrano, Reference Moreno and Serrano2009; Sapir, Reference Sapir2006; Viñals, Reference Viñals2005);

3. 3) High levels of relatively high-quality employment (in terms of decent working conditions), with efforts to shift those people suffering from exclusion back into the social and employment system (i.e., a pattern of growth of an inclusive nature), with public-sector employment carrying significant weight (Blanchard, Reference Blanchard2004; Busch et al Reference Busch, Hermann, Hinrichs and Schulten2013; Jessop, Reference Jessop2002).

4. 4) Interventions to regulate leading markets, particularly the labour market, in this case aimed at safeguarding workers as the theoretically weakest link in the employment relationship (Aidukaite, Reference Aidukaite2009; Busch et al Reference Busch, Hermann, Hinrichs and Schulten2013; Esping-Andersen, Reference Esping-Andersen1989, Reference Esping-Andersen1990; Hermann & Mahnkopf, Reference Hermann and Mahnkopf2010; Scharpf, Reference Scharpf2002; Wood & Gough, Reference Wood and Gough2006).

In terms of real evidence, Betcherman (Reference Betcherman2012) provides an exhaustive review of more than 150 empirical research studies into the impact of labour market institutions on living standards, productivity, and social cohesion. In most cases, the analyses reveal that the impacts of institutions on the workings of the labour market are lower than suggested by theory (and intuition) while frequently improving the conditions of the population.

Based on the work of Esping-Andersen (Reference Esping-Andersen1990), three models of the welfare state have emerged (each representing different variants of the ESM): the liberal or Anglo-Saxon model (which included the United Kingdom and Ireland), the continental or corporatist model typical of Central Europe (France and Germany, among others), and the social-democratic or Scandinavian/Nordic model (Sweden and Denmark, among others). Later, the Mediterranean model (specific to Southern Europe, shared by Spain and Italy, along with Portugal and Greece) was conceptually added. However, even within these archetypes, scrutiny of spending on social protection and at its main functions reveals substantial differences between these countries in both intensity of protection and the prioritisation of functions. France has a level of protection, which is higher than the EU average in all functions, while in Italy protection is higher only for Old Age and Unemployment, in Germany only for Sickness/Health and in Spain only for Unemployment (Eurostat, SEEPROS), although it is also true that the post-2004 accessions have put further pressure on the ESM: Living standards are clearly lower in the 13 MS that most recently joined the EU and capacity to fund generous benefits for the citizens has proved challenging for these countries. The heterogeneity of the EU is now greater than ever, and the decision-making process has become increasingly complex for the 27 MS.

Measures adopted during the management of the Great Depression having an impact on the national variants of the ESM

As part of their crisis exit strategy, the EU institutions adopted decisions (based on austerity policies), which may have been crucial for the survival of the ESM (Bilbao-Ubillos, Reference Bilbao-Ubillos2023a, Reference Bilbao-Ubillos2023b), but which have slipped under the radar of public opinion and have not been explicitly debated. Martins Barroso (Reference Martins Barroso2017) points out how the reforms for economic recovery were aimed at restructuring welfare models, mainly the legislation and functioning of labour markets; these affected South European countries in a very detrimental way. She mainly alludes to reforms in firing costs and hiring methods that would make hiring somewhat cheaper, in order to protect employment. Burda and Hunt (Reference Burda and Hunt2011) show that wage moderation, working time accounts, and reductions in working hours helped to maintain the level of employment in Germany during the recession. In the UK, wage moderation was how the country adapted to the negative impact caused by the recession (Dolado, Reference Dolado2012).

According to Lallement (Reference Lallement2011), coordinated market economies (e.g. Germany) have privileged internal flexibility with measures such as decreasing the workday to maintain employment levels. In contrast, liberal market economies (the UK) have implemented measures of external flexibility, such as layoffs, as a way of stimulating the labour market. In Mediterranean economies (Spain and France), the responses have combined both types of flexibility, making employment more precarious. Grahl and Teague (Reference Grahl and Teague1997) had already cautioned at the time that, for example, the Works Council Directive would, in practice, impose only a few new constraints on the large companies targeted by the legislation. Overall, the absence of mandatory protective measures in the EU has facilitated the implementation of policies that undermine working conditions.

Before the Great Recession, Ferrera et al (Reference Ferrera, Hemerijck and Rhodes2001) believed that the pressure on the ESM did not stem so much from the phenomenon of globalisation (with the threats from financial market liberalisation, tax competition, and the increased international mobility) but from restrictions operating at the national level (the combination of national debt and spending limits, plus domestic tax resistance), which significantly hinder the development of expenditure-based social and employment policies in certain countries. Likewise, Grahl and Teague (Reference Grahl and Teague1997) asserted that the disparities within the ESM were due not to differing adaptation strategies but to variations in initial conditions.

Nevertheless, over the past two decades, external pressures from globalisation (such as the sharp rise in risk premiums on sovereign debt between 2009 and 2011 for most EU member states, and the credit crunch, coupled with revenue losses due to aggressive tax planning by large corporations) and the European crisis exit strategy, have all eroded the levels of protection for workers and citizens in the absence of a proactive EU approach to preserving the content of the ESM. In the words of Lallement (Reference Lallement2011), the models of ESM may have completely metamorphosed. In any case, it is questionable whether the ESM has actually favoured inclusive, equitable growth, namely the expected combination of equal opportunities (equity) and economic growth (efficiency) in the past two decades, particularly during the recovery period after the Great Recession.

The survey on income and living conditions (SILC) offers insight into the employment landscape and job quality by examining factors such as temporality, duration or contract type. The SILC enables the creation of several poverty variables. In-work poverty occurs when the income of a household, where at least one member is employed, falls below an accepted poverty line (i.e. with an equivalised disposable income below the at-risk-of-poverty threshold, which is set at 60% of the national median equivalised disposable income after social transfers). According to the International Labour Office, the problem for these in-poverty workers is typically one of employment quality. At-risk-of-poverty includes people who are working or living in households where some are employed, as well as people without any work (retired or unemployed individuals).

Is low-paid employment increasing?

Despite the fact that the ESM is associated with high-quality employment and employment levels have been recovering since the crisis, low-paid employment has increased, which means people are earning less even if they work the same number of hours. The economic recession suffered from 2008 onwards affected mainly low-skilled and low-wage workers employment; unemployment for them was much higher. However, the weight of this type of work has not increased during the analysed period. Italy and Spain have a higher incidence of low-wage employment (in 2004, they had 18.9% and 24.7%, respectively, and in 2022, 18% and 20%Footnote ¹ of salaried workers), but the main difference is that they have a lower level of high-quality employment (19% and 23.8%, respectively) than other countries such as Germany or France (26.6 and 30.6%,Footnote ² respectively).

Is part-time employment increasing?

The increase in poverty could be due to the increase in part-time employment at the expense of full-time employment (again, a problem with job quality). There has been a widespread increase in part-time work, particularly in Spain and Italy (where initial levels were very low), but also in Germany. In the UK, part-time employment had a higher increase in earlier periods.

The European Parliament Report (2016) on precarious employment and its trends reveals that around 15% of part-time workers in Germany work fewer than 20 hours per week (this is known as marginal part-time work). However, it is in Spain and Italy that such marginal work has increased the most (European Parliament Report 2016, 77, graph 13); moreover, these two countries have the highest proportion of involuntary part-time work in the EU after Greece (European Parliament Report 2016, 78, graph 18).

Part of the increase in in-work poverty stems from this type of employment: In 2022, 21.2% of part-time workers in Spain (and 19.9% in Italy) lived in households where their income did not enable them to lift themselves out of poverty. That year, around 2.6 percentage points (pp) of poverty in Germany and 2.7 pp in the UK (2020) are explained by increasing numbers of part-time jobs. In Italy, Spain, and France, the influence is slightly lower.

Is employment being lost?

A further reason for the poverty increase is that some people may have lost their jobs. If that occurs, then fewer household members in work, or more financially dependent individuals, can make everyone in the household poorer (a failed macroeconomic policy aimed at full employment).

According to data from Eurostat, employment decreases are only significant in Spain (where net job losses between 2008 and 2013 represented 16,3% of total employment) and, to a lesser extent, in Italy (where 3.9% of employment was lost in the same period). Nevertheless, in both countries, employment recovered essentially by 2022 (though not in terms of the employment rate – Italy – or hours per person – Italy and Spain). Elsewhere the decline in employment was much lower (0.54% in France), and jobs losses were recovered very quickly. In Germany and the UK, there was net job creation. This is probably linked to population growth (immigration), as it involves younger individuals with higher participation rates.

Have wages fallen for some workers?

The poverty increase may also be due to a decline in wages for some workers (a theoretical failure of the intervention aimed at safeguarding workers and of egalitarian wage and social policies). The mean and median hourly earnings (in PPS: power purchasing standard) were contained during the management of the financial crisis, with a growth close to 1% per annum (Eurostat, 2023a). All years considered, Spain has the lowest average and median hourly wage, although there has been a slight convergence, with growth being somewhat higher than in other countries (Italy and France). Despite this, in 2018, the hourly wage (in euros) in Spain by 2018 was still only 66-70% of that in Germany. The only country where both wages calculated in PPS fell in the years considered is the UK.Footnote ³

Part of the wage trends observed may be attributed to shifts in employment composition during periods of significant employment changes, as seen in Spain and Italy. Some of the wage growth in these two countries, at the beginning of the recession of 2008, was caused by the elimination of low-wage jobs that had been established in previous years. In the economic recovery, we seem to be observing a reverse effect: increases in cheap employment mean that average wages are falling or at least growing more slowly.

To what extent are poverty levels reduced by social transfers? Were such transfers more generous during the crisis?

Social transfers increased due to the decline in non-labour income for households. It is important to consider the extent to which these transfers act cyclically and whether they are adequate to lift recipients out of poverty.

Institutional and political factors are fundamental in understanding the links between economic crises and inequality. The welfare state model and its institutional structure are determinant in explaining why inequality has increased more in some countries than in others. The economic crisis had very different repercussions on income distribution from one country to another. This shows that the domestic public sector policies and institutions of each country have a determinant influence (Smeeding & Thompson, Reference Smeeding and Thompson2010; Jenkins et al Reference Jenkins, Brandolini, Micklenright and Nolan2012; De Beer, Reference De Beer2012; Obst, Reference Obst2013).

Graph 1 above shows that the welfare state model explains the differences in the degree of redistribution in different countries well, in terms of the welfare system in each one.Footnote ⁴ As shown in Graph 1, France and Germany are in the group with high levels of redistribution in social policies, while Spain and Italy are in the low-level one.

The impact of social transfers is substantial and remains relatively constant between 2008 and 2020 in most countries. Spain shows an improvement between 2008 and 2010: unemployment soared with the recession, as did unemployment benefit spending. UK and France are the countries that have achieved the greatest reduction in poverty through social transfers. By contrast, Spain and Italy – which show the highest levels of poverty – have social protection systems with a lower redistributive effect.

As Southern European countries experienced the hardest crisis hit in the EU, reforms to revitalise their economies were broadly aimed at restructuring their welfare systems and the functioning of their labour markets.