Convergence of Social Protection Reviewed

Abstract

Cornelisse and Goudswaard (2002) showed that there has been a tendency of rather strong convergence of social protection systems in the European Union and in other OECD countries over the last decades. This convergence was mainly caused by the increasing size and generosity of the welfare programs in almost all countries. The authors call this relative convergence. In absolute terms, the values of the social benefits paid as a percentage of GDP did not show any convergence. Differences in expenditure ratios between countries were still quite large at the end of the 20th century. However, they also mention that the indicators they used for their analysis (gross public expenditure on social benefits and gross replacement rates) may not be representative for the social security system at large. Indeed, most analyses of social protection are focussed on public arrangements only. But social effort is not restricted to the public domain; all kinds of private arrangements can be substitutes to public programs. For some countries recent reductions in public benefit levels were to a large extent offset by supplementary private benefits, often negotiated by social partners in wage negotiations. As far as pensions are concerned, there is a trend towards a higher share of supplementary private benefits in total income. Also, benefits can take the form of tax relief. For example: some countries use a child deduction in the income tax instead of or in addition to child benefits. In general, differences in the tax treatment of social benefits make international comparisons of social protection systems much more difficult. The OECD has recently done a comprehensive study on social expenditure, in which they account for private social benefits and the impact of the tax system on social expenditure. Also, figures on both gross and net replacement rates have become available (for unemployment benefits). Using the OECD analysis, we will discuss in our contribution the effects of accounting for private social benefits and the impact of the tax system on social protection statistics. Using indicators as net public and private social expenditure and net replacement rates, we will analyse whether and to what extent relative and/or absolute differences will become smaller than measured by Cornelisse and Goudswaard. The paper is organised as follows. In section 2 we discuss the influence of economic integration on social protection systems, and summarise the results found by Cornelisse and Goudswaard. Next we present the results of cross-country analyses on gross and net social expenditures (section 3) and on gross and net replacement rates (section 4). Section 5 concludes the paper.

Keywords: convergence, social protection, European Union