Excessive social imbalances and the performance of welfare states in the EU

Our paper4 starts from the premise that the disparity and lack of convergence of levels of child poverty in the Eurozone signals ‘excessive imbalances’ that should be a common concern. Increasing and diverging child poverty rates warrant a common concern, first, because they contradict the expectation that deepening European integration leads to growing cohesion at national and pan-European level, and second, because they signal investment deficits that may be cause and effect in a vicious circle of underperforming labour markets and education systems. The empirical part of the paper aims to develop an ‘efficiency scoreboard’ of member states’ performance, based on their observable performance with regard to child poverty and ‘efficiency-benchmarks’ that take into account the levels of spending (distinguishing pension spending and other social spending), household employment rates and the ‘pro-poorness’ of social spending. With regard to household employment we distinguish a measure of ‘work poverty’ (which correlates with social investment, i.e. investment in education, child care and active labour market policies) and the ‘relative severity of work poverty’ (which reflects polarization, i.e. the unequal distribution of jobs over households). With regard to pro-poorness, an upshot of our research is that it confirms recent publications that question the so-called Korpi-Palme ‘paradox of redistribution’, without however showing that propoorness of social transfers (other than pensions) adds to the efficiency of spending on social transfers.
Although the impact of these indicators is statistically significant, they still leave substantial unexplained disparities in child poverty rates in European welfare states. On a structural level, the unexplained disparity reflects differences in the underlying societal fabric of welfare states, which correlate with differences in the level and architecture of social spending, GDP per capita and social investment, but are not readily ‘explained’ by these factors (which correlate strongly with each other). Our result with regard to the impact of pension spending on child poverty shows that analyzing the impact of incremental changes in policies must not be conflated with analyzing structural differences across welfare states.