Contemporary Challenges to the Welfare State
Introduction
“Tides are changing — the world is an entirely different place. We must give the unemployed youth the skills to find a job and the single mother the childcare she needs to go out and work,” said ex-UK prime minister Tony Blair in a 2002 speech on welfare reform.
As articulated by Blair, the existing welfare systems were constructed in a world that looked vastly different than ours today. This thirty-year period is termed the Golden Age — a post-war economic boom coupled with the unprecedented growth of social expenditure infrastructure. Culturally, we’re also looking at an entirely different picture than today. Most Western societies were dominated by a ‘Male Bread-Winner Model’ in which women were confined to the private sphere, men dominated the labor force, and families were of a nuclear composition based upon rigid gender roles. This paper is organized in two parts to address the question: what are the main societal and economic changes that challenge the potency and integrity of the welfare state in Europe?
Firstly, I will delve into the demographic and cultural shifts incongruent with the Golden Age welfare construction that creates fiscal strain and evolving demands from citizens. I will further address the challenges provoked by structural adjustments in the global economy, particularly on youth and low skilled classes. I will conclude with overarching solutions based on social investment to mitigate these contemporary social risks. Addressing these challenges is critical in that social risks are expected to worsen under these existing conditions over the next century — furthering wealth inequality and marginalization.
Demographic and Cultural shifts
Pension and population aging
First, the European Commission (EC) attributes the demographic transition as one of the “biggest challenges facing the EU,” (Mifsud, 2021). The structure of the existing pension system falls under extreme fiscal pressure as a result of aging populations and increased life expectancy across the board. The Golden Age of Welfare drastically expanded eligibility and access, coupled with considerable benefit increases, to pensions for the elderly. Social protection policies nearly doubled benefits for elderly and expanded accessibility by 84 percent between 1950 and 1980 (Piersen p. 545, 2011). However, this poses a fiscal challenge for the welfare state today. Pension is typically dependent on a pay-as-you-go system (PAYG), which relies on a steady stream of workers taking the place of those transitioning to retirement. While the boomers were a wide financing base for the pension systems when it was first implemented, globally countries have undergone population aging. In simpler terms, in the majority of EU nations and the United States, birth rates have fallen and people, mainly due to improved health care, are living longer (Piersen p. 550, 2011). Further, the ratio of working-aged people to the retired in the OECD has fallen by a third and is expected to continuously fall. Therefore, financing pensions is a huge challenge because there are more elderly cashing in — not to mention for longer periods as a result of improved life expectancy.
Financing pension systems has also been made more difficult by the diversification and precarization of jobs. People were much more prone to lifetime employment even ten years ago than they are today. This is mainly a symptom of technology which has made the labor market more fluid. For instance, the platform economy, defined as economic activity facilitated by online platforms which exploded over the past decades, opens gates for more precarious employment. This includes contract-based, unregimented, and short-term forms of work. Less continuous salaried employment makes it more difficult to organize contributions through the traditional employment contribution systems. This economic shift has exacerbated the existing fiscal strain on the pension system caused by demographic aging.
Pension system strains are a core challenge because they are only expected to worsen. Essentially, governments made policy commitments in regard to the elderly that are now maturing. Countries are “increasingly unable to respond to new demands” and are required to turn to other financing mechanisms like raising payroll taxes (Piersen p. 540, 2011). Pension and population aging is a critical and worsening issue for countries — with an average increase in cost of 5.6 percent of GDP projected for 2030 for OECD countries.
Shifting cultural norms and the gendered construction of welfare
Secondly, lone parents, defamilisation, and women entering the labor force translate into new demands of the welfare state. The system and programs must evolve to address the associated social risks of these trends.
Just as the population demographics have shifted since the Golden Age expansion, so has the role of women in society and the ‘traditional’ family structures. At its origin, men made up the labor market and women were bound to the role of caretaker in the private sphere. At the time, the death of a male breadwinner was a main risk to families (Barr, 2012). Now, the emergence of women in the labor market and the more diverse family structures that followed, including lone-parent households, come with new social risks not inscribed in Golden Age welfare programs. In other words, welfare was constructed in the context of a society with rigid social norms and a strict division of labor between genders. Thus, it is, in many instances, incongruent with the needs of contemporary society.
Single parents with dependent children are a highly vulnerable social group — with 49 percent living in poverty (Nieuwenhuis, 2022). This marks a newly surfacing issue confronting the modern welfare state. Expert in lone parenthood and social policy Rense Nieuwenhuis describes this as a symptom of the “Triple Bind:” a trend in which single parents disproportionately have “inadequate resources, inadequate employment, and inadequate social policy.” The aggregation of these factors drives the “social problems among single parents,” (Nieuwenhuis, 2022). The increase in lone parents in poverty directly translates to more poor children who pose an even greater social risk and cyclical economic burden on states. Inadequate resources for lone parents directly translates to higher rates of children living in poverty.
The welfare state is subsequently under pressure to support more children in need of subsidies and social programs. According to EU Eurochild reports, means-tested programs directed toward children in poverty are far more costly than preemptive childcare, education, and lone parent support programs, not to mention less socially optimal (Dunhill p. 14, 2022).
The EC approaches the challenge of breaking down the patriarchal labor divisions through a number of policy levers. The goal is to overcome this challenge by lowering barriers for women’s participation in the labor market and decreasing gender inequalities. In order for lone parents, the majority of whom are women, to be employed, they need both affordable and accessible support. This includes instated childcare services, adequate and non-discriminatory leave, and flexible working arrangements that are currently often perceived as liabilities by employers (Palier, 2005). This partially explains why lone parents are disproportionately more prone to income insecurity and poverty. Age distribution, the composition of the labor market, and a mirage of other societal factors directly influence the needs and policy demands of a country. Based on the drastic demographic shifts following the boomer generation, it’s pertinent to also adjust welfare alongside it.
Globalization and the impact of the service economy transition
Surfacing risks: youth and the working class in face of global economy
Trends of globalization and the subsequent transition to service-based economies in many developed countries has also created new social precarity — mainly affecting uneducated groups and the youth. One of the central issues facing welfare is employing and educating youth while mitigating the wealth inequality created by job polarization.
Youth poverty and unemployment is a forefront issue that places immense pressure on the welfare state. While once occupied by the elderly, the youth are now the age group at the highest risk of poverty. The youth poverty rat e is approximately 24 percent. However, the rate for the rest of the population is 13 percent which highlights the disproportionate challenges facing youth entering society and employment (Chevalier, 2022).
To understand the worsening condition of youth, it’s important to first address the historically conventional environment for youth entering adulthood. Developed European nations were built on industrialization and manufacturing. However, following globalization and the shift to more open market trade, many of these processes were outsourced to countries with cheaper production and labor. In the 1960s, many developed countries underwent a process of ‘deindustrialization:’ a “natural outcome of the process of successful economic development,” (Piersen p. 544, 2011). Amidst this transition, technology and services became central to the economy, creating the need for “a more highly skilled workforce with a greater diversity of skills,” (Barr, 2012). Essentially, education and human capital became important assets required to be adequately employed in most cases.
This sector shift has various implications that increase risk of exclusion for youth and thus pose a threat to the welfare system. More jobs require tertiary education and training than existed in industrial economies. The necessity for tertiary education and more training than before means that youth are required to spend more time developing greater human capital before earning. However, not everyone has equal access to education and the ability to pursue unpaid training, placing pressure on the welfare state to better subsidize extended periods of youth as well as training and education. Without reform and intervention from the state, youth and families struggle to support themselves through extended periods of dependency – many of which don’t engage at all. This funnels some youth into ‘unskilled’ low-paid employment. Essentially, those with limited skill or education are more destined to be poor in comparison to the early twentieth century (Chevalier, 2022). The platform economy is a source of employment for many unskilled or uneducated youth today. However it comes with its own set of social risks. To name a few, work is often intermittent and unstable. It doesn’t secure social insurances or protections. Additionally, it’s considerably low paid and lacks protections for workers (Palier, 2021).
The polarized employment distribution and opportunities have increased the NEET rate, or those not in education, employment or training. The young population that contributes to the NEET statistic represents the ‘youth left behind’ according to OECD (Chevalier p. 12, 2022). The service transition has created a dynamic of winners and losers, with many of the ‘losers’ emerging as low-educated and youth demographics. The middle class has shrunk dramatically and there is a drastic class cleavage between an “unskilled”, lower income class and a “ruling class” of skilled workers. Some scholars (Chevalier) promote the implementation of policy to support ‘youth welfare citizenship’ — providing income support or easing the transition between education and work. Youth today are the most vulnerable to unemployment and poverty making it a forefront challenge confronting the welfare state.
Social investment and addressing these core challenges
Scholars and policymakers are turning towards social investment policies as a means of addressing the mounting wall of issues barreling toward European welfare states. Social investment is a policy approach that aims to preemptively mitigate issues rather than repair damage after the fact. Social investment is intended to be a productive measure that both invests “ in human capital and helps to make efficient use of human capital… while fostering greater social inclusion,” (Morel, Palier & Joakim p.2, 2012). It includes an amalgamation of childhood education, training, and supporting women’s employment.
Currently, the forefront issues facing welfare are population aging, lone parenthood, and the social risk of youth. The issues and inequalities within countries are ever-changing, thus we need an adaptive mindset on welfare to adjust to the ebb and flow of demands. Looking toward the future, social investment policies are the most economical solution relative to the worsening costs of these emerging social risks.