and Austerity Policies Bruxelles 27-28 February 2014 Italy - - PowerPoint PPT Presentation

Italy Continuity and change in welfare state retrenchment Annamaria Simonazzi Sapienza University of Rome and Fondazione G. Brodolini The European Social Model in times of Economic Crisis and Austerity Policies Bruxelles 27-28 February 2014

Before the crisis

• Slow growth
• Social protection: lack of universal coverage; highly

segmented; relying heavily on the family

• Labour market reforms: flexibility at the margin increased

segmentation and precariousness for new entrants

• Public debt: perverse redistribution

Public debt: constantly above 100% of GDP since the ’90 Service of the debt: 1990-1997 Constantly above 10% of GDP 2000s Hovering around 5% of GDP

Public and Primary deficits

The legacy of the debt: Fiscal consolidation

• No stimulus measures:

2008-2010 fiscal stimulus % of GDP Italy: 0.3% main advanced economies: 3.4% (IMF)

• Policies lacking coherence and design

– dictated by the need to reassure the «markets» (and the European authorities); – designed without a general framework; – and with scant consideration for long-term consequences (TINA)

• Cuts in social spending:
• block on turnover: public employment: -8% since 2006, 70% of whom in

education (BI 2013)

• Cuts in social funds and financial transfers to local authorities
• Increase in direct and indirect taxation

2013: tax/GDP: 31.6% overall fiscal burden/GDP: 45.4%

• Families: welfare of (first and) last resort

Macroeconomic consequences of fiscal austerity

• The economic (and financial) crisis combined with fiscal austerity deepened the crisis

2008-2013: GDP declined by 8% ; Industrial production: 26%; Investment: 28%

• Employment: no universal relief measures
• Cassa integrazione - for workers on «typical» contracts: half a million

workers)

• labour shedding (temporary contracts)
• involuntary part-time (female employment)
• Fall in disposable income (+ uncertainty)  Private consumption: - 5.1% over the

period, of which - 4.3% in 2012

• Erosion of savings and decline in the saving rate, concentrated on the lowest quintile,

households of young people and tenants

• Households’ wealth has diminished by 5.7% (1/3 of GDP) since 2008 (BI estimates) :

(in 2010-11 the wealth to income ratio was 8.01 for Italian households and 4.48 for German ones (HFCS).

• And overall inequality in wealth distribution has increased: the richest 10% owns

about 50% of total wealth.

A steep increase in poverty and vulnerability

• Missing: policies to counter poverty and social exclusion
• The income distribution has become more fragmented and unequal

between and within social classes, within wage earners (working poor and working rich), and inside families.

• The share of severely deprived households (defined has families having 4
• r more out of 9 indicators of severe material deprivation)

– 6.9% in 2010; 11.2% in 2011; 14.3% in 2012. (more than 7 points in 3 years)

• Limited role of social transfers to reduce relative poverty: 19.7% compared

with 35.2% for the EU27 (not because of scant resources but lack of universality of social protection and inefficient use of resources: Baldini et al.2013).

Families’ impoverishment: reinforcing inequality, reducing social cohesion and growth

• Families are caught between increasing demands (cuts in welfare,

decrease in income, increase in unemployment) and decreased redistributive capabilities  decumulation of previous savings

• Increasing reliance on families as insurers against social risks tends

to reinforce social inequality, because of the strongly unequal distribution of income and savings (social mobility)

• Fragmentation of society poses serious problems to policy since it

affects social cohesion and political support to redistribution via taxation

• Macroeconomic implications: national solvency (households’ wealth

as collateral for public debt), reduction in the quantity and quality of consumption affects demand and growth

Long-term, supply-side consequences of fiscal austerity and erosion of WS

The welfare state as a “productive factor” and long-term unsustainability of the current policies

• Cuts in social services and reconciliation policies

– employment and female labour supply – fertility rate and demographic sustainability (pension system, LTC)

• (Youth) long-term unemployment and fragmented careers

– Decay of skills – Delay in family formation – Fall in income and pensions rights

• Cuts in current expenditure: reduces social investment (e.g. education and

human capital) affecting up-grading of the economic system

• Drop in income, consumption, investment and public spending: domestic

demand in support of firms’ survival erosion of productive basis

• Unless policies are reversed: quiet collapse