An Economic and Social Study

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The Effects of Guaranteed Minimum Income Programs in European Countries

An Economic and Social Study

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ACKNOWLEDGEMENT

I am heartily thankful to [NAME] whose encouragement, assistance and support from the initial to the final level enabled me to develop an understanding of my dissertation at every step during this time period. They gave me full assistance regarding my area of research and dissertation. I found them really cooperative and willing to help whenever I faced any problem and asked for help. I will always remember their cooperation and support.

Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the dissertation.

Regards,

[Student Name]

Abstract

The research aim of this dissertation is to assess the effectiveness of Guaranteed Minimum Income (GMI) programs, a specific form of welfare package, as provided by governments in the European Union. The scope of this study encompasses both economic and social consequences of these GMI programs. In pursuing this assessment, the dissertation has used the European Union’s Welfare Regime Typology(Esping-Andersen, 1990; Sapir, 2006), where four typologies are drawn; Nordic, Continental, Mediterranean, and Anglo-Saxon. These four typologies distinguish welfare systems in terms of degrees of efficiency and equity. The higher cost required to finance the GMI program limit the investment opportunities in new ventures. The study uses a qualitative approach to research the issue. The data is collected from secondary sources through which four case studies are constructed; Denmark, France, Portugal, UK, each of which exemplifies the four welfare regimes. The contextualization of the GMI scheme under the European countries is done by understanding the different way of working of GMI in these four cases. The data is analyzed to assess the effectiveness of GMI in terms of its economic and social consequences by conducting the comparative analysis at two levels; first, among the four regimes with use of selected metrics;second, by comparison of the EU with the benchmark case of the USA. It is found that there are higher employment and GDP rates, and higher poverty rates too, where there is lower social expenditure by Government. This implies that a Guaranteed Minimum Incomescheme considered as a standalone initiative is ineffective in its economic consequences but greatly effective in its social consequences. It is recommended that combating poverty while avoiding negative impacts on economic performance, requires some specific amendments to the policy. These include a strong monitoring system to check implementation of scheme, and devising individual schemesspecifically for unemployed residents in which they should be offered opportunities to work. The research has some limitations, such as its use of only four cases based on a limited number of metrics to study GMI.

Table of Contents

ACKNOWLEDGEMENT 2

Abstract 3

Tables and Figures 6

Chapter: 1. Introduction 8

1.1. Research Background 8

1.2. Statement of Problem and Justification 9

1.3. Research Questions 10

1.4. Research Objectives 11

1.5. Significance of the Study 11

1.6. Scope of the Study 11

1.7. Structure of the Dissertation 12

Chapter: 2. Literature review 13

2.1. The Concept of Welfare 13

2.2. Welfare in Europe 16

2.3. Guaranteed Minimum Income Programs 20

2.4. Conclusion 22

Chapter: 3. Research Methodology 24

3.1. Description of Methodology 24

3.1.1. Research Philosophy 24

3.1.2. Research Approach 25

3.1.3. Research Strategies 26

3.1.4. Research Choices 26

3.2. Data Sources and Collection 27

3.3. Data Analysis 28

3.4. Issues of Trustworthiness 29

Chapter: 4. Data Analysis and Discussion 30

4.1. Effectiveness of GMI in the European Union 30

4.1.1. GMI in Four Welfare Regimes (How it works) 30

4.1.2. Effectiveness of GMI in Four Regimes 35

4.2. Effectiveness of GMI in comparison to USA 41

Chapter: 5. Conclusion and Recommendations 43

6.1. Conclusion 43

6.2. Recommendations 44

6.3. Limitations and Future of Research 44

References 46

Tables and Figures

Figure 1: Esping-Andersen Welfare Regime Typology. Source: (Sapir, 2006) 17

Figure 2 European Countries Public Debt and Pension Liabilities (in percentage of GDP). Image Source: (Vlieghere & Vreymans, 2006) 19

Figure 3. Government Social Spending in %age of Total Govt. Expenditure. Bar Chart Source: Author, Data Source: OECD Database 34

Figure 4. Employment rate as the percentage of working age population. Bar Chart Source: Author, Data Source: OECD Database. 35

Figure 5. Real GDP, Annual Growth Rate. Bar Chart Source: Author, Data Source: OECD Database. 37

Figure 6. Labour Productivity, Annual Growth Rate. Bar Chart Source: Author, Data Source: OECD Database. 38

Figure 7. The comparison between EU and USA regarding the effectiveness of GMI in EU. Source: Author, Data Source: OECD Database 40

Table 1. Comparative analysis of Four Regimes with the four case studies. Source: (Crepaldi, Gambino, Baldi, Roit, & Ortigosa, 2007) 33

Chapter 1. Introduction

This chapter presents the introduction to the research and is divided into different sections; research background, statement of the problem, research questions, research objectives, significance of the study and scope of research.

1.1.  Research Background

The elimination of “poverty” in society has come to be a precarious political and societal concern in Europe. Due to the diversity of contexts faced by diverse countries in Europe, there are different levels of poverty and poor people’s characteristics differ widely. The occurrence, strength and dispersal of poverty are much influenced by the social programmes pursued by governments.These social policies can regulate the working of the labour market, the circulation of resources, the capability to approach income and allocation of pertinentamenities. For that purpose, many social policies are devised that give a guaranteed necessary income to people, regardless of social involvement, and asways ofaddressing the incidence of poverty and social segregation (Crepaldi, Gambino, Baldi, Roit, & Ortigosa, 2007).In spite of the significance of the poverty issue while there have been distinguished interventions asking policies to fight it (Boeri and Perotti, 2002; Gori et al., 2013; RanciOrtigosa, 2013), the European welfare system does not still foresee consistent anti-poverty measures. Certainly, there is an overabundance of disjointed programs.

The Guaranteed Minimum Income (GMI) is such a policy and initiative taken by the European Union, in conjunction with its Member States, in order to combat poverty and to allow social and economic assimilation of socially deprived persons. This initiative is in accordance with the European Council Recommendation (92/441/EEC) of 1992. This Recommendation aims to guarantee shared standards among the Member States regarding least possible incomes and social help to deprived people. The basic idea of GMIsis to promise a minimum level of income to the deprived residents of the Member States. This concept has its roots in the acknowledgement of fundamental rights of people in having a satisfactory income as well as social support to lead their life with integrity (European Commission, 2004).

GMI-type initiatives (those that are not explicitly labelled as such but nonetheless meet the criteria laid out by the EU)have been practiced for many years in countries where they perceived it as a necessary supplement to general social welfare that will tend to vanish by itself, when the consequences of full employment and rising prosperity would automatically increase population standards of living. Yes this has not happened, due to the underlying increase in unemployment and comparative failure of social programmes to eliminate or lower the level of poverty to a minimum, in the last decades. This has heightened the significance and necessity of such schemes (Heikkilä & Kuivalanen, 2002). It is therefore important for the effectiveness of such schemes to be better understood. Moreover, there are many examples of successful cases, such as the Nordic or North Sea countries, where the statistics have shown better human development indices (HDI, created by the United Nations Development Programme in the 1990s) and lower inequality by applying social policies (Kenworthy, 1999).

Such an Act is unique in European countries. It constitutes a significant political innovation, because it makes poverty reduction an explicit and central policy priority. The Act also institutes A National Strategy to Combat Poverty and Social Exclusion and provides for the creation of an Anti-Poverty Fund. It has further instituted an advisory committee. The role of this committee is to counsel or advise the government on the planning, implementation and assessment of actions taken within the scope of the National Strategy. It may also make recommendations and provide opinions on government policies that may have a direct or indirect influence on poverty and social exclusion.

This dissertation seeks to understand the possible socio-economicconsequences of instituting Guaranteed Minimum Income programs, a specific form of welfare package, through governments in the European Union and to propose eventual applications regarding best practices or modifications to currently existing Guaranteed Minimum Income systems.

1.2.  Statement of Problem and Justification

Recently, a series of events sparked by the financial crisis of 2007-2008 brought to the headlines the thematic of social welfare and support to the poor, as well as inequality. There is now much talk in both Europe and the US on whether the wealthy should accept heavier taxes to support deprived people. The rationale for this is that companies saved from bankruptcy during the crisis should support a socialization of the losses, especially where poorer taxpayers have borne a part of the costs associated with corporate losses: – why not socialize the gains through government initiatives such as the American Patient Protection and Affordable Care Act? Although the inequality argument may extend way beyond social welfare policies, it is deemed paramount to have some sort of tangible policy benefit in order to advocate for more inclusive or social models, which would then be paid by taxpayers, be they wealthy or not.

With growing social insecurity, the social expenditure costs, such as healthcare, pension, and retirement transfers etc. are likely to increase as well.Though, there has been a lack of anything, but sporadic policy action in this area and the young generations may not be able to bear the future fiscal burden. This would effectively breaking the system of inter-generational understandings that has underpinned the needed social transfers to date. Such social policy actions could affect millions of businesses which rely, for instance, on the consumption spending fuelled by cash proceeds from social programs.These negative socioeconomic consequences are likely to have differing effects from place to place, though. Different countries have developed different kinds of social welfare programs (Meier & Werding, 2010). The European Union has devised the Guaranteed Minimum Income program which is considered to contribute in lowering poverty rates (Cantillon, 2009). Yet, difference across the Member States remains the norm.

Therefore, understanding whether the Guaranteed Minimum Incomeprograms are effective, efficient and beneficial to the sustainability of the economy and society, it is vital to evaluate thepossible effectiveness of GMI. The case of Europe is iconic, for its social principles are rooted in the European Union’s very inception and are well known (Kenworthy, 1999).By analysing how policies like GMI perform in European countries where they are applied, it may be possible to see their social and economic implications, attempting to close a gap in the current academic literature on the subject that will be more fully identified in the Literature Review that follows.

1.3.  Research Questions

These reflections on the general welfare conditions facing Western countries prompts the following Research Question:

How do Guaranteed Minimum Income programs affect European economic and social conditions?

1.4.  Research Objectives

a.  To identify possible measurements of performance and effectiveness for Guaranteed Minimum Income programs, based on the precise aspects they cover.

b.  To determine the effects of Guaranteed Minimum Income programs on the relevant countries’ economies and economic growth.

c.  To determine the effects of Guaranteed Minimum Income Programs on the countries’ societies and human development.

1.5.  Significance of the Study

The main expected contributions of the present study encompass:

i)  Contextualization of the subject under the European framework.

ii)  Compiling a structured list of Guaranteed Minimum Income programs and describing their main characteristics through a robust typology

iii)  Understanding of the workings of Guaranteed Minimum Income programs and their related effects in their respective economies and societies.

1.6.  Scope of the Study

Even though experiences from other regions and countries may be studied for context and comparison, the dissertation is to be mainly focused on a selection of those countries that are currently to any degree members of the European Union. This research also concentrates its efforts on Guaranteed Minimum Income programs, even though it may address other similar initiatives or systems. This is because, there is little homogeneity between such programs and GMI-type interventions may be labelled in other ways (and thus effectively disguised).

1.7.  Structure of the Dissertation

The dissertation contains five chapters:

·  The introduction (this Chapter), which has explained the research background and rationale for doing this research. The chapter has also defined the research question and its objectives to achieve.

·  Chapter 2, constituting a literature review, focusing on GMI typologies and linked to the research objectives set out above.

·  The methodology chapter 3, which sets out methods used and rationale for data collection and analysis strategies.

·  Fourthly, there is a chapter setting out the analysis undertaken here and its principal findings.

·  Finally, a chapter detailing the conclusions and recommendations that can be drawn from the analysis. This section will also include the limitations of the study and how the study can be further improved.

Chapter 2. Literature review

Tranfield et al. (2003) believe that literature review throws light on all the relevant theories and academic work that has taken place in the academic world relevant to the research objectives designed by researcher. Reading the literature about the relevant issues of research help researchers to enhance their knowledge about subject of research leading to further clarification of the research questions. Saunders et al. (2009) are of the view that literature review is a section of any research study that primarily focuses on involving the secondary academic sources to build the necessary foundation of research without which authentic and reliable research may not be possible. Secondary resources mainly include the work of different authors and scholars who are deemed as experts of the subject or a relevant discipline of the research. By incorporating the work that has already been published in the academic world does not only help building the base of research but also assists researchers to build sound understanding and an insight about the topic of proposed research study and the relevant questions of the research. Tranfield et al. (2003) argue that literature review is helpful in finding the loopholes and gaps in the already established theories and allows a researcher to address the concerns left in the earlier work of scholars and researchers. Literature review is very important to include in any research study because of its ability to evaluate the comments, thoughts and opinions of different authors without any bias and weigh the theories and any relevant earlier work on the basis of the provided evidence by different scholars and authors. By uncovering loopholes and gaps in the research done earlier by scholars, it also provides the platform for researchers to conduct further research on the topic and get all of the gaps and loop holes uncovered. As part of secondary research, literature review helps researchers in collecting range of different evidences of various theories present in the academic world with adding the comments of authors opposing those theories. Similarly, this research study will also incorporate range of different academic sources to complete the literature review chapter with success and authenticity, the sources to be used in this chapter would be articles, newspapers, books, journals, Internet etc. Moreover, literature review is considered to be one of the most important parts of any research study to build a base and help researchers complete the whole research project with reliability, authenticity and success.