Key Findings and the State of the Literature

In this volume, we have investigated whether and to what extent increased needs have overburdened the welfare state with compensating for gross inequalities. In addition, we have also assessed if and how welfare state transformations have actively contributed to rising gross and net inequality by shifting to a supply-oriented model. We will now highlight our key findings on the relationship between changes in welfare state systems and issues of economic, social and political inequality. In particular, we will show both commonalities and differences between different social policies and different types of inequality in various OECD countries.

Studying welfare state transformation across the OECD world, Peter Starke, Melike Wulfgramm and Herbert Obinger assessed external and domestic challenges to advanced welfare states, the resulting welfare state transformations since the 1970s, and their implications for inequality. The authors find two broad developments in social policy. First, quantitatively, there is a strong upward convergence between OECD states in total public social expenditure (see Schmitt and Starke 2011). This convergence corresponds with the state of research (Huber and Stephens 2001; Kittel and Obinger 2003; Kwon and Pontusson 2010): socio-economic settings have driven recent social policy developments and lessened the differential effects of political factors. Second, qualitative convergence to a supplyside-oriented welfare state model has occurred. Instead of concentrating on compensatory transfers, supply-oriented policies are about changing primary outcomes by investing in skills and setting incentives for employment. In addition, the authors argue that modern welfare states shift responsibilities for policy outcomes to the individual and deregulate labour markets at the margins. For gross inequality, the implications of supplyside-oriented policy-making are inconsistent and depend on the particular policy chosen: While policies of social investment such as health, active labour market and education policy aim at equalizing (pre)distribution, policies that individualize risk such as private pension policies tend to increase income polarization. Regarding net inequality, the development is more even across classical social policies: benefit durations and replacement rates are stagnating or declining, thus narrowing redistributive efforts. This does not reduce welfare state expenditure, but shifts the focus to policies fostering economic wealth, such as education policy. However, once gross inequalities manifest themselves, the decreasing focus on compensatory transfers means that gross inequalities translate ever more directly into net inequality.

In his study on findings and concepts of inequality research, Olaf Groh- Samberg provides us with both evidence of persistent social cum rising economic inequalities, and he reports on the resulting challenges to the welfare state. Considering the recent increase of economic inequalities in most OECD countries, he finds that inequalities in life chances between social groups remained rather stable, although the level of life chances in general had increased for citizens in the Golden Age of the national state. This setting has changed with shrinking growth rates in national economies and rising economic inequality between and within social classes. Groh-Samberg argues that recent policy trends towards social investment and the pursuit of equality of opportunity have largely failed to increase social mobility between classes. Increasing economic inequalities coupled with persistently low levels of equality of opportunity are argued to spur political and cultural conflict both within and between social classes. The resulting lower social cohesion may further undermine the foundations of the welfare state as current welfare state transformation and inequality trends short-circuit in a potentially vicious feedback circle.

In his chapter on the philosophical foundations of equality and inequality, Stefan Gosepath argues that the discussion about equality rests on the notion of our common humanity. Inequality is only disturbing insofar as it violates basic principles of justice tied to contemporary egalitarianism. However, determining which particular type of distribution is acceptable is highly complex due to the multi-faceted nature of inequality and the partly controversial principles in the theory of justice itself. Still, Gosepath maintains that the principles of formal, proportional, moral and social equality find broad agreement in modern western societies and should, therefore, be applied. Then, the welfare state’s task is to tackle inequalities that have been collectively identified as normatively problematic. The author broadly distinguishes between two reasons for the equalizing functions of social policy that all advanced welfare states share. First, advanced societies provide for the basic needs of their citizens to preserve a minimum standard for a decent life. The condition to fulfil basic principles of justice is assuring physical subsistence through social security that protects against basic social risks. More importantly, however, the second reason is that the pursuit of social equality is explicitly aimed at securing a decent equal standing for all citizens based on our common humanity.

In tax policy, Laura Seelkopf and Hanna Lierse trace the codevelopments of the changing OECD tax systems and income (re) distribution since the 1980s. The authors argue that governmental tax strategies and their effects on economic inequality within states are more intricate and varied than was previously recognized. They show that with increasing tax competition, both gross and net income inequality have risen in most OECD countries since the 1980s because income taxes have become less effective in reducing high levels of market income inequality. Consistent with the efficiency school, this trend suggests that states are increasingly incapable of redistribution. However, the authors show that the negative forecasts of efficiency scholars (Frieden 1991; Andrews 1994; Cerny 1994; Rodrik 1997) did not become real in all OECD states. Despite the common constraint posed by global capital markets, countries still have sufficient leeway to manoeuvre, which corresponds to the approach of the compensation school (see Garrett 1995). However, the extent to which governments have made use of their leeway differs significantly. While smaller states have more to gain from tax competition, larger states can sustain redistributive taxation. Even if progressive taxation is diminishing, the revenue-raising capacity of states remains high, allowing redistributive policies on the spending side. Nonetheless, tax competition has generally undermined vertical, horizontal and international equity principles.

In healthcare policy, contrary to established indicators (De Graeve and Van Ourti 2003; Wagstaff et al. 1999), the self-constructed Index of Risk and Income Solidarity (IRIS) allows us to compare equity issues in healthcare financing in OECD countries over time. The shift to austerity policies, comprising individual responsibility and individualization trends, would suggest a decreasing risk and income solidarity and, therefore, rising inequality. However, compared to other social policies, austerity policy does not imply direct retrenchment, but incremental adjustment (Seeleib-Kaiser 2008; Obinger et al. 2010; Rothgang and Schneider 2015): Achim Schmid, Pascal Siemsen and Ralf Gotze find upward convergence of risk solidarity in eleven OECD states over four decades, showing health policy as a social policy in which the social investment strategy helps to combat increasing inequality between groups with different health risks. Regarding income solidarity, redistribution is not reduced either: Average income solidarity remains stable while variance drops only slightly. Hence, there is no ‘race to the bottom’. In theoretical terms, IRIS demonstrates that risk and income solidarity are not consistent but that countries each build their own particular combination of health financing. While risk solidarity follows the shared needs of OECD states and is driven by functional requisites to offer health services to all citizens, income solidarity reflects country-specific power relations. The high potential of risk and income redistribution for political conflict reduces the scope for radical reforms. In terms of methodology, the authors find that the validity of IRIS depends on the stability of the redistributive effects as attributed to a particular financial basis. Concerning risk solidarity, the authors confirm earlier findings of convergence in healthcare financing (Barros 2007; Rothgang et al. 2010). However, income solidarity is mainly shaped by country-specific forces. In line with the literature on welfare and healthcare systems, their findings support the dominance of incremental readjustment processes (Obinger et al. 2010; Rothgang and Schneider 2015).

Observing the case of pension policy in Germany and the United States, Jan Paul Heisig identifies considerable inter-generational and rising intra-generational inequality in retirement income and household income. He shows how pension reform has strengthened individual responsibility and transferred financial risks associated with disability, job loss or market fluctuations from the state and employers to individuals. In both countries, recent retirement cohorts experienced larger declines in disposable income than did those in the 1980s. Inequalities between different groups of retirees have risen: vulnerable groups such as involuntary or less-educated retirees were hit the hardest by recent changes.

Germany chose the same pension policy as many OECD countries have done since the mid-1990s: having a strong public pension pillar that sustained generous early retirement options for a long time, it reformed its pension system and other welfare programs to support later retirement and ease budget pressures. In contrast, in the mature multi-pillar system of the US, the generosity of public benefits declined and the increasing defined-contribution plans in company pensions shifted risks from employers to workers. Evaluating the effect of these ongoing reforms on recent retirement cohorts, the author finds that recent reforms resulted in the return of old-age poverty and aggravated economic inequality among the elderly. In both countries, the typical income trajectory of men’s retirement has worsened in the 2000s compared to the 1980s. Furthermore, disposable income declined more strongly relative to pre-retirement levels, and large losses occurred more often. In Germany, the retrenchment of early retirement options increased the gap between involuntary and voluntary retirees. In the US, large losses of pre-retirement income and entry into income poverty also became more common. There was also an emergence or amplification of inequalities so that low-educated retirees are increasingly falling behind, a finding consistent with other studies (Wolff 2011).

Investigating the effects of higher education policy on equal opportunity, Timm Fulge finds a strong positive effect of the individual-level factor of parental education on the individual likelihood of pursuing an academic degree across 22 European OECD countries. There are great differences between countries, while the effect of parental education is least pronounced in Sweden, the UK and France and strongest in Eastern Europe and the German-speaking countries. Furthermore, the author argues that variation between states concerning the effect of parental education on the propensity to pursue higher education can, in parts, be explained by features of national higher education systems. His findings suggest that systems with strong public subsidization reduce inequalities between classes in access to higher education, but that high levels of enrolment do not. These findings show that the social investment component of the welfare state reduces inequalities only if public subsidies rather than a higher enrolment rate is emphasized. In light of recent trends of increased cuts in public subsidies, these results imply that educational inequality will rise across OECD countries and support the view that public education investment is needed to attain equality of opportunity. The overall findings are consistent with theories of educational choice that emphasize the importance of both primary and secondary social origin effects in skill investment decisions.

In labour market policy, reform strategies of national governments play a large role in labour market inequality, which is mostly distinct for both young and, more critically, low-skilled groups. Hanna Schwander investigates dualization patterns in labour markets and labour market policy in continental Europe. Continental welfare states are seen as the OECD countries that are the most affected by such polarizing tendencies. The author observes different reactions of national governments to pressures of labour market flexibilization stemming from increased international competition and supra-national actors in the two last decades. Assessing the development of labour market risks among different outsider groups, she identifies varying patterns of labour market inequality between insiders and outsiders depending on government reform strategies. In Germany, labour market risks have become more equally distributed since the Agenda 2010 in 2005, but low-skilled individuals are most deprived. However, differences between the groups have been declining for both forms of labour market risks, namely unemployment and temporary employment as old and new risks respectively. The same holds for inequality between younger and older workers. When overall unemployment and temporary employment rates fell, they also fell among young adults. In Spain and Italy, inequality has increased, while remaining steady in France. Interestingly, labour market risks focus on the younger cohort in southern Europe, irrespective of their skill level. In France, special policies protect older workers from unemployment during economic crisis. In Spain, reforms were ineffective in addressing the inequality that obtains between younger and older cohorts, an inequality which has increased since the crisis.

Irene Dingeldey investigates the gendered outcomes of labour market policies and collective bargaining in Germany. As enticements for a modernized male-breadwinner model she identifies institutional complementarities that counterbalance labour market hazards at the household level. Hence, not only employment status but also the particular family arrangement influences the degree of social inequality. The social cleavage between single-earner households and dual full-time earner households is increasing, especially for the highly qualified. Accordingly, gender inequalities declined as regards labour market participation but increased within the labour market regarding the different forms of flexible employment and pay. However, within coupled family households, even an unequal reproductive bargain diminishes social risks. Flexible or low-paid employment in female branches of the service sector may still be ‘secured’ within the male-breadwinner model. However, compensation mechanisms are limited to complete families and are not available for single-person households. These contrasting forms of working rich and working poor households further polarize income. Thus, the social divide in conservative welfare states does not stem from standard and flexible employment types but from particular combinations of employment with family forms. These findings are in line with other studies that explain why German social inequality is low compared to other OECD states (OECD 2012, 2015). These studies indicate rising inequalities due to labour market and social policies informed by the welfare paradigm of social investment and activating policies (Cantillon 2011; Vandenbroucke and Vleminckx 2011; Solga 2014).

At a global level, Alexandra Kaasch explores how global social policy actors, their ideas and mechanisms, impact inequalities. She demonstrates that inequality can be understood both in a global context and in different dimensions of global social policy. While governments still shape institutions that may affect inequalities, global structures also matter in an increasingly interconnected world. She finds a consensus among global actors that there are rising global inequalities which arise in various perspectives. Furthermore, she identifies a considerable international if not global debate (see Piketty 2014; Sen 1999; Atkinson 2015) on rising inequality and related measures, and discusses the inequality goal in the Agenda for Sustainable Development of the United Nations. In this way, global social policy actors successfully established inequality as a global concern and assumed an important role in addressing various forms of inequality. Nevertheless, a moral justification of why issues of social justice arise globally is required to underpin claims and demands regarding the need to address these issues in multi-level social policies. In addition, not all political philosophers agree on the possibility of institutionalizing social justice claims at the transnational level, as the sense of obligation, solidarity and mutual responsibility is crucially stronger in a national context. While they are all aiming to shape global social policies so as to address global social inequalities, mechanisms of global redistribution come in different shapes, such as healthcare, education, social protection and labour market regulation.

At the European level, increased inequality among EU citizens and the resulting migration reinforce welfare state boundaries through the restriction of mobility rights. There is a contradiction between the EU’s model of freedom of movement for all EU citizens and the increasing closure of welfare states by some member states, who distinguish between desired and undesired EU migrants, repelling the latter. Christof Roos investigates the implications of increased freedom of movement in the EU plus welfare state closure for welfare state transformations of EU member states and hence for social mobility in Germany, Sweden and the UK. He finds that EU member states’ attempts to restrict movements of poorer EU citizens can, in part, be explained by the national welfare system plus the existence and accessibility of its benefits as mediated by party politics and issue politicization. Thus, social-via-spatial mobility is less attainable for EU citizens of lower socio-economic status. Although EU legislation enables all EU citizens to participate in the common market, as transnational social solidarity among EU citizens would need to transcend national redistributive systems, some states distinguish between their own and EU citizens. In Germany and the UK, eligibility is scrutinized more strictly and focuses on an economic and reciprocal logic, based on the concept of the bounded national state. In contrast, the Swedish welfare state seems less universal because barriers to universal coverage function as borders against EU nationals who do not fulfil entry requirements. Nationally bound and increasingly closed welfare regimes contradict the idea of social-via-spatial mobility supported by transnational redistribution. Theory and practice of the EU freedom of movement reveal an inherent contradiction: people are expected to be mobile to find work, but they should be settled to claim benefits. Hence, with the recurring trend towards welfare state closure, economically disadvantaged people face greater difficulties in utilizing the advantages of the common market. Overall, findings support the argu?ment that welfare state closure is intensified by the existence of and an easy accessibility of non-contributory benefits.

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