Social Security in European Countries That Border the Mediterranean Sea

Table of Contents

TABLE OF CONTENTS

TABLE OF FIGURES

INDEX OF TABLES

TABLE OF ACRONYMS

1 INTRODUCTION

2 CRITERIONS OF THE VALUATION MODEL
2.1 Overview over Demographic Trends
2.2 Social Protection Expenditures
2.3 Financing of the Welfare Systems
2.3.1 The Structure of Sources of Receipts
2.3.2 Reform Ideas in France, Italy and Spain
2.4 The Fight Against the Poverty With Redistribution

3 VALUATION OF THE PRESENTED WELFARE SYSTEMS
3.1 The Method of Scoring
3.2 Realization of the Scoring

4 CONCLUSION

BIBLIOGRAPHY

ANNEX

Table of Figures

Figure 1: Ratio of people aged 65 and over to the working age population

Figure 2: Rate of population growth until 2050 (estimated)

Figure 3: Employment rate of women and men aged 65-74 in 2000

Figure 4: Social protection expenditures per inhabitant in PPS

Figure 5: Percentage of beneficiaries of social benefits other than pensions

Figure 6: Structure of social protection expenditures in 2000

Figure 7: Structure of expenditures for all types of pensions in 1998

Figure 8: Structure of sources of receipts in 2000

Figure 9: Inequalities in income distribution before and after redistribution

Index of Tables

Table 1: Distribution of social benefits other than pensions by quintiles of income

Table 2:: Scoring of each criterion and country

Table of Acronyms

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1 Introduction

The question of social security and proposals for solutions are often discussed in Germany. But the welfare system is not only in this country a main topic: There are proposals of reforms in many western industrial countries. In this context it is interesting to know which problems other European states have and how they try to guarantee social security.

This report analyzes the social policies in the European countries that border the Mediterranean Sea. In order to limit the text to a size of 15 pages, the work is concentrated on the member states of the European Union situated next to the Mediterranean Sea. Thus 89 percent of human beings in the Mediterranean area of Europe are considered.¹

Another focal point is the old-age insurance in France, Greece, Italy and Spain always in comparision with Germany. This part of social security was chosen because the expenditures for the old-age pension are higher than the other social contributions.

A valuation model will compare the welfare systems of France, Greece, Italy, Spain and Germany in the end. The necessary criterions are presented in the following study. The demographic conditions of the countries, the level of social security, the financing of the welfare systems and the redistribution of social contributions. The fight against the poverty is considered as a central task of welfare systems. That is why redistribution is an important criterion in the valuation model.

2 Criterions of the Valuation Model

In the following only four of many possible criterions are presented. There are more possibilities to describe a welfare system and to evaluate its quality. The valuation model will take in consideration the different importance of each criterion through a different weight.

2.1 Overview over Demographic Trends

Befor the welfare systems are considered, it makes sense to analyze, which demographic trends the countries are afflicted with and which problems could develop in the next future.

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Figure 1: Ratio of people aged 65 and over to the working age population²

The old-age dependency ratio puts elderly people aged 65 and over in proportion to the working age population (15-64 years old). The graph shows that the old-age dependency ratio will rise in all considered countries until 2010. The recent number of elderly people is in the Mediterranean countries higher than in Germany. In the future, the German ratio will rise to 30 percent in 2010. Then only the Italian old-age dependency ratio will be higher than in Germany.

The old-age dependency ratio is influenced by the average life expectancy and the rate of population growth of the countries. Italy has the highest life expectancy of the Mediterranean countries. The average of women and men is 80 years. But also the other nations have a high life expectancy: France and Spain (both 79.5 years) and Greece (78.5 years) are before Germany (78 years) in the ranking.³

A high average life expectancy can be considered without doubt as an indication for a good welfare system. The consequence, however, could be a problem of financing: More and more people receive for longer time social contributions. At the same time the number of payers decreases. The rates of population growth until 2050 show the scale of the problem of each country.

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Figure 2: Rate of population growth until 2050 (estimated)³

France and Spain have the best outlook: There is only in these both countries a positive rate of population growth. Especially Italy is confronted with difficult conditions: in comparison with the other countries, there is the highest average life expectancy (80 years) and at the same time the Italien population will decrease by 10 percent until 2050.

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Figure 3: Employment rate of women and men aged 65-74 in 2000⁴

The employment rate of elderly people changes the view on the old-age dependency ratio of figure 1. If a high number of elderly people continues to work after a age of 65, the social protection expenditures will be lower and at the same time the social contributions will increase.

Greece and Italy have the highest old-age dependency, but especially Greece has a very high employment rate of elderly people. 12 percent of the men and 4.3 percent of the women continue to work, most of them more than 30 hours a week.⁴

It is amazing that the employment rate of elderly people in Italy is very high, although the minimum age of early retirement is 57. It seems that it is very attractive to get old-age pension in France: only 2.4 percent of men and 1.6 percent of women prefer to work after age of 65.

2.2 Social Protection Expenditures

The height and the variety of social protection expenditures describe the level of the welfare system. A good key figure are the expenditures on social protection per capita specified in Purchasing Power Standards (PPS). The PPS is an independent unit of any national currency that removes the distortions due to price level differences.⁵

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Figure 4: Social protection expenditures per inhabitant in PPS⁶

Particulary in Spain, but also in Greece the level of social security is very low. Germany and France dispense almost twice as much for social security.

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Figure 5: Percentage of beneficiaries of social benefits other than pensions⁷

Figure 5 shows that 62 percent of all Frenchmen receive social benefits, but only 18 percent of all Italian people get benefits from the welfare system. That is why the social protection expenditures in Greece and in Italy are lower than in France or in Germany. Even in the income-lowest group in Greece and Italy only a third receives social benefits.

But this is only one perspective. It is important to know that the social expenditures per capita is very high in Italy.⁸ The social benefits other than pensions are the absolute number of 2,181 PPS per capita. Thus the expenses per capita in Italy are comparable with Greece (2,044 PPS) and Spain (1,994 PPS). The consequence is that the 18 percent of the Italian population that receive these social benefits, get a very high absolute allowance (12,117 PPS). The situation in Greece is similar: 2,044 PPS of social benefits are distributed to 19 percent of the population. According to this percentage rate, that are social benefits per capita of 10,759 PPS. In Spain more people (33%) participate in social benefits than in Italy (18%) or in Greece (19%). That is why the expenditures per capita of the receiving part of the population in Spain are drastic lower (6,042 PPS).

Apart from the height of social protection expenditures, the allocation of the expenses is also an interesting point.

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Figure 6: Structure of social protection expenditures in 2000⁹

[...]

¹ cp. table in the annex: population in the European countries that border the Mediterranean Sea

² cp. Eurostat (2002), p.18

³ cp. German Foundation for World Population (website)

⁴ cp. Winqvist (2002), p.3

⁵ The PPS value are derived by using Purchasing Power Parities (PPPs) that are obtained as a weighted average of relative price ratios in respect of a homogeneous basket of goods and services, comparable and representative for each Member State.

⁶ cp. Abramovici (2003), p.3

⁷ cp. Marlier (2000), p.4

⁸ cp. figure 4

⁹ cp. Abramovici (2003), p.4