21 October 2016

Xenophobia Britannica? Anti-immigrant attitudes in the UK are among the strongest in Europe

First posted at LSE Brexit blog
The vote for Brexit took place. I had hoped that this would have been the end of the obsession with immigration. Brexit would allow the UK to ‘take back control’ of  its immigration policy, thereby nullifying the need for politicians to talk about it on an almost daily basis. However, in fact the reverse is happening. Having decided to leave the EU, the vote is increasingly interpreted as a call to end immigration almost entirely and, furthermore, it is discussed even more often and more negatively than before the referendum.

Instead of just imposing immigration controls if the government wishes to do so, we now hear a flurry of xenophobic policy proposals which are ironically unlikely to have any noticeable effect on immigration flows. There were suggestions that companies would be ‘named and shamed’ for hiring foreigners. Other ideas included preventing the government from seeking advice from non-UK citizens about Brexit related matters, presumably for ‘security’ reasons. Immigrants should not, we are told, “take jobs British people could do”. 

These proposals are economically illiterate as they implicitly accept the lump of labour fallacy that there is a fixed quantity of jobs in the economy. They are also clearly nationalist insofar as they posit work should be shared first and foremost among ‘deserving’ natives,  that we must identify and count foreigners, and that both companies and the government should not rely on foreigners to advise or work for them, at least in some instances. The question remains, however, whether these policy proposals and this obsession with immigration represent the preferences of the wider population? Or put differently, is it the case that the UK is noticeably more sceptical of immigration than other European countries?

To investigate this question, I turned to the survey data available from the European Social Survey; without a doubt one of the best cross-national academic surveys available. The 7th wave of the ESS was carried out in 2014 and covers 20 countries of western and eastern Europe (one is not an EU member: Switzerland). I analysed the responses to the available questions on immigration. For each question, I then ranked countries according to their responses as a rough indicator of where the UK sits in Europe. Obviously, a more complex analysis could be – and should be – carried out, but the following discussion gives us a first glance at the magnitude of the anti-immigration sentiment in the UK.

Ethno-nationalism, racism and multiculturalism

Concerns about immigration do not seem to be primarily driven by ethnonationalism, i.e. a conception of the nation being premised on a certain ethnicity and/or religion. Or put differently: these questions are not where the UK ranks worst.

Do people think “it is important for immigrants to be white”?

In the UK 1.4 percent of respondents thought it was ‘extremely important’ for someone to be white in deciding whether someone born, brought up and living outside the country should be able to come and live here. It is difficult to assess in and of itself whether this is high, but we can say that this is the 10th highest response (Hungary scores highest with 13.1 percent of respondents believing this is extremely important).

This only captures those respondents that selected 10 on a 10 points scale ranging from 0 ‘extremely unimportant’ to 10 ‘extremely important’. We can broaden the net by adding all those that selected 6 to 10: 7.7 percent in the UK did so, which again ranks them 10th, compared to more than 40 percent in Hungary and Lithuania (the two countries with the highest two percentages).

Do people “want to allow Muslims to come and live here”?

Overall, 17.3 percent of UK respondents answered ‘allow none’ to the question: how many Muslims should be allowed to come and live in one’s country? This is a very high percentage, but it still ranks the UK 13th with the top 2 countries (the Czech Republic and Hungary) having more than 55 percent of respondents choosing none. As much as 13 percent in the UK chose to ‘allow many to come and live here’ and 42 percent chose ‘allow some’ while 27 percent chose ‘allow a few’.

The importance of customs and traditions

Overall, 12.1 percent of respondents in the UK ‘strongly agree’ it is better for a country if almost everyone shares the customs and traditions, which ranks it 10th (the Czech Republic ranked first with 29.5 percent), while 30.7 percent ‘agree’, 25.5 percent ‘neither agree nor disagree’, 25.9 percent ‘disagree’, and 5.8 percent ‘strongly disagree’.

Close friends from a different race or ethnic group

The following question is clearly not about immigration but may tell us something about interaction between people: “Do you have any close friends who are of a different race or ethnic group from most [country] people? IF YES, is that several or a few?” In the UK, 21.7 percent responded ‘Yes, several’ which is the 3rd highest share after Sweden and Switzerland, and 36.9 percent said ‘Yes, a few’, but 41.5 percent said ‘none at all’.

Good contact with different race or ethnic group

The UK has ranked 13th worst in terms of the percentage of respondents who responded that ‘contact with a different race or ethnic group’ is ‘extremely bad’ (Hungary and the Czech Republic were the two highest). It does, however, rank high  in terms of the percentage that responded that it was ‘bad’ (as much as 6.3 percent).

Anti-immigration and negative perceptions of immigrants

Anti-immigration and negative perceptions of immigrants

As much as 17 percent of respondents in the UK want to ‘allow no’ immigration from poorer European countries (3rd after Hungary and Lithuania) and 31.9 percent say ‘allow a few’. Only 10.1 percent think we should allow many to come and live in the UK.

Unpacking immigration preferences towards different types of immigrants

We can unpack this further by analysing differences between high and low skill immigration. Responses are quite different when comparing whether to allow professionals from poorer countries and whether to allow unskilled labourers. Only 6 percent of respondents in the UK want to ‘allow no’ professionals from poorer European countries (11th highest) compared to 35.1 percent for labourers (3rd highest), and 19.9 percent want to ‘allow a few’ professionals compared to 28.7 percent for labourers.

Policy proposals that want to limit immigration into the NHS or highly skilled occupations may therefore not have as much popular support. Questions about the importance of good educational qualifications for immigration provide consistent answers: 75.5 percent believe the educational qualifications of immigrants is ‘important’ (which ranks it 5th highest in the sample, after Austria, Germany, Estonia and Lithuania – the answers are ranked from 0 ‘extremely unimportant’ to 10 ‘extremely important’ and I added the numbers who chose 6 to 10).

The importance of language and skills

Respondents in the UK attached a particularly high importance to language: 84 percent chose 6 to 10 in response to the question about the importance of speaking the country’s official language, where 0 is ‘extremely unimportant’ and 10 is ‘extremely important’. This placed the UK 2nd highest after Austria. As much as 38 percent responded that language was ‘extremely important’ by choosing 10.Equally, respondents emphasised the importance of skills: 83.3 percent chose 6 to 10 in response to the question of whether work skills needed in the country is an important aspect of immigration, where 0 is ‘extremely unimportant’ and 10 is ‘extremely important’. This ranked the UK 2nd highest among countries surveyed and 27.2 percent responded that it was ‘extremely important’ by choosing 10.

Concerns about immigration related to the ‘way of life’, jobs, public services and crime

Responses indicate that British citizens think it is important that immigrants should be committed to society’s ‘way of life’: 85.7 percent chose a number between 6 and 10, where 0 is ‘extremely unimportant’ and 10 is ‘extremely important’. This ranked the UK 6th highest among the countries considered in the ESS and 31.2 percent thought it was ‘extremely important’. 

But respondents were also concerned about whether immigrants take jobs away from the country. Respondents could choose any number between 0 ‘take jobs away’ and 10 ‘create new jobs’: 37.1 percent chose a number between 0 and 4 (those which on balance think immigrants take jobs away more than they create jobs), while 8.2 percent chose 0 (definitely think that they take jobs away). This placed the UK in the 6th highest position.

Moreover, many respondents were convinced that immigrants take out more than they put in in terms of taxes and public services – contrary to what the evidence suggests. Indeed, 42.8 percent chose a number between 0 and 4, where 0 is ‘generally put in less’ and 10 is ‘generally take out more’. This ranked the UK 6th worst in the countries under consideration in the ESS.  

The ESS also asked respondents: Compared to people like yourself who were born in [name of a country], how do you think the government treats those who have recently come to live here from other countries? 19.7 percent responded ‘much better’ which ranks the UK 1st highest (followed by Ireland and France) and 26.4% responded ‘a little better’.

Finally, the UK was 7th in terms of the percentage of people that believe immigrants make the country’s crime problems worse with 53.1% choosing a number between 0 and 4, where 0 is ‘crime problems made worse’ and 10 ‘crime problems made better’, and 8.7% chose 10, the most convinced expression of immigrants making crime worse.


Overall, there is a strong anti-immigration preference among a significant part of the population, which is rooted in associations between immigration and a number of problems including higher crime, way of life, and insufficient jobs and public services. These associations clearly helped the Brexit camp and play into the hands of the far right, which has long promoted these associations. Misperceptions seem to abound about the effects of immigration. 

But even the assessment of the number of foreigners in the country is widely off the mark for most people. Indeed, when asked, “out of 100 people how many were born outside the country?” 3 percent said 60, about 9 percent said 50, about 9 percent said 40, more than 10 percent said 30, and more than 10 percent said 20, just to give some examples. In reality, a recent House of Commons library briefing paper placed the percentage of people living in the UK who were born outside the UK at 13 percent (Hawkins, Oliver (2016) House of Commons, library, briefing paper, migration statistics, Number SN06077, 5 September 2016: page 18). More than 40% of respondents grossly over-estimate the number of immigrants in the country.
The survey data reveals that the UK has among the highest anti-immigrant survey responses, especially within Western Europe. These results suggest that recent policy proposals tap into widespread anti-immigration sentiment, which may, of course, have been created by the media and political discourse that has been framing the issue so negatively for a long time now.

At the same time, the problem seems to be not just about whether immigration should or should not be restricted, and if so how, but more importantly about how to promote a more facts-based discussion of immigration. The fact of the matter is that a large part of the electorate has now wholeheartedly embraced anti-immigration attitudes.

Note 1: Design weights are applied throughout.

Note 2: I use the exact language and wording of the ESS for simplicity.

05 October 2016

The crisis of legitimacy of the UK welfare state

The ongoing austerity agenda in Britain seems puzzling until we look at social attitudes and how they have evolved over time. This is precisely what the British Social Attitudes survey allows us to do by monitoring people's views of a variety of topics. It asks a random sample of 3000 people a series of questions since the early 1980s.

The analysis of their questions related to the welfare state reveals a striking crisis of legitimacy. The share of those that think unemployment benefits are too low fell from above 50% in early 1990s to less than 30% after 2010. This occured alongside drastic reductions in the unemployment benefit replacement rate (which measures the % of income that is replaced by unemployment benefits).

At the same time, the % of respondents that agree that the government should spend more on welfare has decreased from above 60% in 1990 to 30% in 2014. And this probably overestimates the % of people who vote that actually believe the government should spend more on welfare state.

This is surprising on two counts. First, assuming some degree of redistributing effects of welfare state policies, and given that the median income is under the average income, we would expect that it is beneficial for more than one third of people to favour redistribution, and by extension welfare spending.

Second, the crisis has - at least initially - increased unemployment and insecurity among workers, two issues that welfare state policies are supposed to address. One solution to this puzzle lies with the fact that people believe cutting the welfare state would incentivise unemployed people to find jobs. Indeed, in the early 1990s, less than 30% of respondents agreed that a less generous welfare state would encourage people to 'stand on their own two feet'. By 2010, this was above 50%.

At a time where fiscal pressures are seen - rightly or wrongly - to be significant, this low public support limits the electoral attractivness of policy proposals to expand the welfare state and strengthens the political viability of austerity.

04 September 2016

Regulations in 'rigid' labour markets are less likely to be enforced

How difficult is it to fire a worker in different countries?

To answer this question, most social scientists have created many indicators that capture the conditions, costs and uncertainty associated with firing an employee.

For instance the OECD Employment Protection Legislation (EPL) index measures "the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts"

The determinants and consequences of EPL

This index is then used in statistical analysis to assess the impact of EPL on economic outcomes, such as unemployment, or to identify the determinants of EPL reforms, for instance partisanship.

The conventional wisdom is that EPL has adverse economic consequences (studies by IMF and OECD, Layard, Botero and others), but the stability of the findings to different specification has been contested (for instance see work by Baker, Avdagic and others).

Employment Protection Legislation: rules versus enforcement

For a long time a more obvious problem has been that legal restrictions on firing can only be expected to have any effects on labour market performance if the legislation is actually enforced on the ground.

The issue here is not so much that employment protection legislation might not enforced (which is likely) but more importantly that it might be enforced to varying degrees in different countries in ways that we cannot observed.

New database on enforcement

This shortcoming is now being partly addressed in recent research by Kanbur and Ronconi published in the Centre for Economic Policy Research.

In a shorter version of the paper they have published in VoX they explain how they created a new indicator of enforcement that combines both inspections and penalties.

Their results are interesting in at least two respects 

First, once they control for their measure of enforcement in a statistical analysis of the determinant of labour market performance, EPL no longer has a statistically significant adverse effect for most measures of performance. In other words, labour market regulations do not in fact seem to have a consistent effect on labour market outcomes.  

Second, they show that countries with more stringent EPL have lower enforcement levels, which then makes it difficult to know which country's labour market really is more 'rigid'. This is shown in the figure below that plots a de jure employment index on the horizontal axis and their enforcement index on the vertical axis.

Interpreting the figure: some country examples

The ranking should be interpreted as follows: countries which are lower on the scale have higher ranking and hence more protective institutions or more enforcement. 

Thus for instance, while Canada and Denmark have among the lowest ranking in de jure employment protection (they are not in the top 150 countries), they rank really high in terms of enforcement (in top 25). By contrast, France and Spain score high on EPL but do not rank well in terms of enforcement: their stringent regulations are not well-enforced compared to many other countries.

Figure: Enforcement and labour law


Brexit and non-UK born population

19 July 2016

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Being unemployed in the US after the Obama presidency

First posted on Tim Vlandas' website

Obama was elected in 2008 during the height of the crisis with much expectations that he would improve the conditions of the least well-off in American society. As his term nears its end, I use the latest OECD data to assess how unemployed individuals fare now compared to both other developed countries and to when he started his term.

In a nutshell, I show that in all plausible scenarios, individuals in the initial phase of unemployment are worse off in the US than in a median OECD or EU country and their relative situation has gotten worse since 2007, especially if they are in the middle class.

OECD data

The OECD has data on the net replacement rates for six family types in the initial phase of unemployment. The latest data available is 2014 so it is in principle plausible – though unlikely – that the situation has improved massively in the last two years and that this is not captured by my data. Note further the emphasis on the initial phase of unemployment: after a certain time in unemployment – which varies by country – unemployed lose eligibility to certain benefits (or experience falls in the replacement rate).

The OECD tax-benefit Model allows you to specify the marital situation of the family (single, one earner married couple, and two earners married couple) and whether they have children (in this case no children versus two children) for different levels of the average wage.

For simplicity I show the replacement rate for a case when the family does not qualify for cash housing assistance or social assistance in either the in-work or out-of-work situation. I also do not consider the case of earners with 150% of average wage.

The situation in 2014

Figure 1 shows the difference between the US and the EU/OECD average replacement rates in 2014. As an example consider the case of a single person with no children earning 67% of the average wage prior to becoming unemployed. In the US, the person would get 61% out of work income as a percentage of previous earnings equal to 67% of the average wage. The equivalent OECD median is 65% while the EU median is 68% so the gap between the US and the OECD median is 4 percentage points while it is 7 percentage points between the US and the EU.

Comparing different family and income situations reveals that the US is least generous compared to the OECD and EU median for ‘middle class’ (100% of average wages) families that are composed of lone parents with 2 children. The next biggest gap between the US and the OECD/EU median is for low income families with either one earner couple or a lone parent.

By contrast, low income families (67% of average wage) with two earners with or without two children would fare almost exactly the same in terms of replacement rate in the median OECD and EU country as in the US.

Figure 1: The difference between the US and the EU/OECD average replacement rates in 2014
EU US gap in 2014


Cross-national variation

In Figure 2, I show the 2014 cross-national variation in the replacement rate for a single earner with no children that does not qualify for cash housing assistance or social assistance and had previous earnings of 67% of average wage. This reveals that the US is not the worse country among developed countries (the worse is not surprisingly the UK – though note that the situation does not quite look as dire for the UK if the family qualifies for cash housing assistance). But it is located in the bottom half of the ranking.

Figure 2: 2014 replacement rate for a single earner with no children that does not qualify for cash housing assistance or social assistance and had previous earnings of 67% AW
Figure 3


Changes since 2007

In 2014, the average across all family types and both income situations for the US is 59% compared to 70% for the OECD median and 71% for the EU median. This represents a fall from 2007 where the average was 62% for the US, 60% for the OECD and 71% for the EU median.

Figure 3 shows how the gap between the US and the EU has evolved between 2007 and 2014 for different family-income scenarios. Positive values indicate that there has been an increase in the gap between what a person would get in a median EU country and what they would get in the US. Thus for instance, we see that the biggest increases in the gap has been for one  earner married couple with no children that earned 100% of the average wage prior to becoming unemployed and a single person with no children also earning 100% of the average wage prior to becoming unemployed. The next biggest increase has occurred for a lone parent with two children.

Thus, over the Obama presidency, the welfare of vulnerable middle class families in the US relative to their counterpart in the Europe has gotten worse. This is a striking result given the significant retrenchment of European welfare states that has taken place in Europe between 2008 and 2014 (the period under consideration here).

Figure 3: The difference between the EU-US gap in 2007 and in 2014

Change between 2014 and 2007.jpg 

Disappointing but not surprising

While disappointing, the falling welfare of the unemployed in the US is not entirely surprising from a theoretical perspective. The welfare state literature makes clear that liberal welfare regimes’ structure (e.g. targeted means tested benefits) limit the popular support for generous welfare state benefits for the unemployed that are seen as particularly undeserving.

As Rehm brillantly discusses in his latest book “Risk inequality and Welfare state“, countries with concentrated risks of unemployment among low income workers are less likely to exhibit pro-welfare state cross-class coalitions. At the same time, the US type of capitalism limits the power of the unions while making it unlikely that employers will consent – in the words of Korpi – to more generous social policies (see Varieties of Capitalism literature).

As a result, where there is no clear efficiency imperative (e.g. Obamacare in the context of objective inefficiencies in the health care sector in the US), it is therefore difficult even for a left leaning government to undertake an expansion of welfare state policies.

23 September 2015

Austerity brings extremism: why the welfare state is the key to understanding the rise of Europe’s far right

This blog was orginally published in the Huffington post.

The recent Greek election has resulted, once again, in a coalition government between the far left Coalition of the Radical Left (SYRIZA) and the far right Independent Greeks (ANEL). What has attracted less media attention so far, however, is the striking result for the neo-Nazi Golden Dawn which increased its share of the vote from 6.28 to 6.99%, gaining 18 seats in a parliament of 300, and remaining third strongest party. This indicates that the Golden Dawn remains a considerable presence in Greek politics since its first entry in the Greek parliament in 2012. And, it is a striking result for a party that is not only extreme, violent, and espouses Nazi ideology, but is also currently on trial for maintaining a criminal organization. Only a couple of days prior to the election, the party’s leader publicly accepted “political responsibility” for the murder of left-wing activist Pavlos Fyssas.

But the rise and resilience of far right parties is not confined to Greece. While neo-Nazism is indeed a more isolated phenomenon, the far right more broadly- i.e. parties that centre their attention on nationalism and xenophobia - is becoming increasingly popular across Europe. In the 2014 European Parliament elections, four far right parties received more than 20% of the votes cast: Austria’s FPÖ, Denmark’s DF, Britain’s UKIP and the French FN. Several others received over 10% of the votes cast including the Dutch PVV, the True Finns, and Hungary’s Jobbik. A number of these parties are also faring quite well in their domestic electoral arenas, for instance the French FN in 2012, the Austrian FPÖ in 2013, and the DF in Denmark as well as UKIP in the UK in 2015.

The most popular explanation for the rise of the far right in Europe is the on-going economic crisis. This answer has both historical and theoretical appeal. Historically, the rise of Nazism in interwar Europe followed the 1929 major financial crash. Theoretically, economic crises are associated with the rise of the far right because the dispossessed are more likely to punish the mainstream and opt for extreme or anti-establishment parties.

But the crisis is, at best, only part of the story.  Unemployment rates do not correlate with levels of far right support.  While Greece, which does have high levels of unemployment and suffered greatly from the crisis, did experience the rise of the Golden Dawn, other countries that have suffered from the crisis including Spain, Portugal and Ireland have not experienced a similar rise: Spain 2000 and National Democracy (DN) have remained marginal in Spain, the same is the case for the Portuguese National Renovator Party (PNR), and there is no far right party in Ireland. On the other hand, countries that have not experienced the worst of the crisis and generally have lower levels of unemployment, such as Britain, France, and Denmark, are experiencing a rise in far right party support.  

The problem with this explanation is therefore that it is not consistent with patterns of far right party performance across Europe. This is because it is missing a crucial piece of the puzzle: welfare state policies mitigating the risks and costs that an economic crisis imposes on individuals. Ironically, it seems that welfare cuts, employed to tackle Europe’s economic crisis, are to blame for a broader political crisis, where the far right is flourishing.

In other words, austerity breeds right-wing extremism and this why: The link between an economic crisis and far right support is the labour market insecurity experienced by the middle class. When a crisis hits, those who have a job fear that they will lose it. Those who don’t have a job (or those who do lose it) fear that they will have no safety net or alternative means of subsistence. The greater the risks and costs of unemployment arising from the crisis the greater the insecurity. And in turn, the greater the insecurity, the greater the likelihood for people to punish the mainstream and reward far right parties.

One reason is that these parties pledge to limit foreigners’ access to jobs, thus appearing to be responding to increasing insecurity.  Another is that these parties’ authoritarian vision of order is appealing in a context where economic malaise is having a disorderly effect on people’s lives.  Finally, far right populist rhetoric is appealing because mainstream parties take the bulk of the blame both for the crisis itself and for inadequate policy responses to it.

The welfare state, therefore, is the key to understanding the rise of the far right as well as its varied performance across Europe: The extent of insecurity that people experience as a result of the crisis is largely determined by how protective welfare state institutions are. People fear losing their jobs less when job dismissal regulations protect them from redundancy. And those who do lose their jobs suffer less from this loss when unemployment benefits are more generous. A rise in unemployment, therefore, is morel likely to lead to far right party support when job dismissal regulations are low and unemployment benefits not generous.

This helps explain what happened in Spain and Portugal where unemployment has increased but the far right has not emerged. Both countries have high unemployment benefit replacement rates, and job dismissal regulations for those in permanent contracts are also comparatively high. By contrast, Greece and the UK, which have seen their far right party support increase, have much lower replacement rates. The UK also has one of the lowest employment protection legislations in Western Europe.

Welfare state policies are the link between economic crisis, unemployment and far right party support. Welfare cuts have increased the insecurity of the European middle classes that are being hit by the economic crisis. This matters because of the implications it has for policy. By reversing austerity, which results in welfare cuts and increases insecurity, we can limit the appeal of right-wing extremism. 

This piece is co-authored with Daphne Halikiopoulou. Daphne Halikiopoulou is Associate Professor in Comparative Politics at University of Reading. Tim Vlandas is Lecturer of Politics at University of Reading.  This piece builds on their argument in their co-authored piece Risks, Costs and Labour Markets: Explaining Far Right-Wing Party Success in European Parliament Elections forthcoming in the Journal of Common Market Studies.

01 June 2015

Changing welfare states in the post-crisis period

The OECD has published its latest social expenditure update covering 2014. It’s a very interesting small report well worth reading. Here are 8 points that caught my eye in the latest data which I organise in three themes: surprising changes in ranking, the articulation of short term and long term dynamics and the importance of paying attention to the allocation and composition of social spending, not just the aggregate spending. 

Surprising changes in ranking (Figure 1)

1. Scandinavian countries are no longer always the top social spenders. In 2014, France (1st) spent more than Finland (2nd), Belgium (3rd) more than Denmark (4th), Italy (5th) and Austria (6th) more than Sweden (7th). For a very long time, Scandinavia had much large welfare states than other countries, which was attributed to particularly strong left wing parties and unions, as well as production models that required such a welfare state. This seems to be changing (though see point 5 below). 

2. Spain (8th) and Italy (5th) now spend more on social expenditures than Germany (8th), while Portugal (9th) spends more than the Netherlands (10th). But they do so in a way which is particularly inegalitarian (see point 6 below) and inefficient (consistent with older research by, among others, Andre Sapir). 

Diversity in short term changes, but in the long run social spending increases 

3. The biggest absolute increase in social spending since 2007 can be seen in Finland, Spain, Belgium, Japan and Ireland. Nine countries have managed to reduce spending below their post-2007 peak: Sweden, Greece, Hungary, UK, Ireland, Canada, Iceland, Estonia and Chile (Figure 1). 

4. Every decade since the 1960s has seen an increase in the OECD’s average public social expenditures. This average hides an important difference between the US and the EU which start diverging in the mid-1970s. By 2012, the OECD average spending has stabilised around 22%, EU21 around 25%, US under 20%, while Japan spends more than the OECD average for the first time (Figure 2). 

It’s not what you spend, it’s how you spend it 

5. But Scandinavia does continue to spend much more on all social services (excluding health), whereas pension commitments are much larger in continental European countries than Scandinavia (Figure 4). And indeed the challenge for most welfare states is going to be to foster efficiency and equality in a context where health and pensions are absorbing an ever rising amount of resources. 

6. What characterises southern Europe is not high social spending, it’s a high percentage of spending targeted at the better off (highest income quintile) and very little targeted at the poor (the bottom quintile). Scandinavia and liberal countries do well in terms of targeting spending toward bottom quintile (Figure 5). 

 7. Liberal countries (Australia, Canada, US, UK, New Zealand) are the biggest ‘means testers’: They have among the highest share of cash benefits with eligibility and entitlements requirements that are conditional on the recipient's current income and assets (Figure 6). While it means they do not fare badly in terms of targeting spending to the bottom quintile (point 6), reducing universality of benefits undermines public support for generous benefits, hence the low social spending figures. Countries must strike a balance between allocating sufficient amounts to the bottom quintile to promote effectiveness of spending in reducing poverty and inequality, and distributing parts of spending to other income quintiles to ensure legitimacy.

 8. We should not confuse what countries spend overall and the public-private distribution of that social spending. So far I’ve only discussed gross public spending: when looking at net social spending (i.e. including private social spending and effect of tax), the US comes out second (from 23rd) after France! UK jumps from 15th to 5th, Japan from 14th to 7th and Netherlands from 13th to 6th. Others fall in ranking: Sweden from 7th to 11th, Italy from 6th to 8th, and Spain from 8th to 10th position (2011 figures, Figure 7). The combined drive by governments such as the UK to reduce public social spending and privatise parts of the provision may mean they end up in the worst of both worlds: spending as much as before, but with a higher share going through an often less efficient (for the case of health care) and less egalitarian provider.

25 May 2015

The conservative victory and the welfare state: Here comes the pain

The Conservatives have won an unexpected majority. Now must come the cuts. Even Ian Duncan Smith is worried about the scale of the cuts promised. In this post I review the good, the bad, the ugly and unknown proposals that the conservatives have in stock for the welfare state. It’s an open question which ones they end up implementing and more crucially where they impose the pain of the non-specified cuts they promised in their manifesto.

The good

There may be some attempts to raise the purchasing power of low income workers. They want to raise the threshold beyond which workers start paying income tax to 12,500£. But whether this will on the net make low income workers better off depends crucially on where they cut welfare state spending further (see below). A downside is of course that this further erodes the government’s tax raising capacity. On minimum wages, they declared they would follow the recommendations from the Low Pay Commission to raise minimum wage to over $8 by the end of 2020. Again whether this will actually represent an improvement depends on the inflation rate over the next five years.

In addition to these uncertain improvements to the conditions of low income workers are two big spending promises. The first one concerns giving working parents 30 hours of free childcare for 3 and 4 years old, which they estimate will cost about £350 million. The second one is to protect the NHS by keeping it free at the point of use and increasing the NHS funding by an additional £8 billion by 2020. For the latter increase in spending to make the NHS sustainable will require additional ‘efficiency savings’ of 2% to 3% a year which are likely to be very difficult to achieve. So in all likelihood, the Conservatives will have to choose between a deterioration of quality or allocating extra spending.

Finally, two ambiguously positive proposals. First, they have promised that they would introduce a national postgraduate loan system for taught masters and PhD courses. This will not resolve much of the issues of university funding and access to undergraduate degrees, but fills a gap for postgraduate studies where access was hampered. Second, the benefit cap, which I discuss below in more detail, will not include the Disability Living Allowance.

The bad

In a context of austerity, the Conservatives are wasting tax revenues on the better off while cutting benefits on the worst off. This makes no economic sense and will likely depress the economy given the different marginal propensity to consume of different income groups: the poor will reduce their spending in response to lower benefits more than the rich will increase their spending in reactions to lower taxes. The net effect on aggregate demand, even in the absence of additional consolidation, will be negative.

Regarding benefits, they will freeze working age benefits for two years from April 2016 (except for maternity allowance, statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory sick pay). Two groups are specifically targeted. First, EU immigrants: they plan to further restrict benefits (housing, JSA, etc) to EU jobseekers in the first four years. This may be consistent with EU law as long as the restriction applies to non-contributory benefits. However, studies have shown that immigrants bring more revenues than they cost so there seems to be little reasons to limit benefits on economic grounds. Second, 18-21 years old will be eligible to a less generous ‘Youth Allowance’ limited to six months and will also have less access to housing benefits.

The ugly

The three most problematicc proposals are the benefit cap, the undercutting of strikes and promotion of precarious contracts and sanctions for addicts. With respect to the first, they will lower the current benefit cap on the benefits that households can receive to £23,000 (from £26,000). In practice this will only hurt families that need it the most such as those with many children or those paying high rents.

Next, they want to rely on precarious contracts to break strikes by repealing the “nonsensical restrictions banning employers from hiring agency staff to provide essential cover during strikes”. This fundamentally undermines the right to strike as precarious contracts are likely less costly than the workers that are striking. Since those who strike are not being paid by their employers, strikes will no longer have any impact on employers.

Finally, those who refuse the “medical help they need” will see their benefits reduced. This concern both those addicted to drugs and the clinically obese. Assuming that at least some of these recipients would change their behaviour in response to the change, this still implies that some very vulnerable recipients that are not able to change their behaviour will lose benefits.

The known unknowns

Given that they have promised to protect Schools and international development, and that they will be spending more on the NHS and childcare, unspecified cuts are going to be large. In total the IFS estimates that they will have to cut £22.5 billion from departmental spending in ‘unprotected’ areas including defence, law and order, social care, and others. How much of this will be frontloaded in the first couple of years remains to be seen, but this will no doubt necessitate very drastic cuts.

In a post-crisis context where there is a heightened need for the welfare state there are very few policy domains that be cut without imposing significant hardships. As I’ve argued elsewhere, the many new challenges related to ageing and changing labour market structures would also require more rather than less welfare state spending.

29 March 2015

Curbing immigrants' benefits is a bad idea

The recent 'debate that was not' between Ed Miliband and David Cameron was depressing because both now seem to embrace the fantasy that curbing benefits to immigrants would be helpful. This was already an idea that David Cameron had proposed in a speech not long ago and that I had written about. This is what I had written at the time and I think it still applies.

Saddened by the rise of immigration above ‘the tens of thousands’ promised, Cameron has proposed new curbs on EU immigrants’ access to UK benefits. This proposal is unlikely to be feasible given current EU legislation. Because it is based on a flawed assessment of the problem, this proposal is also unlikely to have any effect on EU immigration and will probably make things worse.

What’s the problem?
According to the Office for national statistics, net migration – the difference between those leaving (323,000) and those entering (583,000) the country – was 260,000. One often throws this number around in the hope that it will sound big. However, common sense suggests otherwise. Indeed, this represents 0.36% of the total population of the UK (64 million). Yes, 0.36% and you are meant to believe this is a major problem facing the country today. Indeed Cameron criticises the “complacent view that says the levels of immigration we’ve seen in the past decade aren’t really a problem at all”.

But the truly amazing thing is that not even half of those entering the UK are EU citizens: of the 583,000 entering the country, only 228,000 came from other EU countries in the year ending June 2014. And about 20% of EU immigrants came to study. Compare this with the latest number of births (812,970) and deaths (569,024) in the UK. Or think about the fact that we still have 1.96 million people seeking work (only 0.93 million receiving job seeker’s allowance) and 9 million not in the labour force (i.e. those between 16 and 64 either not seeking or not available to work).

The proposed solution
Despite no evidence that the bulk of immigration is driven by benefits, Cameron proposes two measures that are entirely based on this assumption:
  • He first suggestsEU migrants should have a job offer before they come here” but then contends that “UK taxpayers will not support them if they don’t”, which begs the question: how could UK taxpayers support them if they are not allowed to come here in the first place without having a job offer? Never mind that people also pay taxes when they consume goods and services.
  • Second, he proposed introducing a two-tier system where “once they are in work, they [EU citizens] won’t get benefits or social housing from Britain unless they have been here for at least four years.” It’s totally unclear of course how this is supposed to influence EU immigration into the country. It’s also grossly unfair since it will – arbitrarily – prevent people who are contributing to government revenues to claim certain benefits.

Why it doesn’t make sense
The first issue with the proposed reform is a misreading of what’s driving EU immigrants’ to come to the UK. Cameron argues that the “generous welfare system, including for those in work – makes the UK a magnetic destination for workers from other European countries”. But many of the benefits are in fact not more generous than in many other EU countries. And migrants are less likely to claim benefits than natives.

In fact, immigrants that are from Central and Eastern European countries are 60% less likely than natives to receive state benefits or tax credits and 58% less likely to live in social housing. In 2011, across all benefits given by Department of Work and Pensions, 6.4% were non-UK nationals and only a quarter of those were from within the European Union. Ironically, Cameron himself concedes as much: “And let me be clear: the great majority of those who come here from Europe come to work, work hard and pay their taxes.” If the majority of immigrants come to work – and they do – restricting benefits would at best alter the immigration decisions of very few people.

Second, the reform is unnecessary. Indeed, as Cameron himself argues the surge in EU immigration is temporary and driven by the economic downturn in other EU countries: “And once economic growth returns to the countries of the Eurozone, and those economies start to grow and prosper, the economic pendulum will start to swing back.” If the problem is a temporary downturn in other EU economies, a permanent curb on EU immigrants’ benefits is unlikely to solve it.

Third, the reform would make matters worse. Cameron boasts that “So as Universal Credit is introduced we will pass a new law that means EU jobseekers will not be able to claim it. […] So instead of £600, they will get nothing.” But if the concern over immigration, as is frequently voiced, is that it puts pressure on the employment conditions and wages of workers in certain occupations, then making EU immigrants non-eligible to benefits will increase rather than decrease the pressure that takes place.

Indeed, faced with literally no safety net, EU immigrants would be forced to accept any work at any wages. Current evidence in any case suggests that immigration has at worst a mixed impact on native workers – beneficial for some workers and detrimental to others. Immigration also entails a clearly beneficial effect on the net fiscal position of the government. Thus, if successful in preventing immigration the reform would paradoxically lead to a worsening of public finances.

Last but not least, to the extent that a high and localised influx of immigrants does indeed put pressure on public services, reducing the overall number of those who come in the foreseeable future, while deteriorating EU immigrants’ social protection, does nothing to alleviate the pressure that has already accumulated. Pressure on public services is an allocation problem: immigration and indeed the general population concentrate in certain parts of the UK territory.

The solution is therefore twofold. First, making other parts of the UK more economically attractive would distribute population more evenly across the UK.The UK does not have an usustainable population growth: it had the 152nd highest rate of population growth of the world. Its net migration rate per 1,000 persons is lower than in Ireland, Cyprus, Norway, Spain, Australia, Canada, Sweden,Switzerland, Italy, and Portugal. The UK population density – people per square Km – did increase from 230 in 1981 to 255 in 2009 (table 6). But compare this to density in London: 4,932 people per square kilometre in 2009 (page 20).

Second, we should invest in the public services that are under pressure. To the extent that EU immigrants have a positive net fiscal effect, they should facilitate such an investment. Some may argue that it is EU immigration that puts pressure on these services. However, given net economic gains of immigration the solution should not be to reduce immigration but rather to use the extra tax revenues that EU workers generate to invest in pressurised locations.

An EU version of this solution could also be pushed by this government: to create an ‘EU immigration compensation fund’ that helps local communities cope with the pressures that large influx of immigrants may generate. In a context where the EU is associated with austerity, thereby fuelling extremism, this fund would improve public services where it is most needed while addressing EU citizens’ legitimate concerns over immigration.