Reconciling efficiency and equity in the knowledge economy (How) do collective skill formation systems do it?
Speaker: Niccolo Durazzi (Senior Lecturer, University of Edinburgh)
Collective skill formation systems were central to achieving economic efficiency and social equity in industrial societies. But can they still be effective on both efficiency and equity grounds in knowledge-based societies? This paper argues that no intrinsic reasons prevent collective skill formation systems from successfully adapting to the knowledge economy. However, such a process of adaptation is not automatic. Rather, it rests on the willingness of key actors—unions, employers, and the government—to actively adjust collective skill formation systems to meet the needs of a labour market that has fundamentally changed, primarily due to technological change. Therefore, adaptation to the demands of the knowledge economy is likely to take country-specific forms and be politically mediated by power dynamics structuring actors’ relationships. The argument is probed empirically through a panel analysis testing the effect of collective skill formation systems on a range of socio-economic outcomes and country case studies of Austria, Germany and Switzerland illustrating the political dynamics underpinning the reform of collective skill formation systems in the knowledge economy. Overall, the empirical evidence provides support for the argument, although it appears that achieving success on efficiency grounds is more straightforward than doing so on equity grounds.
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Risk of Poverty and Redistribution to the Poor
Speaker: Fabian Mushövel (Research Fellow, EUI)
Mature welfare states fulfill at least two functions: reducing inequality and providing insurance against adverse events such as unemployment. Much of the literature analyzes these two functions separately and, by extension, views the respective social policies in which they manifest as products of demands made by groups who directly benefit from them. Poverty alleviation through downward redistribution is thus considered a result of demands from low-income earners. Meanwhile, social insurance is viewed as distinct and distributionally neutral, underpinned by support from voters from all strands of the income distribution.
We question this siloed approach and argue that as labour market risks become more palpable for a growing number of people across the income distribution, redistributive policies aimed at low-income earners also increasingly fulfill an insurance function for those in higher income groups, blurring the line between downward redistribution and social insurance. By that logic, demands for policies that reduce the risk of poverty garner political support from groups that extend beyond those directly benefitting from such policies in monetary terms, as increased perceived risks lead middle-income voters to seek insurance against sliding down the income distribution. Governments thus implement policies aimed at increasing bottom incomes in contexts of increased relative at-risk-of-poverty rates, as well as increases in perceived economic insecurity.
We test our theoretical framework using an original approach to measure the distributive effects of policy reforms with microsimulations, which enables us to isolate policy effects from macroeconomic and demographic changes. Specifically, we use the European Union’s microsimulation model ‘EUROMOD’ to compute poverty-alleviating effects of reforms in all 27 EU member states and the United Kingdom since the mid-2000s. Our results show a high degree of redistribution to the very bottom, mainly through the expansion of means-tested benefits or more progressive public pension provisions. In line with our theoretical expectations, this result is partly driven by governments reacting to higher at-risk-of-poverty rates. Moreover, the effect of poverty risks on downward redistribution is particularly strong under left governments.
The paper has several important implications. Theoretically, our findings underscore the importance of the notions of risk and insurance for better understanding demands for, and provision of, social policies. This contrasts the welfare state literature that focuses more on inequality reduction per se. By tracing the link from partisanship to policy outputs, we also pinpoint the agency of elected officials as active responders to their electoral base and its risk landscape. Lastly, methodologically, the paper offers a more precise way to measure the effects of social policies.
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