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Brussels, 5 March 2009

Joint Report on Social Protection and Social Inclusion 2009

What is the Joint Report and what does it cover?

The Joint Report examines the Member States' integrated national strategies on social inclusion, pensions, healthcare and long-term care. It reviews the main trends across the EU and at national level and is the outcome of a process involving the European Commission and the Council. Most of the work involves the Social Protection Committee (a group of high-level officials established in 2000 to serve as a vehicle for cooperative exchange between the Commission and the Member States).

The 2009 report gives a clear signal on the need to implement comprehensive active inclusion strategies, to ensure long-term adequacy and sustainability of pensions, to reduce health inequalities and to improve cost-efficiency in the healthcare sector. Moreover, the report highlights the challenges that each EU country faces to promote social inclusion, adequate and sustainable pensions, and universally accessible healthcare and long-term care. These challenges are presented in the country assessments that accompany the report.

The EU's system of common objectives, assessment and reporting for social protection and inclusion – the 'open method of coordination' – operates in tandem with the EU Strategy for Growth and Jobs. The Joint Report on Social Protection and Social Inclusion is presented to EU leaders and feeds into the conclusions of the Spring European Council.

What has been the social impact of the economic crisis so far?

The impact of the economic crisis on labour markets is now clearly visible in recent employment statistics. The unemployment rate in the EU has been rising from a low of 6.8% in April 2008 to reach 7.6% in January 2009, and in particular Estonia, Spain, Ireland, Lithuania and Latvia were adversely affected.

Information collected by the Social Protection Committee shows that the number of recipients of unemployment benefits has started to increase. Most Member States expect increased pressure on social assistance schemes as some of those people currently covered by unemployment insurance are likely to lose their entitlements before having found a new job. The percentage of older workers claiming early retirement or disability has already started to increase in some countries.

As welfare systems play the role of automatic stabilisers, social protection expenditure is projected to rise. However, the capacity to address the rising demand for social security varies greatly across Member States.

In some countries, the number of households defaulting on their mortgage payments or facing repossession is rapidly rising. Increased rates of over-indebtedness and difficult access to credit for individuals are also reported. Funded pension schemes face a sharp decline in the value of investments backing pension liabilities.

These recent developments have to be seen against the situation that prevailed before the crisis. The supporting document to the Joint Report highlights the common social challenges that Member States face across the EU and their diversity. It also points out the varied capacity of their social protection systems to address these challenges. This helps to identify the specific vulnerabilities of different systems and where measures need to be targeted by priority.

How many Europeans are at risk of poverty?

In 2007, 16% of people in the EU lived below the poverty threshold (defined as 60% of their country's median income), a situation likely to hamper their capacity to fully participate in society. National rates ranged from 10% in the Czech Republic and the Netherlands to 21% in Latvia.

Figure 1: At-risk-of poverty rate in the EU (%), total, children and elderly, 2007

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: EU-SILC (2007); income year 2006; except for UK (income year 2006) and for IE (moving income reference period 2005-06); RO: National Household Budget Survey 2006. BG data missing

Children are often at greater risk of poverty than the rest of the population (19% in the EU-27). This is true in most countries except in Denmark, Germany, Estonia, Cyprus, Slovenia, and Finland. Child poverty rates range from 10% in Denmark to 25% in Italy and Romania. The main factors affecting child poverty levels in the EU are the labour market situation of their parents and the effectiveness of government intervention through income support and the provision of enabling services such as childcare. This is particularly evident in the case of lone parents, who face a risk of poverty of 34% on average in the EU.

While on average the elderly also face a higher risk of poverty than the overall population (19% against 16%), substantial differences exist across countries. The risk of poverty faced by people aged 65 or more ranges from 5% in the Czech Republic to 30% in Lithuania and the United Kingdom, 33% in Estonia and Latvia, and even reaches 51% in Cyprus. The relative situation of the elderly depends on a number of factors including the adequacy of the pension systems for current pensioners and the age and gender structure of the elderly population, since elderly women and the very old tend to face much higher poverty risks.

The standards of living of people at risk of poverty vary greatly across the EU. In the Baltic States, Hungary, Poland and Slovakia, they live on less than €250 per month, whereas in the Nordic countries, in Ireland, Luxembourg, the Netherlands, and the UK the poverty threshold is €900 a month or more. When taking account of the differences in the cost of living (values expressed in purchasing power standards) the monthly income of the people at risk of poverty is nearly 5 times higher in the three richest EU countries than in the three poorest.

How many live in jobless households?

In 2007, almost 9.3% of EU27 working age adults (aged 18-59, and not students) lived in households where no-one was in paid employment. This rate ranged from 4.7% in Cyprus to 11.6% or more in Belgium, Hungary, and Poland. On average, a similar proportion of children lived in jobless households, 9.4% in the EU-27 in 2007. However, this share ranges from 2.2% in Slovenia to 16.7% in the United Kingdom. Living in a household where no one works affects both children's current living conditions, and their chances to develop their full potential.

On average in the EU, the general improvement on the labour market before the crisis had a positive but limited impact on the most excluded. The number of adults living in jobless households fell by -0.9 percentage points between 2005 and 2007, while the reduction in the share of children in jobless households was only -0.3 p.p.

Figure 2: EU - Employment and unemployment rates and shares of children and adults (aged 18-59 and not students) living in jobless households; 2001-07 — %

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: Labour Force Survey

What about poverty among those in work?

Having a job does not always protect people from the risk of poverty. In 2007, 8% of EU-27 citizens in employment (aged 18 and over) lived below the poverty threshold. This rate ranged from 4% or less in the Czech Republic, Belgium, Denmark, Ireland, Malta, the Netherlands, Slovenia, Slovakia and Finland to 13% in Greece and 10% in Poland. In-work poverty is linked to low pay, low skills, precarious employment and often involuntary part-time work. It is also linked to the type of household in which workers live and to the economic status of other members of the household. In households with children for instance, the single-earner family model is no longer sufficient to ward off the risk of poverty.

What is the impact of social transfers on poverty?

On average in the EU, social transfers other than pensions (such as unemployment, family and housing benefits) reduce the risk of poverty by 36%. In the absence of all social transfers, 25% of EU citizens would be at risk of poverty while this percentage is reduced to 16% after receipt of government support. Social transfers are most effective in this respect in the Czech Republic, France, Hungary, the Netherlands, Austria, Slovenia and the Nordic countries, where they reduce poverty by 50% or more. Conversely, in Greece, Spain, and Italy, social transfers only reduce the risk of poverty by 17%. The level, but also the structure and design of social transfers explain the differences in effectiveness across countries.

Figure 3: Impact of social transfers (excluding pensions) on the at-risk-of-poverty rate for the total population and for children, 2007 (%)

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: EU-SILC (2007); income year 2006; except for UK (income year 2007) and for IE (moving income reference period 2006-07); BG: National Household Budget Survey 2006; RO: National Household Budget Survey 2007

What is the role of social protection expenditure in Europe?

Social protection serves to cushion poverty, but it also helps insure people against important social risks. A closer look at social protection expenditure shows that old-age pensions and sickness and healthcare benefits represent the bulk of spending in all EU Member States. This is why when assessing the preventive role of social protection, one has to look in particular at the resilience of pension systems and access of citizens to healthcare.

Figure 4: Social protection benefits, by function, in % of GDP - 2006

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: Eurostat

Are there minimum income guarantees for pensioners?

Many of those who retire have not been able to complete full careers and reasonable salaries and pension reforms have made this more pertinent as they have extended the number of contributory years needed for a full pension. This is one reason why many pensioners have to rely on systems of minimum income provision for older people (MIPs) found in all Member States.

The present economic outlook highlights the need to ensure that workers affected by periods of unemployment are covered in an appropriate way by pension systems. The Joint Report identifies that in reformed systems, career breaks can reduce this adequacy significantly. Monitoring of pension outcomes is important, notably for women and low wage earners.

Figure 5a: Impact of a 1, 2 and 3 year career break for unemployment on future pensioner's income (measured by difference in net theoretical replacement rates – pensioner's income relative to the last received wage)

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: ISG calculations on Theoretical replacement rates carried out in the OECD APEX model or in national models.

Figure 5b: Impact of a 1, 2 and 3 year career break for childcare on future pensioner's income (measured by difference in net theoretical replacement rates – pensioner's income relative to the last received wage)

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: ISG calculations on Theoretical replacement rates carried out in the OECD APEX model or in national models. The figures for BE are pending. The figures for FR, NL and RO are preliminary.

* The calculations assume two children are born and that the timing of the childcare years is such that full childcare benefits are received for each child. Retirement at the legislated statutory retirement age for women is calculated here

Calculations also show that in most Member States, absences from the labour market for childcare, even though partially protected, generally lead to decreases in theoretical replacement ratios. In some Member States (e.g. CZ, DE, EE, EL, ES, FR, IT, CY, LT, LU, AT, PL, SK, FI, SE, UK) the protection for childcare is better than for unemployment over a three year period. Nevertheless, insufficient protection for childcare can be one of the reasons for differing poverty levels between women and men in old age, while other reasons are the gender gap in earnings and professional careers.

The Joint Report emphasises that long term adequacy and sustainability of pension systems depend on continued efforts to reach the EU's target of a 50% employment rate for older workers, notwithstanding the downturn. Over the last decade, employment rates for older workers (aged 55-64) have improved, reversing a long-standing downward trend, increasing across the EU-27 from 38% in 2001 to 45% in 2007. Twelve countries now meet the Lisbon target of 50% employment of older workers by 2010. It is important, especially at present economic situation, that labour market adjustments are not carried out at the expense of older workers.

Does everybody have equal access to healthcare?

The Joint Report finds that health inequalities between different socio-economic groups and regions persist. Evidence shows a clear correlation between lower life expectancy and poverty, unemployment and low education. The available data suggest that people in all countries report that ‘at least on one occasion in the previous 12 months they felt they needed medical care (examination or treatment) and did not receive it either because they had to wait, or it was too expensive, or it was too far to obtain’. On average, 3.1% of those living in the EU (with the exception of DE, BG and RO) report unmet need for medical care. However, the percentage varies across Member States; from 0.2% in DK and SI to 15% in LV.

Figure 6: Self-reported unmet need for medical care (access reasons), by income quintile (from the poorest fifth of the population to the richest fifth), 2006
LV 1st quintile: 28.9%
LV 2nd quintile: 20.5%

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: Eurostat based on EU-SILC 2006 data.

Access reasons: waiting for care, paying for care and distance to care.

How are Member States trying to achieve better value for money in healthcare?

The healthcare systems of some Member States are clearly under-resourced. This is reflected in health outcomes, for instance lower life expectancy at birth in Member States with low per capita health expenditure. However, comparison of life expectancy with health expenditure shows that there is great scope to improve efficiency of healthcare spending.

Member States strive to reduce health inequalities through increased attention to primary care, disease prevention and health promotion, better coordination and rational use of resources.

Figure 7: Life expectancy vs. total health expenditure per capita PPP$, men 2004

[ Figures and graphics available in PDF and WORD PROCESSED ]

Source: Social protection and social inclusion 2008: EU indicators

All countries see enhancing primary care as the way forward to improve access, ensure coordination of care and contribute to sustainability. Health promotion and disease prevention are also prioritised as a way to improve health capacity thus reducing the need for treatment. As healthcare treatment, in particular hospital costs, consumes the largest share of expenditure, promotion and prevention receive a relatively small share of expenditure in relation to their goals.

The Joint Report also notes that Member States continue in their efforts to improve efficiency and effectiveness, by rationalising costs and introducing cost-sharing mechanisms. Several countries have been going down the avenue of privatisation. Whether such reforms promote quality and efficiency depends on the incentives and notably the nature of contracts with insurance funds. At national level, success depends on the institutional capacity to monitor, regulate, ensure risk equalisation and identify what the private and what the public can do better. Private and public provision also needs to be coordinated to create synergies and avoid duplication.

What about staff shortages?

Member States should address the issue of potential staff shortages in healthcare by measures to recruit, train and retrain healthcare professionals at all levels. In many countries, shortages in general practitioners and nurses continue, and the ageing of the population may make them more acute. To improve primary care, proper measures are necessary to ensure there are sufficient and motivated healthcare professionals. So-called "white jobs" (health and social work) also hold considerable potential for employment.

See also IP/09/360

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