Southern European welfare states: are they ready for another crisis?

The economic shock related to the Covid-19 pandemic is an unprecedented one in recent history. It is also likely to be an unequal one, with massive job losses concentrated among low paid jobs. In response to this situation, welfare states everywhere have faced the need to articulate an almost immediate reaction to secure the income of millions of people. This task may be even harder for Southern European welfare states (Greece, Italy, Portugal and Spain), after a decade of economic instability and a pending need for structural reforms. Are Southern countries ready to face yet another crisis?

A misfit between citizens’ needs and social protection

Upon such a sudden need for fast relief, the national specificities of welfare state design are key to secure that the social policy response covers everyone in need. However, Southern welfare systems show a structural misfit between citizen needs and welfare provision that can hinder an inclusive reaction. Southern countries are characterized by strongly dualized labour markets with a high incidence of precarity. This is combined with largely insurance-based social protection systems that concentrate benefits among workers with long and stable working careers.

This social protection misfit is captured by Figure 1, which shows the percentage of average transfers received by the poorest quantile (bars) and the richest one (points) in OECD countries. While in most countries households with lower income are the ones receiving more social transfers, in Southern Europe we see how households with higher income are the ones getting more from the state. In fact, it is in these four countries where the percentage received by the richest quintile is highest.

Furthermore, what makes Southern Europe different from other insurance-based systems such as the ones in continental countries is the lack of an extra layer of universal income support for vulnerable households that makes up for this misfit. Given this context, Southern countries are likely to face more difficulties than their European neighbours to secure that policies to alleviate the impact of the Covid-19 crisis reach those who need it the most.

Yet another crisis?

While the problems detailed above refer to structural issues, we should also consider the time-specific circumstances of the Covid-19 pandemic. For Southern countries, all hardly hit by the Great Recession, this new crisis comes after more than ten years of economic instability and difficulties. These years had already shown the weaknesses of Southern welfare systems, that struggled to cover the needs of most vulnerable households. As a result, inequality indexes raised, as did other indicators such as the share of people in risk of social exclusion or child poverty.

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This combination of structural malfunctioning with the still open scars of the recent economic crisis leads to a problematic starting point to face the consequences of Covid-19. Figure 2 shows how social exclusion is already higher in Southern European countries than it is for their neighbours, something that adds up to the structural inability of Southern welfare states to provide for those who need it the most.

The role of familialism

Another key characteristic of Southern European welfare states is their high reliance on families as care providers, in contrast to other systems where the state has stepped in more to ensure an adequate provision of work-life balance policies. This key feature has rapidly shown up with the Covid-19 pandemic. While in most European countries schools are gradually reopening after the initial lockdown, this is not the case for Southern countries, where children under 12 are not going back to school yet, posing a challenge for working parents to combine work, education and care activities. In addition, these unforeseen care needs brought up by school closure are not always covered by the state. In Spain, while parents have the right to reduce working hours to care for children, this has not come together with any kind of monetary compensation, making families bear the loss of schools closing.

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This reliance on families can have long term consequences. First, closing schools can raise inequalities among children, a phenomenon already known to happen during the Summer months and that can be reinforced in case of a lasting lockdown. Secondly, this situation is also likely to reduce female labour supply if women start staying at home to care for children. This is not only negative for gender equality, but for the overall fiscal sustainability of welfare systems.

Reasons for optimism

The above highlights that, indeed, Southern welfare states may be less ready than their neighbours to provide an adequate response to the Covid-19 economic shock. But there are also nuances that allow for some optimism. All Southern countries have managed to articulate a fast answer to secure citizens from job and income losses, relaxing the conditions tied to unemployment benefits to cover as many households as possible. In addition, the pandemic is also triggering structural reforms, such as the plan to implement a guaranteed basic income scheme in Spain, something that would come to make social protection more inclusive in this country.

There is little doubt that the Covid-19 pandemic is entailing an unprecedented stress test for all developed welfare states. This is especially true for Southern countries, due to a combination of structural malfunctioning and the still present legacy of the great recession. In this context, Southern welfare states will face a grater challenge than others to be able to react in a way that is both rapid and inclusive: an uneasy, but crucial task to preserve equality of opportunity.

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