Saving European social security from the populists
By Tito Boeri
Austria’s presidential election has thrown into sharp relief one of Europe’s fundamental challenges. In the first round, held on April 24, Norbert Hofer of the far-right Freedom Party of Austria (FPÖ) won the largest share of the popular vote, having campaigned on the claim that unchecked immigration risked burdening Austria’s welfare state to the point of collapse. He faces off against Alexander Van der Bellen, a member of the Greens, on May 22.
Claims like Hofer’s may be the subject of fierce disagreement among labor economists, but they have struck a chord with the European electorate. All across the continent, right-wing populist parties are gaining ground by exploiting voters’ concerns about migration and access to the welfare state. And, in the United Kingdom, worries about “benefit tourism” are fueling efforts to pull the country out of the European Union.
If the EU is to survive as an area of free mobility, it will need stronger enforcement of its external borders, combined with stricter implementation of social insurance principles across its internal borders. Creating a closer link between benefits and past contributions for workers who have moved from one country to another will be essential to the long-term integrity of the common labor market.
The European policy debate has given some consideration to strengthening external borders, but there has been no talk of coordinating welfare benefits across EU borders. It is time for the EU to introduce a single social-security identifier that allows governments to track workers as they move from one country to another and ensures that welfare benefits are portable across national jurisdictions.
Such a measure would not only help reaffirm a European identity regarding work and the welfare state; it would also facilitate a more informed debate on migration and the ongoing refugee crisis, by making it possible to assess the net fiscal contribution newcomers make to social-security programs.
The results are likely to be eye opening. Economic migrants are typically younger than natives, and thus they are less likely than the general population to be receiving benefits. To be sure, as a generation of immigrants gets older, its contributions to social security decline. But not all migrants ultimately draw the pensions to which their contributions entitle them.
In Italy, for example, migrants pay about €5 billion ($5.7 billion) a year (roughly 0.3% of GDP) more in contributions than they receive in benefits. And the Italian Social Security Institute (INPS) has estimated that some €15 billion in contributions to the Italian pension system paid by migrants during the last 20 years have been left unclaimed.
For refugees, however, the situation is different. To begin with, refugees are not allowed to work until their asylum application has been approved. Refugee migration also comes in larger waves than economic migration. As a result, refugees enter the labor market later than economic migrants and earn less, drawing resources for welfare benefits away from natives.
Workers who move repeatedly across borders can also sometimes be a liability, if they take unfair advantage of the various social-security systems into which they pay. There are documented cases of workers claiming unemployment benefits in one EU country while working in another. Moreover, contributions paid in a worker’s country of origin are rarely verified, and there is a serious risk that some contractual restrictions, such as limits on working hours, will not be enforced when a worker is posted elsewhere.
The only way to monitor these risks and reduce abuses is to develop a harmonized social-security archive that covers all workers within the EU’s borders. National governments should adopt a European social-security identifier (similar to the US Social Security number or the National Insurance number in the United Kingdom) and regularly exchange information. This European Social Security Identification Number (ESSIN) would draw on existing country-specific identifiers and contain an identifier (perhaps, the first three digits) noting the first country in which a worker was employed. It would also be linked to national fiscal identifiers.
Facilitating the free mobility of workers is fundamental to restoring growth in Europe. The great divergence in unemployment rates following the 2008 financial crisis and the eurozone debt crisis has only added to the urgency. A monetary union that cannot rely on exchange-rate adjustment or fiscal transfers to reduce labor-market imbalances requires mobility across national borders. But if labor mobility is to be politically sustainable, it must be properly governed. Given a refugee crisis, for example, mobility can easily come to be perceived as a threat rather than an opportunity to insure against local labor-market risks.
The ESSIN would accentuate the advantages of EU membership, while repressing the illegal flows of workers that perpetuate suspicion toward free mobility. It would be granted only to workers who have been paying regular social-security contributions. It could also be used as the basis for access to EU-run programs, such as a European unemployment benefit system.
Europe needs a system capable of monitoring worker mobility across national jurisdictions and tracking their contributions as they relocate from one member state to another. Addressing this gap would change the discourse in European politics and policies, not only regarding the sustainability and equitability of the welfare state, but also concerning some of the most divisive issues facing the EU – such as how to handle economic immigration and refugee flows. Inaction benefits only Hofer and his fellow populists.
Copyright: Project Syndicate: Saving European Social Security from the Populists
---
Follow us on Twitter @AzerNewsAz