29 / 150
INEQUALITY IN EUROPE IN THE EARLY 21ST CENTURY
29
the payments differs from country to coun-
try and varying conditions have to be met in
order to claim them. In several countries this
includes the readiness to accept a job that
becomes available even if the pay is well be-
low one’s aspirations (workfare).
– The welfare state provides essential services
and infrastructure to all citizens or residents
either free of charge or at heavily subsidised
prices. This mainly benefits people on lower
incomes, who have a disproportionately low
level of participation in the financing of
these services. Furthermore, they benefit
those who make disproportionately higher
use of these services. The most important of
these services are (a) public education ser-
vices, which work on the principle of making
it possible for everyone to acquire good
qualifications for the labour market, and (b)
public healthcare which (also on principle)
makes medical treatment and prevention
against diseases available universally, inde-
pendently of individual purchasing power.
The pension system, which is the most cost-
ly component of the welfare state in almost any
country, has much less of a mitigating effect on
social polarisation. The income it provides once
a person’s working life has come to an end nor-
mally reflects what a person has paid into the
system over the course of their working life. The
formulae used to calculate the payments are of-
ten rather complex and are constantly changing
along with the financial situation of the pension
system. Since contributions and entitlements
are, in the majority of countries, linked to for-
mally registered (paid) jobs (although not in Den-
mark, for instance), wage developments have a
direct impact on pensions. Regardless of the sys-
tem used to finance and calculate pension funds,
it generally holds true that consistently low wag-
es result in low pension entitlements. This link
leads us to expect a drastic increase in old age
poverty in the future, a phenomenon which had
almost been eradicated in the richer countries
of the Union and which, until recently, was only
commonly found in a handful of former socialist
Member States. Quite apart from the wage-
pension-nexus, the pay-as-you-go-type pension
system is suffering from unfavourable demo-
graphic developments (fewer and fewer people
of working age are paying in and more and
more people are claiming pensions due to long-
er life expectancy). Funded systems, in turn,
have been suffering since the financial crisis of
the recent past from a shortage of yield-produc-
ing investment opportunities. These problems
also tend to depress future pensions.
Those welfare state measures that clearly
work on the basis of distributing from rich to
poor (state transfers to a diverse range of peo-
ple in need, public services and public health
systems, which are often structured in a highly
complex way) as a whole neither have the abil-
ity nor are intended to create a socially integrat-
ed society, without the labour market first hav-
ing provided the foundations. Education, health
and other subsidised services only ever make up
part of a “living standard”. Theoretically, gov-
ernment transfers could top up raise low wages
to the point that the resulting overall income is
sufficient for a “decent” living standard. It is not
only the reality, however, that is far removed
from this. The very idea contradicts current
thinking about a well-functioning society in
which earned income is the central mechanism
of allocating consumption rights.
In several countries, even those elements of
material living standards that the welfare state
intended to allocate independently of persons’
purchasing power (education, healthcare,
among others) are being superseded by markets
in which purchasing power decides. Private