Archive

Posts Tagged ‘poverty in France’

LIBERTÉ, EGALITÉ, FRATERNITÉ, ET SOLIDARITÉ–The French Social Welfare System

September 30, 2011 2 comments

Patricia Lawson

The mutual incomprehension of the US and France is understandable.  One country is Anglo-Saxon, the other Latinized, in spite of the heritage of the Franks. Born into one culture, my predilection is for the other.  I do not normally explain France to Americans.  If they’ve been there and don’t get it, there’s not much I can say. (People who want to think it’s a country of rapists after the DSK episode, will do so.  That was the opposite of my experience.  I was given to understand, when I arrived, that although flirtation is rampant [to put it mildly], the ethos dictates that a woman may say no at any moment and the man must always respect her decision.  Force is never to enter the equation.  In my six years in France, I never heard of anything to disillusion me in that regard. But here I am, explaining.) Nor do I try to explain America to the French, for I find my own culture increasingly inexplicable.  Particularly in the area of social welfare.

I felt the difference in attitude when I first set foot on the Paris Metro.  There, the poor are allowed to entertain a captive audience in the Metro cars and then pass the hat, rather than simply begging in the tunnels.  They may sing a song, tell a story, or play an instrument.  Their act must first be vetted by the authorities, but then they have something approaching a boulot, a job. The quality is not always the highest, in fact, it can be an act of charity just to listen, but the cover charge is entirely voluntary. The best part is that the people on the Metro are very sympathetic.  I’ve seen elderly women close to tears as they pressed money into indigents’ hands.  Having come from Germany, where social welfare is generous but a sense of solidarity does not seem quite as heartfelt, I was very moved.

Furthermore, in France the patience with striking workers is a marvel to be seen.  People may be frustrated with a railway slowdown, but they accept unequivocally the worker’s right to strike.  This is in part a heritage of 14 years of Mitterand’s Socialist presidency, from 1981 to 1995.  Paradoxically, Mitterand actually played an enormous role in privatizing and revitalizing French business.  But this was done without pauperizing the working class.  And that solicitousness for the social fabric continues to this day, even under Sarkozy, whom the French call “The American.”  France is one of only five countries where income inequality has declined over the past 20 years.  Although this is not quite as much as in Scandinavian countries, inequality and poverty in France are less than the OECD average. France ranks 6th out of 31 in poverty and has a Gini coefficient on income inequality of 0.28, well below the OECD average of 0.31.[1]

To compare with the U.S: although the  U. S. is second highest in net income per capita, ($31,000), and France is only just above the OECD average ($21,000), because of higher taxes and benefits, their status with regard to  poverty is the inverse. The U.S. ranks 29th out of 31 in poverty and has the 4th highest income inequality out of the 31 developed countries.[2]

Only 9% of household income in America comes from such public social spending as unemployment benefits or Earned Income Tax Credit, whereas in France a third of household income comes from social spending.  This compares with 22% for the OECD average.  But in France, only 16% of social spending goes to the poor, although this is a generous amount. The rest goes to the middle class in the form of health care, day care, children’s allowances, and the like, which is probably a very good way of keeping people from sliding into poverty.

But even the poor in France have a relatively high average income.  At $9,000 per year, it’s about 25% higher than the average for OECD countries (and half again as high as the U.S., at $5,800.) This is accounted for by the reduction of wage inequality.  For example, the inequality of male full-time wages has declined by 10% since 1985, whereas in most OECD countries it has increased by close to 20%.   This can be attributed to France’s having, compared with the median wage, the highest minimum wage in Europe, at nearly $13.00/hour.[3]

Clearly France has implemented the single most effective anti-poverty measure—raising wages.  In the U.S., wage growth has been suppressed over the past thirty years, which helps explain its high relative poverty rate of 24%. [See August 15 post].  Furthermore, in France, according to the OECD,  “the share of working-age people in households where no-one works has fallen.  Employment rates of those with low levels of education have increased, unlike in most other OECD countries, where employment rates of people with low levels of education have fallen.”[4]  Clearly France is doing something very right.  This same OECD data report  maintains that “. . . situations where people stay in income poverty for a long period (3 years or more) seems to be less of a problem in France than elsewhere.  3% of the population is poor for long periods, about half of the OECD average.” [5]

According to Jonah Levy, of the University of California at Berkeley,

 Governments of left and right alike have also multiplied labor market policies to limit the suffering of those who are unable to secure stable employment.  The right has tended to focus on subsidies and tax breaks for private employers who agree to hire hard-to-place employees (youths, the unskilled, older workers) at the bottom of the wage spectrum.  Such programs cost $23 billion in 2005.  The left has favored training programs as well as public internships.  The Jospin government’s programme emplois jeunes (PEJ), for example, provided five-year positions in the public sector to some 350,000 young people at a cost of  $7.2 billion. The left also presented its 35-hour workweek reform as a way of creating (or sharing) jobs, although this analysis was hotly contested by economists, employers, and the parties of the right. [6]

It seems odd that, given its higher wages, social mobility in France is only average for the OECD.  But although parent income affects child earnings more in France than in Denmark or Australia, it is less of a factor than in Italy, the UK or the US.

The evolution of this well-functioning social welfare system is interesting to contemplate, because it was originally based on paid, employment-linked contributions, similar to our social security or unemployment insurance systems, rather than on taxes.  Health insurance actually preceded other forms of social insurance in France, in the wake of Bismarck’s precedent-setting 19th-century reforms in Germany.  Although other employment-based insurance was evolving in the latter part of the 19th and the early part of the twentieth century, the first social insurance law was only formalized in 1930.  This was intended to provide protection against accidents, sickness, maternity, disability and old age.  Even today, France remains “among the countries having the highest percentage of direct contributions relative to earnings.” [7]  This amounts to about 69% of total social welfare spending.

To relieve some of the pressure on employer contributions, in 1991 the government created the General Social Contribution (CSG), a tax-based revenue stream. The idea was to reduce the cost of labor. The CSG imposes on all residents a tax of 7.5% on earned income and inheritance and 8.2% on unearned income (capital gains, etc.) Pensions and unemployment benefits are taxed at a lower rate.  The income from this solidarity tax is about 75 billion euros, and comprises about two-thirds of the total tax money assigned to social protection.  Altogether the amount of tax assigned still comprises only 21% of total social welfare funding. Contributions from central government appropriations make up another 10% of funding.  The CSG is used to fund health insurance benefits and the Retirement Solidarity Fund.

From an employment-based system, social protection in France has gradually become universal, including a guaranteed minimum income for all residents regardless of ability to make contributions.  In other words, all those who would otherwise fall through the cracks: the unemployable, drug-addicted, and the elderly with no pensions.  A minimum of health care is also guaranteed for all citizens. Following is a summary of these and other social welfare allowances and their relative weight as a factor in public spending according to Wikipedia (and obviously translated from the French):

Social benefits amount to 30% of gross domestic product and around 45% of household income. Three quarters of these benefits are paid by social security [which includes the health care insurance system, family allowances, etc. (PL)]. The Social Welfare Report, published annually distinguishes five categories of benefits for as many risks:

  • The pension and survival risk. The most important, it represents 44% of benefits, due to the weight of pensions.
  • The health risk. It includes illness, disability, occupational accidents and diseases. In 2006, it accounted for 35% of benefits
  • The maternity and family risk. It includes daily allowances, the allowance for young children, family allowances, aid for child care and the bulk of housing assistance. It represents 9% of benefits
  • The employment risk. It consists of unemployment benefits, aid to reinsertion and professional rehabilitation, and early retirement, accounting for 7% of benefits
  • The risk of poverty and exclusion. It is taken in charge by 80% by the minimum income (RMI), and accounts for 2% of benefits.

Health care includes the right to health insurance for anyone residing in France, on a means-tested basis, and the right to free health care for the disadvantaged who cannot afford to pay.  The amount paid for insurance usually depends on the previous year’s income.  The insurance typically pays 80% of medical costs, and one buys a supplementary mutual insurance to cover the remainder.  However, for such potentially terminal illnesses as heart disease or cancer, insurance pays 100% of costs.  Very much the opposite of the attitude of health insurance companies in the U.S.

Pensions are essentially a redistribution in the form of payouts of the contributions taken in that year.   Pensions schemes are compulsory for most work, with optional or supplementary elements.  The principle of solidarity across generations and pension schemes applies, i.e. one generation or type of pension will support the others. A minimum pension is available for those without the resources to have paid into a pension plan

Family benefits are rather mind-boggling, and I will only attempt a summary.[8]  First of all, every family gets a monthly benefit for every child after the first one. It starts at $172 monthly and increases with every additional child, including a year’s reduced monthly supplement when the child reaches 20. All families with three children or more get a flat income supplement of $224 per month, in addition to the individual child benefit.  Early childhood benefits include a means-tested grant of about $1,234 in the seventh month of pregnancy, and twice as much for the adoption of a child under 20. Family income cannot exceed $45,967 for a one-child family or $60,747 for two working parents or a single parent to receive this benefit. For every month after the birth of the child until three years of age, the family receives $247.12.

Working parents who opt to stay home and care for their child receive a non-means tested supplement, but they must have worked for two continuous years before the birth of a child, with intervals between births.  The supplement is paid for from six months up to three years, depending on number of children and whether the parent is still working part-time. The monthly allowances are very generous, from $441 to $767 per month.  A monthly supplement for child-care, varying according to income level, is also payable at a full rate up to the child’s third birthday and at a reduced rate up until their sixth birthday.  (Children can enter public preschool full-time at age two.)  In addition there are special allowances for children with disabilities and parents staying home to care for them.  A means-tested family housing allowance is available, as is a moving allowance for such families. (Full disclosure:  a 0.5% tax is collected on most family benefits.)  To top off this indulgence toward families, university education costs a few hundred euros per year, meaning family resources don’t have to be deflected to cover these high costs as is the case in America.  Nor must young people go into debt for tens to hundreds of thousands of dollars.

Some complain that there’s a down side to these generous family benefits—women are declining as a percentage of the workforce, as they have more children and increasingly stay home and raise them.[9] This is a change from the late 90’s, when I first moved to France.  Then France was touted as having the highest percentage (40%) of working women in Europe. Today, 57% of French women age 25 to 49 work full-time, somewhat lower than the OECD average, although the number increases to 82% when part-time workers are included.  Admittedly, they have the same glass ceiling issues as their sisters in most parts of the globe, in that only 10% of corporate boardroom positions are occupied by women. (In America, it’s 16% of Fortune 500 companies). And even though a 1999 law mandates their representation in the legislature in a proportion of 40% , in the National Assembly only 18% of delegates are female (which is comparable to about 16% in our House of Representatives). So far, the political parties have paid the fines that are imposed because of this shortfall, because female candidates are apparently not available in sufficient numbers.  But at least French women have the benefits to make juggling job and home life doable.  In any case, family benefits have had a very positive affect on the French birth rate, a rate of 2, as opposed to the Europe-wide average of 1.5. (I personally don’t like to think that these benefits were intended to help the French compete with their minorities.  The fear that Muslim minorities will swamp Europe is an overblown myth. As Steven Hill points out in Europe’s Promise, the United States “.  .  .  has a far higher percentage of ethnic minorities than any European country has today or likely ever will have .  .  .  . ”[10].)

Last point—about the minimum income, the revenue minimum d’insertion (RMI). [11] This wonderful institution was established in 1988 to guarantee everyone an economic underpinning, whether they can find work or not. It offers a monthly allowance that can range from $610 for a single individual to $1281 for a family of four (plus for $244 for each additional child) on a means-tested basis to adults over 25.  In order to keep it from being a disincentive to find work, it has recently been amended as the Active Solidarity Income, the Revenue Solidarité Active (RSA).  The RSA is not dropped immediately when someone finds employment, but continues as a cushion for a period of time, and is gradually reduced as income increases. The RSA entails intensive job search assistance and subsidies for transportation and child care.

Another case of French social welfare exceptionalism is that unemployment can last up to three years for people over 50.  The rate allowance of about 57% of salary, is not, in cash terms, that different from America’s, but one must remember that health care, that ever-burgeoning, income-devouring expense in America, is free or very moderately priced in France.

So France, amazingly enough, in spite of a right-trending President today and its domination for most of the Fifth Republic’s existence by center-right politics, is one of the most socially responsible countries even in socially accountable Europe.  France has succeeded in elevating the condition of the less educated and hard-core unemployed to a level unparalleled in Europe, while providing generous family support for the middle class. And nearly 70% of this remarkable social performance is self-financed, out of employer and employee deductions.  In a way, the government functions as a giant bank for society, where people can save for an emergency or old age, or can pool their money to receive high quality daycare, healthcare (rated the best in the world) and education.  Read it, America, and weep.

1http://www.oecd.org/dataoecd/45/24/41525323.pdf

 2http://aproposfrance-usa.blogspot.com/2011/04/oecd-results-income-inequality-poverty.html

3http://www.oecd.org/document/60/0,3746,en_2649_33733_38829436_1_1_1_1,00.html

4http://www.oecd.org/dataoecd/45/24/41525323.pdf

5http://www.oecd.org/dataoecd/45/24/41525323.pdf

6http://euce.org/eusa/2011/papers/5e_levy.pdf

7http://en.wikipedia.org/wiki/Social_protection_in_France

8http://www.cleiss.fr/docs/regimes/regime_france/an_4.html

9http://www.guardian.co.uk/world/2011/mar/21/france-economics-financial-crisis

10Hill, Steven.  Europe’s Promise. University of California Press, Los Angeles. 2010.

11http://euce.org/eusa/2011/papers/5e_levy.pdf

Follow

Get every new post delivered to your Inbox.