Are European welfare states sustainable?

Abstract

European welfare states face serious financial difficulties caused by persistent high levels of unemployment and demographic ageing. Serious organisational problems are accompanied by inefficiency. Fiercer international competition and closer European integration put pressure on social policy in the EU member states, and creates competition between national welfare states. Sustainable European welfare states in general and maintainable social security systems in particular require fundamental reform. In this paper a plan for a common EU-wide safety-net is presented. The current proposal differs considerably from previous proposals involving the establishment of a basic income, wage subsidies, an earned income tax credit or workfare. Simulations show that the proposal is both effective and efficient.