The debate on the role played by social protection systems in countries’ economic development has always been very controversial and the economic crisis we are now experiencing make it a topical issue. Since huge public expenditure cuts are expected, it is better to distinguish between a “good” expenditure and a “bad” one. Thus, is social protection useful?
A recent study carried out by the University of Chicago, the homeland of monetary economy, criticises the extension of unemployment benefits, saying that there exists a correlation between it and the participation in the labour market. According to such a study, the increase of employment benefits and their extension would affect negatively the economic cycle and discourage beneficiaries from looking for a new job.
This problem has already been analysed by Nobel Price Paul Krugman, an authoritative exponent of Keynesian economics. Based on the OECD data, Krugman claimed that the EU countries registering very high social expenditures reacted in a better way to the economic crisis. The same cannot be said for countries with low protection levels.
Generally, defenders and detractors of high social protection levels adopt two types of argument, the first one concerns ethics, while the second one concerns economic logic.
As for the first case, defenders focus on the need to dispose of a number of goods and services that should be granted regardless of market dynamics and individual abilities. By contrast, detractors argue that a reduction of personal responsibility, supported by an extended social protection system, would lead people to content themselves of what they have neglecting their duties.
As for the second case, defenders underline that, through the development of consumption, a generous welfare system leads to a growth of both aggregate demand and employment rates, discourages the spread of illegal work, limits saving erosion and, consequently, the reduction of available resources for investments. Detractors claim that high welfare levels need such taxation quantity as to discourage the development of business activities and, therefore, wealth creation.
These extreme poles are represented by those who support the creation of a minimum income for everyone, and those who hope that social protection may be managed by private initiatives.
In the meanwhile, reality does not give space to theoretical disputes.
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