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Political Parties and Pension Generosity in Times of Permanent Austerity

  • Reimut Zohlnhöfer EMAIL logo , Frieder Wolf and Georg Wenzelburger
Published/Copyright: July 23, 2013
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World Political Science
From the journal World Political Science Volume 9 Issue 1

Abstract

The quantitative strand of social policy research suffers from a double deficit: on the one hand, analyses of aggregate expenditure dominate, and on the other hand, most studies of replacement rates focus on unemployment or sickness benefits, while pensions are excluded. This paper addresses the said deficit firstly by discussing the pension sectors’ theoretical peculiarities and by proposing two hypotheses: one on the retrenchment of pension replacement rates and one on the role played by political parties in implementing it. Secondly, after a brief literature review and an outline of our methodological approach, we present regression results of replacement rate changes in 18 developed democracies. Our findings show considerably smaller cuts of pensions than of unemployment or sickness benefits, and striking differences regarding partisan effects between the sectors.

Keywords: pensions; political parties; replacement rates; retrenchment; welfare state
Corresponding author: Prof. Dr. Reimut Zohlnhöfer, Ruprecht-Karls-University Heidelberg, Department of Political Science, Bergheimer Str. 58, D-69115 Heidelberg, Germany, e-mail: , URL: http://www.uni-heidelberg.de/politikwissenschaften/personal/zohlnhoefer/
  1. 1

    This argument, alas, cannot claim to apply to ministers of finance. The latter should plausibly care more for aggregated expenditure than for the generosity of individual benefits. Inasmuch as social policy takes place under conditions of permanent austerity since the 1980s, their outlook cannot be ignored.

  2. 2

    Potrafke (2011) finds similar results in his analysis of health care expenditure, pension expenditure and revenues of pension insurance.

  3. 3

    We do not consider accident insurance due to its rather marginal political importance.

  4. 4

    Apparently, the empirical connection is more complex. Only if high unemployment benefits are being paid for prolonged periods of time, negative impacts on employment occur; to the contrary, the effect of benefit generosity in the first months of joblessness on employment is positive (cf. Bradley and Stephens 2007).

  5. 5

    The ISSP surveyors also inquire after peoples‘ opinion on health expenditure. Yet the greater part of the latter is spent on medical provision, not on sickness pay. Therefore, these data are not suited to our purpose.

  6. 6

    These differences in the valuation of spending categories were also found in earlier studies (cf. Pettersen 1995: pp. 212–214).

  7. 7

    Thus Pettersen (1995: p. 226) demonstrates that there is a close correlation between voters’ party identification and their support for unemployment benefits.

  8. 8

    For example, the German government argued in 2008 that pensioners should partake in the economic upswing and decided that in 2008 and 2009 pensions should be increased by more than the amount determined by the pension formula. This formula was also modified in 2009 so that future nominal cuts to pensions are precluded. Both measures took effect immediately and led to a perceptible increase of pensions already in 2008 and 2009 (i.e., prior to the 2009 general election; cf. Schmidt 2010: p. 305 for details).

  9. 9

    Results do not change substantially if the variable is coded otherwise.

  10. 10

    The interaction effects, the partisan variable and the conditioning variable were included in the respective main effects regression models (see Section 5).

  11. 11

    Unemployment and sick pay replacement rates are operationalized as averages of benefits for single and married recipients. This is in line with the proceedings of Allan and Scruggs (2004), whose replication dataset is once again our data source.

  12. 12

    As there was no health insurance on the federal level in the USA during our period of observation, only 17 countries can be analyzed in this field.

  13. 13

    The development of Italian unemployment benefits is a special case among OECD countries well into the 1990s. While actual unemployment benefits were only a minimal safety net for a long time, several notably generous special programs were created and expanded from the 1960s onwards. Yet these programs were highly segregated, so that not all employees could enjoy their generosity. It took a decision of the constitutional court in 1987 denouncing unemployment benefit levels as inadequate to trigger a massive increase in the generosity of unemployment benefits themselves, while by the same token the special programs were strongly retrenched (cf. Picot 2008: pp. 88–96 and pp. 107–116). The stark increase in Italian unemployment benefits displayed in Figure 2 thus does not correspond with an actual increase of what most unemployed Italians would receive. To the contrary, for some of them this amount decreased considerably.

  14. 14

    Some of the partisan effects are not completely robust. When Japan, Sweden, or the USA are excluded from our models for the longer period, conservative as well as social democratic cabinet shares narrowly fail to reach conventional significance levels. Regarding conservative parties this also applies to Denmark. For the 1990s the effects of conservative and liberal parties are very robust, but not social democratic cabinet shares which fall below established thresholds when nine different countries (in turn) are excluded from the sample; yet in only one case (Italy) below p<0.2 (p=0.253), so that in the light of the limited number of cases and our dealing not with a random sample, but all members of the basic population of established OECD democracies, a careful substantial interpretation of these results should still be possible.

  15. 15

    However, the partisan effects lose significance when we control for conservative welfare states (according to Esping-Andersen 1990) instead of the social insurance state variable. Yet given the reasonable doubts about the discriminatory power of Esping-Andersen’s regimes (cf. Obinger and Wagschal 1998; Scruggs and Allan 2006, 2008), we hold that the social insurance variable is the more plausible choice. Jackknife analyses of the sickness pay regressions yield only one result worth reporting: The effect of liberal parties over the longer period of observation falls slightly below standard thresholds of significance when Ireland is removed from the sample.

  16. 16

    When Canada, Finland or Italy are excluded from the sample, the cabinet share of non-Christian center parties falls slightly below standard thresholds of significance.

  17. 17

    The following graphs only include a selection of the interaction effects that have been tested. More results are available from the authors.

  18. 18

    This finding is of special interest because none of the earlier studies of pension generosity had included an EU variable.

  19. 19

    In the unemployment benefit regressions for the 1990s, the EU variable fails to reach significance with the exclusion of seven single cases.

  20. 20

    Reminding ourselves of the causal mechanisms invoked by Pierson for his “new politics”-argument, this is no big surprise. For “institutional stickiness” as well as the low popularity of cutbacks apply to pensions to a higher degree than to unemployment and health programs. Interestingly enough, in his case studies Pierson mainly draws on evidence from the pensions sector.

  21. 21

    This is in line with the conclusions Castles (2008) and Schmitt and Starke (2011) draw from their disaggregated analyses of welfare expenditure.

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Published Online: 2013-7-23

©2013 by Walter de Gruyter Berlin/Boston

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https://doi.org/10.1515/wpsr-2013-0012
Keywords for this article
pensions; political parties; replacement rates; retrenchment; welfare state

Articles in the same Issue

  1. Frontmatter
  2. Article
  3. The Production of Institutional Facts in Economic Discourse
  4. Different Paths of Transitional Justice in the Czech Republic, Slovakia and Poland
  5. Homo Politicus – Towards a Theory of Political Action and Motivation
  6. Global Victimhood: On the Charisma of the Victim in Transitional Justice Processes
  7. Intervention and Promotion of Democracy. The Paradoxes of External Democratization and the Power-Sharing Between International Officials and Local Political Leaders
  8. Foreign Impacts Revisited: Islamists’ Struggles in Post-War Iraq
  9. Concentration of Decision-Making Power: Investigating the Role of the Norwegian Cabinet Subcommittee
  10. Referendum: A Complement or a Threat to Representative Democracy?
  11. MKs Usage of Personal Internet Tools, 2009: On the verge of a New Decade
  12. Ten Years of European Impact Assessment: How It Works, for What and for Whom
  13. Political Parties and Pension Generosity in Times of Permanent Austerity
  14. The Electoral Consequences of Welfare State Reforms for the Danish Social Democrats
  15. Electoral Competition and the Constituent-Representative Relationship
  16. Austria Inc. Forever? On the Stability of a Coordinated Corporate Network in Times of Privatization and Internationalization
  17. Development of Health Care in Lithuania and Estonia: Similar Conditions, Different Results
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