WARSAW, September 25, 2018 – Labor, taxation and social welfare policies in the European Union, including in Poland, must be upgraded to protect vulnerable workers and tackle rising inequality brought about by rapidly changing labor markets and new technologies, says a new World Bank report, Toward a New Social Contract: Taking on Distributional Tensions in Europe and Central Asia.
The report calls for a fundamental rethink of social policies in order to slow the growing divide between citizens who benefit from new economic opportunities and those who are left behind in an ever more dynamic and flexible economy.
The report finds that large groups still have middle-class incomes, but not middle-class economic security. This is especially apparent when one takes a look at the labor market in Poland. Between 1998-2013, Poland experienced the biggest increase in the region in terms of share of young people, aged 20-24, employed in part-time or temporary jobs - from 15 percent to 69 percent, respectively.
At the same time, wage growth was faster for workers employed in nonroutine, cognitive task-intensive occupations when compared to low-skilled individuals. Additionally, changes in the tax system in recent years have made it less progressive – with bigger declines for the best-paid taxpayers than for the least paid ones.
To address these challenges, the World Bank recommends implementing three overall policy approaches: increasing protections for all types of labor contracts; rolling out universal welfare systems with better social services/safety nets; and expanding tax bases away from an income and expenditure-only model to include capital gains and higher earners.
Many citizens in the EU are still not experiencing upward mobility and feel stuck in an inequality trap. Ineffective policies in these areas has led to a decline in institutional trust and greater polarization within society.
“When we ask people about their well-being, we hear concerns about rising inequality and insecurity,” says Maurizio Bussolo, World Bank Lead Economist for the Europe and Central Asia region and co-author of the report. “We produced this report to analyze the changes that have occurred in income distribution in recent decades and investigate the potential causes of these concerns. We believe that certain measures, such as increasing access to social assistance and expanding the tax base by taxing capital, can help preserve and expand the impressive economic strides the region has made in past decades.”
The report identifies four types of inequality between groups that are eroding social contracts: disparities between young and old generations; inequalities between workers engaged in different occupations; unequal access to opportunities based on geography; and inequalities based on gender, ethnicity, background and other factors, rather than individual efforts or abilities.