Authors: Guadalupe Souto, Alfonso Herranz-Loncán, Sergio Espuelas, Gemma Abio, Ció Patxot
Countries strongly differ on the age orientation of their welfare states. While in some cases the benefits of different social programs are biased towards protecting the elderly, in others they are more equally distributed among different age groups. The reasons for those differences have been traced back to the initial decisions made by each country in terms of social policies in the first half of the 20th century and, more particularly, to early choices between occupation-based and citizenship-based programs. As indicated by Lynch (2006, p. 185): “The countries that in the 1980s and 1990s had the most elderly-oriented social spending (…) were welfare states that entered World War II with occupational social programs and never, or only recently, added a significant layer of citizenship-based benefits”.
The elderly bias has economic and social costs
Having an elderly-oriented welfare state has several negative effects. Firstly, this type of welfare states have a lower capacity to reduce poverty among the very young. Secondly, because elderly-oriented welfare states are usually based on occupational social insurance structures, they are also less able to reduce inequality because, after retirement, they tend to reproduce market differences in labour income. Both effects taken together undermine the capacity of a welfare state to protect the most vulnerable in society. Thirdly, in the context of an ageing society, the elderly orientation of welfare states poses a critical challenge to the long-term sustainability of public finance.
The Spanish welfare state is one of the most elderly-oriented ones (Lynch, 2006). Using the National Transfer Account (NTA) methodology, in a recent paper (Souto et al., 2024) we have studied the long-term evolution of the elderly bias of Spanish social policies between the mid-20th and the early 21st centuries. NTA show how people produce, consume and save along their lifecycle, and how resources move among generations to finance the consumption deficits of the dependent groups (children and the elderly). They allow distinguishing the role of the family, the market and the state in the funding of the different dependent groups. In this way, they are an ideal instrument for the study of the age biases of different welfare states. So far, there were two NTA estimates for Spain, for the years 2000 and 2012. We have extended them back to the past until the late 1950s, providing estimates for 1958, 1963, 1973, 1980 and 1990, to observe the broad changes in the Spanish system of intergenerational transfers between the mid-20th century and the early 21st century. Spain experienced during this period huge changes, including accelerated economic growth, a profound demographic transition, deep political change and the construction of the modern welfare state.
Spain as an extreme example of elderly-biased welfare state
Our estimates show that by 1958 or 1963 the Spanish economy was typical of a low-income country. Although government transfers were already biased towards the elderly, they were very small had a rather irrelevant role in the financing of the consumption of dependent groups. In addition, due to the rather low average age of the Spanish population, in those years, children’s consumption represented a much heavier burden for the economy than the elderly’s and was mainly financed by the children’s families. This situation completely changed after 1963. From that year onwards, public transfers grew very intensely, increasing substantially their importance in the reallocation system. Moreover, they kept being oriented towards the elderly, covering between 60% and 100% of their consumption needs between 1973 and 2012, compared to only 20%-40% in the case of children, who kept on depending to a very large extent on family transfers.
Figure 1. Participation of public transfers in the funding of children’s and elderly’s consumption needs (%)
This imbalance in the welfare state made children much more vulnerable to economic crises, which have the potential to increase poverty rates among the younger age groups. On the other hand, from the viewpoint of public finance, the bias towards favouring the elderly was sustainable during the early stages of the construction of the welfare state, due to the relatively small size of the older age groups in the second half of the 20th century. However, today, when these groups are becoming much larger (especially due to the imminent retirement of the baby boom generation), this bias will pose a very difficult challenge for the Spanish economy.
Elderly bias and the underdevelopment of family policies in Spain
The elderly bias that can be observed in the Spanish system of intergenerational transfers can also be seen in most developed countries. Indeed, while in most countries the consumption needs of the elderly have been largely socialized (shared by the whole society) through welfare state programs as retirement pensions and health, children depend mostly on the effort of their families. However, this imbalance is somehow mitigated in countries with robust family programs addressed to finance children’s needs, such as Sweden, Finland and France. In that context, Spain stands out for the structural underdevelopment of its family policies. It is true that these experience some growth during Franco’s dictatorship which, for ideological reasons, was very vocal about their importance. However, these early family policies were short-lived, being very soon largely eroded by inflation and, with the transition to democracy, they were virtually abandoned. Therefore, their impact on children’s welfare in the years under study was marginal. Instead, in Spain the growth of social spending has been dominated to an exceedingly large extent by the expansion of pension benefits and other occupational-based programs. As in other Southern European societies, in Spain the irrelevance of family policies, as well as the occupational-based character of social policies may explain the country’s top position in the rankings that measure the welfare state’s elderly bias.
References
Lynch, J. (2006). Age in the Welfare State. Cambridge, Cambridge University Press.
Souto, G.; Herranz-Loncán, A.; Espuelas, S.; Abio, G.; and Patxot, Ció (2024). The elderly bias of the Spanish welfare state (1958-2012). European Review of Economic History.