Life Is Getting Worse in ESS Data: Is This Due to Micro or Macro Factors? Bruges European Economic Research (BEER) Papers 28/November 2013

In order to evaluate the success of a society, measuring well-being might be a fruitful avenue. For a long time, governments have trusted economic measures, Gross Domestic Product (GDP) in particular, to assess their success. However GDP is only a limited measure of economic success, which is not enough to show whether policies implemented by governments have a positive perceived impact on the people they represent. This paper belongs to the studies of the relationship between measures of well-being and economic factors. More precisely, it tries to evaluate the decrease in happiness and life satisfaction that can be observed in European countries in the 2000-2010 decade. It asks whether this deterioration is mainly due to microeconomic factors, such as income and individual characteristics, or rather to environmental (macroeconomics) factors such as unemployment, inflation or income inequality. Such aggregate factors could impact individual happiness per se because they are related to the perception of an aggregate risk of unemployment or income fall. In order to strengthen this interpretation, this paper checks whether the type of social protection regime existing in different countries mediates the impact of macroeconomic volatility on individual well-being. To go further, adopting the classification of welfare regimes proposed by Esping-Andersen (1990), it verifies whether the decreasing pattern of subjective well-being varies across these regimes. This is partly due to the aggregate social protection expenditure. Hence, this paper brings some additional evidence to the idea that macroeconomic uncertainty has a cost in terms of well-being. More protective social regimes are able to reduce this cost. It also proposes an evaluation of the welfare cost of unemployment and inflation (in terms of happiness and life satisfaction), in each of the different social protection regimes. Finally different measures of well-being, i.e. cognitive, hedonic and eudaimonic, are used to confirm the above mentioned result.

Money for structural reforms in the eurozone: making sense of contractual arrangements. Egmont Paper 57, May 2013

Executive Summary. Both the Commission’s proposal for a ‘Competitiveness and Convergence Instrument’ and the ‘contractual arrangement’ presented by President Van Rompuy share a common concept: associating EU money with national structural reforms under a binding arrangement. The targeted ‘structural reforms’ are the labour market reforms and product and services market reforms in eurozone ‘peripheral’ countries facing the most severe external imbalances. Their implementation would speed up and facilitate the ‘internal devaluation’ process of these countries. In the worst case scenario, failure to adopt the necessary reforms and to adjust wages and prices downwards may lead the most vulnerable countries to leave the eurozone under social and political pressure. Contracts seek to reduce this risk by increasing compliance with the country-specific recommendations for structural reforms issued by the EU institutions within the European Semester, and in particular with the Macroeconomic Imbalance Procedure (MIP). As for the financial support, it follows two different, albeit overlapping rationales. First, the perspective of obtaining EU funding would incentivize the governments of vulnerable countries to adopt reforms that would bear a high political and social cost in the short term. That is, without some form of incentive, it is unlikely that the necessary reforms would be undertaken and this could have significant negative consequences for the EMU as a whole. The second rationale amounts to outright solidarity: EU support is needed to cushion the inevitable socio-economic costs implied not only by the structural reform, but also by the internal devaluation taking place. To make sense of contractual arrangements, some points should be considered in future discussions: 1. Contracts on a voluntary basis only: Contracts cannot be mandatory unlike initially suggested in the Van Rompuy report. This stems not only from the inherent definition of a ‘contract’ – where mutual consent is key – but also from the non-binding nature of the preventive arm of the MIP. Making the country-specific recommendations issued by the EU institutions systematically binding would imply transfers of sovereignty from the national to the EU level that go well beyond the present discussion. Instead, contracts would introduce the possibility of making the preventive arm binding for some countries where corrections are most needed and urgent for the EMU as a whole.