Employment and Social Developments in Europe (ESDE) 2024

1. Introduction ⁽¹¹¹⁾

Social investment contributes to economic growth while pursuing social objectives. It can positively impact growth by enhancing human capital, easing labour market transitions, increasing labour supply, raising productivity, and strengthening innovative capacity. This particularly refers to reforms and investments that contribute to addressing skills shortages and mismatches via education as well as upskilling, reskilling and lifelong learning. It also refers to those reforms and investments that increase labour market participation via active labour market policies (ALMPs), reforms of the tax-benefit system, the provision of early childhood education and care (ECEC), and active inclusion policies. Well-designed welfare systems combine a strong social investment dimension with protection and stabilisation functions. As such, they increase the effectiveness and efficiency of social policies while ensuring ongoing support for a fairer and more inclusive society. This goal is underlined in the Social Investment Package put forward by the European Commission in 2013 and underpinned by the European Pillar of Social Rights. While there is no commonly agreed definition of what constitutes social investment yet, this report adopts a definition of social investment largely based on that used in the context of the ECOFIN Council meeting in March 2024. The report thus considers social investment as public spending related to investments and reforms that, on top of pursuing social objectives and therefore fostering upward social convergence, are expected to produce returns in terms of economic growth through their impact on human capital and productivity, including via stronger innovative capacity and absorption of new technologies, and/or labour supply. ⁽¹¹²⁾

Social investment can support upward convergence across a broad range of economic and social indicators.Investment in ECEC can improve the labour market participation of parents, especially mothers, speeding-up the narrowing and convergence of gender employment and pay gaps (see Chapter 2, Section 4.). It can also help to reduce disparities in skill supply, poverty and social exclusion by improving education for children resulting in better labour market opportunities later on. Through the positive impact on employment for parents and children later on in life, investment in ECEC is expected to promote upward convergence in economic outcomes such as GDP per capita. Investment in education and training as well as ALMPs can support upward economic and social convergence, as reducing labour mismatches and shortages can foster economic growth and improve employment outcomes. A similar rationale applies to other types of social investment.

Social investment plays a key role in delivering the European Pillar of Social Rights and its Action Plan. Building on the technical work of the Informal Working Group on Social Investment set up by the Spanish and Belgian presidencies, the opinion of the Employment Committee and Social Protection Committee endorsed by the Council (EPSCO) in November 2023 underlines that ‘national reforms and investments based on the social investment approach, if adequately designed, can be vehicles for the implementation of the principles of the European Pillar of Social Rights’. ⁽¹¹³⁾ The reformed Economic Governance Framework adopted by co-legislators in February 2024 aims to strengthen debt sustainability and promote sustainable and inclusive growth through reforms and investments that contribute to common EU priorities, such as the European Pillar of Social Rights, the green transition, the digital transition, and the build-up of defence capabilities. In this context, the identification of returns on social investment also plays a role.

This chapter discusses the role of social investment and its contribution to upward social convergence between Member States. Section 2. presents current knowledge on the social investment concept and underlines EU policies that facilitate social investment. Section 3. provides an in-depth analysis of some social investment policies, such as investment in education, including ECEC, skills, and ALMPs. Section 4. estimates the effectiveness of selected housing policies on reducing poverty and promoting upward social convergence. Section 5. concludes with a brief overview of the chapter findings.