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Employment and Social Developments in Europe (ESDE) 2024

Chapter 3 - The role of social investment
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The role of social investment
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2. What do we know about social investment?

Well-designed social investments can raise productivity and economic growth. For instance, investments and reforms in education and skills can foster economic growth through increases in productivity, innovative capacity and employability. Investments in ECEC are expected to have the strongest impact. ALMPs and well-functioning public employment services (PES) can improve the efficiency of labour market matching and activate population groups that are underrepresented in the labour market. Investments in health can improve the population’s health status at every age, which increases the productivity of the (current and future) population of working age and can prolong working lives; such investments can prevent work-related illnesses, and help (re-)integrate people with disabilities and those returning from longer-term sick leave into the labour market. All of these investments and reforms can lead to a double dividend, ensuring additional revenue through employment and health gains, while reducing dependence on social benefits. (114)Social investment might also help to address labour shortages and skills mismatches, support resilient economies, (115) and increase well-being.

Analysing returns on social investment should take a life-course perspective.Social investment generates a multiplier effect that leads to cumulative returns over the life-course at both individual and macro levels. (116) Research shows that returns tend to be highest when invested in early life stages. (117) For instance, investing in ECEC improves individuals’ future educational outcomes, leading to better labour market opportunities and potentially reducing inequality of opportunity for the next generation. However, changing skills needs, including in the context of the green and digital transitions, might necessitate additional social investment to fully reap the benefits of previous investment in ECEC and initial education and ensure that workers’ skillsets correspond to labour market needs (see Box 3.4 for a discussion in the context of the green transition). (118)

Significant challenges are associated with measuring returns on social investment. While social investment policies can have a direct economic impact, not all returns can be easily translated into direct quantitative effects on employment, productivity or economic output. Some returns might only materialise in the medium to long term, requiring the collection of data over a longer timeframe (e.g. from surveys or administrative sources). The successful implementation of a number of EU initiatives will be crucial, namely the European Data Strategy, the Open Data Directive, the European Data Governance Act, and the European Data Act. Some social investment and related enabling and complementary policies may have spillover effects, complicating the attribution of returns to a specific intervention. (119)

Methods to estimate returns on social investment are complex and cannot account for all relevant elements at once. Cost-benefit analysis can be used to measure the monetary returns of policies. Where returns cannot be expressed in monetary units, multi-criteria decision analysis considers a wide range of assessment criteria. (120) A complementary approach to cost-benefit analysis is a distributional impact assessment, which estimates income impacts for different income groups.(121) At micro level, many existing studies rely on microsimulations and counterfactual impact evaluations (CIEs). (122) Existing research at macro level often uses ex-post regression-based methods and micro-macro modelling. (123) The Council has endorsed voluntary guidance principles for evaluating the economic effects of social investment, discussing methodological approaches and access and availability of data for research purposes among others. (124)

There is wide public support among Europeans for social investment. When asked about areas where the EU should take action to prepare the future of Europe, people selected social investment in healthcare (38%), education, training and lifelong learning (22%), and active support to employment (17%). The majority (78%) of Europeans believe that overall public spending on key social policies should increase. (125) Views vary between countries, ranging from 45% in Denmark to 93% in Portugal, and strongly depend on personal characteristics and attitudes towards the government. (126)

Safeguarding public finances and ensuring efficient spending on social investment is crucial. In its 2023 report, the High-Level Group on the Future of Social Protection and of the Welfare State in the EU emphasised the need to find new sources to sustainably finance social protection and social investment, including broadening the tax base and readjusting the revenue mix. This is particularly relevant against the present backdrop of higher debt levels, interest rates and investment needs, including in light of the green and digital transitions, the ongoing stepping-up of defence capabilities, and demographic changes. Certain social policies can also mitigate social risks and future social expenditures related to the costs of inaction, thus supporting macroeconomic stabilisation. (127) Evidence shows that when public investment and social protection expenditure are safeguarded, fiscal adjustments can have higher returns on growth in the long term. (128) In this context, it is key to ensure spending is efficient to safeguard public finances.

The EU promotes social investment at national level through various policy initiatives and EU funds. Several policies launched through the European Pillar of Social Rights and its Action Plan support individuals over their life course and help to build human capital, enhance access to quality inclusive education, broaden labour market opportunities, support lifelong learning, and combat poverty and social exclusion. Box 3.1 presents an overview of selected EU policies that foster social investment and contribute to upward social convergence. Several EU funds provide resources to support social investment at national level. The EU has financed several programmes to enhance cohesion and convergence across Member States and regions since the creation of the European Social Fund (ESF) in 1957 and the European Regional Development Fund (ERDF) in 1975, followed by an overarching cohesion policy since the 1980s. In addition, several more recent investments in social policies were implemented through the RRF, which helps Member States to recover from the COVID-19 pandemic while promoting EU priorities such as the green and digital transitions. These were largely also based on country-specific recommendations issued in the context of the European Semester and addressed in the national recovery and resilience plans. In addition, the Commission provides, through the Technical Support Instrument (TSI) and upon demand, technical expertise to Member States to design and implement national or sectoral reforms and strategies to address labour and skills shortages and to anticipate future needs of the workforce. (129)

Box 3.1: EU policies fostering social investment and upward social convergence

In November 2023, the Council endorsed an opinion of EMCO and SPC which underlined that social investment policies that strengthen skills, increase labour market participation and prevent exclusion have significant potential to support stronger and more inclusive economic growth and raise productivity levels. They are also crucial to implementing the principles of the European Pillar of Social Rights and facilitating the digital and green transitions. The EU has adopted many policy initiatives and measures to reinforce social investment at national level, which will help to foster social convergence and improve living conditions for citizens in the EU.

The European Child Guarantee was adopted by the Council in 2021 to prevent and combat social exclusion from the very beginning of people’s lives. It guarantees effective access to a set of key services for children in need, including free ECEC, free education, free healthcare, healthy nutrition, and adequate housing. As part of the European Care Strategy, access to high-quality and affordable ECEC services is reinforced in the 2022 Council Recommendation on early childhood education and care, which revised upwards the Barcelona 2030 targets on children’s participation in ECEC to 45% of children aged 0-2 and 96% of children from the age of 3 to compulsory school age. Those initiatives are expected to improve children’s well-being and development, as well as increasing the labour market participation of parents (see Chapter 2, Section 4.). The reinforced Youth Guarantee enhances employment opportunities of young people under the age of 30 by providing a good quality offer of employment, continued education, apprenticeship or traineeship within four months of becoming unemployed or leaving education.

To build the European Education Area (EEA), a genuine common space for quality education and lifelong learning across borders for all, the Commission (1) and the Council (2) have set out the building blocks of a single policy, strategy and investment framework for European cooperation in education and training, including strategic priorities for national reform and European cooperation, EU-level actions to support Member States in implementation, mobilisation of EU funds towards EEA priorities, a reformed governance framework and EU-level targets to measure progress. In this context several Council Recommendations and Communications were adopted.

To facilitate upskilling and reskilling throughout people’s professional lives, in 2020, the Commission presented the new European Skills Agenda for sustainable competitiveness, social fairness and resilience. It sets out 12 ambitious actions for five years, contributing to upward social convergence in the EU and successful implementation of the green and digital transitions. Three Council Recommendations were adopted:

  1. The 2020 Council Recommendation on vocational education and training (VET) defines key principles to ensure that VET flexibly adapts to labour market needs and provides quality learning opportunities for all age groups;
  2. The 2022 Council Recommendation on micro-credentials promotes lifelong learning by supporting the development, implementation and recognition of micro-credentials;
  3. The 2022 Council Recommendation on individual learning accounts aims to ensure that everyone has access to tailored training opportunities.

Education and training, labour market and social outcomes of some vulnerable groups are supported through the EU Gender Equality Strategy 2020-2025, the Strategy for the Rights of Persons with Disabilities 2021-2030, the EU Roma strategic framework for equality, inclusion and participation 2020-2030, the 2022 EU Directive on adequate minimum wages (which improves enforcement and monitoring of the minimum wage protection and promotes collective bargaining on wages), and the 2023 Council Recommendation on adequate minimum income (which pursues adequate income support, access to enabling and essential services, and labour market integration of those who can work). (3) In addition, the 2016 Council Recommendation on the integration of the long-term unemployed into the labour market supports long-term unemployed people by encouraging the registration of jobseekers with an employment service, promoting individual in-depth assessments of jobseekers’ employability prospects, barriers to employment and previous job-search efforts, and offering job integration agreements. In 2021, the Commission adopted the Social Economy Action Plan to enhance social innovation, support the development of the social economy, and boost its social and economic transformative power. The 2023 Council Recommendation on developing social economy framework conditions aims to foster access to the labour market and social inclusion, while stimulating fair and sustainable economic and industrial development.

In 2021, the Commission put forward a long-term vision for rural areas to improve rural quality of life, achieve balanced territorial development and stimulate economic growth. In 2022, the Council adopted a Recommendation on ensuring a fair transition towards climate neutrality. It sets out guidance for Member States on promoting quality employment, access to quality education and training, fair tax-benefit and social protection systems, and access to affordable essential services. In the context of the digital transition, the Council adopted a Recommendation on the key enabling factors for successful digital education and training and a Recommendation on improving the provision of digital skills and competences in education and training in 2023. In 2024, the Commission put forward the Action Plan on Labour and Skills Shortages.

Finally, to support individuals throughout all stages of their life, the European Care Strategy, accompanied by the 2022 Council Recommendation on long-term care, aims to ensure that long-term care is timely, comprehensive, accessible, affordable and of high quality, including fair working conditions and training for care staff, and support for informal carers. The Commission launched the New European Bauhaus and the Affordable Housing Initiative, as well as the European Platform on Combating Homelessness, to increase the affordability, sustainability and inclusiveness of housing.

  • 1. Communication from the Commission on achieving the European Education Area by 2025.
  • 2. Council Resolution on a strategic framework for European cooperation in education and training towards the European Education Area and beyond (2021-2030); Council Resolution on the governance structure of the strategic framework for European cooperation in education and training towards the European Education Area and beyond (2021-2030).
  • 3. Other EU-equality strategies and inclusion frameworks that have important education, skills and/or labour market components include the EU anti-racism action plan (2020-2025), the LGBTIQ equality strategy (2020-2025), the Action Plan on integration and inclusion (2021-2027) and the EU strategy on combatting antisemitism and fostering Jewish life (2021-2030).

Notes

  • 114.(European Commission, 2023j). See also Council conclusions on the future of the European Health Union: A Europe that cares, prepares and protects.
  • 115.The 2020 Strategic Foresight Report defined resilience as the ’ability not only to withstand and cope with challenges but also to undergo transitions in a sustainable, fair, and democratic manner’ (European Commission, 2020a).
  • 116.(European Commission, 2023j); (European Commission, 2019b); (Hemerijck, Ronchi and Plavgo, 2023).
  • 117.(Hemerijck, 2018); (Hemerijck, 2015); (European Commission, 2019b).
  • 118.(European Commission, 2023b).
  • 119.(Plavgo, 2023); (European Commission, 2016); (European Commission, 2024d); (Nieuwenhuis, 2022) and (Bakker and van Vliet, 2021).
  • 120.(European Commission, 2020b).
  • 121.In September 2022, the Commission issued a Communication on better assessing the distributional impact of Member States’ policies (European Commission, 2022a).
  • 122.Such as quasi-experimental methods and randomised control trials; (Crato and Paruolo, 2019).
  • 123.(European Commission, 2024d).
  • 124.(Employment Committee and Social Protection Committee, 2024).
  • 125.2024 Eurobarometer on Social Europe; 2022 Eurobarometer on Fairness, Inequality and Intergenerational Mobility.
  • 126.Respondents who agreed that the national government takes account of the views of people like them when designing or reforming public benefits programmes and services more often think that the national governments should take measures to reduce income differences (85%, compared to 79% disagree and 66% neutral) (European Commission, 2023e).
  • 127.See Council conclusion on the role of labour market, skills and social policies for resilient economies.
  • 128.(European Commission, 2020b), (Balasundharam et al., 2023)
  • 129.Regulation (EU) 2021/240 of the European Parliament and of the Council of 10 February 2021 establishing a Technical Support Instrument (OJ L 57, 18.2.2021, p. 1–16).