5. Conclusions
Well-designed social investment policies can enhance productivity and competitiveness and have positive impacts on economic growth and fiscal sustainability, as well as employment, poverty reduction and social inclusion. They contribute to more inclusive and environmentally sustainable economies and societies, underpinning upward social convergence, helping to advance the fair green and digital transitions, and adapting to demographic change in the EU. Simulations also highlight the potential for social investment to positively impact fiscal sustainability, with the resulting long-term GDP growth more than offsetting the initial cost of the measure analysed.
Measuring the exact returns on social investment policies is challenging. Returns might only materialise in the medium to long term, or are not always easily captured in monetary terms. In addition, social investments might reinforce one another, including over individuals' life courses, and might also depend on the effectiveness of other policies, such as social protection. 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. While many methods are available to estimate the returns on social investment, they are often complex, require good quality (longitudinal) data and cannot account for all relevant elements at once. The efficiency of spending on social investment is also crucial. In this respect, ensuring that social investment is of high quality, well-designed and evidence-informed is key.
Social investment at earlier stages of life, such as in education (including ECEC), is associated with higher economic and social returns over the course of people’s lives. Investment in ECEC can improve the education and labour market opportunities for children and increase the labour market participation of parents. Evidence shows that increasing participation of young children in ECEC could result in sizeable improvements in mothers’ labour market participation, with particularly beneficial impacts for mothers from low-income families. However, while ECEC participation in the EU is improving, several Member States still fall far behind the Barcelona participation target of 45% for children aged 0-2. Children who can benefit most from attending ECEC, such as those from disadvantaged backgrounds, tend to participate least. For school education, the learning outcomes of 15-year-olds worsened significantly after the COVID-19 pandemic, which likely intensified an already negative trend. This was accompanied by the decrease in efficiency of expenditure on education per student, underlining the relevance of other factors, such as quality of education, in determining the effectiveness of investment in school education.
Effective investment in skills is associated with positive effects on labour market and economic outcomes, contributing to upward convergence. ESF+ investments in skills in the 2021-2027 programming period are projected to increase employment and GDP both in the short term and well beyond the funding period. Similar effects are found for young unemployed people in countries with the highest youth unemployment rates. These interventions are also expected to lead to a catching-up of regions lagging behind, reducing disparities across regions and leading to long-term economic convergence.
Employment and GDP are supported by investments in ALMPs, such as wage subsidies and training programmes, promoting upward convergence. ESF+ investments in ALMPs in the 2021-2027 programming period are projected to increase employment and GDP in both the short and long term and to promote a catching-up of regions that are lagging behind, reducing disparities in the short term in particular. Impact evaluations of specific ALMPs in the Member States found that training programmes, job creation schemes and wage subsidies are effective at increasing employment, earnings, and social outcomes, particularly among long-term unemployed people.
Good quality and affordable housing can help to improve labour market outcomes, mitigate labour and skills shortages, and promote upward social convergence. Housing allowances and social housing are found to reduce poverty in the short term. However, factors such as insufficient stock of social housing, inefficiencies in the occupancy of social housing, or the ability of landlords to capitalise (part of) housing allowances through higher rents might limit the effectiveness of these housing policies to increase housing affordability for the most vulnerable households. This calls for a comprehensive approach when designing housing policies so as to maximise returns.
Social investment and related enabling policies play an important role in facilitating a fair green transition. To reach climate neutrality by 2050, investment is needed in reskilling and upskilling of workers. The required investment will be higher for countries that need to catch up in their deployment of renewable energy sources and green technologies. Investments in social infrastructure and levers such as affordable and sustainable mobility, food, energy and housing can help to increase the accessibility and affordability of energy-efficient and sustainable lifestyle solutions and reduce inequalities in consumption footprints.
By stabilising incomes, well-designed social protection systems complement social investment policies and can prevent diverging trends in social outcomes during recessions. These two components of modern welfare states can reinforce one another, with social protection supporting effective social investment. Simulations show that tax-benefit systems would absorb almost half of a negative market income shock, albeit with substantial variation across Member States. The degree of income stabilisation provided by tax-benefit systems following a market income shock is stronger for households with lower and higher incomes compared to those in the middle of the income distribution.
Social investment and social protection are fully embedded in the European Pillar of Social Rights and are essential to its implementation. Several policies and reforms adopted under the Pillar are supported by EU funds such as the ESF+, the ERDF, the RRF as well as the TSI. The reformed Economic Governance Framework facilitates and encourages Member States to implement reforms and investments that improve resilience, economic growth, and fiscal sustainability, and address the common objectives of the EU, including upward social convergence.