Social Exclusion: A Challenge to Macroeconomic Policy. NCRE Online Paper No. 02/01

Mayes, David. (2002) Social Exclusion: A Challenge to Macroeconomic Policy. NCRE Online Paper No. 02/01. [Policy Paper]

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Abstract

[From the Introduction]. As the conclusions from the Lisbon Council in 2000 make clear,2 the search for increased levels of employment with higher skills and increased economic growth has supplanted inflation as the key macroeconomic policy issue in the EU. This is part of a 10-year action programme to become the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion. Increased employment participation is central for the wider goal of improving welfare by reducing social exclusion and hence increasing social inclusion. One of three principal action areas is modernising the European social model, investing in people and combating social exclusion. In implementing this, the Council decided to apply a new open method of coordination. There is potential conflict between achievement of the wider social objective and pursuit of prudent macroeconomic policy (Gold and Mayes 1993). Trying to improve the growth rate, investment and R&D tends to increase public spending. Tackling unemployment, deprivation and other forms of exclusion involves increased transfers through the tax/benefit system. Although the consequent ‘inflation bias’ is addressed by the monetary policy framework in the Maastricht Treaty, problems remain. At some point, below current levels in the EU, such increases in the role of the public sector can be counterproductive and by reducing incentives actually diminish the overall growth in GDP and employment (Koskela and Viren 2000).

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