The balance between work and family is of crucial importance for the key challenge Europe is facing: how to enhance innovation by creating a competitive internal market with an adaptable work force while at the same time maintaining social cohesion. The reason is that human capital is the key to addressing this challenge.
These human resources are produced not only in schools but also in families and firms. Indeed, the capacity to learn and adapt is developed at a very young age in families. Moreover, about half of skill formation occurs in post-school learning on the work floor. Reconciliation of work and family is therefore essential for rearing and maintaining human capital.
A number of trends point to an increased importance of human capital as the key to not only personal fulfilment but also a number of societal challenges, such as maintaining inter-generational solidarity in the face of aging and encouraging innovation and entrepreneurship in the face of fierce international competition. At the same time, increased demand for female human capital reduces the scope for specialisation within household production. Hence, employees increasingly combine a career in the formal labour market with family obligations.
To consider work-family balance a life course perspective is called for. To illustrate, foregone career prospects are major opportunity costs of raising children. Reconciliation of work and family thus goes beyond child care and parental leave but involves the entire life span.
In the modern longer life span, adults spend considerable time in households without young children. Indeed, in the ‘spring’ period of the life cycle, young adults first experiment with relationships and jobs before they take on responsibility for raising children during the family ‘summer’ season.
After the children have grown up, adults typically spend considerable time in good health in the ‘autumn’ before they enter ‘winter’, the last phase of life in which people suffer from serious health problems. The summer season in the modern life course is quite hot. Parents of young children face both a ‘time crunch’ and a ‘money bind’ as they invest not only in their children but also in their careers.
What is the current state of play in Europe? The public sector plays a key role in providing public services to young families in the Nordic countries and France. In the corporatist countries, social partners play a central role in shaping work and leave practices.
In the Anglo-Saxon countries, flexible labour and commodity markets allow families to contract out services to the private sector. In the Mediterranean countries, male breadwinners are well protected through, among other things, employment protection.
The increased importance of especially female human capital calls for new ways to reconcile work and family. Each country, depending on its history and institutional framework, will opt for different solutions. We can nevertheless outline some common policy conclusions for Europe as a whole involving, respectively, mainly the fall, spring, and summer of the modern life course.
o Promote longer working life and more individual responsibility for human capital:
First, longer involvement in paid employment allows people to exploit their longer life to reconcile the two ambitions of, first, investing in the next generation as a parent and, second, pursuing a fulfiling career in paid work in which one keeps learning. A longer active working life reduces career pressure at the biologically determined time when parents care for young children.
In this connection, various public schemes facilitating early retirement should be phased out. The same holds true for passive unemployment and disability benefits facilitating rapid depreciation of human capital. Social partners are thus encouraged to attune workplace cultures to the needs of older workers and to nurture the employability and adaptability of workers.
Greater flexibility of career and work patterns over the life course requires more individual responsibility for financing leave. In this connection, personal saving accounts can be integrated with tax-favoured retirement accounts. Also social security can in part be based on mandatory contributions to individual accounts. These saving schemes are especially suited for self-insuring those risks that are difficult to verify so that they can thus can be insured by neither the government nor the private sector.
o Foster more inclusive labour markets and workplace cultures: Related to a longer and more flexible work life is the second main policy conclusion, namely the flexibility of European labour markets.
These labour markets should become more inclusive so that workers do not have to be continuously full-time employed in order to enjoy a successful career. Rather than shielding older insiders through employment protection, labour-market institutions should enable youngsters and parents of young children to more easily enter and remain in the labour market. Bringing up children thus becomes less costly in terms of depreciated human capital of the parents.
Herein lies an important role for social partners. Employers should attune work to the needs of employees who want to remain employable in the face of substantial family obligations and rapid innovation and thus creative destruction.
At the same time, employees should accept more wage flexibility, internal flexibility in working practices, less employment protection for full-time male bread winners, and more personal responsibility for financing leave in general and early retirement in particular.
o Replace breadwinner model by credible work tests and in-work benefits for parents.
Finally, there is targeted support for the family season financed by those in the spring and fall seasons. Lower minimum-wage floors boost the supply of reliable household services for families and the elderly, while at the same time improving the employment prospects of low-skilled women in the formal labour market.
To accomplish this while at the same time protecting the income position of vulnerable households, more activating social assistance based on the principle of mutual obligation should be combined with in-work benefits for parents caring for young children. These in-work benefits should replace passive income support for bread winners resulting in high minimum wage floors. These in-work benefits include publicly funded high quality child care.
The policy changes all involve transforming passive benefits that compensate the loss of human capital into preventive facilities that build and maintain human capital. This presents politicians with a major challenge because it runs against vested interests. In particular, phasing out benefits to older workers is political dynamite.
If governments put off biting this bullet, however, human capital continues to be wasted and labour supply and fertility remain depressed. Furthermore, innovation and productivity growth slow down, as passive social insurance spending crowds out investments in the human capital of younger generations.
Moreover, a competitive internal market loses its social legitimacy in the face of a less adaptable labour force. In that case, solidarity with vulnerable elderly, children and disadvantaged adults of working age is at serious risk. Economic, political and social reasons therefore all call for transforming the welfare state so as to treasure the human capital of children, women and elderly workers.
Lans Bovenberg is professor of economics at Tilburg University, where he runs the Nestspar research network