Since 2010, many European governments have adopted austerity policies in an attempt to reduce the budget deficits and increases in government borrowing that were caused by the 2007/8 financial crisis.
They mistakenly believed cutting the public sector would promote growth in the private sector, and in this way bring down deficits and borrowing. However, cuts in public expenditure are not very successful in promoting growth and reducing budget deficits and government borrowing. They are, however, very successful in stifling economic recovery, creating a second wave of recessions and increasing unemployment and inequality.
Take the UK as an example. The Labour government responded to the financial crisis with a 500 billion pound bailout of the banks — and introducing a fiscal stimulus. This helped limit the depth of the recession and put the economy on the road to recovery. By the first quarter of 2009, the irresponsibility of private sector financial institutions had led to a deep recession and a rise in unemployment, at first more pronounced for men than for women.
However, when the David Cameron-led Coalition government came to power in May 2010, it was decided to accelerate the timetable for deficit reduction through an unprecedented four-year programme of cuts to public services and welfare benefits.
As austerity policies began to come into force, recovery of output and employment came to an end. By the middle of 2012, the UK economy was back in recession, with output in the second quarter falling by 0.7% and unemployment at 8.3%. The targets for deficit reduction had not been met and government borrowing was rising — not falling — as tax revenues fell despite increases in some tax rates.
In the 40 years preceding the financial crisis, gender gaps in the UK economy had been narrowing. Women’s labour force participation had risen. The gender wage gap had fallen.
Women continued to have to take responsibility for providing unpaid care for their families and communities, but public services and welfare benefits made it easier for women to combine bringing up children with having a paid job. Public sector employment played an important role, as the gender wage gap was narrower in the public sector than in the private sector and public sector employment policies were more family-friendly.
The austerity policies are set to undermine this progress and hit low income women particularly hard. Women’s employment is more concentrated in the public sector than men’s, with women making up about two-thirds of the UK’s public sector workforce. As expenditure cuts have led to the loss of public sector jobs, unemployment for women has risen to an unprecedented level of 7.7% in first quarter of 2012. At the same time, women’s labour force participation has fallen, as increasing numbers of women are discouraged by the lack of job opportunities and the problems of combining paid work with family responsibilities.
The austerity polices will hit women’s incomes harder than men’s. Rises in direct taxes, cuts in welfare benefits, increases in public sector pension contributions and freezes in public sector wages will raise 8 billion pounds by 2014/15. Parliamentary researchers have calculated that of this amount, men will pay 2.2 billion pounds (26%) and women will pay 5.8 billion pounds (74%). So even though women’s incomes are lower than those of men, they will pay more.
Lone mothers, generally one of the poorest groups, will be hit hardest. Research by the Institute of Fiscal Studies (www.ifs.org.uk) on the incidence of changes in direct and indirect taxes and welfare benefit cuts on household income, shows that single mothers stand to lose about 8.5% of their income, as compared to childless couples, who will lose about 2.6%.
Single mothers will also be hardest hit by cuts to expenditure on public services. Estimates by the UK Women’s Budget Group and Landman Economics shows that lone parents — 95% of whom are women — stand to lose more than four times as much as couples without children, who stand to lose least. After lone parents, retired single women will lose the most, followed by childless single women of working age.
The cuts to care services will lead to extra demands being placed on women to provide unpaid care. Expenditure on social care for frail elderly people and severely disabled people will be cut by 20% from 2011/12 to 2014/15.
This compares to an overall cut to expenditure on public services of 12%, which includes a cut of 8% to defence funding. The number of frail elderly people in receipt of free home care fell by 11% between 2010 and 2012. Their daughters and nieces will be expected to provide most of the replacement care.
Reforms to the welfare benefit system, designed to save money, are also set to undermine the financial autonomy of low-income women and to reduce their incentives to take a paid job if they have a partner who is in paid work. It’s no wonder UK women’s rights organisations feel that the austerity policies are trying to turn back time, to an era of male breadwinners and dependent housewives.
Anybody recommending austerity policies as an appropriate response to current economic conditions needs to explain why they think such policies will lead to prosperity.
The use of such measures in the UK illustrates that austerity policies exacerbate the downward spiral of recession, unemployment, inequality, rising debts and economic deficits.
As more governments introduce austerity policies, a new global slowdown is likely, with knock-one effects even for countries which escaped quickly from the financial crisis.