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New Approaches to Economic Challenges
Seminar on Project C2, 18 March 2014
SOCIETY AT A GLANCE 2014
THE CRISIS AND ITS AFTERMATH
A STRESS TEST FOR SOCIETIES
AND FOR SOCIAL POLICIES
Herwig Immervoll
Social Policy Division
Employment, Labour and Social Affairs, OECD
2
Vulnerability of Social Institutions … to the consequences of the crisis
as well as major global trends [such as] population ageing.
• Fiscal sustainability can be at the forefront of debates
• But ultimately, vulnerability and sustainability are about whether
social institutions can continue to fulfill their purposes
– income stabilisation/smoothing
– risk sharing
– redistribution
– poverty alleviation
– maintaining or strengthening self-sufficiency
• Fiscal and social sustainability should be looked at in tandem
Vulnerability of social institutions:
What is meant by it?
3
• Economic & fiscal crisis is also a social crisis: much
greater need for support
• Initial response of most governments was to
increase resources
• With reduced fiscal space, cutbacks can
compromise effectiveness
• To maintain effectiveness, both resources and policy
approaches need to adapt during the cycle
Key messages:
Vulnerability to the crisis
4
Social consequences of the crisis
and resulting need for support
5
Income gaps widen following recessions
They can persist during recoveries
• Income gaps widen – and
recoveries often fail to close them
• At bottom: incomes fall rapidly
during & after recessions, remain
low for long time
• At top: incomes often continue to
rise (at reduced pace)
• Any narrowing of gaps after
recessions does not last long
enough to close gap
• Data for recent crisis point in similar
direction as historic trends 020406080100120140160 Negative-growth years Low-growth years
median incomes low incomes
high incomes
Household market incomes, working-age in real terms, earliest data point = 100
0
20
40
60
80
100
120
140
160
180
200
UnitedKingdom
“Low” and “high” incomes refer to the 10th and 90th percentiles.
Source: Immervoll and Richardson (2011), using LIS data.
6
Challenges and scope for social policy
0
20
40
60
80
100
120
140
160
180
200
UnitedKingdom
7
Challenges and scope for social policy
0
20
40
60
80
100
120
140
160
180
200
UnitedKingdom
Cushioning income losses
8
Challenges and scope for social policy
0
20
40
60
80
100
120
140
160
180
200
UnitedKingdom
Cushioning income losses Supporting self-sufficiency
9
Very large increases in the number of workless
households are a major test for social policies Shares of adults living in workless households, %
Note: Households are defined as “workless” if all household members are either unemployed or labour-market inactive.
“Adults” refers to the population aged 15-64.
2013 instead of 2012 for the United States.
Source: OECD estimates based on the European Union Labour Force Survey and the United States Current Population Survey.
0
3
6
9
12
15
18
21
%
2012 (↗) 2007
10
Income losses were not symmetric, and neither was the
income stabilisation afforded by social protection Relative poverty headcount, percentage-point change 2007-2010
Note:.
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
- 6
- 4
- 2
0
2
4
6Children (0-17) …
11
Income losses were not symmetric, and neither was the
income stabilisation afforded by social protection Relative poverty headcount, percentage-point change 2007-2010
Note:.
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
- 6
- 4
- 2
0
2
4
6Children (0-17) (↗) Young (18-25)
12
Income losses were not symmetric, and neither was the
income stabilisation afforded by social protection Relative poverty headcount, percentage-point change 2007-2010
Note:.
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
- 6
- 4
- 2
0
2
4
6Children (0-17) (↗) Young (18-25) Elderly (Over 65)
↯ -11 ↯ -7 ↯ -23 ↯ -8
13
Struggle to meet basic needs,
negative consequences for future incomes, health Share of people feeling they cannot afford food, %
Note: Share of “yes” responses to the question “Have there been times in the past 12 months when you did not have enough money to buy food that you or your family needed?”.
Source: GallupWorld Poll, www.gallup.com/strategicconsulting/en-us/worldpoll.aspx.
0
5
10
15
20
25
30
35
40
45
502011/12 (↘) 2006/07
14
Current health inequalities point to
costs of persistent poverty Perceived health outcomes by income level, around 2011
Note: “Lowest income” and “highest income” refer to the bottom and top 20%.
Source: OECD Health Statistics 2013 (http://dx.doi.org/10.1787/health-data-en); EU-SILC for European countries.
0
10
20
30
40
50
60
70
80
90
100
Lowest income Highest income% of population aged 15 and over
15
• Major social consequences are already visible
• They may persist for a long time
• Recessions don’t strike symmetrically: Headline indicators (GDP,
unemployment) hide much greater problems of individual groups
• Those disadvantaged before the crisis were more exposed
(e.g., youth, low-skilled)
• Severe & long-lasting economic difficulties can overwhelm families’
own capacity to adapt
• Without sufficient public support, they cut down on essential
consumption (food, shelter, and health) future social and fiscal
costs
Social consequences of crisis:
summary
16
Social policy responses:
What did governments do?
17
Spending on working-age cash transfers rose steeply Real-term growth, 2007/8-2012/13
Note: Averages for 2007/8 and 2011/12 are used as the timing of the downturn and the beginning of any fiscal consolidation efforts varied across countries.
“working-age cash transfers” are the following SOCX categories: incapacity, unemployment, family and “other social policy areas” (incl. minimum-income benefits).
Source: OECD (2013), OECD Social Expenditure Database (SOCX), preliminary data (www.oecd.org/social/expenditure.htm).
-10
0
10
20
30
40
50
18
Automatic stabilisers played key role, were effective at
limiting income losses among the poorest
Note: The “Strength of automatic income stabilisers” is a coefficient that shows how changes in market income translate into changes in disposable income. The higher the
coefficient, the stronger the stabilisation effect – e.g., a coefficient of 0.4 denotes that 40% of the earnings shock due to higher unemployment is absorbed by the tax benefit
system. The income changes are simulated based on EUROMOD (EU countries) and TAXSIM (United States) for an increase in unemployment of 5 percentage points.
Source: OECD Income Distribution Database and Dolls, Fuest and Peichl (2012), “Automatic Stabilizers and Economic Crisis: US vs. Europe”, Journal of Public Economics.
19
But social spending, especially for working-age people,
became most-frequently cited item in consolidation plans
Note: A questionnaire was submitted to countries in December 2011 to update The OECD 2010-11 report on fiscal consolidation strategies. Based on
country responses and publicly available sources, information was collected for 31 countries. Explanation: 70% of countries plan to cut welfare spending in
2012. Welfare includes working-age social transfers, such as unemployment benefits, social assistance, disability benefits, child benefits, etc. Pensions
comprise old-age pensions.
Source: OECD National Accounts, OECD (2012), “Restoring Public Finances, 2012 Update”, and OECD (2011), "Restoring Public Finances: Fiscal
Consolidation in OECD Countries".
Major programme measures in fiscal consolidation plans,
by domain, based on 2011 and 2012 surveys, OECD
Government spending by function,
OECD average, 2011
0
10
20
30
40
50
60
70
80
% o
f par
ticip
atin
g co
untr
ies
Plan 2012 Plan 2011Working-age
transfers
Health
Pensions
Other social protection
Other
Education
20
Rising social spending and social needs,
but decreasing fiscal space Fiscal space narrowing, especially in countries with steep rise in unemployment
Note: Averages for 2007/8 and 2011/12 are used as the timing of the downturn and the beginning of any fiscal consolidation efforts varied across countries.
“Consolidation effort”: change in underlying primary government balance, percentage points of GDP. Correlation: 0.69, excl. GRC, IRL, PRT and ESP: 0.46
Source: OECD (2013), Economic Outlook Database, No. 93, June, www.oecd.org/economy/outlook/economicoutlook.htm.
AUSAUT
BELCAN
CHE
CZE
DEU
DNKEST
FIN
FRA
GBR
HUNISL
ISR
ITA
JPN
KOR
LUX NLD
NORNZL
POL
SVN
SWEUSA
8.96
10.39
-4
-2
0
2
4
6
8
10
-1 0 1 2 3 4 5
Chang
e in u
nem
plo
ym
ent ra
te,
2007/8
-2013
Consolidation effort, 2011/12-2014
IRLPRT
ESP GRC
8
14
20
2 3 4 5
21
• Unemployment insurance: strengthened, extensions now phased out. But some countries restricted durations or access early on (CZE, DNK, ESP, HUN, PRT).
Others moved later to strengthen benefits (ITA, PRT).
• Unemployment assistance: strengthened But cuts in HUN, PRT. Access remains very limited in GRC.
• Social assistance safety nets: fewer changes, some strengthening But cutbacks or tighter eligibility in HUN, NLZ, PRT, UK.
• Disability: stricter gate keeping, time limits, reassessments
• Family benefits: savings measures since 2010
• Old-age pensions: pre-crisis “structural” reform plans brought forward. New means-tested safety nets in CHL, FIN, GRC, MEX, enhanced in AUS, ESP.
Some across-the-board cuts (GRC, freezes in AUT, GRC, ITA, PRT, SLO)
Key trends by policy area:
Cash transfers
22
• Health spending growth came to halt in 2008, then fell as share of GDP Public spending cuts from 2010 in EST, GRC, IRL, ISL.
– Restricted coverage through means tests (some countries).
– Higher out-of-pocket payments (many countries).
• Employment support and Active Labour Market Policies: Falling resources per unemployed, except if linked to unemployment levels (CHE, DNK, AUS)
Change in spending per unemployed, 2007-11
Key trends by policy area:
Services
Income support Re-employment assistance
-60
-50
-40
-30
-20
-10
0
10
20
Ireland Euro area OECD
%
Note: OECD is the weighted average of 32 OECD countries
(excluding Iceland and Turkey). 2010 for Ireland.
Source: OECD estimates based on the OECD Labour Market
Programmes and OECD Short-Term Labour Market Statistics
Database.
23
Making social policies more crisis-ready & crisis-proof
24
When social transfers are targeted, cutting spending is
more likely to hurt the poor
Cash transfers received by low- and high-income groups, % of average transfers in 2010
Reading note: In Portugal, the average total transfer payment received by low-income families (in the bottom 30% of the income distribution) is 71% of the average
payment across all families, and less than half of the average benefit payment received by high-income families, who receive 52% more than the average
family.
Notes: Reference year is 2009 for Hungary, Japan, New Zealand, Switzerland and Turkey. “Bottom 30%” and “top 30%” refer to average public transfers received
by decile groups 1 to 3 and 8 to 10, respectively. Decile groups are determined in relation to household disposable income after accounting for taxes and
transfers. All incomes and transfer amounts are adjusted for household size (see www.oecd.org/social/inequality). Transfers include all public social benefits.
Source: OECD Income Distribution Database, www.oecd.org/social/inequality .
0
50
100
150
200
250% Bottom 30% (↗) Top 30%
25
Prioritise investment-type programmes to avoid high future costs • A primary purpose of social policies is to prevent temporary economic problems from turning into long-
term disadvantage.
• Health, children & youth, active social and labour-market policies.
But vulnerable groups need support now • Adequate safety nets as a crucial foundation for social investments
• Governments need to design and time budget savings measures accordingly
Support families’ efforts to cope with adversity • work-related support / incentives not only for individual job seekers, but for non-working partners as well.
Plan for the next crisis • Build up earmarked savings during upswing, e.g., by linking support to labour-market conditions.
• Continue structural reforms begun before the crisis, e.g., old-age pension, health.
Making social policies more crisis-ready / crisis-proof
26
Political sustainability
Data are taken from Transatlantic Trends, an annual survey of public opinion by German Marshall Fund of the United States, Compagnia di San Paolo, Barrow
Cadbury Trust, Fundação Luso-Americana, BBVA Foundation, Communitas Foundation, and Swedish Ministry for Foreign Affairs. Polling for the 2013 results took
place in June and July by phone interview. In each country, the sample consists of approximately 1 000 randomly chosen men and women of 18 years of age and
older. The 95% confidence interval attributable to sampling and other random effects is no more than plus or minus three percentage points.
Decrease spending Maintain current levels of spending
Increase spending "don’t know”/refusal
0102030405060708090100 0 10 20 30 40 50 60 70 80 90 100
Portugal
France
Italy
United States
Slovak Republic
Germany
Spain
Poland
Netherlands
United Kingdom
Turkey
Sweden
1. “What should happen to
government spending?”
2. “What should happen to
welfare-state spending?”
27
• Economic & fiscal crisis is also a social crisis: much
greater need for support
• Initial response of most governments was to
increase resources
• With reduced fiscal space, cutbacks can
compromise effectiveness
• To maintain effectiveness, both resources and policy
approaches need to adapt during the cycle
Key messages:
Vulnerability to the crisis
28
Thank you Contact: [email protected]
OECD Directorate for Employment, Labour and Social Affairs, via www.oecd.org/social
Society at a Glance, via www.oecd.org/els/societyataglance.htm
Income distribution and poverty, via www.oecd.org/social/inequality.htm
Redistribution and working-age benefits, via www.oecd.org/social/benefitsandwagesindicators.htm
Pensions, via www.oecd.org/social/pensionsataglance.htm
Social Expenditure Database (SOCX), via www.oecd.org/els/social/expenditure
Employment policies and data, via www.oecd.org/els/emp
Health, www.oecd.org/health
@OECD_Social
