inequality patterns after downturns: what...
TRANSCRIPT
ZEW LUNCH DEBATE
ECONOMIC RECOVERY IN EUROPE
INEQUALITY PATTERNS AFTER DOWNTURNS:
WHAT LESSONS FOR SOCIAL POLICIES?
Herwig Immervoll
Social Policy Division, OECD
Brussels, September 25, 2014
2
• Economic & fiscal crisis is also a social crisis:
much greater need for support
• Crisis preparedness instead of ad-hoc emergency
measures. ‘Crisis proofing’ should to be central design
feature of social protection, during all stages of
economic cycle
• ‘Active’ social policies reduce long-term costs of crises
by adapting support to changing economic and social
conditions
Summary: Main messages
3
Economic output has begun recovery everywhere
but employment and wages have not
Notes: Data are annual and changes are in real terms. Countries without drops in annual GDP between 2007-9 are excluded. Data in shaded area are projected.
Source: Society at a Glance 2014, using OECD Economic Outlook No. 93.
80
85
90
95
100
105
110
115
p-4 p-3 p-2 p-1 peak p+1 p+2 p+3 p+4 p+5 p+6
pre-crises peak=100
years since GDP peaked
GDP, median country Wage bill, median country
4
Economic output has begun recovery everywhere
but employment and wages have not
80
85
90
95
100
105
110
115
p-4 p-3 p-2 p-1 peak p+1 p+2 p+3 p+4 p+5 p+6
pre-crises peak=100
years since GDP peaked
GDP, median country Wage bill, median country
GDP "high-growth" countries Wage bill "high-growth" countries
Notes: Data are annual and changes are in real terms. Countries without drops in annual GDP between 2007-9 are excluded. Data in shaded area are projected.
Source: Society at a Glance 2014, using OECD Economic Outlook No. 93.
5
Economic output has begun recovery everywhere
but employment and wages have not
80
85
90
95
100
105
110
115
p-4 p-3 p-2 p-1 peak p+1 p+2 p+3 p+4 p+5 p+6
pre-crises peak=100
years since GDP peaked
GDP, median country Wage bill, median country
GDP "high-growth" countries Wage bill "high-growth" countries
GDP "low-growth" countries Wage bill "low-growth" countries
Notes: Data are annual and changes are in real terms. Countries without drops in annual GDP between 2007-9 are excluded. Data in shaded area are projected.
Source: Society at a Glance 2014, using OECD Economic Outlook No. 93.
6
Previous crises: Income gaps widen in/after
recessions, often 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
• Longer time series for several other
countries similar
• 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.
7
Some signs that similar patterns
in recent downturns
0
20
40
60
80
100
120
140
160United States
0
20
40
60
80
100
120
140
160Finland
0
20
40
60
80
100
120
140
160Canada
0
20
40
60
80
100
120
140
160
180
200
220United Kingdom
0
20
40
60
80
100
120
140
160Denmark
8
Declining market incomes at the bottom:
Challenges & scope for social policy
0
20
40
60
80
100
120
140
160
Finland
9
Declining market incomes at the bottom:
Challenges & scope for social policy
0
20
40
60
80
100
120
140
160
Finland
Cushioning income losses
10
Declining market incomes at the bottom:
Challenges & scope for social policy
0
20
40
60
80
100
120
140
160
Finland
Cushioning income losses Supporting self-sufficiency
11
Policy challenge #1
Effective safety nets
12
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
13
Struggle to meet basic needs, negative
consequences for current & future well-being 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
Limited responsiveness of assistance benefits Recipient numbers, OECD total, 2007=100
Source: OECD Social Benefit Recipients database, forthcoming.
90
100
110
120
130
140
150
160
170
180
190
2007 2008 2009 2010
Unemployment insurance
Unemployment assistance
Social assistance
Disability pension
Old age pension
15
• Social insurance where affordable
• Complemented by effective safety nets:
– responsive to downturn, i.e. ready to scale up
– adequate resources for meeting basic needs
– ensure health and human capital is maintained
• Support families’ own capacity to adapt to
economic difficulties
Some key challenges for social
protection…
16
Policy challenge #2
Suitably targeted support
17
Job and income losses were not symmetric Change in shares of people without work, by age, sex and edu
weighted average, percentage-point change Q4 2007-Q4 2012
Source: OECD (2013), OECD Employment Outlook.
-5
-3
-1
1
3
5
7
9
11
13
- skill + - skill + - skill + - skill + - skill + - skill +
Men Women Men Women Men Women
Youth Prime Old
%
Inactivity Unemployment Non-employment
OECD total
18
Job and income losses were not symmetric Incomes mostly fell, but elderly either not affected, or less so
(annual % change 2007-2011 in real terms)
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
- 12
- 10
- 8
- 6
- 4
- 2
0
2
4
6
Total (↗) Young (18-25 y.o)
19
Job and income losses were not symmetric Incomes mostly fell, but elderly either not affected, or less so
(annual % change 2007-2011 in real terms)
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
- 12
- 10
- 8
- 6
- 4
- 2
0
2
4
6
Total (↗) Young (18-25 y.o) Elderly (Over 65 y.o)
20
A longer-term trend:
Shift of poverty risks from elderly to youth Rates of relative poverty, by age group
Source: OECD Income Distribution Database. www.oecd.org/social/inequality.htm.
50
75
100
125
150
175
200
50
75
100
125
150
175
200
Below 18 18-25 26-40 41-50 51-65 66-75 Above 75
Total poverty rate = 100 OECD country average
Mid-1980s
Mid-1990s
2007
2011
21
When social transfers are highly targeted,
spending cuts are 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%
22
• Rebalance support for different groups
• Address structural factors that lead to
unequal burdens for different groups
– Social protection provisions that render support
largely inaccessible for some groups
– Labour-market inequality (“insider/outsider”)
Some key challenge for social
protection…
23
Policy challenge #3
Adaptive social policies
24
• Adaptive social policy structures – Out-of-work benefits: Good social & economic arguments for modifying benefit
provisions when labour-market conditions change substantially
– Active labour-market policies
– In-work benefits and other into-work support
• Adaptive social policy resources
Adaptive social policies
25
Automatic stabilisers: role in limiting
income losses among poor
Notes: The “Strength of automatic income stabilisers” is a coefficient that shows how changes in market income translate into changes in disposable income.
Source and details: Society at a Glance, 2014.
AUT
BEL DNK
EST
FIN
FRA
DEU
GRC
HUN IRL
ITA
NLD
PRT
SVN
ESP
SWE
GBR USA
-15
-13
-11
-9
-7
-5
-3
-1
1
3
5
0 0.2 0.4 0.6 0.8
Strength of automatic income stabilizers
disposable income for bottom 10%, annual change 2007-10
26
Rising social spending and social needs,
but decreasing fiscal space Fiscal space narrowing, especially in high-unemployment countries
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
27
Drivers of widening budget deficits Changes in revenues and transfer spending, 2007-10, in real terms
Notes: The vertical y axis is inverted (a positive number indicates an increase in social benefit expenditure and a worsening budget balance). Government
transfers: all cash social benefits paid by government. Government revenues: total tax and non-tax receipts of the general government sector (central
and sub-central) plus social security contributions.
AUS
AUT
BEL
CAN
CZE
DNK
FIN
FRA
DEU
GRC
HUN
ISL
IRL
ISR
ITA
JPN
KOR
LUX
NLD
NZL NOR
POL PRT
SVK
SVN
ESP
SWE
CHE
GBR
USA
0
2
4
6
-10 -8 -6 -4 -2 0 2
Cash
go
vern
me
nt
tran
sfe
rs
(valu
es in r
evers
e o
rder)
Government revenues
Transfer spending is main
driver of deteriorating
budget balance
Lower revenues are main
driver of deteriorating
budget balance
28
• Counter-cyclical fiscal policies – Increase/maintain cyclicality of social spending
– Complement revenues; less variable tax bases
– Downturn: design and time spending cuts accordingly
– Upswing: build up reserves (earmarked
taxes/contributions; link support to labour-market
conditions)
• Continue structural reforms begun before
the crisis – Old-age pension
– Health
– Activation
Some key challenge for social
protection…
• ‘Efficiency’ of social polices: How do countries
adapt social policy efforts over the cycle? What
are effects on key social outcomes?
• Benefit dependence: Patterns and drivers of
benefit inflows, outflows, durations.
• Multi-dimensional “profiles” of populations with
labour-market difficulties: Inform targeting,
customising ‘active’ and ‘passive’ support
• Work incentives: When and for whom are they
relevant? New empirical work
How to inform and support this broad
agenda? Some activities at OECD
30
Thank you Contact: [email protected]
OECD Directorate for Employment, Labour and Social Affairs, via www.oecd.org/els
Redistribution and working-age benefits, via www.oecd.org/social/benefitsandwagesindicators.htm
Employment policies and data, via www.oecd.org/els/emp
Income distribution and poverty, via www.oecd.org/social/inequality.htm
Society at a Glance, via www.oecd.org/els/societyataglance.htm
@OECD_Social
31
Additional slides
32
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?”
33
Unemployment benefit generosity varies
enormously across countries Net replacement rate over a long unemployment spell
Year 1 2 3 4 5
Belgium 70 64 64 64 64
Ireland 62 62 62 62 62
Finland 64 62 35 35 35
France 67 67 29 29 29
Germany 67 35 35 35 35
Norway 73 73 17 17 17
Sweden 58 57 54 19 7
Iceland 60 56 56 7 7
Spain 68 65 23 23 2
Portugal 72 64 34 4 4
Denmark 74 74 9 9 9
United_Kingdom 33 31 31 31 31
Netherlands 73 61 5 5 5
Canada 58 16 16 16 16
United_States 50 34 0 0 0
Poland 45 8 8 8 8
Japan 47 5 5 5 5
Lithuania 31 8 8 8 8
Latvia 46 2 2 2 2
Greece 34 9 4 4 4
Italy 45 0 0 0 0
Year 1 2 3 4 5
34
Who receives benefits?
More or less strict gatekeeping Illustration: Strictness of entitlement conditions
Indicator on two aspects of entitlement conditions:
(a) employment/contribution requirements, (b) sanctions for “voluntary” unemployment Source: Venn (2012), “Eligibility Criteria for Unemployment Benefits: Quantitative Indicators for OECD and EU Countries”
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BG
R
AU
S
AU
T
CYP
DN
K
NZL
NO
R
CZ
E
FIN
JPN
GB
R
LTU
CH
E
SWE
DEU IS
R
FRA
HU
N
BE
L
IRL
SV
K
CA
N
GR
C
KOR
NLD
USA
PO
L
LUX
MLT
SLO
ESP
EST
RO
M ITA
TUR
PR
T
35
Who receives benefits?
Coverage has been falling in most countries % of ILO unemployed, selected countries
-5
5
15
25
35
45
55
65
75
851995 2005
Source: Immervoll and Richardson (2011) using European Labour Force Surveys and the US Current Population Survey.
36
Working-age social spending 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
37
• Except if linked to unemployment levels (CHE, DNK, AUS)
Change in spending per unemployed, 2007-11
Active labour-market policies:
Falling resources per unemployed
-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.
Income support Re-employment assistance
38
• 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:
(1) Cash transfers
39
Thank you Contact: [email protected]
OECD Directorate for Employment, Labour and Social Affairs, via www.oecd.org/els
Redistribution and working-age benefits, via www.oecd.org/social/benefitsandwagesindicators.htm
Employment policies and data, via www.oecd.org/els/emp
Income distribution and poverty, via www.oecd.org/social/inequality.htm
Society at a Glance, via www.oecd.org/els/societyataglance.htm
@OECD_Social