Productivity and long term growth

Risk sharing

 

Macroeconomic crises and shocks often cause large and unforeseen income and employment losses. Such losses tend to be unevenly spread across the population, often with the greatest impact on the poor and most vulnerable sections of society. This chapter presents new OECD analysis of the types of policies that have helped to protect the most vulnerable.

Economics Department Working Papers

The Sharing of Macroeconomic Risk: Who Loses (and Gains) from Macroeconomic Shocks

(No. 877)

by Rudiger Ahrend, Jens Arnold and Charlotte Moeser

 

How Institutions Shape the Distributive Impact of Macroeconomic Shocks: A DSGE Analysis

(No. 884)

by Rudiger Ahrend, Charlotte Moeser and Tommaso Monacelli

 

The recent crisis has been a forceful reminder that economies are still at risk of being affected by – sometimes violent – shocks. The economic implications of such shocks can vary markedly across the population. For example, young people have been particularly badly hit by the recent financial crises, with their unemployment rate increasing twice as much as the overall rate across the OECD and the BRIICS. Such dissimilar implications of macroeconomic shocks reflect in part the greater sensitivity of certain groups to general economic conditions, but they are also likely to depend on policies and institutions. For instance, during the recent financial crisis youth unemployment increased more in countries with higher statutory minimum wages (see figure below), and more rigorous analysis confirms that this was more than mere coincidence.

 

Young people have been particularly badly hurt by the recent financial crisis, and especially so in countries with high minimum wages

 

Click here for data in excel

Source: International Labour Organisation (ILO) and OECD calculations.

 

More generally, institutions shape the distributional effects of macroeconomic shocks. Some of the institutions that improve risk-sharing are also good for growth or jobs, thereby providing obvious directions for reforms. Examples are well-designed short-time working schemes, competitive product markets, low taxes on labour, and prudent fiscal policy. Others, such as high minimum wages or strict job protection, can come at a cost, and particular care is therefore needed in designing them.


The OECD analysis identifies two broad types of institutional set-ups for sharing income risk, namely “social protection” and “reallocation-facilitating” institutions. Social protection institutions include unemployment benefits, job protection, minimum wages and strong unions. Pro-competitive product market regulation and low tax wedges on labour are examples of institutions that help to share risk by enabling resources and workers to be reallocated more easily. Based on these two institutional set-ups, OECD and BRIICs countries are categorised into four broad groups:

(i) Countries that provide income risk sharing mainly via social protection institutions, such as most countries of continental Europe.
(ii) Countries that rely mainly on reallocation-facilitating institutions, such as English-speaking and Asian OECD countries.
(iii) Countries where neither class of institutions are developed, typically OECD and non-OECD emerging economies.
(iv) Countries that rely strongly on both types, mainly the Nordic countries.

 

A stylised classification of risk-sharing models across the OECD and the BRIICS

 

 

Click here for data in excel

Source: Ahrend, R., J. Arnold and C. Moeser (2011), “The Sharing of Macroeconomic Risk: Who Loses (and Gains) from Macroeconomic Shocks”, OECD Economics Department Working Papers, No. 877, OECD Publishing.

 

 

 

 

Countries list

  • Afghanistan
  • Albania
  • Algeria
  • Andorra
  • Angola
  • Anguilla
  • Antigua and Barbuda
  • Argentina
  • Armenia
  • Aruba
  • Australia
  • Austria
  • Azerbaijan
  • Bahamas
  • Bahrain
  • Bangladesh
  • Barbados
  • Belarus
  • Belgium
  • Belize
  • Benin
  • Bermuda
  • Bhutan
  • Bolivia
  • Bosnia and Herzegovina
  • Botswana
  • Brazil
  • Brunei Darussalam
  • Bulgaria
  • Burkina Faso
  • Burundi
  • Cambodia
  • Cameroon
  • Canada
  • Cape Verde
  • Cayman Islands
  • Central African Republic
  • Chad
  • Chile
  • China (People’s Republic of)
  • Chinese Taipei
  • Colombia
  • Comoros
  • Congo
  • Cook Islands
  • Costa Rica
  • Croatia
  • Cuba
  • Cyprus
  • Czech Republic
  • Côte d'Ivoire
  • Democratic People's Republic of Korea
  • Democratic Republic of the Congo
  • Denmark
  • Djibouti
  • Dominica
  • Dominican Republic
  • Ecuador
  • Egypt
  • El Salvador
  • Equatorial Guinea
  • Eritrea
  • Estonia
  • Ethiopia
  • European Union
  • Faeroe Islands
  • Fiji
  • Finland
  • Former Yugoslav Republic of Macedonia (FYROM)
  • France
  • French Guiana
  • Gabon
  • Gambia
  • Georgia
  • Germany
  • Ghana
  • Gibraltar
  • Greece
  • Greenland
  • Grenada
  • Guatemala
  • Guernsey
  • Guinea
  • Guinea-Bissau
  • Guyana
  • Haiti
  • Honduras
  • Hong Kong, China
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Iraq
  • Ireland
  • Islamic Republic of Iran
  • Isle of Man
  • Israel
  • Italy
  • Jamaica
  • Japan
  • Jersey
  • Jordan
  • Kazakhstan
  • Kenya
  • Kiribati
  • Korea
  • Kuwait
  • Kyrgyzstan
  • Lao People's Democratic Republic
  • Latvia
  • Lebanon
  • Lesotho
  • Liberia
  • Libya
  • Liechtenstein
  • Lithuania
  • Luxembourg
  • Macao (China)
  • Madagascar
  • Malawi
  • Malaysia
  • Maldives
  • Mali
  • Malta
  • Marshall Islands
  • Mauritania
  • Mauritius
  • Mayotte
  • Mexico
  • Micronesia (Federated States of)
  • Moldova
  • Monaco
  • Mongolia
  • Montenegro
  • Montserrat
  • Morocco
  • Mozambique
  • Myanmar
  • Namibia
  • Nauru
  • Nepal
  • Netherlands
  • Netherlands Antilles
  • New Zealand
  • Nicaragua
  • Niger
  • Nigeria
  • Niue
  • Norway
  • Oman
  • Pakistan
  • Palau
  • Palestinian Administered Areas
  • Panama
  • Papua New Guinea
  • Paraguay
  • Peru
  • Philippines
  • Poland
  • Portugal
  • Puerto Rico
  • Qatar
  • Romania
  • Russian Federation
  • Rwanda
  • Saint Helena
  • Saint Kitts and Nevis
  • Saint Lucia
  • Saint Vincent and the Grenadines
  • Samoa
  • San Marino
  • Sao Tome and Principe
  • Saudi Arabia
  • Senegal
  • Serbia
  • Serbia and Montenegro (pre-June 2006)
  • Seychelles
  • Sierra Leone
  • Singapore
  • Slovak Republic
  • Slovenia
  • Solomon Islands
  • Somalia
  • South Africa
  • South Sudan
  • Spain
  • Sri Lanka
  • Sudan
  • Suriname
  • Swaziland
  • Sweden
  • Switzerland
  • Syrian Arab Republic
  • Tajikistan
  • Tanzania
  • Thailand
  • Timor-Leste
  • Togo
  • Tokelau
  • Tonga
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • Turkmenistan
  • Turks and Caicos Islands
  • Tuvalu
  • Uganda
  • Ukraine
  • United Arab Emirates
  • United Kingdom
  • United States
  • United States Virgin Islands
  • Uruguay
  • Uzbekistan
  • Vanuatu
  • Venezuela
  • Vietnam
  • Virgin Islands (UK)
  • Wallis and Futuna Islands
  • Western Sahara
  • Yemen
  • Zambia
  • Zimbabwe
  • Topics list