Labour markets, human capital and inequality

Vulnerability of Social Institutions

 

 

Vulnerability of Social Institutions, Economics Policy Paper

Future generations will pay a high price if we fail to reform pension, health care and unemployment schemes. Social institutions will be tested in the coming years by ageing and slowing growth that threaten their sustainability and the adequacy of their deliveries, undermining the risk sharing that social institutions provide. In the face of these challenges, social institutions need to be reformed and adjusted regularly to adapt to trend changes and to shocks with-long lasting effects.

Background papers

Vulnerability of social institutions: Lessons from the recent crisis and historical episodes‌

by Falilou Fall, Mauro Pisu, Jon Pareliussen and Debbie Bloch

In countries hard hit by the crisis public outlays on health care declined considerably. Unemployment insurance expenditure increased during the crisis in most OECD countries. In some countries, spending rose considerably more than the number of unemployed, reflecting an extension or more generous benefits, while in others the increase was considerably smaller, pointing to adequacy problems of those unemployment insurance schemes.

Overcoming vulnerability of unemployment insurance schemes

by Jon Pareliussen

The recent crisis has led to soaring unemployment in many countries. Generous benefits, long duration and high coverage generate large spending spikes during a severe downturn and can create disincentives to work. On the other hand, stringent eligibility criteria or very short benefit duration can jeopardise the core functions of unemployment insurance as a tool for risk sharing and efficient reallocation of labour.

Overcoming vulnerabilities of health care systems

by Mauro Pisu

Health care spending could rise considerably in the future due to price and technology developments. Some policy reforms to contain the secular rise in health spending face sustainability-adequacy trade-offs, whereas others do not. For instance, high cost sharing can help curb public spending, but also worsen adequacy. Tax incentives for private health insurance enrolment are often regressive and ineffective in reducing spending.

 

Overcoming vulnerabilities of pension systems

by Falilou Fall and Debbie Bloch

To ensure adequacy in the future and avoid ageing costs unduly weighing on social budgets, widening the coverage of voluntary private pensions should be a prime objective in countries where they represent an important complement to (relatively low) public pensions.

 

Comparing the robustness of PAYG pension schemes

by Falilou Fall

This paper provides a framework for comparing a defined benefit (DB) and a defined contribution (DC) point schemes, which are both pay-as-you go (PAYG) financed. Two stylised PAYG pension schemes are modelled and simulated to compare their robustness to shocks. The same demographic developments (distribution of workers by age and revenue and distribution of survival rate by age) are applied to the two schemes. The impacts of different shocks (productivity, migration and longevity) on the two schemes are compared. Different policy reforms (increasing the contribution rate, diminishing the pension benefit, changing the up-rating and increasing the retirement age) to cope with the ageing shock are analysed and compared.

The recent crisis and its legacy of high government debt and weak growth prospects strengthen the necessity of adapting social institutions. Projections of future public health care and pension spending indicate that policies to address spending pressures are needed now to avoid a considerable tax hike or benefit cuts in the future. Indeed, the long-term consolidation needs due to the crisis and future spending pressures are large. The primary government balance would need to increase by more than 10 percentage points of GDP in fourteen countries to keep gross general government debt stable at 60% of GDP in 2060. The crisis has also revealed the weaknesses of social institutions in some countries. On average, youth poverty has soared during the crisis, and in hard hit countries, unmet medical needs have increased.

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