La era de la desigualdad (¿consecuencia directa del "imperialismo monetario"?) – Parte III (página 4)

Another critical risk factor for worsening health is constrained access to health care, particularly among the poorest. Economic downturns may result in lower rates of health care use if more people feel they cannot afford it -when private health insurance is tied to employment, for example. Moreover, in response to deteriorating public finances governments may cut health spending and, by the same token, their health care provisions (Vangool, 2014).

With household budgets under pressure, families have indeed reduced their use of routine health care services since the onset of the economic crisis, particularly in countries with high co-pay health insurance plans. For instance, in a survey in the United States, 27% of respondents stated that they had cut back on their use of health care services in 2009 (Lusardi et al., 2010). Similarly, across eleven OECD countries, 15% of respondents said that health costs had stopped them from visiting their doctor, filling prescriptions, and/or having a medical check-up at least once during the previous 12 months (Schoen et al., 2010). For Europe, recent data show that, in all countries, low-income families have above-average "unmet medical needs". And across OECD countries, the share of low-income individuals reporting a "good" or "very good" perceived health status is significantly lower at 61% than the 80% share among high earners. Such patterns highlight the significant risk of income losses translating into lower utilization of health care services and, subsequently, into poor health.

Lower or delayed utilization of preventive measures such as breast cancer screening also gives cause for concern as it may lead to additional health risks, greater care needs, and higher spending in the future. Catalano (2003) describes how, during periods of economic stress, the incidence of diagnoses of advanced disease appears to rise. A recent study also finds that a 1% increase in unemployment in the United States is associated with a 1.6% lower use of preventive care facilities (Tefft and Kageleiry, 2013). Poorer individuals, who typically have greater health care needs and are also more likely to cut spending may thus expose themselves to significant risk (Edwards, 2008; Schoen et al., 2011).

Generally speaking, there is overwhelming evidence that long spells of unemployment and joblessness are detrimental to both mental and physical health (OECD, 2008a; Sullivan and von Wachter, 2009). Recent studies of patterns in the prescribing of mental health drugs in the United States suggest that prescriptions rise during recessions (Bradford and Lastrapes, 2013). Even a relatively small rise in unemployment can lead to a substantial increase in the use of drugs. Kozman et al. (2012) report increases of 4% in prescriptions for statins and 3% in PDE inhibitors following a 1% rise in unemployment. In Sweden and Denmark, job loss was found to lead to a higher probability of hospitalization for alcohol related conditions, accidents, and mental health problems (Eliason and Storrie, 2009). There also appears to be a close link between the economic crisis and hospital attendance more broadly. For instance, in the United States, Curry and Tekin (2011) and Brooks-Gunn et al. (2013) report an increase in admissions for preventable conditions and the physical abuse of children.

Rise in pre-crisis fertility rates has stalled in several countries

The recovery in fertility rates observed in several OECD countries prior to the crisis now appears to have come to a halt. Up until the early 2000s, fertility in the OECD area dropped dramatically from 3.3 children per woman in the 1960s to 1.63 – significantly below the so-called "replacement level" of 2.1. The subsequent modest rise in total fertility rates (TFRs) to a country average of 1.75 in 2008 was an encouraging development. Since then, however, average TFRs have dropped back -to 1.70 in 2011- as lower and uncertain incomes may have prompted families to delay parenthood or have fewer children (Chapter 3 "Fertility"). Even tiny variations in fertility rates affect demographics, patterns of population ageing and, consequently, the sustainability of existing social and health provisions.

Fertility levels and past trends, however, vary hugely across countries, with many emerging economies currently seeing a "youth bulge" resulting in large and growing numbers of young people, while populations are ageing in high-income countries. Where populations decline, migration becomes more significant -both as a factor shaping the demographic composition of a country"s population, and as a possible mechanism for alleviating trends in populating ageing. The patterns of crisis exposure and poor economic conditions have altered the dynamics of migration across the OECD area. Australia, Norway, and Switzerland -all countries that were less affected by the crisis- did indeed see an increase in net migration. But migration outflows rose sharply in hard-hit countries such as Estonia, Greece, Spain, Ireland, Italy, Iceland and Portugal. Where young and skilled population groups leave in large numbers, countries face significant additional challenges and the prospect of a worsening demographic outlook and less favourable economic development (OECD, 2013i).

Other social impacts of the crisis are plausible but not always visible in available data

Changes in behaviour or attitudes are a consequence of the strategies that families adopt to cope with economic crises. For instance, although they share resources in all stages of the economic cycle, mutual support becomes vital when economies are weak. Through the support provided by other family members, those affected by job or financial losses thus enjoy greater economic security. However, providing this support places greater demands on family resources, with widespread unemployment or troubled pension investments, for example, prompting a rise in intergenerational support. This pattern is, for instance, documented by studies showing large numbers of unemployed youth returning to the parental home or not moving out in the first place (Morgan et al., 2011 report such a pattern for the United States).

Although the greater need for support may strengthen family ties, economic stress and more acute work-life conflicts can also lead to family breakdown and higher divorce rates. Recent data point to an increase in perceived work-life conflicts (OECD, 2013d) and work pressures resulting from job insecurity and unsocial working hours (McGinnity and Russell, 2013). The net effect of such factors on family bonds and family structure is not clear, however, and may be small.

Greater economic hardship and dissatisfaction affect not only family ties but also relationships with and attitudes to fellow citizens and social, economic and political institutions. Such changes in outlook may, in turn, drive patterns of civic engagement and collective action for political reform and societal progress. Conversely, indicators of the degree of acceptance of minorities -e.g. immigrants or individuals with a particular sexual orientation- point to significant drops in tolerance in some countries where the crisis has bitten hard. Greece is a notable example. Currently, however, there is little evidence of a systematic link between intolerance and the economic crisis, which suggests that economic factors are neither the sole nor primary drivers of observed change. Indicators of solidarity, such as charitable donations or voluntary work, also show a significant drop in Greece, while they have risen significantly in other hard-hit countries.

However, the link between economic difficulties and people"s mistrust of national governments appears to be more clear-cut. Such trust declined in most OECD countries from 2007 to 2012, with the largest drops coming in Greece, Ireland, Portugal, and Slovenia. However, young people in Spain and Portugal tended to trust their governments more than their adult counterparts, and their confidence also declined less. There has been a much sharper fall in trust in financial institutions across virtually all OECD countries.

Where the crisis has bitten, life satisfaction is now lower than in 2007

Societal well-being is a difficult concept to measure and compare on any one- dimensional scale, be it a traditional metric like GDP or a subjective measure like happiness. As a "satisfactory empirical approximation (of individual utility)" (a phrase used by Frey and Stutzer, 2002), subjective well-being is, however, of considerable interest when assessing the social impact of policy reforms or economic "events" such as the Great Recession.

There have been a number of recent reports of the crisis leading to greater dissatisfaction with life. Some of the most alarming potential symptoms of such a trend relate to rises in suicide rates. A closer look at cross-country data confirms that suicide rates climbed slightly at the onset of crisis in countries such as Ireland, but recent data suggest that the trend has not persisted. Although there was a rise in the number of suicides reported in Greece in 2011 (Liaropoulos, 2012; Karanikolos et al., 2013), the rate stood at one-fourth of the OECD average. Overall suicide rates in the country were stable in 2009 and 2010 despite worsening economic conditions and the changes since then -a rise in 2011 and a drop in 2012- do not point to any clear trend. Similarly, for the OECD area as a whole, the severe economic crisis does not so far appear to have led to a sharp change in suicide rates.

However, as argued above, the major health-related and societal problems that a deep economic crisis may trigger are unlikely to materialize immediately. For instance, research shows that there is a reasonably strong longer-term association between life dissatisfaction and higher risks of suicide (Koivumaa et al., 2001). Waning life satisfaction could thus be seen as a leading indicator that points to serious health or societal problems developing at a later date.

Across the OECD area, average reported life satisfaction in 2012 was only slightly lower than in 2007. But related data for Europe show that reported well-being declined substantially among groups suffering the biggest deterioration in incomes and labour-market prospects (Eurofound, 2013). There were also sizable fluctuations in the intervening years. In 2008 and 2009, contentedness fell significantly as the scale of the crisis became clear. Then, in 2010, most countries emerged from recession. Life satisfaction climbed before dropping once again in 2011 and 2012 when fiscal problems mounted and recovery turned out to be weaker than hoped. Life satisfaction deteriorated most in Southern Europe (Greece, Italy, Portugal, and Spain), while it improved in countries where the economic impact of the crisis was either less acute or shorter (e.g. Chile, Mexico and, to a lesser extent, Nordic and some Eastern European countries). In the vast majority of OECD countries, however, expectations as to future life satisfaction fell (OECD, 2013d).

Emerging economies were less affected by the crisis, but still face major social challenges

The major emerging economies have made very significant progress towards reducing absolute poverty. Although high inequality and the comparatively low capacity of their social protection systems remain considerable challenges, the economic and social impact of the global downturn was less than in most of the OECD area. The context in which it took place was also significantly different in emerging economies.

Thanks to long periods of strong economic growth, emerging economies have reduced extreme poverty. However, their experience of earlier recessions underscores the need to develop sustainable, "crisis-proof" social protection systems. Inequality and poverty continue to be daunting policy challenges in emerging economies. Yet their social budgets are smaller than in the OECD area, which leaves many workers and households exposed to economic shocks. The fiscal outlook, while generally much better than in advanced countries, has also become less favourable, due, in part, to higher interest rates and weaker growth prospects (IMF, 2013). In effect, then, OECD and emerging economies must both rise to the challenges of securing adequate resources for their social policies and, where necessary, of "doing more with less"…

Symptoms of a social crisis – and the right policy responses

In summary, the evidence considered in this first section of the chapter suggests that the financial upheaval of 2007-08 led not only to an economic and fiscal crisis in many countries, but to social crises, too. Figure 1.8 presents selected outcome measures for which a "crisis link" is already clearly visible. Life satisfaction has declined much more steeply in countries where household incomes have fallen most (Figure 1.8, Panel A).

The same is true for fertility rates (Panel D). Crisis-related effects on other outcomes, including health, take longer to materialize. The indicators presented in Chapters 3 to 7 provide a fuller picture of the social situation across the OECD and how it has changed since the crisis began.

The precise patterns differ from one indicator to another and the associations shown in Figure 1.8 are not prove of a causal relationships (for instance a third factor, such as unemployment, is plausibly causing the drops in both household incomes and life satisfaction). But whatever the mechanism behind them, the patterns underline that social outcomes have tended to deteriorate more in countries where households were particularly exposed to economic hardship during the downturn.

In addition to crisis exposure, the policy responses matter as well. Fiscal pressures make it more difficult to provide adequate public support in countries where it is most urgently needed. The social and political burden of fiscal pressures is highlighted by the fact that the countries which made the greatest efforts to limit increases in social spending (the "low spending growth" countries in Figure 1.8) or reduce fiscal deficits (the "high recent effort" countries) did so against a background of declining incomes among the poor and increasing unemployment (Figure 1.8, Panels B and C). Importantly, the extent of economic hardship and the deterioration in broad life-satisfaction measures are also more sizable in countries with the greatest future fiscal consolidation needs ("high future effort" countries in Figure 1.8, Panels A, B, and C). Efforts to reduce public debt will therefore continue to come up against the tough task of implementing reform programmes that address immediate social concerns and priorities now, while remaining fiscally, socially and politically sustainable in the future.

2. Social policy responses to date

The nature of problems that households faced in the wake of the Great Recession did not come as a surprise. However, the scale of the resulting social policy challenges and the constraints of the ensuing fiscal crisis were only partially anticipated at the outset. As a result, governments" responses to the crisis have continued to evolve, as has their general policy stance. Initially, they increased social spending and put in place large fiscal stimulus packages that included greater resources for social measures. But the large fiscal imbalances that governments now face restrict the available policy options (Cournède et al., 2013). Although many European countries and the United States have recently narrowed budget shortfalls significantly, large government debts will see fiscal pressures persisting well into the rest of the decade and often beyond. Social spending, which remains part of most fiscal consolidation plans, looks set to come under further pressure – with potentially serious consequences for the capacity of social policy to provide crucial support.

This section first discusses recent trends in social spending and in the number of people who rely on social support measures. It then assesses countries" fiscal consolidation efforts, the role social policies play in those efforts, and how the availability and quality of support are affected.

Social spending increased most in countries least affected by the crisis

The global economic crisis has led to a sustained increase in social spending both as a share of GDP and in real terms. On average across the OECD, the ratio of public social spending to GDP rose from around 19% in 2007 to 22% in 2009-10 and has remained at that elevated level (see Figure 1.9). The sharp decline in GDP in some countries accounts in part for the rising spending/GDP ratios. However, with the exception of Greece and Hungary, social spending has also burgeoned in real terms (Figure 1.10).

Strikingly, the biggest increases in expenditure between 2007/08 and 2012-13 came in countries with relatively strong GDP growth and greater spending power and not in those where deep downturns produced the greatest need for support (Figure 1.10). Some countries with significant GDP drops did, however, respond to deep or long-lasting downturns with substantial hikes in social spending (e.g. Estonia, Finland, Ireland, and

Spain). There were others, though, like Italy and Portugal, where increases were only slight over the whole period. Real public social spending was substantially lower than before the crisis in Greece and Hungary, where it was down 17% and 11% respectively. The cuts made by the two countries illustrate the difficulties of maintaining a counter-cyclical policy stance in a severe downturn.

Transfers to working-age individuals driving upward trends in social expenditure

Benefits typically paid to working-age people and their families make up only one-fifth of total public social spending. Yet they account for close to one-third of increases in expenditure since the onset of the crisis. Over the previous two decades, almost all OECD countries reduced transfers to working-age individuals and children -from 27% in 1985 to 21% in 2005 (Immervoll and Richardson, 2011). The Great Recession brought this downward trend to an abrupt end, as unemployment benefits, general social assistance, disability benefits, and cash family benefits increased (see Figure 1.11). On average across the OECD, spending on these "working-age transfers" has risen by some 17% in real terms. Much of the increase in social spending early in the downturn was prompted by the rise in out-of-work benefits, especially unemployment insurance, which act as a first line of defense against income drops for job losers. Several countries also boosted spending on "partial" unemployment benefits or "short-term working schemes" (Hijzen and Venn, 2011). Such programmes, which provide income support for those affected by temporary cuts in working hours and earnings, can reduce or slow initial job losses and spread the economic burden of a temporary downturn more evenly across income groups (Bargain et al., 2011; Hijzen and Martin, 2012).

As the crisis progressed, however, expenditure on lower-tier assistance benefits (safety-nets for those who are not, or no longer, entitled to insurance benefits) started rising, too, especially in countries with persistently high unemployment and short duration unemployment insurance benefits. On average across the OECD, unemployment compensation increased by about 80% in real terms (from an average of 0.7% of GDP in 2007 to 1.1% in 2009).With increases of more than 200%, spending rose most steeply in Estonia, Iceland, and the United States and doubled in Turkey, Ireland, Japan, the United Kingdom, and New Zealand.

Spending increases were driven more by rising numbers of beneficiaries than by higher entitlements per recipient. Although support for the unemployed tended to become less generous in the years prior to the crisis (Immervoll and Richardson, 2013), there was very little change OECD-wide in the overall generosity of jobless benefits between 2007 and 2011. Figure 1.12 shows the net replacement rate (NRR) -the ratio of income received when not in work to that received in work- for a single individual over a long spell of unemployment. NRR changed by less than 5% over a five-year period in around half of all OECD countries and by less than 10% in some others.

Individual countries did, however, introduce sizeable reforms. Among countries showing declining NRR, the drops were largely due to an erosion of benefit levels relative to wage growth, and not to explicit cuts in nominal benefit levels (countries such as Germany, Australia, and New Zealand). However, both Norway (prior to the crisis) and Denmark (from 2010) shortened benefit durations, thereby reducing NRRs for people with long unemployment spells. Longer benefit durations increased NRRs for the long-term unemployed in a few countries – the United States, Greece, Canada, and Italy. In the United States, the very large increases were driven by temporary benefit extensions from the standard 26 weeks to 99 weeks. Although the changes in the United States stemmed largely from new legislation, they also reflected automatic extensions that are triggered once state unemployment exceeds or drops below a certain threshold. Canada also operates a system of automatic benefit duration adjustments that depend on provincial unemployment rates.

People not eligible for unemployment benefits may be entitled to receive minimum-income benefits as a follow-up. However, the value of minimum-income benefits generally remained significantly below commonly used relative poverty thresholds across the OECD. Those exhausting unemployment benefits before they find work therefore risk suffering extended periods of income poverty.

In countries where family support is largely income-tested, public spending on family cash benefits increased as incomes started to fall. In the early years of the crisis (2007-09), average spending on family benefits across OECD countries rose by 0.3 percentage points of GDP -an increase of 10% in real terms. The biggest rises were seen in Korea (50%), Greece (30%), Ireland and Portugal (20%), and in the United Kingdom (10%). Family support is also likely to have gone up in countries where it is delivered as tax credits (although such data are not available for all countries on a comparable basis). In the United Kingdom, for example, Child and Working Tax Credits helped to cushion the effect of the crisis on poor families. Higher numbers of low-income families led not only to more claimants, but also to more receiving the maximum benefit, although policy changes in 2012 reduced the number of recipients (OECD, 2014b; HM Revenue and Customs, 2013).

In sharp contrast with previous recessions, receipt of neither old-age pensions nor disability benefits receipt has increased significantly (Figure 1.13). In previous downturns, early retirement and disability programmes were frequently used to ease pressures in the labour market. Since those who join such schemes do not typically re-enter the labour market during a recovery, the practice led to large, practically irreversible increases in social expenditures. In the current crisis, there has not been a massive inflow of unemployed people into early retirement or disability benefit programmes. Instead, recent changes in receipt of these transfers have continued to be driven primarily by demographic factors. In the case of disability programmes, structural reforms -designed to strengthen gate-keeping, the assessment of health conditions, and incentives to return to work -appear to have made them more resilient to changes in the economic cycle (some relevant reforms are highlighted below).

Pension spending tends to be much less sensitive to the business cycle once countries close access to early retirement, which many have done.

But social policies are now at the core of fiscal consolidation

Reduced fiscal space risks compromising continued provision of social support Fiscal space has been shrinking in most OECD countries, putting more pressure on social spending as governments reduce budget deficits. In 2009 and 2010, the net lending positions of OECD governments slid from their 2007 heights. OECD projections for 2013 and 2014 do not foresee them returning to balance in the near future -with the exception of countries which ran surpluses prior to the crisis, such as the Nordic countries, Australia, and Germany. Structural deficits which existed before 2008 have widened since and will not disappear without consolidation efforts and a return to growth. Planned consolidation is often more far-reaching precisely in countries that where social expenditures have increased as a share of GDP (Figure 1.14, Panel A).

Scrutiny of projected consolidation efforts suggests that pressures to address budget shortfalls are greatest in countries that have experienced the steepest rises in unemployment (Figure 1.14, Panel B). Such is the outlook for a number of Eurozone countries, although a similar picture also emerges for other OECD countries, albeit to a lesser extent. When unemployment rises fast, governments" fiscal problems are heightened both by increasing expenditures and by contracting revenues. The pattern documented in Panel B of Figure 1.14 is therefore not surprising. But it underlines concerns about the ability of governments to effectively address rising social needs and about the timing and substance of consolidation efforts on the tax and the spending sides. In many countries, consolidation pressures will persist well beyond the next two years, with significant pressures for further consolidation over the next 10 to 15 years (OECD, 2013k; IMF, 2012b).

Figure 1.15 shows one possible measure of expected future consolidation pressures. The United States and a number of countries in Europe have already implemented or announced policies that are expected to reduce budget shortfalls very significantly relative to their 2010 levels (light grey bars). Most, however, will need to reduce deficits further and maintain this tighter fiscal stance through to 2030 if they are to put government debt on the downward path to a 60% of GDP target (dark blue bars).

Importantly, however, these projections do not account for the expected increases in government spending on health and pensions due to ageing and other factors. If estimates of these additional outlays are factored into projected expenditure, the prospect of achieving the putative 60% target becomes significantly more remote: as the arrows in Figure 1.15 illustrate, significant fiscal pressures will remain in the medium term, even in countries that would otherwise have a more positive fiscal outlook. The inference is that pro-cyclical consolidation efforts during recessions or low-growth periods are no substitute for longer-term, structural measures that put government finances on a sustainable footing.

Social transfers have been the main target of consolidation measures

Of all areas of public spending areas, social transfers have been the focus of by far the greatest number of consolidation measures since 2011. Country responses to OECD policy questionnaires reveal that the category most frequently selected for savings was

"working-age transfers" (unemployment, social assistance, disability and family benefits), followed by health care and old-age pensions (Figure 1.16). In addition, many consolidation plans include unspecified savings – in other words, no details are given on savings that take the form of general spending cuts across departments. Although such unspecified measures may involve sizeable cutbacks (e.g. EUR 3 billion between 2011 and 2014 in Ireland) and affect social policy areas, they are not included in the breakdown in Figure 1.16.

More than two-thirds of OECD countries reported plans to reduce spending on "working-age transfers" in 2012. Greece planned to reduce them by 1.9% of GDP (through cuts in social security funds and social spending). This is the largest reduction in the OECD area. Under the same heading, Ireland, Hungary, Poland, Germany and the United Kingdom planned spending cuts totaling more than 1% of GDP. The United Kingdom revised and increased its planned expenditure reductions from 0.4% of GDP in 2011 to 1.1% in 2012 through cuts in child and disability benefits. France, Iceland, and the Netherlands planned to make savings on working-age transfers that accounted for more than 0.6% of GDP.

Health care was the second most frequently targeted area for fiscal savings, with some

50% of countries reporting planned reductions. Health was a major focus of consolidation efforts in the countries with IMF/EU Economic Adjustment Programmes: Greece, Ireland and Portugal. Ireland and Portugal expect to reduce health expenditure by as much as 1% of GDP. Belgium, too, raised its savings target in health care to 1% of GDP and Spain to 0.7%.

Countries use different approaches to achieve savings

Working-age benefits so far the main focus of expenditure reductions. Recent savings measures to reduce expenditures on income support for working-age people and their families have focused mainly on unemployment insurance programmes and on family and child benefits. Until now, there have been no major changes to lower-tier assistance

programmes that secure minimum living standards. Some countries have however introduced several smaller changes that, in combination, made safety-net benefits considerably less accessible or generous.

? Some temporary measures to extend the duration or coverage of unemployment insurance programmes are being phased out. Some countries, e.g. Greece, have not renewed temporary unemployment benefit measures taken in 2009-10, while others are now reversing planned extensions of benefit durations (e.g. Spain). In the United States, several states have begun cutting benefit durations, sometimes significantly, even as federal extensions have remained in place until the end of 2013. However, because federal extensions are conditional on state benefit rules, they were also affected by the cuts. Some other countries have reduced the maximum duration of insurance programmes (Denmark, Hungary, Portugal) or tightened eligibility conditions (Czech Republic, Spain) in order to strengthen job-seeking incentives or contribute to fiscal consolidation. However, Portugal has recently eased eligibility requirements, making benefits available to those with shorter employment histories, and has introduced a bonus payment for families where both parents receive benefits.

? In parallel, unemployment assistance programmes for those not, or no longer, entitled to insurance benefits have been bolstered in some countries. Portugal increased benefit durations and payments, before reversing the measures in 2010. Greece more than doubled the income limits that determine eligibility to unemployment assistance. But eligibility remained restricted to those aged 45 or older, coverage among the long-term unemployed remains very low as a result, and the real value of benefits has declined as nominal amounts have remained unchanged for the past ten years (Matsaganis, 2013). From 2014, the government plans to extend eligibility to all low-income long-term unemployed, irrespective of age. Finland raised its basic allowance, while Austria has improved benefits for the unemployed who attend training programmes. In the Netherlands, a temporary assistance benefit for older unemployed people was introduced in 2010 (and is to expire in 2016). France extended a similar type of programme earlier on during the crisis. There are only a few instances of assistance benefits being cut: Hungary abolished unemployment assistance, tightened access to social assistance, and reduced the duration of unemployment insurance; Portugal introduced stricter means testing; and Germany abolished a transitional payment for those moving from insurance to assistance benefits (though the measure was not crisis-related).

? Some countries have pursued structural reforms of disability benefits by introducing stronger gate-keeping mechanisms, time-limiting benefits, or reassessing the eligibility of existing recipients. Reforms aim to avert the risk of the long-term unemployed drifting into disability benefit schemes and contribute to curbing long-term expenditure. Such policies have been introduced in Sweden, the Netherlands, Switzerland, and the United Kingdom -all countries that have generally been able to put disability benefit claims on a declining trend. By contrast, other countries that have experienced steep rises in unemployment but failed to reform disability benefit now face mounting beneficiary rates- in Estonia and the United States they have risen by over 10% (OECD, 2014b). However, without appropriate employment support, comprehensive reassessments of health entitlements and tighter eligibility criteria can also increase poverty as vulnerable people are excluded from income transfers altogether.

? Some countries bolstered lower-tier social safety-net programmes, such as minimum income schemes, prior to the crisis. In comparison with unemployment benefits, minimum-income benefit reforms were fewer and less far-reaching. Measures to strengthen benefit provisions included reforms in the Czech Republic, Estonia, Finland, France, Poland and the United States (although increased allotments under the Supplemental Nutrition Assistance Program (SNAP) are to be widely reversed in late 2013). Korea is to provide a wider range of separate social assistance transfers from 2014, which is expected to increase the number of people receiving support while reducing some benefits. Italy has announced plans for a new minimum-income programme, while Greece is to introduce a minimum-income benefit on a pilot basis and intends to introduce means-tested housing assistance. However, some countries have reduced the generosity of benefits or made them subject to more stringent job-search requirements with the stated objective of raising the incentive to work. Two examples are New Zealand and the United Kingdom. In other countries, the main motivation was, arguably, to reduce spending. In Hungary and Portugal, measures to reduce benefits and make them less easily accessible were followed by substantial drops in recipient numbers despite high rates of long-term unemployment. In Portugal, for instance, the number of families receiving the Social Integration Income fell by some 30% between early 2010 and July 2013 (SPC, 2013; Farinha Rodrigues, 2013).

? Savings measures have included child or family-related benefits since 2010. Before 2010, several countries increased such benefits (which included tax allowances) on a temporary basis after having extended them in pre-crisis years. In Germany, Italy and Hungary, one-off benefits were paid to families in need, while France has reduced income taxes for low-income families (France also recently passed a law that will raise them for better-off families with children from 2014). Since 2010, consolidation measures have frequently included lower benefits for children or for childcare. However, such moves constitute a mixed bag and include both cuts and new entitlements, as in the United Kingdom, for example. A number of countries have simply frozen benefits and/or tightened eligibility conditions (e.g. Australia, Greece, Hungary, the Netherlands and the United Kingdom), while others, like the Czech Republic and Estonia, have capped or cut birth-related benefits or reduced the generosity of their parental leave policies. While less visible than explicit benefit reductions, "freezing" benefit payments by delaying, suspending, or reducing regular adjustments in line with consumer prices or earnings can yield significant savings over time. However, such moves typically erode the incomes of families, particularly of those with children (Whiteford, 2013; Joyce and Levell, 2011; OECD, 2007; Immervoll and Richardson, 2011).

Resources for active labour market policies and services have not kept up with rising demand. With an OECD average of around 1% of general government spending, active labour-market polices account for a much smaller share of public expenditures than cash benefits. But while spending on income support for the unemployed is strongly countercyclical, expenditure on active labour market policies (ALMP) tends to expand only modestly during downturns, with the notable exception of the Nordic countries. During the recent economic downturn, total spending did increase more than in previous ones. Nevertheless, averaged across OECD countries, ALMP spending per unemployed person declined by some 20% (OECD, 2012). When dwindling resources have to contend with greater demands on employment services and other ALMPs it becomes more difficult to serve job seekers effectively. Lower resources per unemployed person are a concern during high-unemployment periods when jobseekers struggle to find work on their own and the demand for job-seeking assistance and labour market programmes increases.

Pre-crisis reform plans for old-age pensions brought forward. While pension payments were sometimes included in stimulus packages in the early phase of the crisis, they are now targets of fiscal consolidation. A number of countries -e.g. Austria, Greece, the United Kingdom, and the United States- initially introduced one-off payments for retirees and these sometimes came on top of more targeted safety-net measures. New means-tested safety-net benefits for the elderly were introduced in Chile, Finland, Greece and Mexico. Australia and Spain have enhanced existing safety-net provisions for some or all low-income elderly. Iceland allowed early access to pension savings in order to support domestic demand.

In parallel, however, reforms also continued to address the structural weaknesses of pension provisions that became increasingly evident as GDP declined. More recently, pension reforms have focused either on immediately lowering public expenditure on retirement benefits or on restoring the long-term financial sustainability of pension systems by lengthening contribution periods. Measures that bring savings quickly include across-the board benefit cuts, such as the abolition of the 13th and 14th monthly instalments in Greece, pension freezes, as in Austria, Greece, Italy, Portugal and Slovenia, or less generous indexation, as in the Czech Republic, Hungary and Norway. However, some countries, such as Australia, Finland and the United States, have altered the standard indexation mechanism to prevent benefit levels from dropping. Large benefit reductions were sometimes designed to protect smaller pension payments. For instance, successive reduction in Greece in 2010, 2011 and 2012 exempted pensions below EUR 1 200.

Many countries have sought to reduce costs and improve economic efficiency by raising retirement ages and by tightening early retirement conditions (e.g. Italy). Others, however, partially reversed earlier reforms. By early 2014, discussions were underway in Germany to lower retirement ages for specific groups, such as those with long employment histories. Several countries have partially or entirely diverted mandatory contributions to second-pillar private pension plans into public schemes (Estonia, Hungary, Poland and the Slovak Republic). Some of these reversals were introduced on a temporary basis (e.g. Estonia) while others are permanent (Hungary, Poland). Some involve a complete retreat from compulsory private pensions (Hungary) and others a partial change of the system (the Slovak Republic, Poland).

After long, rapid growth, health care spending at standstill since 2008. Unlike spending on social transfers, the rise in health expenditure had already come to a halt in 2008 across the OECD after long periods of rapid growth. In the fifteen years prior to the crisis, public and private health spending grew three times as fast as GDP. Between 2009 and 2011, it remained unchanged in real terms and it fell as a share of GDP on average. In a number of European countries, health care expenditure fell drastically, with Greece at 11% and Ireland at 7% making the greatest reductions. Other hard-hit countries -such as Iceland, Portugal, and Spain- also made cuts. Only Israel and Japan have accelerated their health care spending.

Some three-quarters of health care spending in the OECD is publicly funded, and much of the overall drop can be attributed to falling government expenditure, or to substantially slower expenditure growth. In the immediate aftermath of the economic slowdown, public spending on health was largely stationary -even in some of the worst-hit countries. From 2010, however, cuts became significantly more widespread. Countries that cut expenditures (like Ireland, Iceland, Estonia, and Greece), or where the growth in spending slowed significantly, reversed pre-crisis trends across all the main health care spending categories -in-patient, out-patient and pharmaceuticals.

Cost saving in health care is a daunting challenge because, if doing so compromises health outcomes, it will trigger even higher health care costs in the future (OECD, 2010b). Nevertheless, a few countries reformed their health care systems precisely to make short-term savings.

In the aftermath of the crisis years, countries made substantial changes to their health policies -even if it is not always easy to distinguish between measures taken in response to the crisis and previously planned structural reforms to contain health care costs. Policy responses varied across countries, but some general patterns can be identified (Vangool, 2014). Denmark, Germany, Poland, the Slovak Republic, and Switzerland had already planned to curb their public health care provision before the crisis. When it bit, however, they took swift, intensive action to implement their reforms. Countries like Australia, which have avoided deep recession, also introduced measures to make health care-related cost savings.

To achieve savings, countries have sought either to reduce the cost of health care services and products or to limit coverage. Many have restricted coverage by requiring income tests so that lower socio-economic groups retain their entitlements and the wealthy face higher costs. The Czech Republic and Spain, however, have curbed public health entitlements for undocumented foreign nationals. Many more countries (Australia, Austria, Belgium, France, Denmark, Estonia, Iceland, Ireland, Portugal) moved to require larger out-of-pocket payments. This affects low-income households although exemptions and caps can ease the impact on vulnerable groups; Portugal and Spain are among the countries that have taken action to that end.

Reducing the cost of public health care provision often involves cutting the wages of health care professionals or renegotiating pharmaceutical prices. A short-term focus on bringing down the prices of health care provision can help to maintain levels of service provision in the short run. But it can be contentious, nonetheless. For instance, in the longer run, wage-cutting policies may drive people out of the health care profession so creating staff shortages and compromising quality of service in the future.

Many OECD countries have undertaken more structural reforms to improve the efficiency of the health care sector, changing payment mechanisms, merging key institutions, and rethinking purchasing arrangements. Major structural reforms -such as the provisions of the US Affordable Care Act which first came into force in 2013- are however often not directly related to the crisis or to short-term fiscal objectives. And even when they are, they are likely to require lead-in times before they have the desired effect and pay dividends of improved long-term efficiency, productivity, and coverage.

Countries such as Greece and the Czech Republic are implementing output-based hospital funding mechanisms that have been shown to increase productivity in other countries. Stronger competition in areas such as community pharmacies may also provide greater responsiveness to consumers" needs and reduce prices.

Current fiscal measures have implications for wellbeing and social cohesion now and in years to come

Fiscal consolidation hampers progress in reducing inequality and poverty. Before the recession, fiscal policies, through taxes and social benefits, have played a significant role in reducing poverty and inequality in OECD countries. Previous work has shown that the redistributive effect of government expenditures and taxes acted as a significant "break" to the trend increases in inequality and poverty among the working-age population over recent decades (OECD, 2008b; Immervoll and Richardson, 2011). In the mid-2000s, taxes and transfers together reduced poverty by about 60% on average in the OECD (about 80% in Sweden and France, and 40% in the United States and Japan).

In most countries, social transfers contribute twice as much to inequality reduction as taxes do. However, since the mid-1990s, transfers in half of the OECD countries have in fact become less redistributive, largely as a result of falling benefit coverage among the working-age population. This has added to the long-term trend of rising inequality that was already apparent before the crisis (Immervoll and Richardson, 2011).

The patterns and mechanisms of redistribution discussed above prompt two important observations in a context of constrained social budgets:

1. It is very difficult to cut social spending -particularly transfers- without increasing inequality. A simple simulation, for example, reveals that cutting benefits in the same proportions across all income groups would widen income inequality significantly, while tax-based consolidation (a proportionate tax increase across all income groups) had the opposite effect (Rawdanowicz et al., 2013).

2. There is scope for strengthening existing targeting mechanisms -e.g. by ensuring that low-income jobseekers do not go without any support. Improving coverage of the neediest families should be a priority at a time when market incomes remain depressed and government support measures are being reviewed and often rolled back. Countries with strongly redistributive taxes and transfers contained income losses in the early phases of the crisis as they were better equipped to provide automatic income stabilization. As shown in Figure 1.17, the poorest 10% of households lost considerably more income in countries where automatic income stabilizers were weak. In these countries, tax reductions and higher benefits provide less income cushioning for those becoming unemployed or losing earnings. In some hard-hit countries with particularly large drops in disposable incomes of the poorest it is likely that automatic stabilizers were not operating at their full capacity (e.g. in Greece or Spain). Fiscal pressures may have led to cuts in income support through discretionary measures. Likewise, some of the groups with particularly high unemployment risks in these countries (e.g. young people or those losing their jobs after working on a non-standard employment contract) were not entitled to full income support and therefore did not benefit from any automatic stabilizers that provided support for other, less affected groups.

Pre-crisis trends in redistribution policies and income disparities can either moderate or reinforce the effects of fiscal consolidation (Immervoll et al., 2011; Jenkins et al., 2012).

Where the redistributive capacity of tax and benefit policies had already weakened before the crisis (OECD, 2011), further consolidation measures may put income adequacy at risk.

Similarly, in countries where most transfers are already mainly received by low-income groups, cuts in transfer spending are much more likely to widen income inequalities. Figure 1.18 shows that transfers received by lower-income groups (the "poorest 30%") were close to double the average benefit payment in Australia, New Zealand and Denmark, and about 1.5 times the average in the United Kingdom, Switzerland, Sweden and the Netherlands. In these countries, reducing benefit spending without hurting low-income groups is more difficult than in countries providing significant income support across the income spectrum.

However, several countries that face particularly strong fiscal pressures in fact appear to spend more on transfers to well-off families (the "top 30 %") than to low-income ones.

This pattern -which is one factor behind structural fiscal deficits-, is particularly striking in Italy, Greece, Portugal, Spain, and, to a lesser extent, in France. In these countries, there is scope for lowering transfer spending without weakening redistribution and for shifting additional resources towards support for the poorest families.

An additional factor should be considered when weighing the benefits and costs of reduced social spending. Structural reforms in recent years have made social protection

programmes significantly more employment-friendly. Examples are the introduction of measures to "make work pay" or to help reconcile work and family life. Insofar as countries have successfully reformed social protection in ways that encourage rather than hinder employment, cuts in social spending can now be expected to have a more adverse effect on poverty, inequality, and growth than in the past.

Who loses most from fiscal austerity measures? Across all countries, rolling back inequality-reducing policy measures is bound to magnify income disparities in the short term. (By the same token, fiscal consolidation measures on the expenditure side also restrict room for man oeuvre in tackling the well documented medium-term trends towards rising inequality across OECD countries.) The opposite holds true of increasing progressive taxes. This is simply a "mechanical" consequence of the distributional profiles of taxes and transfers and establishing it does not require sophisticated analyses of historical data.

The precise economic consequences of fiscal consolidation measures are however the subject of an on-going, and still evolving, debate. In part, the controversy comes from the use of different outcome measures. A primary concern is the severe and immediate income difficulties that the crisis has brought onto families and most studies have therefore focused the attention on the short-run effects of fiscal consolidation. But the full consequences of consolidation measures typically show up only after a number of

Years -the cumulative impact of consolidation on income inequality, for example, has been found to peak only after five to six years and fades by the tenth year (IMF, 2012a).

A second reason for the on-going debate is that some studies are interested in the impact on inequality, while others are mainly concerned with growth. From a social policy point of view, both dimensions are important, as tackling poverty and inequality is fraught with difficulty when the economy contracts or growth is weak. Indeed, stronger economic growth is a requirement for financing redistribution measures, reducing unemployment, and strengthening incomes at the bottom of the distribution.

On balance, the main lessons from recent authoritative studies based on data from earlier economic cycles point to four main conclusions:

1. In the medium term, fiscal consolidation appears to damage growth -a finding that applies particularly firmly to consolidation programmes enacted during downturns or fragile recoveries, and when consolidation efforts get underway simultaneously across several countries.

2. Spending cuts appear less damaging (or more beneficial) to medium-term GDP growth than tax-based consolidation. However, there is lingering uncertainty over such findings, as the measured effect may actually be due to other policies that are undertaken at the same time (such as monetary easing).

3. Any GDP losses resulting from fiscal consolidation are not shared equally. Labour incomes appear to fall substantially more strongly than profits or rents, and losses suffered by workers also persist for longer.

4. In line with the "mechanical" effect of fiscal savings measures, analyses of past consolidation programmes tend to find that spending cuts increase inequality more than tax increases (Woo et al., 2013). Tax increases" effects on inequality in particular depend on the type of tax increased -whether it is direct or indirect, for example.

The consequences of fiscal adjustment for household income therefore depend not only on the extent of fiscal measures but, crucially, on their design and timing. Simulations based on household data can provide deeper insights into the distribution of consolidation burdens across different income groups. While the backward-looking studies mentioned above paint a useful "big picture", micro-simulation studies are valuable for the way they identify the effects of very specific policy measures -they can, for example, go beyond the very crude distinction between spending-related and tax-based consolidation measures.

Avram et al. (2013) use the simulation approach to estimate the impact of actual fiscal packages in Estonia, Greece, Italy, Portugal, Spain, and the United Kingdom. Although it is difficult to account in a realistic way for possible consolidation-induced changes in labour market behaviour, the study gives a sense of the most relevant distributional mechanics of recently enacted reforms and of their immediate impact on household incomes. Results confirm that the distribution of adjustment costs between income groups depends heavily on the details of fiscal packages and on population characteristics. As might be expected, spending cuts made between 2010 and 2012 typically weigh more heavily on the bottom income groups, while tax increases have mostly affected higher-earning families.

Overall, the early consolidation measures analyzed by that study seem to have been borne mainly by upper-income groups -largely because most means-tested benefits were protected from early cuts, while progressive taxes were increased. There are, however, wide differences between countries, and accounting for significant increases in typically regressive indirect taxes could change the overall conclusion (European Commission, 2013a). Also, consolidation efforts that came into effect after the study"s 2012 cut-off would change the combined effect of consolidation measures. For instance, more recent tax and benefit reforms implemented in the United Kingdom in 2012-13 were found to produce disproportionate income losses among families in the bottom half of the income distribution (Joyce, 2012).

3. Can social policies be made more crisis-proof?

Crisis "readiness" is not just about spending levels

Ensure essential support for the least well-off: benefits and costs of targeting

Reforms to cash-transfer policies and social and health care services should make protection of the neediest their priority. Across-the board cuts are not compatible with the important global agenda of ensuring effective social protection floors (ILO and OECD, 2011). Fiscal consolidation measures should steer clear of indiscriminately cutting supplementary benefits such as housing and child/family support which may be vital to poor working families and lone parents. Reducing benefit levels directly, as in Ireland, or progressively through de-indexing, as Finland, the Netherlands and the United Kingdom have done, does create savings. Such an approach, however, needs to treat the most vulnerable families differently in order to avoid poverty and long-term ill-effects on children"s well-being.

As long-term unemployment spreads, accessible, adequate assistance benefits have become crucial for averting steep rises in poverty and inequality. The central role of assistance benefits as fall-back options for those who are not or are no longer entitled to unemployment support should be reflected in the design, timing, and implementation of necessary fiscal consolidation strategies. Indeed, well-targeted safety-net benefits are more cost effective than other measures -such as expensive and difficult-to-target price subsidies for food or energy- that also aim to help households to make ends meet. Cash benefits should continue to adequately support families in hardship, while minimum income benefits should be made more accessible where unemployment and poverty remains high and those affected have little access to other forms of support.

Greater means testing could help target and protect the most vulnerable while reducing benefit expenditures. However, work disincentives associated with tight targeting of low-income families income are likely to become a more significant concern once labour demand starts to pick up during a recovery and people"s labour supply decisions become a more powerful determinant of employment levels. Means-tested programmes can also be difficult to roll out quickly and often suffer from low benefit take-up. As a result, it can be difficulties to reach the most vulnerable groups, and coverage of targeted populations can be low.

Targeting behaviour or non-income characteristics is an alternative that can save costs while leaving incentives intact. In the context of fiscal consolidation, adequate administrative and operational resources are, however, required to effectively implement targeting measures.

? Broad indicators of deprivation, such as those that many countries use for determining eligibility for social housing, could be a good basis for effectively targeted services or in-kind transfers. These deprivation indicators can be a more reliable metric of living conditions than income. They are also less volatile and do not compromise short-term work incentives.

? Some forms of conditional cash transfers, such as those pioneered in Mexico and Brazil, can in fact create positive externalities by promoting beneficial health and educational outcomes (Fiszbein and Schady, 2009).

? When support is directed at children, it can help to ensure more equal opportunities and reduce the likelihood that poverty is transmitted from one generation to the next. For instance, subsidized or free school meals exist in a number of OECD countries, including France, the United Kingdom, and the United States (Richardson and Bradshaw, 2012). In hard-hit countries, such as Greece, they should be considered as one element in strategies to reduce the negative long-term consequences of increasing economic hardship.

? The concept of "mutual obligations" makes benefits conditional on claimant behavior and aims to restore self-sufficiency and prevent long-term benefit dependency. A stricter enforcement of job-search and other work-related conditions is controversial and difficult to implement when labour markets are very weak and greater job search may not produce the desired effect. As more job vacancies are posted during a recovery, there is however a strong case for linking benefit receipts more tightly to job-search or availability-for-work requirements.

Efficient public or private services are essential to delivering good social policy

Services are an integral part of support for vulnerable groups, such as children in disadvantaged families, jobseekers, people with health problems, or groups facing extreme economic hardship. The public provision of services, or the public funding of private provision, is also an effective way of making important aspects of life less dependent on income.

Governments should consider whether structural reforms in public service delivery can save costs and increase efficiency. However, because service provision needs to be efficient in its utilization of inputs and delivery of outputs, it is equally important that they also look at whether essential services meet demand. More broadly, debates of public expenditure cuts should critically examine the impact that such cuts have on service users.

Service cuts are problematic when large numbers of people can no longer afford market-based services or when trying economic conditions increase the demand for public services. Reducing staff levels in labour-intensive services impairs their effectiveness: at public employment offices jobseekers may not get the person-to-person support they need, for example, and understaffed childcare centers will lack capacity, making it harder for parents to resume work. Similarly, cuts to education budgets affect skills development and school environments and may swell future youth unemployment. Where possible, governments should seek to reduce costs while protecting the delivery of essential services, for instance by redeploying staff from lower-priority activities to areas of greater need.

Lower spending on service provision may not translate into overall savings if reduced capacity and quality increase the demand for cash support or for services in other areas.

For instance, lower funding for homeless shelters may redirect support seekers to much more costly hospital services. There is also evidence that a good public service provision helps to keep prices low, while cutbacks may trigger price hikes and rising demand for cash support (Cunha et al., 2013). Similarly, scaling back service infrastructure does not produce longer-term efficiency gains if significant human or institutional capital is lost in the process. There may be trade-offs between quick cost-cutting fixes (such as budget ceilings or envelopes) and measures to improve long-term efficiency – especially in services for which demand will rise in the future, like long-term care, or which support an economy"s productive capacity, such as childcare.

Service cuts are typically not easily reversed. Temporary reductions in service capacity may eventually lead to higher costs than temporary changes to cash transfers or taxes, as staff need to be rehired or retrained or infrastructure rebuilt. Finally, if service delivery is highly decentralized, savings measures instituted at different levels of government may give rise to considerable co-ordination challenges – especially in federal countries, even though all countries devolve service delivery to some extent.

Prioritize funding in investment-type programmes, especially for children and youth

In some areas of social spending, there is strong evidence of distinct long-term benefits which should inform decisions on how to share savings efforts across the health and social-protection budgets. Good quality health care and effective income safety nets are not only crucial for safeguarding individual well-being, but also to maintain the capacity and productivity of the current and future workforce.

Any savings measures should take special care to factor in the increased health care needs arising from the crisis. It is well-documented, for instance, that unemployment is detrimental to mental health. Although mental health problems often become chronic, most of them can be treated, symptoms reduced and conditions stabilized (OECD, 2012c). Yet, even when the economy is robust, one of the biggest challenges for the health system is the high rate of under-treatment of mental illness. A lack of effective prevention, diagnosis, and treatment for groups at risk of poor mental health translates into significant social and economic costs later on.

Similarly, governments should prioritize social support for children and youth – particularly during the formative years of early childhood and the transition from school to work. While poverty is a concern in itself, it also has damaging long-term consequences, particularly its "scarring" effects on children. These "scarring" effects of low-income spells mean that when the recession ends, its impact on children do not. Ensuring that the basic needs of children and youth are met can therefore be one of the most important social investments and should be a central pillar of social protection.

Governments need to take swift action to address the widely observed increase in youth poverty and joblessness. A number of countries, like Portugal, have introduced support measures for unemployed youth, while others -such as the United Kingdom, Denmark, and New Zealand- have implemented comprehensive strategies to offer a way forward to all young people who are neither in employment, education, or training. The principles underlying the European Union"s Youth Guarantee scheme and the OECD Action Plan for Youth go in the same direction.

Under the European Youth Guarantee, EU member states make all under-25s a tailored offer -for a job, apprenticeship, traineeship, or continued education- within four months of their quitting formal education or becoming unemployed. Ideally, cash transfers for young people should be conditional on young people taking up the offers made to them, and should include access to affordable health care (see recommendations in OECD, 2013c). Implementing these strategies will require planning -and financing- additional infrastructure and training capacities in the short term. But if carefully designed and implemented, it should boost employment rates and lower dependence on social transfers throughout adult life.

Provide accessible employment support adapted to the labour market situation Government support should harness and supplement- rather than substitute- the ability of households to adjust to troubled circumstances. Finding alternative earnings opportunities is no easy matter in the depths of a recession. But the evidence shows that even in such trying times there is considerable hiring -in the order of 15% of total annual employment (OECD, 2009)- and that firms in some sectors grow while others reduce staff levels or close.

The high fiscal cost of joblessness reinforces the case for well-funded active labour-market policies (ALMPs), even if they are costly in the short term. While ALMPs account for a small share of public expenditures, spending in this area nevertheless has a crucial bearing on fiscal consolidation as successful employment support policies boost growth and reduce other social expenditures. Weak labour markets, coupled with the need to tackle large fiscal imbalances, have renewed interest in the role of activation policies that promote the (re-)integration of jobseekers into employment. When fewer vacancies complicate the task of effectively matching jobs and jobseekers, there are, more than ever, sound arguments for making adequately resourced, suitably designed active labour market policy a priority (Immervoll and Scarpetta, 2012).

Governments should maintain labour market activation strategies and suitably designed in-work support at a reasonable level -including for part-time workers. When the number of jobseekers grows during a downturn, a prime focus for governments should be to ensure adequate resources for public employment services and benefit and programme administration. These services act as "gateways" to programmes such as training and job-search assistance. Maintaining effective service capacity is crucial for avoiding inappropriate and inefficient assignments of unemployed persons to costly labour-market programmes. To address these challenges, Australia, Denmark and Switzerland automatically adjust budgets for active labour market policies in line with labour-market conditions (OECD, 2009). Similar provisions should also be considered in other countries in order to protect this crucial area of social spending during times of fiscal restraint.

However, how ALMP resources are allocated and used is as important as how much is spent on them overall. The best combinations of policies are those that meet labour market conditions and jobseeker needs, both of which generally change significantly over the course of a downturn and into recovery. As a recovery gains momentum, more vacancies are posted, and active job-search becomes a more decisive factor for employment outcomes, policies should shift from labour demand to activation and in-work support for low-income working families. The type, sequence and intensity of activation measures should be continually reviewed and adapted to evolving labour-market challenges, while fiscal constraints may require a rapid transition from wide-ranging stimulus packages to selective, customized employment support.

Policy changes in other areas may also require reviews of activation strategies. Generally, when benefit provisions are altered, this typically also shifts the balance of "mutual obligations" which underlies the relationship between claimant, benefit administrations and employment services. Unemployment benefit extensions, for instance, should go hand in hand with adequate resources for effective job-search services and employment support. To ensure that the focus stays on re-employment, governments should consider "soft sanctions" such as requiring claimants to re-apply for benefit extensions, introducing waiting periods between consecutive claims, or reducing benefit amounts over time.

Moreover, as the number and profiles of jobseekers changes, governments should monitor whether back-to-work policies continue to target and prioritize the intended groups. Activation measures and support for recipients of lower-tier assistance benefits become, for instance, more important as people exhaust their unemployment insurance or where many unemployed do not receive insurance benefits in the first place.

If support services do not have the capacity to serve everybody, then authorities need to make difficult choices. The best track may be to prioritize those who are, in some sense, closest to the labour market as they hold the best prospects for returning to employment.

However, people who are essentially job-ready may in fact not need intensive public assistance to find work. Instead, a more urgent priority may be to focus on those most in need of support services and intensive case management. The best targeting strategy depends on available resources, on the types of activation and employment support measures that are available, and on the specific employment barriers faced by the different groups of jobseekers.

Reinforce household resilience and encourage support between family members

Successful active social and labour-market policies should, as much as possible, factor in the family situation of jobless individuals. To date, policy responses to the crisis have concentrated on individual job losses and circumstances while frequently ignoring household and family context. However, when there are large numbers of workless households (see Figure 1.15 above), back-to-work and in-work support should not be restricted to individual job losers, but include partners and all working-age family members (even if they are not registered as unemployed). Policies that strengthen work incentives and support for the partners of primary earners and jobseekers are cost-effective as second earners" employment decisions are known to respond strongly to such measures.

Households where both partners work, have work experience, or are actively looking

for a job are in a better position to minimize income losses in the event of unemployment. They are also likely to benefit more quickly from improving labour-market conditions. However, it is in fact not clear whether a recession strengthens or weakens the so-called "added-worker" effect -where spouses compensate for some of their partners" loss of earnings by starting employment or working longer hours. On the one hand, accelerating job losses, less stable employment patterns, and reduced working hours clearly increase families" need to make up for falls in income. On the other hand, the weak labour market makes it harder to do so.

The objective of strengthening families" ability to absorb and offset temporary earnings losses has brought gender into play, as more women now have labour-market experience than in previous recessions. This, and the fact that men have suffered significantly greater job losses in the OECD area, has increased the chance that women will be able to compensate for some of their partners" earnings losses through the added-worker effect.

New labour-market data show that female employment has in fact been an important factor in limiting economic hardship in families (Figure 1.19). Between 2007 and 2011 job losses and reduced working time among partnered men lowered total working hours of couples (i.e. the number of hours worked by both partners in all couple families in the country) – by some 3% in Canada, Portugal, Slovenia, and the United States, and by between 6% and 9% in hard-hit Estonia, Greece, Ireland, Latvia and Spain (Figure 1.19,

Panel A). Although women"s unemployment rates also rose, their total working hours fell less than men"s -and often went up- in all the countries shown. For women who already worked full-time, working significantly more was not an option. Many women work part-time, however, which yields considerable scope for increasing total working hours even in countries where their employment rates were comparatively high, such as in France and the Netherlands. Partnered women were more likely to work more (or less likely to see their hours reduced) than single women (Figure 1.19, Panel B). Although this pattern is not conclusive evidence of an added-worker effect, it is plausible that their partner"s earnings loss was one of the factors driving women"s additional hours of work.

Policy factors explain in part why women in some countries increase their working hours more than in others. The need to do so may be perceived as less pressing if men"s earnings losses are temporary (due to short-time working schemes, for example) or largely offset by government transfers. In addition, disincentives created by tax breaks and out-of-work benefits can affect the job hunting and work commitment not just of a household"s principal earner but of its second earner, too. Even though people entitled to means-tested benefits generally have very low incomes -and therefore stand to gain substantially from the added-worker effect- benefit reductions that kick in as soon as a family member works or earns more are a barrier to a household enjoying a stable income.

In most OECD countries, families with one long-term unemployed member are much better off when his or her partner finds employment, even if it is relatively low paid (Figure 1.20). However, Figure 1.20 also shows that some tax-benefit systems do little to accommodate added workers. In Luxembourg, the Netherlands, Switzerland, Iceland,

Japan, Norway, and Sweden, for example, a relatively high tax burden of the spouse taking up employment, and/or reduced benefits as a result of family means testing limit the income gains from an added-worker effect. Countries should consider giving added support to the partner making the transition into employment in the form of childcare support, for example, or carefully designed back-to-work allowances that benefit not only registered jobseekers, but their partners too. Finland has recently changed the means test for unemployment assistance benefits along these lines, by ensuring that employment of one partner does not reduce benefits of the other.

However, some reforms that are aimed at helping workless households -such as "bonus" payment for families where both parents are unemployed- could discourage active job search if benefits are withdrawn too quickly once a family member starts to work.

In general, policies that address gender-specific employment barriers strengthen families" resilience to economic shocks and improve their prospects of benefiting from a recovery (OECD, 2012b). At the same time, however, households are shrinking, with growing numbers of single-person and lone-parent families and fewer multigenerational ones. Single-person households obviously face a complete loss of earnings in the event of unemployment, while lone parents may find it particularly difficult to adjust to income shocks because of their childcare obligations and restricted mobility. Such constraints point to the crucial need for governments to continue providing lone parents with child benefit and employment-friendly tax-breaks across the economic cycle.

Enable labour-market adjustments through employment-friendly regulations

Labour market regulations should protect workers but not hinder the creation of new jobs. Deep recessions typically produce sizable sectorial shifts in the economy. In the countries most affected by the Great Recession, hard-hit sectors like construction and manufacturing will often not regain their pre-crisis employment levels. Recessions and subsequent recoveries also lead to substantial numbers of job transitions within sectors – e.g. when firms that had shed personnel in response to faltering demand start to rehire. Regulations that make it costly to hire new workers slow down or inhibit the dynamic job creation that is needed for a swift labour market recovery. When vacancies cannot be filled, this leads to longer periods of unemployment, and a poor match between job requirements and a worker"s skills and aspirations.

With disadvantaged workers bearing the brunt of job and earnings losses during the on-going crisis, concerns over labour-market inequality have become more pressing. Governments in several countries have taken positive steps towards fostering underrepresented groups" access to employment and address labour market segmentation and discrimination. Recent reforms in this area need to be seen as a response to policy trends initiated in the 1990s, such as the deregulation of temporary contracts. This unbalanced deregulation heightened labour market duality between growing numbers of temporary workers, or "outsiders", who cycle between temporary contracts, and "insiders" on open-ended contracts who enjoy a high degree of employment protection and greater job stability. Partly as a result of dual or highly segmented labour markets, disadvantaged workers in Southern Europe experienced particularly steep job losses during the recession (Carneiro et al., 2013). Facilitating their reemployment in better-quality jobs is a priority and labour-market reforms have been high on the policy agenda, particularly in a number of Southern European countries.

Since the onset of the financial crisis, more than one-third of OECD countries have relaxed regulations governing individual or collective dismissals. The most far-reaching changes have generally come in countries which had the most stringent regulations before the crisis, such as Greece, Italy, Portugal and Spain (OECD, 2013b). Greece and Portugal have made severance pay less generous and shortened notice periods. In Portugal, an important plank in the country"s reform to support young workers is the abolition of the need for redundancies to proceed by age, with the most senior workers laid off last. Italy has reduced legal uncertainty on the employer side by restricting the grounds on which courts can order reinstatements to severe cases of wrongful dismissal, such as discrimination. Italy and Spain have also streamlined dispute resolution procedures and Italy has abolished provisions that allowed employers to terminate certain atypical contracts at will.

In early 2012, Spain enacted a labour market reform to address some of the main causes of dual labour markets (OECD, 2014a). The reform provides firms with alternatives to layoffs when product demand is weak (e.g. giving them greater scope for renegotiating wages and working time), halved notice periods, reduced monetary compensation for unfair dismissal, simplified administrative procedures for mass (or "collective") redundancies, and introduced a new, less regulated employment contract for small firms with fewer than 50 staff. In France, a 2013 reform of the labour code relaxed regulations on regular (open-ended) contracts, introduced an additional payroll tax applicable if fixed-term contracts are not converted to open-ended ones at the end of the fixed term, and allowed social partners -in times of serious company difficulties- to negotiate temporary firm-level agreements on wages and shorter working times in exchange for job guarantees.

Adequate resources for counter-cyclical support measures

Ensure fiscal measures are carefully timed and balance measures on spending and revenue sides

The fiscal crisis is not just a spending crisis. Recessions cause slumps in a range of revenue sources and a possibility of extended periods of sluggish revenue growth. During some phases of the Great Recession, reduced government revenues in many countries have consequently had greater impacts on budget balances than inflated benefit expenditures. For instance, if 2010 revenues in Spain had been the same as in 2007 in real terms, this would have reduced the budget deficit by more than 6 percentage points (Figure 1.21). Returning to 2007 benefit expenditure levels would have narrowed the deficit as well, but by much less (3 percentage points).

Revenue-side measures have an important role to play. Both historical income trends and recent data signal sizable shifts in relative "tax capacity" from lower -to higher-earning groups in the aftermath of steep downturns. Governments should factor those shifts into tax measures that seek to balance revenue needs with distributional concerns such as the very unevenly shared benefits of economic growth, both before and since the crisis, and the very large income gains of top earners in some countries (Förster et al., 2014). Like expenditure cuts, tax measures should be designed, timed, and targeted carefully so as to avoid choking off the fragile economic recovery. Moreover, revenue requirements are such that tax increases in any one area are unlikely to be sufficient to close the revenue gap. The consolidation efforts of recent years have focused mostly on income and consumption taxes. Governments should now consider action such as tackling evasion and avoidance, shifting tax burdens away from labour (particularly low earners) to broad-based consumption and also residential property (European Commission, 2013b; IMF, 2013; LeBlanc et al., 2013). Addressing tax policy challenges, broadening the tax base, tackling tax avoidance and reducing labour tax burdens for low-income groups in particular could also help the resumption of growth and make revenues less volatile during the economic cycle.

A need for counter-cyclical policies

Governments find it hard to build up savings. This difficulty can be explained by political considerations (Alesina and Tabellini, 1990; Amador, 2003), and is strikingly illustrated by the fact that many OECD countries ran budget deficits in most or all years in the past three to four decades. One risk of a long-term rise in government debt is that a combination of increasing debt-servicing costs and spending increases for old-age support reduce the room for redistribution and investment-related social policy measures targeted at children and working-age individuals (Streeck and Mertens, 2013; Immervoll and Richardson, 2011). The failure to address fiscal misalignments during economic upswings creates strong pressures to consolidate in a pro-cyclical manner (i.e. during a downturn or periods of low growth), which risks delaying and slowing the recovery. Indeed, a recent IMF study of 17 OECD countries confirms the pattern of pro-cyclical consolidation and points out that large fiscal adjustment programmes have almost always taken place in the context of "initially weak (macro-financial) fundamentals" (Dell"Erba et al., 2013).

Counter-cyclical support is needed for two reasons. First, because the objective need for support is greater during and after a downturn (equity argument). And second, because economic upswings alone are unlikely to undo the damage inflicted by recessions, e.g. because income losses suffered during downturns become entrenched. Countercyclical social policy is then an efficient use of public funds and can increase total welfare by reducing future social and economic costs (efficiency argument). Spells of poverty and unemployment give rise to longer-term scars and there is in fact overwhelming evidence that scarring does lead to lower future employment and earnings, and also negatively impacts a range of other important outcomes, including health.18 When scarring is substantial, rising poverty and unemployment during and after a downturn strengthens the case for redoubling social policy efforts.

OECD countries have used counter-cyclical social policies of different types and to different extents, and these differences offer pointers as to how policies could be made more responsive to changing economic conditions and to household needs. For instance, countries such as France, Portugal and the United States, have actively extended out-of-work benefits at the onset of the crisis, and most countries with strong out-of-work benefits in place have allowed them to operate to the full extent by keeping them accessible to a rapidly growing number of jobseekers and so helping to stem income losses (see Figure 1.17 above).

Some of the worst-affected countries in Southern Europe, however, were ill prepared for the social consequences of the crisis. Their social protection arrangements were weak and discretionary policy measures did not significantly strengthen support for such hard-hit groups as the long-term unemployed or people with little or piecemeal work experience. Their poorly targeted and expensive benefit systems actually contributed to the deep fiscal crisis, which in turn severely constrained the scope for discretionary support when most needed. A significant reconfiguration of welfare systems to improve targeting would arguably protect disadvantaged groups more effectively and affordably

(Matsaganis, 2011; OECD, 2013f).