La economía bipolar (la "nueva normalidad" que la crisis nos legó) – Parte II (página 3)

To better understand the role of wages in household income, the report next addresses the great variation in the weight of income sources across countries, and across households located at different places in the distribution of income. This is of key importance in order to: (a) understand how recent changes in wages and employment have affected households at different parts of the income distribution, and how this, in turn, has affected income inequality; and (b) develop appropriate policy responses, for example with regard to the mix of minimum wages and transfers. The link between wages and household income is not well documented in the literature, either for developed economies or for emerging and developing economies. This report provides some illustrations of the type of information that policy-makers may find useful in designing policies to address inequality.

It is not surprising that, in most developed economies, wages are a major determinant of changes in inequality, given that wages represent about 80 per cent of household income in the United States and about 70 per cent -with some substantial variation between countries- in Europe. Figure 29 provides an estimate of the respective percentages of total household income that, on average, come from wages and from other income sources across a selection of developed economies. In contrast to the previous section, this section disaggregates other income sources, breaking them down into income from self-employment, capital gains, pensions, unemployment benefits, other social transfers and remaining residual income. As pointed out earlier, households where no member is of working age are excluded from the analyses. In Germany and Sweden, wages represent at least 75 per cent of household income, whereas in Greece and Italy they account for between 50 and 60 per cent, with self-employment and pensions playing a relatively larger role than in other developed countries. Taken together, pensions, unemployment benefits and other social transfers represent on average between 15 and 20 per cent of household income in both Europe and the United States. In all countries, reported capital gains are a relatively small proportion of reported incomes…

We have seen in section 8 that other (non-wage) income sources play a larger role in changes in top-bottom inequality than in respect of middle-class inequality. This reflects the fact that income sources at both the top and the bottom of the income distribution are more diverse than in the middle, where households rely mostly on wages. In figure 30, households are ranked in ascending order by their per capita household income and divided into six groups: the "bottom 10 per cent", the "lower" income group (11th-30th percentiles), the "lower middle" class (31st-50th percentiles), the "upper middle" class (51st-70th percentiles), the "upper" income group (71st-90th percentiles) and the "top 10 per cent". As before, these labels are formulated purely for practical purposes, to facilitate the description of results, and do not have a sociological interpretation. For all the selected countries shown in figure 30, it is for the poorest 10 per cent of households that wages represent the smallest source of household income, and in the middle classes and upper-income groups that wages frequently make up the largest source of household income. This pattern can in fact be observed in almost all developed economies.

There is also great variability across countries in the proportion of household income made up by wages in the top and bottom 10 per cent of households. Figure 30 shows, for example, that among the bottom 10 per cent, wages represent about 50 per cent of household income in the United States, more than 30 per in Italy and about 25 per cent in France. By contrast, in the United Kingdom wages represent less than 20 per cent of household income among the poorest households, in Germany less than 10 per cent, and in Romania less than 5 per cent. In all countries, social transfers play an important role in supporting low-income households (as compared with other income groups), even though the type of transfers varies across countries. In Germany, for instance, unemployment benefits and other social transfers play an almost equally important role, whereas in other countries unemployment benefits make up a much smaller share of household income in the bottom 10 per cent. Among the middle and upper classes, wages represent the highest share of household income in almost all countries, reaching about 80 per cent or more in Germany, the United Kingdom and the United States. In Italy and France, the richest 10 per cent of households draw a large share of their household income from income sources other than wages, particularly from self-employment income and capital gains (even though both of these household income sources are likely to be underestimated in household surveys)…

Figure 31 shows the change in income sources in two countries over the period 2006 to 2010 to provide an illustration of why top-bottom inequality (D9 / D1) increased in Spain (the country in our sample where inequality rose most) and why it declined in Romania (the country in our sample where inequality declined most, together with Bulgaria). The figure shows the real change (i.e., adjusted for inflation) in household income of the top and bottom 10 per cent, broken down by source of income.

In Spain, growing inequality between 2006 and 2010 is the result of household income falling more in real terms in the bottom 10 per cent than in the top 10 per cent (the overall bars -where 2006 serves as the base year equal to 100- shrink more for the bottom 10 per cent across time than for the top 10 per cent). Looking at the different components of the bars, we see that the share of household income from wages declined in real terms between 2007 and 2010 for those in the bottom 10 per cent. Incomes from self-employment and from pensions also declined. For the bottom 10 per cent, only income from unemployment benefits increased, but not enough to prevent a sharp decline in overall real income. For the top 10 per cent, household income from wages also declined, but by proportionally less than at the bottom.

In Romania, a different story emerges: over the whole period 2006-10, top-bottom inequality declined because household income, in real terms, fell at the top (the overall size of the bar shrank) but increased slightly at the bottom. Looking at the different components, wages accounted for a small proportion of household income in both 2006 and 2010 for households at the bottom: most household income came from self-employment and from social transfers. In Romania, the top 10 per cent rely to a much larger extent on wages, although this source of income has been declining. The fall in inequality in the country may have been due to fiscal consolidation measures affecting the top of the income distribution, including public sector wage cuts, and modest gains, mostly from social transfers, for low-income households (Domnisoru, 2014)…

Figure 36 shows the gender wage gap, calculated for each decile of the wage distribution and split into an explained and unexplained component, for selected countries. Wage earners are ranked according to their level of wages, from the lowest decile to the highest. The total unadjusted wage gap is the sum of the two bars: the dark bar represents the proportion of the wage gap which can be explained by observable labour market characteristics, and the light bar is the "unexplained" gap. The gaps are provided in absolute values: for example, in the first decile in Belgium there is an unadjusted gender wage gap of about € 400, whereas in Estonia it is about € 50. The shapes of the decompositions vary across countries and across groups. In Belgium and Estonia, women receive lower wages than men throughout the distribution, but the unexplained part of the gap tends to be higher among better-paid women. In the United States, the unexplained part is proportionally small, and affects predominantly better-paid women. In Peru and Vietnam, the explained part tends to increase at higher wage levels of the wage distribution. By contrast, in Sweden the unadjusted gender wage gap is very small (the light and dark bars generally offset each other; the negative dark bars imply that women would actually earn more than men if discrimination and other unexplained factors did not exist). A similar situation can be observed in Chile and in the Russian Federation, where discrimination and other unexplained factors alone account for differences in pay between men and women.

Figure 37 presents (1) the level of the average gender wage gap at the national level for the countries included (the dark bar) and (2) a counterfactual estimate of the contribution of the unexplained part of the wage gap to the overall unadjusted wage gap (the light bar). The counterfactual wage gap is the gap which would exist if men and women were equally remunerated entirely according to the observable labour market characteristics taken into account in this report (i.e. education, experience, economic activity, location, work intensity and occupation). Once these adjustments are taken into account, in our sample of developed economies (figure 37(a)) the mean gender wage gap nearly disappears (e.g. Austria, Iceland, Italy) or even reverses (e.g. Lithuania, Slovenia, Sweden) in about half the countries in the sample. It declines substantially in other countries but remains largely explained in Germany and the United States. Among our sample of emerging and developing economies (see figure 37(b)), the gender wage gap reverses in Brazil and the Russian Federation. In all other countries in the sample, the wage gap declines substantially, though less so in Argentina and Peru, where much of the gender wage gap is also due to differences in education and other observable labour market characteristics. The existence of negative "explained" gender wage gaps (i.e. negative light bars), in the presence of positive unadjusted wage gaps (i.e. positive dark bars), points to the importance of gaining a better understanding of the factors that influence pay for men and women with equal experience, qualifications and other observable labour market characteristics, in order to address them effectively…

Figure 38 shows the results of applying the counterfactual estimation across different wage levels for two countries with available data, the Russian Federation and the United States. The first column shows the distribution of men by wage level, the second column shows the distribution of women, and the third column shows the distribution of women absent the unexplained wage gap. Consistent with figure 36 -which showed that in the United States the unexplained wage gap is small at the bottom- the elimination of the unexplained component brings about the greatest increase in the proportion of women in the top category with wages above one and a half times the median wage (where, according to figure 38, the unexplained wage penalty is highest). In the Russian Federation, once the unexplained penalty is removed, the percentage of women on low pay declines considerably, and the proportion earning higher wages equal to at least one and a half times the median wage increases…

Figure 39 shows that in Germany, for example, high-wage migrant workers earn less than high-wage nationals, even though they would earn higher wages than nationals if they were remunerated according to their labour market attributes (the dark bar is negative). In Argentina as well, the wage gap among migrant and national top wage earners is exclusively due to the unexplained part.

In Cyprus, even though the overall unadjusted wage gap is higher at the top than at the bottom of the wage distribution, the unexplained part accounts for a larger share of the gap at the bottom. This implies that while the wage gap is smaller at the bottom, migrant workers at the bottom would earn more than their national counterparts if they were remunerated according to their observable labour market characteristics alone. By contrast, among high wage earners the gap is large, but can be attributed to migrants" lower levels of education and other observable labour market attributes. One exception to this pattern is Brazil, where according to the available survey data, high-wage migrants (mostly university graduates) earn more than high-wage nationals for both explained and unexplained reasons.

Figure 40 shows what would remain of the wage gap if the unexplained component was eliminated using the same counterfactual approach as employed for the gender wage gap above. Among developed economies (figure 40(a)), in Denmark, Germany, Luxembourg, the Netherlands, Norway, Poland and Sweden, the mean wage gap reverses when the unexplained part is eliminated, implying that on average migrant workers may have more education or experience, work in higher-paid regions, or be more highly skilled, etc., than their national counterparts.

In most other countries, the migration penalty declines but is not eliminated after the adjustment. In the emerging and developing economies for which data permit analysis (figure 40(b)), the results are similar, except in Chile. There, migrant workers earn more than their national counterparts on average, although if they were paid according to their observable labour market attributes, they would earn slightly less than national workers (as shown by the increase in the light bar).

Figure 41 shows the counterfactual applied across the wage distribution for two countries, Cyprus and Spain. The first column shows the wage distribution of national employees, whereas the second column presents the same information for migrant employees. The third column shows how migrants would be distributed in these groups if the "unexplained" wage gap were eliminated. We see that in Cyprus, migrant workers are heavily represented in the lowest wage groups.

However, this picture changes significantly once the unexplained wage penalty is removed, with the migrant wage distribution becoming more similar to the national wage distribution. This is consistent with figure 37(a), which shows the unexplained component contributing more to the wage gap at the bottom of the wage distribution. By contrast, the corresponding changes in Spain are smaller because most of the wage gap between migrants and nationals is explained by a difference in observable factors.

– Society at a Glance 2014 – OECD Social Indicators – The crisis and its aftermath

Executive summary

More than five years on from the financial crisis, high rates of joblessness and income losses are worsening social conditions in many OECD countries. The capacity of governments to meet these challenges is constrained by fiscal consolidation. However, cuts in social spending risk adding to the hardship of the most vulnerable groups and could create problems for the future. OECD countries can effectively meet these challenges only with policies that are well designed and backed by adequate resources. Having been spared the worst impacts of the crisis, major emerging economies face different challenges. However, the experience of OECD countries is relevant for emerging economies as they continue to build and "crisis-proof" their social protection systems.

The financial crisis has fuelled a social crisis

The financial upheaval of 2007-08 created not just an economic and fiscal crisis but also a social crisis. Countries that experienced the deepest and longest downturns are seeing profound knock-on effects on people"s job prospects, incomes and living arrangements.

Some 48 million people in OECD countries are looking for a job -15 million more than in September 2007- and millions more are in financial distress. The numbers living in households without any income from work have doubled in Greece, Ireland and Spain. Low-income groups have been hit hardest as have young people and families with children.

Social consequences could linger for years

With households under pressure and budgets for social support under scrutiny, more and more people report dissatisfaction with their lives, and trust in governments has tumbled. There are also signs that the crisis will cast long shadows on people"s future well-being. Indeed, some of the social consequences of the crisis, in areas like family formation, fertility and health, will be felt only in the long term. Fertility rates have dropped further since the start of the crisis, deepening the demographic and fiscal challenges of ageing. Families have also cut back on essential spending, including on food, compromising their current and future well-being. It is still too early to quantify the longer-term effects on people"s health, but unemployment and economic difficulties are known to contribute to a range of health problems, including mental illness.

Invest today to avoid rising costs tomorrow

Short-term savings may translate into much higher costs in the future, and governments should make funding of investment-type programmes a priority. Today"s cuts in health spending need to avoid triggering rising health care needs tomorrow. Especially hard-hit countries should ensure access to quality services for children and prevent labour market exclusion of school leavers.

Vulnerable groups need support now

To be effective, however, social investments need to be embedded in adequate support for the poorest. Maintaining and strengthening support for the most vulnerable groups must remain a crucial part of any strategy for an economic and social recovery. Governments need to time and design any fiscal consolidation measures accordingly, as the distributional impact of such measures can vary greatly: for example, the poor may suffer more from spending cuts than from tax increases.

Room for cuts in unemployment spending is limited

Weak job markets provide little room for cuts in spending on unemployment benefits, social assistance and active labour market programmes. Where savings can be made, they should be achieved in line with the pace of recovery. Targeted safety-net benefits, in particular, are a priority in countries where such support does not exist, is difficult to access, or where the long-term unemployed are exhausting their unemployment support.

Across-the-board cuts in social transfers, such as housing and child/family benefits, should be avoided, as these transfers frequently provide vital support to poor working families and lone parents. Targeting can deliver savings while protecting the vulnerable

More effective targeting can generate substantial savings while protecting vulnerable groups. Health care reforms, in particular, should prioritise protecting the most vulnerable. However, fine-tuning of targeting is necessary, in order to avoid creating perverse incentives that deter people from finding work. For instance, unemployed people who are about to start a job may suffer losses or may gain very little as they switch from benefits to earning a salary.

Support families" efforts to cope with adversity

There is a strong case for designing government support in ways that harness and complement -rather than replace- households" own capacities to cope with adversity. In this light, it is especially important to provide effective employment support, even if this means higher spending on active social policies in the short term. Labour market activation and in-work support should be maintained at reasonable levels. Where there are large numbers of households without work, policy efforts need to focus on ensuring they benefit quickly once labour market conditions improve. For instance, to be as effective as possible, work-related support and incentives should not be restricted to individual job seekers but should be made available to non-working partners as well.

Governments need to plan for the next crisis

To "crisis-proof" social policies and to maintain effective support throughout the economic cycle, governments must look beyond the recent downturn. First, they need to find ways to build up savings during upswings to ensure they can meet rising costs during downturns. On the spending side, they should link support more to labour market conditions – for example, by credibly reducing benefit spending during the recovery, and by shifting resources from benefits to active labour market policies. On the revenue side, they should work to broaden tax bases, reduce their reliance on labour taxes and adjust tax systems to account for rising income inequality. Second, governments need to continue the structural reforms of social protection systems begun before the crisis. Indeed, the crisis has accelerated the need for these. In the area of pensions, for example, some future retirees risk greater income insecurity as a result of long periods of joblessness during working age. In health care, structural measures that strip out unnecessary services and score efficiency gains are preferable to untargeted cuts that limit health care access for the most vulnerable…

The financial crisis in 2007-08 saw a fast, far-reaching deterioration in economic output for the OECD area as a whole and GDP fell steeply from its pre-recession peaks. But while in some countries, the Great Recession was followed by a moderate but continuous recovery, others avoided outright recession. A number of hard-hit countries, notably in Europe, faced a second recession in 2011-12 and output only began to stabilise in late 2013 (Figure 1.1). More than five years after the Great Recession started, economic output in the OECD is still not back to pre-crisis levels.

Of all the economic losses, however, the income drops suffered by workers have turned out to be the most difficult to reverse. In most countries, the recovery has not yet translated into significant improvements in labour market conditions. Employment and wages have continued to fall until recently (Figure 1.1)…

The Great Recession thus continues to cast a particularly long shadow on workers and their families. To policy makers, the negative trends it has generated point to continuing economic hardship, a high risk of growing poverty, and a persistently strong demand for effective support.

The demand for social support has persisted despite a public awareness that something needs to be done about often-unprecedented debt levels and structural fiscal deficits. Figure 1.2 for instance, illustrates the findings from a 2013 survey which shows how, in some countries, attitudes have shifted markedly against government debt and in favour of spending cuts.

Most respondents in France, Italy, Portugal, and the United States supported lowering government expenditure, while in other countries -like the Netherlands, Poland, Sweden, Turkey, and the United Kingdom- people appear much less convinced that spending cuts should be a priority…

Since 2007, non-employment rates have increased much more markedly among young people, men, and low-skilled workers than among women and older workers (Figure 1.3).

The surge in non-employment, especially among youth and men, reflects a combination of increasing numbers of unemployed (those looking for jobs) and so-called labour-market inactive (including discouraged jobseekers who are no longer available for work or not actively looking).

Most affected by rising unemployment are low-skilled prime-age workers, while the doubling of the number of long-term unemployed in the OECD area to 17 million -one in every three jobless people – by the second quarter of 2013 is particularly worrying. Growing numbers of people without recent work experience, depreciating skills, and employers" reluctance to hire them, swell the ranks of discouraged job seekers, i.e. those who want to work but no longer actively look for a job. Lengthening jobless spells make turning a hesitant recovery into a job-rich economic upswing much more difficult, and can lead to rising structural unemployment…

The collapse in young people"s employment opportunities is of particular concern because it leads to "scarring" – a term commonly used to describe how early working life difficulties can jeopardise long-term career paths and future earnings prospects. The share of youth not in employment, education or training (the so-called "NEETs") has gone up significantly in the OECD area since the onset of the crisis. By late 2012, it stood at 20% or more in Greece, Italy, Mexico, Spain and Turkey. The sharpest increases were recorded in countries hardest hit by the crisis (Estonia, Greece, Ireland, Portugal, and Spain) and in Italy, Luxembourg, and Slovenia. In the OECD area as a whole, the number of unemployed youth increased by some two million, with young men accounting for the bulk of the rise…

The most commonly used statistics of labour-market difficulties refer to individuals rather than households. They therefore do not show how these individual labour-market problems translate into predicaments at the family level. Since 2007 the proportion of people living in households with no income from work has gone up in most countries, approximately doubling in Greece, Ireland and Spain and increasing by 20% or more in Estonia, Italy, Latvia, Portugal, Slovenia, and the United States (Figure 1.5). In debates on fiscal consolidation and other policy reforms, such households deserve special attention as they are particularly vulnerable and highly dependent on government support. With more than one in eight working-age individuals in most countries now living in workless households, the success of redistribution measures and active social policies is gauged to a large extent on whether they can improve economic security for families without any income from work…

The social impact of the crisis is reflected in the growing numbers of people who struggle to meet their basic needs. According to data from the Gallup World Poll, one in four respondents in the OECD area reported income difficulties in 2012, with the proportion climbing to three out of four in Hungary and Greece and one in two in the United States. The incidence of reported trouble in making ends meet has been on the rise since 2007 in 26 countries, including some where social safety nets have played an important role in cushioning the impact of the crisis (e.g. the Nordic countries, France, and Germany)…

In a majority of OECD countries, young adults and families with children face considerably higher risks of poverty today than in 2007. The share of 18-25 year-olds in households where incomes are less than half the national median income has climbed in the vast majority of OECD countries between 2007 and 2010. Rises have been particularly steep in Estonia, Spain, and Turkey (5 percentage points), Ireland and the United Kingdom (4 points), and Greece and Italy (3 points). Lower-income older people did relatively better, as public pension benefits generally changed little and relative income poverty among the elderly fell in most countries. These changes follow a longer-term trend of falling poverty rates among the elderly. Averaged across OECD countries, the proportion of poor people is now, for the first time, lower among the elderly than among young adults and children.

What do these recent trends mean for longer-term inequality trends? Information from earlier downturns provides pointers as to the distributional mechanics which tend to be at work well into the recovery phase. Figure 1.6 offers just such a historical perspective on the income trends among low-, middle- and high-income households across earlier economic cycles. These trends are for market incomes that is, before adding social transfers or subtracting taxes. By focusing on market income, Figure 1.6 indicates the space that redistribution policies have to bridge if they are to stem widening gaps between household incomes after taxes and government transfers…

While there are no internationally comparable statistics on food insecurity that are as detailed as those of the United States, some unofficial estimates indicate that growing numbers of families and children suffer from hunger or food insecurity in economically distressed countries. Some 10% of students in Greece fall into that category according to Alderman (2013). The Gallup World Poll includes a question on whether respondents feel that they have "enough money to afford food". Responses confirm that rising numbers of families in OECD countries may have less money to spend on food and a healthy diet. By contrast, while large shares of people in the large emerging economies feel that they cannot afford adequate nutrition, their numbers have mostly declined since 2007 (Figure 1.7).

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 materialise…

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…

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.

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…

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…

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…

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…

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 stabilisation. As shown in Figure 1.17, the poorest 10% of households lost considerably more income in countries where automatic income stabilisers 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 stabilisers 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 stabilisers 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…

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…

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)…

General Context Indicators

Household income

In 2010 half of the people in Mexico had incomes of less than USD 4 500. Half of the people in Luxembourg had incomes about eight times higher (Figure 3.1, Panel A). Countries with low household income included countries in Southern Europe, Turkey and much of Eastern Europe, as well as two Latin American countries – Chile and Mexico. Those with higher household incomes included Norway and Switzerland. In most OECD countries incomes from work and capital (i.e. market income) fell considerably between 2007 and 2010 (Figure 3.1, Panel B). Higher unemployment and lower real wages brought down household market income, particularly in Estonia, Greece, Iceland, Ireland, Mexico, New Zealand and Spain (5% or more per year). By contrast, market income increased significantly in Chile and Poland as well as to a lower extent in Austria, Germany and the Slovak Republic. On average, between 2007 and 2010, real household disposable income declined by much less than the market income (-0.5%), thanks to the effect of public cash transfers and personal income taxes. At the same time, incomes from work and capital fell by 2% per year.

Figure 3.2 focuses on the top and bottom 10% of the population. While on average across OECD countries real average household disposable income and the average income of the top 10% remained almost stable, the income of the bottom 10% fell by 2% per year over the period 2007 to 2010. Out of the 33 countries where data are available, the top 10% has done better than the poorest 10% in 21 countries. This pattern was particularly strong in some of the countries where household income decreased the most. In Italy and Spain, while the income of the top 10% remained broadly stable, the average income of the poorest 10% in 2010 was much lower than in 2007. Incomes of poorer households also fell by more than 5% annually in Estonia, Greece, Iceland, Ireland and Mexico. Among these countries, Iceland was the only one where the decrease in average annual income at the top (-13%) exceeded that of the bottom (-8%)…

Fertility rate

The total fertility rate indicates the number of children an average woman would have if she were to experience the exact age-specific fertility throughout her life. Allowing for some mortality during infancy and childhood, the population is replaced at a total fertility rate of a little over two… (Figure 3.3, 3.4)

Migration rate

The migrant population represents a growing share of the total population. The share of foreign-born within the population increased in all OECD countries between 2001-11, with the exception of Estonia, Israel and Poland… (Figure 3.5, 3.6, 3.7).

Family rate

The number of adults in a household illustrates additional information about household composition and how people live together, while indicators on marriage and divorce reflect on "adult partnership" status… (Figure 3.8, 3.9, 3.10)

Old age support rate

The old age support rate is the ratio of the population who are economically active to older people who are more likely to be economically inactive. It thus provides an indicator of the number of active people who, potentially, are economically supporting inactive people. It also gives a broad indication of the age structure of the population. Changes in the old age support rate depend on past and present mortality, fertility rates and, to a much lesser degree, on net migration… (Figure 3.11, 3.12)

Self-sufficiency indicators

Employment

Access to paid work is crucial for people"s ability to support themselves. On average, two out of three working age adults in the OECD area are employed (Figure 4.1, Panel A). In Iceland and Switzerland about eight out of ten are employed, compared to about one out of two in Greece and Turkey. Gender differences in employment rates are small in the Nordic countries, but such differences tend to be largest in Chile, Korea, Mexico and Turkey.

The economic crisis has had a large impact on the employment rates in many countries (Figure 4.1, Panel B). On average, the employment rate declined by 1 percentage point in the OECD area from mid-2007 to mid-2013, but the variation across countries is large. While the rates dropped by 10 or more percentage points in Greece and Spain; Chile, Israel and Turkey experienced an increase of 5 or more percentage points over the same period.

Women have improved their relative position in the labour market compared to men (Figure 4.1, Panel B). Only in Estonia, Korea and Poland, was the change in the employment rate the same for both sexes. In spite of this relatively more favourable development for women, the long-term increasing trend in female employment rates came to a halt in OECD countries after the onset of the crisis.

While employment has dropped, part-time work has increased in many countries. Even if these people avoid unemployment, the consequence for many of them is under-employment and reduced incomes. Involuntary part-time as a share of total employment has increased substantially in Ireland, Italy and Spain following the onset of the crisis (Figure 4.2). The increase has been strongest for women, where involuntary part-time reached about 14% of total employment in Italy and Spain in 2012. But also in Australia and Ireland, about 10% of women worked involuntarily in part-time jobs. For men, the share of involuntary part-time was about 5% in Ireland and Spain in 2012.

Immigrants" employment thus seems to be more sensitive to economic conditions than that of the natives. On average, the change in employment rates for the foreign-born between 2007 and 2012 was approximately the same as for the native-born (Figure 4.3).This, however, hides large differences across countries. In those countries which experienced the sharpest drop in employment rates of the native-born (Greece, Ireland and Spain), foreign-born fared even worse than the natives. In contrast, in countries with increasing employment rates, such as Germany, there was a larger increase in the employment rates of the foreign-born than among the natives…

Unemployment

Record high unemployment rates in a number of countries have put stress on the benefit systems (see "Recipients of out-of-work benefits" indicator). Unemployment, and particularly long-term unemployment, may also harm career chances in the future, reduce life satisfaction and increase social costs. Establishment in the labour market for youth has become more difficult, while older unemployed often have problems re-entering the workforce.

During the second quarter of 2013, the highest unemployment rates in the OECD were in Greece and Spain – eight times higher than the lowest unemployment rate, in Korea (Figure 4.4, Panel A). The average unemployment rate of 9.1% in the OECD covers a wide diversity. Austria, Japan, Korea, Norway and Switzerland had an unemployment rate below 5%. As many as ten countries had an unemployment rate above 10%.

The economic crisis has had a strong, but varied impact on unemployment rates (Figure 4.4, Panel B). The average OECD unemployment rate increased by 3 percentage points between mid-2007 and mid-2013. Greece and Spain were hit particularly hard, seeing an increase of above 18 percentage points. Increases of more than 5 percentage points were also observed in Ireland, Italy, Portugal and Slovenia. Countries which succeeded in reducing their unemployment rates included Chile, Germany, Israel, Korea and Turkey.

In most countries, male unemployment has been more affected by the crisis than female unemployment. The gender difference is particularly strong in countries such as Ireland, Portugal and Spain, where the contraction of the construction industry is a major factor driving the increased unemployment. High representation of women in the public sector can also be one explanation why women have fared better than men during the crisis in many countries. However, women in Estonia, Luxembourg and Turkey had a stronger increase in the unemployment rates than men.

Long-term unemployment has increased in many countries. The share of people unemployed for one year or more as a percentage of the total unemployment has increased the most in Ireland, Spain and the United States (Figure 4.5), and by as much as 30 percentage points in Ireland. Mid-2013, six out of ten unemployed were out of work for one year or more in Greece, Ireland and the Slovak Republic. The share of long-term unemployed decreased by 10 percentage points or more in Germany and Poland. In spite of the positive achievements, long-term unemployment still accounts for more than 40% of total unemployment in Germany and Poland.

Youth have been hit particularly hard by the deteriorated labour market situation (see also the "NEETs"" indicator). The unemployment rate for young people aged 15-24 increased by 20 percentage points or more from mid-2007 to mid-2013 in Greece, Portugal and Spain (Figure 4.6). At the OECD level, the rate increased by 7 percentage points during the same period. Mid-2013, more than 50% of the age group was out of work in Greece and Spain. At the other end of the scale, youth unemployment rates dropped in Austria, Chile, Germany, Israel and Turkey. Germany, Japan and Switzerland had mid-2013 the lowest unemployment rate for this age group, at about 7%…

Youth neither in employment, education nor training (NEETs)

Participation in employment, education or training is important for youth to become established in the labour market and achieve self-sufficiency. Record high unemployment rates in a number of countries have hit youth especially hard. In addition, inactivity rates of youth are substantial in many countries, meaning that they are neither employed, nor registered as unemployed, in education or in training.

More than 20% of all youth aged 15/16-24 were unemployed or inactive, and neither in education nor in training (NEET) in Greece, Italy, Mexico and Turkey in the fourth quarter of 2012 (Figure 4.7, Panel A). The lowest rates were observed in Denmark, Iceland, the Netherlands and Switzerland, with rates of 6% or lower. The average NEET rate in the OECD area was about 13%.

The NEET rate has increased in most OECD countries since the onset of the economic crisis (Figure 4.7, Panel B).

From the fourth quarter of 2007 to the fourth quarter of 2012, the increase was strongest in Greece, Luxembourg, Ireland, Italy and Spain. On the other hand, there were also some countries where the NEET rates dropped. The decrease was particularly strong in the Czech Republic and Turkey. The higher NEET rates in many counties can mainly be explained by increased unemployment. At the average OECD level, the inactivity rate declined by 1 percentage point, and in most countries the rate declined or increased moderately.

On average across OECD countries, the NEET rates for the broader 15-29 age group are higher for people with low education levels than for those with high education (Figure 4.8). The gap is highest in Belgium, Mexico and the United Kingdom.

The share of 15-24 year-olds who are unemployed or inactive and neither in education nor in training is higher for foreign-born than for natives (Figure 4.9). Exceptions are Hungary, Ireland and the United Kingdom. The impact of the crises on the NEET rates is relatively similar for foreign-born and natives in most countries. In the Czech Republic, Finland, Greece, Luxembourg, Norway and Slovenia, were the relative change in the rates for foreign-born larger than for natives.

The NEET rates in emerging economies are generally high (Figure 4.7, Panel A). In India, Saudi Arabia and South Africa, more than 20% of the population aged 15/16-24 were unemployed or inactive and neither in education nor in training in the fourth quarter of 2012…

Expected years in retirement

The duration of expected years in retirement illustrates the length of the expected remaining life expectancy from the time of average labour market exit. The indicator demonstrates how pension systems interact with labour market exit as well as the financial pressures on the pension system in the context of an ageing population. Men typically can expect to spend fewer years in retirement than women (Figure 4.10). The most recent calculations of expected years in retirement exceeded 25 years for women in Austria, Belgium, France, Italy and Luxembourg (Figure 4.10, Panel A). The period exceeded 20 years for men in Austria, Belgium, Finland, France, Greece, Italy, Luxembourg and Spain (Figure 4.10, Panel B). The number of expected years in retirement was notably low for women -under 20 years- in Chile, Iceland, Korea, Mexico, Portugal and Turkey, and for men -less than 15 years- in Estonia, Korea, Mexico and Portugal.

On average women can expect to spend almost 4.5 years longer in retirement than men (Figure 4.10). In most Eastern European countries this gap was at least six years, and also in Japan the gender gap is more than six years.

Longer periods in retirement exposes women to old age poverty, resulting from the link of many pension schemes to earnings and the gender pay gap observed in all OECD countries. In addition, price indexation of pension payment in many countries means that the oldest old, predominantly women, become relatively poorer during retirement.

The duration of expected years in retirement for women in emerging countries varies from 20 years in Brazil and the Russian Federation to 15 years in South Africa (Figure 4.10, Panel A). The variation is less for men, who can expect 12 to13 years in retirement (Figure 4.10, Panel B). While the effective exit age in Brazil was more than six years lower for women than for men, the difference in the Russian Federation was close to three years.

The average duration of expected years in retirement across OECD countries has increased over time. In 1970 men in the OECD countries spent on average 11 years in retirement and by 2012 this average increased to 18 years (Figure 4.11, Panel B). The duration of the expected period in retirement was longer for women; increasing from 15 years on average in 1970 to 22.5 years in 2012 (Figure 4.11, Panel A).

The increase in average duration of years in retirement from 1970 to 2012 is due both to a drop in the effective exit age from the labour force and to increased longevity.

Effective age of labour force exit decreased gradually from 1970 to the late 1990s for both men and women. After some relatively stable years, the average effective exit age started to increase slowly from 2004. Life expectancy at the effective exit age from the labour force increased substantially during this period, particularly for women, and over the last two decades for men as well. Over the past few years, this increase has been fairly equal to that of the effective exit age from the labour market, and potential years in retirement have stabilized…

Education spending

On average, OECD countries spent USD 9 300 per child per year from primary through tertiary education in 2010 (Figure 4.12, Panel A). Spending was highest in the United States with just over USD 15 000 per child, followed closely by Switzerland. On the opposite end, spending was USD 5 000 or less in Chile and Mexico. Spending was also relatively low (around USD 6 000) in several Eastern European countries.

The crisis has halted the long-term trend of increasing spending in education. While public spending as a percentage of GDP for all levels of education increased by 8% between 2008 and 2009 on average across OECD countries, it fell by 1.5% between 2009 and 2010 (Figure 4.12, Panel B).

Public expenditures on educational institutions as a percentage of GDP decreased in two-thirds of those OECD countries for which data are available, most likely as a consequence of fiscal consolidation policies. Drops of more than 4% were seen in Estonia, Hungary, Iceland, Italy, Sweden, Switzerland and the United States.

On average across the OECD countries, less investment was put into early education as compared to later years, with spending per child amounting to USD 6 800 at the preprimary level, USD 8 000 at the primary level, USD 9 000 at the secondary level and USD 13 500 at the tertiary level (Figure 4.13). These averages mask a broad range of expenditure per student by educational institutions across the OECD countries, varying by a factor of 9 at the pre-primary level, 11 at the primary level, 7 at the secondary level and 4 at the tertiary level.

In 2010, public funding accounted for 84% of all funds for educational institutions, on average across the OECD countries (Figure 4.14). It varied from around 60% in Chile and Korea to over 95% in Finland and Sweden. The share of public funding decreased from 2000 to 2010. The decline was remarkable for tertiary institutions, from 76% in 2000 to 68% in 2010. This trend is mainly influenced by non-European countries, where tuition fees are generally higher and enterprises participate more actively in providing grants to finance tertiary education.

Argentina, Brazil and Russian Federation (emerging economies for which data are available) all had education spending comparable to the low-spending OECD countries

(Figure 4.12, Panel A)…

Equity indicators

Income inequality

Income inequality is an indicator of how material resources are distributed across society. Some people consider that high levels of income inequality are morally undesirable. Others regard income inequality as harmful for instrumental reasons – seeing it as causing conflict, limiting co-operation or creating psychological and physical health stresses (Wilkinson and Pickett, 2009). Often the policy concern is focused more on the direction of change of inequality, rather than its level.

Income inequality varied considerably across the OECD countries in 2010 (Figure 5.1, Panel A). The Gini coefficient ranges from 0.24 in Iceland to approximately twice that value in Chile and Mexico. The Nordic and central European countries have the lowest inequality in disposable income while inequality is high in Chile, Israel, Mexico, Turkey and the United States. Alternative indicators of income inequality suggest similar rankings. The gap between the average income of the richest and the poorest 10% of the population was almost 10 to 1 on average across OECD countries in 2010, ranging from 5 to 1 in Denmark, Iceland and Slovenia to almost six times larger (29 to 1) in Mexico.

Keeping measurement-related differences in mind, emerging countries have higher levels of income inequality than OECD countries, particularly in Brazil and South Africa. Comparable data from the early 1990s suggest that inequality increased in Asia, decreased in Latin America and remained very high in South Africa.

The distribution of income from work and capital (market income, pre-taxes and transfers) widened considerably during the first phase of the crisis. Between 2007 and 2010, market income inequality rose by 1 percentage point or more in 18 OECD countries (markers in Figure 5.1, Panel B). The increase was particularly large in Estonia, Greece, Ireland, Japan and Spain, but also in France and Slovenia. On the other hand, market income inequality fell in Poland and, to a smaller extent, in the Netherlands.

The distribution of income that households "take home" (disposable income, post-taxes and transfers) remained unchanged on average, due to the effect of cash public transfers and personal taxes. Between 2007 and 2010, the Gini coefficient for disposable income remained broadly stable in most OECD countries (bars in Figure 5.1, Panel B).

It fell the most in Iceland, New Zealand, Poland and Portugal, and increased the most in France, the Slovak Republic, Spain and Sweden. Overall, the welfare state prevented inequality from going from bad to worse during the first phase of the crisis.

Income inequality increased especially at the top of the distribution: the share of pre-tax income of the top 1% earners more than doubled their share from 1985 to 2010 in the United Kingdom and the United States (Figure 5.2). In Spain and Sweden, the data show a clear upward trend albeit less marked than in English-speaking countries. The upward tendency is also less marked in France, Japan and most continental European countries. Overall, the economic 2007/08 crisis has brought about a fall in top income shares in many countries, but this fall appears to be of a temporary nature…

Poverty

Poverty rates measure the share of people at the bottom end of the income distribution. Often a society"s equity concerns are greater for the relatively disadvantaged. Thus poverty measures generally receive more attention than income inequality measures, with greater concerns for certain groups like older people and children, since they have no or limited options for working their way out of poverty.

The average OECD relative poverty rate in 2010 was 11% for the OECD (Figure 5.3, Panel A). Poverty rates were highest at above 20% in Israel and Mexico, while poverty in the Czech Republic and Denmark affected only about one in 20 people. Anglophone and Mediterranean countries and Chile, Japan and Korea have relatively high poverty rates.

The initial phase of the crisis had a limited impact on relative income poverty (i.e. the share of people living with less than half the median income in their country annually).

Between 2007 and 2010, poverty increased by more than 1 percentage point only in Italy, the Slovak Republic, Spain and Turkey (bars in Figure 5.3, Panel B). Over the same period, it fell in Chile, Estonia, Portugal and the United Kingdom, while changes were below 1 percentage point in the other OECD countries.

By using an indicator which measures poverty against a benchmark "anchored" to half the median real incomes observed in 2005 (i.e. keeping constant the value of the 2005 poverty line), recent increases in income poverty are much higher than suggested by "relative" income poverty. This is particularly the case in Estonia, Greece, Iceland, Ireland, Italy, Mexico and Spain ("diamond" symbols in Figure 5.3, Panel B). While relative poverty did not increase much or even fell in these countries, "anchored" poverty increased by 2 percentage points or more between 2007 and 2010, reflecting disposable income losses of poorer households in those countries. Only in Belgium, Germany, Israel and Poland did "anchored" poverty fall at the same time as relative poverty stagnated or increased.

Households with children and youth were hit particularly hard during the crisis. Between 2007 and 2010, average relative income poverty in OECD countries rose from 12.8 to 13.4% among children (0-18) and from 12.2 to 13.8% among youth (18-25). Meanwhile, relative income poverty fell from 15.1 to 12.5% among the elderly. This pattern confirms the trends described in previous OECD studies, with youth and children replacing the elderly as the group at greater risk of income poverty across the OECD countries.

Since 2007, child poverty increased considerably in 16 OECD countries, with increases exceeding 2 percentage points in Belgium, Hungary, Italy Slovenia, Spain and Turkey (Figure 5.4). On the other hand, child poverty fell by more than 2 percentage points in Portugal and the United Kingdom. At the same time, youth poverty increased considerably in 19 OECD countries.

In contrast to other age groups, the elderly have been relatively immune to rises in relative income poverty during the crisis. In the three years prior to 2010, poverty among the elderly fell in 20 out of 32 countries, and increased by 2 percentage points or more only in Canada, Korea, Poland and Turkey. This partly reflects the fact that old age pensions were less affected by the recession. In many countries (at least until 2010), pensions were largely exempted from the cuts implemented as part of fiscal consolidation…

Living on benefits

Most OECD countries operate transfer programmes that aim at preventing extreme hardship and employ a low income criterion as the central entitlement condition. These guaranteed minimum-income benefits (GMI) provide financial support for low-income families and aim to ensure an acceptable standard of living. As such, they play a crucial role as last-resort safety nets, especially during prolonged economic downturns when long-term unemployment rises and increasing numbers of people exhaust their entitlements for unemployment benefits.

In a large majority of OECD countries, incomes for the long-term unemployed are much lower than for the recently unemployed (Figure 5.6). Making GMI benefits more accessible is key to maintaining a degree of income security for the long-term unemployed. In addition, rising numbers of people who have neither a job nor an unemployment benefit means that the generosity of GMI benefits is likely to receive more public attention.

Benefits of last resort are sometimes significantly lower than commonly used poverty thresholds (Figure 5.5). Poverty avoidance or alleviation is primary objectives of GMI programmes. When comparing benefit generosity across countries, a useful starting point is to look at benefit levels relative to commonly used poverty thresholds. The gap between benefit levels and poverty thresholds is very large in some countries. In a few countries there is no generally applicable GMI benefit (Greece, Italy and Turkey). For GMI recipients living in rented accommodation, housing-related cash benefits can provide significant further income assistance, bringing overall family incomes close to or somewhat above the poverty line (Denmark, Ireland, Japan and the United Kingdom). However, family incomes in these cases depend strongly on the type of housing, the rent paid and also on the family situation. In all countries, income from sources other than public transfers is needed to avoid substantial poverty risks.

On average across OECD countries, GMI benefit levels have changed little since the onset of the economic and financial crisis. The real value of these benefits was largely the same in 2011 as in 2007. Most countries, including those with significant fiscal consolidation programmes, have so far not reduced benefit levels for the poorest. However, at the same time, countries that were especially hard-hit by the crisis and where GMI were non-existent or very low, have not taken major measures to strengthen benefit adequacy (Greece, Italy, Portugal, Spain and the United States)…

Social spending

In 2012-13, public social spending averaged an estimated 21.9% of GDP across the 34 OECD countries (Figure 5.7, Panel A). In general, public spending is high in continental and northern European countries, while it is below the OECD average in most countries in Eastern Europe and outside Europe. Belgium, Denmark, Finland and France spent more than 30% of GDP on social expenditures. By contrast, Korea and Mexico spent less than 10% of GDP. Social spending in the emerging economies in the late 2000s was lower than the OECD average, ranging from around 2% in Indonesia to about 15-16% in Brazil and the Russian Federation (Figure 5.7, Panel A).

Public social spending in per cent of GDP increased in all OECD countries with the exception of Hungary from 2007-08 to 2012-13 (Figure 5.7, Panel B). The growth fully took place during the period 2007-08, as a response to increased unemployment and other consequences of the economic crisis. In this initial phase, Estonia and Ireland had the strongest increase in expenditure shares. From 2009-10 to 2012-13, fiscal consolidation reduced public social spending. Nearly two-thirds of the OECD countries reduced social spending in this period. The real drop in public social spending in some countries is larger than indicated by change in the shares of GDP, since the level of GDP also fell. Indeed in some countries, the rise of the ratio of public social spending in GDP is explained largely by the fact that GDP declined.

On average in the OECD, pensions, health services and income support to the working-age population and other social services each amount to roughly one-third of the total expenditures. In a majority of OECD countries, pensions are the largest expenditure area (Figure 5.8). In Anglophone countries and most other countries outside of Europe, health dominates public social expenditure. In a few countries, such as Denmark, Ireland and Norway, the largest share is devoted to income support of the working age population.

Accounting for the impact of taxation and private social benefits (Figure 5.8) leads to a convergence of spending-to-GDP ratios across countries. Net total social spending is 22-28% of GDP in many countries. It is even higher for the United States at 29% of GDP, where the amount of private social spending and tax incentives is much larger than in other countries.

In Europe, people seem to be most satisfied with the health care provisions and less satisfied with the pension provisions, unemployment benefits and the way inequality and poverty are addressed (Figure 5.9). Satisfaction with health care provisions is highest in Belgium, Luxembourg and the Netherlands and lowest in Greece and Poland. Satisfaction with pension provisions is highest in Austria, Luxembourg and the Netherlands and lowest in Greece and Poland. Satisfaction with how inequality and poverty are addressed is in general quite low…

Recipients of out-of-work benefits

Cash transfers for working-age people provide a major income safety net in periods of high unemployment. In most countries two different layers of support can be distinguished: a primary out-of-work benefit (generally unemployment insurance benefits); and a secondary benefit (unemployment assistance or minimum-income benefits such as social assistance) for those who are not or no longer entitled to insurance benefits.

In 2010, the shares of working-age individuals receiving primary out-of-work benefits were highest in Iceland, France, Finland, Spain and the United States, with rates of around 5% or more (Figure 5.10, Panel A). At the other end of the spectrum, only about 1% in Japan, Korea, Slovak Republic and Chile received unemployment insurance benefits. There is no nation-wide unemployment insurance programme in Mexico and recipient data are not available for Greece and Turkey.

The large variation in the numbers in part reflects labour market conditions and partly the design of social benefit systems. Low participation in unemployment insurance programmes reduces coverage among the unemployed. An example is Chile, where unemployment insurance is organised as an individual saving scheme. In Sweden, where unemployment insurance membership is voluntary, recipient numbers dropped despite rising unemployment.

Benefit receipt increased most in Iceland, Estonia, United States, Ireland and Spain, all countries where unemployment soared during the economic crisis.

Receipt of secondary out-of-work benefits generally increased by much less between 2007 and 2010 (Figure 5.11, Panel B). Rising long-term unemployment and increasing joblessness among people without access to insurance benefits led, however, to a substantial rise in Ireland and Spain (unemployment assistance), and in the United States (Supplemental Nutrition Assistance Program, SNAP). Receipt rates dropped somewhat in the Czech Republic and in France, as well as in some countries with more favourable labour-market developments (Australia, Germany, and Poland).

By 2010, receipt of secondary benefits was highest in Ireland, Mexico and the United States (Figure 5.11, Panel A) and lowest in Belgium, Israel and Japan. The composition of these safety nets differs across countries. Social assistance dominates in Mexico (Oportunidades) and the United States (SNAP and Temporary Assistance for Needy Families, TANF). Unemployment assistance is important in Ireland, Germany, Spain, Finland and the United Kingdom. Australia, Iceland and New Zealand also provide targeted income support to a large number of lone parents. In Germany, the largely unchanged number of recipients during a period of falling unemployment suggests that reducing safety-net beneficiary numbers can be difficult…