Social Policy in a changing world Seminar presentation: School of Public Health, Seoul National University 3 May, 2007 Willem Adema Head, Asian Social and Health Outreach, OECD (www.oecd.org/els/social)

Overview The changing socio economic context Does globalisation doom social protection? Why does social policy nevertheless need to change focus? What are the main challenges in reforming social protection?

Populations are ageing everywhere, but nowhere more rapidly than in Korea

1980 Female employment rates, and total fertility rates 2005 Birth-rates have fallen, while the relationship between fertility and work has changed 1980 Female employment rates, and total fertility rates 2005

Family networks are weakening in Korea.. From 1970 to 2000 the proportion of extended families (couples with children and parents) has fallen from 17 to 7% Over the same period, the proportion of married couples without children has increased from 5 to 15% of all households

…with fewer children in families than before

Some fear that ‘globalisation’ will generate a ‘race to the bottom’ in social standards Open economies are richer, but not all gain Open economies are more subject to shocks Good economics says we need social protection to ensure political support for globalisation and to provide insurance

‘Good economics’ also says that cutting needed social protection will not reduce labour costs significantly If people need social protection, they will pay for it Cutting needed public social provision will lead workers to demand more pay International migration flows are too small to pose a major financing burden on welfare states Small, open economies have high levels of social protection and low poverty rates Capital income taxes are holding up

Skill-biased technological change leads to widening market income, which can exert upward pressure on social spending Change in share of total income between mid 1980s and 2000 Lowest 20% Middle60 Top 20% Denmark = France Germany - + Italy --- +++ Japan UK US

Evidence: public social spending has increased, despite recent slowdown, with Korea still well below the OECD-average 10

Social spending reduces poverty

The story so far: Social protection is not being destroyed by globalisation directly But technological change in the labour market puts it under strain Demographic and social-economic change also demand a focal change in approach towards a more active social policy.

At present, most countries focus public social support on senior citizens 13

…and with population ageing, pension and health and LTC-expenditures will rise further

Direction of OECD pension reforms Higher pension eligibility age for men and women, e.g. Italy, US or for women alone, e.g. Australia, UK Improved incentives to delay retirement e.g. France, Germany, Italy, UK, US Tighter qualifying conditions for retirement e.g. France, Italy Links to life expectancy or financial sustainability in earnings-related schemes (Germany, Japan) in qualifying conditions (France) through notional accounts (Italy, Poland, Sweden) through defined-contribution schemes (Australia, Hungary, Mexico, Poland, Slovakia, Sweden) Direct cuts in generosity are rare lower accrual rates (Austria and Japan)

Gross pension benefit replacement rates for low and average income earners

Sustaining social protection warrants an ‘Active Social Policy’: aims to address root causes of widening market income Reorient spending towards investment in families, children, and youth Put heavy emphasis on employment But we can only afford to do this if we control spending on ageing.

In response to high child poverty rates… Percentage of children in poverty, OECD countries, 2000

…,strengthen redistribution within tax/benefit systems, e. g …,strengthen redistribution within tax/benefit systems, e.g. Australian and French systems are very effective in reducing child poverty, and… Difference between market and disposable income poverty, percentage points 19

…orient Social Policy around work Some 35% of the OECD working-age population (i.e. 265 million people in 2005) do not have a job. The bulk of them (almost 230 million) are not unemployed. They mainly consist of students, women, early retirees and the disabled, many of whom rely on welfare benefits.

Parental employment reduces poverty risk… Child poverty rates (%) for couples with children by parental employment status Joblessness and poverty – what are the links? Jobless families are everywhere at a high risk of child poverty (five times higher than their population share, on average). But, on average only one-third of poor families in OECD countries are jobless (ranging from 4% in Greece to 70% in Norway). But, in all countries with low child poverty (<5%), joblessness is also low (although Norway has 7% joblessness). Countries with high child poverty mostly tend to have low joblessness (except UK, New Zealand and Ireland).

Welfare to work is policy success Activation Mutual obligations Make work pay Get public sector to work

In addition: Older workers: incentives in pension systems still wrong; age discrimination For sickness: confused messages, lack of interventions, incentives to work For women: tax penalties, misguided leave policies, lack of childcare, old-fashioned workplace practices

Public spending on education is close to OECD average, but is frequently wasted…

The potential gains for Korea of a more equitable sharing in caring and working are huge Total labour force from 1980 to 2000, and projections from 2005 to 2030, in thousands ‘Constant rates’: assumes constant labour force participation rates for men and women from 2000 to 2030; ’Gender equity in participation rates’: assumes that female participation rates reach current male participation rates in each country by 2030.

To sum up Don’t blame globalisation for threatening social protection Weakening family networks, population ageing, and skill-biased technological change all add to increasing demand for public spending. Health and pension spending will have to be kept in check Social justice must therefore aim to reduce inequality through investing in children, women and work.