The Generosity of Social Insurance, 1971-2002

International comparisons of national social policy rely overwhelminglyon programme spending ratios. However, there are widespreadproblems with this type of data as an indicator of trends insocieties' commitments to social protection. This paper suggestsan alternative approach to understanding social commitmentsand introduces a new international data set of social insuranceprogrammes that is comprised of important characteristics ofthree types of public insurance: unemployment, sick pay, andpublic pensions. The data are available annually from the 1970sfor 18 OECD countries. Looking more closely at trends in twoprogramme characteristics, income replacement rates and programmecoverage, we develop an indicator of expected benefits. Accordingto this indicator, there is considerably more evidence of welfarestate retrenchment in recent years than most analyses of publicspending have suggested. Footnotes ¹ E-mail address: lyle.scruggs{at}uconn.edu     

Retirement in the UK

In common with other OECD countries, the UK experienced morethan two decades of declining labour-market activity among oldermen from the 1970s to the early 1990s, a trend that has onlyrecently shown signs of being reversed. Retirement decisionsare heavily shaped by institutional context and in the UK thishas led to there being two distinct groups with very different‘retirement’ experiences. At the top of the wealthdistribution, early retirement has typically been influencedby private, occupational pensions; at the bottom of the wealthdistribution individuals are even more likely to be not workingin their 50s, but do not typically define themselves as retired,and draw on income support, or more usually, disability benefits.Policy-makers keen to increase effective retirement ages willneed to consider the very different circumstances of these twogroups. Footnotes ¹ E-mail addresses: j.banks{at}ifs.org.uk; sarah.smith{at}bristol.ac.uk     

Financial Restraints in a Mature Welfare State--The Case of Denmark

The Scandinavian welfare states are mature in the sense of havinga high level of standards for public provisions of welfare servicesas well as a high replacement level for income transfers, especiallyfor low-income groups. In this welfare model, individuals havebasic rights to welfare services and social transfers independentlyof their ability to pay, their labour-market history, etc. Thefinancial viability of the model relies on a high tax burdenand a high level of labour-force participation for males andfemales. Evaluated on the basis of international comparisonsof income levels and inequality, the model has performed well.In a forward-looking perspective, however, the welfare modelfaces problems that may put the financial viability of the modelat risk. Two important challenges are demographic changes andthe so-called growth dilemma (increased demand for servicesand leisure). We discuss these issues using Denmark as an exampleand argue that while these two challenges may be of the sameorder of magnitude, it is easier to propose solutions to thedemographic challenges than to the growth dilemma which areconsistent with the basic principles of the welfare state. Footnotes ¹ E-mail addresses: tandersen{at}econ.au.dk; lhp{at}dreammodel.dk     

The Swedish Experience with Pension Reform

Sweden is one of few countries in Europe to have introduceda comprehensive pension reform. In 1998, Sweden passed legislationthat transformed its public pension system to a notional defined-contribution(NDC) plan— that is, a defined-contribution plan financedon a pay-as-you-go basis. In addition, a second tier of fundedindividual accounts was introduced. The reform had broad politicalsupport with more than 80 per cent of the votes in parliament.This paper discusses the trends in retirement in Sweden andassesses the experience with pension reform. The objective wasto design a fiscally sustainable system tied to economic growthwith a clear link between contributions and benefits. We discussthe challenges in meeting this goal, the extent to which theSwedish reform has succeeded, and how the system affects beneficiaries.The paper evaluates the experience of the individual fundedaccounts to date and concludes with an outlook for the future. Footnotes ¹ E-mail address: annika.sunden{at}sofi.su.se     

A New Pension Settlement for the Twenty-First Century? The UK Pensions Commission's Analysis and Proposals

This article summarizes the analysis and recommendations ofthe UK Pensions Commission, which reported in November 2005.The UK faces similar demographic challenges to other nationsfrom increasing longevity and past fertility declines. However,in the face of them, both state and private pension provisionare in decline for younger cohorts. The Commission proposesreforms to the state pension system which would make it moregenerous, less means-tested, and more universal than it wouldotherwise become. This would require both higher public spendingon pensions as a share of GDP than now, and a gradual increasein state pension age after 2020. It also proposes establishmentof a new National Pension Savings Scheme, into which workerswould be automatically enrolled (with the right to opt out)if they were outside good employer provision, together withmeasures to facilitate later and more flexible retirement. Footnotes ¹ E-mail address: j.hills{at}lse.ac.uk     

THE UK ECONOMY: ANALYSIS AND PROSPECTS

In this section of the Review, Oxford Economic Forecasting providesan analysis of the current economic climate in the UK and abroadas well as setting out the main features of its latest forecast.In Section II, the UK forecast up to 1988 is described. In SectionIII, following the theme of this issue, we analyse the roleof public investment in the UK. Footnotes ¹We are grateful to Vanessa Rossi for her helpful comments.     

The Rationale for Occupational Pensions

Employers and employees have no incentive to include pensionsas part of employment contracts unless the pension completesa missing market, or ameliorates an imperfection in existingcapital or labour markets. We examine the influence on the choiceand design of occupational pensions of capital- and labour-marketimperfections. In capital markets, we focus on basis risks,taxation, employer default risks, transactions costs, portfoliorestrictions, and liquidity constraints. Aspects of labour marketsaffecting occupational pensions may be the presence of firm-specifichuman capital, asymmetric information between firms and potentialhires, the presence of moral hazard, and internal labour marketsin firms which cause employers to attempt to control the retirementbehaviour of workers. The implications of this analysis of occupationalpensions for public policy towards pensions are briefly examined. Footnotes ¹ E-mail address: dg.mccarthy{at}imperial.ac.uk     

Gender, Time Use, and Public Policy over the Life Cycle

In this paper we compare gender differences in the allocationof time to market work, domestic work, child care, and leisureover the life cycle. Time-use profiles for these activity categoriesare constructed on survey data for three countries: Australia,the UK, and Germany. We discuss the extent to which gender differencesand life-cycle variation in time use can be explained by publicpolicy, focusing on the tax treatment of the female partnerand on access to high-quality, affordable child care. Profilesof time use, earnings, and taxes are compared over the lifecycle defined on age as well as on phases that represent thekey transitions in the life cycle of a typical household. Ourcontention is that, given the decision to have children, life-cycletime use and consumption decisions of households are determinedby them and by public policy. Before children arrive, the adultmembers of the household have high labour supplies and plentyof leisure. The presence of pre-school children, in combinationwith the tax treatment of the second earner's income and thecost of bought-in child care, dramatically change the patternof time use, leading to large falls in female labour supply.We also highlight the fact that, in the three countries we study,female labour supply exhibits a very high degree of heterogeneityafter the arrival of children, and we show that this has importantimplications for public policy. Footnotes ¹ E-mail addresses: pfapps{at}law.usyd.edu.au; ray.rees{at}lrz.uni-muenchen.de     

Welfare States in Hard Times

Welfare states have been subject to a host of conflicting pressuresfrom high unemployment, rising income inequality, populationaging, tax competition, rising budget deficits and debts, slowgrowth, and fears that economic dynamism was being stifled byexcessive taxes and benefit levels. Nevertheless total spendingon welfare has edged up in many countries and cuts in ratesof benefit have generally been fairly modest. The generosityof the welfare state has an enormous influence on poverty andincome inequality and still appears to be popular in most ofEurope. Suggestions that society would benefit from reducedworking time must reckon with the fact that it is paid workwhich generates the tax revenue required to fund welfare spending. Footnotes ¹ E-mail addresses: donatella.gatti{at}cepremap.cnrs.fr; andrew.glyn{at}economics.oxford.ac.uk     

Prudence or Profligacy: Deficits, Debt, and Fiscal Consolidation

Over the last quarter century, public finances have been underpressure in most OECD countries as deficits and debts rose underthe pressure of relatively slow growth and high interest rates.This, in turn, has affected the welfare state, since effortsat containing deficits have often been concentrated on publicexpenditure. Much of the literature argues that this is desirable,since curbing deficits via tax increases seldom succeeds. Amedium-term survey of OECD country experience suggests a lessclear-cut conclusion. In a number of countries which were ableto curb debt/GDP ratios, the bulk of the adjustment did, indeed,come from spending cuts (but was, also, in some cases helpedby rapid growth and/or currency depreciation). In several, however,tax increases also appear to have succeeded in reducing deficitsand debt. Footnotes ¹ E-mail addresses: andrea.boltho{at}magd.ox.ac.uk; andrew.glyn{at}economics.oxford.ac.uk     

Redesigning Regulation of Pensions and Other Financial Products

We observe that financial regulation is ever-growing, with thelatest area to experience increased supervisory attention beingpensions. Yet this has not made the financial world or consumerssafer, and for pensions in particular there are unexpected andundesired consequences. We explore the current policy approachto supervision, which is ‘bottom up’, i.e. assessmentand regulation of individual institutions, with the aim ofmakingthe financial system safe by making each institution safe. Weshow that this is both damaging (because it stifles innovation)and does not work (because risk will always be squeezed fromthe regulated institutions to the less regulated and less seen).Instead, we advocate a ‘top-down’ approach, whichfocuses on making the system safe first. We conclude that onceyou have made systems safe, detailed supervision of individualinstitutions is less necessary, thus reducing the burden ofsupervision. We believe that this approach will lead to a moresuitable and diverse treatment of different risks that willincrease both systemic and consumer safety. ‘If you haveten thousand regulations you destroy all respect for the law’,Winston Churchill (1931). ‘The ultimate result of shieldingmen from the effects of folly is to fill the world with fools’,Herbert Spencer (1891). Footnotes ¹ E-mail addresses: n.barr{at}lse.ac.uk; john_nugee{at}ssga.com     

The Structural Pension Reform in Chile: Effects, Comparisons with Other Latin American Reforms, and Lessons

Chile pioneered a structural reform in Latin America that privatizedits public pension system and influenced similar reforms inanother nine countries. Twenty-five years later, this articleevaluates the macroeconomic, microeconomic, and social effectsof this reform in Chile and the other countries in the region,and extracts lessons from those experiences. Fiscal costs ofthe reform have been high and prolonged, exceeded capital accumulation,and had a negative impact on national savings, but Chile's reformhas contributed to the development of capital markets; employer'scontributions were eliminated or reduced in half of the countriesand the worker's share in the total contribution averages 65per cent; competition is afflicted by a small number of administratorsand a high level of concentration; administrative costs arehigh and stagnant; capital returns are fair but declining; portfoliodiversification has been achieved only in Chile and Peru; labour-forcecoverage has declined in all ten countries, and gender and incomeinequalities have expanded. Footnotes ¹ E-mail addresses: aarenas{at}dipres.gob.cl; cmesa{at}usa.net     

Measuring and Understanding Productivity in UK Market Services

Many productivity studies, if they cover the service sector,commonly enter a caveat that the data are uncertain or justlook at manufacturing. This paper attempts to clarify what UKmarket-service-sector data are available, whether they shouldbe treated as inaccurate, and what conceptual problems mightmake measuring service-sector output so hard. Our overall conclusionis that most problems surround financial intermediation andbusiness services. In financial intermediation, national accountsconventions and adjustments make the output data very hard tointerpret. In business services many of the output measuresare employment based. Elsewhere, for example, retail and wholesaletrade, transport, and hotels and restaurants, the main problemis, in practice, lack of collected deflators. Footnotes ¹ E-mail addresses: g.a.crespi{at}sussex.ac.uk; chiara.criscuolo{at}ons.gsi.gov.uk;j.e.haskel{at}qmul.ac.uk; d.hawkes{at}ioe.ac.uk     

Rethinking Fiscal Policy

The use of fiscal policy as a stabilization device has all butvanished, more or less explicitly in Europe and de facto inthe United States. The practical consequences have not beenentirely satisfactory, in either place. So it is important andtimely that the Oxford Review is devoting a special issue tothe macroeconomics of fiscal policy. In this paper I want todiscuss two underlying questions about the eclipse of fiscalpolicy. Why did this happen and was it a good idea? And if itwas not a good idea, then what follows? Footnotes ¹ E-mail address: jamu{at}mit.edu     

Pension Challenges and Pension Reforms in Oecd Countries

The 30 OECD member countries have very diverse pension systems.Current old-age public pension spending varies between lessthan 1 and more than 10 per cent of gross domestic product (GDP).Public spending on pensions per person aged 65 or over variesfrom less than 15 to more than 40 per cent of economy-wide GDPper head. For workers entering the labour market today, thetarget pension from all mandatory sources for an average earnervaries between 30 and 100 per cent of individual earnings. Recentpension reforms have a number of common themes. First, pensioneligibility conditions have been tightened. Second, the indexationof pensions in payment has become less generous. Third, somepension schemes link benefit levels to changes in life expectancy.Finally, a number of countries have introduced defined-contributionpensions: privately managed schemes where the pension benefitdepends on contributions and investment returns. Footnotes ¹ E-mail addresses: peter.whiteford{at}oecd.org; edward.whitehouse{at}oecd.org     

Regulatory Policy: OECD Experience and Evidence

In the past 20 years a key topic of public-sector reform inOECD countries has been the emergence of regulatory policy.During this period, the nature of regulation has undergone profoundand rapid change. This paper reviews the development of regulatorypolicy in OECD countries over the last quarter-century. It identifiesa range of tools and institutions that have been used by OECDcountries to develop high-quality regulation. The analysis attemptsto show that while there is considerable commonality on broadobjectives of regulatory policy, considerably diversity remainsin the implementation of regulatory policy across OECD countries. Footnotes ¹ E-mail address: nikolai.malyshev{at}oecd.org     

Fiscal Stabilization Policy and Fiscal Institutions

In this paper we analyse counter-cyclical fiscal policy withinthe context of a microfounded analysis of business-cycle stabilization.We show that tax and spending instruments can have a usefulcounter-cyclical role, even after allowing for the distortionarynature of the instruments and the need for debt sustainability.A critical barrier to the use of fiscal instruments may be politicaleconomy concerns, and we survey recent suggestions involvingalternative fiscal policy institutions. Footnotes ¹ E-mail addresses: c.b.leith{at}socsci.gla.ac.uk; s.wren-lewis{at}exeter.ac.uk     

From Skills Revolution to Productivity Miracle--Not as easy as it Sounds?

This article surveys the potential impact of skill on productivity.It opens with a review of the utility of productivity as a measureof systemic economic performance, and then goes on to explorethe oft-assumed close and strong relationship between skillsand productivity. The importance of other factors and typesof investment is stressed. These complementary elements maybe at least as important as skill in boosting performance, andtheir absence may negate the impact of public investment ineducation and training. The ability of economic developmentpolicy, particularly as it relates to the Regional DevelopmentAgencies, to address skills and economic development is assessed,and questions are raised about what type and level of skillmight have the largest impact on economic performance. In conclusion,we discuss the demands that new policy approaches are makingupon the machinery and personnel of government. Footnotes ¹ E-mail addresses: keepej{at}cardiff.ac.uk; ken.mayhew{at}pmb.ox.ac.uk;paynej3{at}cardiff.ac.uk     

Risks at Work: The Demand and Supply Sides of Government Redistribution

To comprehend how the welfare state adjusts to economic shocksit is important to get a handle on both the genesis of popularpreferences and the institutional incentives for governmentsto respond to these preferences. This paper attempts to do both,using a general theoretical framework and detailed data at boththe individual and national levels. In a first step, we focuson how risk exposure and income are related to preferences forredistribution. To test our hypotheses, we extract detailedrisk-exposure measures from labour-force surveys and marry themto cross-national opinion survey data. Results from analysisof these data attest to the great importance of risks withinthe labour market in shaping popular preferences for redistributiveefforts by governments. In a second step, we turn our attentionto the supply side of government redistribution. Institutions,we argue, mediate governments' reactions to redistributionaldemands following economic shocks. Using time-series cross-countrydata, we demonstrate how national training systems, and electoralinstitutions, as well as partisanship, shape government responses. Footnotes ¹ E-mail addresses: tom{at}wz-berlin.de; iversen{at}fas.harvard.edu;pr9{at}duke.edu     

The Interactions between Fiscal Policy and Monetary Policy

This paper studies the interactions of fiscal policy and monetarypolicy when they stabilize a single economy against shocks ina dynamic setting. If both policy-makers are benevolent, then,in our model, the best outcome is achieved when monetary policydoes nearly all of the stabilization. If the monetary authoritiesare benevolent, but the fiscal authority discounts the future,or aims for an excessive level of output, then a Nash equilibriumwill result in large welfare losses: after an inflation shockthere will be excessively tight monetary policy, excessive fiscalexpansion, and a rapid accumulation of public debt. However,if, in these circumstances, there is a regime of fiscal leadership,then the outcome will be very nearly as good as when both policy-makersare benevolent. Footnotes ¹ E-mail addresses: t.kirsanova{at}exeter.ac.uk; jari.stehn{at}bnc.ox.ac.uk;david.vines{at}economics.oxford.ac.uk