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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Symptoms of a social crisis – and the right policy
responses

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

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

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

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

2. Social policy responses to date

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

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

Social spending increased most in countries least
affected by the crisis

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

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

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

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

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

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

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

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

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

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

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

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

But social policies are now at the core of fiscal
consolidation

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

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

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

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

Social transfers have been the main target of
consolidation measures

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

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

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

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

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

Countries use different approaches to achieve
savings

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Crisis "readiness" is not just about spending
levels

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reinforce household resilience and encourage support
between family members

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

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

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

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

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

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

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

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

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

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

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

Enable labour-market adjustments through
employment-friendly regulations

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

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

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

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

Adequate resources for counter-cyclical support
measures

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

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

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

A need for
counter-cyclical policies

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

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

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

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

(Matsaganis, 2011; OECD, 2013f).