1. Vulnerability of Social
Institutions
Falilou FALL
OECD Economics Department
New Approaches to Economic Challenges
Seminar on Project C2, 18 March 2014
1

2. • Role and functions of social institutions
• Social institutions and the crisis
• Institutional design influences their
vulnerabilities – country specificities
• The scope of the analysis: pension, health care
and unemployment insurance (UI)
• Balance between sustainability and adequacy
• Outline:
– Trend and long run changes: ageing and productivity
– Macro shocks and UI
– Policy recommendations
2
Introduction and outline

3. • Shocks – Sustainability – Reforms - Adequacy
• What are the critical drivers of vulnerabilities and the
sensitivity to risks?
• How do the different shocks affect the sustainability of
social institutions?
• Institutional capacity to cope with shocks and risks
• Adequacy and impact of reforms
3
The framework
Adaptive and
recovery
capacity
Risk
prevention
Shocks
Impact on
promises
and costs of
meeting
them

4. • Ageing
Figure 1: OECD old-age support ratio will decrease from 4.2 currently to 2.1 in 2050
4
Long-term risks and trends and their effects
on social institutions
0
2
4
6
8
10
12
Difference 2050-2010 2050
Source: OECD (2013), Pensions at a Glance 2013

5. 5
Ageing and health care systems
0
2
4
6
8
10
12
14
16
Baseline Morbidity compression Morbidity expansion
Figure 2: Health status in old age affects public health care spending
Source: OECD calculations and de la Maisonneuve and Oliveira Martins (2013).

6. 6
Ageing and pension systems
0
2
4
6
8
10
12
14
16
18
20
2010 2050
Source: OECD (2013), Pensions at a Glance 2013
Figure 3: Public pension expenditure projections

7. 7
The impact of a longevity shock on a PAYG defined
benefit scheme
Source: OECD simulations
Figure 4: Simulation of the impact of a longevity shock on DB scheme

8. 8
Ageing, social spending and fiscal consolidation
Figure 5: The impact of future health and pension spending on consolidation
needs
Source: Cournède, B. et al. (2013), Pensions at a Glance 2013 and de la Maisonneuve and Oliveira-Martins (2013).

9. • Health spending, price and technology developments
9
Productivity developments and social institutions
Source: de la Maisonneuve and Oliveira Martins (2013).
Figure 6: Price and technological developments affect the public health spending-to-GDP ratio

10. 10
Productivity changes and pension schemes
Source: OECD simulations
Figure 7: The effect of a productivity growth slowdown on a DB scheme

11. 11
Macroeconomic shocks and unemployment
insurance
11
Figure 8: Evolution of the NAIRU during the crisis
-8
-6
-4
-2
0
2
4
Change in Nairu 2006-08
Change in Nairu 2009-12
Source: EO93 database, OECD Social Expenditure database, OECD calculations.

12. Figure 9: Unemployment rate and volatility
12
Source: EO93 database, OECD Social Expenditure database, OECD calculations.

13. Figure 10: Unemployment insurance spending elasticity to unemployment
Figure 11: Spending asymmetries over the cycle
13
-3
-2
-1
0
1
2
3
-8
-4
0
4
8
12
Source: EO93 database, OECD Social Expenditure database, OECD calculations.

14. – Pension schemes, ageing and risks (interest rate, asset price and longevity).
– Pension reform levers : retirement age, contribution rate and pension rate.
– Adjusting key parameters automatically to life expectancy.
– Widening the coverage of voluntary private pensions as a complement to public
pensions.
Figure 12: Poverty among older people (2010, people older than 65 years )
14
0
5
10
15
20
25
30
35
40
45
50
All 65+ Whole population
Source: OECD Income Distribution and Poverty Database.
Overcoming vulnerabilities of pension systems

15. – Health care spending drivers : ageing, price and technology developments.
– Policy options for reducing spending: higher cost sharing and tax incentives for private
health insurance curb public spending, but worsen adequacy.
– Supply side policies: regulated competition, well-designed budgetary caps, hospital
payments (diagnostic related groups and health technology assessments).
– Greater efficiency and spending savings.
Figure 13: Degree of cost sharing
15
Overcoming vulnerabilities of health care
systems
0
0.5
1
1.5
2
2.5
3
3.5
NLD
LUX
FRA
IRL
GBR
USA
USA
DEU
CZE
DNK
CAN
NZL
JPN
NOR
AUT
SWE
ISL
AUS
BEL
FIN
TUR
ITA
ESP
PRT
POL
HUN
SVK
CHE
KOR
GRC
MEX
Source: OECD Survey on Health System Characteristics 2008-09.

16. – Generous benefits can lead to large spending spikes.
– Unemployment insurance adequacy in crisis times.
– Effective activation policies can increase UI efficiency.
– Contingency plans to adjust policies during crises should be in place.
Figure 14: The responsiveness of active labour market policies to unemployment
16
Overcoming vulnerabilities of unemployment
insurance (UI)
AUS
AUT
BEL
CAN
CHE
CZE
DEU
DNK
ESP
EST
FIN
FRA
HUN
IRL
ISR
ITA
JPN
KOR
LUXMEX
NLD
NZL
POL
PRT
SVK
SVNSWE
USA
-50
0
50
100
150
200
250
300
-50 0 50 100 150 200 250 300 350 400
ALMP expenditure scaled by GDP per capita, per cent change 2007-10
Unemployment, per cent change 2007-10
45o
Source: OECD Social Expenditure Database.

17. THANK YOU