Private Sector and Social Protection


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Private Sector and Social Protection

  1. 1. Mitigating Vulnerabilities and Promoting Sustainable GrowthSequencing, cost-efficiency and fiscal-sustainability of social protection A policy dialogue proposalIICPSD Global Partnership for Business-led Solutions to Social Development Challenges 1-2 November 2012
  2. 2. UNDP and the Government of Turkey established IICPSD toleverage private sector-born solutions to development challenges + • Support the development of inclusive and competitive markets and inclusive business models • Foster private sector engagement and advocacy for the achievement of the MDGs andObjectives: other IADGs • Become a center of excellence in terms of capacity development activities that harnesses Trilateral Development Cooperation and South-South partnership • Convene business and supporting actors to expand dialogue and create actionable partnerships
  4. 4. Over the last three decades…• Technological progress has accelerated• Competition in the global marketplace has deepened• Capitals have increased mobility• Bargaining power of unions has progressively decreasedConsequently:• Labor’s shares in National Income distribution have declined from above 70% to as low as 50% (i.e. wages increased at a lower pace than productivity)• Human Development Index average growth rate has declined• Inequality between capital owners and labor suppliers has deepened• Aggregate demand too low to restore growth / Deflation• Social distress is growing
  5. 5. Ireland Netherlands Canada Sweden Japan Korea Switzerland France 1980-1990 Israel Finland Iceland Belgium Denmark Spain 1991-2000 Hong Kong, China Greece Italy Luxembourg Austria UK UAE 2001-2010 Malta Cyprus Hungary Bahrain Portugal Chile Argentina Latvia OECD Non-OECD Arab States East Asia and Pacific Europe and Central AsiaLatin America & the Caribbean South Asia Human Development Index (HDI) - average annual growth rate (%) Sub-Saharan Africa Sub-Saharan Africa
  6. 6. 85.00 Labors share in % of GDP in selected OECD countries 1990-2012 Labor’s share as % of GDP in OECD countries 1990-2012 199080.00 1991 199275.00 1993 1994 199570.00 1996 199765.00 1998 1999 200060.00 2001 200255.00 2003 2004 200550.00 2006 2007 200845.00 2009 201040.00 2011 2012
  7. 7. % of Labor Force 0 2 4 8 6 12 16 10 14 Australia Austria Belgium Canada Chile Czech Republic Denmark Estonia Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Decline in union density 2000-2007 Netherlands New Zealand Norway Poland Changes in bargaining power PortugalSlovak Republic Slovenia Spain Sweden Switzerland TurkeyUnited Kingdom United StatesOECD countries
  8. 8. Declining labor’s shares have…• Reduced social security contributions and taxes• Discouraged employment / deepened unemployment trap and created labor market rigidity• Replaced earning- with borrowing- based consumption• Polarized growth and enlarged the Bottom of the Pyramid (BOP)• Reduced personal investment in long term gains (education, health)• Prompted the need for a revised social model
  9. 9. Public – Private Sector nexus in social protection“ Social protection is the most subtle State intervention in the market”,Mattei Dogan und Dominique Pelassi (1990) “How to Compare Nations”• Public promises buy votes at the expense of future stability• Young men will contribute more to the system than they will receive back (Exp: in Estonia (335%), Hungary (296%) and Slovakia (183%))• European social security implicit debt exceeds 30,000 Bill Euro• Passive social protection- not enough to live, but more attractive than work• Governments borrow to offset declining tax revenues, labor suppliers borrow for basic consumption, capital owners do not save enough• Inclusive business models, a bridging solution from passive to active social measures• Businesses call for more flexible labor markets to grow
  10. 10. 40 Unemployment rates 1999-2011 Youth unemployment rate 2011 European Union (27 countries) Euro area (16 countries) Belgium35 Bulgaria Czech Republic Denmark Germany (including former GDR from 1991)30 Estonia Ireland Greece Spain France25 Italy Cyprus Latvia Lithuania20 Luxembourg Hungary Malta Netherlands Austria15 Poland Portugal Romania Slovenia10 Slovakia Finland Sweden United Kingdom Croatia5 Turkey Norway United States Japan0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Youth
  11. 11. Minimum wage impact on youth unemployment
  12. 12. Interpretation of fixed effects regression results 22 countries 1995-2010 • 88% of variation in youth unemployment due to variation in minimum wage • 1% increase in minimum wage leads to 0.14% increase in youth unemployment (i.e. every 10% increase in minimum wage leads to 1.4% increase in youth unemployment Youth unemployed variation against minimum wage-Spain Youth unemployment versus Minimum wage ROMANIA Youth unemployed variation against minimum wage-Portugal 24 Regression Results Regression Results 25 40 • Robustness: Error in confidence >95% is 0.265 22 20 35 yun_romaniayun_spain yun_portugal 30 20 15 25 18 10 20 16 5 500 550 600 650 700 750 Annual amount 0 50 100 150 5 10 15 20 25 MW Annual amount_Romania Annual amount Portugal
  13. 13. Unemployment Trap (tax in % from wage minus unemployment benefit)
  14. 14. Perspective on the social dimension of the New Economy • Social welfare paradigm of redistributive growth versus social investment still standing. • Shifting pro-poor growth to inclusive growth received a slow institutional response due to gaps between expectations and opportunities. • Balancing Competition and Solidarity remains a common denominator of governance efforts worldwide through social dialog and corporate social responsibility • Current social models : responsible for fiscal imbalances, labor market rigidity, high long-term unemployment, youth vulnerability and social exclusion , intergenerational discrepancies in terms of returns to mandatory contributions • Social investment unable to overcome age-driven productivity deficit, misallocation of skills (over 50% of employed labor force performing jobs requiring different skills than those acquired through education – ILO Global Wage Report 2010/11), leading to declining competitiveness • Institutional cost-effectiveness analysis shows highly regulated social systems responsible for growing informality • Social agenda increasingly political, time-framed to government’s terms in disregard of economic trends • Decreasing union’s power worldwide doesn’t reduce liabilities against promises made to current generations, but offers opportunity for radical social reforms to restore sustainability and create pro- cyclical mechanisms / optimal, growth restoring spending. • Generous social schemes may encourage labor force migration and reduce capital relocation (capital flows channeled towards less social costly markets)
  15. 15. Risks posed by declining labor’s shares• Higher distribution of income towards capital owners as opposed to labor may increase inequality• Marginal propensity of consumption is higher as opposed to capital owner’s inclination to saving. Consequently, declining shares will lead to declining demand• Slower pace of labor’s share increase will trigger a similar pace of adjustment of earnings related social benefits• Without addressing declining labor’s shares, monetary policies will continue to lead to low interest rates due to the absence of inflationist pressure, discouraging savings, encouraging debt-led consumption, reducing capital inflows and maintaining the status – quo• Without reflecting declining labor’s shares into production functions (Cobb-Douglas, CES), potential GDP (demand excess) will be erroneously determined
  16. 16. The way forward• Bring private sector in the public policy space for revised social models• Begin social reforms from below (new social protection arrangements for new comers)• More active social protection measures to reduce passiveness• Replace social protection with business solutions for poverty reduction• Join IICPSD in a global debate on a new social model• Use post 2015 Development Agenda consultations to refine social protection reform strategy for sustainable human development and growth• Seek optimal parameters for labor, goods and capital markets to grow together
  18. 18. IICPSD is part of a global network of UNDP thematic centersThe only one to focus on and involve private sector actors in development Oslo Governance Centre Seoul Policy Centre for Global (Oslo, Norway): Development (Seoul, South “Provide policy guidance Korea): and technical support to “Through promotion of global the more than 130 UNDP learning, networking and Country Offices around the dialogue, … will help to foster world.” comparative experiences and approaches of new development partners.” IICPSD International Policy Centre for Sustainable Development(Brasilia, Brasil): “Global forum for policy dialogue… (Singapore) Public Service equipping policymakers in Excellence the developing world with The Drylands Development the skills necessary to Centre (Nairobi, Kenya): design, implement and “Carries out research and evaluate policies and analysis of policies that affect programmes towards the communities in the drylands, and attainment of high provide advice and policy- inclusive growth.” making support to decision-Source: Centres’ websites makers.”
  19. 19. ….Together with UNDP’s corporate partners Businesses
  20. 20. … including its network of academic institutions… 7 in Eastern Europe and the CIS 13 in donor countries 11 in Asia 3 in MENA and the Pacific 9 in sub- 6 in Latin Saharan America and Africa the Caribbean
  21. 21. IICPSD Business Process IICPSD & partners Multi-Stakeholder Research and Training and Capacity Partnership Platforms & Development Development Inclusive Value Chains- Academic Partnerships- Advisory Board (AFD, IFC, - Training Licensing in - Open partnerships withEBRD, WEF, JICA, CIDA, inclusive and responsible governments and businessDanish Confederation, entrepreneurship communityKOC University, TOBB and - Network of Expertsothers)
  23. 23. The IICPSD engages in different types of partnership arrangements Dr. Eduardo Aninat, •Example: •Example: former Minister of Implementation Advisory Board Finance, Chile, andJoint project of IKEA Foundation of development members former IMF Deputyand UNDP India to empower 2.3 Managing Directormillion poor women across 4 projectsStates Jane Nelson, Senior Fellow and Director of CSR Initiative, Harvard Formal Advisors / Kennedy School, andJoint project of WEF Business Alliance Against operational thought Director of Strategy, IBLFChronic Hunger, UNDP Kenya and Ministry of partnerships leadersAgriculture to spread irrigation solutions forimproved food security and youthempowerment Institutions Informal engaged activity- Sourav Mukherji, through based Organization of a global expert Associate Professor, individuals collaboration workshop on impact assessment Indian Institute of •Example: •Example: methodologies Management, Bangalore Research Thematic events Fellows Olayinka David- West, lecturer, Organization of a LDC-IV side event Lagos Business on Financial Inclusion through G2P School Payments and Emergency Cash Transfers
  24. 24. IICPSD Signature Alliances and Programmes• Signature Alliances: – Building Tomorrow’s Markets – Energy Access for Productive Use (SE4ALL) – Strengthen & Improve Sustainable Development Impact of Extractive Industry – Economic Recovery and Employment Creation in Fragile States – Better Than Cash (Financial Inclusion) – Transport and Trade facilitation• Signature Programmes: Research, business model design, training and capacity development in: – Inclusive Business / Value Chains – Impact Investment – Inclusive Procurement – Low Cost Housing – Green Commodity – Financial Literacy and Inclusion – Public-Private Partnership for Skills Development – Transport and Trade Enhancement
  25. 25. IICPSD GoalsAlong with business and government partners we:• Enable economic environments in emerging markets to foster inclusive growth employing untapped resources• Design inclusive business models and build PPP platforms to offset lower yields of the income pyramid• Contribute to reduction in passive social protection costs by including poor and disadvantaged in supply chains and productive work• Build markets from below enhancing local content and balancing competition and solidarity• Broker private sector’s relationships with governments for reinforced complementarities
  26. 26. IICPSD promotes development gap offsetting exchanges including through SSC