HLEG thematic workshop on Measuring economic, social and environmental resilience, 25-26 November 2015, Rome, Italy, More information at: http://oe.cd/StrategicForum2015

1. Falilou FALL
Senior Economist
OECD Economics Department
Joint IEA/ISI Strategic Forum 2015 and High-Level Expert
Group on the Measurement of Economic Performance and
Social Progress Workshop, Rome November 2015.
VULNERABILITY OF
SOCIAL INSTITUTIONS
25 November 2015
1

2. • How social institutions can cope with adverse
– long term trends
– short term macroeconomic shocks
• Social institutions provide risk sharing (over time and across
individuals)  equity and economic efficiency  welfare
• In some case, large negative shocks or adverse long term trends 
institutions may become unable to continue to perform their core
functions (recent crisis provided a stress test)
• Institutional design influences their vulnerabilities – country
specificities
• The scope of the analysis: pension, health care and unemployment
insurance (UI) 2
Aim of this project

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. • Sustainability-adequacy –trade off
• 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
4
Analytical framework
Sustainability
Adequacy
A
B
C

5. • Trend and long run changes: ageing and
technology/productivity
– Pensions and health care systems
• Macroeconomic shocks
– Unemployment insurance and to a less extent
health and pension systems
5
The challenges: long-term trends and
shocks

6. 6
Ageing
0
2
4
6
8
10
12
Difference 2050-2010 2050
Source: OECD (2013), Pensions at a Glance 2013
Figure 1: OECD old-age support ratio will decrease from 4.2 currently to 2.1 in
2050

7. 7
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).

8. 8
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

9. 9
Ageing, social spending and fiscal consolidation
Figure 4: 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).

10. VULNERABILITY OF
PENSION SYSTEMS
10

11. 11
Ageing shock: PAYG defined benefit scheme
Source: OECD simulations
Figure 5: The impact of a longevity shock on DB scheme

12. 12
Ageing shock: DC scheme
Source: OECD simulations
Figure 6: The impact of the longevity shock on a DC scheme
Difference with respect to the baseline scenario

13. 13
Migration shock on pension schemes
Source: OECD simulations.
Figure 7: The impact of a negative migration shock on the DB and DC scheme
Difference with respect to the baseline scenario

14. 14
Productivity changes and pension schemes
Source: OECD simulations
Figure 8: The effect of a productivity growth slowdown on a DB scheme

15. VULNERABILITY OF HEALTH
SYSTEMS
15

16. 16
Health systems and Technology
Source: de la Maisonneuve and Oliveira Martins (2013).
Figure 9: Price and technological developments affect the public health spending-to-GDP ratio

17. 17Source: Health Statistics and OECD Economic Outlook, No. 91.
IRL
USA
NLD
SVN
NZL
CANCZEHUN NORPOLSVK
AUT CHL
PRT
BEL
DEU AUS
DNK
-5
-4
-3
-2
-1
0
1
2
3
4
-10 -5 0 5 10 15
Privatehealthinsurancecoverage
Net household real disposable income
Macroeconomic shocks and health insurance
Figure 10: Real disposable income shocks affect private health insurance coverage

18. VULNERABILITY OF
UNEMPLOYMENT
INSURANCE SCHEMES
18

19. 19
Macroeconomic shocks and unemployment
insurance
19
Figure 11: 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.

20. Figure 12: Unemployment rate and volatility
20
Source: EO93 database, OECD Social Expenditure database, OECD calculations.

21. Figure 13: Unemployment insurance spending elasticity to unemployment
Figure 14: Spending asymmetries over the cycle
21
-3
-2
-1
0
1
2
3
-8
-4
0
4
8
12
Source: EO93 database, OECD Social Expenditure database, OECD calculations.

22. – 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 15: Poverty among older people (2010, people older than 65 years )
22
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

23. – Health care spending drivers : ageing, price and technology developments.
– Policy options for reducing spending: higher cost sharing can help curb public spending, but
worsen adequacy.
– Tax incentives for private health insurance enrolment are often regressive and ineffective in
reducing spending.
– Supply side policies: regulated competition, well-designed budgetary caps, hospital payments
(diagnostic related groups and health technology assessments).
– Greater efficiency and spending savings.
Figure 16: Degree of cost sharing
23
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:OECDSurveyonHealthSystemCharacteristics2008-09.

24. – 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 17: The responsiveness of active labour market policies to unemployment
24
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.

25. THANK YOU