InternationalLabourOffice

Social security for all:Investing in people

Presentation at UN DESA ForumProductive Employment

and Decent Work Michael CichonSocial Security Department

New York, 8 May 2006

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Structure of presentation

Point One: Social security: Definition, objective and problematique

Point Two: Social security’s main challenges

Point Three: The rationale for social security in development Point Four: Changing the development paradigm

Point Five : By way of conclusion: Accepting global responsibility

for social security for all

InternationalLabourOfficePoint One: Definition

Definition: social protection/social security:

formal or informal income transfers in cash or in kind that ascertain access:

- to health and social services and

- income security to cope with certain life risks that

could lead to a loss of income (i.e. social assistance, pensions, short-term cash benefits in case of sickness, maternity, unemployment, employment injury…)

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Point One: Objective

Objective of social security systems: alleviate/or better abolish poverty and reduce social insecurity

The Decent Work connection: Social protection/social security is one of basic pillars of decent work:

without social security neither work nor life in the formal and informal economy can be decent

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Point One: Problematique

Social security reduces poverty by at least 50% in almost all OECD countries

Social security reduces income inequality by about 50% in many European countries

Social security universally accepted as human right (article 22, Universal Declaration)

And yet: 80% of people live in social insecurity, 20% in abject poverty

And yet: Social security is underutilized in national anti-poverty and development strategies

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Point One: …present coverage Social security coverage in old age: current beneficiaries and protected persons in working age

-

10

20

30

40

50

60

70

80

90

100

Azerbaijan Brazil Germany Mongolia Senegal Tanzania United States Viet Nam

Cov

erag

e ra

tio (

per

cent

of

the

popu

latio

n in

thi

s ag

e gr

oup)

Beneficiaries (65+)

Protected persons (15-64)

Source: Preliminary results of the ILO Social Security Inquiry, Social Security Department of the United States and German Social Insurance. Data on the insured population in working age for the United States include survivor benefits.

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Point Two: Challenge One: The non- affordability arguments: Work and life cannot be made decent through social security, because …

– Loss in potential GDP due to equity efficiency trade-off

– Social expenditure too expensive for developing countries

– Ageing poses an unsolvable problem– Unmanageable expenditure explosions

- Competitive forces in globalization will limit fiscal space

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Correlations between per hour productivity and social expenditure per capita

in OECD countries in 2001

y = 0.0043x + 8.7845

R2 = 0.7812

0

10

20

30

40

50

60

0 2000 4000 6000 8000 10000 12000

Total public social expenditure per capita in PPP

Pro

du

cti

vit

y

(per

ho

ur

wo

rked

)

Source: OECD

The equity-efficiency trade-off: Empirical evidence in OECD

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Assessing potential impact and costs of cash transfers in Senegal and Tanzania:

Poverty rates before and after cash transfersSenegal

0

5

10

15

20

25

Tot Boys Girls Old M Old F

child benefit pension

Tanzania

0

5

10

15

20

25

Tot Boys Girls Old M Old F

child benefit pension

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Assessing potential impact and costs of cash transfers in Senegal and Tanzania:

Cost of benefit package as percentage of GDP

0%

1%

2%

3%

4%

5%

Senegal Tanzania

child benefit pension

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Affordability study, base scenario:2005-2035 projected benefit expenditure on old-age /disability pension and child benefit (% of GDP)But, in principle, both would be fiscally affordable now and in the future

0%

1%

2%

3%

4%

5%

6%

7%

8%

2005 2010 2020 2030 2035

BF Ca Eth Gui Ken Sen Tan

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Preliminary results for Tanzania: Expenditure

Basic social protection expenditure in percent of GDP

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2005 2009 2013 2017 2021 2025 2029 2033

Universal pensions Child benefit Basic education

Basic health care Administrative expenditure

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Preliminary results for Tanzania: Financing

Option 1 (based on 2003 fixed proportion of projected govt. expenditure)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2005 2009 2013 2017 2021 2025 2029 2033

Required External financing in % of GDPGovernment financing in % of GDP

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Ageing: A catastrophe?

Estimated old age system dependency rates in Western Europe 2004 - 2050 without (DR1) and

with (DR2) increased retiment age

0.00

20.00

40.00

60.00

80.00

Dep

end

ency

rat

e in

%

DR (1)

DR(2)

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Ageing: A catastrophe? Global dependency rates

0

20

40

60

80

100

120

140

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

elderly L

elderly M

adults L

adults M

children L

children M

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Non-manageable expenditure? Projected expenditure in the EU…

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Challenge Two: Globalization, race to the bottom and the new uncertainty

There is evidence for a reduction of expenditure and benefit levels

BUT: There is no universal objective reason to assume that the fiscal space has to collapse completely – However, a challenge remains

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Race to the bottom: The expected pension replacement rates

0

10

20

30

40

50

60

70

80

Poland France Sweden(1)

Sweden(2)

CzechRepublic

Latvia

2005

2050

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No fiscal space?

y = 6.6127e4E-05x

R2 = 0.2858

0

5

10

15

20

25

30

35

40

45

0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000

GDP per capita in US$

So

cia

l secu

rity

exp

en

dit

ure

in

%..

Luxembourg

Bahrein

Japan

Korea

Mongolia

Singapore

Turkey

Poland

Sweden

Thailand

Denmark

Belarus

France

Argentina

United States

EthiopiaBurundi

Egypt

Israel

New Zealand

Bulgaria

Chile

Finland

UruguayUkraine

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No policy and fiscal space?

R2 = 0.3756

-

10

20

30

40

50

60

70

80

0 10 20 30 40 50 60 70

Government expenditure (% of GDP)

So

cia

l exp

en

dit

ure

(%

of

tota

l)

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Point Three: The rationale for social security in development

(1) Extensive welfare states and productive economies co-exist ==> The trade-off between equity and efficiency is wrong

(2) Some level of social security is affordable at any level of economic development

(3) Social security reduces poverty and inequality, facilitates LM adjustments, redistributes the proceeds of growth

Social security is thus an investment in people, states and the global community

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Point Four : Changing the development paradigm: towards progressive universalism

100%Fullbenefit coverage

Benefitcoverage

intermediatebenefit coverage

Basicbenefitcoverage

civil private informalservants/sector economypublic employeeschildren employed non-employed elderlyemployees

population coverage by groups

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InternationalLabourOfficeLet us start with:

– Basic health care for all– Child benefits conditioned on

schooling– Self targeting social assistance– Universal benefits in old age, disability

and loss of breadwinner – …facilitated through international

action guidelines which could look as follows:

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Point Five: Accepting global responsibility for social security for all: Three complementary ways

Creating international standards to defend a global social floor

Accepting global responsibility for the fiscal space for social transfers (PRSP, debt relief, ODA etc.)

Supporting national administrations in improved resource allocation and mobilization mechanisms