Number 4: Social policy directions across the OECD region: reflections on a decade

This report was published by the former Department of Families, Community Services (FaCS).

1 Introduction

Unemployment remains a persistent problem for many who are members of the Organisation for Economic Co-operation and Development (OECD). The average rate is around 7 per cent for the OECD region as a whole, with unemployment rates above 10 per cent for a number of European countries. Government budgets have come under increasing strain from the increased income support sought by people of working age unable to find employment. At the same time, there has been considerable growth in other social security payments to people of working age, such as disability pensions, sickness benefits, lone parent pensions and early retirement pensions.

There is some concern as to whether social policies have responded appropriately to the many changes in family arrangements, such as the increased incidence of marriage breakdown and lone parenthood, the increased incidence of no-earner as well as two-earner families, and the longer average time children remain economically dependent on their parents. The tax-transfer and wage systems in many countries have created poor work incentives for families to take up low-paying jobs.

The ageing of the population in most OECD countries is leading to further pressures for change to social and health programs. This is particularly an issue for countries with very generous, earnings-related retirement pensions, which provide very high earnings replacement rates funded on a pay-as-you-go basis, often coupled with generous early-retirement pensions and limited incentives in the pension system for people to remain working. An ageing population is also expected to lead to expanding health and long-term care expenditures. The likely extent of this increase will be influenced by many factors, such as developments in morbidity, medical technology and treatment, as well as the preferences of the older population themselves.

In response to these and other pressures, many OECD countries have been reforming and adapting their social programs. This paper does not attempt to describe all of these changes, but rather provides a thematic overview of developments.1 The paper begins with a brief picture of recent trends in social expenditures, followed by discussion of some of the major policy directions evident over recent years, including examples from particular countries.

[ Return to Top Return to Section ]

2 Changes in social expenditures

2.1 Fiscal consolidation pressures

Most OECD countries have been subject to fiscal consolidation pressures over recent years (Table 1). Many European countries have sought to meet the fiscal criteria for entry into the European Monetary Union, including some countries that did not seek to join in the first round. Many other OECD countries have been pursuing fiscal consolidation to introduce greater long- term sustainability and stability to government finances.

Nevertheless, it should also be recognised that despite these commitments to fiscal prudence, there are considerable differences in budget outcomes between countries. Some countries, such as Australia and the United States, have budget surpluses, while others continue to have budget deficits (although at a lower level than previously).

Social programs, which account for a large share of government activity in nearly all countries, have necessarily been affected by these fiscal consolidation exercises. Gross public social expenditures account for around 20-30 per cent of GDP in most OECD countries.2 If governments were to meet their overall fiscal targets, they needed to moderate their social expenditures.

Continuing high unemployment and ageing populations, in particular, have challenged the affordability of the welfare state in a number of countries. Adverse employment conditions have reduced the potential scale of contributions for social insurance schemes at the same time as payment liabilities have increased for a range of income support programs. In France, Germany and Italy, fiscal policies have been conflicting with political pressures for expansion of assistance in an environment of high and persistent unemployment. In a number of the Nordic countries, such as Finland and Sweden, fiscal consolidation was being pursued at the very time unemployment was rising significantly.3 Finally, some countries with generous pay-as-you-go public pension schemes are attempting to bring their pension systems towards fiscal balance by the time the 'baby boom' generation moves through into older ages around 2010-35.

Table 1: Budgetary targets in OECD countries

1. Current deficit of no more than 3 per cent of GDP; public debt to GDP ratio of 60 per cent or below. Progress towards these targets can be considered sufficient even if the targets are not reached. These criteria for the Stability and Growth Pact are continuing to be applied after the start of European Monetary Union.
2. Definitions of balance (e.g. over the cycle, excluding some items of expenditure, accruals or cash basis) differ.
3. Countries that are members of the EU but did not join European Monetary Union when it was first introduced or did not meet the Maastricht criteria.

Source: OECD 1998e.

Fiscal constraint

Member of EU that sought to satisfy Maastricht criteria1 for economic and monetary union

Countries negotiating for entry into EU in the next wave Other governments with a commitment to a surplus or balanced budget2
Countries Austria, Belgium, Denmark3, Finland, France, Germany, Greece3, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden3, United Kingdom3 Czech Republic, Hungary, Poland Australia, Canada, Iceland, New Zealand, Norway, Switzerland, United States

2.2 Social expenditures

To date, fiscal restraint has not resulted in falling gross public expenditures on social programs. As a general rule, public expenditures on social programs have stabilised as a percentage of GDP, or are still increasing but now at a slower rate (Table 2).4 In most OECD countries, the level of public social provision still remains high compared to previous spending levels, despite the steps towards fiscal consolidation.

This at least partly reflects the particular role of social programs, especially in providing for the poor and disadvantaged. Where there have been substantial reductions in public expenditure to bring budgets into balance, there has often been some attempt to protect social expenditures from the full magnitude of the cuts. These expenditure trends also reflect the difficult economic environment in the first half of the 1990s, when many OECD countries went into recession, and a number have experienced sluggish growth since that time.

The information on gross government expenditures on social programs (Table 2) should be used with some caution, especially when making comparisons across countries, because of the underlying differences in the structure of social protection arrangements across countries. Countries with a larger proportion of their social programs funded through private provision rather than the public sector will show up as having relatively low public sector expenditures.

A more accurate picture of the scope and generosity of total social expenditures across countries can be obtained by taking into account the assistance provided through the tax system, any tax liability on government transfers, and the scope of private social programs. When this is done (Adema and Einerhand 1998, Adema 1998), there is greater similarity across countries in terms of total net social expenditures as a percentage of GDP than is apparent from a comparison of gross public social expenditures, which is the usual indicator of the scale of social programs in OECD countries5. Unfortunately, because these estimates have been developed only recently, it is not yet possible to investigate trends over time using this measure.

Table 2: Trends in public social expenditures, as a percentage of GDP, 1980-95
Source: OECD Social Expenditure Data Base 1998
1. Information refers to 1994.
2. Information refers to 1993.
3. Information refers to 1992.
  1980 1985 1990 1995
Australia 11.8 14.0 15.2 15.7
Austria 22.6 24.3 24.2 26.3
Belgium 25.2 27.9 26.1 27.51
Canada 12.8 15.9 17.4 17.0
Czech Republic - - 16.0 19.1
Denmark 27.6 26.5 28.2 32.2
Finland 18.9 23.5 25.3 32.5
France 23.5 27.0 26.0 28.82
Germany 24.0 25.1 23.5 27.7
Greece 10.8 16.2 17.1 16.83
Ireland 20.3 23.0 19.0 18.6
Italy 18.4 21.7 23.1 23.7
Japan 10.3 11.3 11.2 13.8
Korea - - 4.0 5.4
Luxembourg 24.8 24.6 23.9 25.32
Mexico - 2.1 2.9 4.0
Netherlands 28.9 29.1 29.7 27.8
New Zealand 17.6 17.6 22.2 22.63
Norway 18.5 20.4 26.5 27.6
Portugal 11.6 11.9 14.4 17.52
Spain 16.3 18.5 19.6 21.8
Sweden 30.4 31.8 32.8 37.3
Switzerland 16.4 17.7 19.6 25.5
Turkey 3.9 3.8 5.9 7.2
United Kingdom 18.3 21.1 19.7 22.9
United States 13.4 13.0 13.5 15.8

[ Return to Top Return to Section ]

3 Social policy trends across OECD countries

While there are obvious differences between countries in terms of their policy priorities and the detailed design features of their social security systems, many of the social issues are similar, and there appears to be considerable convergence in directions of policy reform. Some of the distinct social policy trends evident in OECD countries include:

3.1 Fiscal consolidation pressures

Increasing individual and family self-reliance has occurred in response to a number of separate pressures - in particular, social programs being scaled back as a result of fiscal consolidation, and the introduction of charges for individuals (or increased charges) to reduce unnecessary usage of services (especially in the health care and, less prominently, long-term care areas). In a number of developed countries, there are concerns about the proportion of the working-age population receiving welfare benefits (Preston 1997), and the large and increasing number of working-age households where no adult is in work (OECD 1998e,f).

Access to social insurance programs has been restricted through more closely defined eligibility criteria, reduced benefit levels and reduced duration of benefits. Public assistance is being limited, with the expectation that individuals will either manage on lower incomes or draw on income from other sources, such as increased work effort or savings. Those who have been unsuccessful in their job search now rely more on means-tested safety nets, such as social assistance benefits. These policy reforms - changing insurance eligibility criteria and benefit levels, and greater recourse to means-tested benefits - can either encourage greater self-reliance for some or lead to greater dependency, depending on the nature of social protection arrangements and the household circumstances.6

It is too simplistic to see this shift towards greater self-reliance as purely an economic phenomenon or a reaction to fiscal pressures. Acceptance of welfare can be demeaning for some people and lead to long-term isolation from usual societal activities. In some countries, such as Japan, the encouragement of self-reliance is linked to efforts to improve dignity and self-esteem.

There is also a growing acceptance that passive benefits (in-cash and in-kind) will not provide a long-term solution to poverty alleviation (see, for example, Mead 1997). Countries are placing greater emphasis on encouraging and facilitating the transfer back to employment for jobless people of working age. This is being done through policies to 'make work pay' and complementary policies to improve the likelihood of jobseekers being employed, such as through training, education, work experience and wage subsidies (OECD 1996c, 1997a). Policies expanding child-care provision and accessibility so parents with young children can participate in paid work are further examples of this approach.

Some countries with comprehensive public systems for providing sickness benefits have modified program entitlements so that employers now have greater de facto responsibility for financially supporting employees during the initial periods of sickness, after which stage public sickness benefits are payable (for example, in Austria, the Netherlands, Germany, Belgium, Sweden and the United Kingdom). This has produced not only lower public costs but also changed incentives for employers to ensure their workplaces are safe, healthy environments and that they have mechanisms to reduce the level of absenteeism.7

Greater  emphasis is being placed on private provision for retirement income, either as a complement to or a substitute for public pensions, with some ongoing public involvement through tax concessions and financial regulations. However, in many OECD countries, the historical heavy reliance on public pensions to deliver retirement incomes will not be reversed quickly or easily, and the switch to private pensions will be incremental.8

In the health sector, different types of cost sharing have been imposed on patients, with the intention of reducing demand for health services in the context of predominantly universal health care arrangements and concerns to moderate health care expenditures.9 This has been most apparent in the pharmaceuticals area, where expenditure growth has been startling. Cost sharing is actively used in a number of OECD countries for hospital in-patient costs as well as general practitioner (GP) and specialist fees. It is important to note that many cost-sharing arrangements with health services either have blanket exclusion for elderly people and low- income earners, or require much lower contributions from them compared to other members of the population.

The demand for intensive hospital care for the elderly is lessening because of a decrease in acute or fatal diseases and an improvement in the health of older people. Long-term care for the elderly has traditionally relied heavily on family-based care, although there are indications of increasing demand for external services. While institutional care remains at a relatively low level,10 home and community care services are gaining increased importance. These services help people to cope with their chronic conditions in more familiar, client-focused surroundings that respect their autonomy and privacy.

While the majority of OECD countries finance public long-term expenditure from general revenues, a number of countries have either established, or are in the process of establishing, insurance schemes for future long-term care needs as a way of funding some part of the costs for people who require this service. These countries - Germany, Japan, Luxembourg and the Netherlands - all have a long tradition of social insurance arrangements. Contributions are collected from insured people, although both the Japanese and Luxembourg schemes still source around half of the funding from general government revenues.

3.2 Social expenditures

Somewhat linked to the trend of increased self-reliance is greater consideration by governments of the financial incentives emerging from social policies, and appreciation that they can and do influence the behaviour of welfare recipients.

If people expect to receive little financial gain from working compared to receiving income support, there is little reason to expect them to want to become self-sufficient. This is behind the policy push in many countries to 'make work pay'—to ensure that social policies do not stifle financial incentives for workforce participation (OECD 1997a).

Incentives for the unemployed to work

Many jobseekers receiving social security have limited financial incentive to get a job paying average earnings, let alone to accept a low-paid job more typical of entry-level jobs and jobs available for the disadvantaged unemployed in a number of OECD countries.11 One of the most widely used measures of the incentive for the unemployed to get a job is the replacement rate, which compares the value of unemployment benefit payments to available wage rates.12 Table 3 indicates the difference between unemployment benefits and low wages for different family types, both initially and at the 60th month of unemployment.

Table 3: Net replacement rates for four family types using low earnings after tax, in the first and 60th month of benefit receipt
Country First month of unemployment, 66.7% of APW-level 60th month of unemployment, 66.7% of APW-level
Single Married couple Couple, 2 children Lone parent, 2 children Single Married couple Couple, 2 children Lone parent, 2 children
Note: Waiting  periods are assumed to have already been met, refers to after-tax  comparisons, and includes unemployment benefits, family and housing benefits. Information  supplied by Greece suggests a net replacement rate of 50–58% of the minimum wage, depending on marital  status and the length  of the contribution period.
Source: OECD Data-base on Taxes, Benefits  and Incentives, also published in Table 3.1 and 3.4 in OECD 1998d, Benefit Systems and Work Incentives.




82 60 50


82 60




77 73 54


74 70




76 82 78


91 98




68 66 38


77 80

Czech  Republic



76 77 53







95 95 68


80 88




92 88 84







87 87 57


58 60




76 80 76


92 91




90 91 64


74 75




81 86 69







72 71 45


72 75




46 44 0 6 14 11




67 75 51


87 87

Republic of Korea



53 53 15


15 15




91 91 75


89 86




86 86 85


96 94

New Zealand



77 74 52


77 74




75 77 56


78 86




61 68 42


51 51




87 87 0 0 8 8




73 74 37


63 57




85 87 89







88 88 74


96 83

United Kingdom



80 63 75


91 80

United States



50 52 11


58 50

Replacement rates for short-term unemployment are above 75 per cent for all demographic groups in a considerable number of OECD countries, all of them in Europe (Belgium, Denmark, France, Hungary, Luxembourg, the Netherlands, Portugal, Sweden and Switzerland).While there are a few exceptions for the short-term unemployed, replacement rates for single people are on average lower than replacement rates for married couples without children which, in turn, are on average lower than for couples with children.

Replacement rates generally fall for single people as the duration of unemployment increases, reflecting the exhaustion of time-limited, earnings-related unemployment insurance schemes and the subsequent reliance on flat-rate, means-tested social assistance. However, this is not generally true for married couples and those  with children. Replacement rates for long-term unemployed families (unemployed for five years) are higher than replacement rates for the short-term unemployed in as many countries as they are lower, particularly as generous housing benefits start to operate for those  long-term recipient families on social assistance.

Over recent years, there have been some reductions in the generosity of unemployment benefits in response to concerns over high replacement rates and poor work incentives for the unemployed:

  • the value of unemployment benefit payments has been reduced in, for example, Austria, Canada, Germany, Ireland, New Zealand, Sweden and Poland;
  • the maximum duration of unemployment benefit payments has been lowered in, for example, the United Kingdom, Canada, Hungary and Sweden. A number of Nordic countries now require a period of unsubsidised employment (rather than simply participation in a government-sponsored labour market program) before unemployment benefits can be resumed after the maximum payment duration has been exhausted.

More broadly, increased requirements are being placed on people of working age to actively search  for jobs and accept suitable employment as a condition of benefit payment. Existing requirements are being strengthened for people on unemployment payments (sometimes in association with increased penalties for non-compliance) and new  conditions are being placed on lone parents and social  assistance recipients. These conditions are increasingly being formalised through a contract or written understanding between the recipient and the public agency outlining their respective responsibilities.

While  the prevailing financial disincentives faced by the unemployed for workforce participation can be moderated, to some extent, through strict  enforcement of effective job search  activity (work/activity testing), this strategy will be most effective as a complement to properly structured social policies that encourage recipients to take all desirable steps  to reduce welfare dependency. Relying  solely on very stringent administration processes to compensate for inadequate or inappropriate financial incentives is not a suitable long-term  strategy. Operating very stringent administrative processes can be very costly for public budgets and will still rely, to a major extent, on voluntary compliance by individuals to seek  work.

Overall, most countries have been reluctant to reduce replacement rates through cuts in unemployment benefit  payments because of concerns about the resulting impact  on poverty and income adequacy. The more common  approach among  OECD countries has been  to provide  positive rewards for those  who  find part-time or full-time work. Within  this category, a number of different approaches have been  implemented:

  • easing  income tests to reduce the loss of benefits when people take up part-time  work, through taper  reductions and greater account of work-related costs in means testing arrangements;
  • providing a one-off or fixed-term earnings supplement or other  assistance for people who return  to work and leave  benefits;
  • introducing or expanding in-work benefits, generally targeted to low-income families.

An extensive number of OECD countries are pursuing at least one of these strategies, although most of the recent policy attention has been  on a smaller group of countries that provide in- work benefits on an ongoing basis to low-income families. These benefits, often referred to as employment-conditional benefits, are available only to those  in employment in Ireland, Italy, New Zealand, Spain, the United Kingdom and the United States, and more broadly to low- income families—whether on benefits or in low to moderate income employment—in Australia and Canada.13 They can be available in the form of cash benefits or tax relief.

These in-work  benefits are largely targeted at unemployed families with children, who, among the unemployed, tend to have the worst financial incentives to work.14 They reduce replacement rates (seeking to remove the unemployment trap)  and increase disposable incomes at all levels  of earnings affected  by the in-work benefit. However, they  can introduce poverty traps as the assistance is withdrawn when  incomes rise (OECD 1997a).

Evidence  from evaluations of the Earned Income  Tax Credit  (EITC) in the United States show that the EITC has in particular increased the proportion of lone parents in work, with  a smaller impact on the proportion of couples in work, reflecting some positive impacts for very low income families and negative labour  supply impacts over the income range  where the EITC is withdrawn. It has been estimated that the EITC is paid to six million American  families with earnings below the poverty line, and that the EITC is responsible for taking one million  families out of the poverty zone. The recent changes in the United Kingdom to replace Family Credit with  the Working Family Tax Credit  are also designed to remove some very high effective marginal tax rates (of 90% and above)  faced by some families, although more families will face an effective marginal tax rate of 60% and above.

Large in-work  benefit schemes can be subject to abuse (OECD 1997a). Findings  from a study  of EITC entitlement by the US Internal Revenue Service suggested that the total credits paid exceeded entitlements by around 25 per cent. Families in the United Kingdom may be able to manipulate their incomes to gain a higher  rate of Family Credit  for the subsequent six months because income assessments operate for the next  six months, irrespective of any subsequent changes in earnings, in order  to not discourage families from increasing their  earnings.

Incentives for older people to work longer

Many retirement pension systems in OECD countries have aspects that discourage people from working longer, such as attractive early retirement pensions, very limited accumulation of additional pension benefits for extra years of working, and restrictions on work  participation by those  who  are receiving a retirement pension (OECD 1998b).

In response, countries have (often  selectively) introduced a number  of changes from the following menu:

  • reduced the maximum limits on final benefits, or alternatively changed the overall accumulation rates and benefit  calculation methods so people need to work  longer to generate the same final benefit;
  • increased pension accumulation rates for people in their  later years  of working life to improve incentives to keep  working;
  • introduced complementary measures to reduce the scope  and incentives for people of working age to take premature retirement. These incentives include restricting inappropriate access to other  (often  more generous) social  security benefits, such as disability pensions, sickness benefits and early  retirement pensions;
  • reduced the attractiveness and early  availability of early  retirement pensions, such as through introducing proper, actuarially-based discounting for early access to benefits, or increasing the age and working life requirements for access;
  • (in Denmark only)  introduced a deliberate strategy to not provide  an early  retirement pension until all other possible attempts for re-employment have been  exhausted.

These changes have been designed to reduce future  retirement pension costs in the context of ageing populations in OECD countries. This strategy is also linked  to a concern with  the now well-established trend  of declining labour force participation rates for older  men, and a desire  to reverse this trend  as one means of ameliorating some of the negative economic effects  of ageing populations.

3.3 Integrated policy packages and delivery

OECD countries are seeking more efficient and effective social  programs as they continue to face funding constraints and emerging social  problems that demand  attention. One possible way of achieving this is to improve the extent to which social policies work together, often referred to as 'policy coherence'.15 Some of the key drivers behind the pursuit of policy coherence are recognition of the multiple difficulties faced by social  security recipients and the consequent need  for a number  of interventions, appreciation that income support by itself is often not an effective way of helping many disadvantaged people, and recognition that there are synergies from policies being  brought together into a coherent package rather than acting  in isolation.

With the complexity of modern  social  programs (such  as health, social security, employment policy, housing and education), it is likely  that responsibilities for the oversight and management of social  policy will  be split across  a number  of ministers and ministries/agencies. To this can be added the potential involvement of two or more levels of government, as well  as the potential involvement of non-government organisations and private sector  providers (as in the retirement pension and health  care sectors). One approach being  increasingly adopted is the use of a lead agency that has coordination responsibility, or alternatively the merging of activities within the one administration. Improved  coordination promises much  in terms  of better program outcomes.

Integrated policy approaches

The struggle of many OECD governments to reduce unemployment demonstrates the need  for coordinated action. The promotion of high, sustainable economic growth, withdrawal of impediments to employment growth and other  structural measures—such as education, training, other  active  labour market  programs, improved workforce incentives and tight income support arrangements—are all part of the policy mix for lowering unemployment. This is mirrored in the recommendations of the OECD Jobs Study, which recognised that effectively tackling unemployment requires a broad approach incorporating macroeconomic, structural and social  policies (OECD 1994b). This is becoming all the more important in OECD labour markets  that now  have fewer jobs for the low-skilled, where increasing globalisation and structural adjustment is a feature  of the economic landscape, and where many OECD governments are struggling to achieve solid sustained outcomes on economic growth.

The working-age jobless in receipt of income support are increasingly being  absorbed into active labour  market  programs and provided with  other  assistance to help  them get into paid employment, rather  than just being  left on passive  income support. The most recent data (OECD 1998f)  show that across the OECD region  generally, the ratio of labour  market spending on active  measures to passive  income support benefits has increased since  the release of the OECD Jobs Study in 1994.16 Sick and disabled people are being provided with  rehabilitation, often at an early  stage, and participation may be a requirement of income support. In addition, people with disabilities are increasingly seen  as a key target group for active  labour market program interventions. Lone parents are also being directed to labour  market  programs, education and training to improve their  job prospects. Steps are being  taken  to improve their access to child  care to allow them to participate in paid work; at the same time, access to income support benefits is being  restricted.

Young unemployed people have been  increasingly excluded from income support if they are simply looking for work and not participating in 'worthwhile' activities, such as education, training or work  experience (for example, in Australia, Denmark, Finland, Norway, Sweden and the United Kingdom). These arrangements reduce the likelihood that young  people will become passive  income support recipients and dependent on welfare from a young age, and promote participation in activities that should  enhance their  human  capital and job prospects. Nevertheless, the effectiveness of this approach also hinges on the availability of suitable interventions for a group that has generally had a poor prior educational experience.

A number  of European countries have acted to limit social  exclusion17  through an integrated package of measures—sometimes referred to as minimum income guarantees. In their  various forms, as applied in different  countries, they involve  the coordination of social  security measures with  other  measures, such as training, employment and/or full-time education opportunities. The coordination of these  measures is designed to achieve the integration of disadvantaged people back into the activities of society. The objective is not just to meet their short-term  income needs  but also to improve their  prospects for longer-term income independence. On average, these people have very poor employment prospects and require very intensive assistance. These programs generally have central government oversight of the elements, which are usually administered by a number  of different  ministries.18 There is also a corresponding requirement for people to meet  certain conditions in return  for the assistance. These conditions are often codified in the form of an agreement or contract between the two parties.

The importance of balanced, comprehensive policy responses to encourage and enable older people to work longer, as one of the key responses to ageing populations, was also recognised by OECD social policy and health  ministers at their  meeting in 1998. The ministers stressed the importance of policies acting  on both the demand and supply side, including removing financial incentives in pension systems  for early  retirement, more flexible working arrangements for older workers, policies to improve the employability of older  workers (such  as lifelong  learning and targeted labour  market measures), and achieving more positive attitudes among  employers towards older workers (OECD 1998g). To date, there are examples of countries taking some steps  in a number of these  areas, but few examples yet of countries having a consolidated package of measures to achieve substantial increases in the average retirement age.                                                           Long-term care  for the elderly is another  current policy focus of some OECD countries. This necessarily brings  together health care, social services and accommodation arrangements. National governments at the moment  are largely concerned with  the issues  of the overall framework and the funding/financing of these  opportunities for the elderly. This includes facets of health  care  and institutional care, and also ways  to facilitate home and community care, including support for informal/family carers  of the elderly. In keeping with  the broader administrative responsibilities for social  services, regional governments and non-profit  private organisations each have a significant role in the delivery of long-term  care  services.

Integrated service delivery

Some countries are strongly pursuing the amalgamation of service delivery, such as through one-stop shops. Australia  established Centrelink in mid-1997  to bring together all of the national government functions related to social  security, family assistance, assessment of individual labour  market needs, referral to a job or employment service provider, and some rural and disaster relief  measures. The process in New Zealand to set up a new combined labour  market and social  security agency is a similar move to establish a one-stop environment for customers, but with slightly different boundaries. The Netherlands is also pursuing this approach, with the joint project involving the public employment service and social  security/assistance payment agencies.

The United States, with  its long tradition of the states having  considerable discretion regarding program elements and administration, provided implementation grants  from the federal  level  to states wishing to establish one-stop centres.19 These centres are required to include provision of six federal Department of Labor programs in their  plans (including employment services, unemployment insurance and training programs). Apart from this condition, they  have considerable flexibility to provide  information on and access to many other  services from these centres, such as education, social  services and community development projects.20

3.4 Ensuring basic provision to reduce poverty

Over the past two decades, the growth in average incomes has slowed and there is evidence, in at least some OECD countries, that income inequalities and relative poverty rates have been increasing. The proportion of the population in relative poverty is estimated to have increased over the period from the mid-1980s  to the mid-1990s  in Germany, Italy, the Netherlands and, to a lesser extent, in Japan, Norway  and Sweden (Table 4). Overall, the incidence of poverty has been  either  stable or declined in other  countries. The incidence of poverty has also noticeably shifted from the older  to the younger populations (young adults  and those  with  children). Changes in income from working have resulted in widening income inequality, which has been partly offset by tax-transfer systems that reduce income inequality.21

More recent research undertaken at the OECD has focused on the incidence of poverty over a longer  time period  (OECD 1998h). Longitudinal data available for Canada, Germany, the United Kingdom and the United States show that a startlingly high proportion of the population (between 20 and 40 per cent) in these  countries experienced at least a year of low income within a six-year period. This group  can be divided  into two subgroups: the majority who  have only short spells  on low incomes, and a smaller group who rely on low incomes for a long period. Those on low incomes for at least six years  comprised between two and six per cent  of the population in these  countries. Some particular groups were over-represented among  those with  long-term  low incomes: women, lone parents, elderly single people, sick people and people with disabilities. Obtaining  or losing  employment and improving earnings were found to be the most significant determinants of change in low-income status over the six-year data period.

Most OECD countries have expressed clear policy intentions to combat  social  exclusion. In Belgium, a major government report  on poverty was completed recently. Ireland has put in place  a ten-year  National Anti-Poverty Strategy, starting  in 1997, which aims to reduce the proportion of the population who are consistently poor by about five percentage points  (with a target of below 5–10 per cent). In March 1998, the French  Government announced a comprehensive package of measures designed to prevent and combat  exclusion.

Table 4: Trends in poverty using a relative threshold, mid-1980s to mid-1990s1
Equivalence scale  elasticity = 0.5 Changes in percentage points, unless  otherwise indicated 50% median  income
1.  'Relative threshold' poverty lines are fixed  in terms  of real median income in each period.
2.  Absolute change is the difference in the value  of the index.
Source: Burniaux et al. 1998, Income Distribution and Poverty in Selected OECD Countries, OECD, Paris.
  Head count Income  gap Sen index2
  Level (end  period) Changes (absolute) Changes (absolute) Changes (absolute)
Australia, 1984  to 1993-94 9.5 -2.7 5.0 -0.2
Belgium, 1983-1995 10.8 -7.7 -1.9 -6.8
Canada, 1985-1994 8.9 -0.8 -1.4 -0.5
Denmark, 1983-1994 5.0 -2.0 -0.8 -0.9
Finland, 1986-1995 4.9 -0.2 -4.2 -0.4
France, 1979-1990 3.1 -1.5 -4.9 -1.1
Germany, 1984-1994 9.1 2.9 2.5 0.4
Italy, 1984-1993 14.2 3.9 5.6 2.9
Japan, 1984-1994 8.1 0.8 2.5 0.6
Netherlands, 1985-1994 6.1 3.0 -3.6 1.1
Norway, 1986-1995 8.0 1.1 0.0 0.6
Sweden, 1983-1995 6.4 0.4 7.9 0.8
United States, 1985-1995 17.1 -1.2 0.2 -0.4

Social assistance is playing a more significant role in protecting the most vulnerable sections of society, especially those  without recent workforce experience who  have difficulty establishing an entitlement to social  insurance or have exhausted such entitlements (Eardley et al. 1996).

It has become increasingly apparent that a desirable response for these  social  assistance recipients requires more than just cash assistance (OECD 1998a,c,e). The cash benefits need  to provide  adequate assistance for the individual or family, while the structure of benefits should not discourage re-employment. The depth  of disadvantage experienced by many of the people receiving social assistance means that they may require other  social  help  to deal with problems of homelessness, substance abuse, psychiatric illness, etc. With the strong link between poor labour  market  outcomes and the growth in social  assistance recipient numbers, social assistance programs are increasingly providing access to education and labour market  interventions to improve the job prospects of recipients.

As noted  above, some prominent policy responses to poverty have been  the minimum income guarantee and re-insertion programs introduced in a number of European countries, such as Belgium, France, Luxembourg, Portugal  and parts of Switzerland. These schemes, as a general rule, provide  social assistance benefits in return  for participation in activities designed to improve employment prospects and social  integration. In a number  of OECD countries, there has been  a shift towards greater expenditure on non-cash  services—especially employment- related services—for the poor.

Lone parent  families are one group  with  a high incidence of poverty in many countries. Employment rates of lone parents differ substantially across  countries, reflecting different assumptions about whether participation in the labour  market is expected of them, as well as the availability of affordable child  care and quality labour market  services. The majority of lone parents are women, many of whom  may also have limited  recent workforce experience, inadequate education and training, and face low wages when  they  get work. Prolonged absence from the labour  market is increasingly recognised by governments as not in the best interests of either  children or the parent, and public policy encourages the re-employment of lone parents in many OECD countries (such  as the United States, the United Kingdom, Nordic countries, Australia and New Zealand).

There are recognised limits on the extent to which social  programs can deliver sufficient living standards over the long run, given fiscal constraints and the likely  effect on incentives for self- provision if benefit  rates are too high. Reducing poverty directly through increasing the value of income support payments has a budgetary cost that governments have increasingly found to be difficult, especially in the context of fiscal consolidation.

But communities can also face severe  problems if social  provisions still leave families  and individuals destitute. Inadequate support will  lead to social exclusion, with  people increasingly losing  touch with mainstream society.

Many countries are still grappling with the adequacy/incentive trade-off. Balance is the key, but identifying and gaining agreement on where that balance lies remains a problem. Social research on the level of payments and other  supports necessary to deliver an 'adequate' result  for households may help to resolve  the dilemma, but the critical assumptions underlying the research and the degree of subjectivity attached to these  judgements also mean  that research alone  will  not provide  a solution.

Considerable progress has also been  made  in extending universal health care  coverage in most OECD countries over recent decades, to the point that it is now  commonplace to have universal cover. This can deliver a reasonable standard  of health care  for everyone, irrespective of their capacity to pay. Very low-income households have also been exempted from many of the patient contribution charges introduced in order  to reduce health care  usage, because of fears that these  charges would discourage some from seeking essential treatment. However, despite universal health care  systems, there  are still apparent inequalities in health  across  the population, and concerns over comparatively limited usage of health  care services by many poor people who  are disproportionately sick compared to the rest of the population.

3.5 Re-adjusting intergenerational burdens

Social policies have an explicit intergenerational perspective. Benefits  tend to be concentrated at the beginning and end of a person's life. For example, families  with  dependent children are likely to receive considerable net benefits from education and child-care programs, subsidised health  initiatives for women and children, and direct  cash benefits for their children and/or reduced taxation liabilities. People of working age are likely to be net contributors to the tax- transfer  system, except for those  who  are economically inactive. In retirement, people again revert  to being net recipients of social  benefits as they access retirement pensions, and may be more intensive users  of health care  and long-term  care  services.22

The demographic developments expected in most OECD countries over the next 10–40 years show a considerable change in the composition of the population, with relatively fewer  people of working age to support those  aged  65 years or more (Table 5). Some governments are concerned that they  will not be able to meet the budget costs of pay-as-you-go retirement pension schemes for a growing number  of dependent older  people, with  a growing imbalance between anticipated contributions and benefits in many public pension systems.

In response to expected future  pressures on public pension systems  as populations age, governments have been introducing a range of pension reforms, such as:

  • less generous public pension benefits, through reductions in the maximum final benefit, less generous adjustment of benefits to inflation, and increases in the level of contributions and/or years  of employment to generate the same level of benefits;
  • pre-funding a portion  of public pension benefits (in some countries);
  • expanded coverage and reliance on private pension arrangements;
  • ncreases in the statutory age of retirement, especially to bring the age for women in line with  or closer to that for men;
  • reductions in the generosity and accessibility of early  retirement pensions.

Despite  changes to retirement pension arrangements over the past decade, many of which are being  phased  in so as not to affect those  already retired or close to retirement age, more remains to be done in many countries to improve the fiscal sustainability of public retirement pensions.

As argued  more fully in the 1998  report  to the OECD Ministerial Council entitled Maintaining Prosperity in an Ageing Society (OECD 1998b), there  is also a need to reassess the overall extent of public provision devoted to the older retired population, in view  of the reductions in poverty among the older  population and the extent of private financial reserves held by some aged people.

Table 5: Elderly dependency ratio,  1960–2030 Population aged  65 and over as a percentage of working age population
  1960 1990 2000 2010 2020 2030
Source: Bos et al. 1994, reproduced in OECD 1996
Australia 13.9 16.0 16.7 18.6 25.1 33.0
Austria 18.6 22.4 23.3 27.7 32.6 44.0
Belgium 18.5 22.4 25.1 25.6 31.9 41.1
Canada 13.0 16.7 18.2 20.4 28.4 39.1
Denmark 16.5 22.7 21.6 24.9 31.7 37.7
Finland 11.7 19.7 21.5 24.3 34.7 41.1
France 18.8 20.8 23.6 24.6 32.3 39.1
Germany 16.0 21.7 23.8 30.3 35.4 49.2
Greece 12.3 21.2 25.5 28.8 33.3 40.9
Iceland 14.1 16.6 17.3 18.1 24.1 32.1
Ireland 18.6 18.4 16.7 18.0 21.7 25.3
Italy 13.3 21.6 26.5 31.2 37.5 48.3
Luxembourg 15.9 19.9 21.9 25.9 33.2 44.2
Japan 9.5 17.1 24.3 33.0 43.0 44.5
Mexico 6.4 7.0 8.0 10.4 14.8
Netherlands 14.7 19.1 20.8 24.2 33.9 45.1
New Zealand 16.7 17.1 18.9 24.6 30.5
Norway 17.3 25.2 23.9 24.0 31.2 38.7
Portugal 12.7 19.5 20.9 22.0 25.3 33.5
Spain 12.7 19.8 23.5 25.9 30.7 41.0
Sweden 17.8 27.6 26.9 29.1 35.6 39.4
Switzerland 15.5 22.0 23.6 29.4 37.8 48.6
Turkey 6.7 7.1 8.9 9.4 11.7 16.2
United Kingdom 17.9 24.0 24.4 25.8 31.2 38.7
United States 15.4 19.1 19.0 20.4 27.6 36.8
OECD Europe 15.3 20.6 22.1 24.7 30.8 39.2
Total OECD 14.9 19.3 20.9 23.5 29.8 37.7

In some countries, excessive government transfers to the retired population already seriously constrain the ability of governments to divert  public resources to other  social  policy problems (Esping-Anderson  1997).

There are promising signs that people are not only living  longer  but are also healthier and more active  in their  older  age, as measured by disability-free life expectancy. Many elderly people have the capacity to contribute to productive activity and caregiving roles well  past current notions of the statutory retirement age, which would  be enhanced by positive measures such as supporting effective life-long learning and changing community attitudes towards older  people.

Nonetheless, there  has been  a rise in the intractable chronic conditions that accompany an ageing population. This necessitates a new approach to health  care, in which the emphasis shifts from diagnosis and treatment of disease to prevention of the diseases themselves. This, along  with  other pressures on the health system, is leading countries to develop comprehensive, population-based health  approaches to promote healthy lifestyles and thereby decrease the incidence of chronic disease. These approaches may also produce substantial benefits for the health outcomes of new generations.

As most health expenditure is already devoted to interventions during  the last two years of life, recent projections of the likely expenditure effect on health  costs of ageing populations are in the order  of a 10–20  per cent increase—a significant but not alarming increase. Some countries are increasing their  efforts to devote  research to more effective treatments for some specific health  problems of older  people (such as dementia). This is being  coupled with increased vigilance in the areas  of evaluating new  technologies and overall  evaluation of treatment, reflecting countries' interest in supporting cost-effective health  interventions.

Long-term care  is receiving justifiable attention in countries preparing for a population with  a larger  proportion who  are elderly. While family members continue to have the greatest responsibility for the care of elderly people, the share  of responsibilities is changing, and governments are becoming more engaged. Policies  are emerging to respond to issues  of the availability and affordability of care, as well  as respond to increased demands from older  people themselves for increased privacy, autonomy and choice. The financing of long-term  care  is receiving considerable attention in a number  of countries, and some have chosen to introduce additional mechanisms to improve the capacity of people to afford the care they  need  as they grow  older.

It is easier  to identify  the broad approach and elements required for effective social  policy reform that responds to ageing populations than it is to define  the tactics appropriate for bringing about such changes. The growth of the older age population increases their electoral influence. This has led many countries to be overly  cautious and limited  with  their  reforms, especially with  their  pension systems. However, inaction may lead to increased concerns among the working-age population, who  foresee  an increased tax burden in the future  as well  as reduced entitlements when  they  reach  retirement age. Recent  experience has also shown  that substantive reform packages can be successfully introduced, especially when  they  are soundly based, well  explained, involve extensive community consultation and have broad political support.

3.6 Improving the integrity of social security

Pressures on program expenditure from fiscal consolidation, as well  as a general trend to improve the governance of programs funded from public sources, are leading many countries to change the way  they manage social programs. This development is evident for governments ranging across  the political spectrum, and provides the opportunity for some containment of expenditures while avoiding large reductions in basic  social  protection.

Program integrity

In an environment of persistent high unemployment and limited  employment growth in many OECD countries, there  is considerable concern about the increase in welfare dependency among the working-age population. This covers  unemployment benefits as well as alternative social  security payments, such as sickness benefits, invalidity pensions, lone parent benefits and early  retirement pensions. In the early  1990s, around  half of the OECD member countries had more people in receipt of invalidity benefits than were receiving unemployment benefits (Blöndal  and Pearson  1995). While  empirical analysis suggested that the generosity of sickness and disability benefits had little  impact  on the unemployment rate, it was found that the generosity of these  benefits had contributed to lower labour force participation.

Program  eligibility is being  tightened for a range of payments available to people of working age, with  greater attention to ensuring that potential recipients satisfy the core  criteria of disability, sickness and unemployment for these respective payments. Some of the main changes in these  program areas include:

  • removing, or at least reducing, the usage  of non-medical criteria in establishing eligibility for disability payments (for example, Australia, Canada, Norway, the Netherlands);
  • more stringent assessment processes for disability pension and/or more regular reviews of people on disability pensions (for example, Greece, Italy, the Netherlands, Portugal, the United Kingdom);
  • more stringent administration of rules and, in some instances, expanded requirements for eligibility for sickness benefits (for example, Hungary, Belgium, Austria, New Zealand, Spain);
  • as mentioned earlier, tighter administration of the job search  requirement for people receiving unemployment benefits and, in some countries, also some change to the definition of an acceptable job (for example, Australia, Austria, Canada  [selected regions], Denmark, Germany, Portugal, Spain, Switzerland, the United Kingdom).

The outcome from program measures that impact  on invalidity pensions is quite  mixed. Some countries have been successful in reducing the number  of people receiving payments, while other  countries have only been  able to reduce the rate of new  claims, with  no noticeable effect on the existing stock of recipients. At this stage, there is not enough evidence to conclude why this difference between countries exists, although possible reasons include variations in the tightness of the respective regimes, variations in the extent to which rigorous rules are actually enforced, variations in the effectiveness of accompanying active  policies designed to assist labour market  re-integration, and the average duration of prior receipt of payment and exclusion from the labour market.

There are obvious  risks if these measures are taken  to extremes, as overly rigorous and inflexible rules can lead to people in need  being  excluded from assistance, contrary to the policy objective of many countries to reduce social exclusion. Some balance and good judgement needs to be exercised by administrators to have effective systems  of control  while at the same time providing appropriate support for people genuinely in need.

Fraud control

Many OECD countries are giving  increased attention to fraud detection and prevention as one key element of administrative change. The focus of these activities generally reflects a broadly based  approach that seeks  to reduce the extent of all unnecessary expenditures. While  available estimates of the likely  extent of fraud in most developed social  security systems  place  it around the level of 3–5 per cent  of total expenditures, this still represents a significant amount  of public money  in view  of the scale  of public social  expenditures.

There are many dimensions to the anti-fraud  strategies implemented by OECD countries:

  • more stringent verification of personal and financial circumstances at the initial  application stage;
  • special fraud investigation units, often with  wide-ranging powers, undertaking selective reviews of mainly  high-risk  recipients;
  • increased cross-matching of computer records held by different government agencies and cooperative ventures between social security and tax authorities;
  • a separation of anti-fraud and payment agency functions, in order  to emphasise the anti-fraud dimension and more clearly delineate responsibilities.

Increased computerisation is providing greater opportunity to check claims for social security payments and reduces the likelihood of multiple or incorrect payments, supplemented by increased personal review activity. Such approaches have correctly withdrawn assistance from some people who  were ineligible—such as people who  had not declared that they  already had a job—while in other  instances people have been  directed to more appropriate social  security payments. Savings from fraud control have contributed to fiscal consolidation targets  and may have limited the scale  of action required to meet  fiscal targets  that would  have otherwise reduced the generosity and/or availability of social  programs.

3.7 Improving the efficiency and quality of service provision

Governments are responding to community pressure to improve services at the same time as they are facing  pressures to constrain program costs. In most OECD countries, the community has witnessed considerable advances in the range and quality of services over recent years. Undoubtedly, this has influenced public perceptions over the quality of service that should  be available from the public sector.

Increasing computerisation and the development of communication technologies have provided many opportunities for cost-effective advances in the administration of social programs. These include quicker and more accurate assessment of program eligibility, more reliable disbursement of benefits, and greater accessibility to assistance for people who reside outside  major population centres.

Use of the non-government sector

There is increased use of the not-for-profit and voluntary sector  to tap into the networks and experience of other  agencies already heavily involved in the delivery of social  services. This can entail  block  funding  of these  agencies, payment from government for the provision of specific services, or active  partnerships with  government—each of these  models  has been  used effectively in OECD countries. In some instances, countries have resorted to greater competition to provide greater consumer choice and pressure for cost reductions. However, there  are also limits to the extent to which government can outsource core  social  protection activities and maintain a nationally consistent level  of protection.

Private  social expenditure is more significant in a number  of areas, such as health  and retirement pensions, as some people seek  improved quality of provision over and above that available from the public system  (Adema  and Einerhand  1998, Esping-Anderson  1997). In some social  policy areas—such as health  and education—there can be considerable competition between the public and private sectors, such as in the United States. Australia  has introduced a competitive market  for employment services, in association with a substantive change to the public employment service so there  is fair competition between the respective agencies.

In the context of greater reliance on the private, not-for-profit and voluntary sectors  to deliver social  programs, the quality of regulation has become increasingly important as a means of providing some form of external accountability. This may involve codes of practice and professional standards expected of non-government agencies, such as those  providing health care and long-term care  services. In other  cases, such as private retirement pensions, extensive regulatory and supervisory mechanisms should  be in place, reflecting the scale  and importance of the investments for the future  wellbeing of the contributors.

Greater attention  to quality

Commitment to public standards of services (for example, the Citizens  Charter in the United Kingdom)  can provide  a yardstick for judging performance and managing public expectations, as well  as greater transparency of performance. This approach has also been  seen in (for example) health  care reform, where a majority of the OECD countries now have national commissions on quality standards, and several countries are beginning to develop a 'consumer bills of rights'.

Some progress has been  achieved in making  governments more client-oriented in several areas, such as improved access to governmental services, transparency of operations and decision- making, and provision of grievance procedures to provide  a feedback mechanism for government services. One-stop shops have been pursued in some countries as a means  of achieving greater integration of services, including across levels of government. In the social protection area, a separation between agencies providing services and policy development can focus the energies of the former on the improvement of services (for example, in Australia, New Zealand and the United Kingdom). However, the formal separation of the policy making  and policy execution functions has some risk that policy could  become out of touch  with  reality, unless  mechanisms for providing feedback from operations are strengthened.

Improving the quality of care  and services in the health care  arena is receiving greater attention. Countries are increasingly focusing on improving the return  on their investment, rather  than simply  pursuing price  and supply control  measures to restrain expenditures in their health  care systems. Competition has been  introduced or expanded in several  countries to encourage players in the health care  arena to increase the adaptability of their  systems  to attract  more clients. Countries are also transferring health services to the local  level to increase the flexibility of care. The decrease of acute  conditions of the elderly, and the expanded role of social  services, has been accompanied by a shift to a more client-focused orientation as consumers and their families demand more from service providers.

Devolution and decentralisation

Another distinct trend is towards 'devolution' and/or 'decentralisation', which aim at more efficient and effective public administration.23

Within  the health  and welfare sectors, there  are many examples of decentralisation of social programs (OECD 1998e, OECD 1997d). The growing importance of means-tested social assistance in the broad scheme of social  security necessarily introduces greater emphasis on local  control and responsibility, given the way  social  assistance is structured in a number  of OECD countries.24 Greater  regional responsibility is also being  introduced for housing assistance in Mexico and Poland, and Ireland  is also actively considering this shift in responsibilities from the national government to the regional level. In the 1992  Ädel Reform in Sweden, management of long-term  care  institutions and day care facilities was shifted from county  councils to municipalities, with the possibility of a similar  shift of authority for visiting nurse  services and other  medical care services. Responsibility for funding  care for the elderly in county  hospitals has been  shifted  from the counties to the municipalities.

The Personal  Responsibility and Work Opportunities Act of 1996  in the United States transferred more responsibility for welfare provision to the states. In exchange for accepting a fixed  block  grant over a five-year period, the states  were given  much  more flexibility to determine the eligibility of recipients and how  to administer the benefits, subject to meeting minimum federal  requirements. Additionally, the states  themselves could devolve  responsibility by contracting with  private companies for a broad range of services, including eligibility determination and work  retraining programs. As welfare numbers have fallen over recent years and income support payments declined, the states  have found themselves with  much  greater scope  to provide  active  labour market  intervention for welfare recipients within their budget allocations.                                                                                                                                          In the mid-1990s, Sweden experimented with a variant  of block funding and coordinated responsibility for people on sickness benefits (the FINSAM experiment). Five counties were able to direct notional social insurance funds to increased rehabilitation effort, with  the intention of reducing incapacity rates. The results  were positive, producing reduced social  expenditures on the sick in these  regions.

Monitoring and evaluation

Overall, there is insufficient investment in the research and evaluation of social  programs, especially compared with the overall level of program expenditures. Without comprehensive analysis and evaluation to back up policy deliberations, there  is a considerable risk that governments may divert  scarce public resources to poorly  performing programs and not act quickly to amend  programs in ways  that improve their effectiveness.

At an international level, there  is a good understanding of the social  policies operating in different  countries, but this now  needs  to be complemented by a shared  understanding of the outcomes and effects  of these policies. The OECD is well  placed to contribute to that process, especially in terms of developing common  frameworks for the assessment of social  policies and monitoring reforms, but individual countries also need  to have robust monitoring and evaluation cultures to complement any international activity.25

[ Return to Top Return to Section ]

4 Conclusion

It is evident that there has been  a degree of convergence between many countries in the direction of social  policy reforms over recent years, and this paper has sought  to highlight some of these  major trends. This should  not be interpreted as meaning that these  countries have similar social programs. There are many remaining differences, which at least partly  reflect historical, social  and cultural factors.

Further  reforms to social  programs are required in many countries. There is considerable evidence of a staged and cautious approach to social  policy reform. Substantive social policy reform is possible, even  in some potentially contentious areas, but this requires clear enunciation of the justification for change, and clear exposition of the path of reform and its implications. Experience also shows that political consensus is an important ingredient in the implementation of major reforms. Social programs will  need  to respond to new  and emerging challenges. In this vein, it is likely that welfare systems in OECD countries have not yet been fully adapted to reflect  the growing number of double-income families. Two regular income earners can provide  the family with their own economic security and can reduce the risk that unemployment, disability or death will have drastic economic and income effects  on the family unit. With a greater proportion of families  reflecting this work  pattern, there  may be some pressure exerted by families who wish to opt out of some forms of social protection. The one caveat is that those with  two incomes may become accustomed to a higher living  standard, and still seek income protection via public arrangements.

[ Return to Top Return to Section ]


  1. This paper  draws  extensively from information collected for a survey  of social  programs and recent social  policy reforms  in OECD countries (Kalisch  et al. 1998, OECD 1998e). This OECD work responded to the 'Initiative for a Caring World' proposed by the former  Japanese Prime Minister, Mr Hashimoto, at the Lyon G7 summit  in June 1996, where he called  for an extensive sharing  of experiences among  OECD countries in their  social  policy activities.
  2. The level  of public expenditure is determined by a number  of factors: the generosity and expansiveness of social  provisions, and economic dimensions that influence the need  for and take-up of social  programs.
  3. In Sweden, previous cuts to social  security are now  being  partially reversed as the budget  has come into balance.
  4. The latest  OECD social  expenditure data (from about 1993  to 1995  or 1996) are now  showing a few more countries with  recent limited  declines in total non-health  social  expenditures, such as in Australia, Canada, Spain, Finland, Ireland, Italy, Netherlands, Norway  and Sweden.
  5. The OECD has recently increased the number  of countries for which this data is available, in the OECD Social Expenditure (SOCX) database, and is in the process of extending the information to include comprehensive estimates for Australia.
  6. Atkinson  (1993) and Ingles (1997) outline  some of the adverse effects  from excessive targeting of benefits available for families.
  7. This issue, while of interest, has little  policy application to Australia  where employers are already largely responsible for the ongoing income of employees while they  are sick, through the system  of occupational sick leave  entitlements.
  8. Recent  OECD work  on resources in retirement also suggests that there  is already considerable substitution between public pensions and other  marketable wealth available to retirees (OECD 1999, p. 116). Retirees have relatively consistent levels  of overall  retirement income across  countries (at around  70–80% of previous salary  for an average wage  earner), despite clear  differences in the importance of the sources (public pensions, private pensions and other  savings) of their  retirement income.
  9. There are three  main types  of cost sharing  in place: copayments, where a patient pays a set amount for each  service; coinsurance, where patients pay a set proportion of the total cost of services; and deductibles, where patients pay the first set amount  and health  insurance pays the rest.
  10. In most OECD countries, the share  of the population aged  over 65 years  in institutions varies between 5 and 7 per cent  and has not changed much  over recent years.
  11. Incentives can be even  lower than is presented here  once  some consideration is given  to the additional costs incurred by those who  work  (which is thought to be greater than job search  costs) and the loss of leisure time.
  12. This is a very simplified explanation of replacement rates, which can be constructed from the perspective of the financial incentives for the employed to become unemployed or the perspective of the financial incentive for the unemployed to find work. Martin (1996) provides a useful discussion of replacement rates and their  use for the OECD Jobs Study.
  13. A number  of these  countries also have other  benefits and/or tax relief  for low-income families (for example, New Zealand, Italy).
  14. Spain's  Employment Credit  is payable to all eligible earners irrespective of family composition, while the United Kingdom is currently conducting an experiment in selected regions of an in-work  benefit for people without children called  Earnings Top-Up. The Netherlands has also recently announced its intention to introduce an income tax credit  for all people in employment with  earnings over a very low level.
  15. In their  1992  meeting, OECD social  policy ministers proposed new  orientations for social  policy, with  one of these  orientations being  policy coherence through 'a renewed focus on the means  by which the strands  of policy—from setting  goals, to formulating policies, implementing them, and, thereafter, administering programs—can be pulled together across  social, labour  market, education and training, and economic policies and across  levels  of government' (OECD 1994a).
  16. There is no clear  evidence of an increase in spending on active  measures as a proportion of a country's GDP since  1994.
  17. Social exclusion is a term that is increasingly used in OECD countries to encapsulate aspects of poverty and low income, but also include the dimension of non-participation in usual  activities, such as access to work, cultural activities and health  care  services.
  18. One exception is in Switzerland, where the selective latin cantons that have introduced these  types of programs were the main driving  force behind  the initial  development and administration of the reintegration measures.
  19. Planning  and implementation grants  have been  available since  1994, on the basis of bids by states  in three  rounds  of competitive tendering, with  the funding  provided through the US Federal Department of Labor.
  20. The variation between one-stop centres across  different  states  provides an opportunity to assess  the merits  of particular approaches, which vary in terms  of coverage of services and the degree of integration of service delivery within the centre.
  21. The latest  analysis by the OECD shows  that transfers  to the elderly generally have no impact  on reducing inequality, explained partly  by the strong  link from prior earnings to pension payments in many old-age pension schemes.
  22. Falkingham and Harding (1996) provide  one example of an attempt to measure the lifetime distribution of social  security and taxation arrangements, for Britain and Australia.
  23. Devolution  refers  to the shift of responsibilities within the central government, whereas decentralisation refers  to the shift of responsibilities to local  levels  of governments.
  24. The decentralised nature  of social  assistance in Sweden, Switzerland, Poland and Italy is being modified, to some extent, by the introduction (or possible introduction) of common  national standards for social  assistance.
  25. Some recent examples where the OECD has played a valuable monitoring and assessment role include the social  assistance reviews, and the follow-up  to the OECD Jobs Study. The OECD is in the process of establishing a process for monitoring progress with  retirement pension reforms, as well  as developing a broad range  of comparative social  indicators.

[ Return to Top Return to Section ]


Adema, W. 1998,'What do countries really  spend  on social  policies? A comparative note', OECD Economic Studies, no. 28, 1997/1, OECD, Paris.

Adema, W., Einerhand, M., Eklind, B., Lotz, J. & Pearson, M. 1996, Net Public Social Expenditure, Labour Market and Social Policy  Occasional Paper, no. 19, OECD, Paris.

Adema, W. & Einerhand, M. 1998, The Growing Role of Private Social Benefits, Labour Market and Social Policy  Occasional Paper, no. 32, OECD, Paris.

Atkinson, A.B. 1993, On Targeting Social Security: Theory and Western Experience with Family Benefits, Welfare  State Programme Discussion  Paper, no. WSP/99, Suntory-Toyota International Centre  for Economics  and Related  Disciplines, London School of Economics.

Blöndal, S. & Pearson, M. 1995,'Unemployment and other  non-employment benefits', Oxford
Review of Economic P olic y, 11(1), pp. 136–69.

Burniaux, J.-M., Dang, T.T., Fore, D., Förster, M.F., Mira d'Ercole, M. & Oxley, H. 1998, Income Distribution and Poverty in Selected OECD Countries, Economics  Department Working  Paper, no. 189, OECD, Paris.

Eardley, T., Bradshaw, J., Ditch, J., Gough, I. & Whiteford, P. 1996, Social Assistance in OECD Countries: Synthesis Report, Department of Social Security Research Report, no. 46, HMSO, London.

Esping-Anderson, G. 1997,'Welfare states  at the end of the century: the impact  of labour  market, family and demographic change', in OECD 1997b, Family, Market and Community: Equity and Efficiency in Social Policy, OECD, Paris.

Falkingham, J. & Harding, A. 1996, Poverty Alleviation Versus Social Insurance Systems: A Comparison of Lifetime Distribution, NATSEM Discussion  Paper, no. 12, University of Canberra.

Ingles, D. 1997, Low Income Traps for Working Families, Centre  for Economic Policy  Research
Discussion  Paper, no. 363, Australian  National University, Canberra.

Kalisch, D.W., Aman, T. & Buchele, L.A. 1998, Social and Health Policies in OECD Countries: A Survey of Current Programmes and Recent Developments, Labour Market and Social Policy Occasional Paper, no. 33, OECD, Paris (provided to OECD social  policy and health  ministers at their  meeting in June 1998  under  the title The Caring World: National Achievements).

Martin, J.P. 1996,'Measures of replacement rates for the purpose of international comparisons: a note', OECD Economic Studies, no. 26, 1996/I, pp. 99–115.

Mead, L.M. 1997,'Raising work  levels  among  the poor', Social Policy Journal of New Zealand, Issue Eight on Beyond  Dependency, pp. 1–28.

OECD 1994a, T he Future of Social Protection, OECD, Paris.

OECD 1994b, T he OECD Jobs Study: Facts, Analysis, Strategies, OECD, Paris.

OECD 1996a, Ag eing in OECD Countries: A Critical Policy Challenge, Social Policy  Studies, no. 20, OECD, Paris.

OECD 1996b, Caring for F r ail Elderly P eople: P olicies in Ev olution, Social Policy  Studies, no.19, OECD, Paris.

OECD 1996c, Enhancing the Ef f ectiv eness of Activ e La bour Market P olicies, OECD, Paris.

OECD 1997a, Making W o r k P a y: T axation, Benefits, Employment and Unemployment, OECD, Paris.

OECD 1997b, F amil y , Market and Community: Equity and Ef f icienc y in Social P olic y, Social
Policy  Studies, no. 21, OECD, Paris.

OECD 1997c, Implementing the OECD Jobs Strategy: Member Countries' Experience, OECD, Paris.

OECD 1997d, Managing Across Le v els of Government, OECD, Paris.

OECD 1998a, T he Battle Against Exclusion: Social Assistance in A ustr alia, F inland, Sw eden and the United Kingdom, OECD, Paris.

OECD 1998b, Maintaining Prosperity in an Ag eing Society, OECD, Paris.

OECD 1998c, T he Battle Against Exclusion: Social Assistance in Belgium, the Czech Re pub lic , the Netherlands and Norway, OECD, Paris.

OECD 1998d, Benefit Systems and W o r k Incentives, OECD, Paris.

OECD 1998e, T he Caring W o r ld: An Analysis, paper  prepared for the June 1998  meeting of OECD social  policy and health  ministers, subsequently published under  the heading A Caring World: the New Social Policy Agenda, OECD, Paris, 1999.

OECD 1998f, Employment Outlook, OECD, Paris.

OECD 1998g, Communiqué of the Meeting  of the Employment, Labour and Social Affairs
Committee at Ministerial Level on Social Policy, June 23–24  1998, SG/COM/NEWS(98)70, Paris.

OECD 1998h, Economic Outlook 64, December 1998  (Chapter VI:'Low income dynamics in four OECD countries'), OECD, Paris.

OECD 1999, OECD Economic Surveys: 1998–99: Australia, OECD, Paris.

Preston, D.A. 1997,'Welfare benefit  reform', Social Policy Journal of New Zealand, Issue Eight on Beyond  Dependency, pp. 29–36.

Saraceno, C. 1997,'Family change, family policies and the restructuring of welfare', in OECD
1997b, F amil y , Mar k e t and Community: Equity and Ef f icienc y in Social P olic y, OECD, Paris.

[ Return to Top Return to Section ]

Last updated: