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Systems of Welfare in a Changing World: Implications for Korea p Martin Seeleib-Kaiser Paper prepared for presentation at the seminar Korea in Search of a New Welfare State Model Korea Institute of Finance (KIF) Seoul Korea Institute of

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Systems of Welfare in a Changing World: Implications for Korea p

Martin Seeleib-Kaiser Paper prepared for presentation at the seminar “Korea in Search of a New Welfare State Model” Korea Institute of Finance (KIF) Seoul Korea Institute of Finance (KIF), Seoul 27 September 2012

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Systems of Welfare in a Changing World

Argument

Welfare state typologies, categorizing various models or

systems of welfare, are helpful heuristic tools to understand institutional differences of social policy design and explain institutional differences of social policy design and explain

  • utcomes.

Social spending and social protection should not only be

categorized as economic cost, but can also benefit economic development (politics for the market?!).

Variations in inequality and poverty among the affluent Variations in inequality and poverty among the affluent

democracies of the OECD world can be (partially) explained by differences in welfare state generosity and institutional design.

Welfare regimes are rooted in different political philosophies –

politics do make a difference – democracy matters!

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Systems of Welfare in a Changing World

Overview

Typologies, Systems of Welfare and Welfare

Regimes g

Social Spending and Economic Performance Systems of Welfare/Welfare Regimes and

Systems of Welfare/Welfare Regimes and Outcomes

  • Poverty and Social Protection Dualism

y

Implications for Korea

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Systems of Welfare in a Changing World

“The more one attempts to study the international literature about different national social policy institutions the more one becomes aware of the institutions, the more one becomes aware of the diversity and complexity. The more one understands this complexity, the more difficult does it become to li (t i lif ti ll ) b t th diff t generalise (to simplify pragmatically) about the different roles that social services are supposed to play – and do actually play – in different countries.”

  • R. Titmuss (1974) Social Policy. London: Unwin, 16-17.

When we talk about typologies or systems of welfare we intentionally simplify to understand institutional differences at a intentionally simplify to understand institutional differences at a relatively abstract level

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Systems of Welfare in a Changing World

Titmuss’ Typology

  • Residual Model of Social Policy
  • Industrial Achievement-Performance Model of Social Policy

(=productivist model?)

  • Institutional Redistributive Model of Social Policy

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Systems of Welfare in a Changing World

Regime Typology (Esping-Andersen) Regime Typology (Esping Andersen)

Liberal Conservative Social- Liberal Conservative Social- Democratic Eligibility Poor Workers/ Insured Citizens/ Residents Insured Residents Financing Taxation Social-insurance Contributions Taxation Contributions Benefits Means-tested Earnings/ Contributions- Flat and universal Contributions related universal

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Systems of Welfare in a Changing World

R i T l Regime Typology Liberal Welfare States (residual): Australia, United States, New Zealand, Canada, Ireland, United Kingdom Conservative Welfare States (industrial achievement- performance model): Italy, Japan, France, Germany, Finland, Switzerland y, p , , y, , Social-Democratic Welfare States (institutional redistributive): ) Austria, Belgium, Netherlands, Denmark, Norway, Sweden

Based on Esping-Andersen’s Decommodification Index around 1980.

  • G. Esping-Andersen (1990) The Three Worlds of Welfare Capitalism.

Cambridge: Polity Press Cambridge: Polity Press.

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Systems of Welfare in a Changing World

Challenges: Gl b li ti

Globalization Demographic change (ageing, low fertility) Changing labour markets and unemployment Societal fragmentation and increased individualism

Societal fragmentation and increased individualism Regime/System Stability over time?

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Systems of Welfare in a Changing World

35

Public Social Expenditure in Percent of GDP

Denmark Finland 30 France Germany 25 Italy Japan 20 Spain Sweden Switzerland 15 Switzerland United Kingdom United States 10 1980 1985 1990 1995 2000 2005 United States OECD ‐ Total

Source: OECD

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Systems of Welfare in a Changing World

50 0

Welfare State Generosity

40 0 45.0 50.0 Denmark 30.0 35.0 40.0 Denmark Germany Italy J 20.0 25.0 30.0 Japan Sweden United Kingdom 10.0 15.0 United States

Source: Srcuggs 2004

1971 1976 1981 1986 1991 1996 2001

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gg

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Decommodification Over Three Decades: 1970s, 1980s and 1990s

Source: E. Ferragina, M. Seeleib-Kaiser, M. Tomlinson: “Unemployment Protection and Family Policy at the Turn of the 21st Century: A Dynamic Approach to Welfare Regime Theory,” Social Policy and Administration, forthcoming

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Systems of Welfare in a Changing World

  • Pension systems

Pension systems

  • Introduction of / shift towards the third pillar, i.e. occupational and

private funded pensions I i th ti t

  • Increase in the retirement age

Unemployment Insurance

  • Reduction in replacement rates
  • Activation and increased conditionality
  • No clear trend with regard to covering labor market outsiders
  • No clear trend with regard to covering labor market outsiders

Family policy revolution

  • Increase in institutional childcare provision
  • Improved parental leave

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Family Policy (R)evolution (1980-2008)?

2

SOCIAL DEMOCRATIC

Aus2 Aus2 Aus2 Aus2 Aus2 Aus2 Aus2 Aus2 Aus2 Aus2 Fin3 Fin3 Fin3 Fin3 Fin3 Fin3 Fin3 Fin3 Fin3 Fin3 Fin4 Fin4 Fin4 Fin4 Fin4 Fin4 Fin4 Fin4 Fin4 Fra3 Fra3 Fra3 Fra3 Fra3 Fra3 Fra3 Fra3 Fra3 Fra3 Fra4 Fra4 Fra4 Fra4 Fra4 Fra4 Fra4 Fra4 Fra4 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 Nor4 Nor4 Nor4 Nor4 Nor4 Nor4 Nor4 Nor4 Nor4 Ost3 Ost3 Ost3 Ost3 Ost3 Ost3 Ost3 Ost3 Ost3 Ost3 Ost4 Ost4 Ost4 Ost4 Ost4 Ost4 Ost4 Ost4 Ost4 Swe3 Swe3 Swe3 Swe3 Swe3 Swe3 Swe3 Swe3 Swe3 Swe3 Swe4 Swe4 Swe4 Swe4 Swe4 Swe4 Swe4 Swe4 Swe4 US2 US2 US2 US2 US2 US2 US2 US2 US2 US2 US3 US3 US3 US3 US3 US3 US3 US3 US3 US3

1

RADICALS & LIBERALS SOCIAL DEMOCRATIC Comprehensive child care, long duration of leave and high replacement rates Non comprehensive/r esidual family policy along all dimensions

Aus3 Aus3 Aus3 Aus3 Aus3 Aus3 Aus3 Aus3 Aus3 Aus3 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Fin2 Fin2 Fin2 Fin2 Fin2 Fin2 Fin2 Fin2 Fin2 Fin2 Fra2 Fra2 Fra2 Fra2 Fra2 Fra2 Fra2 Fra2 Fra2 Fra2 Ger3 Ger3 Ger3 Ger3 Ger3 Ger3 Ger3 Ger3 Ger3 Ger3 Ger4 Ger4 Ger4 Ger4 Ger4 Ger4 Ger4 Ger4 Ger4 Ire2 Ire2 Ire2 Ire2 Ire2 Ire2 Ire2 Ire2 Ire2 Ire2 Ire3 Ire3 Ire3 Ire3 Ire3 Ire3 Ire3 Ire3 Ire3 Ire3 Jap2 Jap2 Jap2 Jap2 Jap2 Jap2 Jap2 Jap2 Jap2 Jap2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ2 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ3 NZ4 NZ4 NZ4 NZ4 NZ4 NZ4 NZ4 NZ4 NZ4 Net2 Net2 Net2 Net2 Net2 Net2 Net2 Net2 Net2 Net2 Nor3 Nor3 Nor3 Nor3 Nor3 Nor3 Nor3 Nor3 Nor3 Nor3 Swe2 Swe2 Swe2 Swe2 Swe2 Swe2 Swe2 Swe2 Swe2 Swe2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi2 Swi3 Swi3 Swi3 Swi3 Swi3 Swi3 Swi3 Swi3 Swi3 Swi3 Swi4 Swi4 Swi4 Swi4 Swi4 Swi4 Swi4 Swi4 Swi4 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK4 UK4 UK4 UK4 UK4 UK4 UK4 UK4 UK4 US3 US3 US3 US3 US3 US3 US3 US3 US3 US3 US4 US4 US4 US4 US4 US4 US4 US4 US4

dim2

rates Medium childcare

Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Aus4 Bel2 Bel2 Bel2 Bel2 Bel2 Bel2 Bel2 Bel2 Bel2 Bel2 Can2 Can2 Can2 Can2 Can2 Can2 Can2 Can2 Can2 Can2 Can3 Can3 Can3 Can3 Can3 Can3 Can3 Can3 Can3 Can3 Den2 Den2 Den2 Den2 Den2 Den2 Den2 Den2 Den2 Den2 Den3 Den3 Den3 Den3 Den3 Den3 Den3 Den3 Den3 Den3 Ger2 Ger2 Ger2 Ger2 Ger2 Ger2 Ger2 Ger2 Ger2 Ger2 Ire4 Ire4 Ire4 Ire4 Ire4 Ire4 Ire4 Ire4 Ire4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Jap3 Jap3 Jap3 Jap3 Jap3 Jap3 Jap3 Jap3 Jap3 Jap3 Net3 Net3 Net3 Net3 Net3 Net3 Net3 Net3 Net3 Net3 Net4 Net4 Net4 Net4 Net4 Net4 Net4 Net4 Net4 Ost2 Ost2 Ost2 Ost2 Ost2 Ost2 Ost2 Ost2 Ost2 Ost2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK2 UK3 UK3 UK3 UK3 UK3 UK3 UK3 UK3 UK3 UK3

  • 1

d

services, medium‐ long duration of leave and medium replacement rates, but high child allowance Low‐medium comprehensive childcare

Bel3 Bel3 Bel3 Bel3 Bel3 Bel3 Bel3 Bel3 Bel3 Bel3 Bel4 Bel4 Bel4 Bel4 Bel4 Bel4 Bel4 Bel4 Bel4 Can4 Can4 Can4 Can4 Can4 Can4 Can4 Can4 Can4 Den4 Den4 Den4 Den4 Den4 Den4 Den4 Den4 Den4 Ita2 Ita2 Ita2 Ita2 Ita2 Ita2 Ita2 Ita2 Ita2 Ita2 Ita3 Ita3 Ita3 Ita3 Ita3 Ita3 Ita3 Ita3 Ita3 Ita3 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Ita4 Jap4 Jap4 Jap4 Jap4 Jap4 Jap4 Jap4 Jap4 Jap4 Nor2 Nor2 Nor2 Nor2 Nor2 Nor2 Nor2 Nor2 Nor2 Nor2

  • 2

2 1 1 2

CHRISTIAN DEMOCRATIC services and short‐medium duration of leave

  • 2
  • 1

1 2 dim1 Source: E. Ferragina, M. Seeleib-Kaiser, M. Tomlinson: “Unemployment Protection and Family Policy at the Turn of the 21st Century: A Dynamic Approach to Welfare Regime Theory,” Social Policy and Administration, forthcoming

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Social Spending and Economic P f Performance

High social spending is a drag on economic growth and

High social spending is a drag on economic growth and productivity, due to a trade-off between efficiency and equity

High social spending reduces the incentive to work and leads High social spending reduces the incentive to work and leads

to low employment rates Hi h i l di l d t l f i

High social spending leads to a loss of economic

competitiveness and increased public debt in a global economy

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Social Spending and Economic P f Performance

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Social Spending and Productivity

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Social Spending and Employment

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Social Spending and International Trade

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Social Spending and Current Account B l Balance

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / Liberal Welfare Regime Inequality and Poverty Rates / Liberal Welfare Regime

Gini Coefficient Relative Poverty Rates (60% median) LIS - Australia 2003 - wave VI 0.312 20.370 LIS - Canada 2004 - wave VI 0.318 19.891 LIS - Ireland 2004 - wave VI 0.312 21.974 LIS - United Kingdom 2004 - wave VI 0.345 19.195 LIS - United States 2004 - wave VI 0.372 24.118 Average 0.332 21.110

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / Conservative Welfare Regime

Gini Coefficient Relative Poverty Rates (60% median) LIS - Austria 2004 - wave VI 0.269 13.383 LIS - Belgium 2000 - wave V 0.279 16.117 LIS - France 2000 - wave V 0.278 13.725 LIS - Germany 2004 - wave VI 0.278 14.342 LIS - Luxembourg 2004 - wave VI 0.268 13.729 LIS - Switzerland 2004 - wave VI 0.268 14.823 Average 0 273 14 353

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Average 0.273 14.353

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / Social-Democratic Regime

Gini Coefficient Relative Poverty Rates (60% median) LIS - Denmark 2004 - wave VI 0.228 13.191 LIS - Finland 2004 - wave VI 0.252 13.541 LIS - Netherlands 2004 - wave VI 0.263 11.607 LIS - Norway 2004 - wave VI 0.256 12.769 LIS - Sweden 2005 - wave VI 0.237 11.969 Average 0.247 12.615

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / Mediterranean Regime

Gini Coefficient Relative Poverty Rates (60% median) LIS - Greece 2004 - wave VI 0.329 19.690 LIS - Italy 2004 - wave VI 0.338 20.335 LIS - Spain 2004 - wave VI 0.315 20.580 Average 0.327 20.202

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / East-Asian Regime

Gini Coefficient Relative Poverty Rates (60% median) LIS - Korea 2006 - wave VI 0.311 20.637 LIS - Taiwan 2005 - wave VI 0.305 15.790 Average 0.308 18.214

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Systems of Welfare in a Changing World

Regime Outcomes Inequality and Poverty Rates / Averages

Gini Coefficient Relative Poverty Rates (60% median) Social-Democratic Regime 0.247 12.615 Conservative Regime 0.273 14.353 Liberal Regime 0.332 21.110 Mediterranean Regime 0.327 20.202 East-Asian Regime 0.308 18.214 Source: Luxembourg Income Study

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Social Spending and Poverty Rates

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Systems of Welfare in a Changing World

Dualism and Dualization

Welfare dualism/social protection dualism relates to

th t f d l lf t th t diff ti t the concept of dual welfare systems that differentiate between insiders (workers) and outsiders (the poor).

Insiders are defined as individuals covered either Insiders are defined as individuals covered either

through comprehensive public/statutory social protection or those whose public/statutory entitlements are complemented or supplemented by are complemented or supplemented by private/occupational social protection to a level that maintains living standards.

In contrast, outsiders are defined as those that would

have to rely on meager largely means-tested public provision primarily intended to ameliorate poverty provision, primarily intended to ameliorate poverty.

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Systems of Welfare in a Changing World

Dualization refers to processes of widening, deepening or the ti f lf d li creation of new welfare dualisms

Source: P. Emmenegger, S. Häusermann, B. Palier, M. Seeleib-Kaiser (eds.) The Age of Dualization Oxford: OUP 2012

  • Dualization. Oxford: OUP, 2012.

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Percentage of Employees in the German Private Sector Covered by Occupational Pension Plans by Industry (2001-2007)

Industry 2001 2003 2005 2007 y Manufacturing P d ti /I t di t G d 43% 55% 73% 74% Production/Intermediate Goods 43% 55% 73% 74% Construction 22% 30% 37% 42% Services Financial Intermediation 76% 83% 89% 90% Hospitality and Food Services 10% 25% 26% 28% Total Private Sector Coverage 38% 45% 52% 52%

Source: TNS Infrastest 2008

g

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Percentage of Employees in the British Private Sector Covered by Occupational Pension Plans by Industry (2002-2008)

Industry 2002 2004 2006 2008 Manufacturing 61% 58% 57% 53% Mining Quarrying & Energy 82% 78% 83% 79% Mining, Quarrying & Energy 82% 78% 83% 79% Construction 42% 39% 36% 34% Services Financial Intermediation 80% 80% 81% 77% Hospitality and Food Services 12% 13% 9% 8% Total Private Sector

Source: ASHE ONS 2008

Total Private Sector Coverage 47% 43% 41% 37%

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Systems of Welfare in a Changing World

Percentage of Unemployed Receiving Unemployment Insurance Benefits: 1971‐2009

70% 80% Germany 60% United States (Regular UI) United States (All UI i l di E t 40% 50% including Extra Benefits) 선형 (Germany) 30% 40% 선형 (United States (Regular UI))

S S l ib K i t

20% 1971 1976 1981 1986 1991 1996 2001 2006

Source: Seeleib-Kaiser et

  • al. 2011

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Net Replacement Rates (Long-term Unemployment)

67% of AW 100% of AW 67% of AW 100% of AW Average all house- hold No children 2 children No children 2 children One Two One Two One Two One Two hold types Single person One- earner married couple Two- earner married couple Lone parent One- earner married couple Two- earner married couple Single person One- earner married couple Two- earner married couple Lone parent One- earner married couple Two- earner married couple Germany 2001 58 69 71 83 81 75 54 54 70 64 65 74 68 2001 58 69 71 83 81 75 54 54 70 64 65 74 68 2008 48 62 59 78 80 64 36 46 50 61 63 55 59 United States 2001 9 16 53 43 50 61 6 11 43 33 39 50 35 2008 9 16 54 40 47 63 6 11 44 32 38 52 34

Note: data refers to 60th month of benefit receipt. Source: OECD, Tax-Benefit Models

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Source: OECD, Tax Benefit Models

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Implications for Korea

  • Political choice largely determines the specific system of social welfare
  • High social spending and social protection does not have to be a drag on

economic performance; see the economic performance of high-spending economic performance; see the economic performance of high spending countries in the northwest of Europe

  • Capacity of the state to collect taxes and social insurance contributions is

a precondition for a generous welfare state problematic in a number of a precondition for a generous welfare state – problematic in a number of Mediterranean countries, Korea (?) and Japan

  • Poverty rates correlate highly with the level of social spending
  • Poverty among pensioners is dependent on the availability of a generous

universal benefit and/or statutory or mandatory contribution-based benefit system with a built-in minimum benefit level

  • Link pension age to increase in prospective age / healthy years to

maintain sustainability of the system

  • To avoid social protection dualism among the working age population, a

To avoid social protection dualism among the working age population, a generous social assistance scheme is crucial

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