1. New Approaches to Economic Challenges
NAEC Group Meeting, 28 November 2014
SESSION 6
INCOME, JOBS AND HEALTH
IN THE INCLUSIVE
GROWTH FRAMEWORK
Stefano Scarpetta
Director for Employment, Labour and Social Affairs
2. Trade-offs and complementarities in promoting inclusive
growth: the focus on the level and distribution of income,
jobs and health
• How income inequality affects
growth, and through which
channels
• Beyond employment -
unemployment: the level and
distribution of job quality
• How health affects well being
and social and income
inequalities and vice versa
3. 3/6
Closing the loop: how inequalities affects
economic growth
• Growth equation estimated with panel data (33 OECD
countries, 1980-2010)
Homogeneous set of countries
Good quality data (Income Distribution Dataset)
State-of-the-art estimation techniques
• Higher (net income) inequality lowers economic growth
Increasing income inequality by 1 Gini pt. lowers yearly GDP per
capita growth by around 0.1 p.p. in long run (25 years), and by 0.8 p.p.
in the short-run (over 5 years)
• Result is driven by disparities at the lower end of the
distribution, involving lower middle classes, not just the poor.
• Redistribution (as captured by the data) has not led to lower
growth outcomes
4. 4
The role of human capital for the inequality-growth
• In presence of credit
constraints, inequality
undermines education
opportunities of the poor
• Evidence from PIAAC strongly
supports this mechanism:
– Both the quantity and the
quality of human capital of
people from poor socio-economic
background
deteriorate as inequality
rises
– Increasing inequality by ~6
Gini pts. lowers numeracy
score by ~ 6 points (nearly
40% of the baseline
differential between Low
and Medium PEB
individuals).
nexus
5. 5
Job Quality: a new way to look at labour
market outcomes
• Why does job quality matter?
– A key element of individual well-being (i.e. an end in its own right)
– Determines labour force participation, worker commitment and productivity (i.e. a
means to greater economic performance)
• Three key dimensions that are key for well-being and policy relevant:
– Earnings quality
– Labour market security
– Quality of the work environment
• Three main principles to ensure that indicators are readily interpretable and
comparable:
– Focus on outcomes experienced by workers;
– Concentrate on individual workers;
– Favours objective features of job quality
• Together with job quantity, these indicators allow for a comprehensive assessment of
the role of policies and institutions
6. 6
Job Quality: a new way to look at labour market
outcomes
Country rankings (1-32) from highest to lowest performance, 2010
7. 7
Socio economic differences lead to health
differences: the London Jubilee Line….
8. 8
…but poor health also drives to inequality
• This two way relation is
what we will look at:
• How socio-economic factors
affect health outcomes
• How health inequality
affects economic outcomes
20
18
16
14
12
10
8
6
4
2
0
A. Unemployment/labour force (in %), latest year available
None Mental ill-health
CHE NLD NOR GBR AUS USA AUT SWE DNK BEL
%
B. Share of people with a household-size adjusted net income below 60% of the median income, latest
year available
45
40
35
30
25
20
15
10
5
0
NOR CHE BEL SWE AUS AUT DNK USA GBR
%
For example, people with a mental disorder face a large risk of job loss and
unemployment (Panel A) and of falling into poverty (Panel B)
Editor's Notes
Long standing, controversial debate:
Inequality might increase growth by providing incentives to work, invest and take risks; or by increasing aggregate savings
Inequality might decrease growth by inducing missed opportunities of investment by the poor (in particular, if they can not borrow money); or by favoring distortionary, anti-business policies.
DETAILS ON THE MEASUREMENT OF BOTTOM / TOP INEQUALITY:
Empirically, bottom inequality is the ratio between average income in the economy and average income in bottom deciles.
Top inequality is measured by average income of the 8th decile relative to average income
NOTE: The role of TOP-TOP incomes (e.g. top 1%) is not captured by standard surveys of income. Unfortunately, the “Top income database” has too few observations (countries covered) to be used in this framework
ON REDISTRIBUTION:
This result does not imply that Governments should not pay attention to efficiency considerations when designing redistributive policies (especially in countries with weak governance and administrative capacity)
The rationale for reversing the long-term rise in inequality is not only a social or political but also an economic one
Results imply important focus on the lower part of the income distribution, i.e. income-support policies (cash and in-kind)
Policy makers need to be concerned about the bottom 40% more generally – it is not just poverty that inhibits growth
Education reforms should focus on improving access by low-income groups
The London Underground Jubilee Line provides a good example:
Health capital is a fundamental dimension of human capital and well being
Health inequalities contribute to, and magnify social and income inequalities
In turn, health inequalities are caused by diverging material conditions
More equal societies tend to be healthier, and have lesser health inequalities
OECD will examine:
How socio-economic factors affect health outcomes
The use of the existing health capital stock
How health inequality affects economic outcomes
