1. SOCIAL POLICY REFORMS IN ASEAN:
SOME CONSIDERATIONS
Gloria O. Pasadilla
Research Fellow, ADB Institute
Prayoga Wiradisuria
Research Associate, ADB Institute
ADBI Annual Conference
4 December 2009, Tokyo - Japan
2. I. SAVINGS IN ASEAN
II. SOCIAL PROTECTION IN ASEAN
III. ECONOMIC EFFECTS OF SOCIAL PROTECTION SPENDING
IV. SUMMARY AND CONCLUSION
3. HOW BIG IS ASEAN’S SAVINGS?
ASEAN-5 Saving rates in comparison
55 East Asia & Pacific
Compared to
50
other regions like 45 Europe & Central
Latin America or 40
Asia
Euro area
GDP (%)
Europe, ASEAN 35
savings is fairly 30 Latin America &
Caribbean
high… 25 South Asia
20
15 Sub-Saharan
Africa
10 ASEAN
90
92
94
96
98
00
02
04
06
19
19
19
19
19
20
20
20
20
35
…and around the
same level as the 30
average for middle 25
GDP (%)
income countries 20
High income
15 Middle income
10 Low income
ASEAN
5
90
92
94
96
98
00
02
04
06
19
19
19
19
19
20
20
20
20
Sources: ASEAN-5 data is referring to Gross National Saving as percentage of GDP taken from ADB
Statistical System. Other data is using Gross saving as percentage of GDP download from
the World Bank’s World Development Indicator Database. Authors’ calculation.
4. SAVINGS MAGNITUDE WITHIN ASEAN HAD VARIED
ASEAN-5 countries saving rates
54
Individual
04
countries in
ASEAN had 53
followed different 03
)
savings path 52 %
(
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D
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ais e n od n I
51 aisyalaM
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s e nippili h P
5 ma nt eiV
)gva( NAE SA
0
88 09 29 49 69 89 00 20 40 60 80
91 91 91 91 91 91 02 02 02 02 02
Source: ADBI Statistical Database System, downloaded 1 November 2009, authors’
calculation
5. HOUSEHOLD SAVINGS, HOWEVER, IS NOT UNIFORMLY
RESPONSIBLE FOR THE OVERALL HIGH NATIONAL SAVINGS
Selected ASEAN-5 countries’ saving compositions
Philippines
In the Philippines saving
contribution has been 20%
constantly and largely 18%
16%
Saving to GDP ratio
dominated by corporations 14% Government
since 2002… 12% Corporations
10% Households
8%
6%
8.3% 9.2% 8.7%
4% 7.7%
2% 3.3% 2.9% 1.9% 1.9% 2.2%
0% 0.6%
-2% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Thailand
20%
… meanwhile in Thailand, 18%
Saving to GDP ratio
corporate saving has 16% Government
14%
increased over the years Corporations
12%
10% Households
and is now responsible for 8%
one third of total saving 6% 10.1%
4% 8.5%
7.2% 7.3%
5.0% 4.5% 4.2% 5.0%
2% 3.6% 3.9%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Corporations saving is composed of both private and government corporations.
Sources: CEIC Data Company Ltd, downloaded 2 November 2009, authors’ calculation
6. HOUSEHOLD SAVING AS SHARE OF HOUSEHOLD DISPOSABLE
INCOME SUGGESTS CONSIDERABLE DIFFERENCES WITHIN ASEAN
Household saving as percentage of household disposable income for
selected countries
While households in Country Average household saving
Indonesia and Thailand as percentage of household
seem to have a relatively disposable income
larger space to increase Thailand 9%
their consumption by saving
Indonesia 17%
less, households in the
Philippines has less elbow Philippines 4%
room Korea, Rep 10%
Australia 0%
US 3%
Note: Averages of yearly data of 2004-2008 period for Thailand, Philippines,
Republic of Korea, and US. Averages of 2003 and 2004 for Indonesia.
Australia experienced negative household saving rates in 2004 and 2005 and
positive from 2006 onwards.
Australia’s and Republic of Korea’s Yearly data are averages of quarterly data.
US yearly data is average of monthly data.
Source: CEIC Data Company Ltd, Downloaded 2 November 2009, Indonesia data is
obtained from Santoso and Sarie (2007), authors’ calculation.
7. HOUSEHOLD CONSUMPTION HAS LEFT LITTLE SPACE FOR EXPANSION
Household Final Consumption Expenditure and General Government Expenditure
as percentage of GDP in 2007
100
The share of private 90
consumption to GDP in 80
70
this region is already 60
Household
markedly higher than 50 57 58
57
76
70
Government
40 60
other countries private 30 33
45
56 54 62 61
consumption share.. 20
10
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Household Consumption as share of GDP (%)
90
… and some ASEAN 85
members might actually 80
75 China
need to reduce their 70 Indones ia
65 Thailand
consumption instead of 60 Vietnam
increasing it 55 Malays ia
50 Philippines
45 ASEAN
40
35
30
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: World Bank’s World Development Indicator Database, downloaded 1 November 2009
8. I. SAVINGS IN ASEAN
II. SOCIAL PROTECTION IN ASEAN
III. ECONOMIC EFFECTS OF SOCIAL PROTECTION SPENDING
IV. SUMMARY AND CONCLUSION
9. ASEAN COUNTRIES HAVE MANY DIFFERENT SOCIAL PROTECTION
POLICY PROGRAMS
Country Social Social Insurance Micro and Area-Based Schemes
Assistance
1 2 3 4 5 6 7 8
Cambodia ● ●
Indonesia ● ● ● ●
Lao PDR ● ●
Malaysia ● ● ● ●
Myanmar ● ● ● ●
Philippines ● ● ● ● ● ● ● ●
Thailand ● ● ● ● ● ● ● ● ●
Vietnam ● ● ● ● ●
Note: 1) Old age, disability, death insurance; 2) sickness, maternity insurance; 3) medical care; 4) work injury; 5)
micro insurance; 6) agriculture insurance; 7) disaster management; 8) social fund
Source: Soeharto (2007)
10. BUT IN TERMS OF OVERALL SOCIAL PROTECTION STAND, MOST
ASEAN COUNTRIES ARE RELATIVELY BEHIND OTHER COUNTRIES
Social Protection Index (SPI) of Selected Asian Countries
Japan 0.96
Korea 0.76
Mongolia 0.6
Uzbekistan 0.57
Sri Lanka 0.47
India 0.46
China 0.45
Viet Nam 0.38
Malaysia 0.36
Indonesia 0.33
Philippines 0.2
Cambodia 0.19
0 0.2 0.4 0.6 0.8 1 1.2
Source: ADB, Wood 2009
11. IN TERMS OF EXPENDITURE, SOCIAL PROTECTION IN ASEAN HAS
RECEIVED RELATIVELY LESS ‘ATTENTION’
Overall social protection expenditure (Government, NGO, private sector)
as percentage % of GDP
Japan 16.0%
Uzbekistan 11.1%
Mongolia 9.8%
Korea 7.5%
Sri Lanka 5.7%
China 4.6%
Viet Nam 4.1%
Malaysia 4.0%
India 4.0%
Philippines 2.2%
Indonesia 1.9%
Cambodia 1.4%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
Source: ADB, Wood 2009
12. A CONSIDERABLE VARIATION IN SOCIAL PROTECTION EXPENDITURE
DISTRIBUTION CAN BE OBSERVED AMONG ASEAN COUNTRIES
Distribution of overall social protection expenditure by social
protection components
100% 1%
3% 6% 7%
4% 17% 14% 12%
7%
80% 20% 4% 20%
27% 26%
10%
60%
8%
90%
84%
40% 79% Child Protection
71%
60% 60% Micro Area based
50% Social Assistance
20%
Labor market
Social Insurance
0%
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Source: ADB, Wood 2009
13. ASEAN SOCIAL SECURITY PROFILES (1/2)
Country Organization Benefits Type of Scheme Coverage
Indonesia TASPEN (1963) Lump sum payment: Provident fund/ DC Government civil
invalidity, death, Defined Benefits servants
retirement, separation
Pension (1981):
retirement, survivorship,
invalidity
JAMSOSTEK (1977) Health care benefits, Provident fund/ Compulsory for
work accident and Defined enterprises with 10 or
death insurance Contribution more employees or
payroll of at least 1
million Rp a month
Malaysia Employees Provident Retirement benefits, Defined Compulsory: private
Fund (EPF) (1951) pre-retirement benefits, Contribution employees and non-
death, incapacity, pensionable public sector
members’ investment employees;
program Voluntary: self-employed,
domestic helpers, foreign
employees, pensionable
public sector
Social Security Employment injury, Defined Benefits Compulsory to all
Organization occupational diseases, employers employing
(SOCSO) (1971) invalidity, death one or more workers;
Compulsory for workers
who earn no more than
RM2000/month.
14. ASEAN SOCIAL SECURITY PROFILES (2/2)
Country Organization Benefits Type of Scheme Coverage
Philippines Social Security Pension and insurance covering Defined Benefits Compulsory for private
System (SSS) sickness, maternity, disability, employees and self-
(1954) retirement, death, medical care, employed below 61 yrs old;
accident; allows borrowing Voluntary: Overseas
privilege workers, non-working
spouses of members,
employees under foreign
government; separated
members from employment
Government Pension and insurance: Defined Benefits All public employees;
Service retirement, disability and death, Voluntary for former public
Insurance unemployment, sickness, loan employees that have
System (GSIS) windows, optional life insurance resigned or retired early
(1937) from government service
Singapore Central Retirement, health care, Provident fund/ All private and public
Provident Fund homeownership, family Defined employees and self-
(CPF) (1953) protection, asset enhancement Contributions employed
Thailand Social Security Social security (medical, Defined Benefits Compulsory for large
Office (SSO) sickness, maternity, invalidity, private enterprises (10 or
(1990) death); survivorship, disability, more employees)
survivorship, funeral;
Pension – added in 1999
Vietnam Social Security Pension and death benefits, Defined Benefits Mandatory for all
Organization sickness, maternity, and enterprises (private and
(1995) occupational accidents/ state-owned);
diseases Voluntary for small
enterprises (less than 10
employees)
15. ASEAN Social Security Profile
• Social security schemes in ASEAN contains not only
retirement benefits but other insurance
components: medical care, death benefits,
unemployment, etc.
• Singapore, Malaysia, Brunei, and Indonesia have
provident funds (defined contribution scheme); the
rest have PAYG schemes (defined benefit)
• Coverage varies: social security is not mandatory
for all firms of all sizes
16. COVERAGE RATE OF SOCIAL SECURITY PENSIONS/SAVING
Percentage of Coverage rate
Percentage of non
wage earners in Percentage of
agricultural workers
the total Percentage of Percentage of urban
in the total working
working population 15-64 labor force population
population
population
Cambodia 29.6 12.9 - - 20.0
China 53.1 - 17.2 20.5 40.0
India 33.2 - 5.7 9.1 29.0
Korea 91.9 66.4 - - 81.0
Mongolia 60.1 39.3 23.6 39.6 57.0
Nepal 32.7 - 2.5 - 16.0
Sri Lanka 59.6 58.2 22.2 35.6 15.0
Lao PDR 20.3 10.4 5.7 7.2 27.0
Singapore 99.6 86.0 45.2 76.2 100.0
Malaysia 85.2 76.2 32.2 49.6 68.0
Indonesia 56.0 32.8 11.1 15.5 48.0
Philippines 63.0 50.4 18.7 27.1 63.0
Thailand 57.3 43.8 24.4 30.4 32.0
Viet Nam 42.1 25.6 12.9 16.2 26.0
Source: Yamabana (2009)
17. CONTRIBUTION
Social security reform is constrained by
the increased burden on employers who
normally take the larger share of
contributions.
Source: ILO Social Security Expenditure Database, authors’ compilation
18. PRESSURES FOR REFORM IN SOCIAL SECURITY ARRANGEMENT (1/2)
For the moment, the old-age dependency ratio is low but the trend points to increased
aging of the population due to low population growth and longer life span.
Total
Old-age Population fertility5
Population structure based on age Labour force to Dependency Dependency Growth4 (children
(% of total, 2005) population ratio1 ratio2 Ratio3 (Annual, %) per woman)
Aged 0-14 Aged 15-64 Aged 65+
Canada 18% 69% 13% 74 44 19 1.00 1.6
France 18% 65% 17% 64 54 25 0.70 1.9
Germany 14% 67% 19% 68 50 30 -0.03 1.3
Japan 14% 66% 20% 61 53 32 0.07 1.3
United States 21% 67% 12% 69 49 19 0.93 2.1
China 21% 71% 8% 77 40 11 0.60 1.8
Malaysia 32% 63% 5% 47 54 7 1.87 2.6
Thailand 24% 69% 7% 70 42 10 0.87 1.8
Viet Nam 30% 65% 5% 75 51 9 1.10 2.1
Indonesia 28% 66% 6% 52 50 9 1.33 2.2
Philippines 35% 61% 4% 51 63 7 1.77 3.1
Ø 64 Ø 50 Ø 16 Ø 0.9 Ø 2.0
1Average of 2005, 2006, and 2007 data
2Average of 2006, 2007, and 2008 data. Aged <15 and 65+ in proportion of 15-64 years old
3Average of 2006, 2007, and 2008 data. Aged 65+ in proportion of 15-64 years old.
4Average of 2003, 2004, and 2005 data.
5Average of 2007, 2008, and 2009 data.
Source: World Bank’s World Development Indicator, downloaded 9 October 2009, authors’ calculation
19. NEED FOR REFORM IN SOCIAL SECURITY ARRANGEMENT (2/2)
ASEAN-5’s Increasing Old-age Dependency Ratio
8.6 8.5
8.4
8.3
8.4 8.3
8.1
8.2
8.0
8 7.9
7.8
7.8 7.7
7.6
7.4
7.2
2000 2001 2002 2003 2004 2005 2006 2007 2008
ASEAN-5: Indonesia, Malaysia, Philippines, Thailand, and Vietnam.
Source: ILO Social Expenditure Database, downloaded 1 November 2009
20. PROJECTION OF OLD AGE DEPENDENCY RATIO UP TO 2050
oitaR ycnednepeD ega-dlO 5-NAESA
%53
%03
%52
%02
%51
%01
0002
%5 0102
0302
%0 0502
aisenodnI aisyalaM senippilihP dnaliahT maN teiV
Source: UN World Population Prospect (2008 Revision), Population Database, authors’ computations
21. I. SAVINGS IN ASEAN
II. SOCIAL PROTECTION IN ASEAN
III. ECONOMIC EFFECTS OF SOCIAL PROTECTION SPENDING
IV. SUMMARY AND CONCLUSION
22. ON ECONOMIC EFFECT OF SOCIAL PROTECTION SPENDING
What to consider • The policy to reform social protection spending has to be
evaluated for its overall impact on the economy. There
could be conflicting incentive forces at play on one side
and competitions for limited resources on the other.
• Striking the optimum level is sometimes more normative
than purely economics
• Studies on overall social protection spending impacts on
various aspects of the economy are limited
What the literatures • Much of the literature has been devoted to the effects of
provide social insurance, pension systems in particular, and less
on the other elements of social protection.
• The paper focused more on impacts of social insurance
23. THE EFFECTS ON LABOR SUPPLY
Labor supply distortion • To the extent that social insurance is usually financed through
from tax contributions or ‘payroll tax’, labor supply distortion arises
from the tax imposition.
Early retirement • In OECD, significant evidence of adverse incentives where
older workers stop working earlier than the mandatory
retirement age, effectively reducing the potential productive
capacity of the labor force
• By design, early retirement opportunity was to give room to
new entrants in labor force, but no corresponding reduction in
unemployment rates had resulted from old workers’ early exit
Social assistance • (Moffitt, JEL1992): beneficiaries of the social assistance do
not ‘graduate’ to become self-sufficient but rather stay on as
‘permanent’ recipients of what ought to have been
temporary assistance .
24. PRIVATE TRANSFERS AND PRIVATE INSURANCE
Government’s attempts to alter the distribution of economic well-being can be
thwarted by private behavioral responses (Cox, et. al., JPE 2004)
Private transfers • In countries where state-based (social security system) or
market-based (formal credit markets) economic support is
limited, family transfers constitute a major source of household
income. Private transfers, however, have been found to have
been crowded out by public social welfare expenditure.
Private insurance • Medicaid coverage expansion has resulted in workers reducing
their own private insurance coverage (Cutler and Gruber, QJE
1996).
25. SAVINGS, CONSUMPTION, AND DEMAND (1/3)
Reforms can Type of reform will affect the direction of impact on savings and consumption.
effect both Case Impact
ways
• Increase contribution rate (to Negative short-run impact on consumption
improve sustainability) due to reduction in disposable income
• Expansion to informal sector (to Positive impact particularly on the informal
increase coverage) sector labor-headed household due to
rising expected social security wealth
Theoretical Social insurance impact depends on assumptions of individuals saving
motivation, financial market development, labor supply assumption and
other factors.
Case Impact
• Consumption smoothing motive SS has no effect on aggregate saving
in basic life cycle model, fixed
LS (Diamond, 1965)
SS effect on private savings depends on
• Labor supply is not fixed income and substitution effect; aggregate
savings may increase
• Bequest and precautionary SS has positive result in aggregate saving
motive
26. SAVINGS, CONSUMPTION, AND DEMAND (2/3)
Empirical Mixed empirical result of effect of SS on aggregate savings but when the
expected change in pension wealth is large, a negative relationship with savings
is more perceptible. However the offset between private savings and pension is
imperfect and magnitude of increase in aggregate savings varies across
countries (Kohl and O’Brien, OECD 1998)
Cross-sectional Factors Impact
study results • Education
provide glimpse of The better educated and relatively well off
have stronger saving reduction in response to
possible cause
public pension
country variations
• Income Low income HH saving is not affected by
pension provision
• Vintage effect Different generations have different saving
propensity
• Age Old people save less
• Household size Bigger size, smaller displacement of saving by
SS
• Existence of occupational Higher displacement for state employees and
pensions; Urban vs rural self-employed as well as for urban dwellers.
• Liquidity constraint Size of impact depends on constraint but sign
is ambiguous
27. SAVINGS, CONSUMPTION, AND DEMAND (3/3)
• Specific impact on private savings and aggregate savings will still
depend on the specific design of the reform
• Social insurance policy reforms in ASEAN will likely be undertaken
not in response to short-term macroeconomic policy concerns but in
response to demographic considerations.
• In contrast, social assistance has a different effect on the economy
and may be a useful countercyclical policy due to its more immediate
effect on savings and consumption.
28. Investment, Growth, and Welfare
• In pure lifecycle model where young have higher MPS, redistribution
via PAYG (from young to old), results in lower savings, capital stock,
and growth
•Other studies highlight insurance aspect of social security that
helps increase welfare
• Theoretical impact of SS coverage extension to informal sector labor:
K Y but magnitude of effect on output depends on financing source
(higher impact if government use capital vs. consumption tax)
• Effect on welfare differs whether it is a HH headed by informal labor (+)
or HH headed by formal labor (-).
• Implication: net welfare change of SS extension
depends on inequality; more unequal (higher informal
sector), the higher the net welfare effect (i.e. the
redistribution and insurance function dominate the
savings and labor distortion
29. Investment, Growth, and Welfare
• Potential policy trade off in between welfare and growth
• However, social security or social safety nets are not the only way to
address high income inequality
•While inequality has a long-term negative relationship with growth,
inequality in assets rather than inequality in income has greater influence on
growth (Deininger and Squire, 1998)
•Accumulation of new assets is recommended than redistribution of existing
assets is recommended if redistribution will cause investments to go down
•education and human capital investments or microfinance are investment-
oriented policies that are beneficial to the poor while not being detrimental to
long-term growth
•Government should focus more on social sector expenditures
(education, health) instead of social protection exp?
30. I. SAVINGS IN ASEAN
II. SOCIAL PROTECTION IN ASEAN
III. ECONOMIC EFFECTS OF SOCIAL PROTECTION SPENDING
IV. SUMMARY AND CONCLUSION
31. SUMMARY & CONCLUSION
• Not all countries in ASEAN are in a position to boost private
consumption because: 1) their savings ratios are not really that high
compared to other countries in East Asia; and 2) private consumption
is already a big component in total domestic demand, that further
increase may render them vulnerable to macroeconomic volatility
• Reforms or changes in social protection schemes will seem to be
driven more by “natural” factors such as the aging population, low
population growth, urbanization, and the fraying of family ties /
informal support, than short-term countercyclical policy consideration
• There are important multi-faceted trade-offs that social protection
expenditures impinge on an economy which policy makers need to
consider in the design of any social protection reforms
