Public spending on disability, family and unemployment benefits rose during the early phases of the crisis but these areas are now under pressure.
Income inequality and social divisions could worsen and become entrenched unless governments act quickly to boost support for the most vulnerable in society, according to a new OECD report.
Society at a Glance 2014 says that despite a gradually improving global economy, medium-term fiscal consolidation in many countries will pose challenges for tackling the social fallout from the crisis.
Public spending on disability, family and unemployment benefits rose during the early phases of the crisis but these areas are now under pressure. Coverage has also been a challenge: while social protection programmes helped soften the blow for many people, others were left with little or no support, notably in southern Europe.
Governments need to consider any further expenditure cuts very carefully, says the OECD. These may add to the hardship of the most vulnerable and could create problems for future social cohesion. While the long-term commitment to restore public finances should be maintained in order to create confidence, it cannot happen at the cost of raising inequalities and social gaps.
“The economic recovery alone will not be enough to heal the social divisions and help the hardest hit bounce back,” said OECD Secretary-General Angel Gurría. “Governments need to put in place more effective social policies to help their citizens deal with future crises. They also need to avoid complacency and persevere in their reform efforts as the recovery takes hold.”
Governments should target social spending and investment on the most needy, says the OECD. Across-the-board cuts in social transfers should be avoided. This is particularly true for housing and child or family benefits as these often provide vital support to poor working families and lone parents. Cutting such social investment expenditure today might cause long-term harm to children’s development and people’s employment chances and well-being in the future.
Society at a Glance 2014 highlights the impact of the crisis across a range of indicators:
•The number of people living in households without any income from work has doubled in Greece, Ireland and Spain, and risen by 20% or more in Estonia, Italy, Latvia, Portugal, Slovenia and the United States.
•Poorer households have lost greater shares of their incomes than the better-off or benefited less in the recovery – particularly in Estonia, Greece, Ireland, Italy and Spain.
•Young people are at greater risk of poverty than before the crisis: the share of 18-25 year-olds in households with incomes below half the national median has climbed in most countries – by 5 percentage points in Estonia, Spain and Turkey, by 4 points in Ireland and the United Kingdom, and by 3 points in Greece and Italy.
•The share of people who report that they cannot afford to buy enough food increased in 23 countries, particularly in Greece and Hungary, but also in the United States.
•Fertility rates have dropped further since the crisis, deepening the demographic and fiscal challenges of ageing. Having risen since 2000 to reach 1.75 children per woman in 2008, they have fallen back to 1.70, as lower and uncertain incomes may have caused more people to delay parenthood or have fewer children.
•While it is too early to quantify the longer-term effects of the crisis on people’s health, unemployment and economic difficulties are known to contribute to a range of health issues, including mental illness.
•Spending on education has fallen relative to GDP in half of the OECD countries since the start of the crisis, with cuts especially sharp in Estonia, Hungary, Iceland, Italy, Sweden, Switzerland and the US. Such cuts will affect the poorest in society the most, says the OECD, and in the long-term could lead to reduced student participation, poorer outcomes and reduced upward mobility for children from low-income families.
By contrast, the large emerging-market economies have aimed to bolster redistribution measures as part of their strategies to reduce poverty and inequality and can learn from the recent experiences of OECD countries.