Grim Demographic Predicament Facing OECD: The Urgent Need for Governments to Revise Social Protection Policies Immediately
Declining Birth Rates and Aging Populations Pose Challenge to Social Protection Systems - Will Governments Address the Demographic Crisis Before It Intensifies?
When social ministers from OECD countries convene in Paris on Valentine's Day, they will be confronted with a pressing issue that transcends political ideologies: ensuring sustainable social protection in an era of unprecedented demographic change. Representatives of governments with differing political backgrounds share a common reality - the growing need for robust social protection systems, primarily in response to recent events such as the pandemic, inflation shocks, and the current cost-of-living crisis.
Robust social protection has proven to be an essential element of society, serving as a safety net for individuals as well as a crucial pillar for economic growth and well-being. Social protection mechanisms act as redistributors and stabilizers during economic downturns, offering income support through measures like sick pay, unemployment benefits, and short-time work programs. The absence of these safeguards would lead to more severe economic crises, with higher levels of poverty and inequality.
Governments have acknowledged the importance of social protection, as evidenced by moves to enhance benefit levels and extend temporary increases, even by administrations that traditionally oppose social spending.
The second pressing issue for social ministers involves demographic change, specifically the decline in birth rates, an increase in average life expectancy, and the resulting surge in retirees. In every OECD country except Israel, birth rates have fallen below the replacement rate of 2.1, with several large European economies, such as Germany, Italy, and Spain, experiencing significantly lower birth rates than the OECD average of 1.5. The birth rate was 3.3 just six decades ago. Consequently, the number of retirees is projected to almost double within four decades, resulting in significant funding gaps for social protection, particularly pensions.
With falling birth rates, aging populations, and shrinking workforces, OECD countries are on the verge of a demographic crisis. This shift is transforming population structures and necessitates a fundamental rethinking of social protection financing. The Trade Union Advisory Committee (TUAC) to the OECD has proposed three strategies to address the demographic crisis, focusing on enhancing labor rights, social protection, and social cohesion.
Firstly, governments should raise progressive taxes on wealth, profits, and capital while taking firm action against tax evasion and avoidance. Better international cooperation is necessary to ensure that capital contributes fairly to the funding of social protection and helps alleviate record levels of inequality.
Secondly, fiscal and monetary policies should be employed to boost overall demand and stimulate employment growth. This requires prioritizing labor market integration, improving opportunities for underrepresented groups such as women, migrants, people with disabilities, and those not in education, employment, or training (NEETs).
Lastly, governments should focus on job quality and working conditions to enable older adults to extend their working lives if they choose to do so. Enhancing job security not only helps maintain social protection financing but also contributes to overall well-being and social cohesion. Improving job mobility and career transitions via investment in lifelong learning programs is also key to this strategy.
The demographic changes facing OECD countries have implications beyond numerical shifts. They represent a question of the kind of society we aspire to build. The Social Ministers' meeting in Paris represents an opportunity to chart a path towards more socially just social protection systems that are financially sustainable. Rather than relying on blunt measures like raising retirement ages or cutting benefits, this meeting presents an opportunity to embark on a different course by taxing capital more effectively, boosting employment, and improving job quality.
Veronica Nilsson
Veronica Nilsson is the General Secretary of the Trade Union Advisory Committee to the OECD (TUAC).
Adnan Habibija
Adnan Habibija is a senior policy advisor at the Trade Union Advisory Committee (TUAC) to the Organisation for Economic Co-operation and Development (OECD). He previously served as a policy analyst at the Swedish Trade Union Confederation (LO).
- The dramatic decline in birth rates and rising populations of retirees, a common issue across OECD countries, is poised to intensify the strain on social protection systems, requiring policy-and-legislation solutions to maintain their financial sustainability.
- Through collaboration between finance ministries and the labor market, OECD countries can address the demographic crisis by employing policies to boost overall demand and employment growth, while improving job quality and working conditions for those who choose to extend their working lives.
- In the face of the impending demographic crisis, business leaders, politicians, and financiers must unite to address the issue with comprehensive policy reforms, focusing on progressive taxation, enhancing social protection, and fostering social cohesion for general-news headlines.
