National Conference on Sustainable Development

SIGNALS 2019

Vilnius, Lithuania

27 November 2019

Nicolas Woloszko

OECD Economics Department

Inclusive growth unit

Inclusive growth:

challenges and policies

CHALLENGES FOR INCLUSIVE GROWTH

10

Growth in household disposable income (average annual rate, mid-2000s to latest year)OECD countries, households at median and bottom 20% income levels

3

Most people in many OECD countries have

seen little or no income growth for a decade

Source: OECD Income Distribution Database.

-1 0 1 2 3 4 5 6 7

GBR

SVN

DNK

FRA

ESP

JPN

ISL

AUT

HUN

BEL

FIN

OECD

CAN

KOR

NZL

Median household

income growth at

less than 2 %

-7 -6 -5 -4 -3 -2 -1 0

GRC

IRL

ITA

MEX

USA

PRT

NLD

LUX

DEU

Median household

income has fallen

Median

Bottom 20%

0 1 2 3 4 5 6 7

CZE

CHE

SWE

AUS

NOR

ISR

SVK

CHL

TUR

POL

LVA

EST

Stronger income

growth for median

household

Inequality has increased especially at the

bottom of the distribution

Gini vs Income share held by bottom 20%Average annual change from mid-2000s to latest available year

4

POL

NLD

CHL

FIN

DNK

ESP

NOR

SWE

KOR

EST

IRL

SVN

LUX

MEX

ISR

CZEGBR EU

HUN

SVK

GRC

TUR

NZL

FRACAN

ITA

DEU

OECD

USA

PRT

-0,20

-0,15

-0,10

-0,05

0,00

0,05

0,10

-0,5 -0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5 0,6

Overall inequality, Gini coefficient, % pts

Decline in overall inequality and increase in inequality

in the bottom of the income distribution

Increase in overall inequality and decline

in inequality in the bottom of the income

distribution

Inequality measure with emphasis on the bottom of the income distribution, income share of bottom 20 per cent, % pts

Source: OECD Income Distribution Database.

Schwellnus, C., A. Kappeler and P. Pionnier (2017), "Decoupling of wages from productivity: Macro-level facts", OECD

Economics Department Working Papers, No. 13735

The labour share has declined

6

Productivity gaps have widened,

and wage inequality is increasing

Note: Frontier firms are the 5% of firms with the highest labour productivity by year and sector. Industries included are manufacturing and

business services, excluding the financial sector, for firms with at least 20 employees.

Source: Andrews, D., Criscuolo C., and Gal P. (2016), “The Best versus the Rest: The Global Productivity Slowdown, Divergence across

Firms and the Role of Public Policy”, OECD Productivity Working Papers, No. 05; Orbis data of Bureau van Dijk; and OECD calculations.

Real compensation per workerIndex, 2001 = 100

Labour productivityIndex, 2001 = 100

Middle skill income earners

have been painfully affected

7Source: OECD Employment Outlook 2017; European Union Labour Force Survey; Labour force surveys for Canada,

Japan and the United States; and OECD calculations.

Job polarisation by countryChange in share of total employment by skill level, 1995-2015

-15

-10

-5

0

5

10

SouthernEurope

NorthernEurope

WesternEurope

Total North America Japan CentralEurope

Low skill Middle skill High skill

8

Income redistribution has declined

0

10

20

30

40

50

-20

-15

-10

-5

0

5

ISR

SW

E

FIN

DN

K

NZ

L

CA

N

OE

CD

16

US

A

AU

S

NL

D

DE

U

FR

A

GB

R

JPN

CZ

E

ITA

NO

R

PercentagePercentage points

Change in redistribution Redistribution 2014 or latest year (right axis)

Change in redistribution for the working-age

populationMid-90s to latest available year

Source: Causa and Hermansen (2017)

Source: Causa O., Woloszko N., Leite D., “Housing, wealth accumulation and wealth distribution”, 2019, OECD Economics Department

Working Paper ; OECD Wealth Distribution Database (oe.cd/wealth). 9

Wealth inequality

Wealth inequality is much higher than income inequality and strongly

depends on homeownership.

10

The geographical aspect of inequalities

Source: OECD calculations, see OECD (2003), 'Geographic Concentration and Territorial Disparity in OECD Countries' for

details of the calculation.

Employment in manufacturing is more regionally concentrated than

services

Inequality of opportunities are likely to matter

most for people sense of ‘fairness’

11

Educational outcomes largely affected by family background (impact of family

socioeconomic status on PISA score)

Source: PISA Database.

0

10

20

30

40

50

60

0

10

20

30

40

50

60

TU

NT

UR

ME

XID

NE

SP

BR

AC

RI

LV

AIS

LU

SA

PR

TR

US

CO

LC

HL

ES

TD

NK

ITA

NO

RC

AN

GB

RA

RG

GR

CIR

LL

TU

DE

US

VN

PO

LC

HE

Ad

va

nce

dF

INS

WE

LU

XJP

NIS

RA

US

KO

RN

LD

CH

NS

VK

AU

TN

ZL

BE

LH

UN

CZ

EF

RA

12

Trust in government is declining

Average confidence in national government2014-16 and change since 2005-07

Source: Opportunities for All: A Framework for Policy Action on Inclusive Growth - © OECD 2018

-40

-20

0

20

40

60

80

100

-40

-20

0

20

40

60

80

100

PO

LS

VK

DE

UC

AN

CH

EC

ZE

ISL

ISR

NL

DS

WE

LV

AK

OR

JPN

ITA

HU

NN

OR

TU

RN

ZL

OE

CD

IRL

AU

TG

BR

AU

SE

ST

PR

TB

EL

LU

XM

EX

GR

CD

NK

FR

AE

SP

SV

NU

SA

FIN

CH

L

RU

SIN

DL

TU

BR

AC

RI

ZA

FC

OL

% in 2016 (right axis)

Percentage point change 2006-2016 (left axis)Percentage points %

GOING FOR GROWTH: A POLICY FRAMEWORK FOR

INCLUSIVE GROWTH

10

14

Going for Growth in a nutshell

Purpose:

▪ Identifying coherent structural reform strategies across a broad range of policy areas

Principles:

▪ Every 2 years, selection of five policy priority areas using a systematic monitoring of policies with a proven link to outcomes (productivity, employment and inclusiveness)

Mixed approach: quantitative + qualitative (expertise provided by country desks) to formulate country-specific recommendations

Formal integration of inclusiveness as a policy objective in 2017

Policies

(e.g. childcare)

Desks' expertise

(qualitative assessment of country-specific

circumstances)

Quantitative assessment

(performance-policy matching algorithm)

Employment Productivity Inclusiveness

Outcomes

(e.g. aggregate

employment)

Policies

(e.g. labour tax

w edge)

Outcomes

(e.g. total factor

productivity)

Policies

(e.g. administrative

burdens)

Outcomes

(e.g. gender gaps)

5 priorities

The OECD Going for Growth framework pillars

11

Inequality in household

disposable income

• Gini coefficient

• Income share bottom 20%

Poverty

• Relative poverty rates

– Total population

– Working-age population

– Children

– Youth

– Elderly

• Poverty mean gap

Emerging economies

• Absolute poverty rate

• Absolute poverty gap

Top income and wealth shares

• Top 1% income share

• Top 1% wealth share

Earnings inequality

and quality

• D5/D1 earnings ratio

• D9/D5 earnings ratio

• Earnings quality

• Gender wage gap

Labour market insecurity

and informality

• Unemployment risk

• Unemployment insurance

Emerging economies

• Vulnerable employment

• Incidence of informality

• Risk of extreme low pay

Labour market

inclusiveness

• Female employment gap

• Elderly employment gap

• Youth unemployment gap

• Foreign-born

unemployment gap

• Long-term unemployment

rate

Skills and equality of

educational opportunities

• Upper-secondary

education share

• PISA scores: mean and

overall variation

• PIAAC scores: mean and

gender gap

• Low-performing students

and adults

• Impact of socio-economic

background on PISA scores

• NEET share

Health outcomes

and inequalities

• Female life expectancy

• Male life expectancy

• Self reported good health

• Low-high income health gap

Emerging economies

• Child mortality

• Access to sanitation

Labour market: job quantity & quality

Income dimensions Non-income dimensions

Going beyond economics towards

inclusiveness

.

Source: OECD Going for Growth. 17

REFORMSFOR INCLUSIVE GROWTH

15

Promote business

dynamism and the diffusion of

knowledge

Firms

Unlock skills development and

innovation capacity

Skills

Help workers benefit from a fast-changing labour market

Workers

Corresponding to 3 broad categories

of recommendations

• Barriers to entry, competition, exit, trade and FDI,

• Structure and efficiency of the tax system,

• Legal and physical infrastructure

• Primary and secondary education

• Higher education and VET

• R&D policies

• A more inclusive labourmarket (gender, migrants, low-skilled, etc.)

• ALMPs and social benefits

• Labour mobility and health sector

• Labour market regulation

12

Key recommendations to promote

inclusive growth

19

• Foster business dynamism

➢ Boost productivity growth and business dynamism, while ensuring adaptation and diffusion of technologies across the board – in particular for small and young firms

➢ Optimize natural resource management for sustainable growth

• Lift the quantity and quality of jobs and address labour market insecurity and segmentation.

➢ Create more and better jobs by tackling labour market duality and segmentation, including informality.

➢ Work to achieve inclusive labour markets (female, foreign-born, elderly, long-termunemployed..)

• Ensure broad access to quality education and upskilling.

➢ Address the needs of young people from pre-school to university, so they get the best start in life and the support they need throughout their education.

➢ Promote life-long learning and acquisition of skills

• Enhance the effectiveness of taxes and transfer systems in reducing income inequality and poverty, balancing equity and efficiency objectives.

Firms

Workers

Skills

20

Policy priorities in Lithuania

• Reducing productivity dispersion and thus wage dispersion. – removing barriers to investment,– enhancing the performance of state-owned enterprises, – boosting business dynamics through wider financing options,– easing insolvency procedures in order to help “zombie” firms exit the market quicker, – strengthening innovation capacity by fostering digitization and enhancing research-business

collaboration, as well as improving infrastructure.

• Increasing social transfers and social assistance while maintaining strong work incentives.

- the maximum duration period of unemployment benefit, currently at nine months, could be further extended.

- social benefits could also be better targeted at combating child poverty. - stronger fiscal support to low-income families could be in part financed by a higher property

taxation.

• Making the labour market more inclusive. – a high tax wage makes low-skilled workers less attractive to employers ➔ reducing social

security contributions – activation programs (currently 0.22% of GDP)– ensuring relevant skills with more and better targeted vocational training– skill mismatch could be addressed by pursuing the reform of the education system at all levels

Source: OECD (2018), OECD Economic Surveys: Lithuania 2018, OECD Publishing

More information & references

Going for Growth

• http://www.oecd.org/eco/going-for-growth.htm

• OECD (2017), "Integrating inclusiveness in the Going for Growth framework", in Economic Policy Reforms 2017: Going for Growth, OECD Publishing, Paris, http://dx.doi.org/10.1787/growth-2017-5-en.

OECD Inclusive Growth Initiative

• OECD (2018), Opportunities for All: A Framework for Policy Action on Inclusive Growth, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264301665-en

Selected OECD papers

• Causa, O., M. Hermansen and N. Ruiz (2016), "The Distributional Impact of Structural Reforms", OECD Economics Department Working Papers, No. 1342, OECD Publishing, Paris, http://dx.doi.org/10.1787/5jln041nkpwc-en.

• Causa, O. and M. Hermansen (2017), "Income redistribution through taxes and transfers across OECD countries", OECD Economics Department Working Papers, No. 1453, OECD Publishing, Paris, http://dx.doi.org/10.1787/bc7569c6-en.

• Andrews, D., Criscuolo C., and Gal P. (2016), “The Best versus the Rest: The Global Productivity Slowdown, Divergence across Firms and the Role of Public Policy”, OECD Productivity Working Papers, No. 05

21

http://www.oecd.org/eco/going-for-growth.htmhttp://dx.doi.org/10.1787/growth-2017-5-enhttp://dx.doi.org/10.1787/9789264301665-enhttp://dx.doi.org/10.1787/5jln041nkpwc-enhttp://dx.doi.org/10.1787/bc7569c6-en