Disappearing safety net

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What’s the social safety net for people who lose their jobs? Some of it comes in the form of unemployment insurance and other forms of income replacement, some of it in the form of targeted assistance with training or job placement. The OECD calls the former “passive labour market policy expenditures”, the latter “active labour market policy expenditures”. In most countries, passive expenditures account for most of the total. This spending varies tremendously between countries – and for particular countries it changes over the years.

The graph is shows ratio of spending per unemployed person to GDP per capita. So it’s providing a crude measure of the level of support available for an unemployed person, scaled to the country’s overall per capita income. Since 1993, in most countries, it has fallen.

The graph above, drawn from some research I’m doing with Andrea Filippetti, is for 18 OECD countries.

I’ve pulled two out because they’re of particular interest. First, note that the expenditure of the UK is extremely low (the OECD doesn’t report this data for the UK after 2011, which is why that line stops). In many other countries, unemployment protection is meant to see you through a period of education or training so that you have the skills you need for a new job, while in the UK they’re to keep you from starving until you get your job in the Amazon warehouse. If you squint, you can see that UK expenditure, though it starts very low, nonetheless manages to decline before the data comes to an end in 2011.

This tells you a lot about why the UK needs skilled immigrant labour. Strong unemployment protection helps unemployed people get new skills. But, also, it makes people more willing to spend time and money learning specialist skills in the first place, because it provides insurance in case the skills learned are no longer in demand. In place of that, the UK welcomes a lot of skilled immigrants (and by skilled I don’t mean “high-paid people in finance”, which is what the current government seems to mean). If the post-Brexit UK shuts of the inflow of workers, it could suffer a serious skill shortage.

The median is for 16 OECD countries. These are the ones that had data for 1990-2014, except Sweden which we report separately. Median means there are equal numbers of countries above, and below this level (so here, for each year, it’s halfway between the country ranked 8 and the country ranked 9, out of 16). The downward slope looks modest on the graph but if you look carefully you’ll see that it’s a considerable fall between 1993 and the onset of the financial crisis in 2007 – a 42% reduction, in fact.

Now look at Sweden. You’ll see that Sweden used to have unemployment protection that was well above the norm, and that it fell until, by the time of the financial crisis of 2007-2008, it was at the OECD norm – a norm that was itself much diminished.

Why should you want to know about falling unemployment benefits in Sweden? If anti-immigrant nationalism worries you, you should want to know. I direct you to the recent study “Economic Losers and Political Winners: Sweden’s Radical Right“, by Ernesto Dal Bó, Frederico Finan, Olle Folke, Torsten Persson, and Johanna Rickne. They show that the people supporting the Sweden Democrats (that’s Sweden’s newish nationalist-populist party) are those most affected by these cuts: middle-aged men who are either unemployed or in not-very-secure employment. Budgets have consequences.

 

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