## What We Owe Each Other ## Source details **Canonical URL:** [What We Owe Each Other](https://www.imf.org/-/media/files/publications/fandd/article/2021/june/what-we-owe-each-other-book-minouche-shafik.pdf) ## Other formats - [Markdown version](/-/media/files/publications/fandd/article/2021/june/what-we-owe-each-other-book-minouche-shafik.pdf.md) - [Structured JSON version](/-/media/files/publications/fandd/article/2021/june/what-we-owe-each-other-book-minouche-shafik.pdf.json) --- ### Overview / Context - Social contracts shape daily life: how we raise children, engage in education, expectations from employers, and experiences of sickness and old age. - Discontent is widespread: "Four out of five people in China, Europe, India, and the United States feel that the system isn’t working for them." - The COVID-19 pandemic "served as a great revealer" hitting the most vulnerable hardest and exacerbating existing inequalities. - Drivers changing old arrangements include technological change, higher female labor force participation, population aging, and climate change. ### Three pillars of a new social contract - The new social contract depends on three pillars: security, shared risk, and opportunity. H3: Security - Labor markets have become more flexible; informal working is common in both developing and advanced economies. - The balance has tilted toward employer flexibility at the expense of worker security. - Policy and programmatic measures to provide a floor on income and basic protection: - Cash transfer programs in developing economies or tax credits for low-wage workers in advanced economies to ensure a minimum income floor. - Ensure access to a basic health care package and a minimum state pension to prevent destitution in old age. - Provide sick leave, unemployment insurance, and access to reskilling regardless of employment contract. - In developing economies: bring more workers into the formal sector. - In advanced economies: mandate that employers pay benefits to flexible workers. - Bottom line: everyone must have a minimum level of security for a decent life. H3: Shared risk - Too many risks are borne by individuals when collective management would be more efficient. - Examples and policy implications: - Employer flexibility is acceptable if workers have guaranteed unemployment insurance and retraining until reemployment. - Economic shocks’ risks should be shared by employers and society, not placed solely on individuals. - Rebalance risks around childcare, health, and old age. - Parental leave costs: funding through general taxation could create a more level playing field for men and women and be less burdensome for firms, especially smaller ones. - Health risks: pool across a large population while incentivizing individual risk management through diet and exercise. - Link pension ages to life expectancy to ensure adequate retirement saving. - Fund financial security in old age through general taxation; use automatic enrollment in pension plans and insurance for old-age care to increase security. H3: Opportunity - Talent is often wasted because people lack opportunities to advance. - Intergenerational mobility examples: - Denmark: about two generations to rise from lower to middle income. - United Kingdom and the United States: five generations. - Brazil, Colombia, and South Africa: more than nine generations. - Harnessing talent raises productivity: - Better use of talent explains between 20 and 40 percent of the productivity gains in the US economy between 1960 and 2010. - If today’s "lost Einsteins" could innovate to the same degree as white men from high-income families, the rate of breakthroughs could quadruple. - Early intervention and lifelong learning: - The first 1,000 days of life are the most important for brain development; intervening during this period is the most efficient way to equalize opportunities. - Extra nutrition for preschoolers and parenting support improve long-term outcomes: in Jamaica, young children visited just once a week by a community health worker earned 42 percent more 20 years later than children who did not get such support. - All young people should be entitled to education and training and a lifetime endowment to pay for additional skill development over much longer careers. - Hundreds of studies of adult learning show strong links to employers, early intervention, and sustained funding keep people in work. - Gender and unpaid work: - Women do about two hours a day more unpaid household work than men. - Policies suggested: more generous parental leave, public funding to support families, and a fairer division of labor at home to better use female talent. ### Affordability and international dimension - A new social contract is not synonymous with higher taxes, more redistribution, and a bigger welfare state; it is about reordering and equalizing opportunity and security. - Expected benefits: - Increased productivity and more efficient risk-sharing across childcare, health, work, and old age. - Reduced need for redistribution later by enabling broader talent use and contribution. - Fiscal and taxation principles: - Tax things we want less of (e.g., carbon and smoking) and subsidize things we want more of (e.g., education and a greener economy). - International system requirements: - Ensure international financial institutions have resources to help societies invest in minimum incomes, education, and health care. - Better rules around global taxation so companies pay taxes where economic activity takes place for the benefit of people in those locations. - Such an international system would support a social contract that is both efficient and fair and more likely to garner public support. ### Key findings and figures (verbatim) - Four out of five people in China, Europe, India, and the United States feel that the system isn’t working for them. - In most advanced economies parents fear that their children will be worse off than they are (Edelman 2019). - The first 1,000 days of life are the most important for brain development. - Denmark: about two generations for lower-to-middle-income mobility. - United Kingdom and the United States: five generations for lower-to-middle-income mobility. - Brazil, Colombia, and South Africa: more than nine generations for lower-to-middle-income mobility. - Better use of all the talent in society explains between 20 and 40 percent of the productivity gains in the US economy between 1960 and 2010 (Hsieh and others 2019). - If today’s "lost Einsteins" could innovate to the same degree as white men from high-income families, the rate of breakthroughs could quadruple (Bell and others 2017). - Jamaica early intervention: visited once a week by a community health worker => earned 42 percent more 20 years later than children who did not get such support (Gertler and others 2014). - Women do about two hours a day more unpaid household work than men. ### Policy recommendations (bulleted) - Guarantee a minimum income floor via cash transfers (developing economies) or tax credits (advanced economies). - Ensure access to a basic health care package and a minimum state pension. - Provide sick leave, unemployment insurance, and access to reskilling regardless of employment contract. - Formalize more workers in developing economies; mandate employer-paid benefits for flexible workers in advanced economies. - Finance parental leave through general taxation to equalize labor market impacts and reduce burdens on firms. - Pool health risks across populations while incentivizing individual prevention. - Link pension ages to life expectancy. - Implement automatic enrollment in pension plans and insurance for old-age care. - Invest in the first 1,000 days of life: nutrition, parenting support, and early childhood stimulation. - Guarantee education and training for all young people and provide a lifetime endowment for ongoing skill development. - Tax carbon and smoking; subsidize education and the green economy. - Strengthen international financial resources and global taxation rules so companies pay taxes where economic activity occurs. *Source: what-we-owe-each-other-book-minouche-shafik* --- _Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/june/what-we-owe-each-other-book-minouche-shafik.pdf_