## What We Owe Each Other: A New Social Contract for a Better Society by Minouche Shafik

## Source details

**Canonical URL:** [What We Owe Each Other: A New Social Contract for a Better Society by Minouche Shafik](https://www.imf.org/en/publications/fandd/issues/2021/06/what-we-owe-each-other-book-minouche-shafik)

## Other formats

- [Markdown version](/en/publications/fandd/issues/2021/06/what-we-owe-each-other-book-minouche-shafik/index.md)
- [Structured JSON version](/en/publications/fandd/issues/2021/06/what-we-owe-each-other-book-minouche-shafik/index.json)
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## Bibliographic details
- Authors: MINOUCHE SHAFIK
- Published: June 1, 2021

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### Overview / diagnosis
- The social contract shapes how we raise children, engage in education, relate to employers, and experience sickness and old age.
- The social contract has been broken by changing gender roles, technology, new models of work, aging, and the perils of climate change.
- Four out of five people in China, Europe, India, and the United States feel that the system isn’t working for them (Edelman 2019).
- In most advanced economies parents fear that their children will be worse off than they are (Edelman 2019).
- The pandemic hit the most vulnerable—the old, the sick, women, and those in precarious jobs—the hardest and exacerbated existing inequalities.

### 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 and informal working is now common in both developing and advanced economies.
- The balance has tilted too far toward flexibility for employers at the expense of security for workers.
- Minimum safeguards proposed:
  - A floor on income so no one falls below it (cash transfer programs in developing economies; tax credits for low-wage workers in advanced economies).
  - Access to a basic health care package.
  - A minimum state pension to prevent destitution in old age.
  - 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 they would be more efficiently managed collectively.
- Employer flexibility is feasible if workers are guaranteed unemployment insurance and retraining until they find a new job.
- Risks from economic shocks should be shared by employers and society as a whole.
- Rebalancing risks for childcare, health, and old age:
  - Parental leave costs are often borne by employers; funding through general taxation would create a more level playing field and be less burdensome for firms, especially smaller ones.
  - Health risks are more efficiently managed by pooling across a large population while motivating healthy behavior.
  - Link pension ages to life expectancy to ensure individuals save enough for retirement.
  - Financial security in old age can be funded through general taxation rather than linking it to employment.
  - Automatic enrollment in pension plans and insurance for old-age care would give people more security.

H3: Opportunity
- Talent is wasted when people lack opportunities to advance.
- Social mobility examples:
  - Denmark: on average about two generations to rise from lower to middle income.
  - United Kingdom: five generations.
  - United States: five generations.
  - Brazil, Colombia, and South Africa: more than nine generations.
- Harnessing talent is good for the economy:
  - Better use of all talent 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”—women, minorities, and people with low incomes—could innovate to the same degree as white men from high-income families, the rate of breakthroughs could quadruple (Bell and others 2017).
- Policies to expand opportunity:
  - Start early: the first 1,000 days of life are the most important for brain development; intervening in this period equalizes opportunities and provides foundational skills.
  - Extra nutrition for preschoolers and help with parenting skills improve educational outcomes and higher incomes later in life.
    - Example: 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 (Gertler and others 2014).
  - All young people should be entitled to education and training and a lifetime endowment to pay for additional skill development over much longer careers.
  - Adult learning with strong links to employers, early intervention, and sustained funding can keep people in work and contributing.
  - Reduce unpaid household work imbalance: women do about two hours a day more unpaid household work than men.
  - More generous parental leave, public funding to support families, and a fairer division of labor at home would better use female talent.

### Is it affordable? — fiscal and international dimensions
- A new social contract is not primarily about higher taxes, more redistribution, and a bigger welfare state.
- It is about reordering and equalizing how opportunity and security are distributed to increase productivity and more efficiently share risks.
- Fiscal and policy orientation:
  - Tax the things we want less of (for example, carbon and smoking).
  - Subsidize things we want more of (for example, education and a greener economy).
  - Giving everyone the opportunity to use their talent reduces the need for redistribution later.
- International system requirements:
  - International financial institutions need resources to help societies invest and support minimum incomes, education, and health care.
  - Better rules around global taxation so that companies pay taxes where economic activity takes place for the benefit of the people where those companies operate.
  - Such an international system would shore up the global economy with a social contract that is both efficient and fair and therefore more likely to garner public support.

*What We Owe Each Other: A New Social Contract for a Better Society by Minouche Shafik — IMF F&D*

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_Source: https://www.imf.org/en/publications/fandd/issues/2021/06/what-we-owe-each-other-book-minouche-shafik_