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Social Safety Nets and Structural Adjustment

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Abstract

Social safety nets protect citizens against hardship. By offering compensation, social safety nets may help overcome the political resistance to trade liberalisation and structural reform, but they can also weaken the incentives to work and save. Depending on their design, safety nets may also ease or impair adjustment to changing economic circumstances. Against this backdrop, the paper looks at the impact of social safety nets on output and employment and on the ability of economies to absorb adverse shocks. Dependent on their design, the presence of extensive social safety nets is often associated with more limited labour resource use and lower per capita GDP levels, even though activation policy can provide offsets. Moreover, many of the characteristics of social safety nets that reduce output and employment levels heighten the persistence of slack in the wake of adverse shocks. By contrast, the impact of social safety nets on business investment and household saving, and by extension the current account balance, is not clear-cut.

Systèmes de protection sociale et ajustement structurel
Les systèmes de protection sociale ont pour but de protéger la population contre certaines difficultés. En offrant une compensation, les systèmes de protection sociale peuvent contribuer à surmonter la résistance politique à la libéralisation des échanges et aux réformes structurelles, mais ils peuvent aussi affaiblir les incitations au travail et à l'épargne. Dans ce contexte, cet article examine l’impact des systèmes de protection sociale sur la production et sur l’emploi et également du point de vue de la capacité d’absorption de chocs négatifs par l’économie. La présence de larges systèmes de protection sociale, selon leur conception, se traduit souvent par une utilisation plus limitée des ressources en main d’oeuvre et par des niveaux plus faibles de PIB par habitant, même si les mesures d’activation peuvent avoir un effet compensateur. De surcroît, un grand nombre des caractéristiques des systèmes de protection sociale qui réduisent les niveaux de production et d’emploi accentuent la persistance d’une sous-utilisation des ressources à la suite d’un choc négatif. En revanche, l’impact des systèmes de protection sociale sur l’investissement des entreprises et l’épargne des ménages et, partant, sur le solde de balance courante, n’est pas bien défini.

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Paper provided by OECD Economics Department in its series OECD Economics Department Working Papers with number 517.

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Date of creation: 27 Sep 2006
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Handle: RePEc:oec:ecoaaa:517-en

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Related research
Keywords: structural policy politique structurelle economic convergence convergence économique social safety net economic resilience système de protection sociale résilience économique

Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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This page was last updated on 2008-11-17.

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