Some extracts from an MGI report on the changing social contract between individuals and institutions that covers trends from 22 advanced countries.
Work opportunities have increased everywhere, and to record levels in some countries, but work security and income growth have declined or expanded unevenly... The gains in employment were primarily driven by growth in alternative work arrangements. As consumers, individuals have benefited from improved access and lower prices for discretionary goods and services, such as communications, clothing, and recreation. However, rising housing prices, which account for 37 percent of general inflation, together with higher healthcare and education costs and spending, have absorbed between 54 and 107 percent of the gains in income for average households in Australia, France, the United Kingdom, and the United States since 2002... Household saving rates have fallen at a time when individuals have to save for longer retirement and assume greater responsibility for saving. Since 2000, pension levels guaranteed by the public sector or employers have declined by an average of 11 percentage points. Yet household saving rates fell in 11 of the 22 countries; in 2017, more than half of individuals did not save for old age...
Changes in individual outcomes across the three arenas have been propelled by the changing role of institutions, which are cushioning individuals to a lesser degree from the effects of the forces at work in the economy. For example, employment protections are now lower, a higher share of healthcare and education costs is private, and guaranteed pension levels have dropped... As a more individualized social contract evolves, different groups of individuals are affected differently. Outcomes have been favorable for about 115 million workers equipped for high‐skill jobs, individuals for whom discretionary consumption is relatively high compared with their spending on basics, and savers able to accumulate capital. However, more than 120 million middle‐skill workers in Europe and the United States experienced declining employment and stagnating wages at a time when the cost of basics rose faster than general inflation. Low‐income individuals experienced challenging outcomes in their roles as consumers and savers. Young people have less secure employment, spend more on meeting basic needs, and have just one‐third of the average adult wealth compared with two‐thirds a generation ago. Women in general, and minorities in some countries, have fared less well than others in incomes and savings. While individuals have achieved many gains that will need to be sustained and expanded, the bottom three quintiles of the population—about 500 million people—have experienced challenges.
We identify ten key questions to address if outcomes are to improve and be inclusive as the century progresses. These include: how to reduce job fragility and wage stagnation at a time of changing work arrangements; how to address rapidly rising costs of housing and, in some countries, healthcare and education; how to mitigate the risk of saving shortfalls for some; and how to address the challenges faced by particularly vulnerable groups, including the young and lower‐ income households.
Some more,
Employment in advanced economies is at historically high levels and has recovered after the financial crisis in most countries, largely due to rising part-time employment... Average real wages stagnated while relative poverty increased... The net pension replacement rate that an average worker can expect to receive from her or his mandatory pension... to replace preretirement earnings... have declined in 16 out of 22 countries by an average of 11 percentage points, and net pension wealth covers just ten years on average... Over half of individuals in advanced economies did not save for old age, a quarter did not save any money, and 20 percent do not have enough wealth to cover six months of basic costs... Household saving rates fell in 11 out of 22 countries by 1.4 percentage points on average, which appears to be driven primarily by low saving rates among lower wealth groups... Over half of individuals did not save for old age, and a quarter did not save any money... Lower wealth groups have lower rates of return on their assets... Mean individual wealth has returned to pre-crisis levels but median wealth has not, and growth rates of both are fairly flat... Twenty percent of individuals do not have enough wealth to cover six months of basic costs...The report uses two indexes to understand the role of institutions in the social contract and how they have evolved over the past two decades
The first gauges the extent to which institutions are intervening in the marketplace to manage market outcomes for individuals. The second focuses on the extent to which government spending cushions individual economic outcomes. Putting the indicators for market intervention and public‐ sector spending together highlights movements in the social contract... Our results suggest that in 19 out of 22 countries, institutions are intervening less in the marketplace, while governments in 18 out of 22 countries have somewhat stepped up their spending. Some of the biggest changes in the extent of market intervention are a decline in employment protection for workers on temporary contracts, a substantial reduction in product‐market regulations, and a sharp fall in the net replacement rate for mandatory pensions... On average, market intervention by institutions declined by 13 points, while public‐sector spending increased by three percentage points of GDP. This shift to lower market intervention and increased public‐sector spending occurred in 15 out of 22 countries... Market intervention for workers, consumers, and savers declined by 13 points, although public-sector spending increased by three percentage points on average.
The major trends sharing the economies and the responsibilities between institutions and individuals in the social contract is as follows
The ten high priority challenges in advanced countries identified are as follows
The full report is here.
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