Publication: Toward a New Social Contract: Taking on Distributional Tensions in Europe and Central Asia
Loading...
Files in English
26,190 downloads
Other Files
3,235 downloads
2,213 downloads
Date
2018-09-25
ISSN
Published
2018-09-25
Author(s)
Editor(s)
Abstract
The growing economic fissures in the societies of Europe and Central Asia between generations, between insiders and outsiders in the labor market, between rural and urban communities, and between the super-rich and everyone else, are threatening the sustainability of the social contract. The institutions that helped achieving a remarkable degree of equity and prosperity over the course of several decades now face considerable difficulties in coping with the challenges presented by these emerging forms of inequality. Public surveys reveal rising concerns over inequality of opportunity, while electoral results show a marked shift to populist parties that offer radical solutions to voters dissatisfied with the status quo. There is no single solution to relieve these tensions, and attempts to address them will vary considerably across the region. However, this publication proposes three broad policy principles: (1) promote labor market flexibility while maintaining protection for all types of labor contracts; (2) seek universality in the provision of social assistance, social insurance, and basic quality services; and (3) expand the tax base by complementing progressive labor-income taxation with taxation of capital. These principles could guide the rethinking of the social contract and fulfil European citizens’ aspirations for growth and equity.
Link to Data Set
Citation
“Davalos, Maria E.; Bussolo, Maurizio; Peragine, Vito; Sundaram, Ramya. 2018. Toward a New Social Contract: Taking on Distributional Tensions in Europe and Central Asia. Europe and Central Asia Studies;. © World Bank. http://hdl.handle.net/10986/30393 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Related items
Showing items related by metadata.
Publication Global Growth and Distribution : Are China and India Reshaping the World?(World Bank, Washington, DC, 2007-11)Over the past 20 years, aggregate measures of global inequality have changed little even if significant structural changes have been observed. High growth rates of China and India lifted millions out of poverty, while the stagnation in many African countries caused them to fall behind. Using the World Bank's LINKAGE global general equilibrium model and the newly developed Global Income Distribution Dynamics (GIDD) tool, this paper assesses the distribution and poverty effects of a scenario where these trends continue in the future. Even by anticipating a deceleration, growth in China and India is a key force behind the expected convergence of per-capita incomes at the global level. Millions of Chinese and Indian consumers will enter into a rapidly emerging global middle class-a group of people who can afford, and demand access to, the standards of living previously reserved mainly for the residents of developed countries. Notwithstanding these positive developments, fast growth is often characterized by high urbanization and growing demand for skills, both of which result in widening of income distribution within countries. These opposing distributional effects highlight the importance of analyzing global disparities by taking into account - as the GIDD does - income dynamics between and within countries.Publication The Long-Awaited Rise of the Middle Class in Latin America Is Finally Happening(World Bank, Washington, DC, 2014-06)In many developing countries, the supply of skilled workers is likely to continue to be stronger than demand, and this should drive down the skill premium and reduce inequality. Within the limitations of any exercise based on simulations, this paper finds that the recently observed reduction in inequality in Latin America may continue. Building on counterfactual scenarios projecting economic and demographic (including age and education) growth, the paper also highlights that by 2030 the long-awaited rise of the middle class in Latin America will be in full swing, as its share will be 43 percent of the total population, twice the value in 2005. This achievement is not guaranteed, as countries with large initial inequalities will have to achieve very high rates of inclusive growth. At the same time, a larger middle class is likely to exert a stronger influence on international and domestic policy making.Publication Is the Developing World Catching up? Global Convergence and National Rising Dispersion(Washington, DC: World Bank, 2008-09)The present study uses the GIDD, a CGE-microsimulation model for Global Income Distribution Dynamics, to understand the ex-ante dynamics of global income distribution. Three main robust results emerge. First, under a set of realistic assumptions, there will be a reduction in global income inequality by 2030. This potential reduction can be fully accounted for by the projected convergence in average incomes across countries, with poor and populous countries growing faster than the rest of the world. Second, this convergence process will be accompanied by a widening of income distribution in two-thirds of the developing countries; the main cause being increasing skill premia. Third, a trend that may counter-balance the potential anti-globalization sentiment is the emergence of a global middle class: a group of consumers who demand access to, and have the means to purchase, international goods and services. The results show that the share of these consumers in the global population is likely to more than double in the next 20 years. These ex-ante trends in global income distribution suggest that the mid-1990s could be seen as a turning point after which global inequality began showing a negative tendency.Publication Portraits of Labor Market Exclusion(Washington, DC: World Bank, 2014-08)The financial crisis that hit the global market in the middle of 2008 gave way to the sharpest contraction of the European economies since the Great Depression. In 2009 the economic output in the countries of the European Union shrank 4.5 percent, the largest reduction in GDP since its creation. Since then, the economies have slowly recovered, but unemployment has continued to rise, reaching 11 percent in 2013, up from 7.1 percent in 2008. The economy of the European Union shrank 4.5 percent, the largest reduction in its GDP since the Union s creation. Furthermore, for the European Union as a whole, long-term unemployment among 15- to 64-year-olds has increased from 37.2 percent in 2008 to 47.5 percent of total unemployment in 2013. In several countries more than half of those unemployed are long-term unemployed, that is, they have been looking for jobs for more than 12 months. In Greece and Bulgaria the share of long-term unemployed in 2013 was 67.5 percent and 57.3 percent, respectively. Youth unemployment, on the other hand, has increased almost 8 percent since 2008, reaching 23.3 percent in 2013 in the EU-28 countries. In Bulgaria, Romania and Hungary, around a fourth of 15- to 24-year-olds are unemployed; in Greece close to 60 percent of youth were unemployed in 2013. Long spells of unemployment expose individuals to impoverishment. They can also lead to deterioration of skills and detachment from the labor market. Youth unemployment is particularly concerning as it risks damaging longer-term employment prospects for young people, leading them to face higher risks of exclusion and poverty. Youth unemployment also has growth implications as a generation of educated and productive people are not working at their potential. Finally, very high levels of youth unemployment for long periods of time can become a threat to social stability.Publication Structural Change and Poverty Reduction in Brazil : The Impact of the Doha Round(World Bank, Washington, DC, 2006-02)Over the medium time horizon, skill upgrading, differentials in sectoral technological progress, and migration of labor out of farming activities are some of the major structural adjustment factors shaping the evolution of an economy and its connected poverty trends. The main focus of the authors is understanding, for the case of Brazil, how a trade shock interacts with these structural forces and ascertaining whether it enhances or hinders medium-term poverty reduction. In particular, they consider the interactions between the migration of labor out of agriculture, a potentially important poverty reduction factor, and trade liberalization, which increases the price incentives to stay in agriculture. A recursive-dynamic computable general equilibrium model simulates Doha scenarios and compares them against a business as usual scenario. The authors estimate the poverty effects using a microsimulation model that primarily takes into account individuals' labor supply decisions. Their analysis shows that trade liberalization does contribute to structural poverty reduction. But unless increased productivity and stronger growth rates are attributed to trade reform, its contribution to medium-term poverty reduction is rather small.
Users also downloaded
Showing related downloaded files
Publication Belt and Road Economics(Washington, DC: World Bank, 2019-06-18)China proposed the Belt and Road Initiative in 2013 to improve connectivity and cooperation on a transcontinental scale. This study, by a team of World Bank Group economists led by Michele Ruta, analyzes the economics of the initiative. It assesses the connectivity gaps between economies along the initiative’s corridors, examines the costs and economic effects of the infrastructure improvements proposed under the initiative, and identifies complementary policy reforms and institutions that will support welfare maximization and mitigation of risks for participating economies.Publication Shared Prosperity : Paving the Way in Europe and Central Asia(Washington, DC: World Bank, 2014-04-09)The World Bank has recently defined two strategic goals: ending extreme poverty and boosting shared prosperity. Shared prosperity is measured as income growth among the bottom 40 percent of the income distribution in the population. The two goals should be achieved in a way that is sustainable from economic, social, and environmental perspectives. Shared Prosperity: Paving the Way in Europe and Central Asia focuses on the second goal and proposes a framework that integrates both macroeconomic and microeconomic elements. The macro variables, particularly changes in relative prices, affect income growth differentially along the income distribution; at the same time, the microeconomic distribution of assets at the bottom of the distribution determines the capacity of the bottom 40 to take advantage of the macroeconomic environment and contribute to overall growth. Growth and the incidence of growth are thus understood as jointly determined processes. Besides this integration, the main input of the framework is the finding that the trade-off between growth and equity may be an issue only in the short run. Over the long run, redistribution policies that increase the productive capacity of the bottom 40 percent enhance the overall growth potential of the economy. This report considers shared prosperity in Europe and Central Asia and concludes that the performance in sharing prosperity during the period 2000–10 was good, on average, but heterogeneous across countries and that sustainability is unclear. It also describes examples of the application of the framework to selected countries in the region. Finally, the report provides a tool to structure the policy discussion around the goal of shared prosperity and explains that specific policy links associated with the goal can be established only after a thorough analysis of the country-specific context.Publication Reaping Digital Dividends(Washington, DC: World Bank, 2017-03-07)From East to West, the economies of Europe and Central Asia (ECA) are not taking full advantage of the internet to foster economic growth and job creation. The residents of Central Asia and the South Caucasus pay some of the highest prices in the world for internet connections that are slow and unreliable. In contrast, Europe enjoys some of the world’s fastest and affordable internet services. However, its firms and individuals are not fully exploiting the internet to achieve higher productivity growth as well as more and better jobs. Reaping Digital Dividends investigates the barriers that are holding back the broader adoption of the internet in ECA. The report identifies the main bottlenecks and provides policy recommendations tailored to economies at varying levels of digital development. It concludes that policies to increase internet access are necessary but not sufficient. Policies to foster competition, international trade and skills supply, as well as adapting regulations to the changing business environment and labor markets, will also be necessary. In other words, Reaping Digital Dividends not only requires better connectivity, but also complementary factors that allow governments, firms and individuals to make the most out of it.Publication Critical Connections(Washington, DC: World Bank, 2018-09-05)Critical Connections examines how trade, investment, migration, and other linkages among countries drive economic growth in the Europe and Central Asia region. The study breaks new ground by using a multidimensional approach that recognizes how each connectivity channel for growth is likely to be affected by the strength of other channels. This multidimensional view makes it easier to see that diversity in country connections and balance in all channels of connectivity are critical for achieving the greatest impact on growth. Europe and Central Asia provides a great laboratory for observing the role of multidimensional connectivity in action. The region’s 30 countries vary widely in the openness of their economies. Its collective experience shows how the various elements of cross-border connectivity work together to accelerate progrowth knowledge transfers, which in turn boost productivity through participation in today’s global value chains. A country’s economic partner might be just as important as the type of connection. Being well connected to highly connected countries can provide benefits beyond being well connected to comparatively isolated countries. Although greater connectivity can expose countries to external shocks, the report presents fact-based argument for policies that seek to build deeper and more diverse connections within the Europe and Central Asia region and globally. The message is timely. Europe’s once-confident march toward economic integration has slowed over the past decade, with voices in many countries questioning the wisdom of opening to the global economy. Critical Connections serves as a reminder to citizens and policy makers that greater regional and global connectivity has been a tremendous “convergence machine,” raising living standards of lower-income countries toward those of wealthier middle- to high-income countries.Publication The Journey Ahead(Washington, DC: World Bank, 2024-10-31)The Journey Ahead: Supporting Successful Migration in Europe and Central Asia provides an in-depth analysis of international migration in Europe and Central Asia (ECA) and the implications for policy making. By identifying challenges and opportunities associated with migration in the region, it aims to inform a more nuanced, evidencebased debate on the costs and benefits of cross-border mobility. Using data-driven insights and new analysis, the report shows that migration has been an engine of prosperity and has helped address some of ECA’s demographic and socioeconomic disparities. Yet, migration’s full economic potential remains untapped. The report identifies multiple barriers keeping migration from achieving its full potential. Crucially, it argues that policies in both origin and destination countries can help maximize the development impacts of migration and effectively manage the economic, social, and political costs. Drawing from a wide range of literature, country experiences, and novel analysis, The Journey Ahead presents actionable policy options to enhance the benefits of migration for destination and origin countries and migrants themselves. Some measures can be taken unilaterally by countries, whereas others require close bilateral or regional coordination. The recommendations are tailored to different types of migration— forced displacement as well as high-skilled and low-skilled economic migration—and from the perspectives of both sending and receiving countries. This report serves as a comprehensive resource for governments, development partners, and other stakeholders throughout Europe and Central Asia, where the richness and diversity of migration experiences provide valuable insights for policy makers in other regions of the world.