The productivity and equality nexus: is there a benefit in addressing them together?
Gabriela Ramos, Special Counsellor to the OECD Secretary-General, Chief of Staff and G20 Sherpa
Productivity growth has slowed since the crisis and inequality has been getting worse. Could they be influencing each other?
The linkages between the productivity and inequality challenges are still to be fully explored. Each may have its own solution, but there is also good reason to think that there is a nexus between them. For instance, OECD evidence suggests that wage dispersion between firms, which reflects diverging rates of productivity growth, has contributed to rising inequality of incomes between workers. At the same time, the increased prevalence of knowledge-based capital and digitalisation may have unleashed winner-take-all dynamics in key network markets, which in turn may have led, in some instances, to an increase in rent-seeking behaviour.
OECD research has highlighted how the rise in inequality over the last three decades has slowed long-term growth through its negative impact on human capital accumulation by low income families.
Since the crisis, stalled business dynamics have seen resources, including workers, being trapped in firms where they are not using their full potential. In particular, individuals with fewer skills and poorer access to opportunities are often confined to precarious and low productivity jobs or – in many emerging countries – informal ones.
In the spirit of our integrated framework on inclusive growth and our New Approaches to Economic Challenges (NAEC) initiative, at the OECD we believe that our efforts to address productivity and inequality challenges could have a better chance of succeeding if we looked at the synergies and trade-offs emerging from policies to address them. This means designing policies for each of these two core issues bearing in mind how they might impact one another and avoiding the “silo” approach through more effective and comprehensive policy packages.
We must also learn from previous policies. Traditional measures to boost productivity in competition, labour market, or regulatory frameworks would allow for the reallocation of resources to more productive activities, or for increasing productivity in specific sectors. But this may have an adverse impact on inequalities of income and opportunities, as workers better equipped to cope with change are usually those with higher skill sets. For instance, in the past, the drive towards flexible labour markets has benefited many employers, and particularly the most productive firms that have gained from an improved allocation of labour resources. But increased flexibility has also brought a greater prevalence of non-standard work. Recent OECD work on job quality highlights how low skilled individuals can be trapped in precarious low wage jobs, and receive less training.
Our approach to designing policies to ensure that individuals, firms and regions that are left behind can fulfil their full potential and contribute to a more dynamic economy, draws on OECD work from diverse policy areas. It starts from the Inclusive Growth agenda, by focusing on well-being as an ultimate objective of policy. It builds on OECD productivity work via The Future of Productivity report and efforts Towards an OECD Productivity Network. It also synchronises with the Organisation’s efforts to measure productivity more accurately at a time when traditional measures are ill-adapted to account for the full effects of rapid technological change and innovation centred on knowledge based capital, the increasing prominence of the services sector, and productivity in the public sector.
The ultimate outcome is for governments to focus on the extensive range of win-win policies that can reduce inequalities while supporting productivity growth, thereby creating a virtuous cycle for inclusive and sustainable growth. This calls for distinct but complementary policy interventions at the individual, firm, regional and country levels. What this entails in practice will vary for each country depending on its circumstances. But broadly speaking, a number of policy areas are worth considering:
First, a new approach is needed to boost productivity at the individual level so that everyone has the opportunity to realise their full productive potential. Expanding the supply of skills in the population through more equal access to basic quality education is crucial, but not enough. With rapid technological change, skills need to keep up with the demands of the market to avoid the skills mismatches which have contributed to the productivity slowdown. A broad strategy is also needed to ensure a better functioning of the labour market, promote job quality, reduce informality, allow for the mobility of workers and inclusion of underrepresented groups such as women and youth, and promote better health outcomes for everyone.
Second, for people to realise their full productivity potential, businesses have to realise theirs. While heterogeneity among firms is normal, the widening dispersion in productivity levels and its implications for aggregate productivity and workers is a cause for concern. According to our productivity report, the early 2000s saw labour productivity at the global technological frontier increase at an average annual rate of 3.5% in the manufacturing sector, compared to just 0.5% for non-frontier firms. The gap was even more pronounced in the services sector. The larger the share of business that can thrive, the more productive and inclusive our economies will be. Achieving this requires a reassessment of competition, regulatory and financial policies to ensure a level playing field for new firms relative to incumbents. It also requires policies to facilitate the diffusion of frontier innovations from leading to lagging firms.
Third, policy prescriptions will be ineffective unless they take regional and local circumstances into account. Inequalities that play out in regions, like housing segregation by income or social background, poor public transport, and poor infrastructure, can lock individuals and firms in low-productivity traps. This means that some policies to promote both productivity and inclusiveness are best undertaken at the regional level.
Finally, adopting a more holistic approach to policy requires fundamental changes to public governance and institutional structure to strengthen the ability of national governments to design policy that promotes synergies and deals with trade-offs. In highly unequal societies, governments also need to address political economy issues including the capture of the regulatory and political processes by elites that benefit from the status quo, and policies that favour the incumbents.
None of this will be easy, but it is nevertheless essential. At the OECD we believe it is time to develop a better understanding of the dynamics between two of the key issues of our time – productivity and inequality – in order to build a more resilient, inclusive and sustainable future.
Anne-Lise Prigent, editor in charge of development publications at OECD Publishing.
Can a Chinese herbalist emperor ever meet a Persian thinker of the Islamic Golden age? Well, you’d be surprised… “If my strength is needed, then I must go forth.” “I hope I can be of aid.” These are the words of Shennong, the father of traditional Chinese medicine. It is also the calling of Shennong & Avicenne, a French medical NGO. Shennong & Avicenne combines traditional and modern medicine, Western and Eastern approaches. A scientist and a philosopher, Persian Avicenna was the father of modern medicine, the 11th century’s famous Muslim “prince of physicians”. More than a thousand years after his time, new warfare seems to be emerging – it is agile and powerful, mobile and violently radical. Shennong & Avicenne helps war victims in Iraqi Kurdistan.
The UNHCR estimates that there are 2.5 million refugees and internally displaced persons in Iraqi Kurdistan. Many of them are Yazidis and Christians who have lost everything fleeing Daesh; others are Muslim. Some were made prisoners by Daesh and managed to escape. Despite efforts by the Kurdish authorities and the international community to build camps to shelter them, the influx has been so massive and so sudden that 90% of the refugees are scattered around the territory, in isolated regions far from the help and services they need. They are living in waste dumps, empty buildings, improvised camps… where sanitary conditions are catastrophic.
Faced with this situation, Shennong & Avicenne felt they had to be next to the scattered populations who need their help. They raised funds to buy a truck in France to use as a mobile dispensary and a bus for women and children’s health care, thanks to the support of the French Ministry of Foreign Affairs and the Alliance des Femmes pour la Démocratie. Every day, Shennong and Avicenne visits more than 30 sites in the provinces of Erbil and Duhok and takes care of thousands of ailing victims.
We asked Elise Boghossian, the organisation’s founder and president, to tell us about Shennong & Avicenne and the work they are doing in Iraqi Kurdistan. Below, she talks about the philosophy behind their approach; the people they treat; the situation on the ground; and what we can do to help.
From Paris to Viet Nam through China, Elise Boghossian has become an expert “war” acupuncturist. Her recently-published book (Au royaume de l’espoir, il n’y a pas d’hiver : Soigner en zone de guerre) recounts her journey and calling. In Armenia, Jordan and Iraqi Kurdistan, Boghossian demonstrates that acupuncture is an efficient and cost-effective way of relieving pain and healing patients. Acupuncture, she argues, can become part of health care services in conflict-affected zones, where medical products are often missing or fake.
In her book, Boghossian discusses the pitfalls of aid – and how to avoid them: “I think there are two main pitfalls in aid. First, our presence can lead to dependency and create additional needs. We must accept the limits of our action, and let those we’ve come to help be autonomous, free, and most importantly, we must ensure they keep their dignity. We should support them in this. Putting things right when they’ve gone wrong is essential. The other pitfall is the inverse relationship between our need for recognition, (…) and the risk of not respecting the Other, his difference, his culture, his living conditions.”
Boghossian’s infinite respect can be sensed throughout the book. One thinks of Levinas. The Other’s face is exposed, vulnerable. It makes one demand more of oneself. “The face opens the primordial discourse whose first word is obligation.” (Levinas, Totality and Infinity) Face to face with Daesh’s victims, Boghossian heals them and sometimes even seems to breathe new life into victims who have lost everything. Boghossian’s Armenian roots have not been forgotten and she will not let the history of genocide repeat itself without standing by today’s victims. As stated by Levinas, the face is what forbids us to kill. Yet, some of the scenes described in the book are horrific. “Wait” some of the refugees said to Boghossian, “you have not seen anything yet, this is only the beginning.” This was back in January 2015.
“They [Daesh] hate difference, whether it is Muslims who think differently, Yazidis or Christians (…)” (The Archbishop of Canterbury). Shennong & Avicenne takes care of victims, whatever their religion – Christian, Yazidi, Muslim. The organisation’s medical staff (doctors, paediatricians, nurses, gynaecologists etc.) are refugees themselves and they are employed irrespective of their race, ethnic origin or beliefs.
Boghossian won’t let herself be intimidated or silenced. One closes her book in awe. This woman has the determination and stamina of a Florence Nightingale. Both women have grit, “good” grit as Howard Gardner defines it – perseverance and the accumulation of valued traits, a “can-do” attitude, a positive, constructive mindset that benefits others – and brings deep meaning to their lives. Nightingale famously nursed wounded soldiers in the hellish world of Crimean warfare and revolutionised nursing practices in Britain. She was remembered as the lady with the lamp:
Lo! in that house of misery
A lady with a lamp I see
Pass through the glimmering gloom
What is less well known is that Florence Nightingale saved so many lives also because of the data she gathered and her expert use of statistics. She was passionate about data. Boghossian is not the lady with the lamp, but she has needles and data too. Data about the impact of acupuncture on the health of patients is now available (and its effect on the brain can be demonstrated). The book begs a question: why is acupuncture not more commonly used in conflict-torn areas, in conjunction with other medical practices (as is done by Shennong & Avicenne)? As Levinas pointed out, “the very relationship with the other is the relationship with the future.”
On their modest scale, Shennong & Avicenne bring a scarce commodity to those who have lost everything: a glimmer of hope. In 2015, Shennong & Avicenne was in touch with 50,000 war victims and 30,000 procedures were carried out. Grit will make a difference – it always has and always will.
Entretien avec Elise Boghossian pour OECD Insights Anne-Lise Prigent
In analysing the sustainability of government finances, the focus tends to be on gross government debt as a percentage of GDP. However, as gross debt does not take into account the asset side of government balance sheets, this measure only tells part of the story. Assets may generate income or be sold in order to redeem part of gross debt, and are therefore very relevant in assessing the financial health of government as well. A government with a high level of liabilities but also with significant amounts of assets on its balance sheet may be better off than a government with a lower level of liabilities and hardly any assets. Therefore, net government debt, which incorporates information on assets, constitutes a useful additional measure to gross government debt. It provides insight into the capabilities of governments to service debt in the longer run and thus presents a more comprehensive and nuanced picture of government financial health.
How do OECD countries compare in terms of gross and net government debt?
Figure 1 shows gross and net financial debt as a percentage of GDP in 2013 for selected OECD countries
The impact of the inclusion of financial assets in the debt measure differs considerably across countries. The impact is particularly large for Norway, Japan (which may be partly due to the fact that debt data are not consolidated across different government units, i.e. gross debt figures include liabilities between these units which cancel out in net debt data), Finland, Luxembourg, Sweden, Slovenia and Greece. These countries have a relatively large amount of financial assets on their balance sheets, and so they rank lower on the basis of net government debt than on the basis of gross debt. For some of them, the debt measure even changes sign, implying that the amount of financial assets is higher than that of financial liabilities. On the other hand, the difference is relatively modest for the United States, Hungary, Italy, Poland, Belgium and the Slovak Republic. These countries only have a small amount of financial assets on their balance sheets and their net and gross debt ratios are therefore similar.
What happened during the crisis?
During the recent financial crisis most countries experienced an increase in their debt levels. This was a direct consequence of the economic downturn, which resulted in lower tax revenues and increasing expenditures. Furthermore, some governments increased their spending to actively support the economy and acquired assets in financial institutions to prevent a collapse of the financial sector. As these policies affected liabilities and assets in different ways, the impact on gross and net government debt levels also differed among countries. And of course, changes in GDP levels also affected debt ratios in different ways.
Figure 2 presents the changes in gross and net debt ratios between 2007 and 2013 for selected OECD countries
Most countries experienced increases in both gross and net debt ratios during the crisis, but the extent of such increases differs substantially between countries. Ireland reported the largest increase in gross debt ratio, from 26.9% in 2007 to 125.4% in 2013. This increase was the result of a sharp rise in liabilities combined with a decrease in GDP. As assets only increased to a small degree, the net debt ratio showed a sharp increase as well (from -1.4% to 72.8%).
Greece, Portugal, and Spain also registered large increases in their gross debt ratios in the period 2007 to 2013. As was the case with Ireland, this was due to a combination of increased liabilities and a decrease in GDP levels. In that respect, it can be noted that the United States reported a larger relative increase in liabilities than Portugal and Greece (86.0% versus 77.5% and 28.5%), but due to an increase in its GDP level over the same time period, the gross debt ratio increased to a lesser extent (by 46.4 percentage-point versus 64.4 percentage point and 75.1 percentage point in Portugal and Greece, respectively). It is interesting to note that while Spain recorded a lower increase in its gross debt ratio than Portugal and Greece, in terms of net debt ratios, the increase was higher in Spain. And the increase in the net debt ratio in the United States was almost as high as in these three countries, although the increase in the US gross debt ratio was much lower. Both effects are due to the fact that Spain and the United States experienced smaller increases in the value of their assets than Portugal and Greece. Therefore, the change in the net debt ratio for the former countries is relatively close to the change in their gross debt ratio, contrary to the latter countries.
The Czech Republic and Poland are the only two countries in which the net debt ratio increased more than the gross debt ratio. Both countries recorded increases in liabilities of more than 80%, whereas the value of assets only increased by 0.8% for the Czech Republic and by 8.7% for Poland. Combined with increases in their GDP levels of respectively 1.0% and 5.7% per year, this led to increases in their net debt ratios that exceeded those in their gross debt ratios.
The measure explained
In this Statistical Insight, we compare gross debt to net financial debt, calculated as gross debt minus the value of all financial assets. Whereas in gross debt only liabilities defined as debt instruments are taken into account, i.e. liabilities that constitute a financial claim on the debtor and that involve payments of interest and/or principal (therefore excluding liabilities in the form of shares, equity, financial derivatives and monetary gold), all financial assets, including e.g. equity, are taken into account in calculating net debt. The rationale is that all financial assets are deemed to be available for debt redemption. In some cases, non-financial assets are taken into account in calculating net debt, but as some of these assets may be highly illiquid (like land or infrastructure) and relevant data are only available for a few countries, they are not included here. With regard to valuation, the nominal value is used for liabilities, as that is the amount that the government owes the creditors, and market value is used for assets, as that best reflects the amount that can be obtained to service the debt.
Where to find the underlying data
The underlying data are published in the OECD data warehouse: OECD.Stat.
- GDP, output approach, in current prices: OECD (2015), “Aggregate National Accounts, SNA 2008: Gross domestic product“, OECD National Accounts Statistics (database).
- Financial assets, general government: OECD (2015) “Financial Balance Sheets, SNA 2008: Consolidated stocks, annual” except for Japan, for which the data have been derived from OECD (2015) “Financial Balance Sheets, SNA 1993: Non-consolidated stocks, annual“, OECD National Accounts Statistics (database).
- Liabilities: ‘currency and deposits’, ‘loans’, ‘Insurance pension and standardised guarantees’, and ‘Other accounts payable’: OECD (2015) “Financial Balance Sheets, SNA 2008: Consolidated stocks, annual” except for Japan, for which the data have been derived from OECD (2015) “Financial Balance Sheets, SNA 1993: Non-consolidated stocks, annual“, OECD National Accounts Statistics (database).
- Debt securities: OECD (2015), “Public Sector Debt“, OECD National Accounts Statistics (database), taking the 4thquarter data of each year, except for debt securities 2007, nominal value, for Greece, Poland and Slovenia for which the data have been extracted from Eurostat, Government consolidated debt at face value – Debt securities.
- Bloch, D. and F. Fall (2015), “Government debt indicators: Understanding the data“, OECD Economics Department Working Papers, No. 1228, OECD Publishing, Paris.
- European Commission; IMF; OECD; UN; and World Bank (2009), “System of National Accounts 2008“
- IMF and the OECD (2015), “Availability of Net Debt”, Paper prepared for the Meeting of the Task Force on Finance Statistics of 12-13 March 2015.
- IMF (2014), “External Debt Statistics: Guide for Compilers and Users“
- IMF (2013), “Staff Guidance Note for Public Debt Sustainability Analysis in Market-Access Countries“
- Ynesta, I. Van de Ven, P., Kim, E.J., and Girodet, C. (2013), Government finance indicators: truth and myth, Paper prepared for the Working Party on Financial Statistics of 30 September-1 October 2013
For further information please contact the OECD Statistics Directorate at [email protected]
From Analysis to Action – Multidimensional Country Reviews
Mario Pezzini, Director of the OECD Development Centre and Director ad interim of the OECD Development Co-operation Directorate, and Jan Rieländer, Head of Multidimensional Country Reviews at the OECD Development Centre
Multidimensional Country Reviews (MDCRs) support developing countries in designing development strategies that aim for high impact. These strategies address the binding constraints to development, defined as sustainable and equitable growth and well-being. A growing number of developing countries worldwide are implementing MDCRs. Many see the MDCR as a tool to implement the Sustainable Development Goals.
The OECD’s 2012 Strategy on Development put forward the MDCR as a response to a twofold challenge. First, all countries face challenges that are specific to their individual circumstances and their level of social, institutional, and economic development. Only mutual learning and the adaptation of expertise and policy advice to the inner workings and outer circumstances of a country can achieve better policies for better lives. Second, policy makers, especially from developing countries, shared feedback that while the OECD’s sector-specific policy expertise was excellent, little is offered to inform a comprehensive strategy and manage the trade-offs. Yet, key policymakers, especially at the centre of government, were seeking precisely this overarching analysis and where to prioritise efforts and in what sequence.
Shortly before the 2012 Strategy on Development, the Arab Spring shook up a number of beliefs about development. Take Tunisia for example. It had very high marks on all indicators according to the Millennium Development Goals and standard macroeconomic guidance: 3% fiscal deficit, 5% average growth since 1990, 100% primary enrolment rate since 2008, 80% healthcare coverage for its population, and a good reformer in doing business. Although of little surprise in hindsight, the uprisings revealed the need for a broader understanding of what progress means for a country. Observers had completely overlooked the importance of social cohesion, the highly unequal regional distribution of opportunities, and the inability of the institutional and productive systems to adapt to changing circumstances.
MDCRs take the essential broader view. They understand development as strengthening a society’s capabilities to consistently translate monetary, human and natural resources into well-being outcomes. The definition of well-being is inspired by the OECD’s How’s Life? framework with its 11 dimensions and concepts of quality of life and material well-being. These include income and jobs as well as subjective well-being measures of social connections, civic engagement, environmental conditions, health and education, among others. To consistently create such well-being requires a large range of capabilities in the realms of innovation, production, governance, finance and social protection, to name a few.
Countries must transition to higher levels of functioning as internal and external circumstances change if they are to successfully pursue broad-based development. A stumbling block to further development occurs whenever a given combination of capabilities, resources, and the external environment impedes a country from optimising opportunities and addressing its most imminent social and economic challenges. In this context, traditional analysis has often concentrated on investment or productivity constraints. This correctly describes a need in most cases. However, social, environmental and governance challenges are equally important and often underlie the productivity trends. High inequality, for example, translates into highly unequal school systems that weaken human capital, which implies reduced economic capabilities and lower productivity. A high concentration of economic power reduces opportunities for new activities to surface and drive change by challenging less efficient incumbents. A misuse of natural resources may be a bottleneck to further development. Low levels of trust combined with non-transparent judicial and executive government systems often lead to a social contract of the smallest common denominator that cannot underpin a transition to new engines of progress.
MDCRs have been created as a continuously evolving tool to help countries identify the core constraints among their capabilities. The MDCR then provides national policymakers and their partners with the inputs needed for a country-owned and implemented development strategy.
Aided by the toolkits of strategic foresight and governmental learning, a multidisciplinary team works together across OECD directorates to identify a country’s most important shortcomings in terms of well-being outcomes and the capabilities to produce them. Some of the capabilities that have been identified as holding back development in the MDCRs currently underway in Cote d’Ivoire, Kazakhstan, Myanmar, Philippines, Peru, and Uruguay include:
- The capability to sustain inclusive economic growth by continuously diversifying the economy to meet the changing demands of the global marketplace (this shows up in various forms at most levels of development).
- The capability to channel sufficient financial resources to where they can be used most productively.
- The capability to turn the country’s human resources into human capital by equipping citizens with the skills necessary to further develop the economic, social and institutional potential of the country, given the most likely set of opportunities.
- The capability to adapt the institutional environment to the higher level of functioning required to transition, including more reliable judicial systems, less corruption, and stronger incentives for performance in the civil service.
- The capability to manage environmental resources to maximise natural capital while at the same time providing incentives for increased productivity.
- The capability to sustain a social contract that overcomes the divisions between the formal and informal economies and delivers well-being and revenue by including as many citizens as possible.
In a follow-on, OECD expertise is applied by the partner country to address these shortcomings and create a more sustainable system for delivering growth and well-being. In Cote d’Ivoire, sector experts from across the OECD worked together with a strong local team in the Prime Minister’s office to design a full government action plan which addresses the needs for economic modernisation, infrastructure, a more efficient and equitable tax system, developing skills that can sustain production transformation, and a financial sector that can deliver resources to where they can be most productive.
Analysis is only the very first step. Progress requires action. With this in mind, the OECD team works closely with a core group of national policymakers and analysts throughout the MDCR. This ensures that the recommendations are well adapted to a country’s circumstances and priorities and that the policymakers are in a position to make full use of the MDCR output. The preparation of the MDCR involves a spectrum of policymakers and researchers as well as public, private, and NGO actors. They reach beyond capital cities to encompass expertise across a country. Once the analysis and recommendations are done, MDCRs go beyond just delivering a report to engaging in a true dialogue around the recommendations that build on shared prioritisation. The result is a programme that, when implemented well and in supportive circumstances, can rapidly and positively transform national welfare.
Oliver Denk, OECD Economics Department
The 1% are back in the news following last week’s Oxfam report claiming that the world’s 62 richest billionaires own as much wealth as the poorest 3.6 billion people on the planet combined. But what about labour income rather than wealth: Who are the 1% when earnings are counted, and not shares, property, and so on? We have a good idea of how much they earn thanks to the administrative records studied by researchers like Thomas Piketty. But these studies don’t actually tell us much about the personal characteristics of the top earners, such as their education, occupation, or the industry they work in.
That’s where my new research comes in, which for the first time puts hard numbers on who the top earners are across 18 European countries. The data source I use is the Eurostat Structure of Earnings Survey for 2010. It is the largest harmonised dataset on employees’ earnings across Europe, with a total of 10 million observations.
Thanks to these vast data, I was able to compare the top 1% earners with the bottom 99%, focusing on the employee’s age, gender, and highest attained level of education, in addition to the number of years the employee has been with the firm, industry, and occupation. You can find the details of the sample, analysis and results in OECD Economics Department Working Paper N°1274.
So, what do the data show? I’m sure you’ll be as unsurprised as me to learn that, whatever the country, if you’re a middle-aged man working as a financier, doctor, or engineer you’ve a better chance than most of being among the top 1% of earners. The typical person in the top 1% is male, in his 40s or 50s, has a tertiary education degree, works in finance or manufacturing, and is a chief executive, manager or professional.
Digging deeper shows that the top 1% have an average age of 47, hence are five years older than the average worker in the bottom 99%. Around 80-85% in the top 1% are men versus 50-55% in the bottom 99%, and the share of men among the top 1% is actually above 90% in Germany and Luxembourg. Likewise, 80-85% among the top 1% completed tertiary education, compared with 30-35% among the bottom 99%.
There are however important differences between countries and regions. And these appear to be connected to political and economic institutions. Thus, some of the policies your governments are choosing may matter for whether you are in the 1%. I’ll highlight a few of these differences.
Top earners are disproportionately younger, often in their 30s, in Eastern Europe (the Czech Republic, Estonia, Hungary, Poland and the Slovak Republic). At first glance, you might think this is because the workforce is younger in these countries than elsewhere, but the analysis doesn’t support this explanation. The much younger age of top earners in Eastern Europe is probably related to the economic transformation of these countries after the fall of the Iron Curtain. Workers already in the labour market during the 1980s, the last years of communism in Eastern Europe, have less chance than in Western Europe of having moved up to the top 25 years later.
In countries where overall female employment is higher, more of the top 1% are women. The paper does not attempt to establish that it is higher female employment, rather than a related factor, that “causes” more women to be at the top. Nevertheless, one way to interpret this finding is that public policies to broaden female participation in the labour market might also have the benefit of facilitating high-paying careers for women.
Length of career with a particular employer shows contrasting results. One in five top 1% earners has worked for the same employer for more than 20 years. On the other hand, almost one-third of the 1% are new recruits. This pattern is quite different though in Southern Europe (Greece, Italy, Portugal and Spain) where top earners tend to have stayed much longer with their current firm than other workers. The difference could be a sign of stronger family ties or lower labour market flexibility at the top in these economies.
Health professionals are a large group of top earners in several countries, and how much they are paid appears to be linked with life expectancy for the population as a whole. The data suggest: wealthy doctors=healthy people, or that life expectancy is higher the larger the share of the top 1% who are health professionals. Spain and Italy, for example, have both the best-paid doctors, relative to other occupations, and the highest life expectancy, though the analysis does not preclude that better weather, nutrition or other factors might be at work.
Finally, industry structure can affect how concentrated labour income is. Comparing countries with one another shows that the more of the 1% who work in finance, the higher is the share in total earnings that goes to the top 1%, and the smaller is the share that goes to the bottom 99%. That’s one indication that more finance may increase inequality. In earlier work with Boris Cournède and Peter Hoeller, I showed that financial expansion more generally, of bank credit or stock markets, is connected with a widening of the income distribution. Now we’ve come full circle, as the Oxfam report actually draws on our results.
What next? The analysis suggests several questions to be explored in future work, for example trying to establish causality for some of the correlations. This kind of data could also serve as the basis of a study of what’s known as the “rent extraction view”, according to which sectors that are more strongly regulated relative to other sectors and other countries attract more top 1% incomes. And of course it would be interesting to extend the geographical scope if suitable data became available for other countries.
Income Inequality: The Gap between Rich and Poor, Brian Keeley, OECD Insights, 2015
Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)
A couple of months ago I met an expert in corporate responsibility who asked me: ‘So, are you the guy who killed CSR?’ Normally being labelled a killer can get you behind bars, but in this case it was meant as a compliment. However, I didn’t do it! So why was I a suspect? The reason is likely that I chair the OECD Working Party on Responsible Business Conduct, a group of 46 governments that deal with business ethics issues by promoting and implementing the OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines).
The OECD MNE Guidelines are the world’s most comprehensive multilateral agreement on business ethics and the only international corporate responsibility instrument with a built-in grievance mechanism. Under the Guidelines – this year 40 years old – the term ‘’CSR’’ is not used, rather they discuss ‘’responsible business conduct “(RBC). Responsible business conduct means that businesses should make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development and that businesses have a responsibility to avoid and address the adverse impacts of their operations. While the concept of CSR is often associated with philanthropic corporate conduct external to business operations, RBC goes beyond this to emphasize integration of responsible practices within internal operations and throughout business relationships and supply chains.
Nowadays CSR is a global industry. Most companies employ CSR managers, vice presidents, and experts; armies of CSR consultants are on offer and hundreds of CSR awards are distributed every year. In addition, countries are increasingly implementing CSR laws, action plans and even CSR ‘taxes’. Given the widespread recognition of CSR, is it really necessary to bury it six feet under?
Let’s be clear: I didn’t kill CSR, nor did the OECD. Ultimately, CSR committed suicide! Several characteristics contributed to its demise.
First, CSR is often associated with philanthropy and volunteer work in the social sphere, rather than long-term sustainable development. This is especially true in some regions where CSR activities are limited to companies building schools, or sponsoring local activities. Company CSR reports are often largely descriptions of feel-good projects and activities that ‘give back’ to society.
Second, CSR is often understood to be an optional add-on external to core business operations. For example the scope of a CSR managers’ responsibility is limited to voluntary initiatives while responsibility for non-voluntary obligations falls to procurement officers, human resources or legal counsel. Therefore corruption issues are often not considered a CSR issue and are not dealt with by CSR managers. Corporate tax responsibility, an integral part of the OECD MNE Guidelines, likewise is most often not on the radar screen of a CSR manager.
This division is problematic. The ‘voluntary’ association of CSR severely limits the role of CSR managers within their companies if they only deal with issues that are viewed as peripheral. In contrast, RBC, as promoted by the OECD, provides a more integral perspective; it is a core business function, and as such must be integrated within corporate governance, procurement, finance, and so on.
Additionally, core elements of RBC as outlined in the UN Global Compact or the OECD MNE Guidelines are not voluntary in most jurisdictions. Bribery is a crime in all OECD states, non-financial disclosure will be mandatory in the EU for large companies, and many issues of competition and consumer interests also covered by the OECD Guidelines are legally binding in most countries.
Finally, the ‘voluntary’ association with CSR suggests there are no consequences to non-compliance. That is a misconception. Research demonstrates that there is a strong business case for companies to behave responsibly. Responsible business practices can result in positive outcomes such as improved reputation and productivity. On the other hand, irresponsible practices can lead to significant financial liabilities and hamper access to finance. Investors who take environmental and social issues into account in their investment decisions today represent a portfolio of at least $59 trillion in assets under management.
CSR is strongly associated with the ‘old school’ social audit system. The voluntary, peripheral connotations of CSR have been reflected in the sense that often there is little follow-up done to correct shortcomings identified in social audits unless they have a bearing on other, generally economic, aspects of business operations. The worst example of a failure of the audit system is the Rana Plaza collapse. Some of the brands sourcing from Rana Plaza had performed audits of the factory prior to its collapse and continued to source from it, despite the clear existence of serious workplace safety issues. Responsible business conduct goes beyond auditing and stresses the importance of a continuous process of due diligence, which in addition to identifying risks requires prevention and mitigation as well as addressing negative impacts where they do occur.
Another problem is that CSR has often been used primarily as a PR tool, contributing to the perception that it is merely a greenwashing exercise. In the words of Michael Townsend: “Corporate Social Responsibility is, at best, only a partial solution — one which can be misused to create an illusion of responsibility.” Volkswagen, prior to its emissions rigging scandal, used to claim the number one spot on the Dow Jones Sustainability index. Enron has received CSR awards, and scores of companies display CSR-logos on their website while ignoring major corporate responsibilities. Fortunately, as increasing scandals have exposed the hollowness of some CSR programmes, more and more companies have begun to move their CSR functions out of their PR or communications departments.
“CSR is dead. It’s over!” declared Peter Bakker, president of the World Business Council for Sustainable Development. Bakker argues that leading companies are already going way beyond traditional CSR by integrating sustainability into all aspects of their business operations in recognition that business cannot succeed if society fails. He urges us to innovate — to align with facts, to redesign what we mean by good performance and to get inspired by new definitions of success. Indeed what Bakker is suggesting is exactly in line with the responsible business conduct agenda of the OECD: integrating sustainability as a core aspect of business operations.
In practice there is no contradiction between corporate sustainability and responsible business. Indeed company sustainability is essentially derived from responsible business conduct. Thus, while CSR as a term may be dead, the concepts of corporate responsibility and corporate sustainability are still very much alive and may well live forever!
Following the hand-wringing, relief-sighing and back-slapping in Paris after nailing the landmark agreement on climate change in December, I took myself off to a farm in rural England to enjoy the new year driving tractors and herding small children (not with tractors). Conversations with friends typically started with remarks about the unseasonably mild weather and often ended on climate change, and unsurprisingly, COP21. As a soundbite buff, I quickly got my lines sorted: “COP21 gave governments a giant shove in the right direction, an emotional rollercoaster ride of hope, expectation and promise”.
Given the years of preparation – and for some OECD colleagues, a life’s work – my hope (which later proved false) was for an enduring, ambitious text, helping us to avoid climate catastrophe. My expectation was far less grand, more closely aligned to the reality of getting 195 countries to adopt an agreement with legal force. The result and attendant promise, which far exceeded my modest expectations, can be described as historically significant and not only provides a mechanism for getting us onto a zero-carbon pathway, but also new approaches to the way we use the planet. So now back at the office and with winter finally arriving with a frosty thud, our attention moves to action on the agreement, or initially at least, a fuller digestion of it and the setting out of a working plan.
- The reaffirming of the 2°C objective in the Paris Agreement is an accomplishment but presents a huge challenge. The implementation of current Intended Nationally Determined Contributions (INDCs) would deliver an outcome of close to 3°C warming and won’t be sufficient to avoid climate risk, particularly for the most vulnerable. The ambition in 1.5°C is significant but achieving that would require the remaining carbon budget for the 21st century to be reduced by almost half that of the 2°C scenario and we would have to become carbon neutral some 10-20 years earlier. We need a rapid switch to low-carbon energy everywhere, requiring technology, innovation, capacity building and (obviously) finance. To make the transition to a low-carbon, climate-resilient world, the fundamental changes needed will be challenging for even the most developed economies. Developing economies will require support to achieve low-GHG and climate-resilient development pathways. Building on the work in 2015 on aligning policies, the OECD could support policy alignment and cost-effective action to implement countries’ own emissions reduction commitments.
- The 5-year review cycle of country’s contributions to cutting emissions will inform future NDCs. This is an important element, allowing countries’ commitments to be updated and rolled forward. This “Global Stocktake” of progress sees the first report being undertaken in 2023 and every 5 years thereafter, ahead of setting each successive round of NDCs. This will be a key mechanism for attempting to make bottom-up NDCs consistent with the long-term goal. Common methodologies need to be developed for NDCs, each demonstrating a progression on the previous one. Support is needed for developing country parties for implementation of the review cycle. The OECD/IEA Climate Change Expert Group (CCXG) has undertaken work on mitigation goals, baselines and accounting that could support countries in preparing their NDCs.
- Undertaking and strengthening adaptation action is in many of the INDCs submitted to date and governments agreed in Paris to provide continued and enhanced international support for adaptation to developing countries. Many countries pushed for the idea of “political parity” which means putting as much effort in terms of political momentum and financial resources into adaptation as to mitigation. Adaptation remains the activity for which a large number of developing countries require assistance, particularly the poorest (LDCs) and most vulnerable (Small Island Developing States – SIDS). Closing the climate finance gap for adaptation compared to mitigation and mobilising new funding sources is essential. The OECD is the ideal forum for the sharing of experiences between the public and private sectors and the work linking policy and economics could help governments move from planning to implementing smart adaptation.
- The single framework to track progress has built-in flexibility which takes into account the different capacities of each of the parties. Countries will regularly report on emissions and progress toward their NDCs, adaptation actions and on the means of implementation supported including finance, technology and capacity building. However, significant gaps remain in terms of improving the transparency of information on climate finance, technology transfer and capacity building, both on the side of those who provide such support and those who receive it. Following on from the work on Climate Change Mitigation: Policies and Progress, the OECD’s data and policy analysis can support transparency. Additionally, the OECD engages directly with parties on technical policy issues within the UNFCCC process. This is a key component of the work of the joint IEA-OECD Climate Change Expert Group, which will be meeting in March 2016 to discuss key aspects of transparency of support and adaptation action.
- The COP will set a new finance goal before 2025, with the existing commitment of USD 100 billion per year acting as a floor until then. The OECD-CPI report on climate finance provided an update on progress by developed countries in meeting their finance commitments ahead of COP21 and informed the debate within the negotiations themselves. Climate finance issues will now be addressed by the UNFCCC’s Subsidiary Body on Scientific and Technological Advice (SBSTA) with recommendations to COP24 in 2018. The OECD development statistics system
Instead of a climate march in Paris, thousands of silent but symbolic shoes found their way to Place de la République during COP21. There’s an old Italian proverb that says “between saying and doing, many a pair of shoes is worn out”. Indeed, we are in that period of reflecting on what’s been said and pursuing actions that make a difference. Paris matters tremendously – we got an agreement with legal force after all – but getting our actions to work to reduce the risks of climate change in future decades will probably matter even more.