Reexamining the OECD Averages

[Seoul Sinmun · Open World · March 20, 2014]

Yun Suk-myung, Director of the Pension Research Center at the Korea Institute for Health and Social Affairs (KIHASA)

Yun Suk-myung, Director of the Pension Research Center at the Korea Institute for Health and Social Affairs (KIHASA)

At some point, the averages of the member countries of the Organisation for Economic Co-operation and Development (OECD) became the yardstick for evaluating our society. It feels like a different era, considering there was much criticism regarding joining the OECD in 1996 on the grounds that it was premature. Since the OECD indicators frequently mentioned as evaluation yardsticks are the high elderly poverty rate and suicide rate, the weight of these related indicators is significant. This is also because they are being used as a yardstick for the direction of welfare policy to improve a reality that is overwhelmingly higher than the OECD averages.

The economic achievements we have attained are unprecedented even among OECD member countries. We achieved in 40 years the economic accomplishments (based on per capita purchasing power) that took the United Kingdom 200 years and the United States over 150 years.

Because economic growth was rapid, the resulting social problems are also unusual. A prime example is the National Pension. Unlike the majority of OECD member countries with a pension history of over 70 years, the history of our National Pension, which was expanded to the entire population, is only 15 years. In a situation where the traditional private support system for older people has collapsed, it is natural that the elderly poverty rate is high because the pension history is short. The problem is how to alleviate it.

Since the relative poverty rate of older people in our country (49.3%) is more than three times the OECD average (12.8%), there is a strong tendency to approach the problem of elderly poverty through averages. However, the fact that the relative poverty rate is more than three times the OECD average means that income inequality among the older population in our country is that much larger—that is, more than three times larger compared to OECD member countries. It is an overwhelmingly high figure even when compared to the overall relative poverty rate (14.0%), including one-person households. While the recognized income of the top 20% of older people aged 65 and over was 2.1 million won per month (as of 2013), it was 240,000 won per month for the bottom 50% (and 0 won for the bottom 26%). This is the background behind why the Gini coefficient of the older population increased by 0.03 points from 0.39 in 2007 to 0.42 in 2011, despite the introduction of the Basic Old-Age Pension (as the Gini coefficient increases, income inequality deepens).

In a situation where income inequality among older people is this severe, if benefits of a similar level are paid to the majority of older people, it will be difficult to lower the elderly poverty rate and suicide rate, which are the highest among OECD member countries. This is because the poverty alleviation effect of paying the same amount is not significant. Under the hypothesis that the suicide rate is even higher among vulnerable older people with low incomes, if government policy does not have a significant poverty alleviation effect, the high suicide rate of vulnerable older people will not decrease. This is why it is judged that there will be no visible effect even after spending a large amount of money on older people.

According to a recent report by the IMF expressing concern over deepening income inequality worldwide, our Gini coefficient for disposable income is lower than that of Japan, but it becomes higher when assets are included.

In particular, the redistribution effect (0.025 points) through taxation and income transfer policies is only one-seventh that of Northern Europe and one-fourth that of Southern Europe. This is why the perceived level of welfare among vulnerable groups is low despite the surge in welfare spending. This is a phenomenon where a significant portion of the social security budget is concentrated on non-vulnerable groups. This is the background behind why the suicide of a mother and her two daughters occurred even though social security spending is increasing most rapidly among OECD member countries.

According to a report by the Korean Institute of Criminology and Justice, general crimes increase by 6,300 cases when the Gini coefficient rises by 0.0172 points. This means that if the redistribution effect of our taxation and social security policies were only as high as that of Greece in Southern Europe, 27,000 crimes would be reduced. If suicide is interpreted as a crime against oneself, would the suicide rate not be significantly lowered if spending is expanded for vulnerable older people, who have the highest suicide rate?

It is difficult to drastically lower the high elderly poverty rate and suicide rate through an average-based approach. Policy effects will become visible only when social security spending is prioritized for vulnerable groups with severe income inequality.

Social integration can also be achieved only if there are noticeable policy effects. It is time to contemplate the establishment of social security spending and welfare systems in our own unique way that can achieve both efficiency and equity. If we contemplate this properly, solutions for the controversial National Basic Living Security System (NBLSS), Basic Pension, and Government Employees Pension will be naturally derived.

Source: Seoul Sinmun (original article)