Pension and Health Reforms

34 Zambia. A general pattern is to reform contributory public social security systems, which provide higher benefits to those who contributed during their working life, and expand non-contributory social pensions, normally targeted to the poor as part of social assistance, with much lower benefits that are often inadequate to ensure old-age income security. Healthcare system reforms are being considered by 56 governments in 22 developing and 34 high income countries. Typical health adjustment measures include increased user fees or charges for health services, reductions in medical personnel, discontinuation of allowances and increased copayments for pharmaceuticals. Increased out-of-pocket expenditure for health add further pressure on governments to increase pensions and other social protection benefits to cover the additional cost for households to seek necessary health care. Meanwhile, a lower quality of health service provision leads to worse health outcomes e.g. Karanikolos et al., 2013; Mladovsky et al., 2012. Weakened mental health, increased substance abuse and higher suicide rates have all been linked with fiscal consolidation measures WHO, 2011; Stuckler and Basu, 2013. The European Centre for Disease Control warned that serious health hazards are emerging because of the fiscal consolidation measures introduced since 2008. More specifically, in Greece, Portugal and Spain, citizens’ access to public health services has been seriously constrained to the extent that there are reported increases in mortality and morbidity. The Lancet further speaks of ―a Greek public health tragedy‖ in which citizens are subject to one of the most radical programmes of welfare state retrenchment in recent times Kentikelenis et al., 2014. Cuts to development assistance also present significant health-related dangers to populations in developing countries. Given that more than half of public health budgets in Sub-Saharan Africa depend on foreign aid, funding shortfalls can increase stress on women who are the predominant caretakers of sick persons Seguino 2009. Moreover, due to the income losses stemming from the employment crisis, families have consistently reported lower healthcare spending and service utilization. For example, households in Armenia, Bulgaria and Montenegro significantly reduced doctor visits, medical care and prescription drug use World Bank 2011. In short, reducing pensions and health services places additional pressures on household incomes, which, aside from the direct physical consequences, pressures families to increase precautionary savings, reducing aggregate demand and delaying recovery. As a result, governments should consider rationalizing expenditure that has less severe social and economic consequences. In a time of fragile recovery, governments should also look to sustain pensions and social services and, when necessary, introduce new schemes and extend health and social protection for all persons. 35 Box 4: Increasing Poverty in High Income Europe European countries have reduced a range of social protection benefits and limited access to quality public services; together with persistent unemployment, lower wages and higher taxes, these measures have contributed to increases in poverty or social exclusion, now affecting 123 million people in the European Union —24 per cent of the population, many of them children, women and persons with disabilities. Several European courts have found cuts unconstitutional. The achievements of the European social model, which dramatically reduced poverty and promoted prosperity and social cohesion in the period following the Second World War, have been eroded by short-term adjustment reforms. Figure 12: Increase in the Proportion of the Population at Risk of Poverty in European Countries 2008-12 Note: Based on an at-risk-of-poverty line of 60 per cent of median equivalized income anchored at a fixed moment in time 2008 Source: ILO 2014 based on EUROSTAT data

5.5 Labour Reforms

Labour flexibilization is being considered by 89 governments. These generally include relaxing dismissal regulations, revising minimum wages, limiting salary adjustments to cost of living benchmarks and decentralizing collective bargaining Box 5. Labour market reforms are supposed to increase competitiveness and support businesses during recessions —compensating for the underperformance of the financial sector —which is commonly viewed as an easier strategy to boost the supply of credit to firms than introducing financial sector reforms. However, there is limited evidence that labour market flexibilization generates jobs Howell 2005, Palley 1999, Rodgers 2007, Standing 2011, and women workers are particularly hard hit by such measures Ghosh 2013. In fact, evidence suggests that, in a context of economic contraction, labour market flexibility is more likely to generate ―precarization‖ and vulnerable employment, as well as depress domestic incomes and, therefore, aggregate demand, ultimately hindering crisis recovery efforts van der Hoeven 2010. Even in export-led economies, flexibilization policies do not lead to higher income and employment; rather, the end result is contractionary Capaldo and Izurieta 2012. 36 It is imperative that employers, unions and governments dialogue together about how to achieve socio- economic recovery. Social pacts can be an effective strategy to articulate labour market policies that have positive synergies between economic and social development; they are especially well-suited to arrive at optimal solutions in macroeconomic policy, in strengthening productivity, job and income security, and in supporting employment-generating enterprises. While the level of labour protection, benefits and flexibility will vary from country to country, the key is to identify a balance to ensure sustained economic activity and positive social outcomes, where employers benefit from productivity gains and workers benefit from job and income security. Box 5: Examples of Labour Flexibilization Reforms Worldwide, 2010-12