Inequalities and Decent Work – the 2030 Agenda for Sustainable Development

Delivered 05-09-2018, Mendoza, Argentina

Ministers, distinguished guests, ladies and gentlemen,

Let me congratulate the L20 for the focus placed on inequalities, a major stumbling block to sustainable development and for the achievement of the SDGs, particularly Goal 8 and 10.

But more fundamentally, reducing inequalities is a cross-cutting driver of sustainable development. More than one third of SDGs targets are about eliminating the sources of disparities across people, time and geographies and about providing equal opportunities to thrive and to live well.

At the OECD, we have long emphasised that sustainable prosperity and progress can only be achieved through inclusive growth and that promoting access to good quality jobs is a precondition for inclusive growth.

Inequalities remain high across G20 and OECD countries. The richest 10% of the population in OECD countries now take home more than 9times the income of the poorest 10%, up from 7 times 30 years ago.

The concentration of wealth at the very top of the distribution is even more severe. OECD data indicates that the richest 10% in the OECD own around half of all household assets, whilst the bottom 40% owns barely 3%. At the very top of the distribution, the top 1% holds a staggering 19% of total wealth.

But there is also the issue of the changing nature of work in the future.

At the end of 2017, nominal annual wage growth in the OECD area was 2.1% – only half of what it was just before the Great Recession, for comparable levels of unemployment. Real wage growth decreased by 1 percentage point, to 1.2%, over the same period.

There are three main reasons.

First, a low-inflation environment and a slowdown in productivity. Limited productivity gains have not fully translated into wage gains. If the growth in real median wages had perfectly followed the productivity growth over the 1995 to 2013 period, real median wages would have been 13% higher.

Secondly, due to the technological revolution, changing skills demand has also affected wages. Highly qualified workers with high-level cognitive skills and social intelligence have benefitted from wage growth. But the many workers who are not equipped with such skills are being left behind on low wages and low quality jobs.

Thirdly, long-term unemployment after the crisis may have held down wage growth. The jobs that have been created during the recovery are not the same as those that disappeared during the crisis. Jobseekers with low levels of skills have found it difficult to find jobs that matched previous wage levels; and there has been a rise in involuntary low-pay part-time employment in a number of OECD countries.

In terms of labour market inclusion, most OECD labour markets have now recovered to pre-crisis levels in terms of job quantity, but a more mixed picture emerges as regards job quality and inclusiveness.

The growing digital economy also has an effect. And many more jobs across the OECD – an estimated additional 32%. There is also a high level of skills mismatch.

And then you have the changing dynamic of firms, and the impact that globalization has had on wage moderation. You know the trends!

These trends follow the secular trend of decreasing gains from growth being accrued by labour, and this follows the increase of global interconnectedness, the low wage competition from many regions in the context of GVC, and the development in financial markets that have contributed heavily to concentration of wealth and financial assets at the top. The picture you know it well: de unionization, lower share of wages in GDP, reduces levels of support.

We are seeing a growing number of frontier firms pulling away from the rest, accumulating advantages, such as being able to offer higher wages to attract better skills, have better access to capital and technology, and operate globally. In this way, the workers with higher skills are selected and receive greater training opportunities and higher salaries. These firms are destabilizing entire markets as lagging firms cannot compete, and they are seeing wages stagnate and working conditions deteriorate.

The growing platform economy is also bringing new policy challenges. New technology and the big players in the platform economy are often concentrated: of the top 15 internet market capitalization leaders in 2017, nine were US companies. The rest were Chinese.

Indeed, we are witnessing a widening performance gap between more productive and less productive firms, which is also driven by the stagnating productivity of laggard firms.

These structural changes in our economies may leave many people, regions, industries behind. It is important to ensure those people can also take advantage of new technologies and that they are also able to participate in the development of these technologies.

The “winner-takes-all” dynamics also has implications for competition policy. If we want globalisation to work for everyone, then we need to ensure that competition is fair in a well-functioning market.

This changing dynamics of firms and the world of work will mean that we have to adapt our labour market and social protection policies. Already a substantial number of workers are in non-standard work: 1 in 6 workers in OECD countries is self-employed and 1 in 8 has a temporary contract. This has important implications for social protection. For example, only 6 out of 28 countries in the EU insure the self-employed in the same way that they insure regular employees. Not to speak about the informal economy in many member countries.

These trends will continue and will make it difficult to reach the SDG target if we do not adopt a strategy that focuses on improving working conditions and remuneration for the bottom 40 percent.

Policy solutions:

We need a multi-faceted approach.

First, we need to get skills right. Workers will need well-rounded technical, professional and social-emotional skills. This starts with providing high quality education from early childhood so that all children, especially those from disadvantaged families, have a strong foundation of knowledge and skills.

Children will need to adapt to flexible thinking, working in teams and – importantly – learn to have self-esteem and self-confidence. Investing in affordable and high-quality early childhood education and care is an area that governments should prioritise.

This is a major finding in the OECD’s new Framework for Policy Action on Inclusive Growth, which found that a focus on early years has a powerful effect in overcoming socio-economic differences in education outcomes.

We also need to invest in more lifelong learning, ensuring people have opportunities to re-skill and up-skill throughout their working lives. This is especially important for people with low skills: less than 20% of low-skilled workers in the OECD have received job-relevant training in the past year, when the average is around 40% for all workers.

This is especially important for women, with new evidence based on the OECD Survey of Adult Skills pointing to a gap between men and women in their levels of advanced numeracy, management and self-organisation skills, which are most in demand in digital-intensive sectors.

Women are also more likely to be employed in industries that are of higher risk of automation, for example in retail, residential care or food and drink services. And of course, we still have a gender wage gap, averaging at 17% across the G20.

Secondly, we have to adapt our labour market and social protection policies. Access to social protection for non-standard workers should be strengthened, and rights to social protection and training should follow the worker, not the job.

Social dialogue will also be important to prepare for the Future of Work, particularly in anticipating change and finding solutions that promote job quality and productivity growth. Social partners have an important role to play in this process. The pay and working conditions of 1 in 3 workers in the OECD are governed by a collective agreement. Our work shows that shows that co-ordinated collective bargaining systems, with strong and self-regulated social partners and effective mediation bodies, contribute to better employment outcomes.

Third, governments should encourage better diffusion of technology and innovation from leading to lagging firms, through incentives to make investments in R&D, new digital equipment and organisational know-how to help lagging firms catch-up with industry leaders.

Fourth, governments need to consider the implications of the platform economy on competition and regulation. Digital transformation is changing the world faster than many rules and regulations have evolved. Governments may need to periodically review their regulatory frameworks to ensure they remain relevant to the increasingly digitalized world.

The OECD is already making headway on inclusive growth, with our new Framework. We have already forged some significant partnerships in this area, including with the Global Deal, a multi-stakeholder partnership that brings together governments, businesses and trade unions to promote social dialogue and ensure globalisation benefits everyone. We also focus on measuring quality jobs, and not only quantity, covering the right level of remuneration, the right working conditions and security in the job.

But all this would require a new narrative of growth, to focus more broadly on improving the well- being of people, particularly the most vulnerable. It calls for a renewed emphasis on equity considerations in the policy debate and design. Only then we will be able to achieve a world where growth is inclusive and where people can reach their full potential.

Thank you.

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The Future of Work: Preparing for a Digital Future

Delivered 13-08-2018, Kingston, Canada

QueensInstitute_2008_2018
23rd Queen’s International Institute on Social Policy          Photo credit: Sandra Kenny-Veech

Ladies and gentlemen, it is my pleasure to be with you in Canada. I was here last month to present the OECD’s Economic Survey of Canada – and let me tell you that Canada scores highly on well-being measures and does well compared to other OECD countries on personal security, health, environmental quality, social connections, education and skills.

Canada is also taking steps to address inequalities, and income inequality is close to the OECD mean.

Growing inequality is a large part of what I wanted to discuss with you today, in the context of digitalization and the future world of work.

 Upsides of the digital revolution

The digital revolution is transforming our world. How we work, how we connect, how we live has changed dramatically.

And it has changed fast: it took over 45 years for electricity to be used by 25% of the US population; 35 years for the telephone; 16 years for  the computer, and only 4 years for smartphones. Facebook also took 4 years to reach 100 million people.

Almost half of the world’s population is now connected to networks, compared to just 4% twenty years ago. Things go viral and diffuse faster than in the past.

We are always connected via our smartphones, and they have become part of our lives: across the OECD, over half of 15 years olds say they feel bad if they are not connected to the Internet – in France, Sweden and Portugal, it is over 80%.

This is also an era of vastly reduced transaction costs, which enables applications ranging from Google maps to ride-sharing services like Uber. This change in transaction costs has been transformative and will have far-reaching consequences on our societies, our economies and our labour markets.

The increased flexibility in everyday work life and the ability to facilitate access to jobs through platforms can improve well-being, for example by offering people a better work/life balance, enabling different working hours or remote working.

This also helps promote inclusion, as it helps groups often excluded from the labour market, such as people with disabilities, migrants or new parents.

Downsides of the digital revolution

However, the digital transformation presents important challenges for workers, firms and policy-makers. Specifically, this is happening at a time when inequalities globally are increasing. The OECD has been leading work on this through our Inclusive Growth Initiative. In many OECD countries income inequality is at its highest level for the past three decades: the average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago[1].

There is a risk that, if not handled carefully, digitalisation in the labour market could exacerbate these inequalities.

Let me start with automation. Based on current trends, the OECD predicts that 14% of jobs in OECD countries are at a high risk of being automated.

For Canada, that number is slightly lower, at 10%[2].

And many more jobs across the OECD – an estimated additional 32% – will see considerable change in task composition.[3]

Jobs will not disappear, but they will be replaced with new ones that will be quite different, and will require different skills. For example, big data architects, cloud service or digital marketing specialists did not exist until recently; we cannot imagine what future jobs will look like.

Automation threatens low-skill and routine jobs more than high-skills ones. Among workers with a lower secondary degree, 40% are in jobs with a high risk of automation – compared to only 5% among workers with a tertiary degree.

This therefore means that groups that are already at a disadvantage are at higher risk of being left behind. Young people are also at higher risk, as entry-level jobs are often more likely to be automated than senior-level jobs, which could make it harder for young people to get onto the career ladder.

Workers will need to be re-skilled or re-trained if their jobs are automated.

But it isn’t just automation that is of concern. The way firms are operating is also changing, which has wide implications on the world of work. And to understand the Future of Work, you need to understand the Future of the Firm. New technology and the big players in the platform economy are often concentrated. Only 250 firms globally generate 70% of R&D and patents, and 44% of trademarks. Most of the world’s top R&D investors are located in the US, UK, Germany, China and Japan. These countries also hold the top AI patents – although countries like Korea and India are fast catching up.

The rise of online platforms is also concentrated: of the top 15 internet market capitalization leaders in 2017, nine were US companies.

The rest were Chinese.[4] These front-runners have mastered the new opportunities and know-how and are able to scale without mass; they have no high fixed costs, few tangible assets, such as buildings and employees, and low marginal costs. Look at WhatsApp – founded only 9 years ago, it has 1 billion users, and was bought by Facebook in 2014 for 19 billion dollars. It has only 60 employees.

The larger the platforms get, amassing ever-greater networks, the more value they accumulate. Indeed, much of their valuation depends on the data generated by their users. Firms that can amass large quantities of data, harness and exploit it, can use it to their competitive advantage.

Rolls Royce, for example, has studded its turbines for jet engines with sensors that provide real-time information on the performance of the engine and how best to maintain it when it lands. The ownership of this Big Data and what it is used for is fast-becoming an important policy question.

As these front-runner platforms and firms harness the data they collect, they are pulling away from the rest, accumulating advantages, and destabilizing entire markets as more traditional firms cannot compete with the lower transaction costs. They can also offer higher wages to attract better skills, have better access to capital and technology, and operate globally.

A performance gap is widening between more productive and less productive firms, which is also driven by the stagnating productivity of laggard firms. Those falling behind have limited capabilities, lack of incentives and uneven access to innovation throughout the economy.[5]

These structural changes in our economies may leave many people, regions, industries behind. It is important to ensure those people can also take advantage of new technologies and that they are also able to participate in the development of these technologies.

The “winner-takes-all” dynamics also has implications for competition policy. If we want globalisation to work for everyone, then we need to ensure that competition is fair in a well-functioning market.

Plus, given the global nature of these online platforms, cross-border issues around different regulatory frameworks come into play, which requires international cooperation to ensure fair competition rules. We just saw in June, the landmark case where the EU slapped a 4.34 billion euro fine on Google because of dominance of its search engine on mobile phones.

Policy Solutions

How this all plays out depends on us. With the right policies, we can shape the future of work in ways that promotes inclusive growth. To do so, we need a multi-faceted approach.

First, we need to get skills right. Workers will need well-rounded technical, professional and social-emotional skills.

This starts with providing high quality education from early childhood so that all children, especially those from disadvantaged families, have a strong foundation of knowledge and skills.

Children will need to adapt to flexible thinking, working in teams and – importantly – learn to have self-esteem and self-confidence. Investing in affordable and high-quality early childhood education and care is an area that governments should prioritise.

This is a major finding in the OECD’s new Framework for Policy Action on Inclusive Growth, which found that a focus on early years has a powerful effect in overcoming socio-economic differences in education outcomes.

We also need to invest in more lifelong learning, ensuring people have opportunities to re-skill and up-skill throughout their working lives. This is especially important for people with low skills: less than 20% of low-skilled workers in the OECD have received job-relevant training in the past year, when the average is around 40% for all workers.[6]

This is especially important for women, with new evidence based on the OECD Survey of Adult Skills pointing to a gap between men and women in their levels of advanced numeracy, management and self-organisation skills, which are most in demand in digital-intensive sectors.[7]

Women are also more likely to be employed in industries that are of higher risk of automation, for example in retail, residential care or food and drink services.

Women are systematically under-represented in the ICT sector, and are 20% less likely to hold a senior leadership position in the mobile communication industry. There are 250 million fewer women online than men.[8] Start-ups and venture capital investment also point to socio-cultural gender bias in equity financing, as today, 90% of innovative start-ups seeking venture capital investments were founded by men. Women-owned start-ups receive 23% less funding and are 30% less likely to be acquired or to issue an initial public offering – compared to men-owned businesses.[9]

However, if given the chance, digital tools can help women “leapfrog”, as I said before, digital platforms offer women more flexible working arrangements, and women who perform more ICT-intensive tasks in their jobs receive a 12% higher pay increase than men, which could help close the gender pay gap.[10]

It is important to encourage females into STEM subjects, whether through school programmes, mentoring, gender-neutral text books or adopting laws and regulations that include gender-related provisions in digital economy policies. In México, the OECD launched an initiative with the Ministry of Education, called “NiñasSTEM pueden”, where school girls are connected to women who are successful in STEM fields, to act as role models. Sarah Box from the OECD will elaborate on gender and digital tomorrow.

Secondly, we have to adapt our labour market and social protection policies. Already a substantial number of workers are in non-standard work: 1 in 6 workers in OECD countries is self-employed and 1 in 8 has a temporary contract. This has important implications for social protection. For example, only 6 out of 28 countries in the EU insure the self-employed in the same way that they insure regular employees.[11] Access to social protection for these non-standard workers should be strengthened, and rights to social protection and training should follow the worker, not the job.

Social dialogue will also be important to prepare for the Future of Work, particularly in anticipating change and finding solutions that promote job quality and productivity growth.

Third, governments should encourage better diffusion of technology and innovation from leading to lagging firms, through incentives to make investments in R&D, new digital equipment and organisational know-how to help lagging firms catch-up with industry leaders.

Fourth, governments need to consider the implications of the platform economy on competition and regulation. Digital transformation is changing the world faster than many rules and regulations have evolved.

In some cases, the digital transformation requires changes to legislation, which might have been drafted long before some products or services existed. Governments may need to periodically review their regulatory frameworks to ensure they remain relevant to the increasingly digitalized world. There will also need to be a balance between regulation being flexible enough to allow businesses to grow, while also ensuring the security of the consumer, private data, etc. The flow of data also gives rise to cross-border issues.

This whole-of-government approach to the Future of Work is reflected in the G20 and G7 Presidencies, which the OECD is actively supporting.

Just last month, Finance Ministers endorsed a menu of policy options for the Future of Work, which will help countries harness the potential of technological change for inclusive growth. The G7 has also emphasised the importance of sharing the benefits of innovation through a whole-of-government strategy, and the need for effective domestic policies and multilateral cooperation on competition, digital security, privacy and data protection.

Ladies and gentlemen, there’s no question that the future is digital, and that that will have enormous changes to the way we live. In order to manage that, governments, firms, policy-makers will have to prepare now in order to manage this change to the benefit of inclusive human advancement.

Let me just leave you with my view: we should ensure that we use technology for our own benefit and use it to serve us as humans, rather than allow the pace of technology to carry us away and merely adapt to where it is taking us.

Thank you.

[1] http://www.oecd.org/social/inequality.htm

[2] https://www.oecd-ilibrary.org/fr/employment/automation-skills-use-and-training_2e2f4eea-en

Explanation: jobs in the Republic of Korea, for instance, are at higher risk of automation than in Canada. The main reason for this is that Korea has different industry and occupational structure than Canada. Over 30% of Korean jobs are in manufacturing, while this is the case with only 22% of Canadian jobs (Handel 2012). However, within the same industries, Korean jobs are organised in a way that makes them less susceptible to automation. Korea might be ahead of Canada in automating routine jobs or it might be combining social and creative tasks together with routine tasks more frequently than Canada.

[3] https://www.oecd-ilibrary.org/fr/employment/automation-skills-use-and-training_2e2f4eea-en

[4] Digital Economy Outlook, OECD 2017

[5] Going Digital in a Multilateral World, OECD, 2018

[6] OECD (2018), Policy Brief: Putting faces to the jobs at risk of automation, http://www.oecd.org/els/emp/future-of-work/Automation-policy-brief-2018.pdf

[7] OECD (2018 forthcoming), “Bridging the Digital Gender Divide: Include, Upskill, Innovate”, OECD, Paris.

[8] Empowering Women in the Digital Age: Where Do We Stand? OECD, 2018

Y20 Summit

Delivered 13-08-2018 Cordoba, Argentina

I am delighted to open the Y20 Summit, and I’d like to congratulate the Y20 team for their leadership in making young people’s voices heard in the G20 process.

This year marks 10th anniversary of the crisis that devastated the global financial system and economy as a whole. Since then, the global economy has shown gradual recovery and at last the global GDP growth is approaching the pre-crisis average of 4%. Employment levels have also recovered strongly, and for the first time since the crisis, there are more people with a job. This progress is welcome. But we cannot be complacent – because the GDP figure doesn’t present us the whole picture. In reality, we still face enormous challenges – old and new.

The crisis exacerbated inequality, which had already been rising for many years. This has eroded people’s trust in institutions, and angered people against globalisation that cannot deliver for them. This public discontent towards multilateralism has given governments a false legitimacy to resort to protectionist and nationalistic measures and to advance policy goals through unilateral and ad-hoc responses.

Today, we are in the midst of an escalating trade tensions – through the introduction of tariffs on key items like steel and aluminium. These measures are fuelling the trade wars and only damaging our economic growth, global value chains, and of course jobs.

Millions around the globe have taken to the streets in recent years to protest against the impact of globalisation on their jobs and communities, but this backlash is only likely to grow as globalisation itself becomes more disruptive with rapid technological advances.

First, automation could displace many jobs over the next decades.

  • 14% of jobs today are at high risk of being automated. A further 32% could face substantial changes in content.
  • 65% of children today will do jobs that have not yet been invented.

This is a dramatic transformation! But, education systems have not kept pace with this changing nature of work.

 

  • For example, 56% of the adult population have no ICT skills to fulfil the simplest set of task in a technology-rich environment.

In the last months, you [youth delegates] have been exploring concrete policy recommendations to bring to the G20 Leaders’ table.

Let me share some of my ideas to help you advance the Y20 priorities.

Future jobs require a dramatic move away from what traditional education system produced. In the digital age, the need for cognitive skills, complex problem solving, team working, creativity and above all, global competencies, are seriously felt. This is why for the first time in 2018, the OECD’s Programme for International Student Assessment (PISA) will examine global competence of 15 year-old students. Giving young people the right skills and tools to get a better start in the labour market is not only good for their own prospects and self-esteem; it is also good for economic growth. For example, businesses run by people under 30 years old had nearly double the growth rate (206%) of businesses run by those over 40!

Future of Work also has huge implications for women both in education and employment. As we see slow progress in G20 countries’ path to achieving the G20 Gender Target, digitalisation can in fact potentially provide a part of the solution to give women leapfrog opportunities. But this is possible only if international fora such as the G20 can collectively address the existing gender inequalities in digital access and skills.

For this year’s G20 Presidency, the OECD has been working extensively on the digital gender divide to map out the unequal situations surrounding girls and women and then to present adoptable policy recommendations to close such gaps for more inclusive outcomes.

We find that the persisting gender gap is deep rooted in lack of access to STEM education (women today only account for 20% of tertiary graduates in ICT fields).

Solutions have been sought in various ways to improve STEM-related vocational pathways internationally and domestically. For example, the German Presidency started the G20 initiative to promoting #eSkills4Girls and Mexico embarked on the NiñaSTEMPUEDEN programme to have female STEM role models speak to girls to break the gender stereotype in education.

What brings us together is the belief that international fora like the G20 can improve outcomes for people and to set ambitious and clear paths towards a more inclusive, fair and sustainable economy.

The Engagement Groups are indispensable part of the successful G20 process, tasked to come up with concrete ideas of how international co-operation through the G20 can deliver for people.

You are the change agents. As young people, you should ensure your voice is heard and be in the driver’s seat for the policies that shape your future.

Thank you.

Investing in a low-carbon India

Delivered 03-July-2018, New Delhi, India

We are in complex times, politically, economically and environmentally.

In our ever-connected world, we are seeing that many people have been left behind by the benefits of globalisation and are rejecting a multilateral system they feel does not benefit them. However, the multilateral system has delivered significant achievements in recent years, just look at the SDGs and the Paris Agreement.

Climate is one area where multilateralism is crucial, together with domestic action.

Governments across the world face many challenges domestically: the enormous challenge of ensuring growth is inclusive, improving well-being while also addressing global challenges like climate change. The message I would like to convey today is that these do not have to be mutually exclusive.

(Slide)

Last year, Chancellor Merkel asked the OECD to produce a report for Germany’s G20 presidency to show the growth angle to climate change action. So we produced this: Investing in Climate, Investing in Growth [hold up].

With this report, we turned the debate around to show that with the right policies and incentives in place, governments can generate inclusive growth while reducing climate change risks.

And importantly, it shows countries how to do this by transitioning to a low-emissions economy.

A climate friendly policy package to limit global warming to below 2ºC can increase growth by 2.5% on average across G20 countries by 2050[1].

(slide 8)

If we also take into account the benefits of avoiding climate damage from increased flooding, storms, droughts and extreme weather events, the net effect on output rises to nearly 5% by 2050.

And the benefits will not just be felt thirty years down the line.

We can start reaping the rewards of this approach now. The OECD’s modelling work indicates a net growth effect of around 1% for G20 economies – including India – as early as 2021. Jobs could be created in the manufacturing of pollution-control devices and renewable energy production, or from land filling and waste incineration to recycling.

The alternative of doing nothing in the short-term would lead to average losses of up to 2% of GDP in the medium-term.

Delaying action would also mean that even tougher measures would need to be introduced later to prevent catastrophic climate change, and estimates show that unmitigated climate change could push 100 million people in developing countries into extreme poverty by 2030[2].

Doing nothing would also exacerbate inequalities; poorer communities are ill-prepared to meet the challenges of climate change, being less able to invest in ex-ante preventative measures or ex-post mitigation.

So now is the time to act, and governments need to embed their climate policies into their domestic growth agendas.

(slide 9)

Making the transition to a low-emission, high-growth and resilient economy means significant investment in infrastructure over the next decade. Around 6.3 trillion dollars a year of investment in infrastructure is required between 2016 and 2030 to meet global development needs – that’s without taking climate into account.

The good news is that making these investments “climate-compatible” is a relatively smaller cost – an additional 0.6 trillion dollars a year.

This is a modest increase in infrastructure investment, less than 10%, relative to the significant gains in growth, productivity and well-being for both advanced and developing economies.

Of course, any politician would ask where this money would come from.

 

 

Our report gives a concrete suggestion in this regard: these incremental costs could be offset by savings in fuel costs of up to 1.7 trillion dollars per year up to 2030, producing a net saving of over 1 trillion dollars per year.

(slide 10)

The OECD advocates a “whole-of-government” approach to achieve low-carbon growth consisting of three key elements:

  • First, pro-growth structural reforms that are supportive of the necessary low-carbon investments.
  • Second, policies targeted to climate change: carbon pricing, but also well-designed investment incentives.
  • Third, making broader investment conditions supportive of low-carbon investments: removing fossil subsidies, improving planning processes and regulation.

It is this integrated policy approach to the climate and growth question that makes this report unique. Climate policy must not exist in a vacuum.

It should interact with a large number of policy areas, cutting across competition, labour, education, trade, agriculture, health, gender equality, and more.

Acting on climate change can also help reduce inequalities, for example, by reducing exposure of people to air pollution, which is generally higher in poorer communities, and can thus have a knock-on effect on people’s health and employment outcomes.

In India, outdoor air pollution caused more than a million premature deaths in India in 2015, estimated at a cost of more than 800 billion dollars[3].

(slide 11)

India, with the large population and growing economy – especially in the technology sector – has enormous opportunities and potential gains from transitioning to a low-carbon economy.

Let me highlight three specific areas of action for India:

First, getting fiscal policy right for low-carbon, climate-resilient and inclusive growth.

India has made strong progress to “green” fiscal policies, including by strengthening carbon pricing, and pursuing fossil fuel subsidy reforms after the complete deregulation of diesel prices in 2014.

India could go even further; fossil fuel subsidies remain significant, and India’s energy taxes could be applied more consistently and could be increased; they are currently too low compared to the damage generated by emissions. This is particularly the case for natural gas, liquid petroleum gas and coal.

Raising excise tax rates on fuels and extending taxes to emitters who currently do not face a price, would encourage emissions reductions where they are cheapest.

It would also deliver important co-benefits: increasing revenue from energy taxes improves fiscal flexibility, and cutting emissions helps reduce air pollution.

Second, finance. Strong, climate-resilient growth requires capital – lots of it. And the public sector can’t do it alone.

Now, more than ever, we need to take action to overcome the remaining barriers to mobilise additional private investment.

This means improving the investment environment and supporting various financial instruments designed for climate-compatible investment.

Guarantees, credit enhancements and insurance offerings help to mitigate and better allocate risk, while green bonds and securitised loans are playing an increasing role in securing a reliable long-term funding basis.

India’s first green bond was issued in 2015 and the market is growing rapidly, with annual issuance increasing from around 1 billion dollars in 2015 to 4 billion in 2017[4]. Estimates suggest India has the potential to more than double its green bond issuance this year to 8 billion dollars[5]. As a founding member of Mission Innovation, India is driving forward global efforts to mobilise investment to fight climate change.

Third, the transition must be inclusive, progressive and good for business – what we call a “just” transition.

India’s economy, like most countries, is “entangled” with fossil fuels intensive sectors: rents extracted from oil, natural gas and coal resources account for over 2% of GDP and over 13% of total government revenue, the fifth highest in the G20.

To liberate economies from fossil fuels, countries need to adopt a cross-cutting, whole-of-government approach to climate action.

Developing a long-term low emission development strategy to 2050 is an important step to reduce the risk of locking-in emissions, and leaving stranded assets with stranded communities alongside them.

The OECD supports countries on all these issues, and we are ready to collaborate with India to help design, develop and deliver polices to  ensure low-carbon, climate-resilient and inclusive growth.

Let me close by outlining two exciting initiatives at the OECD.

(slide 12)

First, the OECD is leading a G20 mandated project called Financing Climate Futures: Rethinking Infrastructure. This project builds on the Investing in Climate, Investing in Growth report and helps countries make financial flows consistent with a low emissions and climate-resilient future.

It focuses on the game-changing interventions that move beyond an incremental approach to a more ambitious agenda needed for climate action.

Second, this year OECD is launching a new programme on Clean Energy Finance and Investment in emerging economies, focusing on renewable energy and energy efficiency. The objective is to undertake country reviews and work with countries to support implementation and scale up private investment.

Ladies and gentlemen, OECD’s evidence shows that putting the climate imperative at the heart of economic development will help to drive progress on both inclusive growth and climate.

We must take bold, collective and decisive action at the domestic level, but we must also “green” the multilateral system and work together to save our planet. It is shocking that by the middle of the century, the ocean could have more plastic than fish by weight!

India has demonstrated huge potential to push the frontier of innovation and investment in low-emissions technologies and to drive forward the transition. And with India on the path to low-carbon, the rest of the world would follow.

Count on the OECD to support you in this endeavour.

[1] Relative to the baseline, which assumes a continuation of current policies

[2] World Bank, 2016

[3] Roy, R. and N. Braathen (2017), “The Rising Cost of Ambient

Air Pollution thus far in the 21st Century: Results from the

BRIICS and the OECD Countries”, OECD Environment

Working Papers, No. 124, OECD Publishing, Paris.

http://dx.doi.org/10.1787/d1b2b844-en

[4] Climate Bonds Initiative (2018) “Securitisation as an enabler of green asset finance in India” https://www.climatebonds.net/files/files/Indian%20ABS%20_%20CBI%20_%20conference%20brief%20_%20May%202018.pdf

[5] SEB 2018 https://sebgroup.com/siteassets/large_corporates_and_institutions/our_services/markets/fixed_income/green_bonds/seb_the_green_bond_january_2018.pdf

Opportunities for ALL: OECD Framework to Drive “Urgent, Concerted Effort” for Inclusive Growth

Delivered 29-05-2018, OECD Forum, Paris

 

Distinguished guests, ladies and gentlemen,

I am delighted to open this session on the “Empowering State”, a concept that the OECD developed in the context of the NAEC and the Inclusive Growth Initiatives.

The Empowering State sets a vision for the Future of  governments’ intervention in the face of the current and forthcoming challenges that our economies and societies face.

To help governments move towards Empowering States, we are  launching today a Framework for Action on Inclusive Growth.

SLIDE 1

This is much needed in a context where inequalities continue to be the defining challenges of our lifetimes.

Low- and middle-classes are being left out of the equation. The wages of the top 1% earners are now 50% higher than they were twenty years ago, as opposed to only 15% for median earners [First panel]. The current upswing in the global economy, while welcome, will simply not be enough to turn the tide on rising inequality which is in the meantime has already compounded through wealth: in the OECD the top 10% own 70% of financial assets and the top 1% more than 40%. And in several countries the poorest households are heavily indebted, with little or no collateral wealth [Second chart].

Despite progress on labour market participation, gender gaps remain pervasive. For example, gender pay gap in Japan (at 26%) is among the highest in OECD, even though women are more educated than men. More needs to be done to help women take leadership roles in society, starting by strengthening the parental leave system.

SLIDE 2

We are going one step further here and show evidence that inequalities are increasing from one generation to another. Income inequality for those born in the 1980s is much higher than among their parents at the same age, which in turn was higher than for their parents.

For example, between the 1950s and 1980s birth cohorts, Gini at the same age increased by 1.5% points across OECD, 8% points in Slovakia, 6% points in the US; but decreased by 8% points in Switzerland and remained constant at 0.25 in Slovenia – the lowest in OECD.

So, it can be done!

SLIDE 3

How to explain these trends? Globalisation,  financialisation and technological change curbed economic dynamism at the bottom of global, national and local value chains and played in favour of super star-firms and super-star workers at the top of the chain.

In Japan, the number of SMEs has dropped by 21%, from 4.8 million to 3.8 million between 1999 and 2014. Labour productivity in small firms is much lower than in big firms in Japan – about half for firms with less than 50 employees.

In France self-employment rate of about 11% is below the EU average (14%); even though, the crisis pushed about 15% people ‘out of necessity’ to create their own business.

So there is clear scope for policy action – which French 2017 ordonnances ought to steer, for example, through more effective firm-level negotiations, secured economic dismissals, and reflecting better smaller firms in branch-level agreements.

SLIDE 4

Economic growth is also held back by lagging productivity growth and income disparities in regions. For example, in the US, Italy, Turkey, Spain or Mexico, disposable household incomes in the richest region are between 30 and 50% higher than in the respective country’s poorest region.

Citizens in regions with the highest life expectancy live two and a half years longer than citizens in regions with the lowest life expectancy.

But, it can be done. The 50 members of the OECD Champion Mayors for Inclusive Growth initiative committed to take concrete actions to tackle the gap between the rich and poor and today we are proud of supporting these commitments [Refer to Anne Hildalgo, in the Forum opening]

SLIDE 5 – show IG dashboard scheme

Evidence is key to understand what needs to be done. This is why today we release a new Inclusive Growth Dashboard.

It tells us:

  • How strong is growth but also how equitably its benefits are shared.
  • If marketplaces are Inclusive and well-functioning markets.
  • If we are investing sufficiently in foundations of future prosperity by providing equal opportunities to all people and places.
  • And finally how holistically and coherently we are acting on this agenda as governments.

SLIDE 6 – show example of OECD poverty rate and Canada median income

The dashboard will allow countries track progress over time over the several outcomes and drivers of inclusive growth. For example you can see that the relative poverty has increased across the OECD group [First panel].

But behind these average trends, countries need to take a look at their strengths and weaknesses. Canada, for instance, does well in terms of median household income as compared to its G7 peers [Second panel]; income inequality is around G7 average and wealth inequality at the top has declined recently. But more needs to be done on gender: the wage gap is almost 19%, higher than the OECD, and only 26% of members of parliament being women. For other countries, the lack of inclusive growth manifests itself as limited social mobility (Germany for instance) or with low percentages of resilient students (Italy). 

 SLIDE 7

While the roadmap may change, all countries need to make it future-proof. With this spirit and in connection with the dashboard that I just presented to you, the new OECD Framework for Policy Action on IG provides concrete solutions along three lines:

  1. Investing in people and places left behind, while providing equal opportunities.
  2. Support business dynamism and inclusive labour markets.
  3. Build efficient and responsive governments.

The first point is about preparing people and places for the future – this requires deep and targeted interventions on skilling and reskilling, as well as a focused attention to equitable access to quality housing and infrastructures, aspects that we have long neglected but that increasingly predict resilience.

The second point is about sustaining broad-based innovation and sharing productivity gains. It is also about creating better jobs and markets and firms that, while adapting to the new digital economy, are also secure from workers’ standpoint.

This leads me to my third point: how we rethink government as a strategic actor that anticipates and prepares for change, which is the gist of an Empowering State. At the Social Policy Ministerial that we held just two weeks ago we learned that many countries are experimenting new promising approaches of social support – for instance the individual activity accounts and the life-cycle training accounts in France, or the portable pension accounts in Denmark; or finally universal approaches to social benefits emphasising collective rather than individual solutions. 

CONCLUSION

To conclude, if we want inclusive growth, we need to move away from a “grow first, redistribute later” model, we need fair rules and we need to put our people first.

Thank you.

 

 

 

 

 

COPE Conference on Wealth inequalities: measurement and policies

Delivered 26-04-2018

Traditional growth models are not working. Although growth has return in all major regions of the world since the 2008 financial crisis – it has not translated into significant improvements in most people’s lives.

Median wages and living standards continue to stagnate, wages have become decoupled from productivity growth, and meanwhile corporate profits are at record highs in many countries.

People are angry because they still see massive income and wealth gains going to the already very wealthy. This anger is being fuelled by increasing transparency in some cases – we can think of the Panama and Paradise Papers – and also by less benign forces: we’re witnessing the return of populism and spread of misinformation in many places.

This anger is understandable – as inequalities continue to rise, and social discontent with the established political and economic order becomes more widespread, it has never been more important to further our evidence-based work on wealth inequalities and how they affect our societies.

I hope that today we will learn more about why and how such significant wealth inequalities continue to rise, and what we can do about it.

Before Sir John’s speech I would like to set the scene with some of the work the OECD has been doing on inclusive growth and wealth inequalities.

We launched our Inclusive Growth Initiative in 2012 as part of our broader response to the 2008 crisis, and a reappraisal of our entire approach to policymaking called New Approaches to Economic Challenges. This was borne from the reflection that traditional growth models failed to deliver broad-based prosperity for everyone and has failed to deliver sustainable growth within ecological limits.

The IG’s remit is to help governments tackle rising inequalities and provide them with integrated policy packages that address growth and inclusiveness simultaneously. The Initiative has seen several significant successes to date, including the establishment of COPE (the Centre for Opportunities and Equality), the launch of our Champion Mayors for Inclusive Growth, extending the OECD’s research on the productivity-inclusiveness nexus, contributing to the policy recommendations of several multi-lateral fora (such as the G7, G20 and APEC) and influencing many governments’ national IG strategies, such as Canada, Scotland or Italy.

Part of this work is coordinating the research the OECD is doing on inequalities. We have done great work on the statistics side, on issues relating to employment and social policy, on tax policy, and we have produced some fascinating work on wealth inequalities in recent years. And understanding wealth inequality is crucial for our inclusive growth initiative.

We have all heard about the rapid rise in income inequality in recent years. But what’s more troubling is the concentration of wealth at the very top of the distribution.

OECD data indicates that wealth inequality has grown over recent decades, with the richest 10% in the OECD owning around half of all household assets, whilst the bottom 40% owns barely 3%. At the very top of the distribution, the top 1% holds a staggering 19% of total wealth.[1]

For the top quintile of the distribution, financial assets and property make up the biggest shares of their portfolios. Financial assets are particularly important in the Anglophone world.

And what’s interesting is that financial assets are much more unequally distributed than non-financial ones. Across the 28 OECD countries covered by our Wealth Distribution Database, households in the top quintile have on average financial wealth around 72 times that of those in the bottom quintile, compared with around 23 times for real-estate wealth.[2]

OECD research highlights three key mechanisms through which finance contributes to inequalities:

  • finance workers are concentrated at the very top of the income distribution and earn premiums unlinked to their productivity compared with their peers in other sectors;
  • high earners can and do borrow more so the majority of credit goes to high earners;
  • and most of the benefits of stock market expansion goes to affluent households who are able to invest in equities

There is also a strong relationship between home ownership – or lack of – and wealth inequality. We see that generally, high levels of home ownership are linked to low levels of wealth inequality, but the opposite is true when home purchases are highly leveraged through mortgages – lower house prices following purchase can lead to a large number of households experiencing negative equity, thus contributing to higher levels of wealth inequality.

The US, the Netherlands and Denmark are the three countries with the highest levels of wealth inequality and have among the lowest shares of households owning their home outright.

The issue of home ownership is particularly critical in countries where access to quality and affordable housing is limited. As you can see in the graph, many households in OECD countries are overburdened by housing costs.

The median housing cost burden for mortgage payers is about 18% of disposable income and 23% for tenants. The cost burden is much higher for low-income households, on average by more than one-third of disposable income.

Housing conditions, the neighbourhood and environment affect the quality of people’s lives, particularly children’s, and fundamentally influence our capacity to develop as happy, healthy, productive individuals.

Housing and its associated costs is also important for understanding the limited mobility of labour in some countries – this has knock on effects for the productivity of certain regions and firms.

Furthering our research on the interrelationship between housing, wealth inequality and inclusive growth is therefore one of the top priorities for the OECD.

Let me outline briefly what the OECD is doing to help government redress wealth inequalities and promote inclusive growth.

We are working on a Framework for Policy Action on Inclusive Growth. This aims to guide countries on how to design and implement policy packages to improve their performance on a number of key inclusive growth outcomes.

The Framework is underpinned by a dashboard of indicators that diagnoses key inclusive growth trends and challenges for countries and includes a policy mapping exercise that builds on various OECD strategies, such as the Jobs Strategy, Skills Strategy, Innovation Strategy, Growth Strategy and Digital Strategy.

This Framework aims to better sustain and share the benefits of growth by promoting dynamics in a couple of key areas including:

  • enabling strong, inclusive markets that prepare people and firms for the future of work by promoting inclusive labour markets, updating social protection systems and boosting productivity growth and business dynamism;
  • establishing equal opportunities for all by investing in lifelong learning, promoting regional catching up and investing in communities’ well-being and social capital;
  • and re-building trust in government by embedding inclusiveness in policy-making and using data and digital technologies to design citizen-centred policies.

Tax is an important part of the Framework and a policy area where many governments have scope for tax reforms to reconcile growth and inclusiveness. They can do this by broadening tax bases, eliminating loopholes, especially those that mostly benefit wealthier individuals, and by relying more on revenues from immovable property and inheritance taxes.

OECD research has found that recurrent taxes on property are among the least detrimental to growth and are difficult to evade due to the immobility of the assets.

Recurrent taxes on property are also a more efficient alternative to transaction taxes on property, as they do not discourage labour mobility and are less sensitive to macroeconomic volatility, and volatility in the housing market.

Recurrent taxes on immovable property are also progressive, as those with high levels of income are more likely to have more housing wealth.

The inclusive growth agenda, particularly regarding taxation, goes beyond national borders, however. And so of course we should continue to make progress on limiting tax avoidance by wealthy individuals through the use of offshore tax havens and that of multinationals through BEPS and Automatic Exchange of Tax Information.

We will finalise the IG Framework for the OECD’s Ministerial Council Meeting at the end of May. We need to continue to strengthen our research on the drivers of wealth inequalities and provide governments with high-quality policy recommendations to tackle such inequalities. Part of this agenda is the development of national inclusive growth country studies, to help governments design and implement inclusive growth policy reforms.

Let me conclude by reiterating the importance of our work on this topic and on inclusive growth more generally – it is not an easy time to pursue the work we are doing, and we are facing resistance in many places. But that makes our work, and the research being presented by all of you today, even more crucial and I look forward to continuing to push this agenda forward with all of you.

Thank you.

———————–

[1] OECD (2015), In It Together: Why Less Inequality Benefits All, OECD Publishing, Paris, https://www.oecd.org/els/soc/OECD2015-In-It-Together-Chapter1-Overview-Inequality.pdf

[2] Balestra and Tonkin (2018 forthcoming), INEQUALITIES IN HOUSEHOLD WEALTH ACROSS OECD COUNTRIES:

EVIDENCE FROM THE OECD WEALTH DISTRIBUTION DATABASE, OECD Working Paper.

Regional Meeting: Economic Reform Programmes for South East Europe

Delivered 24-04-2018

We are pleased to be working hand in hand with you on these Programmes to strengthen their transformative power, and assist you in aligning better and faster with OECD and EU good practices.

These Programmes are key drivers of change. And they require a coalition for reforms, which has been brought together by the European Commission and economies from the region. They chart macro-economic and fiscal policy frameworks and set reform agendas for the well-being of the citizens of South East Europe.

And to make these Programmes as effective as possible, we have built on a long cooperation – the OECD has had a presence in the region for nearly twenty years. So the OECD South East Europe regional programme – launched in 1999 – is uniquely placed to support partners in the Western Balkans and Turkey in preparing their annual Economic Reform Programmes.

To support policy makers in this process, the South East Europe programme has distilled OECD expertise and knowledge on the region by developing a Toolkit with practical guidance. It is based on a transparent and inclusive approach involving policy makers, business sector experts, academics and other stakeholders in developing the Economic Reform Programmes.

The Economic Reform Programmes exercise is an example of how our co-operation can bring about change to make an impact.

The OECD’s work with partners has helped to strengthen institutional capacities of government officials in the region. It has also led to the emergence of a “new approach” to reforms across South East Europe, which prioritises economic, social impact and stakeholder involvement over top-down decision-making.

Together we have made decisive steps to implement structural reforms, such as efforts to ease access to finance for SMEs; fight the informal economy; better align education and the labour market; and ensure that vulnerable group – including minorities – benefit from equal opportunities.

And this is important because, in the broader context, we are seeing renewed growth everywhere, including across the Western Balkans; growth is forecast to rebound to 3.2% in 2018 and 3.5% by 2019, creating new job opportunities across the region. But this should not distract us from the challenges lying ahead.

I’m referring to the major, global trends that need to be addressed, such as climate change, changing demography and a rapidly ageing population, the high levels of inequalities of wealth, income and of opportunities, and of course the acceleration of digital, the long-term effects of which are still largely unknown. We also need to deliver on the SDGs.

Added to this are the regional challenges, and the need to tackle two key obstacles to economic performance: declining productivity growth and rising inequality – two challenges, which also plague most OECD economies.

If the region is to lock in progress, foster productivity, and increase growth – which I have to emphasise must be inclusive and must be green – then the power of structural reforms needs to be fully harnessed.

This means that the work on the Economic Reform Programmes needs to be intensified.

And in this respect, the comprehensive nature of your Economic Reform Programmes and the focus on coherent, multidimensional approaches can help.

After the economic crisis, the OECD launched the New Approaches to Economic Challenges initiative, to look at economic policy-making in a fundamentally different way.

In this context, our Productivity-Inclusiveness Nexus highlights the need to break up traditional policy silos, to pursue reforms and institutional capacity building, to encourage a coherent policy making.

This is also what your Economic Reform Programmes aim to achieve. This is why, in our co-operation, we have taken inspiration from these OECD initiatives, but also from our horizontal work on Green Growth, Innovation, Skills and Better Lives.

At the OECD, we advocate putting the person at the centre of public policy. And our Inclusive Growth Initiative looks into investing more and better in improving people’s potential and leaving no one behind, including women and youth enhances the economy’s growth potential and deliver tangible results.

There has been too much of a focus on economic growth at all costs, and then redistributing the benefits later. But that doesn’t work.

The benefits haven’t trickled down to most of the population and what we’re seeing is that there is a bottom 40% that is becoming left behind.

We have to consider ex-ante inclusive policies to ensure that growth is even and benefits everyone. And in the Balkans, it’s important to bear this in mind.

The OECD South East Europe Competitiveness Outlook

This morning, the Secretary-General launched the 2018 edition of the OECD South East Europe Competitiveness Outlook.

This impressive policy assessment[1]  – which is one of the most comprehensive policy benchmarking exercises for the 6 Western Balkan economies – shows that the challenges are serious and cross-cutting.

Our analysis shows that it’s necessary to improve policy design, reform labour markets and promote innovation in the region.

For example, addressing the persistently high levels of youth unemployment of 37.6%[2] in the Balkans is crucial. Having policies that help young people into work will enable them to also have a share of the growing pie. We’re seeing talented young people leave the Balkans to seek opportunities abroad, which aggravates the region’s demographic challenge. In fact, the Western Balkan population is ageing and shrinking with a median age of the region 8.7 years above the world average.[3] This may severely impact human capital formation, competitiveness and economic convergence.

Economic Reform Programmes need to support an imminent pick-up in the pace of reforms.

Countries implementing bold reforms prove to be more resilient and successful in achieving their policy objectives in OECD and non OECD members.  For example, Japan has introduced significant reforms in access to childcare services; Greece – where I was last week to discuss education reforms – is undertaking reforms in competition law, regulatory policy and administration; Slovenia is taking reforms to promote its 2030 Economic Development Strategy, or Argentina, which is undertaking comprehensive tax reforms.[4]

My home country – Mexico – has begun to implement the most ambitious reform package in the OECD, including labour, telecommunications, competition, education, financial, fiscal and energy reforms. These reforms address challenges that have remained unresolved for decades and have required a historic Pact for Mexico, involving all key stakeholders.

Ladies and Gentlemen,

Structural reforms play a crucial role for economic growth and resilience. We, at the OECD, are more than ever committed to supporting you in fostering reforms in favour of competitiveness, stability and shared prosperity leaving no-one behind.

Let’s keep the well-being of citizens at the core of the Economic Reform Programmes in order to lift living standards and bring about lasting progress in the region.

I wish you an inspiring discussion.

Thank you.

[1] The SEE Competitiveness Outlook is unique insofar it is one of the (if not the) most comprehensive policy benchmarking exercises for the 6 Western Balkan economies, focusing on 17 policy areas.

[2] The World Bank, Western Balkans Labor Market Trends: 2018, http://www.worldbank.org/en/region/eca/publication/labor-trends-in-wb

[3] Bruegel, The Western Balkans on the road to the European Union, Policy Contribution, Issue n˚04 | February 2018, http://aei.pitt.edu/93432/1/PC-04_2018.pdf.

4The European Commission adopted a Strategy for the Western Balkans on 6 February 2018. It provides a credible enlargement perspective for the EU with the region, https://ec.europa.eu/neighbourhood-enlargement/news_corner/news/strategy-western-balkans-eu-sets-out-new-flagship-initiatives-and-support-reform_en

[4] Based on “Going for Growth”, “Getting it Right” (Mexico).