OECD MINISTERS' CONFERENCE
ON BEST PRACTICE IN TACKLING POVERTY
AND SOCIAL EXCLUSION

London, 9-10 October 2000

TUAC DISCUSSION PAPER

- Inequality has grown in OECD countries over the last two decades. Persistent poverty and social exclusion have come to affect new groups, notably single parent families. However significantly wider groups of workers are touched by poverty as a result of job insecurity and corporate restructuring.

- The "new economy" risks adding a digital divide to the existing social divide, with a reduction of labour market regulation leading to growing precarity of low-paying jobs.

- To meet the challenge of reducing social exclusion, economic policies and the actions of the social partners must be geared to achieving and maintaining full employment. Social policies are an investment not just a drain on expenditure.

- Active labour market policies must be seen as preferable to the meek acceptance of unemployment, but the goal must be to get people out of poverty not out of welfare.

- Individual counselling and assistance must continue once workers are in jobs and training must continue beyond pre-employment courses. It is necessary to create career ladders for low-paid workers.

- Such "rewarding work" policies must be accompanied by increased minimum wages in many countries, dovetailed with well-targeted in-work benefits and programmes.

- Adequate child care and "family-friendly" policies have to be seen as a social investment.

- Unions are key stakeholders and are ready to work in partnership with governments and employers to reduce social exclusion.

Corporate restructuring is contributing to an extension of those touched by poverty. Even if persistent poverty is concentrated in such households, large sections of OECD societies are finding themselves at different times falling into poverty. Of the countries surveyed by the OECD between 12 and 40 per cent of the population had been touched by poverty over a six-year period. One cause of this is a direct consequence of ongoing corporate restructuring that targets professional and white-collar workers for layoffs along with the traditional blue-collar workers, making job and income instability a more generalised experience. High employment turnover—dominated by layoffs rather than quits—leads to disrupted career paths, in turn resulting in lower average earnings. For a significant number of families, the loss of a job plunges a family at least temporarily into the ranks of the poor or near poor.

The increase of poverty and social exclusion are not only features of the "old economy". They are also related to the "new economy" which risks creating a "digital divide" between those with information technology skills and those without. People are excluded not just because they are currently without a job or income but because they have few prospects for the future or for acquiring new skills. This is underlined by the analysis of the transitions between the different situations on the labour market. Particularly striking is the growth of the numbers of workers in precarious jobs. Workers who were in that situation some time ago are quite often split between those who have found a stable job, those who remain in a precarious job and those who are unemployed. However, lower down the scale of qualifications, the probability for finding a stable job falls dramatically. There is a generally low mobility in low-wage jobs, which are rarely stepping-stones to better jobs.

Economic policies must have social objectives. Social policies have a key role to play in developing the appropriate response. But social policy is more than social programmes and coherence between different areas of policy is essential. This is not just a one-way process. Social policy has to take account of economic and employment policy objectives, but economic policies have to integrate social objectives. For social policies to work, economic policies must be directed at re-establishing and sustaining full employment. This is particularly so with regard to policies aimed to "make work pay". In this respect, features such as minimum wages, job security legislation, unemployment benefits and strong unions should be thought of as devices that provide workers with social insurance against the uncertainties of the global market place. Set against the background of globalisation and workers' demands for institutions that provide income protection as well as social security, the OECD itself has warned that failure to keep social progress in line with economic development puts at risk political stability. This is demonstrated in the growth of political extremism and racism, but also in the public backlash against the global trade and investment system. The cause of the social and political malaise is not globalisation as such but the failure to regulate and manage global markets effectively and develop appropriate domestic policies.

The challenge of financing. Persistent unemployment, the growth of precarious employment and the decrease of the effective retirement age have each affected the way in which social security systems are organised, financed and function. The repercussion of these trends on tax revenues and on social security contributions as well as on the expenditure on benefits, public pensions, and health care has been the main driving force behind the OECD debate on the reform of social security systems. Trade unions recognise that these changes put new and significant pressures upon the welfare state, but the real purpose of the debate must be the effectiveness of systems in meeting multiple objectives in a period of change.

Social expenditure is an investment. The 1992 OECD Social Ministers' meeting correctly identified social expenditure as an investment. The welfare state allows the market system to function. The whole of society and not just those receiving benefits enjoy the advantages of the welfare state, which include social cohesion, security and political stability. The individualisation of forms of work and lifestyles, as well as the flexibilisation of working-time systems, do not remove the need for social security systems, rather they require the development of increased and new forms of social solidarity.

The conditionality of unemployment benefit. The linking of eligibility of unemployment benefit to the acceptance of job or training offers has long been a feature of many systems of active labour market policies. For this to succeed in re-integrating the long-term unemployed into the labour market and not be simply a way of reducing expenditure or penalising the victims of unemployment, there have to be determined efforts by governments and the social partners to maintain tight labour markets, in which sufficient flows of appropriate job and training opportunities are available. Groups at risk have to be given additional opportunities and not simply pushed further into poverty.

The reform of the welfare state and of social security systems has been partly driven by the wrong reasons. Among the main driving forces has been the determination to cut social expenditure or to overcome alleged benefit dependency. This has led to a broad range of policies, aimed to provide for a successful transition of welfare into work and getting many people off unemployment registers. In terms of getting people off welfare, which was often celebrated as a reduction in case loads, a number of programmes were certainly successful. But most programmes failed to help the working poor get out of poverty and to improve their lives. Providing jobs is not sufficient if they are poor-quality low-paying jobs.

Welfare-to-work policies - a new feature of social policy. The reform of the welfare state and of social policy approaches has given rise to welfare to work policies which share a common approach: They attempt to make low-wage work "pay" by providing work incentives in the form of monthly cash payments or tax credits. The idea was to create real, monetary incentives to increase the payoff of low-wage work through work-conditioned earnings supplements. However, the available studies evaluating the welfare-to-work experiments seems to offer little ground for optimism about the ability of welfare recipients to find and hold jobs, or to earn a decent living. Without some added ingredients, the transition from welfare to work is more likely to be from welfare into time-limited, often precarious employment and low earnings. This does not mean that the substitution of work for welfare, however desirable, is infeasible in practice. The conclusion is that a decent welfare-to-work transition will require a more complicated—and more expensive—combination of policies.

Policy discussion should not focus simply on how to get people into work, but on how to get workers out of poverty. In order to boost the prospect of low-income workers, they need first support services that don't vanish when welfare expires. In particular, they need flexible formulas that allow them to retain part of their benefits even as their earnings grow. Workers also need access to more and better education and training, to help them advance individually; they need strong unions, to help them advance collectively. Moreover, an adequate number of jobs for displaced welfare recipients will have to be created, either through some version of public-service employment or through the extension of substantial special incentives to the private sector (profit and non-profit).

It is essential to do more than put people to work. What is necessary is to show that a job leads to a better job and then a career. "One stop" employment offices are a positive development but it is also necessary to shift the focus away from "case load reduction" and toward "poverty reduction". Welfare recipients should not be forced to take the first available job, instead, they must be allowed to enrol in pre-employment training measures, providing at least instruction in "soft skills" as well as training in a specific field. At the same time the training courses must be open not only to welfare recipients but also to other workers who feel trapped in their jobs, and who seek to move up a career ladder to better-paying jobs.

Pre-employment training is just the beginning of a sound policy. It is essential to get workers into job training while they're working. Because pre-employment training courses rarely produce lasting results, training and guidance must continue long after the individual enters the workplace. It is necessary to guide, monitor and help workers if they run into problems at work.

Create career ladders to enable low-wage workers to advance through a progression of higher-skilled and better-paid jobs. It is necessary to create career ladders to enable low-wage workers to advance through a progression of higher-skilled and better-paid jobs. Employers need to depart from strategies relying on a casual, high-turnover, low-wage work force. They have to make their internal labour market more explicit and better structured. Moreover, they have to become more explicit about how they structure jobs and routes to career advancement. In order to promote the creation of career ladders and to improve pay levels and working conditions, trade unions need to engage in this process. Even so, many low-wage jobs do not logically lead to higher-paid ones, and a career-ladder strategy is a complement, not a substitute, for better pay, professionalisation, and security throughout the job chain. However, career ladders are not necessarily rungs within a single business or even a sector. Rather, they are based on clusters of transferable skills that could prepare students for varied occupations.

Rewarding work policies must be accompanied by an increase in minimum wages in many countries. Even if programmes are offering training opportunities, they could be undermined by the persistence of low-wage jobs. To address this, stronger unions and higher minimum wages are required. If welfare recipients are pushed into employment without raising wages and benefits, the main effect will be to increase the "working poor". Properly set minimum wages have at least four positive features. Firstly, it is a way to increase workers' earnings without placing a burden on the taxpayer. Secondly, it provides increased income to workers who do not qualify for government transfer programmes or tax credits. Thirdly, it is an incentive to work in the "above ground" economy rather than in the "underground" economy. Fourthly, a rising minimum wage may well lead to higher productivity in the economy, giving an incentive for low-wage employers to introduce new technology or find other ways to boost the output of their workforce.

The increase in minimum wages must be accompanied by additional well-targeted measures and programmes. In order to assist the most disadvantaged of the working poor, in addition to raising minimum wages, well-targeted measures and programmes are needed, including refundable tax credits which subsidise the wages of low-income workers or other in-work benefits. These are a form of "family wage insurance" in an era of job instability and earnings insecurity.

Rewarding work policies must avoid promoting a low-road approach. The combination of minimum-wage regulations and in-work benefits are necessary for antipoverty policies, especially when the majority of poor people are working-age adults and job insecurity has increased. This is not to say that reliance on minimum wages, in-work-benefits or tax credits is the ultimate answer to low wages and poverty, but they go some way toward creating better jobs.

Family-friendly labour markets - but not at the expense of families. Given the new work patterns of parents, labour markets need to be made more "family-friendly". The provision of adequate child-care can no longer be seen as a private matter, it has to be seen as a social investment. With regard to the promotion of equal opportunities and to the increase of female employment, governments and employers must contribute to the reconciliation of family and working life. Collective bargaining agreements concerning shorter working time, flexible working time systems and part-time work are giving clear priority to this. But the establishment of family-friendly labour markets cannot only be the responsibility of trade unions alone. Trade unions are ready to work with employers and governments to contribute to the provision of a sufficient infrastructure as well as to the extension of options for employees.

Unions are key stakeholders. Many of the objectives of social security systems are also pursued by trade unions in collective bargaining strategies, which can complement and spread social protection. OECD surveys have shown that countries with a higher collective bargaining coverage have a smaller incidence of low pay. In several countries unions co-manage social security systems. Unions provide a voice for many of the underprivileged groups. They also represent those working in social security systems. Unions through their lifelong learning policies and by providing access to internet for working people can help reduce the digital divide. The trade union movement is ready to work with OECD Social Policy Ministers to forge a new consensus in policy.