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Economic insecurity is a global crisis

GENEVA - Only 8 per cent of people in the world - fewer than one in ten - live in countries providing favourable economic security, says a new study by the International Labour Office (ILO). The just published report, "Economic Security for a Better World", includes estimates for countries representing more than 85 per cent of the world's population, and says that economic security promotes happiness, and is beneficial for growth and social stability. ILO online spoke with Guy Standing, co-author of the report and director of the ILO's Programme on Socioeconomic Security.

Article | 07 September 2004

The report shows that there is a link between economic security and happiness… how do you measure happiness?

Let us start with how we measure economic security. We identify seven aspects, such as income, access to work opportunities, safety in work, access to training, and - crucially - representation. Unless people have basic income security and access to organisations to protect their interests, they will be vulnerable. Then, we consider government policy commitments, the existence of institutions to deliver those policies, and outcomes.

Among the many findings from the ranking of countries by the economic security index is that people in countries that provide their citizens with a high level of economic security have a higher level of happiness on average, measured by surveys on the level of live-satisfaction and inequality in happiness within countries, taking account of other influences. The most important determinant of national happiness is not income level - there is a positive association but rising income seems to have little effect as wealthy countries grow wealthier. The most important factor is the extent of income security, measured in terms of income protection and a low degree of income inequality.

So personal happiness is not just a question of how much you earn …

This is certainly not the case. What we find is that if a country has a high level of economic security its citizens tend to have a higher average level of happiness and in fact there is something like a non linear relationship between income and happiness. If you increase people's income up to a certain point their happiness increases quite a lot, but the last 40 years have shown that at a certain point there is little further improvement, and some decline in some countries, such as the United States…

In looking at national levels of economic security you divide the world into four groups of countries in your report?

Countries are divided into four clusters: Pacesetters - countries with good policies, good institutions and good outcomes, Pragmatists - countries with good outcomes in spite of less impressive policies or institutions, Conventionals - seemingly good policies and institutions but with less impressive outcomes and Much-to-be-Done countries - weak or non-existent policies and institutions, and poor outcomes. The report shows that about 73 per cent of all workers live in circumstances of economic insecurity, while only 8 per cent live in "pacesetter" countries providing favourable economic security.

Is economic insecurity only a problem in poor countries?

No. Many rich countries could achieve more economic security for their citizens, since some lower-income countries achieve higher levels than some of the rich countries. Indeed, our study finds that the global distribution of economic security does not correspond to the global distribution of income, and that South and South-East Asia have greater shares of economic security than their share of the world's income. Whereas South Asia has about 7 per cent of the world's income, it has about 14 per cent of the world's economic security. By contrast, Latin American countries provide their citizens with much less economic security than could be expected from their relative income levels.

Economic uncertainty is growing - who is suffering most?

There has been a growth of what we call systemic risks and a shift in the incidence of risks from capital to labour. Workers and the poor are having to bear a greater share of the risks and are facing much more uncertainty. Whole communities can be hit by shocks or disasters, and old-style social security schemes are not well designed for such situations. There is no need for despair, but the shifting character of risks and uncertainty should determine what type of social protection policy is feasible and desirable. We believe that certain principles should be respected, including the need to preserve or strengthen social solidarity and real economic freedom. Too many people are trapped in paternalistic situations, and these do not match what should be the social objective.

Income security is a major element of economic security. What about people's incomes?

There is evidence both at the macro and the micro economic level that there has been a growth of volatility, and more income differentiation, and there is a lot of research to show that volatility has a negative effect on people's sense of well-being and causes great anxiety.

Is there a link between democracy and economic security?

When we created our economic security index we measured it in terms of the policies that governments have, the institutions that they have for giving effect to these policies and the outcomes. And what we find is that when you create a composite index it is very much positively related with democracy and social spending on social security.

Does a high level of skills guarantee more income security and happiness?

What we find is that our skills security index in the report is inversely related to happiness. We attribute that to a sense of frustration that many people experience because the skills they possess do not match the job that they have to do.

Does worldwide de-unionization (shrinking numbers of workers in trade unions) affect workers' economic security?

As far as representation security is concerned, there is bad news and there is good news. Perhaps among the best news is that the report shows that countries with strong representation security tend to have lower levels of inequality. Perhaps the worst news for workers is that de-unionization has continued all over the world. In some industrialized countries, the unionization rate has shrunk below 10 per cent. What is worrying is that there has been a powerful erosion of the main forms of voice in the world of work in the era of globalization and a weak collective voice leaves workers insecure.

What is the role of globalization and trade liberalization in all this?

Rather more controversially but significantly we find that while trade liberalization is beneficial for economic security, capital account liberalization in developing countries can be detrimental to economic security and we attribute that to the fact that if there is no development of institutional capacities to withstand shocks then capital account liberalization causes greater economic instability.

Note 1 - Economic security for a better world, International Labour Office, Socio-Economic Security Programme, Geneva 2004.