The current global recession is the most important time for governments to spend rather than save

Social Security spending in times of crisis

From Global Social Policy

While it could be assumed that times of financial crisis, like the current global recession, requires a tightening of the government’s purse strings, this research argues that in fact common sense and past experience tells us that countries should be encouraged to adopt expansionary policies. The article supports the idea that crises can be used as an occasion to improve and strengthen social security; in doing so, countries not only mitigate the worst effects, but also create better social policy and improve long-term crisis preparedness.

History has shown, in the long-term, poorly managed crises can increase poverty, create long-term unemployment and reduce growth potential. The findings of this study suggest main emphasis should be placed on spending to kick start the economy and protect the poor and vulnerable groups (unemployed) from falling further into poverty. Policy makers should ensure that pensioners’ incomes are not lost or decreased. Unemployment insurance, social transfers and human capital spending should be protected.  In countries where there are no programmes in place, setting one up from scratch should be carefully planned.

Abstract

This article investigates the link between social security spending and financial crises. In doing so, the article answers two questions: what are the trends in social security spending in the aftermath of a financial crisis, and what factors can possibly explain these changes? The article shows that social security regimes have often been born out of crisis. In addition, on average, social security spending increases over the course of a crisis; however, there is wide regional variation, with advanced countries exhibiting the most countercyclical spending. This article lends support to the idea that crises can be used as an occasion to improve and strengthen social security; in doing so, countries not only mitigate the worst effects of the crisis, but also create better social policy and improve long-term crisis preparedness.

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Article details
Prasad, N., & Gerecke, M. (2010). Social Security Spending in Times of Crisis Global Social Policy, 10 (2), 218-247 DOI: 10.1177/1468018110366627

Tags: crisis, fiscal policy, social security, social spending