The Economics of Social Protection

The Economics of Social Protection

Lars Söderström

This book focuses on arrangements for redistributing consumption opportunities over the life cycle and for providing compensation for income losses or large expenditures due to reasons such as illness and unemployment. After extensive coverage of the nature of inequalities in income and wealth in a market economy, and various notions of social justice, the author discusses public and private transfers in cash or in kind related to old age, childhood, illness and the like. Importantly, the book takes into account both equity and efficiency aspects.

Chapter 1: Introduction

Lars Söderström

Subjects: economics and finance, public finance, public sector economics, welfare economics, social policy and sociology, economics of social policy

Extract

Periods of reduced or non-existent working capability (childhood, old age, illness) are experienced by all. Moreover, situations have to be faced when capabilities cannot be used to their fullest (lack of demand, unemployment); or when the return from work is unexpectedly low (for example, because of crop failure); or when consumption needs are exceptionally large, for example in connection with a fire or an illness. Solving these kinds of problems is one of society’s major functions, perhaps the most fundamental function. Under normal conditions, where life actually requires a great deal of labour, these problems must be solved through cooperation. The solution is to create pools enabling several persons to share the fruits of each other’s labour. How these pools are organized is of fundamental importance for the character of a society and its possibilities for development. We refer to arrangements serving this purpose by the term social protection. An extreme case is the pure socialist model where all earnings are placed in a common ‘pot’ and shared according to need. Another case, no less extreme, is the pure market model where all resources are allocated through different financial arrangements (banks, insurance companies, and so on) to the extent that individuals decide through mutual agreements. Between these extremes are models with differing degrees of cooperation. One of the most important organizations for the pooling of resources is the family. Arrangements for social protection may be studied from a long-term or a short-term perspective. From a short-term point of...