Study for Virtuous Cycle of 'Social Policy-employment-Economy'

Abstract

This study aims to obtain policy implications for the virtuous cycle of ‘Social Policy-Employment-Economy’ to work. The main route through which the increase in social spending affects the economy is to improve labor productivity and employability through human capital investment by expanding health, child and elderly care, and labor market policies. Social policy increases the possibility of employment through the improvement of individual human capital, and enables technological progress and adaptability to it. It reduces information uncertainty for the vulnerable, enabling efficient resource allocation. This study conducted Panel Vector Autoregressive(PVAR) model analysis and Panel Corrected Standard Error(PCSE) analysis using OECD panel data during 1990-2019. PVAR analysis reports social expenditure shocks, which initially negatively affect employment, but have a continuous and positive effect. In the case of the full-time employment rate shock, it immediately brings a positive response to economic growth immediately after the shock, and then gradually decreases and converges to zero. Therefore, the social expenditure shock can be interpreted as a circular structure that sequentially affects the economy through changes in the employment rate. PCSE analysis shows health and family policies demonstrated the effect of increasing the overall and women's employment rate. For the virtuous cycle, social policy should play a role in mitigating the social risks of working age in economic activities as in northern european countries with generous levels of cash benefits and high-quality social services for people of working age.