Tine StanovnikFaculty of EconomicsandInstitute for Economic Research, Ljubljana

Equity vs. Efficiency?

Regional Seminar: Equity vs. EfficiencyZagreb, April 7th 2011

The need for clarity:

Equality or Equity? Equality of what? Political rights, economic

rights (»rewards«) and social rights (»needs«). The resource costs of these rights.

The principle of horizontal equity (principle of non-discrimination).

The need for clarity:

Technical and productive efficiency (looking at the cost or »supply« side). The transformation curve (Production possibility frontier).

Allocative efficiency (looking at the »demand« side, optimizing benefits or a measure of social welfare for the population).

Health care and the pension system: technical and productive efficiency Technical and productive efficiency in

health care: efficient management of hospitals, use of least-cost procedures (for a given outcome) etc.

Technical and productive efficiency in the pension system: design of the system, minimizing negative effects on labour supply and output.

Health care and the pension system: allocative efficiency Macro allocative efficiency: equating

marginal social benefits of all social interventions and programs.

More down-to-earth, »micro« allocative efficiency: how are resources to be allocated within a given field of social expenditures (education, health care, pensions etc) so as to maximize a measure of social welfare?

Education: the rewards of tertiary education are high (high private rates of return), as seen in table 1 and table 2.

Table 1: Relative equivalized income by education levels of labour-active persons aged between 25 and 64 years

Bulgaria Hungary Romania Slovenia

1992 2002 1993 2002 1995 2004 1993 2002

Primary 0.94 0.61 0.86 0.78 0.82 0.71 0.70 0.76

Vocational 1.03 0.91 0.94 0.90 0.92 0.87 0.90 0.85

Secondary 0.97 0.98 1.12 1.10 1.12 1.07 1.11 1.02

Tertiary 1.04 1.20 1.37 1.44 1.68 1.81 1.39 1.37

All 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Note: HU: all persons aged between 25 and 64 years

Source: Source: Stanculescu, Stanovnik (eds), 2009. Activity, Incomes and Social Welfare, Ashgate.

Table 2: Persons with attained tertiary education level as percentage of working-age population, by income deciles

Notes: BG, HU and RO: all persons aged between 25 and 64 years; SI: labour-active persons aged between 25 and 64 years.

Source: Stanculescu, Stanovnik (eds), 2009. Activity, Incomes and Social Welfare, Ashgate.

Decile

1 2 3 4 5 6 7 8 9 10 All

Early 1990s

BG (1992) 12.9 11.9 15.2 14.7 15.7 17.5 17.0 18.6 18.8 19.1 16.5

HU (1993) 1.9 3.7 2.7 3.1 5.4 6.3 7.7 13.7 21.2 31.5 10.7

RO (1995) 1.0 1.0 1.0 2.0 3.0 4.0 7.0 10.0 16.0 30.0 8.0

SI (1993) 2.1 2.1 3.6 7.9 8.9 7.0 12.9 24.9 31.7 46.9 17.7

Early 2000s

BG (2002) 5.3 8.2 11.1 16.4 16.7 18.5 24.5 23.5 29.4 30.9 18.8

HU (2002) 2.6 2.6 4.3 5.1 6.8 10.2 14.0 17.1 27.1 41.6 13.6

RO (2004) 1.0 1.0 1.0 3.0 3.0 6.0 7.0 13.0 20.0 44.0 10.0

SI (2001-03) 7.1 5.8 2.8 5.0 6.9 9.9 17.0 22.8 37.9 61.3 20.8

The efficiency of higher education – productive and allocative

The fairness (equity) issue.