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Although the Easterlin paradox has been questioned, the explanations behind it at the individual level are worth consideration. Namely, Easterlin asserts that people’s happiness does depend on their income level, but on its relative position. According to Easterlin and his proponents, people’s well-being depends, primarily, on how we position ourselves relative to others, or in comparison with some social norm. Justified envy can poison our sense of happiness. The latter refers to perceived injustice, i.e. when people believe that incomes vary not because of objective circumstances, like diligence, knowledge and abilities, but because someone was “at the right place at the right time” or knew the “right people”. Such justified envy generally reduces the sense of well-being. Some authors (Heliwell et al. 2012) call the opposite situation, i.e. the envy-free distribution of income, an institutional advantage, and conceptualise it as social trust. Figure 3.1.3 shows association between income distribution (Gini coefficient) and life-satisfaction in various countries. The correlation between the Gini coefficient (the closer to the 100% the greater is the income inequality) and life-satisfaction is apparent. In the countries with greater income equality (e.g. Sweden, the Netherlands, and Finland), the people are more satisfied. Some of the post-Communist countries, like Slovakia and the Czech Republic, belong to the group of states with small income inequalities, but the satisfaction indicator in these countries is below average (i.e. below the regression line). On the other hand, the life-satisfaction in Ireland and Great Britain is greater, despite a relatively high Gini coefficient. These deviations from statistical regularity may be explained by the existence, or lack of, justified envy. It is important to note that none of the aforementioned analyses refer to a causal relationship between well-being and wealth (or unemployment), or between well-being and the income inequality (social trust). These Table 3.1.1 Change in real public social expenditures and the economic crisis – 2011 compared to 2007 Change in real social expenditures (2011 compared to 2007, average 0.7% (S.D. 8.5%) Above average (3.6%) Aroundaverage (-4.9% to 3.6%) Below average (-4.9%) Source: OECD, 2012 Below average (5.7%) Hungary t Around average (5.7% to 14.2%) Poland, Sweden Austria, Denmark, Finland, Netherlands, Slovakia Czech Republic, Estonia, Ireland, Slovenia Above average (14.2%) Chile, Israel, Switzerland, South Korea New Zealand Figure 3.1.4 The dynamics of social expenditures, from 2007 to 2011, in selected countries (% of GDP) 2007 2011 growth compared to 2007 Denmark Finland Austria Slovenia Netherlands Ireland Hungary New Zealand Czech Republic Poland Switzerland Estonia Slovakia Israel Chile South Korea -5 -5 Source: OECD, SOCX database 0 5 10 15 20 25 30 0 5 10 15 20 25 30 are correlations, or partial correlations, that do not allow us to ascertain what causes what. However, since the measurement of subjective well-being is complex, it may be reasonable to indicate well-being at the aggregate level by so called traditional measures, such as gross domestic product (GDP) and the Gini coefficient. 3.1.2 Welfare and the social protection expenditures The extent of the state’s social protection expenditures is common for mapping aggregate welfare spending and indicating the intensity of the welfare state. Social protection expenditures (social expenditures hereinafter) include spending in following main areas of social policy: health, labour market programmes and unemployment, old age, education and the family. It is evident that a welfare state cannot be characterised only by the size of its social programmes. In Europe, social spending-to-GDP ratios are 20% to 25%; in the emerging economies of Asia and South America, it is half of that. Although, in almost all of the reference states (except for Hungary), social expenditures, as a percentage of GDP, have increased after the recent crisis. However, the spending-to-GDP ratios do not increase only because real public expenditures (adjusted for inflation) have increased, but also because of the decline or slow growth of GDP. Estonia is a telling example of latter, while trends in GDP growth (decline) 108 Estonian Human Development Report 2012/2013
Figure 3.1.5 Public social spending on pensions, health and other policy areas, in percentage of GDP, in 2009 Figure 3.1.6 Total social expenditures as a percentage of GDP, comparison of countries in 2009 Pension Health Other social expenditures 0 5 10 15 20 25 30 Government Private 0 5 10 15 20 25 30 Republic of Korea Chile Israel Switzerland Slovakia Estonia Poland Czech Republic New Zealand OECD average Hungary Slovenia Ireland Finland Austria Netherlands Denmark 0 5 10 15 20 25 30 Source: OECD, SOCX database Denmark Sweden Belgium Austria Finland England Netherlands USA Japan Ireland OECD Canada Hungary Slovenia New Zealand Poland Czech Republic Estonia Slovakia are more diverse than spending trends. Although the growth of Estonia’s social expenditures (see Figure 3.1.4) is one of the largest, in comparison to 2007 (in 2011, social expenditures were almost 19% of GDP), they are still below the OECD average (22%). Table 3.1.1 shows that the real growth of social expenditures in Estonia is about average, therefore, the increase in social expenditures, as a percentage of GDP, was caused primarily by a decline in GDP. Similar developments also characterise some of the Eastern European countries, such as the Czech Republic and Slovenia. The growth of real expenditures has been faster in Finland and Sweden, as well as in Poland and Slovakia. The Asian and South American countries, where national welfare expenditures have conventionally been low, also demonstrate rapid growth in both wealth and real social expenditures.Source: OECD, 2012 Estonia is below the OECD average in regard to almost all the social spending components (Figure 3.1.5), except for the pensions and family benefits. In terms of spending on the most vulnerable social policy area – cash benefits to older people – there is a large variation among OECD countries. Below, in the OECD average cases (e.g. U.S., Australia, and Canada), the private contributions (both mandatory and voluntary) play a relatively large role in total spending. Estonia’s gap, in regard to all the components of social spending, is especially large in comparison to the Nordic countries, while we do not differ much from the other transition countries, as well as emerging non-European welfare states. Switzerland Israel Chile South Korea Source: OECD, SOCX database 0 5 10 15 20 25 30 The population structure is a key driver of social spending, and thus Estonia’s future position also differs from Europe (Figure 3.1.5). Most of the European countries are rapidly ageing, (expected change in the number of elderly is more than a 50% in the next 10 years); in Estonia, the percentage of the elderly in the population is growing as well, but at a much slower rate (about 10% growth in the next 10 years) (OECD 2012). These demographic pressures impact not only cash in benefits, such as pensions, but also have a great effect on healthcare spending. To alleviate the ageing effects for several years the priority of Estonian social policy was to increase both voluntary and mandatory private contributions to social protection. Figure 3.1.6 indicates the lack of success in this effort – the small contribution (0.02% of GDP) made by the private sector to social expenditures is not even visible on Figure 3.1.6. The total social expenditures (combined private and public expenditures) somewhat equalise the differences between the reference states, but worsen the positions Estonian Human Development Report 2012/2013 109
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ESTONIAN HUMAN DEVELOPMENT REPORT 2
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Table of Contents 1 Human Capital /
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Dear Reader Since the moment when E
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1Human Capital Estonian Human Devel
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the HDI’s content has also been h
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Figure 1.1.1 The human development
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Figure 1.1.7 The income sub-index:
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The results of the Princeton Projec
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the hypothetical generation. The to
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Figure 1.2.3 Life expectancy. Eston
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Table 1.2.2 also presents the most
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The new trends that are appearing i
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Figure 1.2.8 Components of populati
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New features were introduced into E
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Initiation of Voluntary Birth Contr
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Table 1.3.1 Best-known educational
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(OECD 2012b). Therefore a certain r
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The reciprocal dependence of the pr
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Figure 1.3.8 Percentage of students
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Table 1.3.4 The quality of educatio
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1.4 Health Raul-Allan Kiivet Change
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Table 1.4.1 Usage of prescription m
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allude to the fact that approximate
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promote healthy lifestyles among th
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Figure 1.5.1 The World Values Surve
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Table 1.5.2 Estonia’s participati
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Figure 1.5.3 The percentage of the
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Figure 1.5.5 Percentage of the Esto
Page 59 and 60: The fact that Estonia’s position
Page 61 and 62: Summary Mati Heidmets The global vi
Page 63 and 64: 2People and Society Estonian Human
Page 65 and 66: Table 2.1.1 Structure of the Bertel
Page 67 and 68: tioning market economies (15 states
Page 69 and 70: 2.2 Freedom and democracy Martin M
Page 71 and 72: Table 2.2.1 Democracy indicators Po
Page 73 and 74: Figure 2.2.2 The distribution of th
Page 75 and 76: would be something that none of the
Page 77 and 78: political participation are general
Page 79 and 80: strongest, while a very small perce
Page 81 and 82: is concerned, Estonia is one of the
Page 83 and 84: Figure 2.4.2 Average circulation of
Page 85 and 86: 2.5 Corruption Jüri Saar In accord
Page 87 and 88: Lithuania, 61%; and in Russia, 69%.
Page 89 and 90: 2.6.2 Intentional homicides in Esto
Page 91 and 92: crime. And thirdly, there was a wis
Page 93 and 94: References 1. Ahven, A. & Tabur, L.
Page 95 and 96: states included in the EU Kids Onli
Page 97 and 98: 2.8 Public assessments of the state
Page 99 and 100: Figure 2.8.4 Changes releated to tr
Page 101 and 102: of the state’s development are en
Page 103 and 104: Table 2.9.1 The positions of Estoni
Page 105 and 106: 3. IEP (2011). Structures of Peace.
Page 107 and 108: 3Welfare and the Quality of Life Es
Page 109: choices made, not what people say t
Page 113 and 114: tion agreed upon the social contrac
Page 115 and 116: References 1. Aidukaite, J. (2006).
Page 117 and 118: hand, to the “inequality of acces
Page 119 and 120: and explanations of the extent of i
Page 121 and 122: 5- much more than I deserve. Some d
Page 123 and 124: people in Estonia consider the inco
Page 125 and 126: Table 3.3.1 Experienced Well-Being
Page 127 and 128: at about 70%. In Latvia and Lithuan
Page 129 and 130: sign. It seems that the usual view
Page 131 and 132: 3.4 Quality of life Anu Toots 3.4.1
Page 133 and 134: a uniform composite indicator has n
Page 135 and 136: 3.4.6 The components of life qualit
Page 137 and 138: Figure 3.4.4c Perceived quality of
Page 139 and 140: Figure 3.4.5 Changes in the depriva
Page 141 and 142: 3.5 Environment dimension of well-b
Page 143 and 144: Figure 3.5.1.b Estonia’s position
Page 145 and 146: 3.5.4 Energy intensity The energy i
Page 147 and 148: productivity, which is defined as t
Page 149 and 150: perceive themselves as worse off th
Page 151 and 152: 4The Economy Estonian Human Develop
Page 153 and 154: vide a valuable connection for maki
Page 155 and 156: Figure 4.1.3 Components of economic
Page 157 and 158: ule of law, the sub-indicators for
Page 159 and 160: References 1. Acemoglu, D.; Robinso
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Development Report employs generali
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and pasture land, and this was capi
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Basing the total and net savings re
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4.3 Labour market Reelika Leetmaa,
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The problems include the very limit
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• Expenditures for active labour
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who lose their jobs. These ensure i
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4.4 Productivity and the economic s
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labour costs at the company level r
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Table 4.4.4 Comparison of the produ
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Figure 4.4.1 Annual average increas
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4.5 Innovation Erik Terk, Katrin M
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Table 4.5.2 Comparison of innovatio
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Table 4.5.4 Comparison of the indic
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in order to make the R&D potential
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It is characteristic of the South K
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mechanisms for increasing their sta
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Globalisation and Policy Patterns 5
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When Estonia regained its independe
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5.2 The impacts of globalisation an
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Table 5.2.2 Support of the differen
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5.3 Development policies Erik Terk,
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• C -the “Estonia-centred” su
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Figure 5.4.1 Support for the possib
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Summary Erik Terk Estonia is part o
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ehavioural patterns. Therefore, it
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EDR 2012/2013 authors Clemens Buche
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EDR 2012/2013 authors Alari Purju i
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Editor-in-Chief: Mati Heidmets Prod
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