“Life has changed substantially for individuals in advanced economies in the first two decades of the 21st century,” notes The social contract in the 21st century, a new report by the McKinsey Global Institute (MGI). “In many ways, changes for individuals have been for the better, including new opportunities and overall economic growth… Yet, the relatively positive perspective on the state of the economy, based on GDP and job growth indicators, needs to be complemented with a fuller assessment of the economic outcomes for individuals as workers, consumers, and savers.”
The report takes an in-depth look at the changing economic outcomes for individuals between 2000 and 2018 in 22 advanced countries, - 16 European ones, Japan and South Korea, Australia and New Zealand, and Canada and the US. In aggregate, these countries constitute 57% of global GDP.
The report closely examines the evolution of the social contract, that is, “the arrangements and expectations, often implicit, that govern the exchanges between individuals and institutions.” Its overriding finding is that the social contract has changed considerably in the 21st century, with individuals having to assume greater responsibility for their economic outcomes. Opportunities for work and employment rates have risen significantly, but outcomes vary considerably across socioeconomic groups and geographies. While many have benefited from this evolution, those in the bottom 60% of the income distribution are facing significant economic challenges, leading to an uncertain future and a general loss of trust in institutions.
The report analyzes the evolution of the social contract by looking at the changing outcomes for individuals as workers, as consumers, and as savers. Let me summarize the findings in each of these three categories.
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