Risk Shift

Risk shift refers to the transfer, over the last generation, of economic risks from the institutions of social insurance (sponsored by either the government or the private sector) to individuals and households. Risks that were once managed by the government or private corporations have been shifted to workers and their families, resulting in hardship, insecurity, and anxiety.

This risk shift was not inevitable or necessary. It is the product of ideological changes and political decisions that led to massive government deregulation of economic sectors, increases in global trade, and competition, accompanied by technological innovations and corporate restructuring. Overall, risk shift refers to the externalization of risks (from the private corporate sector as well as the welfare institutions) and individualization of management of risks. The current risk shift is global, as institutions of global governance have increased risks through increased competition, expanded financialization of the global economy, global labor competition, and investment, leading to social disruptions. At the same time, the various protections for workers and their families were weakened or removed as precarity, insecurity, and volatility increased and spilled over into all areas of social life.

The current era of global growth of social insecurity is a product of what sociologist Ulrich Beck calls the world risk society (the global age, marked by a multiplication of human-made social, economic, political, and environmental risks); it is also the end of the age of security for Western societies (the post-World War II era), where various forms of welfare states were developed alongside public oversight of the financial system.

Economist Michael Mandel distinguishes between idiosyncratic risks (based on individual choices) versus structural risks (systemic). Workers and families used to be protected against most structural risks, and idiosyncratic risks were discouraged. Now, workers are exposed more directly to more structural risks from multiple areas of social life, with little to no protection, but encouraged to take some idiosyncratic risks for potential high returns.

Examples of such risk shifts are clearly visible in the replacement of defined-benefit retirement plans with defined-contribution plans, with the encouragement of having health savings accounts to protect against uninsured medical events. It is also visible in the increase in dual-earner families (or staying single, as more people do) where individuals work longer, accumulate debt, and live on the edge with little to no savings. All of these examples of risk shifts are affecting more people higher and higher on the social ladder. If all else fails, they can resort to personal bankruptcy, although the level of protection included in this process has decreased.

Such a risk shift is also a product of what sociologist Zygmunt Bauman called the individualized society. Individualization means that members of society can no longer count on social safety nets or the welfare state to negotiate the impact of risks on their lives (such as a job loss or a loss of pensions and savings to the insecurities of the market). Individuals are encouraged to see themselves as investors in their own person, to develop their human capital and comparative advantage through skills that have labor-market value.

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