69096 Social Safety Nets in Europe and Central Asia: Preparing for Crisis, Adapting to Demographic Change, and Promoting Employability Penny Williams, Jennica Larrison, Victoria Strokova, maternity leave, and sickness, invalid, and survivor and Kathy Lindert insurance. Given this extensive scope, total social protection spending is high in ECA, absorbing an average of 10 Key Messages1 percent of GDP: 8 percent for social insurance (mostly pensions) and close to 2 percent for social assistance  Social safety nets in the Europe and Central Asia (figure 1). (ECA) region responded to protect people’s incomes during the global recession, especially in Figure 1. Public Spending on Social Assistance as Share of countries where systems were developed before GDP, ECA Region the crisis. Croatia 09 Romania 09  BiH 08 As populations age and labor forces shrink, the *Hungary 08 Russia 08 elderly will increasingly rely on general revenues Ukraine 09 *EU 08 *Slovenia 08 to supplement contributory pensions, competing Belarus 09 Moldova 09 with assistance for other vulnerable groups. Lithuania 09 Serbia 09 *Slovakia 08  Georgia 09 Social safety nets that link to employment and ECA 08/09 Kosovo 09 other services can help people transition from Armenia 09 *Poland 08 Turkey 09 reliance on social transfers to employability. Albania 09 Azerbaijan 09 Montenegro 09  Countries should not wait to confront these *Estonia 08 FYR Macedonia 09 Kazakhstan 09 challenges. To further strengthen social safety Kyrgyz Republic 09 Bulgaria 09 nets, governments in ECA should consolidate Latvia 09 Tajikistan 09 and harmonize benefits, invest in systems 0.0% 0.5% 1.0% 1.5% 2.0% Percent of GDP 2.5% 3.0% 3.5% 4.0% improvements for greater efficiency, link social Source: World Bank, ECA SP Database. assistance and employment services, and actively Notes: *For comparability purposes, only includes social assistance provided in communicate these reforms to their populations. cash. Data for many ECA countries includes cash benefits only. Staff calculations based on ESSPROS data. Overview of Safety Nets in ECA In the majority of ECA countries, most people receive some Most countries in ECA operate extensive social protection type of social protection transfer (social assistance plus systems, with both contributory social insurance social insurance). Over half of the poor2 receive at least one components and noncontributory social assistance benefits. social assistance benefit (figure 2). Coverage is not limited Social assistance benefits generally include: minimum- to the poor, however, as nearly 50 percent of the richest income programs; social pensions; disability benefits; quintile receive at least one social assistance cash transfer in family, child, and birth allowances; and heating, utility, and some countries (figure 3). This occurs because in addition to housing benefits. Social insurance benefits refer to operating narrowly targeted, last-resort social assistance pensions, unemployment insurance, disability insurance, (LRSA) schemes focused specifically on the poor, many 1 2 This Knowledge Brief was prepared with inputs from the Human For the purpose of this brief, we refer to “the poor� as those in the 20th Development Sector Unit (ECSHD) of the Social Protection Team in percentile (quintile) of the population, ranked by presocial assistance- Europe and Central Asia. transfer consumption. ECA Knowledge Brief countries have categorical or universal social programs that balancing demographic and social pressures, and helping provide broad coverage. Even before the 2009-10 crisis, people move from dependency to employability. spending on universal entitlement programs in a number of countries had expanded, reducing the resources available for Protecting People in Times of Crisis4 poverty-targeted LRSA programs. Throughout the ECA region, social benefits helped protect Figure 2. Coverage of the Poorest Quintile: Social Assistance, families during the 2009-10 global crisis, with a generally ECA Region stronger response in countries worse hit. Social benefits 100 helped cushion poverty impacts by protecting the incomes Percent of those in the poorest quintile 90 of existing beneficiaries and expanding coverage to new 80 ones; for example, the fall in household income in Bulgaria receiving any SA transfer 70 60 was far less than the contraction in GDP, largely due to 50 social benefits (including pensions).5 40 30 Unemployment benefits were often the first line of response 20 in countries that operated them, with the number of 10 claimants increasing rapidly at the outbreak of the crisis. 0 Unemployment benefits have a limited time duration, however, and they ran out in several countries before the onset of the recovery. In many cases, social assistance benefits expanded to provide income support to those whose Source: World Bank, ECA SP Database.3 unemployment benefits expired (see the Lithuania example, figure 4). Some countries expanded child allowances or Figure 3. Coverage of the Richest Quintile: Social Assistance, introduced public works schemes as part of their crisis ECA Region response packages. However, as the response of “last 60 resort,� coverage of social assistance increased more Percent of those in the richest quintile 50 moderately than unemployment benefits in many cases. receiving any SA transfer 40 Figure 4. Response Pattern of Social Benefits: Lithuania 30 Lithuania Indexed Number of Beneficiaries 20 600 550 Onset of the crisis Start of recovery 10 500 450 0 400 350 300 250 200 Source: World Bank, ECA SP Database. 150 100 50 Three Priority Challenges in Social Safety Nets 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 2008 2009 2010 Looking forward, social safety nets in ECA face three Lithuania Social Benefit Lithuania Unemployment Benefit Lithuania unemployed ILO important challenges: protecting people in times of crisis, Source: Social Benefits Monitoring Observatory (2008–2010), Isik-Dikmelik (forthcoming). 3 4 Note for Figures 2-4: To facilitate comparison across countries, This section largely draws on an effort by the World Bank’s ECSHD performance indicators are calculated using a standardized methodology Social Protection team to monitor the response of social benefits to the that ranks individuals into quintiles based on harmonized consumption global crisis through an “observatory� in 14 countries in the region (from aggregates (World Bank 2005) and pretransfer consumption per capita 2008–10). The findings of this “social benefits monitoring observatory� (with the exception of those countries marked with an *). Data on are reported in Aylin Isik-Dikmelik, “Do Social Benefits Respond to coverage, targeting accuracy, and generosity come from analysis of the Crises? Evidence from Europe & Central Asia During the Global Crisis� latest household surveys using standardized ECAPOV and SP ADePT (Washington, DC: World Bank, forthcoming). 5 software. As such, these performance indicators reflect only those World Bank, “Bulgaria: Crisis Monitoring Report� (Washington, DC: programs that were captured in the household survey questionnaires. World Bank, 2011). ECA Knowledge Brief Not all countries in the region were ready to respond. When With shrinking contributions, pension systems will the crisis hit, some countries, such as Moldova and increasingly become fiscally unsustainable. Without more Tajikistan, lacked basic systems (registries, targeting ambitious reforms, pension deficits are projected to reach mechanisms) to operate safety net programs. Other almost 7 percent of GDP by 2050, requiring supplemental countries had to undertake significant reforms to facilitate financing from general revenues and putting increased crisis response. For example, in Latvia, where financing and strain on budgets. Moreover, with the rise in informality implementation of social assistance had been decentralized, (essentially untaxed work), an estimated one-third to two- local governments were strapped for funds and unable to thirds of the future elderly will rely on social assistance, due increase coverage and maintain balanced budget to inadequate contribution histories in the formal pension requirements. Significant reforms to the system and design systems. These pressures will further strain already of the programs were needed to enable a response. Thus, fragmented safety net systems, and support to the elderly almost a year elapsed from the time the crisis occurred to will compete with assistance to other vulnerable groups. the moment when coverage of social assistance benefits expanded to protect the poor. Design features also Most ECA countries already operate dozens of social constrained responses, and in many countries, the eligibility benefits schemes. For example, there are 23 in Serbia; an threshold of minimum income programs had eroded over average of 20 per region in Russia, with upwards of 40 in time to such low levels that the programs had become too Moscow; 47 in Macedonia; and 57 at the central small and narrowly targeted. As a result, the “catchment� government level in Romania (pre-2011 reforms). These function of these programs was too limited to help those benefits often cover families and children, the disabled and affected. Instead, some countries expanded categorical or their caregivers, the poor, and the elderly. Navigating these universal benefits (such as child allowances or social multiple schemes is costly for beneficiaries and inefficient pensions), and though these measures were effective in for governments, creating gaps and duplications. The reaching larger segments of the population, they were various programs typically have overlapping legislation, fiscally costly. inconsistent eligibility rules, and a maze of separate application procedures. Moreover, benefits administration is Balancing Demographic and Social Pressures often weak, with paper-based records and inadequate management information systems, oversight, and controls. Demographic projections suggest a rapid decline in the working-age population in the majority of ECA countries Helping People Move from Dependency to over the next 40 years (figure 5). Even in the Employability demographically young countries (such as those in Central Asia), the percentage of elderly in the population is Policy makers in the ECA region frequently express expected to triple in that time period. Moreover, as the rest concerns about high inactivity rates among the working-age of the region’s labor force shrinks, workers may leave these population, the dependency on transfers, and the potential young countries for higher wages, better workplace work disincentives provoked by assistance benefits. conditions, and improved quality of life elsewhere. Activation (or “active inclusion�) is thus at the forefront of social policy, as governments seek to help people reduce Figure 5. Change in Labor Force between 2010 and 2050 in their reliance on cash transfers and promote their ECA (percent) 100% employability and productivity. A well-designed social safety net linked to employment and other social services 80% can facilitate this transition. While the objective of 60% stimulating labor force participation can apply to the 40% broader inactive population, it can also be tailored to focus on specific groups, such as social safety net beneficiaries, 20% women, and youth. 0% -20% Effective activation approaches are often multidimensional, combining case management, incentives, and support -40% services. Case management methods can involve tailored -60% action plans for each family or beneficiary, coaching and mediation, referral services, and monitoring. Benefit incentive mechanisms may include measures such as work Source: UN Populations Projections, Staff Calculations or job-search requirements with possible sanctions, work ECA Knowledge Brief incentives (e.g., back-to-work bonuses, earnings Second, governments can continue investing in systems disregards), or guaranteed “return spots� in benefits and tools to improve implementation efficiency, such as programs to encourage beneficiaries to take up employment unified application and intake processes, automated opportunities. Integrated activation approaches also actively integrated management information systems, unified link beneficiaries to support services to help reduce their payments systems, strengthened oversight and controls, obstacles to employment and productivity. Support services improved monitoring and evaluation, and clarified include active labor services, which can consist of job institutional rules, roles, and financing with investments in information and placement, skills and technical training, capacity. and transitional work arrangements, as well as other social and child care services that can be used to tailor the mix of Third, governments can strengthen the links between support to the individual’s or family’s circumstances. benefits, employment, and social services to reduce dependency and promote employability. Diagnostic tools These “ingredients� are present in many countries in the and case management can help identify and tailor activation region, but they tend to operate in silos. Social assistance approaches to target groups. Governments should also seek benefits are implemented separately from public to promote these linkages by investing in capacity, employment services, which function independently from integrating service delivery, and optimizing institutional social services. The challenge, therefore, is for ECA incentives for effective employment support. countries to link these various dimensions in a combined and consistent activation strategy, both horizontally (across Finally, given social and political sensitivities, governments the silos) and vertically (across levels of government). will need to communicate actively on social policy reforms, These linkages also require investments in implementation providing information on the fiscal and demographic drivers capacity (e.g., training of case managers, integrating of reforms, changes in benefits rules and governance, and management information systems, and providing activation links. Communications strategies need to convey institutional incentives to channel support to the hard-to- and build consensus for these changes within government serve), which is currently lacking in most ECA countries. ministries, among beneficiary populations, and in the Finally, while concerns about transfer dependency and general public. employability are not new, countries are still experimenting with combined activation approaches. Further evaluations are needed to trace what works and why. Addressing these Challenges: Cross-Cutting Priorities for Action Addressing these challenges cannot wait. To do so comprehensively, governments can consolidate, invest, build, and communicate. About the Authors First, governments can consolidate benefits with fewer From the Europe and Central Asia Region of the World programs that are focused on clear objectives, social policy Bank, Penny Williams is a Senior Operations Officer for the goals, and priorities. Design features should be simplified Social Protection Sector Unit; Jennica Larrison is a and harmonized across programs. Assistance should be Consultant for the Human Development Sector Unit; focused on those in need, including many categorical Victoria Strokova is a Consultant for the Human benefits, while last-resort programs should be expanded to Development Sector Unit; and Kathy Lindert is the Sector cover a larger share of the poor and vulnerable. Manager for the Social Protection Sector Unit. “ECA Knowledge Brief� is a regular series of notes highlighting recent analyses, good practices, and lessons learned from the development work program of the World Bank’s Europe and Central Asia Region http://www.worldbank.org/eca .