Transcript Croatia LSA - Preliminary Findings

Croatia: Living Standards Assessment
Promoting Social Inclusion and Regional Equity
A World Bank Study
Zagreb, February 14, 2007
Overview and Summary of Key Findings

1. Poverty in Croatia is quite low
• Only a relatively small share of the poor faces hard-core deprivation
• Recent poverty trends ambiguous, though some indications of
improvement

2. Poverty can be reduced further (better still, eliminated!...)
through faster job creation and better targeted social spending
• Employment status is an important poverty correlate (plus age,
education)
• Benefits of improving allocation on social safety nets: poverty could be
eliminated by reallocating spending from less well targeted programs to
the means-tested social support allowance

3. Some regional disparities in Croatia, though no higher than in
other European countries
• Report paints a finer picture of disparities at the county-level, though
regional profile is more robust and reliable
• While living conditions do differ across Croatian regions:
(i) these differences are not significantly more than other EU countries
(ii) taxes and transfers play a significant redistributive role
• Differences in human capital explain a good part of regional disparities
1. Poverty in Croatia is low
Cross-Country Poverty and Inequality Comparisons
 Recent World Bank study “Growth, Poverty, and
Inequality: Eastern Europe & the Former Soviet
Union” takes stock of the impact of growth in the
region on poverty and inequality during 1998 – 2003
 Provides internationally comparable poverty
estimates using a PPP $4.30 per day poverty line

Comparable poverty estimates for Croatia derived for 2004 using
the same methodology as employed in the regional study
1. Poverty in Croatia is low
(a) Croatia’s poverty rate is the lowest among countries
covered in the study
MOLDOVA
80
ALBANIA
60
TURKEY
(%)
ROMANIA
40
SERBIA
RUSSIA
BULGARIA
POLAND
ESTONIA
MACEDONIA
20
LATVIA
HUNGARY
CROATIA
0
1000
2000
3000
Consumption per capita
(PPP USD)
4000
Turkey
Macedonia
Latvia
Russia
Estonia
Moldova
Lithuania
Poland
Albania
Bosnia & Herz.
Serbia
Belarus
Romania
Bulgaria
Ukraine
Croatia
Hungary
1. Poverty in Croatia is low
(b) Inequality is also low compared to other countries
Gini coefficient
0.45
0.40
0.35
0.30
0.25
0.20
1. Poverty in Croatia is low
National Poverty Trends
 While Real GDP per capita increased by more than 40
percent between 1996 and 2005…
 …Inequality in both consumption and income on the
other hand has been quite stable and low between
2002 and 2004.
 Recent poverty trends ambiguous; depend on welfare
measure:
Stagnant if based on consumption,
Declining if based on incomes
1. Poverty in Croatia is low
National Poverty Trends
Poverty Measure (%)
Poverty line (kunas/equivalent adult/year)
Poverty headcount rate
Expenditures
Incomes
2002
2004
2002
2004
21,390
22,145
21,390
22,145
11.2
11.1
13.0
10.4
 A poverty line of 22,145 kunas (PPP$4,343) per equivalent adult
per year was derived using the cost of basic needs methodology.
 Poverty is quite limited and shallow
 11 percent of the population are poor
 “Depth of poverty” is low (on average the poor are not far from
the poverty line)
1. Poverty in Croatia is low
Even households’ own perception of changes in living
standards indicate some improvements recently
With its disposable monthly
income, the household lives:
With great difficulty
With difficulty
With some difficulty
Fairly well
Well
Very well
Total
Percent of Respondents
2002
2004
13.4
10.0
25.6
22.7
29.5
28.6
21.8
17.5
8.0
19.1
1.7
2.1
100.0
100.0
1. Who are the Poor?
Poverty incidence and size of household
Breakdown of the Poor
6+ persons
16%
1 person
19%
5 persons
11%
4 persons
2 persons
11%
29%
3 persons
14%
1. Who are the Poor?
Poverty and the Elderly
26.4
male
female
25
20
18.8
15
National Average
10.9
9.4
10
8.6
6.2
5.1
5
2.1
0
16-30
31-49
50-64
Age of Household Head
65+
1. Who are the Poor?
Poverty incidence and educational attainment of household
head
35
Poverty Incidence
Breakdown of the Poor
30
General
Headcount (%)
25
Secondary
Vocational
4%
Secondary
20
19%
15
Primary
40%
National Average
10
5
Primary
0
Unfinished
Primary
Primary
Vocational
General
Post
Secondary
Secondary
Secondary
Educational Attainment of Household Head
Unfinished
37%
2. Reducing poverty: job creation and targeted social spending
A. Employment status is an important predictor of poverty
47
other inactive
10
28
unemployed
26
23
retired
9
18
self-employed
2
6
employee
2
0
rural
urban
National Average
10
20
30
Headcount Poverty Ratio (%)
40
50
2. Reducing poverty: job creation and targeted social spending
Job creation in Croatia has lagged real wage and GDP growth
120
GDP
Real net wages
110
Civilian employment
100
90
80
70
60
50
40
1990
1992
1994
1996
1998
2000
2002
2004
2. Reducing poverty: job creation and targeted social spending
Convergence to 2/3rd EU15 income level by 2015 will require
rapid increases in total employment and productivity
25,000
20,000
C. Employment rises to Lisbon target, plus
output per worker rises by 4 percent per annum
15,000
10,000
A. Base-case trend with
shrinking labor force
B. Employment rate
rises to Lisbon target
5,000
0
2005
2010
2015
2. Reducing poverty: job creation and targeted social spending
B. Transfers are an important income source for the poor
40
38
nonpoor
poor
35
30
22
20
18
19
19
12
10
10
9
5
6
4
3
0
wages
pensions
imputed self-empl. State
rent
income transfers
in-kind
income
2
other
sources
2. Reducing poverty: job creation and targeted social spending
Social assistance is the best targeted program in Croatia…
S hare of spending accruing to the poorest one-fifth of the
population
80
72
69
70
60
Percent
50
40
40
30
34
28
44
39
30 29
22
20
10
0
Child Allowance
Other Family
Allowances
Social
Assistance
2002
2004
Unemployment
benefits
Any of these
benefits
2. Reducing poverty: job creation and targeted social spending
… but continues to have a very low coverage rate
Program Coverage Rates (2004)
70
60
60
Percent
50
40
30
35
26
35
Overall population
Poorest one-fifth
20
10
12
10
13
5
10
6
0
Child Allowance
Other Family
Allowances
Social
Assistance
Unemployment
benefits
Any of these
benefits
2. Reducing poverty: job creation and targeted social spending
Importance of transfers for beneficiaries of the social
assistance program
3. Examining regional disparities in living conditions
Following an earlier World Bank report, a five-way regional
disaggregation was used to improve precision of estimates
Analytical Region
County
Central Croatia
Krapina-Zagorje, Sisak-Moslavina, Karlovac,
Varazdin, Koprivnica-Krizevci, BjelovarBilogora, Medimurje
Eastern Croatia
Virovitica-Podravina, Pozega-Slavonia, Slav.
Brod-Posavina, Osijek-Baranja, VukovarSirmium
Zagreb Region
Zagreb County, Zagreb City
Adriatic North
Primorje-Gorski kotar, Lika Senj, Istria
Adriatic South
Zadar, Sibenik-Knin, Split-Dalmatia,
Dubrovnik-Neretva
3. Examining regional disparities in living conditions
While living conditions do vary across regions …
30
Headcount poverty rate (percent)
25
20
15
National Average
10
Urban
Rural
Rural
Urban
Central Region
Eastern Region
Adriatic South
Adriatic North
Zagreb Region
Central Region
Eastern Region
Adriatic South
Adriatic North
0
Zagreb Region
5
Overall
3. Examining regional disparities in living conditions
… (i) disparities lower than observed in many other countries
and..
Regional Variation in GDP per capita, selected countries
Country
# of units
Year
Poorest
(Euro)
Richest
(Euro)
Ratio
coefficient of
variation
6
2002
1,701
3,054
1.79
0.26
France
22
2002
19,111
38,854
2.03
0.18
Spain
19
2002
11,214
23,077
2.05
0.20
Poland
16
2002
3,708
8,067
2.17
0.22
Croatia
5
2003
3,983
8,799
2.21
0.35
21
2002
13,697
32,279
2.35
0.26
8
2002
1,751
4,603
2.59
0.42
UK*
37
2002
17,268
45,028
2.60
0.23
Germany
41
2002
15,638
44,151
2.82
0.26
Turkey
26
2001
730
3,063
4.19
0.42
Russia
7
2003
1,129
5,743
5.11
0.58
Bulgaria
Italy
Romania
3. Examining regional disparities in living conditions
… (ii) Taxes and Inter-regional transfers play an important
role in redistributing incomes across regions
160
140
120
National Average
100
80
60
40
20
GDP
Primary income
Disposable income
Adriatic South
Eastern
Central
Adriatic North
Zagreb
Eastern
Adriatic South
Central
Adriatic North
Zagreb
Eastern
Adriatic South
Central
Adriatic North
Zagreb
0
3. Examining regional disparities in living conditions
Part of remaining differences can be explained by
differences in worker characteristics (e.g. age, education,
employment status, etc.)
Analytical
Region
Adriatic South
Adriatic North
Zagreb
Eastern
Central
Mean Monthly
Earning (kunas)
3,524
3,498
3,735
2,826
2,806
Share of difference
explained due to factors
31%
28%
35%
64%
…
3. Examining regional disparities in living conditions
For instance, people in the central and eastern regions
have lower educational attainment (i.e. average years
of schooling) than those living in other regions
Adriatic South Region
Adriatic North Region
Zagreb Region
Eastern Region
Central Region
9
9.5
10
10.5
11
11.5
12
3. Examining regional disparities in living conditions
(a) Poverty Profile
Poverty incidence
0-6
6.1 - 13
13.1 - 20
20.1 - 27
27.1 - 33.8
Source: Pooled 2002-04 Household Budget Survey
3. Examining regional disparities in living conditions
(b) Employment Profile
Employment rate
0 - 43
44 - 50
51 - 57
58 - 64
65 - 70
Source: Pooled 2002-04 Labour Force Survey
3. Examining regional disparities in living conditions
(c) Education Profile: Less than primary education
Share of
>16 population
0-6
6.1 - 12
12.1 - 18
18.1 - 24
24.1 - 26.8
Source: Pooled 2002-04 Labour Force Survey
Policy Implications - 1

Analysis suggests that developing human capital and upgrading skills
should be one of the principle elements of Croatia’s national regional
development strategy

ROPs and local comparative advantage principle: Accord high priority
to those initiatives that build upon commonalities across contiguous
counties?

Considerable scope to further reduce poverty through improved
allocation of spending towards means-tested programs: reallocating
0.7 percent of GDP from other programs to the social support
allowance would help reach all the poor in the country.

Faster poverty reduction and income convergence with Europe will
require sustained rises in worker productivity and labor utilization
Policy Implications - 2

Policies to help social welfare beneficiaries back to work
 Target active labor market measures (employment subsidies, labor market
training) and measures to promote jobs for disabled workers, youth and improving
the basic skills of the long-term unemployed;
 Introduce a workfare program for long-term unemployed recipients of welfare, so
that they can gain work experience and be reconnected with the world of work.

Integration of social welfare (at national and local levels) and employment
programs:
 Allow CES direct access to the welfare payment system to be able to allow/stop
welfare payments for registered unemployed people;
 Strengthen joint work between CES, CSW and local governments, particularly with
regard to helping ensure better work opportunities for the long-term unemployed.

Cost-effective active labor market programs (ALMP):
 Administer unemployment compensation in an integrated manner with other
services such as counseling, mediation;
 Target ALMP on the long-term unemployed as well as those at high risk