Transcript Croatia Social Impact of the Crisis and Building

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To determine the impact of the crisis on labor
markets and poverty
To assess the effectiveness of employment
and social safety net policies in response to
the current crisis
To present options the enhance the efficiency
of social protection system and to build
resilience against future demand shocks
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The impact of the crisis substantial, despite the fact
the unemployment increased somewhat less than in
other countries
Large fall in formal employment led to a significant
increase in the poverty rate, although cushioned by
the increase in informal employment
Policy response to the crisis was limited
◦ Reliance on automatic stabilizers: unemployment benefit
and means-tested social welfare allowance
◦ Little adjustment in employment policies
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Substantial room to enhance the efficiency of the
social protection system within the existing resource
envelope
1.
Summary of main results
◦ Labor market impact
◦ Poverty impact
2.
3.
Assessment of the policy response to
the crisis
Building resilience: options for the
reforms of the social protection
system
Summary of main results
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Background: 6% fall in GDP
Formal employment: 6% fall  high elasticity
◦ Crisis or delayed restructuring?
Total employment (LFS): 2.4%  elasticity within the regional
range
Wage moderation: 3% fall  limited the adverse
employment effect
Substantial growth in registered unemployment: 25% higher
But modest increase in unemployment rate (LFS): 1.1 pp (less
than EU average)
However, coupled with fall in labor force participation
Result: fall in employment/population ratio
◦ 57% well below EU average  raising it should be top policy
priority
Recently: inflows into unemployment dropped close to precrisis level  end of the crisis?
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Manufacture, trade, tourism and
construction industries suffered the most
Industrialized, low unemployment regions
were hit hardest  equalization of labor
market conditions
New unemployed: prime age skilled bluecollar male workers  differ from “old”
unemployed
50
40
30
20
10
0
10
20
30
Unemployment rate March 2008
40
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Crisis has undone gains in social welfare
achieved during the years of fast economic
growth before the crisis
◦ Assuming baseline poverty rate of 10%, simulation
results suggest that the poverty rate increased by
3.5 pp.
◦ Employment status, age, education, family size
important poverty correlates
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The lower middle-income class was hit
hardest by consumption decline
Poverty increased faster in richer urban areas
than in poorer rural areas
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“New poor” are economically active, better educated and younger
than the “old poor”
 Better chances to escape poverty
Child poverty is set to rise, especially among multi-children
families
Poverty rates in 2008-2009
35
30
Headcount poverty rate (%)
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25
20
15
10
5
0
No chirdren
1
2008
Average rate 2008
2
3 or more children
2009
Average rate 2009
10
An assessment
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Provide income support to individuals who
lost their jobs, and families which fell into
poverty
Prevent short-term unemployment to turn
into long-term unemployment, and transient
poverty to turn into chronic poverty
Given fiscal strain, balance the needs of
short-term unemployed and new poor with
those of long-term unemployed and chronic
poor
1.
Income support
◦ Reliance on existing instruments: unemployment
benefit and social welfare allowance
◦ Many new unemployed and new poor were not
eligible and were not covered
2.
Prevention of long-term unemployment and
chronic poverty: active labor market
programs
◦ Run on a small scale and further scaled down
during the crisis for fiscal reasons
◦ Little impact on job prospects of the new
unemployed
3.
Policy focus: new vs. old unemployed and poor
◦ Minimal adjustment of existing policy mix to the crisis
conditions  focus on the old poor rather than on the
new poor or those at risk of poverty
◦ No additional instruments to provide income support to
workers affected by the crisis but not eligible to UB or
social welfare allowance  coverage gaps
◦ ALMP mix only partly adjusted to tackle unemployment
resulting from the fall in labor demand
 Short-time work subsidy -- new instrument designed to
prevent lay-offs – had no impact due to a very low take-up
rate caused by its design features
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Majority of the new
unemployed not
eligible
Received mostly by
the poor
Lifts recipients out
of poverty
 Effective income
support instrument
for those covered,
but coverage limited
Incidence of unemployment benefit by consumption quinile
2008
45
40
35
30
25
percent
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Before transfer
After transfer
20
15
10
5
0
Bottom
2
3
4
Top
Unemployment benefit is received
mostly by the poor and lifts them
out of poverty
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Social welfare allowance
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Well targeted
Low coverage due to low poverty threshold
Unlimited duration  labor supply disincentives
Take-up rate did not increase during the crisis (new
poor not poor enough to qualify?)
Program’s role may increase after a time lag
Poverty threshold should be raised to enhance
program’s impact
Categorical benefits
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Numerous and absorb considerable resources
Poorly targeted
Not effective in mitigating the effects of economic
downturns
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Social spending remains comparatively high even w/o war vet
pensions.
Child tax allowance absorbs additional 1% of GDP, but favours
only medium- and high-income groups.
Programs for war veterans (disability and survivors)
of which pensions
Programs for families with children
of which child allowances
Programs for (civilian) disabled, cash or services
Programs for vulnerable children, adults or frail elderly
Programs for low-income households
Programs operated by local governments (estimated)
Total
GDP
Income-tested programs:
% in GDP
% in Non-contributory social assistance programs
2004
1.59
1.11
0.77
0.61
0.07
0.24
0.33
0.50
3.51
100.0
2005
1.60
1.11
0.81
0.54
0.07
0.26
0.33
0.50
3.57
100.0
2006
1.63
1.19
0.75
0.47
0.06
0.24
0.30
0.50
3.49
100.0
2007
1.72
1.33
0.87
0.60
0.06
0.22
0.26
0.50
3.64
100.0
2008
1.76
1.39
0.81
0.55
0.06
0.22
0.23
0.50
3.58
100.0
2009
1.75
1.38
0.81
0.52
0.07
0.22
0.27
0.50
3.61
100.0
Plus an estimated 1% of GDP on child tax allowances!
0.95
27.0
0.87
24.4
0.77
22.2
0.86
23.6
0.77
21.6
0.79
21.8
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Social assistance remains the best targeted program in Croatia,
but continues to have a very low coverage rate.
Child allowance has an ‘elite capture’ problem.
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Simulation of policy changes w/ significant
distributional impact (solidarity tax; the rise in
supplemental health insurance premium; the
elimination of free textbooks) shows significant
distributional impact
Impact assessment of selected policies
However, their impact
on the poor has been
partially mitigated by
a policy of waivers or
exemptions for lower
income households.
100%
90%
80%
70%
60%
Q2-Q5
50%
D2
40%
D1
30%
20%
10%
0%
Solidarity tax
Health premium
Free textbooks
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Short-time work subsidy – additional anti-crisis measure
◦ Strict eligibility criteria
◦ Limited benefit amount  weak incentives
◦ Few firms benefitted  virtually no impact
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Active labor market programs (training, subsidized
employment, etc.)
◦ Low coverage
◦ Expenditures reduced and programs scaled down during the crisis
◦ Program mix only partially adjusted to the demand shock (public
works)
◦ Focus on training  not effective during downturns when few
vacancies
◦ Regional allocation: capacity rather than needs, or effectiveness
based
◦ Little impact due to small scale
Partcipants in Labor Market Programs as % of labor force
2007
Expenditures on labour market programs as % of GDP
2007
UK
CR
CZ
CZ
UK
CR
HU
SK
HU
Passive
PL
IT
IT
PT
IE
SK
PT
SE
SE
AT
AT
NL
FR
IE
SP
FI
FI
FR
DE
DE
NL
SP
BE
BE
0
0.5
1
1.5
2
percent
Low spending
2.5
Passive
PL
Active
3
3.5
0
5
10
15
percent
Low coverage
20
Active
25
30
Options for social protection
reforms
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Outcomes of social protection policies could
be strengthened within the existing resource
envelope:
◦ Improved program mix
◦ Higher coverage
◦ Better targeting: reduced errors of exclusion and
inclusion
◦ Higher impact: lower unemployment and less
poverty
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Administrative simplification at central and
local levels
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Temporarily extending coverage of unemployment
benefit by relaxing eligibility criteria
Developing activation policies to reintegrate the
long-term unemployed welfare recipients into the
labor market (workfare approach)
Increasing the coverage of well targeted meanstested income support programs by adjusting the
income threshold (by scaling down poorly targeted
categorical benefit programs)
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Realigning the targeting rules across programs
Improving the cost-effectiveness of pro-birth
policies by reallocating towards families with more
children.
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Scaling up effective interventions so that ALMP have a
detectable impact on employment
Adjusting program mix to changing labor market
conditions
◦ Downturn: scale up programs that compensate for weak
labor demand
◦ Upturn: scale up programs that address structural issues
(skills mismatch)
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Adjusting regional allocation of ALMP funds to the
changing regional needs
◦ From capacity based to needs and effectiveness based
allocation rule
◦ Improve implementation capacity in regions facing an
increase in unemployment
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Achieving better outcomes requires strengthening
institutional capacity to design, monitor, implement and
evaluate social protection policies
Addressing institutional fragmentation of the social safety net
system at central and local levels
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Merging relevant functions under fewer ministries and offices at
local levels to ease access to social assistance and integrate social
policy with efforts to address low labor force participation)
Simplifying the design and administration of benefits: a
single, unified welfare benefit administered by one central
agency/ministry and provided through one-stop shop
Upgrading the social assistance information system beyond
the planned MIS in CWS - reduce the errors of exclusion and
inclusion and costs for clients