Do Social Benefits Respond to Crises? Evidence from Europe & Central Asia During the Global Crisis

DISCUSSION PAPER

Abstract Social benefits can potentially play an important role in protecting the poor and minimizing the impacts of an economic crisis. While many studies estimate the impacts of a crisis, there is little evidence of the actual response of social safety nets to systematic shocks. This study traces the response of social benefits during the 2008–10 global crisis for 14 countries in ECA. The study first sets out a framework for defining the “expected” response of social benefits covering an assessment of pre-crisis preparedness of social benefits and the severity of the crisis for all countries in the ECA region to provide the context; and then develops a typology of all countries categorized by expected response. Using this typology the study analyzes the monthly administrative data on the observed patterns within social benefit programs.

Main findings indicate that actual responses were largely in line with expectations. Precrisis preparedness clearly influenced the ability of social benefits to respond to the crisis.

Unemployment benefits were generally the first line of response in countries that have them, while social assistance programs also expanded coverage during the crisis. Lessons learned from the 2008-2010 global crisis (such as the importance of structural reform, design, and implementation which affect the success of social benefits programs in crisis response) are also presented. The study concludes with some policy recommendations to help ECA countries prepare for future crises.

NO. 1219

Do Social Benefits Respond to Crises?

Evidence from Europe & Central Asia During the Global Crisis

Aylin Isik-Dikmelik

About this series...

Social Protection & Labor Discussion Papers are published to communicate the results of The World Bank’s work to the development community with the least possible delay. The typescript manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally edited texts.

The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the International Bank for Reconstruction and Development / The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The author(s) attest(s) that the paper represents original work. It fully references and describes all relevant prior work on the same subject.

For more information, please contact the Social Protection Advisory Service, The World Bank, 1818 H Street, N.W., Room G7-803, Washington, DC 20433 USA. Telephone: (202) 458-5267, Fax: (202) 614-0471, E-mail: socialprotection@worldbank.org or visit us on-line at www.worldbank.org/sp.

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November 2012

Do Social Benefits Respond to Crises?

Evidence from Europe & Central Asia During the Global Crisis1

Aylin Isik‐Dikmelik November 2012

Human Development Sector Unit Europe and Central Asia Region

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This study was authored by Aylin Isik‐Dikmelik with inputs from Yulia Smolyar and Syon Bhanot; and a core World Bank team who were instrumental in data collection and the preparation of the country briefs. This core team comprises of: M. Ihsan Ajwad (Latvia), Anatassia Alexandrova (Kyrgyz Republic), Rajna Cemerska (FYR Macedonia), Lire Ersado (Armenia), Ivan Drabek (Croatia), Boryana Gotcheva (Bulgaria, Montenegro, Serbia), Ufuk Guven (Albania), Victoria Levin (Armenia), Nino Moroshkina (Georgia), Yulia Smolyar (Ukraine), and Emil Tesliuc (Bulgaria and Romania). Data on Hungary and Lithuania was kindly provided by the European Commission. Victoria Strokova and Syon Bhanot provided excellent research assistance. The study benefitted from discussions and comments from: M. Ihsan Ajwad, Mehtabul Azam, Paul Cahu, Mame Fatou Diagne, Ariel Fiszbein, Ufuk Guven, Boryana Gotcheva, Jesko Henstchel, Natsuko Kiso, Johannes Koetll, Jennica Larrison, Victoria Levin, Kathy Lindert, Isil Oral, Indhira Santos, Anita Schwarz, Owen Smith, Ramya Sundaram, and Asta Zviene. The work also benefitted greatly from the peer reviewers: Isabelle Maquet, Margaret Grosh, and Cem Mete. Funding from Crisis Contingency Fund and Trust Fund for Environmentally and Socially Sustainable Development (TFESSD) is gratefully acknowledged. All errors are the responsibility of the author.

Abstract Social benefits can potentially play an important role in protecting the poor and minimizing the impacts of an economic crisis. While many studies estimate the impacts of a crisis, there is little evidence of the actual response of social safety nets to systematic shocks. This study traces the response of social benefits during the 2008‐10 global crisis for 14 countries in ECA. The study first sets out a framework for defining the “expected” response of social benefits covering an assessment of pre‐crisis preparedness of social benefits and the severity of the crisis for all countries in the ECA region to provide the context; and then develops a typology of all countries categorized by expected response. Using this typology the study analyzes the monthly administrative data on the observed patterns within social benefit programs. Main findings indicate that actual responses were largely in line with expectations. Pre‐crisis preparedness clearly influenced the ability of social benefits to respond to the crisis. Unemployment benefits were generally the first line of response in countries that have them, while social assistance programs also expanded coverage during the crisis. Lessons learned from the 2008‐2010 global crisis (such as the importance of structural reform, design, and implementation which affect the success of social benefits programs in crisis response) are also presented. The study concludes with some policy recommendations to help ECA countries prepare for future crises.

JEL Classification: H53; I38; J68

Keywords: social safety nets; crisis readiness; crisis response; unemployment benefits; Europe and Central Asia

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Table of Contents I.

OVERVIEW: CONCEPT AND METHODOLOGY ....................................................................... 3

Response of Social Benefits to Crisis in Practice (Overview of Methodology) ................................ 4 II.

EXPECTED SOCIAL BENEFITS RESPONSE: BROAD FRAMEWORK ......................................... 7

Pre‐Crisis Preparedness of Social Benefits Systems (pre‐2009) ...................................................... 8 The Severity of the Crisis (2009‐2010) .......................................................................................... 12 Expected Crisis Response: Pre‐crisis Preparedness + Severity of the Crisis .................................. 18 III.

OBSERVED SOCIAL BENEFIT RESPONSES ........................................................................... 20

IV.

LESSONS LEARNED: THE IMPORTANCE OF ACTION ........................................................... 30

V.

CONCLUDING REMARKS AND POLICY RECOMMENDATIONS ............................................ 36

REFERENCES .................................................................................................................................. 40 Annex 1 ‐ Methodology on Pre‐Crisis Preparedness of SB Rankings ............................................ 43 Annex 2‐ Individual country briefs ................................................................................................ 50

List of Figures: Figure 1: Social Assistance Programs (as a share of GDP) ............................................................. 8 Figure 2: The Pre‐Crisis (before 2009) Preparedness of Social Benefit Programs in ECA Countries ....................................................................................................................................... 10 Figure 3: GDP growth (annual percentage change) ..................................................................... 13 Figure 4: Severity of Crisis: Change in GDP & Unemployment Rate 08 to 09‐‐ ECA Countries ... 14 Figure 5: Wide Variation in Severity of the Crisis Across the ECA Region (SBO Plus Sample) ..... 15 Figure 6: Fiscal Balance: ECA Countries 2007‐2009 ..................................................................... 16 Figure 7: Severity of Crisis vs. Fiscal Constraints: GDP Growth 2009 & Change in Fiscal Balance 2007 to 2009‐‐ SBO Plus Sample ..................................................................................... 18 Figure 8: Disability Benefits Indexed Number of Beneficiaries ................................................... 29 Figure 9: Both Ukraine and Latvia had Room for Improving the Quality of Social Safety Net Spending ....................................................................................................................................... 32

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List of Tables: Table 1: Do We Expect Social Benefits to Respond? ................................................................... 19 Table 2: Observed & Expected Responses of Social Benefits to the Global Crisis, ECA .............. 20 Table 3: Timing and Duration of Responses of Social Benefits to the Global Crisis, ECA ............. 21

List of Boxes: Box 1: Other Social Protection Instruments: Government Measures and Potential Behavioral Responses ..................................................................................................................................... 22 Box 2: Response of Social Benefits to the Crisis in the EU ........................................................... 26 Box 3: The Response of Social Benefit Programs in the US during the Crisis ............................... 35

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I.

OVERVIEW: CONCEPT AND METHODOLOGY

The global economy experienced one of the most severe economic downturns of recent times starting in 2008 and continuing through 2009. The Europe and Central Asia Region (ECA) was more directly affected than any other region by the recent global financial crisis, though the extent of this impact varied significantly by country. Although there were signs of recovery in 2010, food prices increased again in 2011, highlighting the importance of social benefits as a crisis response mechanism. As a result, it has become imperative to understand the role that social benefits may have played in mitigating the welfare impacts of the global financial crisis.

Social benefits2 – and social protection more broadly – are among the mechanisms that are called upon to respond to systemic economic crises. It is widely accepted that social benefits are likely to play an increasingly important role in mitigating the negative impacts of crises through prevention (providing security to the vulnerable), protection (providing adequate support to the poor), and promotion (expanding opportunities for higher productivity and income, especially as the crisis wanes).3 Conceptually, some safety net programs (in other words, means‐tested entitlement programs) are supposed to work as “automatic stabilizers” in that they are designed to expand to meet increased need (helping households to smooth their consumption, mitigating the adverse impact of the shocks) and to contract as the economy recovers. Governments can expand existing programs (with well‐proven track records) – either in coverage or the value of benefits – to channel additional resources to the poor quickly and cost‐effectively. Alternatively, they can create new programs as a crisis response, though this takes time. If effective, social benefits can alleviate increases in poverty and inequality by enabling families to continue to access food and other important services for health and education, thus preventing irreversible losses to their human capital.

While this countercyclical role of social benefits is intuitive, it is not always straightforward in practice. Counter cyclicality can be constrained by design features,

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Throughout this report, social benefits refer to non‐contributory cash or near cash transfers (such as last resort social assistance programs, child/family allowances, and disability allowances) and unemployment benefits. Although unemployment benefits tend to be contributory in nature, we included them in our definition of social benefits because this crisis manifested itself mainly through the labor market and the automatic stabilizer role that they are likely to play in an external macro shock.

3 The World Bank (2012b). “Resilience, Equity, and Opportunity: The World Bank’s Social Protection & Labor Strategy, 2012‐2022. Robert Holzmann and Steen Jorgensen (February 2000). “Social Risk Management: A new conceptual framework for Social Protection and beyond.” World Bank Social Protection Discussion Paper No. 0006.

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implementation capacity, institutional capacity, and fiscal pressures. Thus, systemic evidence on how social benefits actually respond to crises in practice is minimal. While some studies4 have simulated the role that social benefits could be expected to play after a systemic shock, there is not much evidence on how social benefits have actually responded to systemic shocks in practice. Only a few studies have examined actual responses to crisis.

In terms of actual responses, the literature mostly focuses on how governments have used social benefits as response to crises (for example, the expansion of the safety net in Korea during the East Asia crisis and the expansions of social pensions in Thailand), but the literature does not say much about the actual increases or magnitudes of the benefits provided. Two reports by the Social Protection Committee of the European Commission5 examine the responses to the global crisis in EU member states, using administrative data (but do not cover ECA countries more broadly). We draw significantly on this paper and incorporate the underlying data for EU new member states (part of ECA region) for our own analysis.

Response of Social Benefits to Crisis in Practice (Overview of Methodology)

This study traces the actual response of social benefits during the global crisis using monthly administrative data in a “Social Benefits Observatory” (SBO). We presumed that as the global crisis unfolded, a decrease in household incomes and employment would create an increased demand for benefits. The degree to which social benefits programs respond to an increase in applications can be an indicator of their flexibility (counter‐ cyclicality) as crisis response mechanisms. Furthermore, the degree to which information on numbers of applicants, beneficiaries, and spending on such programs is readily available can be an indicator of administration capacity, which if low, can signal the need for structural improvements in the medium term. The SBO was developed to monitor the program response.

The actual response of social benefits during the global crisis was examined for 14 countries in the ECA region. Specifically, monthly administrative data were collected in the

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Please see Leventi et al (2010) and Ozdemir et al (2010). Though these studies do not directly estimate the role of social benefits, they do simulate the distributional impact of the crisis as well as the austerity measures which has implications for the demand for social benefits. Also see Narayan and Sanchez‐Paramo (2012), for a macro‐micro simulation model estimates the distributional impact of the global crisis for 4 case study countries: Bangladesh, Mexico, Philippines, and Poland.

5 Council of the European Union (2010), “Joint Assessment by the Social Protection Committee (SPC) and European Commission of the Social Impact of the Economic Crisis and of Policy Responses.” Council of European Union (2011), “Third Report on the Social Impact of the Economic Crisis and Ongoing Fiscal Consolidation.”

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SBO for the period from 2008 (pre‐crisis benchmark) to 2010 for over a dozen countries in the ECA region: Albania, Armenia, Bulgaria, Croatia, Georgia, Hungary, the Kyrgyz Republic, Latvia, Lithuania, FYR Macedonia, Montenegro, Romania, Serbia, and Ukraine. Countries were selected on the basis of availability of data from administrative information systems, with the goal of covering a broad range of countries in diverse contexts across the region.

The original SBO sample included monthly administrative data for non‐EU members (Albania, Armenia, Croatia, Georgia, the Kyrgyz Republic, FYR Macedonia, Montenegro, Serbia, and Ukraine), along with data for Bulgaria, Romania, and Latvia (EU member states).

The sample was expanded to cover Hungary and Lithuania (EU members) with data from a study by the Social Protection Committee of the European Commission.6 As such, the “SBO Plus” sample covers all 14 countries, as reported in this study.

The study focuses on the response of key social benefits, including social assistance cash transfers plus unemployment insurance. Specifically, social benefits included in the sample comprise non‐contributory cash assistance benefits, such as Last Resort Social Assistance programs (LRSA), child/family allowances and disability allowances, plus unemployment benefits. Although unemployment benefits tend to be contributory in nature, we included them in the definition of social benefits for the SBO because the effects of the crisis were transmitted mainly through the labor market, and as such, one would expect unemployment benefits to respond to the crisis. This is not to disregard the potential role of other social protection instruments or programs in responding to the crisis, such as pensions, public works programs, and so forth.

In terms of variables, the study focuses mainly on the response of “coverage” and “monthly program expenditures” to the crisis. The Social Benefits Observatory collected monthly administrative data on the number of applications, rejections (to the extent available), beneficiaries (coverage), and spending for the main social benefits programs. In the final analysis, we focus our analysis and findings on the coverage indicator, because it is the most complete data series across time (months) and countries (in the SBO sample). The main source of these data was government management information systems, provided by national Ministries of Labor and Social Protection. In addition to these monthly quantitative data, the SBO also compiled data on changes in the policy environment from various sources (official reports, government ministries, reform information in Development Policy Operations (DPOs), World Bank staff working on the particular countries, and so forth). It should be noted that throughout this paper, the term “response” is used to reflect a change

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Council of the European Union (2010). “Joint Assessment by the Social Protection Committee (SPC) and European Commission of the Social Impact of the Economic Crisis and of Policy Responses.”

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in the relevant indicator compared to the pre‐crisis levels of the same indicator – for example, an increase in coverage (or spending) as compared with the pre‐crisis benchmark.

Although we have attempted to document other factors besides the crisis that may have influenced such changes, we acknowledge that the “response” terminology points to an association with the crisis, rather than to direct causality.7

It is also important to note that existing beneficiaries of social benefits programs will also be protected to some extent from the impacts of the crisis (e.g., via a more certain income stream from the transfers) – and the maintenance of existing coverage can also be considered as a crisis response. Furthermore, improvements in targeting within the existing level of coverage can also constitute a crisis response. For example, in Armenia, the Government implemented a proactive strategy to reduce fraud and error and improve targeting so as to increase the coverage of the poor within existing coverage and budget limits.8 Such a response to the crisis was identified in our qualitative information on policy responses, but not picked up in the overall quantitative measures of changes in coverage or spending under the SBO. Finally, the creation of a new targeted social benefit program could also constitute a crisis response, particularly if one did not exist prior to the crisis.

While beyond the scope of our sample and study, two countries in the ECA region introduced new mechanisms to channel benefits to the poor as part of their crisis response: Moldova (which is starting to scale‐up a pilot targeted program) and Tajikistan (which is starting to pilot the development of a registry for targeting social benefits to the poor)9.

Actual (observed) responses of social benefits were then contrasted with the expected response, taking into account the severity of the crisis in each country and the “pre‐crisis preparedness” of their social benefit systems. As a broad framework, the degree to which social benefits respond to a systemic shock (crisis) depends on: (i) the severity of the crisis (and the nature of the shock and the transmission channels for crisis impacts); and (ii) the extent to which social benefits systems are ready to respond (pre‐crisis preparedness); as

7 It should be noted that it is difficult to quantify the magnitudes of expected social benefits responses. While some studies have estimated the impact of certain types of crises on poverty and/or overall distributional outcomes (Tiongson et al 2010; Leventi et al 2010; Ozdemir et al, 2010; Narayana & Sanchez‐Paramo, 2012), none seems to have systematically translated these changes in welfare into expected demand for certain social benefits by simulating the rules of benefits (assuming there are no rule changes). While this is an interesting task for future researchers, it is beyond the scope of the current paper.

8 In addition, a study of the impacts of crisis in Armenia, World Bank (2010), indicated that coping strategies, most important of which was support provided by the government (via pensions and targeted family benefits), may have averted substantial increase in poverty in Armenia during the crisis.

9 ILO/WB (2012) provides a comprehensive inventory of policy responses in labor markets and social protection to the global crisis.

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well as other considerations, such as the influence of fiscal and political economy constraints. The paper classifies the 14 ECA countries according to the severity of the crisis (GDP, unemployment, fiscal shocks). It also uses data from household surveys plus administrative information to classify countries according to the pre‐crisis preparedness of their social benefit systems.

The paper is organized into five sections. The broad framework for defining the “expected” response of social benefits in all ECA countries is developed in Section II to provide the context in which to evaluate the actual responses. This covers: (a) an assessment of pre‐crisis preparedness of social benefits for countries in the ECA region; and (b) the severity of the crisis, which varied substantially in countries across the ECA region (and within the SBO Plus sample). Section II compares these key factors governing the expected response, developing a typology of countries categorized by expected responses according to the severity of the crisis and pre‐crisis preparedness. Section III presents our main findings based on our analysis of the administrative data under our Social Benefits Observatory (SBO Plus sample). Section IV, addresses the lessons learned from our analysis, while the final section summarizes the main conclusions and presents some policy recommendations.

II.

EXPECTED SOCIAL BENEFITS RESPONSE: BROAD FRAMEWORK

The extent to which governments can use social benefits to respond to a crisis depends very much on the capacity of their core delivery systems pre‐crisis. These core social benefits systems include targeting mechanisms, reliable household registries and management information systems, mechanisms for making payments and delivering services, and tools for basic monitoring, oversight, and control. When well‐targeted and well‐functioning programs with a reasonably high coverage of the poor exist, they can be scaled up during a crisis to alleviate the negative impact on household welfare.

Most countries in ECA operate a mix of social benefits programs similar to that in OECD countries, with at least one targeted safety net program (otherwise known as a last‐resort social assistance program, LRSA). Many countries operate some type of unemployment benefit scheme, though these tend to have low coverage due to the high degree of informal labor in many ECA countries. There is also an emphasis on family allowances (including child allowances and birth grants) followed by disability benefits and heating/housing

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allowances. In many countries, there is a proliferation of multiple programs, which frequently results in fragmentation of the social assistance sector (Figure 1).

Figure 1: Social Assistance Programs (as a share of GDP)

Source: Sundaram and Strokova (forthcoming) and ECA Social Protection Database

Experience from past crises shows that countries with an effective program mix and core systems are well‐positioned to respond. A broad safety net covering multiple vulnerable groups facilitates crisis mitigation. In addition, when core systems are in place, countries can scale them up quickly, whereas if they are not in place, this limits the number of options available to respond effectively.

Pre‐Crisis Preparedness of Social Benefits Systems (pre‐2009)

We developed a typology to categorize the “pre‐crisis preparedness” of social benefits in ECA countries based on available information. Pre‐crisis preparedness draws on a composite score for each country for their social benefits system prior to 2009 based on: (i) the pre‐crisis performance of any last resort social assistance program (LRSA) in terms of targeting accuracy (the percentage of benefits that went to the poorest quintile), coverage (the percentage of the poorest quintile covered by the program), and generosity estimated from household surveys; (ii) the pre‐crisis performance of any child allowance program in

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terms of targeting accuracy, coverage, and generosity estimated from household surveys; (iii) the coverage of any unemployment benefit (as proxied by the proportion of formal sector workers among the employed, which indicates an upper bound); and (iv) information capacity as an indicator of the efficacy of the administration of benefit programs (especially since information monitoring systems would be needed to monitor the crisis and process an increase in applications during a crisis). While these indicators cover a good portion of the relevant information, the resulting index is not a precise measure. There are many other factors (such as quality of implementation, administrative capacity to handle increase in applications, design issues such as ease of application etc.) that are difficult to measure and therefore cannot be included. Moreover, composite indices can be constructed in many different ways (simple average, weighted average etc.). However, we sorted countries based on the available social benefits information, and the index used in this study reflects our best judgment. Annex 1 presents the detailed methodology used for this categorization exercise along with the combination of programs and their performance.

Overall, social benefit systems in most ECA countries were generally well prepared compared to countries in other regions pre‐crisis (as of 2008). Almost all countries10 in the ECA region operate at least one well‐targeted LRSA program that could be scaled up if needed, though coverage of the poor is low and is not in line with the total fiscal effort on safety nets as a whole.11 Most countries operate child and family allowances, though, if not targeted, these may not be cost‐effective vehicles for channeling assistance to the poor. In addition, most countries have an unemployment benefit scheme, though the coverage is mostly for the formal sector workers.12 Nonetheless, the ECA region is diverse, and there was a gap between the most prepared countries and the least prepared. Figure 2 presents the countries ranked according to their pre‐crisis preparedness.

10

Two exceptions were Moldova, which is now scaling up a targeted program, and Tajikistan, which is now piloting an initial targeting and registry system to channel benefits to the poor.

11 Sundaram and Strokova (forthcoming) and ECA Social Protection (SP) Database.

12 The existence and coverage of unemployment benefits and a poverty‐targeted social assistance program would be one way of categorizing countries with respect to their pre‐crisis preparedness. However there is not enough variation across ECA countries to result in meaningful categories for pre‐crisis preparedness. Hence, more detailed indicators were used to construct the composite index to rank countries with respect to their pre‐crisis preparedness of social benefits.

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Figure 2: The Pre‐Crisis (before 2009) Preparedness of Social Benefit Programs in ECA Countries13

Source: World Bank staff; Countries in red refer to SBO Plus sample countries.

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Category A – Well‐Prepared as of 2008. Those in Category A score high on the composite score for all factors (the existence and performance of LRSA programs, the existence and performance of child allowance programs, existence and coverage of unemployment benefits, and availability of information). These countries include Armenia, Croatia, and Montenegro. All three countries in this category have very

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The pre‐crisis preparedness ranking presented here is specific to the ECA region, reflects the pre‐global recession systems (2008 and before) and employs a different methodology with more detailed data (not available globally) than used in World Bank (2012a), hence resulting in a finer categorization of the countries in the region. This categorization is different from the global ranking presented in World Bank (2012a), which encompasses the 2008‐2010 period, and reflects the overall strength of the SSNs in ECA compared to other regions.

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





well‐targeted LRSA and child allowance programs with moderate to good coverage.

In addition unemployment insurance exists in all these countries with moderate to high formality in the labor force, indicating moderate to high coverage. In addition, the information on social benefits programs was available on a monthly basis with a relatively small lag in data.

Category B – Reasonably Prepared as of 2008. Category B groups countries with a reasonable ability to respond prior to the crisis, though reforms could improve their capacity to address the crisis. Estonia, Georgia, Hungary, Poland, and Ukraine are included in this group. In general, these countries have moderate to well‐targeted LRSA programs, but with low coverage and low generosity in most cases (with the exception of Georgia where coverage of LRSA is moderate and generosity is good).

In addition, with the exception of Georgia (where family allowance is being phased out by not accepting new applicants since 2007), they all have moderate to well‐ targeted child allowance programs with good coverage. On the other hand, all except Georgia have some type of unemployment benefit scheme with moderate to high formality among the employed. The relatively less preparedness is due to low coverage and generosity of LRSAs for most countries in this group and in the case of Georgia, mostly due to lack of an unemployment benefit scheme.

Category C – Less Prepared as of 2008. However, Category C countries presented significant weaknesses in their pre‐crisis preparedness, often due to extremely low coverage of their LRSA programs (due to marginalization over time), and/or the relatively weak performance of their child allowance programs (when they exist) compared to the countries in Group B. This group includes Albania, Azerbaijan, Bulgaria, FYR Macedonia, Lithuania, Romania, and Turkey. Moreover, while unemployment benefits exist in all of these countries, the coverage is moderate to low. Finally, overall information capacity is low in most of these countries due to a lack of national/harmonized registries with most (e.g. FYR Macedonia, Albania, Romania) still using paper‐based benefits administration prior to crisis.14 A concerted strategy of actions and reforms would be needed, especially in strengthening benefits administration and increasing coverage of LRSA program, to enhance capacity to respond to a crisis more effectively and efficiently to protect the poor.

Category D – Least prepared as of 2008. Finally, there is a significant group of countries in which an overhaul of the social assistance system would be needed.

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Prompted by the fiscal pressures during the crisis and in some cases due to an ongoing reform effort, some of these countries are currently in the process of moving from paper‐based to automated management information systems to improve implementation efficiency.

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These countries include Belarus, Bosnia and Herzegovina, Kazakhstan, Kosovo, Kyrgyz Republic, Latvia, Moldova, Russia, and Tajikistan. Certain countries, such as Belarus, Moldova, Russia, and Tajikistan did not have a scalable poverty‐targeted program before the crisis and hence would require significant institutional capacity building. Since then, however, both Moldova and Tajikistan have taken steps to introduce a targeted program, build institutional capacity and /or consolidate social benefits. On the other hand, while Bosnia and Herzegovina and Kazakhstan had well‐ targeted LRSA programs, their coverage was extremely low. In the case of Latvia, the poverty‐targeted program was only moderately well‐targeted with low coverage and very low generosity.

Note that some of the ECA countries that fall under Categories C or D still have a moderate base for response as defined by “operating one or more progressively targeted programs to build on.”

The more prepared a country is with respect to its social benefits system, the more likely the system is to be effective in mitigating the effects of a systemic shock. Hence, assuming everything else (such as the severity of the crisis, how it manifests itself, and any political economy factors) is constant; we would expect to see an effective social benefits response in countries in category A, while we would expect a much less effective response in countries in category D.

The crisis may also present an opportunity for the government to introduce structural reforms by introducing a well‐targeted program, rationalizing and consolidating the existing safety net, or strengthening the system in some way. Even though designing and fully implementing a new program can take at least 10 to 18 months (often more), the medium‐ term rewards cannot be ignored, particularly in terms of increasing the system’s preparedness for a potential future crisis. The previous food and fuel price increases prompted the governments of both Moldova and Tajikistan to introduce structural reforms of their safety nets.

The Severity of the Crisis (2009‐2010)

Conceptually, the more severe the impact of a crisis in a country, the more it can be expected that social benefits will be needed in response. In this context, we examine the severity of the recent global financial crisis in ECA countries to identify how social benefits might have been expected to respond.

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The ECA region was hit harder than any other region by the recent global crisis in terms of GDP contraction, but the extent of this impact varied significantly from country to country. While global GDP contracted by around 2.2 percent in 2009,15 in ECA countries, the average contraction was more than 5.0 percent (Figure 3). Eastern European countries were particularly affected, with Estonia, Latvia, Lithuania, and Ukraine experiencing startling economic contractions of 14 to 18 percent (Figure 4). The severity of the crisis varied, however, with most Central Asian countries seemingly escaping the worst of the crisis.

Simulations indicate that by the end of 2010 there might have been 10 million more poor people in Europe and Central Asia than were estimated in pre‐crisis baseline projections.16 This increase in poverty would correspond to 20 percent of the ECA population who rose out of poverty between 1998 and 2006 (Tiongson et al, 2010).

Figure 3: GDP growth (annual percentage change)

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This was the first contraction in global GDP since World War II. This number appears to be quite large. However it is important to note that poverty in ECA tends to be shallow, with large groups of individuals clustered around the poverty line and hence likely to fall into poverty even after only a moderate shock to their income. Recent poverty estimates indicate that, contrary to expectations poverty remained mostly unchanged in 2009 and slightly declined in 2010. This is partly due to the role of social assistance and pensions in mitigating the reduction in household labor income. Please see “Poverty in ECA: Understanding recent trends” April 2012, for more details.

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Source: Staff calculations using IMF World Economic Outlook (WEO) Database April 2012 Note: Only low and middle income countries included based on World Bank classification of regions. LAC – Latin American and the Caribbean, MNA – Middle East and North Africa, EAP – East Asia and the Pacific, and SA – South Asia, SSA – Sub‐Saharan Africa.

The countries that were most affected with respect to GDP also experienced the highest increases in unemployment (Figure 4).17 In most countries the decline in employment was proportional to the magnitude of the GDP contraction.18 However, there were notable exceptions, such as Latvia, Serbia, and Estonia, where the decrease in employment was higher than the corresponding decline in GDP.19

Figure 4: Severity of Crisis: Change in GDP & Unemployment Rate 08 to 09‐‐ ECA Countries 15 LV 10

EE

LTH

5

UKR

ARM

SI

RUS

RO

HU MLD

SRB SK TR CZ MNT BG CRT BIH GRG

MKD ‐5

SI RUS

‐10

‐15

‐20

UKR LTHARM

RO HU

MLD CRTMNT BG

GRG SRB SK TR CZ

BLR

PL

ALB KOS ALB KOS KZK PL

BLR KZK MKD

0

BIH

EE

LV GDP growth 2009

Change in unemployment rate (2008 to 2009)

Source: Staff calculations using IMF WEO April 2012 and ILO Note: No data available for Azerbaijan, Kyrgyz, Tajikistan, Turkmenistan and Uzbekistan (all of which had positive GDP growths in 2009 and are part of the mildly affected group).

Using both measures, the countries of ECA can be categorized broadly into a typology of three groups according to the severity of the crisis ‒ those who were severely affected,

17

It is important to note that overall unemployment numbers do not take into account other labor market adjustments such as increased part‐time employment, administrative leave, wage arrears, and temporary contracts.

18 According to World Bank, (2011), a 1 percent decline in GDP on average reflected a 0.5 percent decline in employment.

19 World Bank (2011a).

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those for whom the impact was moderate to high, and those who felt no impact. The Baltic countries were among the severely hit, with unemployment rates in 2009 as high as 12 to 16 percent compared with only 6 to 8 percent before the crisis in 2008. There were also large increases in unemployment in Armenia and Ukraine. On the other hand, most countries in Central Asia and some in Eastern Europe experienced only limited effects of the recent global financial crisis.

The SBO Plus sample includes a mixture of countries with respect to how severely they were affected by the crisis (Figure 5). Four of the five severely hit countries and eight of the fourteen moderate to high impact countries are included in the SBO Plus sample. The sample only includes three out of the eleven countries that experienced a limited impact,20 but given that our focus is on how social benefits responded to the crisis any under‐ coverage of these countries in the data was not likely to be a problem for our analysis.

Figure 5: Wide Variation in Severity of the Crisis Across the ECA Region (SBO Plus Sample) 15 LTV 10

LTH

5

UKR

ARM

ROM

HNG CRT

MNT

SRB BLG

GRG MKD

0

ALB ALB

KRG

MKD ‐5

GRG ROM HNG

‐10

‐15 UKR ‐20

CRT

SRB

MNT BLG

LTH ARM

LTV GDP growth 2009

Change in unemployment rate (2008 to 2009)

Source: IMF WEO, April 2012 and ILO

20

While it would have been more efficient to monitor only those countries who experienced significant (severe or moderate to high) crisis impacts, since the crisis monitoring was started in the early stages of the crisis it was not clear which countries would be impacted significantly.

15

As the recent global financial crisis progressed, immense fiscal pressures emerged in many European and Central Asian countries. Public finances worsened in 2009, with fiscal deficits increasing on average by 3.7 percent of GDP (Figure 6).21 These rising fiscal deficits have limited the ability of governments to respond to the crisis. There is not much systematic region‐wide analysis of political economy issues (and is thus on the Bank’s future knowledge agenda in social protection), and these will be discussed later in the context of the actual social benefits response in ECA countries.

While government finances decreased in most ECA countries, there were discernible differences between countries. While fiscal balances worsened significantly in Russia, Latvia, Lithuania, Montenegro, and Georgia with an average increase in the fiscal deficit of 10 percent of GDP between 2007 and 2009, Croatia, and Serbia appear to have weathered the crisis without a huge deterioration in their finances (Figure 6).

Figure 6: Fiscal Balance: ECA Countries 2007‐2009

25 20

2007

2008

2009

15 10 5 0 ‐5 ‐10

Source: IMF WEO April 2012

The proportion of the current fiscal balances that are structural versus cyclical is a vital factor in whether or not each country needs short‐term fiscal consolidation. This in turn

21

World Bank (2011a)

16

will affect how best to mitigate the negative effects of the crisis on household welfare and the corresponding expected social benefits response. For instance, on average, structural deficits account for more than three‐quarters of projected 2012 deficits in OECD countries.22 In other words, in these countries, even with increased revenues in 2012, spending will still be much higher than before the crisis. It is difficult to analyze the structural proportion of the fiscal deficits in ECA countries. In any case, severe fiscal pressures have limited the ability of ECA governments to respond to the crisis. There is little to no room for expansionary fiscal policy, which has forced governments to execute a series of cuts in expenditures. However, in most countries, social assistance spending was protected (and increased in some cases) for allocative efficiency with the ultimate goal of protecting existing and emerging vulnerable groups. Furthermore, certain social assistance programs were frozen and/or eliminated as a first step towards the consolidation of programs to improve the quality and increase the effectiveness of spending on safety nets.

In most cases, countries that were severely affected by the recent financial crisis also faced the largest fiscal deteriorations (Figure 7). However, there are some notable exceptions. For instance, while Montenegro and Georgia only experienced relatively moderate GDP contractions, they experienced significant fiscal deterioration. In addition, a large proportion of these deficits is structural. Hence, while countries may be fiscally constrained overall, this is not necessarily due to the crisis alone, but also to a structural component best addressed with structural reforms (such as expenditure rationalizations or the consolidation of social benefits) than by across‐the‐board cuts in expenditures.

22

Organization for Economic Cooperation and Development (2011)

17

Figure 7: Severity of Crisis vs. Fiscal Constraints: GDP Growth 2009 & Change in Fiscal Balance 2007 to 2009‐‐ SBO Plus Sample 5 HNG 0

KRG KRG CRT

SRB BLG

ROM

UKR ARM

‐5

GRG GRG

LTH

LTV

ROM HNG

CRT

MKD MKD

ALB

ALB

SRB

MNT BLG

‐10 MNT

‐15 UKR

‐20

LTH

ARM

LTV GDP growth 2009

Change in fiscal balance (2007 to 2009)

Source : IMF WEO April 2012

Expected Crisis Response: Pre‐crisis Preparedness + Severity of the Crisis Juxtaposing the degree of severity of the crisis with each country’s pre‐crisis preparedness reveals important patterns for “expected crisis response.” Considering all the key factors outlined above, ECA countries can be grouped into three categories in terms of what could be expected of their social benefits response (the colors of the group labels correspond to those in Table 1). These three categories set the stage to compare the expected response of social benefits in each country with the actual response employed by each country.

 Group 1 ‐ Response Needed & Expected. The first group consists of countries where a social benefits response was very much needed and expected, but in some countries (such as Georgia, Montenegro, and Armenia) worsening finances may have constrained the expected social benefits response. This group corresponds to countries that were moderately to severely hit by the crisis (with respect to GDP contraction and unemployment), and whose social benefits systems were well prepared to respond.

18





Group 2 ‐ Response Needed – but Less Prepared. The second group consists of those countries which were severely‐to‐moderately affected by the recent global financial crisis and were in need of a response, but whose social benefits systems were not very well prepared to respond to the crisis. Hence, in this group of countries, the social benefits system needed reforms before it could be expected to respond. Fiscal pressures faced by this group of countries may have also reinforced the need for reforms to improve the quality of spending.

Group 3 – Limited Response Needed or Expected. The last group of countries consists of those that were affected only slightly by the recent crisis, so that only a limited (if any) social benefits response was expected, regardless of pre‐crisis preparedness.

Table 1: Do We Expect Social Benefits to Respond?

Typology of ECA Countries According to Severity of Crisis and Pre‐Crisis Preparedness

Source: Author

19

III.

OBSERVED SOCIAL BENEFIT RESPONSES

Based on our analysis of the actual responses of the social benefits systems in ECA countries, we created a typology to illustrate the observed vs. expected responses with four main dimensions. The first dimension is the composition of the social benefits response taking into account the type of programs that expanded during the crisis (unemployment benefits, social assistance benefits). The second dimension is the magnitude of the response as measured by the expansion in social benefits programs during the crisis. The third dimension is the timing of the response, taking into account any lags in the response by social benefits programs. The fourth and final dimension is the sustainability of the response from the onset of the crisis to recovery, taking into account the fact that the effects of a crisis tend to persist for a while. All of these dimensions have important policy implications. Table 2 illustrates the composition and magnitude of each country’s social benefits response, while Table 3 addresses the timing and sustainability of the response in each country.

Table 2: Observed & Expected Responses of Social Benefits to the Global Crisis, ECA

Source: Author. Data for Observed Responses from World Bank Social Benefits Observatory, SBO Plus Sample (including Hungary and Lithuania from EC/SPC report (2010). Expected Response classification from framework in Section II, covering severity of the crisis + pre‐crisis preparedness.

20

Table 3: Timing and Duration of Responses of Social Benefits to the Global Crisis, ECA

Source: Ibid.

Overall, social benefits in the ECA region responded as expected vis‐à‐vis the severity of the crisis23. For the most part, social benefits in countries that faced more extreme contractions in GDP and employment responded in a robust manner to the crisis (shown in orange in the first section of Table 2), while social benefits in countries with limited crisis impact did not radically change course from pre‐crisis trends (shown in green in the lower section of Table 2). One exception was Ukraine, which was severely hit by the crisis, but significantly limited social benefits by tightening program rules (discussed in more detail in the next section). Other social protection instruments, such as pensions, were also employed in crisis response. Box 1 provides some examples of how pensions were utilized in crisis response.

23

While it would have been ideal to analyze the observed responses of social benefits in all countries in ECA, data availability issues revealed this to be unfeasible. However, expected response framework is developed and utilized for all countries in ECA to provide the broad context in which to evaluate the observed responses.

21

Box 1: Pensions in Crisis Response: Government Measures and Potential Behavioral Responses

Other Social Protection measures were also deployed to mitigate the impact of the crisis on household welfare. Most notable of these were the various pension policies adopted in certain countries. The generosity of the (minimum) pensions was increased in some countries including Armenia and Turkey. A minimum pension was introduced in Romania to protect the low income pensioners during the crisis. Pensions increased in Bulgaria as part of the planned spending in January and July 2009, despite significant decreases in overall revenues (World Bank, 2012a). The indexation of pension benefits (to wage growth) was suspended in Serbia during the crisis preventing the decrease that would have occurred due to the decreasing wages.24 The non‐ contributory social pensions were also deployed. For instance in Georgia the monthly old age social pension was increased from 70 to 75 GEL in January 2009 and was further increased to 80 GEL in November 2009. However, this may not necessarily be in response to the crisis as there is a history of ad‐hoc adjustments to old‐age pension in Georgia keeping the benefit more or less steady as a share of average wage.

Such pension policies impacted a large segment of the population given the high coverage of pension benefits in the ECA region due to historical high labor force participation rates that resulted in large percentages of elderly receiving pension benefits. Such extensive coverage indicates potential positive impacts on poverty. Combined with the relative administrative ease of implementation for pension increases and the political economy, the pension policies are likely to be an attractive SP instrument during the crisis. However, the fiscal cost of such policies –both short and long term‐ may be quite high. For instance in Romania, the increases in pensions (20% annual average increase from 2008 to 2009) were likely the main driver for the decrease in poverty in 2009 (the headcount poverty declined from 5.7% in 2008 to 4.4% in 2009) (Azam and Isik‐Dikmelik, 2010).

Similarly, in Bulgaria, the expansionary social protection policy in 2009, with pensions registering the largest increases, to some degree offset the severe fall in household incomes due to the crisis (World Bank, 2012a). However, the rapid increase in pensions added even more pressure to a fiscally unsustainable pensions system in Romania and came at a cost of further tightening of the country’s fiscal situation. While pensions helped cushion the crisis impacts, they were also relatively costly. The contributory pensions by design are not necessarily targeted to the poorer segments of the population. Hence, if the objective were to provide protection to poor (or at risk of being poor) similar welfare gains could have been achieved at lower fiscal cost through poverty focused social assistance programs.

On the other hand, some evidence of certain behavioral responses was observed during the crisis.

For instance the number of workers that applied for early retirement benefits increased in Romania

24

World Bank (2009).

22

during the crisis. People facing unemployment were probably looking to retire early or they were rushing to retirement thinking that they might be losing the privileges in the current system with the pension reform. Such retirees bring short‐term fiscal impact as well as medium to long‐term impact as they are paid pensions for longer periods of time. Another program that experienced increased number of beneficiaries was the disability program. Both in Latvia and Romania, the number of disability pension beneficiaries increased following the crisis. In Romania, the main increase came from the third category, where abuse can be expected to be most prevalent. Similar to early retirement, the number of disability beneficiaries has probably increased, as people view the disability benefit as an option for facing unemployment.

Pre‐crisis preparedness influenced the strength and timing of response of social benefits in some countries. In most countries (for which we have actual response data) in the “response needed and expected category,” benefits coverage increased almost immediately or with a very short lag, as shown in Table 3. For example, the social benefits system in Hungary was reasonably well‐prepared for the crisis with respect to the composition, performance, and coverage of benefits. Similarly, the overall social benefits system in Montenegro was reasonably well‐prepared to respond to the crisis in terms of its composition and performance; however, fiscal pressures may have contributed to the system’s actual limited response. In Latvia, which was among the least prepared, benefits response lagged 6‐8 months from the onset of the crisis because reforms were needed to strengthen social programs. However, once Latvia undertook the reforms, benefits responded in a decisive and sustained manner (discussed in detail in the next section). For other countries that lacked any targeted safety net program at the onset of the crisis, such as Moldova and Tajikistan, response to the crisis was limited (and they are currently developing such programs and registry tools now to be in a better position to assist the poor in the next crisis and beyond).

In most cases, unemployment benefits represented the first line of response.25 Unemployment benefits responded in all crisis‐affected countries in the SBO Plus sample that operated them (as shown in Table 2). The response was virtually immediate in all such countries, however, the level of response varied. Hungary, Armenia, Romania, Lithuania, Ukraine and Bulgaria (Annex 2) expanded coverage rapidly and decisively to mitigate the labor market impacts of the crisis. Croatia, Montenegro, and Serbia moderately expanded unemployment benefits (as observed in Table 3). It is important to note that overall

25

Kuddo (2010a) analyzed labor market data from 26 countries and found that in 21 of those countries unemployment benefits expanded in 2009 compared to 2008. This expansion was immediate in most countries, beginning as early as the last quarter of 2008 in some countries.

23

coverage of unemployment benefits is rather low in ECA, due to the fact that such schemes usually only apply to formal sector workers.26 Similarly, in most EU countries the unemployment benefits were the first to respond to the crisis; however the coverage was more robust due to high levels of formality. Box 1 presents a brief summary of the social benefits response in old EU countries.

In many countries the expansion in unemployment benefits was greater than the increase in registered unemployed. Armenia, Romania, Montenegro, and Bulgaria experienced greater increases in unemployment benefits than the corresponding rise in the registered unemployed. In Bulgaria, there were approximately 50 percent more registered unemployed in 2009 compared with the pre‐crisis level in 2008; however, the coverage of unemployment benefits more than doubled during the same period. This large expansion in unemployment benefit recipients might have been due to the low coverage of unemployment benefits among the existing unemployed (assuming these mostly consisted of long‐term, youth or, informal unemployed workers), while coverage among newly unemployed was probably much higher. The expansion in unemployment benefits appears to have been sustained, which is not surprising in light of the continued high levels of unemployment throughout 2010.

In several countries, the effects of the crisis extended beyond the duration of benefits, and unemployment benefits started running out before the onset of recovery. This was the case in Lithuania, Bulgaria, Romania, Hungary, and Ukraine (See Annex 2). The most notable exception was Ukraine where unemployment benefits were immediately and substantially expanded, but fiscal pressures subsequently led to tightening of the eligibility criteria. In some cases, such as Lithuania and Hungary, social assistance benefits picked up (or continued expanding), as people shifted from unemployment insurance to social assistance benefits. The country context, especially the distributional impact of the crisis, appeared to be the most important factor in the timing of the response. For instance in Lithuania, the initial impact of the crisis was borne by unemployment benefits, which was a sign that formal workers who were eligible for these benefits were the first to be negatively affected by the changes in the labor market. This is not surprising, as almost 80 percent of the workforce in Lithuania is employed in the formal sector.27 However, the labor market is likely to take a long time to recover, and as unemployment benefits can only be claimed for 6 to 11 months, many of those recipients who could not find a job began to claim social assistance. It is important to note that at the start of the recovery the only indication is an overall improvement in the macro framework, which is not necessarily manifested in the

26 27

Kuddo (2009).

Ibid.

24

labor market or in household welfare immediately. The positive effects of the recovery are likely to take longer to filter down to the household level, which means that governments need to sustain their crisis responses well after the recovery begins.

Social assistance benefits also kicked in as crisis response mechanisms, though with generally more moderate magnitude and with some lag in response. Coverage of last resort social assistance (LRSA) programs expanded decisively in Hungary, Lithuania, and Latvia (see Annex 2) – though with an eight‐month time lag in Latvia as previously mentioned due to the need for reforms. In Hungary and Lithuania, LRSA programs continued expanding in a sustained manner throughout the crisis, likely also compensating for the expiration of unemployment benefits (as noted above). Social assistance programs responded more moderately in Armenia, Croatia, Montenegro, Georgia, Romania, Bulgaria and Serbia (Tables 2 and 3). In Armenia, the increase in overall coverage of the LRSA program (Family Benefit) was modest, but the Government managed to increase coverage of the poor, through a decisive effort to improve targeting accuracy (reducing leakage to the non‐poor to make space for the eligible poor) and to reduce fraud and error.28 The increase in coverage of the Targeted Social Assistance program in Georgia (see Annex 2) was moderate but important, as the country does not operate an unemployment benefits scheme. In contrast to the other countries in the SBO Plus sample, LRSA benefits in Ukraine not only failed to respond to the crisis, they continued their pre‐crisis declining trend – despite the fact that Ukraine was severely hit by the crisis. This exception is discussed in more detail in the next section.

Tight eligibility thresholds seem to have moderated the response of LRSA benefits. Most ECA countries operate very tightly targeted last‐resort social assistance benefits, commonly in the form of “Guaranteed Minimum Income” (GMI) schemes (e.g., Ukraine, Croatia, Montenegro, Hungary, Lithuania, Latvia, Romania, Bulgaria, and Serbia). GMI schemes tailor benefits to each household according to the difference between their observed incomes and some guaranteed minimum income level. In many cases, the eligibility thresholds for these benefits are very tight, and have declined over time with inflation. This has resulted in a “marginalization” of GMI programs in many ECA countries – programs that become so narrowly targeted their coverage is tiny and political support low. GMI schemes also face the challenge that, to increase coverage via an increase in the threshold, the Government usually must also increase benefit amounts to all recipients (including those already on the program). As such, they tend to be rather inflexible for crisis response – and

28

For instance Armenia employed measures to improve the targeting efficiency of its signature last‐resort and targeted social safety net called Family Benefit Program (FBP), which led to a clean‐up of the registries and allowed for more of the truly eligible to be covered by the program. (World Bank 2010).

25

generally lack the support of the Ministries of Finance due to this need for a simultaneous increase in coverage and benefits.

Box 2: Response of Social Benefits to the Crisis in the EU

Persons (thousands)

Social benefit systems in ECA countries were not alone in being challenged during the economic crisis; countries in what is often dubbed the EU15 were also tested. A recent joint report by the Social Protection Committee and the European Commission outlined the response of EU nations to the recent economic crisis using monthly beneficiary data similar to that utilized in this paper.

In this box, we look in depth at the diversity of experience and the trends in program scale in some of the old EU nations to provide context for the discussion of responses to the crisis in ECA.

Different Challenges, United Kingdom: Social Benefits (2006‐2010) Different Channels 3000 As in ECA, the EU15 2500 has seen a variety of different responses to 2000 the crisis in terms of 1500 social benefits. In some countries, the 1000 crisis seems to have had a major impact 500 2006 2007 2008 2009 2010 on social benefit schemes primarily # Unemployed Job Seeker Allowance Claimants Incap/Inval Benefits through the channel Disability Living Allowance Income Support Claimants of unemployment insurance and assistance. The United Kingdom is a prime example, where a crisis‐driven spike in unemployment resulted in an immediate increase in claimants for the Job Seeker Allowance, but not in other social assistance programs (see graph at right). Furthermore, a recurring trend in old EU countries is the eventual drop‐off in claimants for unemployment benefits despite continued high levels of unemployment; this is visible in the UK graph here, and also in the data from Spain and the Netherlands.

26

Persons (Thousands)

However, not all Germany: Social Benefits (2006‐2010) nations shared this 7000 experience.

For 6000 example, in Germany unemployment 5000 actually fell – but 4000 short‐term work rose 3000 dramatically. In other 2000 words, the crisis hit and people stayed 1000 employed, but 0 worked more in 2006 2007 2008 2009 2010 short‐term positions. # Unemployed Unemp Benefit Recipients Short‐Term Work SA Recipients Taken together, these two trends kept the number of individuals receiving unemployment benefits relatively stable through the crisis years (see the above graph). Contrasting the German and British experiences provides a valuable lesson for those who seek to assess the impact of a crisis on social benefits – it is critical to consider all the potential ways in which a crisis can impact the economic behavior of a given population.

While the UK and German social benefits systems responded to the crisis primarily through the unemployment benefits channel (and not at all through increases in social assistance), in other old EU countries the response was more uniform across schemes. That is, the crisis led both to an expansion of unemployment benefits and social assistance programs (examples include France and Portugal).

Fiscal Responses The recent crisis naturally led to the weakening of fiscal positions in the old EU, through both automatic stabilizers and stimulus packages. This has forced countries to look into medium and long‐term fiscal consolidation policies, many of which will affect the provision of social benefits.

Some reforms will have direct impacts on social benefits. For example, Denmark has shortened the benefit period for unemployed workers, while Ireland and the UK have reduced staff levels in public service sectors of government. Other reforms will influence social benefit provision in more indirect ways – these include the various fuel and VAT tax increases throughout the region. Though some old EU countries (Ireland, the UK, Denmark, and Portugal, for example) have conducted impact assessments to determine the distributional impact of these policies changes, there is more work to be done to determine how fiscal consolidation will affect the most vulnerable.

Source: Council Of European Union (2010)

27

Somewhat unexpectedly, coverage of disability assistance benefits also increased during the crisis. Most ECA countries operate non‐contributory disability benefits schemes as part of their social safety net.29 From 2008 to 2009, the number of beneficiaries of disability assistance increased in several countries, raising the question of whether the expansion arose as a result of pressures from the global economic crisis or due to some other cause.

Although disability benefits in some of these countries are means‐tested and thus have the potential to expand during times of crisis, means‐tested disability benefits only constitute a small share in our sample (only four out of fourteen). Also, most of the non‐contributory disability benefits are categorical, meaning eligibility is based solely on disability status, with no additional income or living standards qualifications. Data from the Social Benefits Observatory (SBO Plus sample) indicate that the monthly number of beneficiaries of disability assistance increased by an average of 5 percent from 2008‐09 in countries affected by the crisis that have disability benefit programs (Armenia, Serbia, and Montenegro (Figure 8 below).30 This observation is puzzling as there is no discernible reason why an economic crisis – as opposed to wars, earthquakes, or other natural disasters – would increase disability rates. This phenomenon was also observed in the United States (see Box 3), where people sought certification for disability status in order to receive benefits as their unemployment benefits ran out. Lax disability certification criteria – and generous benefits – were blamed for the crisis‐driven expansion in disability benefits in the US. Similarly, coverage of disability benefits expanded significantly in FYR Macedonia as well as in Albania over the crisis period, even though these two countries were not strongly affected by the global recession.

29

Among the 14 countries that are covered by the Social Benefits Observatory, non‐contributory disability benefits exist in all of countries. In ECA, more than half of the countries have a non‐contributory disability benefit program as part of their safety net.

30 Coverage of disability benefits did not decline in any of the countries in our sample over that same period (despite fiscal pressures).

28

Figure 8: Disability Benefits Indexed Number of Beneficiaries

140 120 100 80 60 40 20 0 1

2

3

4

5

6

7

8

9 10 11 12 1

2

3

2008

4

5

6

7

8

9 10 11 12 1

2

3

4

5

2009

6

7

8

9 10 11

2010

Bulgaria Disability Benefits

Macedonia Disability/Permanent SA (MT)

Croatia Disability Allowance (MT)

Montenegro Disability Benefit

Kyrgyz Rep MSB (disability only)

Albania Disability Benefit (excl caregiver)

Armenia Disability benefit (Social Pension)

Serbia Disability (caregiver's) allowance)

Source: SBO

While it is difficult to identify the exact reasons behind the expansion in the disability programs during the crisis, we can speculate on some likely causes based on the common characteristics of the programs. First, some people who met the disability criteria but had not bothered to apply before the crisis may have needed the extra income after the crisis began to negatively affect their welfare. Second, disability benefits are typically more generous than other types of social assistance benefits, which is understandable given the large costs involved in living with a disability, and this makes these benefits much more attractive to those who qualify for them than, for example, LRSA benefits. Third, the medical certification process in some of these programs may not be very rigorous, allowing errors of inclusion to occur, particularly in the case of disabilities that can be hard to disprove, such as depression. Finally, the lack of a recertification requirement or the infrequency of recertification may also increase the likelihood of false applications because, although the chances of approval may be low and the process arduous, the payoff is generous and the benefits will then be received for years to come.

Overall, the administrative data collected in the Social Benefits Observatory (SBO Plus Sample) revealed four important findings with respect to the response of social benefits

29

to the global crisis in ECA. First, pre‐crisis preparedness influenced the ability of social benefits to respond to crisis in some countries. Second, unemployment benefits were generally the first line of response in countries that operated them. Third, social assistance responded by increasing coverage during the crisis (in addition to the protection they afford to existing beneficiaries). Finally, disability benefits also expanded during the crisis period, a somewhat unexpected response.

IV.

LESSONS LEARNED: THE IMPORTANCE OF ACTION

The response of social benefits programs in ECA to the crisis provided insightful lessons on how such programs can mitigate crises. Although, for the most part, social benefits appear to have responded as expected, there were notable exceptions. In some countries, such as Ukraine, the response was below what would have been expected – both in magnitude and composition. In others, such as Latvia and Lithuania, the response far exceeded expectations. While it is difficult to pinpoint the exact reasons for these differences, the specifics of the country conditions and the programs reveal some common themes. These include how structural reform, design, and implementation affected the success of social benefits programs. We illustrate these lessons by comparing country experiences.

Structural Reform – The Importance of Timely Intervention Latvia and Ukraine were both substantially affected by the crisis and faced similar fiscal challenges. GDP contracted in Latvia and Ukraine by 17 percent and 15 percent respectively, and both countries’ labor markets were hit hard. In addition, the fiscal pressures were immense in both countries, with a fiscal deterioration between 2007 and 2009 of 7 percent and 4 percent of their respective GDPs.

However, Latvia’s social benefits system was much less prepared than Ukraine’s. Latvia’s social benefits system appeared to be much less prepared for a crisis, given the composition and the performance of its social benefits programs pre‐crisis (see Annex 1 for details on the classification of “pre‐crisis preparedness”). In contrast, Ukraine operated a well‐ targeted LRSA program (but with low coverage), in addition to unemployment benefits and a means‐tested child allowance program with large‐scale coverage. Our ex‐ante analysis concluded that Ukraine’s social benefits system would be able to respond to the crisis more readily, whereas Latvia’s system would only be able to respond after being reformed.

30

In practice, however, Latvia’s response exceeded expectations (albeit with a time lag), while Ukraine’s response to the crisis was highly constrained. In Latvia, after an initial time lag, unemployment and social assistance benefits responded robustly to the increased number of claims, and this expansion has been sustained during the crisis. On the other hand, in Ukraine, although unemployment benefits expanded initially, this was not sustained as fiscal pressures led the government to tighten the eligibility criteria. Moreover, Ukraine’s well‐targeted LRSA program continued its long‐term declining trend in coverage.

To improve its ability to respond to the crisis, Latvia undertook serious structural reforms of its social benefits system31. The Latvian Government introduced fiscal adjustments at the beginning of 2009 to stabilize and reorient expenditures, and to prepare the safety net to meet the increasing needs of households. Prior to the crisis, Latvia spent only 0.8 percent of its GDP on safety nets (excluding unemployment benefits, which constituted another %0.35).32 Latvia also undertook other reforms to strengthen the functioning of the safety net itself. These structural adjustments allowed the Government to increase the coverage of the Guaranteed Minimum Income Program – albeit with the time lag ‐‐ and to introduce a Public Works program to mitigate the negative effects of the crisis.

In contrast, Ukraine did not seize this opportunity to increase the efficiency of its social benefit spending. Ukraine spent 2 percent of its GDP on safety nets, as of 2008, of which 1.3 percent was allocated to non‐means tested categorical benefits programs (Figure 20).

Although Ukraine faced immense fiscal pressures, there was room for improving the quality and increasing the effectiveness of safety net spending by rationalizing expenditures or consolidating benefits, which might have resulted in fiscal savings. Instead, Ukraine maintained an increasing share of spending on non‐means tested programs, while the coverage and spending for the LRSA program – which was oriented to the poor – continued on a declining trend.33

31

Harrold, Sinnot, and Santos (forthcoming) presents a nice overview of the fiscal adjustment in the social sectors in Latvia during the global crisis.

32 ECA SP Database.

33 In fact this trend is observed across the region. In most ECA countries, the overall spending on safety nets increased during times of prosperity in 2000s (both in real terms and as a share of GDP), with the composition of the spending shifting towards categorical programs (which are more widely supported by the median voter) in some countries whereas targeted anti‐poverty programs shrank over time. Public perceptions of poverty, social benefits, work, and work effort no doubt played a role in this shift to non‐targeted (categorical) programs before the crisis, which led to the marginalization of the kind of programs that could have been used in an effective crisis response.

31

Political economy factors likely contributed to the constrained response in Ukraine. The availability and performance of certain social benefits during a crisis can be directly affected by political economy factors. Public perceptions about the role of the state in promoting equality and existing attitudes towards the poor and disadvantaged have implications for the size and composition of the social benefits, as well as their design and implementation features. This in turn can hinder the pre‐crisis preparedness of the social benefits system and prevent the passage of the tough structural reforms that need to be undertaken during crises.

Figure 9: Both Ukraine and Latvia had Room for Improving the Quality of Social Safety Net Spending

Source: ECA SP Database

Design Matters – the Importance of Eligibility Criteria The social benefits systems in Serbia and Bulgaria were similar in their level of pre‐crisis preparedness, in how they were affected by the crisis, and in the expansion of their LRSA programs in response. Bulgaria and Serbia both experienced relatively moderate GDP contractions during the crisis (3.5 percent and 5.5 percent respectively). Moreover, their pre‐crisis social benefits systems were among the less prepared in ECA. This is due to extremely low coverage of their LRSA programs, and/or the relatively weak performance of their child allowance programs (where they existed) compared to the better prepared countries. In both countries, the LRSA programs expanded during the crisis, with the

32

Bulgarian GMI reversing its long‐term declining trend, while the Serbian Material Support Program continued to increase in coverage over time.

However, the response appeared to have been much more flexible in Serbia because of certain design elements for eligibility. In Bulgaria (like several other countries in the region), the LRSA program had been shrinking over time. This was mostly due to the low eligibility thresholds that were not adjusted to keep up with inflation, in conjunction with the introduction of an “18‐month rule,” that limited the length of time an individual could claim benefits (but which was abolished as of January 2011). These design factors resulted in declining coverage and the marginalization of the program. On the other hand, the MOP in Serbia had been expanding over time, largely due to the fact that the income eligibility threshold was linked to the monthly consumer price index (CPI) by law. The indexation of the eligibility threshold prevented the program from becoming marginalized, while keeping the purchasing power of the benefit stable over time. While the GMI in Bulgaria expanded only slightly and with some delay, the MOP program in Serbia appears to have responded flexibly during the crisis (expanding more in 2009 than in 2008), partly due to built‐in design features. Increasing the coverage of a well‐targeted program during a crisis is likely to take some time and a concerted administrative effort. Design elements, such as low non‐indexed eligibility thresholds, that lead to excessive marginalization of programs introduce inflexibility in crisis response.

Implementation Matters – the Importance of Institutional Arrangements and Financing Sources Institutional and financing arrangements for social benefit programs can constrain their ability to respond effectively to a crisis. While causality cannot be established, observations in various countries suggests that centrally‐financed and ‐administered programs (with eligibility criteria and selection determined centrally) have responded to the crisis much better than the programs whose financing and administration are decentralized.

This was certainly the experience of the United States. The Supplemental Nutrition Assistance Program (otherwise known as the Food Stamps program), a federal program financed and administered centrally, has responded quite well to the crisis. In contrast, the Temporary Assistance to Needy Families (TANF) program, which is co‐financed and administered by the states, has not been quite so responsive (see Box 3 for more details and graphs). While other factors may have contributed to this stark difference in response (including workfare requirements for TANF), it appears that fiscal pressures at the state level contributed to the lesser response by TANF – and encouraged local welfare offices to shift welfare applicants to the federally‐funded food stamps entitlement program.

33

In Latvia, previously decentralized financing arrangements for the GMI were revised to prevent benefits from being rationed at the local level during the crisis. Pre‐crisis, the GMI program in Latvia was completely decentralized, with local governments financing 100 percent of the benefits. However, local governments are required to carry a balanced budget (as opposed to the central government which is allowed to run a deficit), which puts considerable pressure on their budgets, especially during times of crisis. This can lead local governments to ration benefits at the local level. In Latvia, because of this balanced budget constraint, local governments referred the LRSA applicants to public works programs that were centrally financed.34 Recognizing this constraint, the central government then revised the financing arrangements for the GMI and put in place a central government financing guarantee (50 percent co‐financing) to supplement the municipalities’ spending on the GMI, which eased the pressure on local governments. Without this change in the financing arrangements (even with the same increase in the eligibility threshold), the expansion in the program would probably have been much smaller.

34

World Bank (2011).

34

Box 3: The Response of Social Benefit Programs in the US during the Crisis

The impacts of the global crisis were felt deeply in the United States. The poverty rate across the country increased from 13.3 to 14.3 percent)*. The labor market impacts were also severe and continue to persist with the current unemployment rate hovering above 9% as compared to the pre‐ crisis rate of 5.3%.** As expected, social benefits expanded during the crisis. However, the degree of response varied across different programs, highlighting the importance of implementation issues, such as institutional and financing arrangements.

The first figure illustrates this point clearly. The Supplemental Nutrition Assistance Program, a federal program financed and administered centrally, has responded well to the crisis. The number of SNAP recipients expanded by more than 40% during the crisis (October 2008 to September 2010). In contrast, the Temporary Assistance to Needy Families (TANF) program, which is co‐financed and administered by the states, has not been as flexible.

The coverage of TANF increased by about 13% during the same time period). It is likely that other factors contributed to this stark difference in response (including workfare requirements for TANF). However, fiscal pressures at the state level likely played a role in the lesser response by TANF – and

35

encouraged local welfare offices to shift welfare applicants to the federally‐funded food stamps entitlement program.

Similar to several other countries analyzed in this study, disability benefits in the US also expanded during the crisis (second figure). The number of beneficiaries increased by almost 10% by September 2010 (by almost 20% by April 2011) compared to pre‐crisis levels. This is likely a behavioral response to the crisis by the affected workers. Those workers, who are on the border with respect to their degree of disability, may apply for benefits when the downturn leaves them jobless and new jobs are hard to find.

* “Poverty: 2008 and 2009”. American Community Survey Briefs September 2010, United States Census Bureau. ** United States Bureau of Labor Statistics, http://www.bls.gov/ cps/prev_yrs.htm

V.

CONCLUDING REMARKS AND POLICY RECOMMENDATIONS

This study traced the actual responses of social benefits during the recent global financial crisis for 14 ECA countries. It also presented a conceptual framework to categorize expected social benefits responses, taking into account the pre‐crisis preparedness of social benefits systems, and the severity of the shocks.

Overall, the study found that social benefits responded largely as expected. The response was typically more decisive in countries hit severely by the crisis, and much less so in those that were less affected by the crisis. Pre‐crisis preparedness influenced the ability of social benefits to respond to crisis in some countries. Not surprisingly, unemployment benefits responded first. Unemployment benefits tended to expand rapidly with the spread of the crisis, though their coverage is generally limited to formal‐sector workers, making them a partial crisis‐response tool. Social assistance benefits also responded by increasing coverage during the crisis (in addition to the protection they afford to existing beneficiaries). The response of last resort social assistance benefits was more moderate than unemployment benefits in many cases, perhaps due to the tight eligibility thresholds for the common GMI programs (which have eroded over time with inflation). Interestingly, the study also found that coverage of disability benefits increased in some countries, representing a somewhat unexpected response since disability status would not automatically be correlated with economic shocks.

36

Several lessons can be learned from the variations in social benefits responses across countries. Immense fiscal pressures were an important constraint; but the ability of Governments to undertake tough structural reforms made a difference in effective social benefits response. While fiscal pressures faced cannot be underestimated, crisis presents an opportunity to undertake difficult, but needed reforms, which in turn will help in preparedness and the effective mitigation for the next potential crisis. Design matters for flexible response of social benefits. For instance the response of LRSA in Serbia indicates that indexation of eligibility thresholds for poverty‐targeted programs (as applicable) is important to ensure flexible response. Finally, implementation matters in ensuring social benefits can respond flexibly to a crisis. The experience of the US and other countries indicate that the institutional and financing arrangements for social benefit programs can constrain their ability to effectively respond to the crisis. Minimizing the local government’s financing burden for social benefits will help to prevent rationing of these benefits during crisis.

While many in ECA had social benefits programs ready to address the crisis, challenges remain to ensure that all ECA countries are prepared in the future. In terms of outcomes, poverty impacts of public spending on social assistance are limited in many ECA countries due to low coverage of the poor35 and inadequate benefits levels. This low coverage is more prominent among lower‐income countries, but coverage gaps also persist in several higher‐ income countries. Eligibility thresholds for poverty‐targeted programs are commonly very rigid and too narrow, which result in large errors of exclusion and limit crisis responses.

Benefits are also fragmented, as most countries operate numerous programs with diverse application procedures and eligibility rules. Navigating multiple schemes is costly for the beneficiaries and parallel administration is costly for governments; gaps and duplications abound. Benefits administration in many instances is also weak, with paper‐based records and inadequate management information systems or oversight and controls.

With a renewed economic downturn, social safety nets and unemployment insurance will once again be called upon to alleviate crisis impacts, which will likely be transmitted through labor markets that have not fully recovered from the 2008‐10 crisis (persistent unemployment). Fiscal constraints mean that many ECA governments will be under increasing pressure to cut back on spending, indicating the need to improve effectiveness and consolidate and target social (including universal) benefits, which could create tensions

35

Penny Williams, et al., “Social Safety Nets in Europe and Central Asia; Preparing for Crisis, Adapting to Demographic Change, and Promoting Employability,” ECA Knowledge Brief Vol.48 (Washington, DC: World Bank).

37

with the middle classes. Sustained structural investments in strengthening social safety nets are thus warranted, even for higher‐capacity countries.

Governments should not wait for an economic crisis to build and/or strengthen safety nets.36 The creation of safety nets requires time and political effort. It takes time to tailor the design and institutional arrangements for an effective safety net system. In addition, political economy issues play an important role in redistributive reforms. Building consensus on the reforms is imperative, but time‐consuming. To assist in crisis‐preparedness, governments can consolidate benefits, harmonize program rules and governance, and invest in efficiency improvements in benefit administration systems.

First, consolidating benefits into fewer programs should be focused on clear objectives37, social policy goals, and priorities, and design features should be simplified and harmonized across programs. Assistance, including many universal benefits, should be focused on those in need, while last‐resort programs should be expanded to cover a larger share of the poor and vulnerable.

Second, governments can continue investing in systems38 and tools to improve implementation efficiency, such as unified applications and intake processes, automated integrated management information systems, unified payments systems, strengthened oversight and controls, monitoring and evaluation, and clarified institutional rules, roles, and financing with investments in capacity. Timely intervention is best for effective crisis response but cannot be achieved without regular monitoring. In the absence of monitoring data it is very difficult assess how the programs are progressing, whether they are reaching their objectives, and whether there is any intervention needed during economic shocks.

Investments to strengthen the benefit administration are important in crisis response. If monitoring systems are not already in place, it would be prudent to establish them, which in turn will help with evidence based policy making.

Finally, governments can strengthen the links between benefits, employment, and social services to reduce dependency and promote employability. Diagnostic tools and case management can help identify and tailor activation approaches to target groups.

Governments should also seek to promote these linkages by investing in capacity,

36

Also emphasized in the Development Committee paper on Safety Nets for 2012 WB‐IMF Spring Meetings.

(Please see World Bank 2012c).

37 Clear objectives are also important for World Bank’s support of safety nets as highlighted in IEG (2011). evaluation).

38 The recent IEG evaluation of World Bank’s support to Safety Nets also emphasizes the importance of a systems approach (please see IEG, 2011).

38

integrating service delivery, and optimizing institutional incentives for effective employment support. Consolidation of benefits and investment in efficiency will continue to strengthen social safety net systems across ECA and prepare countries to respond to future crises.

39

REFERENCES

Alesina, A. and Glaeser, E., (2004). “Fighting Poverty in the US and Europe.” New York, Oxford University Press Atinc, T. M. (2003), “How the East Asian Crisis Changed the Social Situation,” in Katherine Marshall and Olivier Butzbach (eds.) New Social Policy Agendas for Europe and Asia: Challenges, Experience, and Lessons. Washington, D.C., World Bank Azam, M. and Isik‐Dikmelik, A., (2010). “A Note on Recent Trends in Poverty in Romania.”

Washington D.C., World Bank Council of the European Union, (2010). “2010 Update of the Joint Assessment by the SPC and the European Commission of the Social Impact of the Economic Crisis and of Policy Responses”, Brussels, 16905/10, Council of the European Union Council of the European Union, (2012). “Third Report on the Social Impact of the Economic Crisis and Ongoing Fiscal Consolidation 2011”, Brussels, 16905/10, Council of the European Union European Bank for Reconstruction and Development, (2011), “Life in Transition: After the Crisis.” London, EBRD Ferreira, F. and Schady N. (2008), “Aggregate Economic Shocks, Child Schooling and Child Health.” Policy Research Working Paper No: 4701. Washington, DC: World Bank.

Figari, F., Salvatori, A., and Sutherland, H. (2010), “Economic Downturn and Stress Testing European Welfare Systems.” ISER University of Essex Fiszbein, A., Ringold, D. and Srinivasan, S. (2010), “Cash Transfers and the Crisis: Opportunities and Limits.” Washington, D.C., World Bank Frankenberg, E., Beegle, K., Sikoki B, and Thomas D. (1998), “Health, Family Planning, and Well‐being in Indonesia During an Economic Crisis.” DRU‐2013‐FGI/NICHD/UNFPA. Santa Monica, CA: RAND.

Harrold, P., Sinnott, E., and Santos I. (forthcoming). “Fiscal Sustainability, Demographic Change and Inequality: The Social Sectors from Crisis to Growth in Latvia” Washington, D.C., World Bank

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IEG (Independent Evaluation Group). (2011). “Social Safety Nets: An Evaluation of World Bank Support, 2000–2010”. Washington, DC: Independent Evaluation Group, the World Bank Group.

ILO/WORLD BANK. (2012). “Inventory of Policy Responses to the Financial and Economic Crisis”.

International Monetary Fund (2011), “World Economic Outlook: Tensions from the Two‐ Speed Recovery,” Washington, D.C. Kuddo, A. (2009), “Informal sector in Europe and Central Asian Countries,” ECSHD Mimeo; Washington, D.C., World Bank Kuddo, A. (2010a), “Labor Market Monitoring in Eastern Europe and Central Asia Countries: Recent Trends (Round Three)”, Mimeo, Washington, D.C., World Bank Leventi, C., Levy, H., Matsaganis, M., Paulus, A. and Sutherland, H. (2010), “Modelling the Distributional Effects of Austerity Measures.” Social Europe Research Note, European Commission, Brussels Mitra, P., Selowsky, M., and Zalduendo, J. (2010) “Turmoil at Twenty: Recession, Recovery, and Reform in Central and Eastern Europe and the Former Soviet Union.” Washington, D.C., World Bank Narayan, A., and Sanchez‐Paramo, C. (eds) (2012), “Knowing When You Do Not Know: Simulating the Poverty and Distributional Impacts of an Economic Crisis.” Washington, D.C., World Bank Organization for Economic Cooperation and Development, (2011). “Economic Crisis and Beyond: Social Policies for the Recovery.” Paris, OECD Ministerial Meeting on Social Policy Ozdemir, E., Sanoussi, F., and Ward, T. (2010), “The Potential effects of the recession on the risk of poverty”, Social Europe Research Note, European Commission, Brussels Paxson, C., and Schady, N. (2005), “Child Health and Economic Crisis in Peru.” The World Bank Economic Review Vol. 19(2): 203‐224.

Sundaram,R, and Isik‐Dikmelik A. (2011). “How ready are ECA’s safety nets to respond to the renewed food crisis?” World Bank, Washington, D.C., mimeo.

Sundaram,R, and Isik‐Dikmelik A. (2010). “Technical Note on Proposed Reforms to Income Tested Child Allowances in Romania.” Washington D.C., World Bank

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Sundaram R., and Strokova V. forthcoming, “Overview of Social Assistance Programs in ECA.” Washington D.C., World Bank Thomas, D., Beegle, K., Frankenberg, E., Sikoki, B., Strauss, J., and Teruel, G. (2004), “Education in a Crisis.” Journal of Development Economics Vol. 74(1):53‐85 Tiongson, E.R., Sugawara, N., Sulla, V., Taylor A., Gueorguieva A., Levin V., and Subbarao K. (2010), “The Crisis Hits Home: Stress‐Testing Households in Europe and Central Asia.”

Washington, D.C., World Bank World Bank (2009a), “Pensions in Crisis: Europe and Central Asia Regional Policy Note,” Washington, D.C., World Bank World Bank (2009b), “Serbia Programmatic Public Expenditure Development Policy Loan”, Program Document. Washington D.C. World Bank.

World Bank (2010), “Armenia: The 2008–09 Global Economic Crisis, Policy Responses, and Household Coping Strategies.” Washington, D.C., World Bank World Bank (2011a), “The Jobs Crisis: Household and Government Responses to the Great Recession in Eastern Europe and Central Asia.” Washington, D.C., World Bank World Bank (2011b), “Georgia: Poverty Dynamics since the Rose Revolution” Washington D.C., World Bank World Bank (2011c), “Romania Social Assistance Modernization Project: Project Appraisal Document”. Washington D.C., World Bank World Bank (2012d), “Country Assessments of Readiness of SSN Systems”, Brief.

Washington D.C., World Bank World Bank (2012a), “Bulgaria: Household Welfare During the 2010 Recession and Recovery”, Washington D.C., World Bank.

World Bank (2012b), “Resilience, Equity, and Opportunity: The World Bank’s Social Protection & Labor Strategy, 2012‐2022.” Washington D.C., World Bank.

World Bank (2012c), “Safety Nets Work: During Crisis and Prosperity”, for Development Committee Meeting. Washington D.C., World Bank.

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Annex 1 ‐ Methodology on Pre‐Crisis Preparedness of SB Rankings39

In order to assess the pre‐crisis (as of 2008) preparedness of the Social Benefits systems in Europe and Central Asia countries, we developed a composite score based on several dimensions. These dimensions relate to three broad areas: the composition of social benefits (i.e. the existence of the types of programs that could be leveraged in crisis response), the performance of social benefits (with respect to overall performance indicators such as targeting accuracy, coverage etc.), and the information capacity as an indicator of the efficacy of the administration of benefit programs.40 While these indicators cover a good portion of the relevant information, the resulting index is not a precise measure. There are many other factors (such as quality of implementation, administrative capacity to handle increase in applications, design issues such as ease of application etc.) that are difficult to measure and therefore cannot be included. Moreover, composite indices can be constructed in many different ways (simple average, weighted average etc.). However, the concept was to sort countries based on the available social benefits information, and the index used in this study reflects our best judgment.

Specifically, a composite score for each country was calculated using household survey data, as well as administrative information. The composite score was comprised of nine dimensions covering: (a) existence and performance of last resort social assistance (LRSA) programs (coverage, targeting accuracy, generosity – all from household survey data, latest pre‐crisis year); (b) existence and coverage of unemployment benefits (again, pre‐crisis); (c) existence and performance of child / family allowance programs (coverage, targeting accuracy, generosity); and (c) information capacity (degree to which administrative data on social benefits are available, since these are needed for monitoring and expansion of social benefits). Details on each aspect of the composite score follow.

Existence and Performance of Last Resort Social Assistance Program Whether the country has a last resort social assistance program before the crisis is considered first, for two reasons: (a) such programs could be well‐positioned to scale up (in coverage and/or benefit levels) in times of crisis; and (b) if they are well‐targeted, they are a more cost‐effective way of channeling assistance to the poorest given that fiscal constraints could prevent expansion of more universal programs in crisis times. However, the existence of such a program is not enough for

39

This methodology builds on the methodology developed for the ranking of ECA cash transfer programs with respect to their ability to respond to a future food crisis. As such, it draws heavily on the background note on this subject by Sundaram and Isik‐Dikmelik (2011) 40 The existence and coverage of unemployment benefits and a poverty‐targeted social assistance program would be one way of categorizing countries with respect to their pre‐crisis preparedness. However there is not enough variation across ECA countries to result in meaningful categories for pre‐crisis preparedness. Hence, more detailed indicators were used to construct the composite index to rank countries with respect to their pre‐crisis preparedness of social benefits.

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effective response. Hence, the pre‐crisis performance of the program is estimated using household surveys along three dimensions: (i) coverage defined as the percentage of the poorest quintile covered by the program; (ii) targeting accuracy defined as the percentage of benefits that went to the poorest quintile; and (iii) generosity estimated from household surveys is also considered. If the program has low coverage then it would have limited impact, since increasing coverage takes time, administrative capacity (to register and screen new applicants), political will, and fiscal space—with fiscal space in particular being very tight in a crisis situation. Targeting accuracy indicates the effectiveness with which the program transfers money to the poorest quintile. Again, improving targeting accuracy requires a long‐term investment, and cannot be achieved very quickly in a crisis situation. Finally, the generosity of transfers is considered – namely how effective are these transfers in protecting beneficiary households from indigence? If the transfer amount is very low, it will again limit the capacity of the LRSA program in protecting recipients during a crisis. Figures A1.1‐ A1.3 presents the performance of the LRSA programs in ECA across the above‐mentioned dimensions.

Figure A.1.1. Coverage of LRSA programs

LRSA Coverage of the Poorest Quintile (%) 45 40 35 30 25 20 15 10 5 0

Source: ECA SP Database (Sundaram & Strokova, forthcoming)

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Figure A.1.2. Targeting Accuracy of LRSA Programs

LRSA Percent of Total Benefits Received by the Poorest Quintile (%) 100 90 80 70 60 50 40 30 20 10 0

Source: ECA SP Database (Sundaram & Strokova, forthcoming)

Figure A.1.3. Generosity of LRSA Programs

70

LRSA Benefits as Percent of Post‐Transfer Consumption, Beneficiary Household, Poorest Quintile

60 50 40 30 20 10 0

Source: ECA SP Database (Sundaram & Strokova, forthcoming)

45

Existence and Coverage of Unemployment Benefits Given the potential role of unemployment benefits as “automatic stabilizers” during a crisis (especially a crisis with significant labor market impacts), the existence of unemployment benefits is also an important dimension to consider in crisis‐preparedness. Most countries in ECA have some sort of unemployment scheme in place. However, simple existence of the benefit is not enough, whether all workers have access to the benefit when unemployed or not is also an important dimension to consider. Clearly, the higher the degree of formality in a country the higher the potential coverage of unemployment benefits would be. In order to approximate the coverage of unemployment benefits in the labor market, we use the proportion of formal sectors workers among the employed based on formality numbers estimated by Kuddo (2009). We acknowledge that this is not a perfect measure41, but use it in the absence of standardized unemployment benefit coverage data42. Table A1.1 presents the information on the existence of unemployment benefits and the degree of formality in each country.

Table A1.1. Unemployment Benefits and Degree of Formality Countries

Unemployment Benefits (potential coverage)

UB exists

Percentage formal

Armenia

Yes

64

Kosovo

No Program

Albania

Yes

49

Latvia

Yes

92

Moldova

No Program

Russia

Yes

NA

FYR Macedonia

Yes

46

Kyrgyz Republic

Yes

42

Belarus

Yes

NA

Kazakhstan

Yes

65

41

No matter how high the degree of formality in the labor market, the unemployment benefits will not cover all, such as new entrants to the labor market and the long term unemployed who will also be vulnerable during a crisis.

42 A similar performance indicator can be the ratio of people receiving Unemployment benefits among those who are unemployed. However, the ECA SP database currently doesn’t estimate this indicator as it is not a standard one. But this is one of the potential new indicators to add to ECA SP database.

46

Bosnia & Herzegovina

Yes

36

Azerbaijan

Yes

37

Tajikistan

No Program

Georgia

No Program

Montenegro

Yes

NA

Hungary

Yes

95

Croatia

Yes

75

Estonia

Yes

95

Ukraine

Yes

68

Turkey

Yes

55

Poland

Yes

85

Serbia

Yes

46

Bulgaria

Yes

NA

Lithuania

Yes

80

Romania

Yes

53

Existence and Performance of Child/Family Allowance Programs While a well‐targeted cash transfer that provides coverage for all the poor and/or unemployment benefits that have high coverage for unemployed are first best options in terms of social benefits’ response, a well functioning child allowance program can also be used in crisis response. Hence, we consider whether the country has at least one child allowance program since a well functioning child allowance program can help at least to prevent or minimize the longer term and often irreversible effects due to early childhood malnutrition, due to withdrawal of children from school, and so on. If the country does have a child allowance program, we estimate the performance of this program along the same three dimensions as LRSA: namely: coverage, targeting accuracy43, and generosity of this program. Figures A1.4‐A1.6 presents the performance of the LRSA programs in ECA across the above‐mentioned dimensions.

43

Note that looking at the ‘targeting accuracy’ of a universal child allowance program is not uncontroversial – universal child allowances could very well be a part of the social contract with people being willing to pay high taxes to support such a socially inclusive policy.

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Figure A.1.1. Coverage of Child Allowance programs

Main Family and Child Benefits Coverage of the Poorest Quintile (%) 100 80 60 40 20 0

Means‐tested

Non‐means‐tested

Figure A.1.2. Targeting Accuracy of Child Allowance Programs

Main Family and Child Benefits Percent of Total Benefits Received by the Poorest Quintile (%) 90 80 70 60 50 40 30 20 10 0

Means‐tested

Non‐Means‐tested

Source: ECA SP Database (Sundaram & Strokova, forthcoming)

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Figure A.1.3. Generosity of Child Allowance Programs

Main Family and Child Benefits Benefits as Percent of Post‐Transfer Consumption, Beneficiary Household, Poorest Quintile 50 45 40 35 30 25 20 15 10 5 0

Means‐tested

Non‐means‐tested

Source: ECA SP Database (Sundaram & Strokova, forthcoming)

Information Capacity The information capacity is also considered as an indicator of the efficacy of the administration of benefit programs – especially since information monitoring systems would be needed to monitor the crisis and process an increase in applications during a crisis. This indicator is admittedly a somewhat subjective evaluation. It takes into account the degree to which information is readily available on numbers of applicants, beneficiaries, and spending on SB programs, which can be an indicator of efficacy of program management (benefits administration). This can also signal the need for structural improvements in the medium term. In addition, if the authorities do not have the information it would be harder to monitor and respond/intervene as needed. After all, the ability to respond is very dependent on having information.

Composite Score We develop the composite score as a simple average of all these different dimensions (9 dimensions in total). This approach indicates that, when there are missing values in any given dimension, these are assumed to be as good or as bad as the dimensions for which there is information. While this is not a perfect method and there are many different ways of obtaining a composite score based on these dimensions, the resulting categories do not appear to change. In addition, for the most part, the resulting categories seem in‐line with the overall information about the countries’ Social benefits’ systems.

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Annex 2‐ Individual country briefs Armenia

Summary of the data:

Definition Unit Comment Source

Definition Unit Comment

Registered unemployed Number of persons looking for work who are registered in the regional and local employment offices Persons

State Employment Service Agency Unemployment benefit Monthly number of persons receiving unemployment benefit Persons The unemployment benefit is received by persons who have been insured for a least a year and are registered with the State Employment Service Agency. The amount of the benefit is set at 60% of the minimum monthly salary, as set in Armenian legislation.

The duration of the unemployment benefit payment is determined by the number of covered years, with each three years of insured coverage adding an extra month of unemployment benefit. However, the minimum duration is 6 months and the maximum duration is 12 months. After expiry of unemployment benefits, a person can again obtain unemployment benefit after another year of covered insurance and

50

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

registration as unemployed.

State Employment Service Agency Social monthly assistance (Family Benefit Program, FBP) Monthly number of individuals or families receiving social monthly assistance.

Persons Family Benefit Program is a household‐level last‐resort targeted social assistance program. It is hybrid means tested (HMT), with eligibility determined by a score‐based formula, which includes a set of coefficients, some of which are scores (e.g. vulnerable group categories, income, housing conditions, geographic area), while others are filters (e.g. car ownership, real estate acquisition, excessive electricity / long‐distance phone consumption). The amount of the benefit is a minimum basic benefit, with supplements for each child (which vary based on the targeting score), and top‐ups for families with four or more children and those residing in mountainous regions or near borders. There is no limit to the duration of the FBP, but the family has to re‐certify for eligibility annually.

Ministry of Labor and Social Issues Child benefit

This is a universal benefit provided as child care allowance for children under 2 years of age. The amount of the monthly benefit is 18,000 AMD, and it is paid until the child turns 2. There is also a childbirth benefit, which is a lump sum of 50,000 AMD, paid for the first child, 50,000 AMD for the second child, and 430,000 AMD for each subsequent child. The sum is paid during the 6 months after childbirth or adoption.

Social Disability benefit

Disability classification (Group I: total incapacity for work, requiring constant attendance; Group II: total incapacity for work, not requiring constant attendance; and Group III: partial incapacity for work) is assessed by a specialized medical committee.

The amount depends on the basic pension and years of covered employment. There is no maximum for disability pension.

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Bulgaria

Definition Unit Comment Source

Definition Unit Comment

Source

Definition Unit

Registered unemployed Number of persons looking for work who are entered on the registers of public employment services at the end of each month.

Number of persons

Public Employment Services Unemployment benefit Monthly number of persons receiving unemployment benefit.

Number of recipients The unemployment benefit is granted to those who have been insured for at least 9 months during the last 15 months and who are registered with the PES. The benefit is not means‐tested. Daily unemployment benefits amount to 60% of the average contributory income for the last 9 months and cannot be less than the minimum which is defined annually by the law (currently BGN 6/€ 3 a day). Duration of the benefit depends on the length of contribution period and is not to exceed 12 months.

Public Employment Services Social monthly assistance (GMI) Monthly number of individuals or families receiving social monthly assistance.

Number of recipients

52

Comment

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Monthly social assistance is provided to persons or families whose income is lower than a minimum income threshold and meets specific conditions. The benefits are means‐tested and financed by the state budget. The amount of the benefit is equal to the difference between the differentiated minimum income and the income of the persons or the families from the preceding month. The guaranteed minimum income is currently BGN 65/€ 33 per month. Until 01/01/2011, the benefit was subject to a duration limit of continuous 12 months (renewable), which has now been abolished.

Social Assistance Agency Child benefit Monthly number of children receiving monthly child assistance.

Number of recipients Monthly child assistance is a flat rate benefit granted to families with children until their completion of secondary education, but not after the age of 20. Currently, the benefit is BGN 35 (€ 18) per month for each child. The benefit is means‐tested and financed by the state budget. The average monthly gross income per family member must be lower or equal to BGN 350 (€ 179).

Social Assistance Agency Disability benefit Monthly number of persons receiving monthly disability benefit Number of recipients People with permanent disabilities are entitled to a monthly allowance for social integration according to their individual needs according to the degree of reduced capacity or the type and degree of disability. Cash add‐ons to supplement income are intended to cover additional costs for transport services; information and telecommunication services; training; medical treatment and rehabilitation services; accessible information; municipal rental housing, diet and medicines. The benefit is not means‐tested and is financed by the state budget.

Social Assistance Agency

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Croatia

Definition

Unit Comment Source

Definition Unit Comment

Registered unemployed Number of persons aged from 15 to 65, fully or partly capable of working, without a job, who are active job seekers and available for work, who are entered on the registers of the Croatian Employment Service at the end of each month.

Number of persons

Croatian Employment Service Unemployment benefit Monthly number of persons receiving unemployment benefit.

Number of recipients The unemployment benefit is granted to those who have been insured for at least 9 months during the last 24 months and who are registered with the CES. The benefit is not means‐tested. Unemployment benefits amount to 70% of the average contributory income for the last 3 months during the first 90 days and 35% of the average contributory income for the remaining period. However, there is a cap of 70% of the average monthly wage in Croatia (HRK 3,740 or EUR 505) for the first 90 days and 35% for the remaining period (HRK 1,870 or EUR 252), as well as the minimum which

54

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

cannot be less than 50% of the minimum monthly wage (currently HRK 1,407 or EUR 190). Duration of the benefit depends on the length of contribution period and ranges from 90 days if the person’s contribution period is below 2 years to 450 days if the person’s contribution period exceeds 25 years.

Croatian Employment Service Social monthly assistance (GMI) Monthly number of individuals receiving monthly social support allowance Number of recipients Monthly social support allowance is provided to persons or families whose income is lower than a minimum income threshold and meets specific conditions. The benefits are means‐tested and financed by the state budget. The amount of the allowance is set at HRK 500 (EUR 67). It is adjusted according to family size and set against the actual income of the household. The allowance is additionally increased for up to xx percent for some specific categories such as a person incapable of work living alone or in the family, children of single parents, etc.

Ministry of Health and Social Welfare Child Allowance Monthly number of beneficiaries of child allowance (Or Monthly number of children receiving monthly child allowance) Number of recipient families Monthly child allowance is an income‐tested benefit financed by the stated budget, granted to families with income per family member equal or below HRK 1,663 (EUR 225) per month. Some categories of beneficiaries are not subject to income testing such as children of war veterans or children with serious health impairment. The benefit is received until the child’s completion of secondary education, but not after the age of 21 (with the exception of children with severe health impairment who receive the allowance until the age of 27). Currently, the benefit per month for each child ranges from HRK 200 (EUR 27) to HRK 300 (EUR 40), depending on the level of monthly income per family member. The allowance per child may be additionally increased by up to 25% for specific categories of children such as children without one or both parents, children with health impairment) Croatian Institute for Pension Insurance Disability Allowance Monthly number of persons receiving monthly disability benefit Number of recipients People with severe disability or serious mental illness are entitled to a monthly allowance for the purpose of fulfilling their needs and including them in the everyday life in the community on equal terms with others. The benefit is not means‐tested and is financed by the state budget. The amount of the benefit is HRK 1,250 (EUR 169) Ministry of Health and Social Welfare

55

Georgia

Definition Unit Comment

Source

Definition Unit Comment

Targeted Social assistance (TSA) Number of approved beneficiaries Number of Households The cash allowance is awarded to families which rating score is less than 57 001. The score for HH is estimated by means test. The amount of assistance is 6+24n where n is family size.

Social Service Agency Family Allowance Number of approved beneficiaries Number of Households In this program no new beneficiaries are approved. The permanent decrease is caused by this fact.

"Family Allowance" is provided to families who have switched to the program before January 1st, 2007.

Beneficiaries of different categories receiving the "Family Allowance" and amount of social allowance: Single, unemployed pensioner (single pensioner ‐ age pensioner or disabled) For single unemployed pensioner ‐ 22 GEL;

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Source

Definition Unit Comment

Source

For family of two unemployed pensioners ‐ 35 GEL; Orphan child, besides guardian's disability status ‐ 22 GEL per person; Unemployed disabled, the first group disabled (blind) ‐ 22 GEL per person; Underage disabled ‐ 22 GEL per person; Large family with 7 or more underage children ‐ 35 GEL.

Social Service Agency Disability Benefit Number of approved beneficiaries Number of persons Georgian citizen who has the I or the II group disability (except of the person who has a disability status from the childhood or the veteran of war who has the III group of disability) has to apply to the regional branch of the Social Service Agency to fix the pension.

Amount of the pension: For the I group disabled people ‐ 80 GEL, For the II and the III group disabled people ‐ 70 GEL. Social Service Agency

57

Hungary

Definition Unit Comment Source

Definition Unit Comment Source

Definition Unit Comment

Unemployed ILO Unemployment according to ILO definition Persons – seasonally adjusted See: http://nui.epp.eurostat.ec.europa.eu/nui/show.do?dataset=lmhu_m&lang=en Eurostat Jobseekers Allowance and Assistance (Unemployment Benefit) Unemployment benefit = Jobseekers’ allowance recipients and recipients of jobseekers’ assistance Recipients

Employment and Social Office (www.afsz.hu) Regular Social Assistance, Availability Support, or Public Work (Social Assistance Benefit) Recipients of either (1) regular social assistance; (2) availability support; or (3) public work Recipients Regular social assistance is an income supplement provision in the form of cash, provided by the local government of the settlement. Its aim to guarantee a minimal

58

Source

Definition Unit Comment

Source

standard of living for those who have no income. From the 1 July 2006 the conditions of the provision and the way of calculation of the amount of support changed. Before that the local government awarded regular social assistance to a person who was over 18 years of age, was of active age, and had lost at least 67 per cent of his or her working ability or received blind persons’ benefit, or to a person who was of active age but not in employment, in the case that their subsistence was not provided by other means.

By the new terms for the support is entitled only one person in a family. The assessing of the entitlement and the amount of the assistance based on the income projected to the consumer unit instead of the previous income per capita. The consumer unit is the rate which shows the structure of consumption within a family. The first major member of the family and the disabled child’s rate is 1.0 while the ratio of the companion (spouse) and a child is lower (0.9‐0.7). The amount of support is variable and supplements the family’s effective total income to the limit of the entitlement. The regular social assistance from 1 January 2009 was changed to benefit for active aged which consist of the regular social assistance and the „support for to be ready to work”.

The change in the benefit system was built up completely until 31 March 2009.

Ministry of Local Government Disability Subsidy Disability subsidy recipients Recipients Financial support for severely disabled persons over the age of 18, who are unable to care for themselves or need permanent assistance from others.

The regulation of regular social assistance is altered from 1 January 2009. Due to change of regulation the number of recipients was decreased.

Hungarian Treasury (www.allamkincstar.gov.hu)

59

Latvia

Definition Unit Comment Source

Definition Unit Comment

Registered unemployed Number of persons looking for work who are entered on the registers of public employment services at the end of each month Number of persons

Public Employment Services Unemployment benefit Monthly number of persons receiving unemployment benefit Number of recipients The unemployment benefit is granted to those who have been socially insured for at least 1 year and who have paid at least 9 months of contributions in 12 months before registering as unemployed. The benefit is earnings‐related and not means‐tested.

The amount of unemployment benefit is determined in proportion to the insurance period and the income on the basis of which unemployment contributions are paid and decreases over time. The benefit is paid up to 9 months and during the last three months the benefit is flat (LVL 45 (€ 63) per month) for those, who contributed for less than 20 years. Temporarily, between 1 January 2010 and 31 December 2012, the part of the benefit exceeding LVL 11.51 (€ 16) per day is paid at half rate.

60

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Public Employment Services Guaranteed minimum income benefit (GMI) Persons in household receiving municipal GMI benefit Number of recipients The Guaranteed minimum income (GMI) benefit is provided to persons or families whose income level is lower than the level of income set by the Cabinet of Ministers.

The GMI level as well as eligibility conditions, formalities, calculation and payment procedures for the GMI benefit are set by central government, but until 2009 the benefit was paid out by local municipalities from the municipal budget. The benefit is now co‐financed by the central government.

The benefit is calculated as the difference between the GMI level set by the Cabinet of Ministers (LVL 40 (€ 56) for adults and LVL 45 (€ 63) for children) and the person's or the household’s average monthly income over the last three months. The municipality can establish a higher GMI level (but not higher than the needy level (or 50% of the minimum wage) for persons receiving old‐age and disability pensions. The benefit is granted for a period of 3 months or 6 months and is renewable. The benefit is income‐ and assets (property) tested and can be granted in cash or in kind.

Ministry of Welfare Housing Benefits Persons in household receiving municipal housing benefit Number of recipients The housing benefit is a separate municipal benefit. The amount of this benefit varies from one municipality to another depending on resources available. If the person is granted the status of a needy person and she/he has expressed a wish to be a tenant of a social flat (housing), the person can rent a flat as social housing where reduced rent and utility payments are charged. Since 2009, the benefit is co‐financed by the central government.

Ministry of Welfare

61

Lithuania

Definition Unit Comment Source

Definition Unit Comment

Source

Definition Unit

Unemployed Unemployment according to ILO definition – Total Persons – seasonally adjusted See: http://nui.epp.eurostat.ec.europa.eu/nui/show.do?dataset=lmhu_m&lang=en Eurostat Unemployment Benefit Unemployment benefit recipients Recipients The unemployed have possibility to receive unemployment benefit if he has a minimum period of insurance: 18 months within 3 years preceding unemployment (there are exceptions for certain groups of unemployed people who contributed but have not acquired the necessary social insurance record due to important reasons). The duration of payment of Unemployment Insurance Benefit depends on the length of the insurance record: Service years Duration less than 25 years 6 months; 25 ‐ 30 years ‐7 months, 30 ‐ 35 years‐ 8 months; 35 years and over‐9 months. The duration of payment is prolonged for additional 2 months for elderly persons within 5 years till pension age.

National Labour Exchange Social Benefit Number of recipients of social benefit Recipients

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Comment

Source

Definition Unit Comment Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Families and single residents are entitled to Social Benefit if either single resident or one spouse works or does not work because they are full‐time students or pensioners, or individuals above retirement age, or disabled, or nursing a disabled or sick family member, or registered at the local office as unemployed and receiving Unemployment Benefit or are long‐term unemployed (more than 6 months), or taking care of a child under the age of 3 years or under the age of 8 years, or family is raising three or more children, etc.

Ministry of Social Security and Labour, The Social Assistance Information System Unemployed Unemployment according to ILO definition – Total Persons – seasonally adjusted See: http://nui.epp.eurostat.ec.europa.eu/nui/show.do?dataset=lmhu_m&lang=en Eurostat Unemployment Benefit Unemployment benefit recipients Recipients The unemployed have possibility to receive unemployment benefit if he has a minimum period of insurance: 18 months within 3 years preceding unemployment (there are exceptions for certain groups of unemployed people who contributed but have not acquired the necessary social insurance record due to important reasons). The duration of payment of Unemployment Insurance Benefit depends on the length of the insurance record: Service years Duration less than 25 years 6 months; 25 ‐ 30 years ‐7 months, 30 ‐ 35 years‐ 8 months; 35 years and over‐9 months. The duration of payment is prolonged for additional 2 months for elderly persons within 5 years till pension age.

National Labour Exchange Social Benefit Number of recipients of social benefit Recipients Families and single residents are entitled to Social Benefit if either single resident or one spouse works or does not work because they are full‐time students or pensioners, or individuals above retirement age, or disabled, or nursing a disabled or sick family member, or registered at the local office as unemployed and receiving Unemployment Benefit or are long‐term unemployed (more than 6 months), or taking care of a child under the age of 3 years or under the age of 8 years, or family is raising three or more children, etc.

Ministry of Social Security and Labour, The Social Assistance Information System

63

Montenegro

Definition Unit Comment Source

Definition

Unit Comment

Registered unemployed

Unemployment benefit The unemployment compensation is a contributory benefit due to registered unemployed who meet a set of criteria as minimum duration of contractual work and contribution to unemployment insurance record, terms of employment termination and deadline for submission of the claim.

Registered unemployed, individuals The unemployment compensation is paid by the Pension and Disability Insurance Fund and delivered through the Employment Office upon meeting certain eligibility criteria: contribution for unemployment insurance for at least 9 months continuously of for at least 12 months with interruptions in the last 18 months; submission of the claim within 42 days after the employment was terminated, employment was not terminated voluntarily or the loss of job was due to the employee’s fault. The duration of benefit receipt is between 3 months (minimum) and 12 months (maximum) and depends on the length of insurance record. The unemployment benefit amount equals

64

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Definition Unit Comment

to 65% of the minimum pay standard in Montenegro for the last two years. In addition to the “regular” unemployment benefit, since 2009, through changes in the Law on Employment, a new unemployment benefit has been introduced that amounts to the minimum pension. Eligible are elderly unemployed (male over 60 years of age and women over 55 years of age) with minimum 10 years of contribution record; and long‐ term contributors (30 years of contribution record and age of 50 or above). The duration of this benefit is up to 24 months. The unemployment insurance contribution amounts to 1% of gross wage out of which 0.5% is paid by the employee and 0.5% ‐ by the employer.

Law on Employment, Ministry of Labor and Social Welfare Monthly financial social assistance: Family Material Support(FMS/MOP) Monthly last‐resort social assistance for families in material need, defined with an income and asset test Individuals (single‐member families) and multi‐member families Monthly benefit for family, ranging from €60.5 to €115, depending on the number of recipient family members. The family income should be lower than a pre‐set standard that varies with family size, and is equal to the maximum benefit. Certain assets (land and dwelling ownership, productive assets, vehicle) are considered along with income.

The actual benefit that is received by a family of certain size is defined as the difference between the pre‐set income standard and the actual income of the family.

There is no time limit for receiving the benefit. Re‐certification is due once in 12 months or more often if the material circumstances change. The benefit is designed by the Ministry of Labor and Social Welfare and delivered by the Centers for Social Work.

The benefit is conditional to regular school attendance of children from recipient families.

Law on Social and Child Protection, Ministry of Labor and Social Welfare Child Allowance Means‐tested monthly benefit for families with children who are FMS/MOP beneficiaries Individuals The child allowance is a benefit for children whose family is FMS/MOP beneficiary, for which are eligible the first three children in the family. The child allowance is extended without a means test to families with children with physical, mental and sensor disorders and children without parents. The amount of the child allowance is 18.2 € for children in FMS/MOP beneficiary families; 24.2€ for children with physical, mental and sensor disorder which can be enabled for normal life and work; 30.2€ for children with physical, mental and sensor disorder which cannot be enabled for normal life and work; and 30.2 € for children without parents. The benefit is extended to biological, adopted and fostered children up to 18 years of age.

Law on Social and Child Protection, Ministry of Labor and Social Welfare Personal Disability Benefit and Caregivers’ Allowance Non‐contributory categorical disability benefit for those whose disability has occurred before becoming 18 years old Individuals holding medical certification of disability Eligible for personal disability benefit are persons whose inability for independent life occurred before they became 18 years old. The amount of this benefit is €75 per

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Source

month since 2009, €50 before that. The benefit is not means tested. No recertification is envisaged. The caregivers’ allowance is extended only to those with severe disability (irrespective of whether it has been acquired from birth or later in life) who do not have disability insurance, and also meet the income and asset test for FMS/MOP. The amount of the caregivers’ allowance is €60 since 2008, up from €55 before that.

Social Protection Law, Ministry of Labor and Social Welfare

66

Romania

Definition Unit Comment Source

Definition Unit Comment

Source

Registered unemployed Number of persons looking for work who are entered on the registers of public employment services at the end of each month.

Number of persons

Public Employment Services Unemployment benefit Number of unemployment indemnity recipients Number of persons The unemployment benefit is granted to those who have been insured for 12 months during the 24 months preceding registration. The benefit is earnings‐related and not means‐tested. The amount of unemployment benefit depends on the minimum gross wage, level of earnings, and length of contribution period. The amount of benefit was reduced by 15% during the period between 3 July 2010 and 31 December 2010.

Duration of payment varies according to contribution period from 6 month (graduates and those who contributed for 1‐5 years) to 12 months (those who contributed for at least 10 years).

Ministry of Labour, Family and Social Protection Social Aid (GMI)

67

Definition Unit Comment

Source

Definition Unit Comment

Source

Number of Social aid recipients Number of persons Minimum guarantee income is provided in the form of an income tested monthly benefit (Social Aid) by the local authorities. The amount of Social Aid is a difference between Guaranteed Minimum Income, which is set by the Government at the national level, and individual’s or family’s net income. Minimum Social Aid amount is RON 10 (€ 2.30) per month. The work‐able recipients of this benefit are required by law to provide, on a monthly basis, a maximum of 72 hours of community work, at the request of the mayor. The Social Aid is paid until the beneficiary ceases to meet the conditions.

Ministry of Labour, Family and Social Protection Family Allowances (CFA and SFA) Total number of complementary family allowance and single‐parent family allowance beneficiaries Number of persons Complementary family allowance (CFA) is an income‐tested benefit granted to families with children whose net income per family member is less than RON 470 (€108).

Eligible child must live with family and be of school age attending a form of education until the age of 18 years. The monthly benefit amount differs according to the number of children within the family: RON 50 (€12) for a family with 1 child to RON 70 (€16) for a family with 4 or more children. For a family entitled to Social Aid (GMI benefit), CFA is increased by 25%.

Single‐parent family allowance is an income‐tested benefit to children in single‐parent families. The monthly benefit amount differs according to the number of children: RON 70 (€16) for a single‐parent family with 1 child to RON 90 (€21) for a single‐ parent family with 4 or more children.

Ministry of Labour, Family and Social Protection

68

Serbia

Definition Unit Comment Source

Definition Unit Comment

Registered unemployed

Unemployment benefit Contribution‐based benefit paid by the Public Employment Service to registered unemployed who meet certain conditions.

Individuals, registered unemployed Contribution‐based benefit paid by the Public Employment Service to registered unemployed who meet certain conditions: length of work and contribution record of 12 consecutive or 18 non‐consecutive months, terms of separation, commitment to active job search. The unemployment benefit amounts to 50% of the last reference earning; cannot be lower that 80% of the minimum wage for the month before the benefit is awarded and higher than 160% of the minimum wage for the same reference month. The duration of the benefit depends on the length of contribution record. The benefit is not taxable. While receiving the unemployment benefit, the recipient is not allowed to engage in gainful employment. Unemployment benefit can be paid on a one‐time basis upon the request of unemployed person. Unemployed person who receives unemployment benefit for at least 3 months since the recognition

69

of his rights, and has became employed for indefinite period of time, is entitled to one‐ off incentive for employment. Incentive equals 30% of total unemployment benefit amount (net of taxes and contributions), that would have been paid to him/her until expiry of his/her right to unemployment benefit Source

Definition

Unit Comment

Source

Definition

Unit Comment

Source

Definition Unit Comment

Law on Employment and Insurance Against Unemployment, 2009. Ministry of Labor and Social Policy Social monthly assistance: Cash Social Assistance (‘New MOP’) Guaranteed minimum income program, non‐contributory cash benefit granted to families whose income is below a pre‐set standards defined by the Ministry of Labor and Social Policy, and who also meet certain asset criteria Number of recipient families or households, number of individuals (monthly data) Monthly social assistance is provided to persons or families whose income is lower than a minimum income threshold (defined as base income threshold and scaled up with equivalence scales to reflect the size and composition of the unit of assistance), passes an asset test and meets other conditions. The benefits are means‐tested and financed by the state budget. The amount of the actual benefit paid is equal to the difference between the differentiated income threshold and the actual income of the person or the families from the preceding month. The cash social assistance basic amount is currently 60 Euro. The basic amount is increased by 50% for each subsequent adult and by 30% for each child in the unit of assistance. There is a limit of six recipients in one unit of assistance. There is no time limit for the benefit receipt.

Eligibility is recertified each 12 months. Able‐bodied working‐age beneficiaries receive the benefit for 9 months in one calendar year; those who are considered not able to work receive it for 12 months in one calendar year. The cahs social assistance is delivered by the Centers for Social Work. The basic benefit amount is updated with the cost of living index twice a year.

Law on Social Assistance, 2011; Ministry of Labor and Social Policy Child Allowance The monthly child allowance is a non‐contributory benefit provided to families with children whose income per capita is below a threshold defined by the law in 2002 and updated twice a year with the respective cost of living index.

Number of recipient children The monthly child allowance is income tested. The income threshold is similar in size to the one for cash social assistance but they are defined independently. The child benefit is administered and delivered by the municipal social departments. The basic benefit is defined by the Law in 2002 at Euro 27.5 and applies for the first child. Up to 4 children in a family receive the benefit. The second, third and fourth child receive a benefit which is higher than the base by Euro 9. The benefit amount is indexed with the cost of living index twice a year.

Law on Financial Support for Families with Children, Ministry of Labor and Social Policy Disability (caregiver’s) allowance Benefit paid to persons with high level of disability who need the help / care of a third person in performing everyday vital activities.

Individual with medical certification of disability The benefit could be contributory (paid by the Pension Fund) or non‐contributory (paid by the Ministry of Labor and Social Policy. The basic amount is stipulated in the Law in

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2004 at Euro 40, and is subject to adjustment each month by the cost of living index.

Those with 100% disability receive increased by 70%) caregivers’ allowance. The allowance is awarded and discontinued based on medical assessment. Granted for indefinite time in case of permanent disability. The allowance is not taxable.

Source

Law on Social Protection and Provision of Social Safety to Citizens, Ministry of Labor and Social Policy

71

Ukraine

Definition Unit Comment Source

Definition Unit Comment

Registered unemployed Number of persons without employment who are looking for work and are entered on the registers of public employment services at the end of each month.

Number of persons

Public Employment Service Unemployment benefit Monthly number of persons receiving unemployment benefit.

Number of recipients The unemployment benefit is granted to those who are registered with the PES and who have been employed for at least 26 weeks over the 12 months period preceding the unemployment and paid insurance contributions. Additional requirement is that a person should be ready to participate in public works, if such work appears suitable.

The benefit starts eight days after registration. The benefit is not means‐tested and its size depends on the claimant`s insurance history. In some instances, however, benefit may be granted regardless of insurance period. Duration of the benefit depends on the length of contribution period and cannot exceed 360 days cumulatively over two years period. Monthly amount of unemployment benefit ranges from 50% to 70% of the average contributory income for the last 6 months. It cannot be less than the

72

Source

Definition Unit Comment

Source

Definition Unit Comment

Source

Definition Unit Comment

subsistence minimum set annually by the law. It cannot exceed an average wage reported in a claimant`s residence region for the previous month. The benefit can also be paid in a lump sum.

Public Employment Service Social Assistance to Poor Families (GMI) Monthly number of individuals or families receiving assistance.

Number of recipients Monthly social assistance is provided to persons or families whose income is lower than a minimum income threshold (subsistence minimum) and meets specific conditions. The benefits are means‐tested, they are financed by the state budget and administered by local welfare offices. The amount of the benefit is equal to the difference between the differentiated minimum income and the average monthly income of a family for 6 months preceding application. The benefit is granted for 6 months period and is renewable. Over this period the benefits amount is revised with changes in income threshold and/or if the family claims change in income status.

Ministry of Social Policy Child Care benefit Monthly number of individuals receiving child care benefit for children under three years Number of recipients Monthly child care benefit is provided to a person who takes immediate care of a child/children below three years old. The amount of the benefit per each child is equal to the difference between the differentiated minimum income (subsistence minimum) and the average monthly income of a family for 6 months preceding application. The benefits are financed by the state budget and administered by local welfare offices.

The benefits are income tested, however, there is a minimum flat benefits that is granted per child regardless of income. The benefit is granted for the period until a child reaches the age of three years old but recertification is to take place every six months. If recertification does not take place or, as a result of recertification, the amount of the benefit appears lower than a minimum flat benefit, a person will be paid a minimum flat benefit.

Ministry of Social Policy Single Parent benefit Monthly number of individuals receiving social benefits to single parents Number of recipients Monthly single parent benefit is provided to a parent who is single (unmarried, divorced, widowed) and takes care of a child/children below 18 years old. The amount of the benefit per each child is equal to the difference between the 50% of differentiated minimum income (subsistence minimum) and the average monthly income of a family for 6 months preceding application. The benefits are financed by the state budget and administered by local welfare offices. The benefits are income tested but cannot be lower than 30% of subsistence minimum which is granted regardless of income. There is also a maximum limit to the benefit size which is differentiated for children below and above six years old. The benefit is granted for the period until a child reaches the age of 18 years old (in some instances 23 years old) and is automatically recalculated at 6 years. For income‐tested benefit, the

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recertification is to take place every six months. If recertification does not take place or, as a result of recertification, the benefit amount appears lower than a minimum flat benefit, a person will be paid a minimum flat benefit.

Ministry of Social Policy

74

Social Protection & Labor Discussion Paper Series Titles 2011‐2012

No.

1219

1218

1217

1216

1215

1214

1213

1212

1211

1210

1209

Title Do Social Benefits Respond to Crises? Evidence from Europe & Central Asia During the Global Crisis

by Aylin Isik‐Dikmelik, November 2012 Building Results Frameworks for Safety Nets Projects

by Gloria M. Rubio, October 2012 Pension Coverage in Latin America: Trends and Determinants

by Rafael Rofman and Maria Laura Oliveri, June 2012 Cash for Works in Sierra Leone: A Case Study on the Design and Implementation of a Safety Net in Response to a Crisis

by Colin Andrews, Mirey Ovadiya, Christophe Ribes Ros and Quentin Wodon, June 2012 Public Employment Services, and Activation Policies

by Arvo Kuddo, May 2012 Private Pension Systems: Cross‐Country Investment Performance

by Alberto R. Musalem and Ricardo Pasquini, May 2012 Global Pension Systems and Their Reform: Worldwide Drivers, Trends, and Challenges

by Robert Holzmann, May 2012 Towards Smarter Worker Protection Systems: Improving Labor Regulations and Social Insurance Systems while Creating (Good) Jobs

by David A. Robalino, Michael Weber, Arvo Kuddo, Friederike Rother, Aleksandra Posarac and Kwabena Otoo International Patterns of Pension Provision II: A Worldwide Overview of Facts and Figures

by Montserrat Pallares‐Miralles, Carolina Romero and Edward Whitehouse, June 2012 Climate‐Responsive Social Protection

by Anne T. Kuriakose, Rasmus Heltberg, William Wiseman, Cecilia Costella, Rachel Cipryk and Sabine Cornelius, March 2012 Social Protection in Low Income Countries and Fragile Situations: Challenges and Future Directions

by Colin Andrews, Maitreyi Das, John Elder, Mirey Ovadiya and Giuseppe Zampaglione, March 2012

1208

1207

1206

1205

1204

1203

1202

1201

1120

1119

1118

World Bank Support for Pensions and Social Security

by Mark Dorfman and Robert Palacios, March 2012 Labor Markets in Middle and Low Income Countries: Trends and Implications for Social Protection and Labor Policies

by Yoonyoung Cho, David Margolis, David Newhouse and David Robalino, March 2012 Rules, Roles and Controls: Governance in Social Protection with an Application to Social Assistance

by Lucy Bassett, Sara Giannozzi, Lucian Pop and Dena Ringold, March 2012 Crisis Response in Social Protection

by Federica Marzo and Hideki Mori, March 2012 Improving Access to Jobs and Earnings Opportunities: The Role of Activation and Graduation Policies in Developing Countries

by Rita Almeida, Juliana Arbelaez, Maddalena Honorati, Arvo Kuddo, Tanja Lohmann, Mirey Ovadiya, Lucian Pop, Maria Laura Sanchez Puerta and Michael Weber, March 2012 Productive Role of Safety Nets

by Harold Alderman and Ruslan Yemtsov, March 2012 Building Social Protection and Labor Systems: Concepts and Operational Implications

by David A. Robalino, Laura Rawlings and Ian Walker, March 2012 MicroDeterminants of Informal Employment in the Middle East and North Africa Region

by Diego F. Angel‐Urdinola and Kimie Tanabe, January 2012 Employment Generation in Rural Africa: Mid‐term Results from an Experimental Evaluation of the Youth Opportunities Program in Northern Uganda

by Christopher Blattman, Nathan Fiala and Sebastian Martinez, December 2011

Measuring Governance and Service Delivery in Safety Net Programs

by Gloria M. Rubio, September 2011 Assessing Safety Net Readiness in Response to Food Price Volatility

by Margaret Grosh, Colin Andrews, Rodrigo Quintana, Claudia Rodriguez‐Alas, September 2011

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1116

1115

1114

1113

1112

1111

1110

1109

1108

1107

1106

Social Safety Nets in Fragile States: A Community‐Based School Feeding Program in Togo, August 2011 (also available in French)

by Colin Andrews, Elena Galliano, Carolyn Turk and Giuseppe Zampaglione, August 2011 Strengthening Governance of Social Safety Nets in East Asia

by Sara Giannozzi and Asmeen Khan, August 2011 International Portability of Health‐Cost Coverage: Concepts and Experience

by Martin Werding and Stuart McLennan, July 2011 Liberia’s Cash For Work Temporary Employment Project: Responding to Crisis in Low Income, Fragile Countries

by Colin Andrews, Prospère Backiny‐Yetna, Emily Garin, Emily Weedon, Quentin Wodon and Giuseppe Zampaglione, July 2011 Employability and Productivity among Older Workers: A Policy Framework and Evidence from Latin America

by Edmundo Murrugarra, July 2011 Cash Transfers, Children and the Crisis: Protecting Current and Future Investments

by Ariel Fiszbein, Dena Ringold, Santhosh Srinivasan, June 2011 Severance Pay Programs around the World: History, Rationale, Status, and Reforms

by Robert Holzmann, Yann Pouget, Milan Vodopivec and Michael Weber, May 2011 Portability of Pension, Health, and other Social Benefits: Facts, Concepts, Issues

by Robert Holzmann and Johannes Koettl, May 2011 Disability and Poverty in Developing Countries: A Snapshot from the World Health Survey

by Sophie Mitra, Aleksandra Posarac and Brandon Vick, April 2011 Advancing Adult Learning in Eastern Europe and Central Asia

by Christian Bodewig and Sarojini Hirshleifer, April 2011 Results Readiness in Social Protection & Labor Operations

by Laura Rawlings, Maddalena Honorati, Gloria Rubio and Julie Van Domelen, February 2011 Results Readiness in Social Protection & Labor Operations: Technical Guidance Notes for Social Service Delivery Projects

by Julie Van Domelen, February 2011

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1104

1103

1102

1101

Results Readiness in Social Protection & Labor Operations: Technical Guidance Notes for Social Safety Nets Task Teams

by Gloria Rubio, February 2011 Results Readiness in Social Protection & Labor Operations: Technical Guidance Notes for Social Funds Task Teams

by Julie Van Domelen, February 2011 Results Readiness in Social Protection & Labor Operations: Technical Guidance Notes for Labor Markets Task Teams

by Maddalena Honorati, February 2011 Natural Disasters: What is the Role for Social Safety Nets?

by Larissa Pelham, Edward Clay and Tim Braunholz, February 2011 North‐South Knowledge Sharing on Incentive‐based Conditional Cash Transfer Programs

by Lawrence Aber and Laura B. Rawlings, January 2011

To view Social Protection Discussion papers published prior to 2011, please visit www.worldbank.org/sp

DISCUSSION PAPER

Abstract Social benefits can potentially play an important role in protecting the poor and minimizing the impacts of an economic crisis. While many studies estimate the impacts of a crisis, there is little evidence of the actual response of social safety nets to systematic shocks. This study traces the response of social benefits during the 2008–10 global crisis for 14 countries in ECA. The study first sets out a framework for defining the “expected” response of social benefits covering an assessment of pre-crisis preparedness of social benefits and the severity of the crisis for all countries in the ECA region to provide the context; and then develops a typology of all countries categorized by expected response. Using this typology the study analyzes the monthly administrative data on the observed patterns within social benefit programs.

Main findings indicate that actual responses were largely in line with expectations. Precrisis preparedness clearly influenced the ability of social benefits to respond to the crisis.

Unemployment benefits were generally the first line of response in countries that have them, while social assistance programs also expanded coverage during the crisis. Lessons learned from the 2008-2010 global crisis (such as the importance of structural reform, design, and implementation which affect the success of social benefits programs in crisis response) are also presented. The study concludes with some policy recommendations to help ECA countries prepare for future crises.

NO. 1219

Do Social Benefits Respond to Crises?

Evidence from Europe & Central Asia During the Global Crisis

Aylin Isik-Dikmelik

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Social Protection & Labor Discussion Papers are published to communicate the results of The World Bank’s work to the development community with the least possible delay. The typescript manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally edited texts.

The findings, interpretations, and conclusions expressed herein are those of the author(s), and do not necessarily reflect the views of the International Bank for Reconstruction and Development / The World Bank and its affiliated organizations, or those of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The author(s) attest(s) that the paper represents original work. It fully references and describes all relevant prior work on the same subject.

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November 2012