Activation and Smart Safety Nets

in the Western Balkans

Boryana Gotcheva & Aylin Isik-DikmelikVienna, March 4, 2014

Outline

Why activation? What is the challenge? What is activation? The Western Balkans Activation and Smart Safety

Nets Study: ContentOutputsAnalytical framework

Going forward

The Challenge

Employment and active inclusion are among the most critical challenges for countries across the Western Balkans

Daunting jobs challenge with low activity and employment rates …

Kazak

hstan

Azerb

aijan

*

Denmar

k

German

y

Czech

Rep

ublic

Georg

ia*

Portug

al

Irelan

d

Slovak

ia

Poland

Belaru

s*

Belgium

Bulgar

ia

Turke

y

Greec

e

Monten

egro

Moldov

a

FYR Mac

ed...

Kosov

o0

10

20

30

40

50

60

70

80

Perc

enta

ge

Employment (age 15+), Q4, 2011

…and unemployment rates that are among the highest in Europe

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q20

5

10

15

20

25

CIS Western Balkans Non-ECA Europe Baltics ECA

Une

mpl

oym

ent r

ate

(late

st a

vaila

ble)

Unemployment rates, 2008-2012

What is activation?

Activation has a ‘history’ across the world Shift from “passive” to “active” social policies

Primary focus on employability and labor market re-attachment

The “European” model of activation policies generally place employment integration at the very heart of social policy This implies: Greater emphasis on work as a way to ensure that

individuals in their prime age are not excluded from mainstream society

Greater effort by the social and employment services in helping inactive, unemployed and benefit recipients overcome the obstacles to entering into paid work

Greater effort by the inactive, unemployed, and recipients to enter or re-enter the job market

Key building blocks of activation

1. The ‘mutual obligations’ principle

2. Frequent and personalized/tailored interventions of agencies during individual’s unemployment spell

3. Financial incentives to labor market re-integration

4. Stricter benefit eligibility criteria and benefit sanctions

5. Strong obligations to participate in labor market programs, community work or, to try self-employment

6. Changes in institutional arrangements and greater coordination across institutions

Promoting Employability and reducing reliance on social transfers

Integrated Service Models

Tailored to Clients

Employment & Social Service

SupportsBenefit

Incentives

Activation “Package” of incentives & support services

Activation is for both the inactive and those who are active but without a job

Non-Poor

Poor

SSN-Beneficiaries

INACTIVEOut of the LF

WITHOUT A JOB

but active

Increase

Employability

Increase Productivity

Activate into the LM

WITH A JOB

The Western Balkans Activation and Smart Safety Nets Study

Builds on previous

research Social Protection Systems in

Western Balkans

Country-specific case studies for

all Western Balkans

including entity-level cases in

BH

Advice to the Governments on policy changes that promote

activation

Assistance on how to

implement activation policies

Framework for the analysis

• Target Groups?• Inactive• Unemployed• SSN

Beneficiaries• Barriers to

Work?• Employability

barriers (skills, experience, etc.)

• Participation constraints

Activation for Who? PROFILING

• Benefit formula• Generosity/’packa

ge’• Mutual

obligations• Duration/ phase

out• (Dis)incentives in

tax and benefit systems

• Earned income disregards

(Dis)Incentives in Benefit

Design• Coordination

between welfare and employment services

• Specific activation policies and ALMPs

• Implementation capacity (financing, staffing, etc.)

Institutional Readiness for

Activation Policies

Coverage of countries and activities

Country Profiling(Dis)incentives in the design

Institutional capacity

Phase 1-2 (2012-13)FYR MacedoniaKosovo

Montenegro

Serbia

Phase 3 (2013-14)

Albania

Bosnia and Herzegovina

Activation for Who? Profiling: SERBIA

• Target Groups?• Inactive• Unemployed• SSN

Beneficiaries• Barriers to

Work?• Employability

barriers (skills, experience, etc.)

• Participation constraints

Activation for Who? PROFILING

(Dis)Incentives in Benefit

Design

Institutional Readiness for

Activation Policies

Analytical framework to analyze constraints to employment of safety nets beneficiaries

Employability barriers

Participation constraints

Tax and Benefit Disincentives

These barriers are interrelated

Objective of “Profiling” of Social Safety Net beneficiaries

Providing tailored activation strategies for a diverse vulnerable populationWho can be activated in the population? Who are the “activable” among SSN

beneficiaries?Profile of the “activable” What are the employability barriers? Are there additional constraints to their

participation ?What are the main client segments for

activation? What graduation strategies suit each group?

Who can be “activated”?

Of working age (15-64)

Able bodied

Not in education or training

Activables:Individuals who can be presumed

to be able to work

• Who can be activated among the population? • Who can be activated among the SSN

beneficiaries?• Are these groups coinciding?

More than half of population in Serbia are “work-able” (potentially “activable”)

Source: Serbia HBS data 2010.Note: “Work-able” includes all individuals of working age (15–64) who are neither disabled nor in education or training.

Whole population

SSN all

FSA+CA beneficiaries

FSA beneficiary

0 10 20 30 40 50 60 70 80 90 100

12.6

27.1

11.3

26.4

22.1

9.6

32.1

11.0

8.0

8.6

6.1

4.7

56.8

52.9

50.0

54.8

Age Composition of SSN Beneficiaries Relative to General Population in Serbia, 2010

Child Old Working age (disabled)Working age (in education) Working age (work-able)

Percent

Employed

Unemployed

Outof labor force

0 10 20 30 40 50 60 70 80 90 100

79.0

83.3

72.8

13.0

8.5

13.5

6

6

9

1.9

5.

Safety Net Coverage of the Work-Able Population in Serbia, 2010

Nonbeneficiaries in Q2-Q5 Nonbeneficiaries in Q1 Beneficiaries of other SSN FSA beneficiaries

Percent

SSN beneficiaries represent only a small fraction of the work-able population

Source: Serbia HBS data 2010.Note: “Work-able” includes all individuals of working age (15–64) who are neither disabled nor in education or training.

Focusing only on SSN beneficiaries will have limited impact in the LM

Whole population

Non-beneficiaries, poor

SSN beneficiaries

FSA + CA beneficiaries

FSA beneficiaries

0 10 20 30 40 50 60 70 80 90 100

63.0

55.2

56.8

58.1

56.5

16.4

25.9

20.7

21.9

20.7

20.6

18.8

22.4

20.1

22.8

Employment and Unemployment rates among the work-able popu-

lation in Serbia, 2010

Employed Unemployed Out of labor forcePercent

SSN Beneficiaries more likely to be unemployed or inactive or have low-quality jobs

Whole population

Nonbeneficiaries, poor

SSN beneficiaries

FSA beneficiaries

0 10 20 30 40 50 60 70 80 90 100

34.4

17.2

13

28.6

27.8

30.3

11.2

14.7

12.7

25.7

40.3

44.1

56.1

Sector of Employment for work-able Population in Serbia, 2010

Public and professionsRetail, trade, craftsConstr., industry, transportAgriculture and manual jobsNot identified*

Percent

Source: Serbia HBS data 2010.Note: “Work-able” includes all individuals of working age (15–64) who are neither disabled nor in education or training* Because of the sample size, conclusions cannot be drawn about the sectors other than “Agriculture and manual jobs.” .

Activablepopulation

SSN beneficiaries

Nonbeneficiaries, poor

SA + CA beneficiaries

FSA beneficiaries

0 10 20 30 40 50 60 70 80 90 100

5.4

11.0

9.0

12.1

17.3

19.0

28.0

29.2

28.5

33.5

59.3

53.0

56.4

52.5

40.8

Education Distribution of SSN Beneficiaries in Serbia, 2010

Never attended No education completed Elementary schoolSecondary/Vocational Higher education (college or higher)

Percent

Which could be largely explained by lower educational attainment

Source: Serbia HBS data 2010.Note: “Work-able” includes all individuals of working age (15–64) who are neither disabled nor in education or training.

Work-able SSN beneficiaries display greater caretaking needs than the work-ready population as a whole

General population

SSN all

FSA+CA beneficiaries

FSA beneficiaries

0 5 10 15 20 25 30 35

5.3

20.4

4.9

23.7

9.4

31.5

8.2

29.8

2.6

9.5

2.4

15.4

Share of work-able population living with at least one person in need of care in Serbia, 2010

% hh with disabled % hh with child ≤5 % hh with child ≤2Percent

Source: Serbia HBS data 2010.Note: “Work-able” includes all individuals of working age (15–64) who are neither disabled nor in education or training.

Latent Class Analysis: SERBIA

Elder experienced unemployed; 35%

Inactive uneducated women; 21%

Elder experienced inactive; 16%

Inexperi-enced

unemployed women,;

12%

Chronic unemployed; 8%

Educated

unemployed youth; 8%

These groups display different employability & labor supply constraints…

23

Employability Obstacles

(Skills, Experience)

Other Barriers to Participation(Social, Circumstances, Other)

(high)

(high)

… Which call for different packages of services

0.5 1 1.5 2 2.5 3 3.50

0.5

1

1.5

2

2.5

3

3.5

Inactive uned-ucated women

Inexperienced unemployed

women

Experienced in-active elder

Chronic un-employed

Educated un-employed youth

Size= % of total work-able FSA benefi-ciaries

Other barriers to participation

Empl

oyab

ility

obs

tacl

es

    

Market Ready (job info, matching, search assistance)

Intensified Activation(TVET, Skills)

Hard-to-serve (skills, special support)

  

Special Support(care for dependents,

transport, social, health)

(Dis)Incentives in Benefit Design

Activation for Who? PROFILING

• Benefit formula• Generosity/’packa

ge’• Mutual

obligations• Duration/ phase

out• (Dis)incentives in

tax and benefit systems

• Earned income disregards

(Dis)Incentives in Benefit

Design

Institutional Readiness for

Activation Policies

FYR Macedonia Social Financial Assistance

Type of program

• Minimum income guarantee / last resort social assistance

• Granted to individuals (and their households) that are able to work but cannot provide for themselves materially

• Works as a substitute for the contributory unemployment benefit which is received by only 9 percent of the unemployed

Design, financing and implementation

• Centrally designed: by the Ministry of Labor and Social Policy

• Centrally financed• Implementation at local level: by inter-municipal Social Work Centers which are de-concentrated structures of MLSP

Basic administrative data

• Number of beneficiaries: 35,450 (2012) beneficiary families , encompassing 115,000 direct and indirect beneficiaries

• Spending: about 1.1 billion (about 23 million USD) (2012)

• Spending is around 0.3 percent of GDP (2011), which is at the regional average, but declining since 2007

SFA design implies both incentives and disincentives to work

Incentives Disincentives

Tax-benefit disincentives

Benefit generosity

Benefit formula

SFA benefit phase out schedule and time limits

Work requirements

Work incentives exist mainly as work requirements

Job search, participation in ALMPs and training, job interviews; job offers; municipal PWP and seasonal jobs

Monitoring of compliance is relatively strict

There are sanctions for non-compliance with work requirements, but the right to FSA can be transferred

Additional incentives exist

• SFA benefit declines with time to 50 percent of the initial amount after three consecutive years of receipt

Declining Schedule for Receipt of SFA

• SFA beneficiaries can be engaged in public works up to five days per month without losing the right of SFA

• PWP income not disregarded, but reentry to the SFA program easier

Legal Guarantee for SFA status while on PWP

Disincentives for work stem from the SFA benefit formula

The benefit is calculated as ‘difference’ between the SFA threshold applicable to a family of that size and its monthly income Each additional denar earned is taken away from the

benefit amount due -> 100 percent marginal effective tax rate

Generosity is less of an issue: core SFA benefit is not very generous Generosity is measured as percentage of the consumption

in the poorest quintile ‘covered/paid for’ with the benefit amount

…but there’s ‘packaging’ with other benefits such as electricity subsidy

Health insurance is “de-linked” from SFA status (no longer part of the package). Poor, including SFA beneficiaries, are eligible for free health care, but it is provided outside the social assistance system

No legal guarantees for ‘restoring’ SFA status after finishing participation in activation, exception are PWPs

Standard re-certification rules apply, no flexibility of ‘in and out’

Incomes from training, other ALMPs, and from public works are fully calculated in the family income

Will impact the outcomes from activation

Disincentives could emerge from the design of activation measures

Participation in activation could undermine eligibility for SFA

Some incomes from work could be disregarded

Income thresholds for program exit could be higher than the entry thresholds

Some benefits could phase out gradually / be carried over for some time after the beneficiary gets a job (in-work)

Would help avoid the disincentive effect of high taxation of low incomes from work

Overall, modern social assistance programs for work able poor have more incentives for activation

Guaranteed minimum income / last resort programs to be open for poor of working age and able to work

when they are short of income

Institutional Readiness for Activation Policies

Activation for Who? PROFILING

(Dis)Incentives in Benefit

Design• Coordination

between welfare and employment services

• Specific activation policies and ALMPs

• Implementation capacity (financing, staffing, etc.)

Institutional Readiness for

Activation Policies

Two main service delivery mechanisms in the region…

… which are not coordinated

Limited interaction between employment services and centers for social work

Cooperation varies across localities – better where local offices in the same or close

premises Lack of formal referral procedure for social assistance beneficiaries to employment services

High and uneven caseloads in many centers for social work and employment offices - little room for casework

Labor market institutions in place, but capacity for activation on a large scale still insufficient

Limited capacity for individualized interventions Due to the high client to staff ratio

Financing constraints for active measures Low level of spending on active policies

ranging only 0.1-0.2% GDP – significantly lower than the EU-27 average

Lack of outsourcing of the job placement and/or counseling services to non-state providers The regulatory framework for outsourcing is

not fully developed

Going forward: activation agenda much broader than just focusing on addressing welfare dependency

Activation agenda goes beyond safety net beneficiaries: They are only a fraction of the inactive, and activation measures that only target them will not bring significant impact

Smarter design of last resort social assistance programs needed–Enable/promote access to working poor while building in incentives for work (e.g. introduction of gradual income disregard, in-work benefits etc.)

Next steps in the broader activation agenda

Substantial amount of diagnostic work in place to inform legislative changes for future reforms

Room for country-specific follow up work to address needs for additional knowledge, information and provide just-in-time technical assistance

Investments to reform and strengthen the institutional set up for the provision of differentiated and at the same time integrated services that would help reduce multiple barriers to work and activate broader groups of inactive

Next steps in the broader activation agenda

• Improving the capacity for planning and designing activation measures, and evaluation of their effectiveness

• Improving the capacity and effectiveness of the public employment services for implementing activation measures

• Strengthening inter-institutional cooperation – especially between the employment services and the centers for social work for a holistic approach to effective activation of vulnerable

• Improving the cost-effectiveness of the ALMPs and other interventions – e.g. increased competition, advanced (statistical) profiling, application of job matching software tools, etc.

Possible institutional reforms for promotion of activation

THANK YOU!Boryana Gotcheva bgotcheva@worldbank.org Aylin Isik-Dikmelik aisikdikmelik@worldbank.org

Latent Class Analysis: SERBIA  Elder experienced

unemployedInactive uneducated women

Elder experienced inactive

Inexperienced unemployed women

Chronic unemployed

Educated unemployed youth

Class size 35% 21% 16% 12% 8% 8%

Indicators

Worked before 100% 19% 95% 24% 20% 21%

Willing to retrain 54% 23% 5% 45% 66% 73%

Inactive 22% 100% 100% 16% 0% 19%

Long-term unemployed 66% 0% 0% 63% 99% 6%

Short-term unemployed 12% 0% 0% 21% 0% 75%

Active covariates

Uneducated 6% 31% 21% 31% 20% 6%Elementary education 34% 54% 36% 38% 37% 21%

Secondary+ education 61% 16% 43% 31% 43% 73%

Young (15–29) 4% 41% 8% 26% 39% 92%

Adult (30–54) 54% 52% 45% 59% 61% 4%Prime age (55–64) 42% 7% 47% 15% 0% 4%Female 41% 82% 34% 92% 28% 26%

Caretaker 0% 33% 32% 0% 0% 0%

Statistics

Married 62% 65% 64% 48% 55% 9%Discouraged inactive (% of total)

20% 56% 78% 8% 0% 14%

Willing inactive (% of total)

2% 44% 22% 8% 0% 5%

Mean age 46 32 47 36 31 23