Roma Integration in Bulgaria: Necessary Reforms and Economic Effects

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1 Roma Integration in Bulgaria: Necessary Reforms and Economic Effects EXECUTIVE SUMMARY Luchezar Bogdanov Georgi Angelov April 2007

2 Roma Integration An Economic Outlook The economic and social integration of Roma would produce effects in society that equal to approximately 22 billion leva according to average estimates for the next ten years. Meanwhile, the cost of such integration would amount to approximately 1 billion leva. Therefore, a sound investment in Roma integration would yield high returns and would pay off several times over. In order for integration to succeed, a policy shift is required in the areas of employment, access to education, and housing. The integration of Roma is contingent upon certain policy changes, some of which entail certain expenses. In the same time, however, integration creates benefits for the entire society. Some of these benefits would manifest themselves in the short- and midterm, while others for instance in education, would do so in a longer term. The effects of an increase in education level would be felt in the longer run. If education level is increased with 3 to 5 years, in 25 years the GDP would be between 0.8% and 1.9% higher than in the baseline scenario. The accumulated effect of higher growth would range between 4.5 and 12 billion leva at current prices. The cost of implementing these scenarios would be mainly associated with higher transfers to the schools. In view of the different estimates on the size of the Roma community, additional spending on education over the next 25 years would range between 420 and 660 million leva in case education level is increased by three years, and between 700 and 1100 million leva for five additional years spent in school. Therefore, investment in better education yields much higher benefit than the cost it entails. Approach and main proposition The report is based on the understanding that the inclusion of Roma in economic life is of key importance for their overall integration in society. Economic integration is both an instrument for solving other problems arising from the lack of integration, as well as a consequence of government policy reforms that perpetuate non-integration. The analysis aims at identifying the factors that frustrate economic integration, as well as the potential effects (both economic and other) that integration could bring about. Thus, we focus our attention on factors such as education, criminality, housing, mortality. In the present report we discuss in greater detail three areas of particular importance for Roma integration: employment, education, and housing. Employment There are many discrepancies in available data on Roma unemployment. According to different estimates unemployment rate among Roma varies between 40% and 80%. In any case unemployment levels among Roma are considerably higher than among other groups of the population. Data suggest that as of 1997, 85% of Roma fell below the poverty line. According to a World Bank report, in 2001 approximately 62% of Roma were assessed as being poor, while according to the National Plan on Fighting Poverty and Social Isolation, adopted by MLSP in 2005, nearly 64% of Roma were poor. Again poverty among Roma is higher than the nationwide average. In a normal situation, if there are no serious distortions on the labor market and the market works flexibly and effectively, unemployment would be around its natural levels of 4-6%, 2

3 which in effect means that anyone willing to work would be able to find a job within a relatively short period of time. High unemployment rates indicate that there are serious difficulties in the way labor market functions, which limit the access to employment opportunities for certain groups of people. Most often these are people who had been very close to the labor market threshold, but have fallen below the threshold as a result of some labor market distortions. Several reforms could be implemented to improve the way labor market functions and facilitate the integration of Roma. These include: Improving labor market flexibility globally, Bulgaria rates 100th and below according to certain flexibility indicators, which is unacceptable, especially for a country with relative low employment levels. Reducing taxation and social security burden on labor high tax burden on labor in Bulgaria reduces incentives for opening new jobs and perpetuates long-term unemployment. Accelerating economic reforms quick reforms encouraging economic growth would ensure faster and better results on the labor market Reducing regulation and obstacles to entrepreneurship such reforms would have a disproportionally high effect on Roma because they possess less resources and are virtually unable to overcome such obstacles alone. Modernizing the social assistance system the social assistance system in its current design sometimes discourages or even penalizes financially new employment. This could be overcome by linking the receipt of social assistance to obligatory employment or training; by introducing a time limit for receiving welfare (this was partially implemented recently); by eliminating entirely or partially the link between income and social assistance for the long-term unemployed, so that employment seekers would not be discouraged. Access to education Improving the access of Roma to education is not only a problem of Roma themselves. Many international studies show that there is a strong link between workforce education and economic growth. We could claim with a great degree of certainty that the inclusion of Roma in the education system would give them a chance to achieve better professional development and income, while increasing the growth potential of the entire Bulgarian economy. A fundamental problem identified through various sources is that a considerable share of Roma children do not enroll in school or drop out from the education system at an early stage. However, even those who do enroll and attend classes receive an education whose quality is lower than the average. And although the higher education system seems quite open to all ethnic groups, the poor quality of secondary education in fact limits the access of the great majority of Roma to the university. Two main groups of incentives should be impacted in order to change this situation those targeted to the demand for education on behalf of Roma themselves and those targeted to the supply of education in publicly financed institutions. The behavior of Roma is determined by circumstantial factors, as well as by the direct impact of specific policies. Thus, for instance, according to MES data, there is a strong link between poverty in the family and school dropout. There are two basic reasons for this: education involves expenses 3

4 (transportation, textbooks, school materials), on one hand, and deprives the household from income (from child labor), on the other. Therefore, reduced poverty through economic integration would limit the impact of these negative factors. What is more better chances on the labor market for those who have better education or even basic literacy would increase the motivation of parents to send their children to school. On the other hand, the State could introduce direct economic incentives by linking the receipt of social assistance to school attendance and student performance. Thus, children would generate income for the household only and if they attend school; currently, they not only increase social transfers from the State to the households, but often also work if they do not attend school. The incentives for schools should also be reconsidered. They should motivate educational institutions to both enroll Roma children (as well as students in general), and guarantee high quality education services. The introduced unified cost-per-student standard is a step forward towards transforming students into clients that bring direct financial benefit for individual schools. This coupled with a fiscal autonomy of schools, would encourage directors and teachers to compete for enrollment. Thus, each Roma student would contribute to the school budget. In order to encourage the provision of quality education services and not merely attendance, financing should be linked to the results achieved. The introduction of an objective system for assessing student performance, combined with reforms in the model of financing, as described above, would motivate schools to provide quality education to both Roma and non-roma. Finally, personal incentives for individual teachers should also be considered. If their salary is contingent upon the achievements of their students, they would be personally motivated to teach all children well, including Roma. Housing Many research studies show that Roma live in considerably worse conditions than the average for the country and many of them are segregated in separate neighborhoods. The conclusions of these studies suggest that this problem has to do mainly with poverty and forced and/or voluntary segregation. This translates into poorer health status, less chances for education and employment and limited investment in Roma neighborhoods. We should note, however, that the solution does not involve only targeted public investment. The provision of subsidized housing, for example, does not solve long-term problems. In the absence of economic integration and chances for prosperity, the beneficiaries cannot afford to use, preserve and maintain housing facilities even if the initial conditions for obtaining them are favorable. The main consequences include the creation of a dependence cycle and low incentives to work subsidized housing is a form of social assistance and has similar effect on the motivation for labor market participation. The centralized planned construction of housing facilities for Roma creates a risk of total segregation and establishment of neighborhoods only for Roma. In this sense, the successful implementation of this component of the program would actually limit the chances for Roma integration. Desegregation of Roma can be achieved in two ways: by relocating Roma to neighborhoods in which the majority of inhabitants are non-roma, and by encouraging non- Roma to move to areas with predominantly Roma population. The first requires that the income of an increasing number of Roma becomes higher. The second requires improved 4

5 living conditions in the Roma neighborhoods (infrastructure, etc.), as well as greater attractiveness of those neighborhoods from an economic point of view. Owning and maintaining a house requires a certain level of disposable income. That is why the problems with Roma housing could be solved only if the income of Roma households is increased. This, in turn, depends on the economic integration of Roma and the implementation of necessary reforms in social assistance and labor market policies. An important condition is that the State reduces the cost of housing. A measure that could produce considerable effects would be to transfer the ownership of land to Roma who have actually settled on it: in effect, this would be a land provision program, similar to those implemented for agricultural land. Such program, of course, should not be ethnicity-based and should cover all households that have settled on municipal or public land. In addition, legalization of housing facilities should also be facilitated in line with existing territorial organization rules. This would entail direct planning costs for municipalities costs, which Roma themselves could hardly cover under the current conditions. If measures related to property and legalization of housing facilities are implemented successfully and the employment and income of Roma is increased, much of the required investment would be made by the commercial companies that offer communal services. Such are for example the electricity and water supply companies for which Roma would turn into new solvent customers. These companies have a direct interest in infrastructure investment at the very least because this would reduce losses and thefts, which currently take considerable dimensions. Assessment of the overall economic effect There are considerable differences between the different programs and reforms targeted to Roma integration. Some of them produce effects rather quickly, others lag several years behind, while in education the effect in most cases is delayed with many years. That is why we would summarize the overall effects in two groups: the first will include benefits created by increased level of education for the next 25 years, while the second will include all other changes and their benefits for a 10-year period. In both cases costs and benefits are estimated at current prices. Cost and benefit of increased level of education If education level is increased with 3 to 5 years, in 25 years the GDP would be between 0.8% and 1.9% higher than in the baseline scenario. The accumulated effect of higher growth after the eighth year (i.e. 18 years) is comparable to 10%-27% of GDP at the start of reforms and equals to billion leva (current prices). We estimate that additional spending on education over the next 25 years would range between 420 and 660 million leva in case education level is increased by three years, and between 700 and 1100 million leva for five additional years spent in school. Cost and benefit of increased level of education Million leva Minimum Average Maximum Benefit Cost *Current prices estimate for a 25-year period 5

6 Cost and benefit of economic and social integration Roma integration entails many reforms and the elimination of many obstacles, which currently prevent the successful inclusion of Roma in economic and social life. Most of these reforms do not require substantial financial resources and are not expensive for society. The overall cost of Roma integration ranges between 0.8 and 1.1 billion leva for a 10-year period. The positive effects of Roma integration in society are enormous. The benefits, which society would gain as a result of full Roma integration in terms of economized social assistance, reduced loss of efficiency, increased labor, higher income, lower mortality and criminality rate, range between 13 and 31 billion leva (at current prices extrapolated for a 10-year period). The positive effects of Roma integration outrun the costs 20 to 30 times. Benefits of economic and social integration (education not included) Million leva Minimum Average Maximum Economized social assistance 2,000 3,150 4,300 Reduced loss of efficiency 667 1,050 1,433 Higher employment and income 5,714 11,815 17,915 Lower mortality 4,041 5,164 6,286 Lower criminality Total 12,922 21,918 30,914 *Current prices estimate for a 10-year period Costs of integration ((at current prices extrapolated for a 10-year period) Million leva Minimum Average Maximum Re-training and education Housing and infrastructure Total *Current prices estimate for a 10-year period 6