Case Study: ROMANIA Boosting Work Incentives for Poor Social Assistance Beneficiaries
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1 Case Study: ROMANIA Boosting Work Incentives for Poor Social Assistance Beneficiaries Presenter: Ms. Lacramioara Corches General Director Ministry of Labor, Family and Social Protection, Bucharest
2 2 Context and Background
3 Context and Background Population (2011) GDP per capita (2009) $7,500 Government revenues (% of GDP, 2010) 31.4 Government spending (% of GDP, 2010) 38.7 of which: Social protection spending (% of GDP, 2010) 14.3 Of which: a) Pensions (incl. tax financed systems) 11.0 b) Unemployment Benefits and ALMPs 0.4 c) Social assistance and services 2.9 Of which: Means-tested programs for the poors 0.5 About 20 million Of which: Guaranteed Minimum Income program (GMI) 0.1
4 4 Boosting Work Incentives for Poor Social Assistance Beneficiaries: Current Situation Guaranteed Minimum Income program: In operation since 1995 Last resort poverty alleviation program Objectives: income support activation of beneficiaries contribute to community development Targets the poorest 5% of the population (means-tested) Eligibility criteria. Brings up the per capita income of beneficiary to a guaranteed minimum income level Complements other social assistance programs, categorical or means-tested (14 major ones) Focus of today s presentation
5 Factors that determine the extent to which social assistance transfers cause work disincentives & dependency Theoretical Framework 2. Generosity of Program s Benefit Level 3. Marginal tax rate on earnings 1. Share of Households with Work-Able Beneficiaries 5
6 Benefit Incidence of Main Social Assistance Programs, 2009 Targeting Coverage Generosity Poorest 20% Population Poorest 20% All beneficiaries Poorest 20% Total social assistance programs, of which: Programs for Low Income Households - Guaranteed Minimum Income Family Allowance Source: World Bank estimates based on HBS Deciles constructed based on per capita income net of transfers GMI is very well targeted, but has relatively low coverage and moderate generosity 6
7 1.How Many GMI Beneficiaries are Able to Work? (total of 760 thousands beneficiaries in 2009) 194 Beneficiaries able to work (42% of the number of adults) 270 Not of working age EEDT Adults 266 Work-able Adults 7 Note: EETD Adults: in employment, education, training or disabled
8 2 & 3 Focus: GMI Program Generosity of benefits? Moderate For many subgroups of adults that are able to work, the program contributes to more than a quarter of household income (generosity that might create dependence) E.g. lone parents; years old; those with no formal schooling or primary education; the unemployed; those working as family help in agriculture Implicit marginal tax of earnings? High The GMI formula has 100% marginal tax rate on earnings (MTRE), which creates disincentives to work 8
9 Boosting Work Incentives for Poor Social Assistance Beneficiaries: Current Situation Guaranteed Minimum Income (GMI) program & Hardto-Serve Beneficiaries A large share of the work-able beneficiaries are hard-to-serve: ¾ of them are in rural areas, where labor demand is thin and distance to the urban labor market is high 35% of them have no education or only primary education About 40% are women with children, many of them with young children Issue: How to reduce improve the employment prospects for this group of beneficiaries? Need for tailored ALMP/services 9
10 10 Boosting Work Incentives for Poor Social Assistance Beneficiaries: Current Situation General labor market challenges the GMI program contributes to: Getting to the Strategy Europe 2020 target 1: alleviate poverty from people Getting to the Strategy Europe 2020 target 2: Increase overall employment rate: by 2020: 70% for Romania, and 74% for EU (in 2011 is 62,8% in Romania compared to 68,6% EU) Bring down the number of unemployed (in August 2012, persons were in paid unemployment, compared to persons in the same month of 2011) Reducing In-work at-risk-of-poverty rate (share of persons who are at work and have an equivalised disposable income below the risk-of-poverty threshold of 60 % of the national median): Romania 19,0% compared to the EU 10,8%.
11 11 WHAT IS THE PATHWAY TO FOLLOW?
12 Boosting Work Incentives for Poor Social Assistance Beneficiaries: Short-term Plans 12 Insertion Minimum Income (IMI) program (2014??) Consolidate all means-tested programs into a single, larger one, that will cover the poorest quintile or the poorest 30% Move away from the pure GMI formula, to one that has 50% MTRE Expand the current set of work support and incentives from the poorest 5% to the poorest 20-30% of the population Expand the set of ALMPs for the poor and tailor them to EACH sub-group Conditionality for children attending school
13 PROGRAM DESCRIPTION (1) GMI (Guaranteed Minimum Income), FA (Family Allowance) and HB (Heating Benefits), and, probably, Electricity Allowance, EA, will be consolidated into one program, IMI GMI FA IMI =about30% poorest 13 EA HB GMI=abt families (2012) / apr. 35,7 $/month FA=abt families / apr. 106,9 $/month EA=abt families/ apr. 225,6? $/month HB=abt families/ apr. 225,6 $/month
14 PROGRAM DESCRIPTION (2) Target population The poorest 30% of the individuals (the lowest total income/capita including consumption from own production) Scaling up: About 70% of the beneficiaries come from the rural area (while in the total population the % of rural inhabitants is only 45 They belong to HHs with numerous members (82% of the beneficiaries come from households with 4+ members). They are younger then the rest of the population (35% of them are children, while in the total population the percentage is only 20%). The work-able population (18-64 year-olds) are less educated and have much smaller probabilities of being employed.
15 15 Objectives of the IMI Program Short/long term objectives Improve equity better targeting and coverage of the social benefits to the poorest quintile Improve the activation/social participation of the beneficiaries that get social services and social assistance benefits. Use funds more efficiently inside the social assistance system Indicators of the outcomes of interest Targeting accuracy, the share of program funds that accrue to the poorest quintile, is expected to increase for these programs from an average of 64 % in 2009 to over 80 % in 2014; The coverage of the population from the poorest quintile with means-tested programs is expected to rise from about 45% in 2009 to almost 60% in 2014; The generosity of the last-resort program (GMI in 2009, IMI in 2014), which measures the share of the GMI transfers in the total income of beneficiary families, will go up from 24 % in 2009 to almost 30% in 2014.
16 Per capita monthly household income (RON) Romania: Illustrative schedule of benefits for a GMI program with 50% Marginal Tax Rate on Earnings Venit per capita VMI per capita Income centiles
17 Romania: Expansion of the set of ALMPs for the poor Work incentives such as earning subsidies and lower tax rates for the employer and/or beneficiary Child care services / early childhood development programs support for the communities to built child care facilities (kindergarden, day-care services, schoolafter-school programs) Training programs and job search services ( increasing the role of private sector and of PES) A fluid communication of active labor market policies & schooling system: lacks of skills, technical education, and training
18 18 Main Challenges A) the political (& politically correct! ) removal from the current program(s) of those with higher incomes and/or over-included B) The conditionalities related to: Work School attendance Others (?) C) The eligibility criteria related to ownership of the goods/means tested criteria *These reforms are supported by the World Bank through a Results-Based SIL plus Trust Funds for the ex-ante simulation of the outcomes of the new, consolidated program for low income households
19 THANK YOU!!! LĂCRĂMIOARA CORCHEȘ Ministry of Labor, Family and Social Protection, Romania 19
ASSISTANCE SYSTEM IN ROMANIA
THE REFORM OF SOCIAL ASSISTANCE SYSTEM IN ROMANIA PhD LĂCRĂMIOARA CORCHEȘ -General Director General Directorate for Social Assistance/ Ministry of Labor, Family, Social Protection and Elderly of Romania
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