Social Protection and Labour Markets in MICs: Emerging paradigms Armando Barrientos, Brooks World Poverty Institute, University of Manchester, UK a.barrientos@manchester.ac.uk Common Challenges, Multiple Perspectives: Middle Income Countries Experts Consultation KIEP-USP Meeting Seoul 13-15 May 2013 Page 1 of 11
Main points Expansion of social protection in middle income countries, mainly social assistance Basic service provision Education, health, housing, etc. Social Policy Social protection Social insurance: Social assistance: contributory programmes tax financed programmes addressing life cycle and addressing poverty and employment contingencies vulnerability Labour market policy: active and passive Three questions How to account for the growth of social assistance? What are the distributional effects of social assistance? What are the implications for labour markets and welfare institutions in the South? Page 2 of 11
Antipoverty transfers in development: A quiet revolution? Growth in direct assistance to households in poverty Globally ~ 0.75 to 1 billion people reached by transfers Fraction of households reached by social assistance Fraction of households reached by social assistance Ethiopia 0.1 Mexico 0.25 Brazil 0.25 South Africa 0.5 Page 3 of 11
Diversity in design pure income transfers Social pensions, child grant, family allowances [South Africa s Child Support Grant, Argentina s Family allowances] income transfers and asset accumulation Human development [Mexico s Oportunidades, Brazil Bolsa Família] Infrastructure and asset protection [India s National Rural Employment Guarantee, Ethiopia s Productive Safety Net Programme] integrated poverty reduction programmes [Chile s Chile Solidario, BRAC s CFPR-Targeting the Ultra Poor] Resource: Social Assistance in Developing Countries Database version 5 available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1672090 Page 4 of 11
Effectiveness short run effect on poverty 50 45 40 35 Difference in difference estimates of the poverty reduction effectiveness of Progresa/Oportunidades in Mexico two years after its introduction Poverty reduction (%) 1997-1999 36.13 45.63 30 25 20 17.36 15 10 5 0 Poverty headcount Poverty gap Poverty gap squared Data source: Skoufias, E. 2005. Progresa and Its Impacts on the Welfare of Rural Households in Mexico, Washington: International Food Policy Research Institute Page 5 of 11
How to account for the growth in social assistance in MICs? In middle income countries social insurance schemes cover, at best, formal workers and as a consequence the majority of Southern workers and their families are excluded from social protection systems Democratisation and enhanced fiscal space have created the conditions for an expansion of social assistance Addressing poverty through social and economic inclusion have climbed up the political agenda Page 6 of 11
The South s future for social protection is not the North s past Cov=43% Cov=61% Cov=85% Cov = 96% Age=65 Age=70 Cov=12% Age =70 1889 1911 1931 1956 2004-2005 Old age & Disability Pension Germany Lesotho Page 7 of 11
What are the implications for labour market outcomes? Social assistance effects on labour supply (i) (ii) (iii) reduces labour force participation and hours among children and elders marginally positive effects on adult labour supply marginal changes in formal/informal work Guaranteed income facilitates a re-allocation of household productive resources but effects heavily dependent on household conditions Social assistance programmes support investment in human capital this effect is stronger for programmes with explicit human development objectives Page 8 of 11
Effectiveness medium run effect on human development (nutrition) Difference in height for age between OPORTUNIDADES treatment (joined 1998) and control (joined 2000) groups in 2000 and 2003 for 2-6 year olds difference (cm) 1 0.65 height for age after 2 years height for age after 6 years Gertler and Fernald [2006] Vol III ch. 2 Impacto de mediano plazo del programa Oportunidades sobre el desarrollo infantil en areas rurales Page 9 of 11
What are the implications for distribution? Distributional effects of social protection in Latin America? Social insurance Social assistance Poverty Not very effective due to truncation ; except minimum pension Strong effect on poverty; social investment component in some countries Inequality Regressive in Latin America Little/No effects on aggregate inequality Impact on inequality among households in poverty Page 10 of 11
Implications for welfare institutions in the South Growth of social assistance effective in supporting inclusion of informal and low income groups into social protection systems although mainly vertical as opposed to horizontal inclusion Social assistance is based on a citizenship principle, whereas social insurance is grounded on a contributory principle but citizenship is far from comprehensive in the South social contracts/fiscal pacts in the South? Page 11 of 11