Social Risk Management and Child Labor Robert Holzmann Director, Social Protection The World Bank University of Rome May 21, 2002
Outline Background and Motivation Crises, globalization, and rethinking poverty reduction Social Risk Management Framework Concept: Risks, risk strategies and risk arrangements Strategic Implications Moving from ex-post poverty to ex-ante vulnerability Identifying the Vulnerables Risk and Vulnerability Assessments (R&VA) Applying the Life Cycle Framework Assessing, intervening, measuring the outcome Child Labor Understanding Causes and Consequences
Background and Motivation Lessons from East Asia crisis Increasing risks of globalization Rethinking the attack on poverty: WDR 1990 and 2002/01 calls for new approach to Social Protection which moves from ex-post poverty to ex-ante vulnerability considerations motivated the development of new conceptual framework for SP: Social Risk Management (and link with Life Cycle Approach)
The WDR 2000/1 Orientations: Three Fronts to Attack Poverty Empowerment Voices & Participation Security Risk, Vulnerability, Safety Nets Equality & social cohesion Managing shocks Opportunity/Capabilities Assets, Location Policy reforms
Social Risk Management Framework Basic Thrusts The poor are typically most exposed to diverse risks (natural and man-made) The poor have the fewest instruments to deal with these risks The poor are the most vulnerable as shocks have strongest welfare consequences The high vulnerability makes them risk averse and thus unable or unwilling to engage in higher risk/high return activities A reduction in vulnerability is thus both an end and a means of development
Central Elements of SRM Takes account of the multiple sources of risk and their characteristics (such as idiosyncratic and covariant risk) to address vulnerability Operates with multiple strategies (prevention, mitigation, coping) and arrangements (informal, market-based, public) to deal with risk Attempts to match the multiple suppliers of risk management instruments (such as households, communities, NGOs, and governments) with key demand groups (formal, informal-urban and informalrural workers)
Sources and Forms of Risk Micro Meso Macro (idiosyncratic) (co-variant) Natural Rainfall Earthquake Landslide Floods Volcanic eruption Drought Strong winds Health Illness Epidemic Injury Disability Life-cycle Birth Old-age Death Social Crime Terrorism Civil strife Domestic violence Gangs War Economic Unemployment Output collapse Resettlement BoP, financial or currency crisis Harvest failure Technology or Business failure ToT shocks Political Ethnic discrimination Riots Political default on social prog. Environmental Pollution Deforestation Nuclear disaster
Risk Management Strategies Prevention Strategies - to reduce the probability of down-side risk Mitigation Strategies - to decrease the impact of a future down-side risk Portfolio diversification Insurance Hedging/Risk exchange Coping Strategies - to relieve the impact once the risk (the event) has occurred
Risk Management Arrangements Informal arrangements, e.g. mutual community support, real assets, marriage Market-based arrangements, e.g. cash, bank deposits, bonds and shares, insurance contracts Publicly provided or mandated arrangements social insurance, transfers in cash and kind, subsidies and public works
Arrangements/ Strategies Risk Reduction Risk Mitigation Portfolio Insurance Risk Coping Table 2.1: Strategies and Arrangements of Social Risk Management Examples Informal Market-based Public Less risky production Migration Proper feeding and weaning practices Engaging in hygiene and other disease preventing activities Multiple jobs Investment in human, physical and real assets Investment in social capital (rituals, reciprocal gift-giving) Marriage/family Community arrangements Share tenancy Tied Labor Taking children out of school Selling and of sending real assets them to Borrowing work from In-service training Financial market literacy Company-based and market-driven labor standards Investment in multiple financial assets Microfinance Old-age annuities Disability, accident and other personal insurance Crop, fire and other damage insurance Selling of financial assets Labor standards Pre-service training Labor market policies Child labor reduction interventions Disability policies Good macroeconomic policies AIDS and other disease prevention Multi-pillar pension systems Asset transfers Protection of poverty rights (especially for women) Support for extending financial markets to the poor Mandated/provided insurance for unemployment, old age, disability, survivorship, sickness, etc. Transfers/Social assistance
Strategic Implications: Social Protection as a Theme Important role of SRM outside SP to reduce risks, for example Addressing national shocks Financial markets Infrastructure investments Health and Education
Investigating Risk and Vulnerability: Results from Kenya Study Rural non-pastoralist communities relatively vulnerable: in 1994 20 % 50 % chance to fall below the poverty line in the future Promising interventions to reduce vulnerability are : Targeted interventions to reduce malaria incidence Improved access to food markets Enhancement of adult literacy ratio Promotion of off-farm employment opportunities
SI: Social Protection as a Sector Extending the traditional reach of SP Informal and market-based arrangements SP for the informal sector (with ILO/STEP and WIEGO) Gender focus and lens Rethinking public interventions our traditional core business Strengthening risk reduction, inter alia Providing equitable and inclusive labor markets Flexibility and security Focusing on supporting job creation not on preventing job destruction Breaking the poverty chain: Child labor
SI: Social Protection as a Sector Rethinking public interventions Fostering risk mitigation, inter alia Old age income security: Multi-pillar pension schemes and non-contributory systems Income support for the unemployed: Rethinking current provisions Improving risk copying, inter alia How to identify the vulnerable? How can coping assistance help with risk mitigation and reduction?
SI: Moving from ex-post Poverty to ex-ante Vulnerability Analysis Poverty is not static but dynamic Welfare position is influenced by shocks and the availability of instruments A mere ex-post view of poverty does not catch future poor and the effects of risks on current poor
Poverty Dynamics Percentage of Households who are: Always Sometimes Never poor poor poor China 1985-1990 6.2 47.8 46.0 Côte d Ivoire 1987-1988 25.0 22.0 53.0 Ethiopia 1994-1997 24.8 30.1 45.1 India 1976/76-83/84 21.9 65.9 12.4 Indonesia 1997-98 8.6 19.8 71.6 Pakistan 1986-1991 3.0 55.3 41.7 Russia 1992-1993 12.6 30.2 57.2 South Africa 1993-1998 22.7 31.5 45.8 Vietnam 1992/93-97/98 28.7 32.1 39.2 Zimbabwe 1992/93-1995/96 10.6 59.6 29.8 Source: Baulch et Hoddinott, 1999 et Rapport préliminaire sur la pauvreté au Vietnam, 1999.
Poor vs. Non Poor?
Poor vs. Non Poor?
Defining and Applying Vulnerability General vulnerability definitions: Exposure to risks but lack of appropriate risk management instruments Expected welfare loss due to uncertain event A possible operational definition: v ht = Pr(c ht+1 c) Pr C ht = c(x h, I h, β t, α h, ε ht )
Identifying the Vulnerable: Risk and Vulnerability Assessments If both the sources and forms of risk matter for poverty, we have to know and understand the main risks to provide appropriate risk management instruments This suggests a three state approach an assessment which details, measures and assesses the crucial risks an assessment of the available instruments a plan to close the gap, including costing
Dimensions of risk assessment Top-down approach macro-view: macroeconomic risks, natural risks, major health risks, security risks Latin American study Bottom-up approach micro-view: what do the poor perceive as the most threatening risks for their livelihood
R&VA s and other ESW Poverty Assessments and R&VA s Completed Pilots: LAC (Guatemala, Colombia, El Salvador, Argentina, Mexico, Jamaica); EAP (Thailand, Philippines, Indonesia, Korea); AFR (Kenya, Togo, Benin). Work In Progress: AFR (Zambia); ECA (Turkey, Kirghiz Republic, Kazakhstan, Russia). R&V Reviews Based on R&VA s and/or other information as basis for policy dialogue Burkina Faso, Ethiopia
Who are the most vulnerable? Children At any age, including working children Disabled Some 10 (5 to 25) percent of population Unemployed In rural and urban areas Elderly In particular widows and singles
Lifecycle framework and how can it be used? Perinatal period Pregnancy Death Aging Birth 7 days Early neonatal 28 days period 1 year Neonatal period Infancy Reproductive period Adulthood 20 years 5 years 10 years "Pre-school years Childhood Adolescence "School-age"
1. To assess risks and gaps Example: Main risks of childhood, adolescence and reproductive period Reproductive period STDs Early/unwanted/unsafe sex Early/unwanted pregnancy Adolescence Poor nutrition Poor development Drug use/abuse Violence Death 20 years 5 years 10 years "School-age" Poor nutrition, growth and development Injury Abuse and neglect Child labor Childhood Poor, nutrition growth and development Frequent illness Injury Abuse and neglect Death
2. To identify key interventions Example: Main strategies & interventions in childhood, adolescence and reproductive period Reproductive period Essential reproductive health services Contraceptive services STD care Adolescence Adolescent-friendly health services Interventions to promote a safe and supportive environment Nutrition interventions Adolescent development 20 years Childhood Nutrition interventions 5 years Disease prevention and 10 years management Care for development Accident prevention "School-age" School health programs Improved school quality and schedule School voucher programs (e.g. PROGRESA) SSN, e.g. public work programs for parents
3. To identify and measure outcomes Reproductive period Fertility rate STD infection rates Adolescence Age-specific morbidity and mortality rates 20 years 10 years 5 years Childhood Anthropometry Under 5 and 1-4 year mortality rates Disease incidence rates "School-age" School performance Incidence of child labor
4. To identify the external influence Example: External factors influence outcomes throughout the lifecycle Access to quality health care Marketing of infant foods Socio-political context Family income Peer behaviors Birth 7days 28 days 20 years 5 years 10 years 1 year Parental education Water and sanitation Physical environment Family and community practices
Managing Social Risk in Argentina: Main Risks and Policy Responses (Summary Table) Age group/ Main Risk 0-5 Stunted development 6-14 Low education quality 15-24 Low secondary school completion 25-64 Low income (unemployment/under employment) Role for Other Programs PHC Services Pre-school education Role for Social Protection Social Insurance Social Assistance -- Early Child Development Programs (ECD) Number of Indigent & Poor Uncovered 400,000 ind. 1,000,000 poor Improve primary school quality -- -- -- Improve secondary school access/quality Labor-intensive growth and labor market reforms 65 and Over Low income -- General Population Low access to/quality of health care Low housing quality Provision of health svcs. Mortgage facilities, infrastructure investment -- Unemployment insurance Social security (contributory pensions) Health insurance -- Scholarship/ return to school incentive programs Workfare/income transfers Non-contributory pensions (income transfer) -- Housing subsidies 100,000 ind. 400,000 poor 800,000 ind. 3,750,000 poor 24,000 ind. 200,000 poor 1,700,000 ind. 6,000,000 poor 200,000 hh.ind. 800,000 hh. Poor
Child Labor: Understanding Causes.. Level of child labor: Income matters Changes in level of child labor: Shocks matter Child labor: A copying mechanism in face of vulnerability, i.e. exposure to shocks but lack of risk management instruments
Income Matters The Percentage of Child Workers in the Labor Force Declines with Rise in GDP Per Capita 12 10 8 6 4 2 0 200 300 400 500 650 825 1200 1700 2600 5300 GDP per capita (in 1987 US$)
The Growth of Child Workers (%) 1980-1985 1985 1990 World -8.3-2.6 Africa -2.8 15.3 Americas 10.0 4.1 Asia -10.4-7.2 East Asia Southeast Asia South Asia -15.8-6.7-1.8-32.9-8.1 39.4
Child Labor: Understanding. the Consequences If negative shocks lead to child labor and schooldrop out, what are the long-term consequences? Does availability of risk management instruments reduce child labor? What kind of risk management instruments would work best for families to avoid child labor? Family benefits contingent on school attendance? Credible public work programs? Micro-finance, school loans, etc.?
Furthering the Policy Research Agenda A Joint ILO, UNICEF & World Bank Project: Understanding Children s Work (UCW) To improve child labor research, and data collection, at both micro and macro level, and analysis To promote capacity building To improve impact assessments of interventions against child labor
References http://www.worldbank.org/sp World Bank (2001): Social Protection Sector Strategy Paper: From Safety Net to Spring Board, Washington, D.C. (World Bank) Holzmann, R. (2002): Risk and Vulnerability: The forward looking Role of Social Protection in a globalizing World, in: E. Dowler and P. Mosely (eds.): Poverty and Social Exclusion in North and South, london and New York (Routledge), in print. Holzmann, R. and S. Jorgensen (2001): Social Risk Management: A new conceptual framework for social protection, and beyond, International Tax and Public Finance 8/4, 529-556. Holzmann, R. and S. Jorgensen (1999): Social Protection as Social Risk Management: Conceptual underpinnings for the social protection sector strategy paper, Journal of International Development 11, 1005-1027.