Social Protection in PERs

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Social Protection in PERs

• PEAM course
• April 2007, Washington DC
• Margaret Grosh

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What is Social Protection?

• Definition in Banks SP strategy paper
• SP as public interventions (i) to assist
  individuals, households, and communities better
  manage risk, and (ii) to provide support to the
  critically vulnerable
• Contrasts with traditional definition, as a group
  of public programs
• pensions, labor market interventions, safety
  nets, and social care
• New definition conceptual useful and clarifies
  trade-offs but causes some boundary issues in
  PERs

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Conceptual definition leads to issues with
respect to boundaries in treatment of SP in PERs

• Traditional SP vs other sectors SP chapters
  usually stick to traditional boundaries, social
  risk management framework can be used throughout
  report and other sectoral analysis viewed through
  that lens.
• Public/private. A great deal of SRM is delivered
  through private mechanism. A PER cannot cover
  all private spending in detail, but must have a
  notion of it to draw appropriate conclusions
  about the public part.
• What programs specifically? Fuzzy conceptual
  boundaries, fragmentation in institutional
  responsibility and budgets
• PER vs fuller sector work PER is selective and
  summary fiscal issues predominate, institutional
  and service delivery systems usually the least
  treated

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Summary of SP in PER Guidance Note

• Sector wide view
• Very brief synopsis of poverty, risk and
  vulnerability
• Overview of budget allocation, trends, processes
• Individual program analysis
• Adequacy
• Equity
• Efficiency
• Contribution to risk management
• Delivery mechanisms
• Sustainability
• Impact
• Denotes issues selected for discussion in rest
  of presentation

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Selected key issuesBudget Allocations

• Is spending on SP productive? significant
  ideological controversy
• Traditional view
• redistribution justified by moral philosophy
• social protection as a cost, a luxury
• Both taxes and transfers discourage work effort
• New view
• SP as an investment
• Disincentives in fact not so large as usually
  thought
• PERs often dont touch this issue frontally

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SP/SRM is worth financing because

• Redistribution is valued
• by moral code,
• for immediate impact on poverty reduction and
  inequality. Half or more of poverty is transient,
  SP can help reduce that substantially.
• SP allows governments to make choices that
  support efficiency and growth
• Safety nets can facilitate macroeconomic and
  structural changes in the economy, thereby
  allowing faster growth to occur, i.e. through
  more efficient policy choices for trade,
  industry, labor, etc.
• Societies can use good social assistance programs
  to replace inefficient redistributive elements in
  other programs.
• Safety nets can help temper inequality and reduce
  its costs.
• SP allows households to make choices that support
  independent earnings
• Families that can't afford a bad year can't use
  the most effective earnings strategies.
• SP helps people avoid coping strategies that
  perpetuate poverty.
• Safety nets can act as springboards to greater
  self-sufficiency.

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Social Assistance and Social Insurance as percent
of GDP
Source Blank, Grosh, Hakim and Weigand 2006,
OECD SOCX
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What is right assignment of resources within
sector?

• No single right answer
• Look at diagnostics on risk and vulnerability
• Look at overall balance among programs (including
  outside SP sector)
• Review individual programs performance

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diagnostic process

• Some very summary information from poverty and
  risk and vulnerability assessments
• Then a look at what groups are protected from
  which risks by which programs, look for gaps and
  overlaps in program coverage

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Balance among programs Bulgaria
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Program analysis

• Will cover only selected issues in this
  presentation, more covered in guidance note

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Managing risks a tension between fiscal risks
and risk protection

• PERs very concerned with fiscal risk
• Adequate SRM and SSN implies programs with
  entitlement access
• Argentinas Trabajar program vs Maharasthras
  Employment Guarantee Scheme
• very rare in practice because of fiscal issue
  (and sometimes administrative constraints)
• Even counter-cyclicity rare in LAC for each 1
  loss of GDP, the amount of targeted spending per
  poor person declined by 2 (de Ferranti, et al
  2000) despite protection of budget share

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Fiscal Sustainability in Pensions
Brazil Critical Social Security Issues, June
2000.
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Efficiency example 1 unit cost analysis

• Ethiopia PER average cost per ton of food
  delivered in various safety net programs
  (excluding administration and program
  implementation costs)
• International Price 130 /mt.
• International Shipping 50
• Transport Djibouti-Regional center 65
• Local distribution transport 40
• Total cost 285
• Add in administration and even free food cost 3
  birr/kg
• Benchmark open market price of 1.5-2 birr/kg
• Implies that cash transfers could be more
  efficient. But would equivalent cash be made
  available? Is food available on these markets?

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Efficiency example 2 inference from basic
design features

• Ethiopia PER compares public works there with
  best practice and finds shortcomings
• Value of works likely to be sub-optimal because
• Non wage costs at most 20, much lower than
  international experience for well done, diverse
  portfolio of works
• Planning process on-off separate from investment
  process
• Food typically arrives during rainy season when
  works cant be done
• Transfer gains likely to be sub-optimal because
• Cant enforce work requirement (due to rainy
  season issue) so self-targeting element weak
  (though this does reduce issue of foregone
  earnings)
• Transfer too low to affect material welfare, too
  irregular to affect risk planning
• Solutions are institutional and being addressed
  since the PER

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Equity analysis

• At first blush seems easy, but some real
  technical issues, to be discussed in Hinzs and
  Lundbergs complementary presentation within this
  session
• NB.
• Equity is important in all sectors
• Judgments about SP sector are based on more than
  equity.
• Methodology of equity analysis is within SP
  session because as this course is designed, each
  sectoral session includes a public good of
  methodology

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Equity is still an issue social assistance

• Coady, Grosh, Hoddinott 2004 review 122 targeted
  transfer programs in 48 countries and find
• Moderate results on average Mean outcome
  delivers one quarter more benefits to poor than
  would universal transfer
• Very much better results in best programs top
  ten deliver two to four times more benefits to
  poor than would universal transfer
• Significant targeting failures one quarter of
  targeted programs are regressive.
• So lots of progress yet to make

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Equity is still an issue pensions
Source De Ferranti et al. 2004, Figure 9.9
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Equity is still an issue pensions

• Mexico results not unusual
• But is the comparison fair?
• If payments are deferred compensation (earnings)
  then poverty targeted expenditures the wrong
  benchmark.
• But pensions commonly receive subsidies from
  general revenue and so are a mix of transfer and
  deferred compensation
• Even as compensation, there are still issues of
  equity across generations, genders, income
  levels, work histories because pensions plans
  almost always have some internal redistribution

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Summary of SP in PER Guidance Note

• Sector wide view
• Very brief synopsis of poverty, risk and
  vulnerability
• Overview of budget allocation, trends, processes
• Individual program analysis
• Adequacy
• Equity
• Efficiency
• Contribution to risk management
• Delivery mechanisms
• Sustainability
• Impact
• Denotes issues selected for discussion in rest
  of presentation

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Hallmarks of good analysis

• Numbers clearly defined and sources given.
• Uses benchmarks extensively (not just on
  expenditures but on inputs, prices, outputs,
  ratios among these)
• Chooses benchmarks wisely (e.g. neighboring
  countries, countries of similar income, others
  the country wants to emulate or adjusts for
  differences in demographics or poverty profile)
• Contrasts trends and point in time as applicable
• Conveys enough of the storyline and details to
  persuade reader of recommendations
• Crafts together story from available sources and
  literature outside of PER.