safety nets and opportunity ropes: rethinking social policies in lac after the “great recession”
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Safety Nets and Opportunity Ropes: Rethinking social policies in LAC after the “Great Recession”. Francisco H. G. Ferreira Deputy Regional Chief Economist, LAC The World Bank IDB Seminar, September 10-11, 2009. Social policy: objectives and instruments. - PowerPoint PPT PresentationTRANSCRIPT
Safety Nets and Opportunity Ropes:
Rethinking social policies in LAC after the “Great Recession”
Francisco H. G. FerreiraDeputy Regional Chief Economist, LAC
The World Bank
IDB Seminar, September 10-11, 2009
Social policy: objectives and instruments
1. To assist individuals in managing risks(Because insurance markets are imperfect.)
• Health• Longevity• Employment• Weather
2. To redistribute (income, “merit goods”, opportunities…)– In pursuit of “equity” or “poverty reduction”– But also because credit markets are imperfect.
• Instruments– Education– Health– Labor market programs and regulations– Social Security– Social Assistance
Public social expenditures around the world: Wagner’s Law in the cross section
Brazil
Chile
Colombia
Costa Rica
Dominican Republic
El Salvador
Guatemala
Guyana
Jamaica
Mexico
Peru
Uruguay
Venezuela, RB
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
5.50 6.50 7.50 8.50 9.50 10.50 11.50
Expe
ndit
ure
in E
duca
tion
and
Hea
lth,
% o
f GD
P.
Log GDP Percapita, PPP adjusted.
LAC High Income Other
Source: Elaborated by Carlos Prada, using World Development Indicators (2008) data. Public spending figures comprise health and education only.
Source: Elaboration by Carlos Prada, with data from ECLAC and World Development Indicators, 2008. Note: LAC Includes Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Panama, Paraguay, Peru, Uruguay, Venezuela RB. Social Security excludes Social Assistance (as far as we can tell).
Recent trends in social expenditure: 1990 - 2005
“The provision of social insurance in LAC is based on a contributory system (Bismarckian system). Workers in the formal sector make contributions via
payroll taxes in return for the promise of a set of benefits that include pensions, health insurance, insurance against professional risks (work-related disability), etc. By virtue of this arrangement, coverage of welfare systems is determined by the nature of the labor contract. On one hand, a segment of population comprised of formal employers and employees enjoys coverage of a relatively generous and multidimensional package of social benefits. On the other hand, there is a group of individuals either in the informal sector or
unemployed that have a much more limited access to formal and comprehensive social risk management strategies.”
Source: World Bank (2009): Social Protection for the 21st Century: How can Latin America and the Caribbean extend effective social protection to all its citizens? (Robalino, Ribe and Walker).
The traditional problem: a “truncated” welfare state.
Figure 1.2: Contributory Pension Coverage in Latin America and the Caribbean, 1990s to 2000s[1]
(Percent of economically active population contributing to pension systems)
0
10
20
30
40
50
60
70
80
90
100
1990's 2000's
Source: World Bank (2009): Social Protection for the 21st Century: How can Latin America and the Caribbean extend effective social protection to all its citizens? (Robalino, Ribe and Walker).
Low coverage rates were compounded by regressive incidence
0
20
40
60
80
100
Brazil Uruguay Costa Rica Chile
Pension Coverage by quintile of per capita income - 2000s
Source: World Bank (2009): Social Protection for the 21st Century: How can Latin America and the Caribbean extend effective social protection to all its citizens? (Robalino, Ribe and Walker).
The same pattern holds for contributory health insurance coverage in most countries.
Contributory Health Insurance Coverage by Decile of Per Capita Income
0
20
40
60
80
100
Mexico Colombia Argentina Chile
Source: World Bank (2009): Social Protection for the 21st Century: How can Latin America and the Caribbean extend effective social protection to all its citizens? (Robalino, Ribe and Walker).
The great success of the last ten-fifteen years (in some countries) has been the expansion of a non-contributory complement to truncated
social security, under the rubric of social assistance.
Bolivia
0
20
40
60
80
100
Q1 Q2 Q3 Q4 Q5
Costa Rica
0
20
40
60
80
100
Q1 Q2 Q3 Q4 Q5
Chile
0
20
40
60
80
100
Q1 Q2 Q3 Q4 Q5
Non-contributory pensions
Both contributory and non-contributory pensions
Contributory pensions
Pension Coverage by Income quintiles
Source: World Bank (2009): Social Protection for the 21st Century: How can Latin America and the Caribbean extend effective social protection to all its citizens? (Robalino, Ribe and Walker).
CCTs have been a prominent part of this revolution. But not the only one and, in many cases, not the quantitatively most important.
Source: Fiszbein and Schady (2009): Conditional Cash Transfers: Reducing Present and Future Poverty (Washington, DC: The World Bank)
Growth in NCT expenditures: The example of Brazil (i)
Figure 1: Evolution of Federal expenditure in social security and assistance
0
2E+10
4E+10
6E+10
8E+10
1E+11
1.2E+11
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
R$
Social Assistance Social Security Both
Source: Authors' calculation.
Source: Ferreira, Leite and Ravallion, JDE forthcoming.
Growth in NCT expenditures: The example of Brazil (ii)
Source: Ferreira, Leite, and Ravallion, JDE forthcoming.
Figure 6: Poverty measures with and without the changes in social assistance spending, state-level public spending and inflation
22.5
25
27.5
30
32.5
35
37.5
40
42.5
1987 1988 1989 1990 1992 1993 1995 1996 1997 1998 1999 2001 2002 2003 2004
Actual Social Security and Assistance (SSA) State-level Public Spending (SPS) Inflation (INF)
Three questions and two challenges
• The expansion of reasonably well-targeted social assistance to the poor has been a major success in LAC.– Has contributed to poverty and inequality reduction.– At relatively low cost.
1. But is the resulting system coherent and efficient?2. Is the rate of expansion sustainable?3. And is it the (only) kind of redistribution we want?
• Two challenges going forward:– Integrate the contributory and non-contributory parts, minding the
incentives to informality (S. Levy, 2008)– Complement redistribution of incomes with a greater amount of
redistribution of opportunities.
Inequality of opportunity in Latin AmericaAn illustration: distributions of per capita consumption conditional on mother’s
educational attainment in five Latin American countries.0
.2.4
.6.8
1
-2 -1 0 1 2consumption
none incomplete
primary complete
Colombia
0.2
.4.6
.81
-2 -1 0 1 2consumption
none incomplete
primary complete
Ecuador
0.2
.4.6
.81
-2 -1 0 1 2consumption
none incomplete
primary complete
Guatemala
0.2
.4.6
.81
-2 -1 0 1 2consumption
none incomplete
primary complete
Panama
0.2
.4.6
.81
-2 -1 0 1 2consumption
none incomplete
primary complete
Peru
Source: Ferreira and Gignoux, 2008.
Source: Paxson and Schady, JHR, 2006
by wealth quartiles by maternal education
Cognitive test performance by children in Ecuador
Inequality of opportunity is built up from very early on in the lifecycle…
Mental development of undersized children (low height for age):
The Jamaican Study
Source: Grantham-McGregor et al., 1991.
…but it does respond to policies.
Conclusions
• The challenges are:– To retain income redistribution (or introduce it, where it hasn’t
been implemented yet) through smart social assistance, but funded so as to prevent further segmentation of the economy.
• Implies a pretty radical reform of social security (and health) financing.
• Lower contributions with higher taxes? Lower spending elsewhere?
– To enhance the distribution of opportunities, by targeting:• ECD• School quality interventions• Health and nutrition interventions• Microfinance interventions
to the opportunity-deprived.
Conclusions
• And we can easily locate the opportunity-deprived.
Type Ethnicity Father's occupation
Father's education
Mother's education Place of birth
Estimated population
Share of national population
Mean advantage (HPCY)
Ratio of overall mean
1 black and mix-raced agricultural
worker none or unknown none or unknown Nordeste or
North 2,276,662 0.06776 105.9 0.261
2 black and mix-raced agricultural worker
Upper primary (5) or more
none or unknown Sao Paulo or Federal District
1,417 0.00004 116.5 0.287
3 black and mix-raced agricultural worker
none or unknown lower primary Nordeste or North
313,664 0.00934 136.6 0.337
4 black and mix-raced agricultural worker
Lower primary none or unknown Nordeste or North
352,729 0.01050 136.9 0.338
5 black and mix-raced agricultural worker
Upper primary (5) or more
none or unknown Nordeste or North
7,564 0.00023 144.2 0.355
6 black and mix-raced Other none or unknown none or unknown Nordeste or North
2,063,415 0.06141 144.5 0.356
Brazil’s “opportunity-deprivation profile” in 1996: six poorest “social types” (adding up to 10% of the population), defined by pre-determined background characteristics.
Source: Ferreira and Gignoux, 2008