Исследовательский Центр ИПМ
Kasrtyčnicki Ekanamičny Forum

WP/13/04 Effect of Certain Social Policy Measures on Welfare of Socially Vulnerable Groups

This work assesses the effects of potential social policy reforms, the need for which is due to negative demographic and economic trends, on the welfare of socially vulnerable groups and the population of Belarus as a whole. Based on a sample survey of households in 2007-2012, the study models possible changes in the disposable resources of the population as the result of parametric reforms in the pension system (raising the retirement age and switching to the indexation of pensions for inflation), raising housing and utility services rates, and eliminating privileges. According to the results obtained, the reforms under consideration would in most cases substantially worsen the financial condition of a number of socially vulnerable groups: single-parent families, retirees and one-member households. The exception is the reform of raising the retirement age, where the net direct effect for the population could be neutral, provided that the labor market proved capable of painlessly absorbing the new workforce without a burst of unemployment and/ or economic inactivity. In that case a sizeable part of the population, which currently retires on pension while continuing to work, thereby avoiding relative and absolute poverty, would be worse off. Accordingly, any reforms in social policy aimed at rationalizing the structure of public spending would require compensatory measures for social protection of vulnerable population groups. This work models the effect of raising the criterion for granting targeted social benefits to 150% of the minimum subsistence budget. That measure would make it possible to compensate for the losses from the reforms under consideration for most of the socially vulnerable population and substantially lower the poverty level, but would require substantial additional funding. However, considering the reduction in budget expenditures on funding the privileges system and the resources saved by raising housing and utility services rates, an increase in spending on providing targeted social assistance to the extent indicated looks entirely acceptable. An important shortcoming of that reform might only be a distortion of incentives for economic activity. In any case, along with changes in the system of social support and pension reform, it would be necessary to improve the effectiveness of the employment promotion system in order to increase the mobility of labor resources, especially at the pre-retirement age.