2013 EUROMOD Research Workshop University of Lisbon, Portugal October 2013 Simulating a Low Income Social Assistance Reform in Time of Crisis Venelin Boshnakov /UNWE/ Dragomir Draganov /MLSP/, Ekaterina Tosheva /UNWE/

2 Introduction Structure of presentation  Motivation and goals  Current status and developments since the start of crisis  Low income social assistance system in Bulgaria: main parameters  Simulation scenarios: main results  Outline for future analysis

3 Motivation and goals  After a period of stabilization in the period (EU accession period) Bulgaria entered the crisis period (2009 – …?)  Failures of SMEs leading to layoffs…  Jump in unemployment rates – unemployment raised from about 200 thousand (5.7%) in 2008 to 410 thousand (12.3%) in 2012 (LF 15-64)  Youth unemployment (LF 15-29): from 9.4% to 20.8%

4 Minimum and Average Monthly Wage /BGN/ (1 EUR ≈ 2 BGN )

5 Main household income sources Source: Bulgarian HBS /NSI data/ Shares in monetary Income Sources: Wages and salaries Pensions Unemployment benefits Family allowances for children Other social allowances

6 Main non-contributory social benefits  Contributory benefits – health & child-related  Non-contributory Lump sum pregnancy & childbirth grants Monthly allowance for bringing up a child up to age 1 Child benefit (monthly child allowance for bringing up a child until completion of secondary education) Scholarships Social Old Age Pension Social Invalidity Pension Pension supplement in case of deceased spouse Monthly social assistance allowance Targeted Heating Allowance Monthly allowance for social integration of disabled

7 Main non-contributory social benefits Monthly social assistance allowance  Non-contributory, means-tested allowance  granted to persons living alone, or  to families whose income for the previous month is below the so-called “Differentiated Minimum Income” (DMI)  Except the income test, beneficiaries should satisfy additional eligibility criteria  DMI derives from GMI (65 BGN since 2009)  Target: extreme poverty!

8 Monthly social assistance allowance  DMI for each person of a particular type  DMI is set as percentage of GMI  Calculated at individual level and then, at family level  Family DMI = Sum[DMIs]  Claimants receive MSAA if their gross income is lower than the calculated DMI  The amount of MSAA should equal the difference DMI–GrossIncome (top-up)  In fact, the “actual” unit of assessment is the household!

9 Monthly social assistance allowance Category of person person over the age of 75 living alone 165% person over the age of 65 living alone 140% person under 65 living alone73% person over the age of 65 cohabiting with other persons 100% two spouses living together, per each spouse 66% person with reduced working capacity of 50% or more 100% person with reduced working capacity of 70% or more 125%

10 Monthly social assistance allowance Category of person child aged between 0-16 (up to 20 when studying) 75%81% child aged between 7-16 (up to 20 when studying) – if having 5 or more unexcused absences from school 30% child aged between 7-16 and not attending school 37%20% orphan or child accommodated in a host family 100% child with permanent disability 100%

11 Monthly social assistance allowance Category of person lone parent taking care of a child under age 3 120% lone parent with a child or children aged under age 16 (under 20 for children attending school) 100% pregnant woman 45 days before the term 100%

12 Real levels of main SBen parameters CPI (2005=100) GMI nom GMI real ChBen nom ChBen real SOAPension SOAP real Min.IOAP MinIOAPr

13 At-risk-of-poverty rates (Source: EUROMOD estimates)

14 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

15 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

16 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

17 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

18 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

19 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

20 At-risk-of-poverty Most severely affected: unemployed, multi-child families (e.g. roma minority), elderly (espec.in rural areas)

21 MSA adjustment – Scenario GMI65 MinWage MinWage growth100% 104%121% Adjusted GMI  Simulation based on SILC augmented by National SILC  Adjust the GMI level to reflect the change in minimum wage level  Higher than inflation – 10% accumulated for (adjusted GMI=71.45 BGN)

22 MSA adjustment – Scenario 2  Adjust the GMI level to reflect the poverty threshold  Which thresholds? Different types of households so a variety of options  Our initial choice – threshold level for 4-persons family: 2 adults + 2 children below age 14 (the “modal” demographic type for the period of low- rate sustainable growth of population in the period 1960s, 1970s, and 1980s  Adjusted to 2012 nominal income level: about 150 BGN /77 EUR/ (to be enhanced as an estimate…)

MSA simulation results Poverty & Inequality BaselineScen.IScen.II2012BaselineScen.IScen.II 40% median HDIInequality Total Gini Males S80/S Females % median HDI Total Males % median HDI Females years % median HDI18-24 years Total years Males years Females years

MSA simulation results Relative and absolute changes BaselineScen.IRel.Ch.Abs.Ch. Recipients (thousand) MSA allowance Targeted benefit for heating Amount (millon BGN) MSA allowance Targeted benefit for heating BaselineScen.IIRel.Ch.Abs.Ch. Recipients (thousand) MSA allowance Targeted benefit for heating Amount (millon BGN) MSA allowance Targeted benefit for heating

25 MSA allowance at micro-level DMI for 4-person /2-children family 2012DMIBaselineScen.IScen.II Adult 166% Adult 266% Child 1 (age 0-16)81% Child 2 (age 0-16)81% Total family:294% Ratio to Min.Wage

26 Outlines for enhancement  Improvement of uprating and validation  Improvement of data source (re-base on EU SILC 2010 /2009 income/)  Scenario choices 1)about GMI level 2)about target groups for MSA  Caution! Compensations for a possible boost in social spending coordination with Child Benefit policies – more complicated /social reactions!/, but better grounded coordination with Unemployment and Disability benefits

27 Thank you for your attention!