In 2020 and 2021, governments in the Europe and Central Asia (ECA) region allocated significant resources to cushion the economic blow from the COVID-19 pandemic on their people.
According to our recent Fall 2022 Economic Update for ECA, average government spending on social protection response measures, such as wage subsidies or cash transfers, was higher in the emerging and developing countries of the ECA region than in the rest of the world (2.3% of GDP in ECA versus 1.8% of GDP globally).
While the pandemic became a major catalyst for the global focus on social protection (SP), it also revealed fundamental shortcomings in the design and implementation of economic inclusion, labor, social insurance, and social assistance and care programs. Many governments in the region did not have the information, tools, legal frameworks, or administrative capacity to quickly scale up their programs to financially support those families and individuals most in need.
Given the urgent need for a response to the shock, most governments in the ECA region introduced job protection policies (such as wage subsidies) worth 1.3% of GDP. In contrast, outside of ECA, most countries targeted households directly through income support, such as cash transfers. This deviation of ECA countries is notable, not least because job protection policies, which primarily cover formal workers, were implemented even in countries with high rates of informal work.
Families are threatened not only by a prolonged crisis but also by the fundamental changes in labor markets caused by global trends, such as the rise of the gig economy, the transition to cleaner energy - the green transition - and technological innovations. While these trends might offer opportunities for some, the analysis in our report shows that over the past 20 years, temporary and part-time work has increased, while the average job duration has decreased. These trends are particularly pronounced among women and lower-skilled workers.
These trends will reshape economies and have profound implications for how countries organize their SP sector. This year, with inflation and war, new crises have emerged, and average disposable incomes are falling. But governments have largely stopped the crisis response measures introduced during the pandemic.
SP systems in ECA need to be reformed to respond effectively and efficiently in times of crisis so they can accelerate the structural transformations that are already ongoing. Different crises are associated with different types of vulnerabilities and SP systems need to be able to respond accordingly. For example, increased reliance on digital processes enhanced the management of applications for and payment of financial benefits during the pandemic.
At the heart of these reforms is a shift from benefits that target certain categories of vulnerable households, like those with young children, elderly, orphans, disabled, or widows, to benefits that target households based on the means they can draw from, including all forms of incomes and assets. Such a targeted approach requires a functioning SP information system to facilitate identification of the households most in need.
As global trends like the green transition advance, effective active labor market policies, such as skills training and job intermediation (i.e., platforms or programs that help connect job seekers with jobs), will become even more important to ensure opportunities for those who are unemployed or at risk of losing their jobs.
Shifting to these reforms is possible and we stand ready to support ECA countries on this path.