Project: FREE policy paper
Reforming Financial Support in Widowhood: The Current System in Poland and Potential Reforms
In this policy paper, we discuss the material conditions of widows and widowers compared to married couples in Poland, and analyse the degree to which the current support system to those in widowhood in Poland limits the extent of poverty among this large and growing share of the population. The analysis is set in the context of a proposed reform recently discussed in the Polish Parliament. We present the budgetary and distributional consequences of this proposal and offer an alternative scenario which limits the overall cost of the policy and directs additional resources to low income households.
Introduction
According to the National Census in 2021 there were about 2.2 million widows and 450 000 widowers in Poland. In the following year over 123 000 women and about 47 000 men became widowed. Apart from the severe consequences for mental health and psychological well-being, losing a partner typically has implications also for material wellbeing, in particular in cases of high income differentials between the spouses and in situations when the primary earner – often the man – dies first. Material conditions of the surviving spouse in widowhood depend on the one hand on the couple’s accumulated resources, and, on the other hand, on the available support system. Many countries have instituted so-called survivors’ pensions, whereby the surviving spouse continues to receive some of the income of her/his deceased partner alongside other incomes. The systems of support differ substantially between countries and they often combine social security benefits and welfare support for those with the lowest incomes.
In this policy paper we discuss the material situation of widows and widowers versus married couples in Poland and analyse the degree to which the current Polish support system for people in widowhood limits the extent of poverty within this group. We compare the current system of survivors’ pension with a proposed reform discussed lately in the Polish Parliament;the introduction of a ‘widow’s pension’. We present the budgetary and distributional consequences of the announced scheme and offer an alternative scenario which limits the overall cost of the policy and focuses additional resources on low income households. Our results show significant income gains for widows/widowers from the implementation of the recently proposed widow’s pension. The policy however, would come at a substantial cost to the public purse, and the most significant benefits would be accrued by surviving partners at the top of the income distribution. Our proposed alternative scenario is better targeted at poorer households and achieves the objective of limiting poverty in widowhood at a substantially lower cost.
The Material Situation of Widows and Widowers in Poland
Numerous research papers show a strong impact of losing a spouse on mental health and overall well-being (Blanner Kristiansen et al., 2019; Lee et al., 2001; Ory & Huijts, 2015; Sasson & Umberson, 2014; Schaan, 2013; Siflinger, 2017; Steptoe et al., 2013). Adena et al. (2023) use a comprehensive dataset on older women observed a number of years before and after the death of their spouses. The study finds a sharp deterioration in mental health among widows after their partner’s death, displayed as a higher likelihood of crying (Figure 1a) or an increased probability of depression (Figure 1b). The authors provide evidence that, in comparison to similar women who remained partnered, widows suffer from poorer mental health and experience worsened quality of life for several years after their partners’ death.
Figure 1. Women’s mental health before and after their partners’ death.
While the impact of spouse’s death on widows mental health is largely undisputed, the impacts on their material situation are ambiguous (Ahn, 2005; Bíró, 2013; Bound et al., 1991; Corden et al., 2008; Hungerford, 2001).The differences across countries in the material situation of widowed versus partnered elderly people undoubtedly reflect countries’ various social security systems for those in widowhood. At the same time, these differences may also stem from variations in other factors that widows and widwers can rely on such as the prevalence of property ownership or accumulation of wealth and savings. It should be noted though, that in contrast to the immediate effects of spouse’s death on mental health, the consequences for widows’ and widowers’ material situation may unfold over a number of years. This is reflected in the results from poverty surveys which often point to the poorer material standing of widows and widowers (Panek et al., 2015; Petelczyc & Roicka, 2016; Timoszuk, 2017, 2021).
Similar conclusions can be derived from subjective evaluations of households’ material situation reflected in the Central Statistical Office’s Polish Household Budget Survey (HBS). In Figure 2a we present the percentage of people aged 65 and over who declared a ‘bad’ or ‘rather bad’ material situation of their household between 2010 and 2021, split between widows, widowers and married couples.. Throughout the analysed period, the share of both widows and widowers reporting a rather bad material situation was significantly higher than for married couples aged 65+. While in 2010 30 percent of widows and 20 percent of widowers reported a rather bad material standing, this share amounted to just above 10 percent among married couples. In all social groups the ratio of those in a rather bad material situation declined significantly over the analysed decade. A particularly significant drop was observed among widows; in 2021 the share of widows declaring a rather bad material situation declined to the level observed for married couples eleven years earlier.
Data capturing the risk of poverty from Eurostat, based on the EU Statistics on Income and Living Conditions Survey (EU-SILC), also display significantly worse material conditions of older individuals living alone compared to those living with another adult (Figure 2b). While this data does not explicitly allow us to divide the sample based on marital status, it is highly likely (and assumed hereafter) that the majority of single-person households 65+ cover widows or widowers, while two-person households aged 65+represent married couples. As compared to Figure 2a, the dynamics of the poverty levels among people aged 65+ in Figure 2b differ from the dynamics of the assessment of the overall material situation. Among two-person households, the risk of poverty in Poland declined between 2010 and 2013, and then remained relatively stable at about 15 percent until 2020. Among one-person households the poverty rate also declined during the first five years (from 33 percent in 2010 to 25 percent in 2015), however, it then increased to 37 percent in 2020. Consequently, the gap in poverty risk between two-person and one-person households increased substantially, from 8 percentage points in 2010 to 22 percentage points in 2020.
Figure 2. Material situation among households with individuals aged 65 and over.
When analyzing poverty risk information, it should be noted that this indicator is based on income thresholds calculated separately for each year, accounting for the whole population. Poverty risk threshold may therefore increase as a result of income boosts among other groups and in consequence raise the risk of poverty of older people even if their real incomes are stable or grow. Thus the substantial increase in o the poverty risk share among Polish individuals 65+ and living alone after 2015, is related to the sharp rise in income of families with children and wage dynamics, which, in turn raised the poverty threshold considered in the analysis. Based on Figure 2b it is also worth noting that in comparison to Poland the risk of poverty among single-person households 65+ grew even faster in the Czech Republic (though the situation among two-person households 65+ was stable there). The relative position of these households deteriorated also in Germany (the share at risk of poverty increased from 24 percent in 2010 to 31 percent in 2020). It is therefore clear that even though absolute material conditions may have improved among widowed households in Poland over the last decade, their relative position in the income distribution – as in many other countries – places them at a significantly greater risk of poverty compared to partnered older individuals. Questions regarding the level of state support directed towards widowed older individuals are therefore highly relevant for government policy.
Figure 3. The living situation of widows, widowers and married couples aged 65 and over, in Poland.
To better understand the broader context of material conditions in widowhood, and to try to address the discrepancy between the trends in subjective evaluation and widows’ relative position in the income distribution, it is also worth examining other aspects of material well-being. In Figure 3a we present some statistics on property ownership. As we can see, the majority of individuals aged 65+ in Poland, both widowed and married, owned the house or flat they lived in. For example, in 2010 62 percent of all widows and 68 percent of all widowers owned their dwelling, and these shares increased to 72 percent for both groups by 2021. Moreover, among older owner occupiers, the size of the house or apartment per person living in it was on average two times larger for widows and widowers (50 m2) as compared to married couples (25 m2), as depicted in Figure 3b. The high share of widows and widowers owning housing assets may therefore be one of the most important explanations to the discrepancies between the dynamics of income poverty and the declarations about the overall material situation observed in recent years. Although the risk of relative income poverty among widows and widowers have increased since 2016 (after a period of decline between 2010 and 2015), widowhood in Poland is not unequivocally associated with poor material conditions. While some widowed individuals clearly face a challenging material situation, for many the current system of survivor’s pension seems to offer adequate protection against the risk of a significant financial deterioration following the loss of a spouse. This suggests that any additional support through a new social security instrument should be directed principally to a relatively narrow group of widows and widowers in order to help particularly those in a difficult financial situation.
Survivor’s Pension, Widow’s Pension and an Alternative Solution
In this part of the paper we present simulations of changes in the level of household income and the relative position in the income distribution among widows under different scenarios of support through the social security system. In the first step we use the 2021 HBS data (uprated to 2023 income levels) to calculate disposable incomes of the entire sample of nearly 31 000 households under the 2024 Polish tax-benefit system using the SIMPL tax and benefit microsimulation model (henceforth the ‘baseline’ system; more details on the SIMPL model: Myck et al., 2015, 2023a; Myck & Najsztub, 2014). Based on the baseline system, we divide the households into ten income decile groups according to their disposable income (equivalised, i.e. adjusted for household composition). In the second step we focus on the sample of 4188 married couples aged 65 and over, representing 1.7 million Polish households (almost 13 percent of the total population). 65 percent of these couples lived in two-person households and the remaining 35 percent cohabited also with other people. In the baseline system, the incomes received by these households placed 9.5 percent of them in the lowest (1st) income decile group and 4.4 percent in the highest (10th) group (see Table 1).
Table 1. Relative position of households with married couples aged 65+ in the income distribution.
Figure 4a shows a comparison of men’s and women’s gross retirement pensions in our sample of married couples 65+ in the baseline system. Every dot corresponds to one married couple and a combination of the spouses’ pensions. The greater concentration of combinations of these values above the 45-degree line indicates that in most marriages , the husbands’ retirement pensions are higher than the wives’. The differences are also apparent in Figure 4b, which presents the percentages of individuals receiving a pension benefit within the given value range of the pension. The share of women are greater than the share of men at lower benefit values (below 3000 PLN gross per month), and the opposite is true for higher pension amounts. Overall, for 65 percent of all couples, the husband received a higher retirement pension than his wife. There are also older people who did not receive retirement benefits – either because they continued to work or because they were not entitled to a retirement pension (this is the case for 9 percent of husbands and 10 percent of wives), as illustrated by the first column in Figure 4b. It is worth noting that for 2 percent of the couples only the husband received a retirement pension (the wife had never worked and was not eligible for retirement pension or she still worked). In the current Polish system of support for surviving spouses, the amount of own and spouse’s retirement pension is crucial for the choice of the benefit one makes when a spouse dies. A widowed person can choose to continue receiving their own full retirement pension or to receive a survivor’s pension, which is equivalent to 85 percent of the pension of the deceased spouse. Given the differences between men’s and women’s pensions, many women choose the latter option, either because their own retirement pension is significantly lower than the survivor’s pension or because they are not entitled to their own retirement pension.
Figure 4. Retirement pension amounts received by husbands and wives aged 65+
We treat the sample of married couples aged 65 years or more as a reference sample in our analysis of the consequences from the implementation of various support schemes within the social security system, in the case of widowhood. The calculations presented below reflect the financial situation of the analyzed sample after the hypothetical death of husbands. We focus on widows, as they represent the vast majority of widowed individuals (due to, e.g., longer life expectancy of women and age differences between spouses). We simulate four support scenarios:
I) a system with no support for widowed individuals – this would be the situation without the current survivor’s pension, in which widows would need to rely fully on their own social security incomes (pensions);
II) the current system of survivor’s pension: in which the widow must choose between 100 percent of her own pension or the survivor’s pension (85 percent of her deceased husband’s gross pension)
III) a system with the widow’s pension (currently debated in the Polish Parliament): the widow must choose between: a) 100 percent of her own pension + 50 percent of the survivor’s pension (42,5 percent of the deceased husband’s gross pension), b) 50 percent of her own pension + 100 percent of the survivor’s pension (85 percent of her dead husband’s gross pension);
IV) an alternative system in which the widow chooses between: a) 100 percent of her own pension + 50 percent of a minimum pension if her husband received at least minimum retirement pension (50 percent of the husband’s pension if it was lower than the minimum pension), b) 100 percent of the survivor’s pension (85 percent of the husband’s pension) increased to the minimum pension if the husband received at least minimum retirement pension.
While the simulations are based on a hypothetical death of a husband, they provide a realistic picture of the financial situation of households in which women face widowhood. It is also important to note that the simulations of the financial conditions of ‘widowed’ households take into account other potential forms of public social support such as housing benefits and social assistance for low-income households. The results thus include the most relevant forms of financial support individuals might receive from the Polish government.
Figure 5 shows the results of the four aforementioned scenarios in the form of flow charts between income decile groups. The starting point (the left-hand side of each chart) are the income groups of households with married couples aged 65+, i.e. before the simulated widowhood. The transition to the income deciles on the right hand side of each chart is the result of a change in equivalised disposable income in the widowhood simulation, under different support scenarios (I – IV). Thus, on the right hand side we observe the income groups in which the women would find themselves after the death of their husbands, conditional on the assumed system of support: without the survivor’s pension (system I, Figure 5a), with the survivor’s pension (system II, figure 5b), with the widow’s pension (system III, Figure 5c) and under the alternative system (system IV, Figure 5d).
Figure 5a shows that without any additional support the financial situation of older women would significantly deteriorate in the event of the death of their spouses (Figure 5a). The share of women whose income would place them in the lowest two decile groups would be as high as 54.7 percent (compared to 17.5 percent of married couples), and 82.8 percent of the widows would be in the bottom half of the income distribution (compared to 57 percent of married couples). The current survivor’s pension seems to protect a large proportion of women (Figure 5b), although the proportion of those who find themselves in the lowest two income decile groups still more than doubles relative to the situation of married couples, to 38.3 percent. Further, 74.9 percent of the widows would find themselves in the bottom half of the distribution. The proposed widow’s pension (Figure 5c) offers much greater support with a very high share of new widows remaining in the same decile or even moving to a higher income group. For example, with the widows’ pension 8.0 percent of women would be in the 9th income decile group and 5.3 percent in the 10th group, while, in comparison, 7.0 percent and 4.4 percent of married couples found themselves in these groups, respectively.
Figure 5. Change in income decile among women aged 65+, following a hypothetical death of their husbands.
The proposed alternative system (Figure 5d) raises widows’ incomes compared to the current survivor’s pension system, but it is less generous than the system with the widow’s pension. Importantly however, it increases the incomes of widows in the lower income groups, which means that, compared to the current system, the number of women dropping to the poorest income groups following their husband’s death would be significantly reduced (24.0 percent would be in the lowest two deciles). At the same time 4.6 percent and 3.4 percent of the widows would be placed in the 9th and the 10th decile groups, respectively.
Table 2 shows the change in the poverty risk among the women in five considered scenarios, i.e. before they become widowed and after the hypothetical death of their husband under the considered four systems of support. 10.5 percent of married couples aged 65+ had equivalised disposable incomes which placed them below the poverty line calculated in the baseline system. After the simulated death of a husband, in a scenario without the survivor’s pension, the poverty rate among widows would increase to 35.3 percent, while the current survivor’s pension limits it to 20.7 percent. Poverty would be further reduced in the two systems with considered reforms: to 11.0 percent the widow’s pension system and to 11.8 percent in the alternative system.
Table 2. At-risk-of-poverty rates in the analysed scenarios.
Total Costs of the Considered Schemes
As mentioned above, the presented simulations take into account the conditions of current older couples. Therefore, we cannot directly calculate the consequences of the two suggested systems (the widow’s pension system and the alternative system) for those who are already widowed. This applies in particular to the present-day cost from the suggested changes to the widowhood support schemes to the public budget . In order to accurately estimate the changes in already widowed people’s incomes, we would have to have the information on the values of widow’s pensions and of pensions that their deceased spouses received when they were still alive, information that is not available in the HBS.
Nevertheless, our simulations allow us to compare the aggregated costs of support for women in the simulated widowhood scenarios under different support systems. Such calculations suggest that an implementation of the widow’s pension would increase the gross benefits received by widows by 34.2 percent compared to the current survivor’s pension system., while the alternative system would raise them by 14.7 percent. Applying these growth rates to the social security benefits currently received by widows and widowers (from the HBS data) implies additional annual costs of 24.1 bn PLN (5.6 bn EUR) under the widow’s pension system, and 10.5 bn PLN (2.5 bn EUR) under the alternative system.
Who Gains the Most?
From a distributional perspective, the simulated outcomes of the two suggested systems of support in widowhood can be compared to the baseline situation. In Figure 6 we show average changes in widowed women’s disposable income resulting from a change from the current system with survivor’s pension to the system with widow’s pension, and to our alternative design. Gross monthly survivor’s pensions of the widows are divided into seven groups, starting from 0-500 PLN up to 5501 PLN and more. One can clearly see that women who would, on average, gain the most from the implementation of the widow’s pension are those who already have a relatively high survivor’s pension in the current system. The average rise in disposable income (net) among those with gross monthly pensions between 4501 and 5500 PLN would be 1200 PLN, if widow’s pension was implemented. In contrast, women who receive 501-1500 PLN (gross) per month under the current survivor’s pension, would see a net monthly gain of about 350 PLN. These women would benefit slightly more under the alternative system – on average about 390 PLN, while much lower increases (on average about 220 PLN per month) would be faced by women in the 4501-5500 PLN group. Women in the last group, with gross monthly pensions of 5501 PLN and more under the current survivor’s pension system, would additionally gain even less in the alternative system – on average about 170 PLN. Thus overall, greater gains would accrue to those with lower current benefits in the alternative system.
Figure 6. Average increase in disposable income among widows by current survivor’s pensions’ value group.
In Figure 7 we categorise the sample of widows in terms of the range of their gains resulting from the two analysed reforms. The gains are calculated as changes in disposable income between the current system of support and the modelled reforms. We see that 20 percent of widows would gain over 1000 PLN extra per month as a result of the widow’s pension’s reform, while a further 24 percent would gain between 801 to 1000 PLN and 28 percent could expect to see a gain of between 601-800 PLN per month. The reform would leave the incomes of only about 12 percent of the widows unchanged – most of them are women who are not eligible for their own retirement pensions. In the alternative system the incomes of 34 percent of the analysed widows would remain unaffected. This group of women includes not only those without their own retirement pensions, but also those whose husbands received much higher pensions than themselves. This means that even if a widow’s retirement pension were to increase by 50 percent of the minimum pension, it would still be lower than 85 percent of her spouse’s retirement pension (see Figure 4a). In the alternative system about 17 percent of women in the sample would increase their disposable income by less than 400 PLN per month. For 28 percent, the increase would be in the range of between 400 and 600 PLN per month. While 21 percent would receive increased benefits under the alternative system, none of the hypothetical widows would receive more than 800 PLN per month.
Figure 7. Share of women by ranges of increases from the widow’s pension and the alternative scenario.
Figure 8 presents the average effect of the modelled reforms on disposable incomes of women in the sample, divided by income decile groups. Households were assigned to one of ten income groups based on their equivalised disposable income in the baseline system (i.e. according to the joint income of the couples). Figure 8 reflects the distribution of gains from the implementation of the widow’s pension or the alternative system. In the first case, the highest gains would be concentrated among the richest households. While women in the 8th and 9th income decile would, on average, receive an increase in their disposable income of about 1100 PLN per month, those in the 2nd decile group would, on average, receive only an additional 470 PLN per month. The distribution under the alternative system is far more concentrated on low income households. The highest average additional gain of about 420 PLN per month would be granted to widows from the 3rd income decile group, and benefits to women in the upper half of the income distribution would be significantly lower. Women in the top decile would gain, on average, only about 280 PLN per month. In many of the poorest households in our sample of couples, neither partner qualifies for a retirement pension. As a result, widows in this group would experience significantly lower average gains under both analyzed systems compared to those in higher income brackets.
Figure 8. Average gains due to the implementation of widow’s pension and the alternative system, by income decile group.
Conclusion
In 2021 only 10 percent of the Polish widows and 8 percent of the Polish widowers aged 65 and more evaluated their material situation as rather bad, percentages that had dropped significantly since 2010. According to the HBS the majority of widowed individuals in Poland are also owners of the dwelling they live in. At the same time, income poverty among older persons living alone has increased in Poland since 2015, suggesting that despite the subjective evaluations, incomes of these older individuals – many of whom are widowed – have not managed to keep up with the dynamics of earnings and social transfers aimed at other demographic groups in Poland. As showed in our simulations, the current widowhood support system in Poland substantially limits the risk of poverty following the death of one’s partner. However, while the current survivor’s pension decreases the poverty risk from 35.3 percent (in a system without any support) to 20.7 percent, the risk of poverty among widows is still significantly higher compared to the risk faced by married couples.
The simulations analysed in this Policy Paper has covered the proposal of a support system reform, thewidow’s pension, which is currently discussed in the Polish Parliament. The simulations also covered an alternative alternative proposal putting more emphasis on poorer households. Both of these reforms would provide additional support to individuals affected by widowhood. In the case of the widow’s pension the average value of social security benefits would increase by 34.2 percent, whereas the alternative scenario would increase these benefits by 14.7 percent. If the pensions of current widows and widowers were to be increase by these proportions, the total annual cost to the public sector would amount to 24.1 bn PLN (5.6 bn EUR) and 10.5 bn PLN (2.5 bn EUR) per year, respectively. As shown above, the impact of these two reforms on poverty levels among widowed individuals would be very similar – the reforms would reduce it to 11.0 and 11.8 percent, respectively. The substantial difference in the total cost of these two alternatives is mainly due to the fact that the bulk of the additional benefits from the implementation of the widow’s pension is concentrated among high-income widows and widowers, while the highest profits in the modelled alternative system are targeted at households at the bottom of the income distribution.
If the aim of the potential legislative changes is to support widows and widowers in a difficult material situation and to reduce the extent of poverty, the widow’s pension currently discussed in the Polish Parliament seems to be far from ideal. As demonstrated in this Policy Paper, additional support addressed to widows and widowers in Poland can be designed in a way that substantially reduces the risk of poverty, with limitations on benefit increases to those already in a favourable financial situation. Our proposed alternative system would generate higher incomes for the poorest widows and widowers similar to the widow’s pension, while its cost to the public budget would be less than half of the cost of the discussed widow’s pension reform.
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Closing the Gender Data Gap
High-quality data plays a crucial role in enhancing our comprehension of evolving social phenomena, and in designing effective policies to address existing and future challenges. This particularly applies to the gender dimension of data, given the profound impact of the pervasive so-called “gender data gap”. In recent decades, data recovered from archives, high quality surveys, and census and administrative data, combined with innovative approaches to data analysis and identification, has become pivotal for the progress of documenting structural gender differences. Nonetheless, before we can close the gender gaps on the labour market, within households, in politics, academia and other areas, researchers and policy-makers must first ensure a closure of the gender data gap.
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Introduction
Any progress in our understanding of social phenomena hinges on the availability of data, and there is no doubt that recent advances in economics and other social sciences would not have been possible without countless high quality data sources. As we argue in this policy brief, this applies also, and perhaps particularly, to the documentation of different dimensions of gender inequalities and the analysis to identify their causes. Over the last few decades innovative ways to document historical developments, combined with improvements in the access to existing data, as well as new approaches to data collection, have become cornerstones in the progress made in our understanding of the various expressions of gender inequality. In the economic sphere this has covered themes such as labor market status, earning and income levels, wealth accumulation over the life course, education investments, pensions, as well as consumption patterns and time allocation – in particular caregiving and household work. Researchers have also been able to empirically study gender inequalities in politics, culture, crime, the justice system and in academia itself.
Groundbreaking studies in gender economics, including those by Claudia Goldin, the recent Nobel Prize laureate, would not have been possible without high quality data and innovative ways aimed at closing the “gender data gap”, a term coined by Caroline Criado Perez, in her bestseller “Invisible women” (Criado Perez, 2020). In the introduction to the book she notes that “(…) the chronicles of the past have left little space for women’s role in the evolution of humanity, whether cultural or biological. Instead, the lives of men have been taken to represent those of humans overall.” (p. XI). The gender data gap is the result of deficits of informative data sources on women, which has been augmented by frequent lack of differentiation of information by sex/gender in available sources. Closing the gender gaps along the dimensions already identified in existing studies will require a continuous monitoring of evidence, thus closing the gender data gap in the first place. New studies focused on greater equality and on the effectiveness of various implemented policies will continue to rely on good data. Thankfully, few new datasets currently ignore the gender of the respondents. However as our understanding of the biological and cultural aspects of sex and gender grows, the way data is collected will need to be modified.
As we prepare for the new challenges ahead of those designing data collection efforts and examining the data, we believe it is important to give credit to the authors of some of the groundbreaking studies that paved the way to the current pool of evidence on gender inequality. Around the time of the International Women’s Day, we recall several empirical studies in gender economics that, in our opinion, merit special attention due to either their innovative approaches to data collection, their unique access to original data sources, or their methodological novelty. These studies bring valuable insights into specific dimensions of gender inequality. This short list is naturally a subjective choice, but we believe that all of these studies deserve credit not only among researchers within gender economics, but also among those more broadly interested in the recent progress in the understanding of different aspects of gender inequality.
From Data to Policy Recommendations
Over the last few decades substantial efforts have been made to provide empirical evidence concerning historical trends in inequalities between men and women on the labor market. Seminal work in this field was conducted by Claudia Goldin in the 1970s and 80s, culminating in the publication of the path-breaking book Understanding the Gender Gap: An Economic History of American Women (Goldin, 1990). The book fundamentally changed the view of women’s role in the labor market. Empirically Goldin shows that female labor force participation has been significantly higher in historical times than previously believed. Before Goldin, researchers mainly studied twentieth century data. Based on this it looked as if women’s participation in the labour market is positively correlated with economic growth. Goldin’s work showed instead that women were more likely to participate in the labour force prior to industrialization, and that early expansion of factories made it more difficult to combine work and family. Seen over the full 200 year period, from before industrialization to today, the pattern of women’s labour market participation is in fact U-shaped, pointing to the importance of various societal changes that alter incentives and possibilities for women’s work. Goldin’s contribution is however not just about getting the empirical picture right. At least equally important is the recognition of women as individual economic agents, who make forward looking decisions under various institutional constraints and limitations related to social norms about identity and family, as well as education opportunities and labor market options. While some decision can be modeled as taken by “the economic man”, others by households, it may seem surprising that studying women’s decisions was for so long neglected.
Institutional, cultural and economic factors behind historical trends have become the focus of much of the literature trying to identify the forces driving gender disparities. Some of the most original work considers the role that “chance” plays in determining individual decisions related to gender – how having a first-born son (e.g. Dahl and Moretti, 2008) or having twins (Angrist and Evans, 1998), both of which can be considered random, – affect choices related to partnership, future fertility and the labor market. Others examin the influence of gender imbalances caused by major historical events. Brainerd (2017) investigates the consequences of extremely unbalanced sex ratios in cohorts particularly affected by the massive loss of lives during World War II in the Soviet Union. By exploiting a unique historical data source derived from the first postwar census, combined with statistics registry records from archives, Brainerd provides evidence that the war-induced scarcity of men profoundly affected women’s outcomes on the marriage market. Women were more likely to never get married, give birth out of wedlock and get divorced. On top of that, unbalanced sex ratios affected married women’s intrahousehold bargaining power and resulted in lower fertility rates and a higher rate of marriages with a large age gap between spouses. The post-war institutional setup increased the cost of divorce and withdrew legal obligations to support children fathered out of wedlock, which exacerbated the consequences from the shortage of men by further reducing the rates of registered marriages and increasing marital instability.
The examples above highlight how conditions beyond individuals’ control can contribute to social gender imbalances, or shed light on existing gender biases. How these ‘exogenous’ circumstances translate into economic inequalities and what additional factors drive disparities has been the focus of much academic work on gender inequalities. One of the most challenging questions has been that of demonstrating that discrimination of women, rather than women’s characteristics or choices, are behind the growing body of evidence on economic gender inequality. In this respect Black and Strahan (2001) provide important convincing conclusions by using significant changes in the level of regulation in the US banking sector. Increasing competition between banks lowered banks’ profits, and led to a reduced ability of managers to ‘divide the spoils’, and thus to discriminate between different types of employees. The authors used information on wages within specific industries (including banking) from one of the oldest ongoing surveys in the world – the US Current Population Survey (CPS). By exploiting detailed individual data covering a period of several decades the authors show that higher levels of banking sector regulations (prior to deregulation) facilitated greater premia paid out to male compared to female employees. Thus, increased competition in the banking sector brought favorable changes to women’s pay conditions as well as their position in banks’ management.
While long running surveys such as the CPS continue to serve as invaluable sources of information on the relative conditions of men and women, the growing availability of administrative data has opened new opportunities for documentation of inequalities and identification of the reasons behind these. For instance, the ability to track individuals throughout their work history before and after the arrival of their first child has allowed researchers to compare the trajectories of women’s and men’s earnings, wages and working hours. This comparison has revealed the existence of the so-called “child penalty”, with women experiencing a drop in their labor market position relative to their male partners after the birth of their first child, and with the gap persisting for many years. Strikingly, this penalty has been estimated in some of the most gender-equal countries in the world, such as Sweden (Angelov et al., 2016) and Denmark (Kleven et al., 2019), two countries which have spearheaded collecting and making rich administrative data available to researchers.
Another area where individual register data has proven invaluable is in the study of the so-called “glass ceiling”, i.e., the sharply increasing differences between men and women when it comes to pay as well as representation in the very top of the income distribution. In a seminal study by Albrecht et al. (2003), individual earnings for men and women were compared and differences were found to be markedly higher (with men earning much more) when comparing men in the top of the male income distribution with women in the top of the female income distribution. Also making use of Swedish registry data, Boschini et al. (2020) study a related question, namely the evolution of the share of women in the top of the income distribution. In line with other glass-ceiling results, they demonstrate that the share of women in the top is small, and that it gets smaller the higher one looks, , although it has increased over time. Decomposing incomes into labor earnings and capital income they also show that while women seem to be catching up in the labor income distribution, they clearly lag in the capital income distribution. Also, the income profile of the partners of high-income men and high-income women are strikingly different. Most high-income women have high-income partners, while the opposite is not true for high-income men.
Differences in the economic position of men and women reflected in the above examples can have their origin much before the time individuals enter the labor market. They can be driven by differences in schooling opportunities, as well as other forms of early life investments, to the extent that even much of what is perceived as choices or preferences later in life are in fact results of these subtle early life disadvantages for women. While these have largely diminished in the global North, there is a growing number of studies documenting these differences in the global South. Jayachandran and Pande (2017) examine the impact of son preference, a widespread cultural practice for example in India, on child health and development. The study leverages a simple, standardized, and broadly available indicator – the height of children – which is measured at routine health checks and included in many population surveys, such as the Demographic and Health Surveys (DHS). Additionally, their use of a natural experiment, based on the birth order of children, helps to establish a causal relationship between eldest son preference and nutritional disparities that have long-term developmental consequences among subsequent children, not only for girls but for Indian children on average. Findings like these underscore the importance of gender equality not only as a fundamental value but also as a crucial factor in promoting growth and development at the societal level.
The social costs of gender inequality have also motivated the growing research interest in gender-based violence and crime. Given the specific challenges associated with these topics – such as the clandestine and underreported nature of these acts but also the consideration for victims’ confidentiality and safety – studies in this area has required researchers to develop and apply innovative tools and data collection methods. In this framework list experiments have emerged as a methodology allowing respondents to disclose sensitive or socially undesirable attitudes indirectly, reducing the likelihood of the so-called social desirability bias in survey reporting. In a list experiment, respondents are presented with a set of statements or behaviors and asked to indicate their agreement or engagement with these. Among listed items, one is considered “sensitive” and is included only for a randomly selected subset of respondents. By comparing the average number of items agreed with by the entire sample to a control group that did not get the sensitive item, researchers can estimate the proportion of respondents who agreed with or engaged in the sensitive behavior or opinion. Kuklinski et al. (1997) is one of the pioneering contributions in this area, estimating the proportion of voters who harbored racial prejudices but who may have been unwilling to admit it in a direct survey question. List experiments have since become a widely used tool in political science and economics and have helped in the advancement of our understanding of gender-based violence (Peterman et al., 2018). Given the strong assumptions underlying the analysis the method has not become the ”statistical truth serum” it was at some point considered to be. However, list experiments have broadened the analytical opportunities in an area plagued by significant informational and data challenges.
While worldwide gender gaps in economic opportunities and especially in education and health have rapidly declined (and sometimes reversed) in the last decades, larger differences remain in political empowerment (see e.g., WEF Gender Gap Report 2023). Another Nobel Prize laureate in economics, Esther Duflo, in her joint work with Raghabendra Chattopahyay (2004), have pioneered a highly prolific area of research on the impacts of women as policymakers. In their study, they leverage a unique policy experiment in India that randomized the gender of the leader of Village Councils, and a detailed dataset based on extensive surveys administered to both Village Council leaders and villagers. The surveys allowed for estimation of the investments in different public goods in 265 Village Councils, as well as the preferences over each of these public goods among female and male villagers. Combining the randomization and this rich dataset, the authors establish that political leaders prioritize public goods that are more relevant to the needs of their own gender, suggesting that women’s under-representation in politics might result in women’s and men’s preferences being unequally represented in policy decisions.
Conclusions and Recommendations
The narrowing gender gap in political representation across various levels of government, the growing influence of women in other areas such as public institutions, administration etc., and the heightened awareness of the crucial role gender equality plays in socio-economic progress all bode well for improvements in access to high-quality gender-differentiated data sources. Before we can recognize and close gender gaps identified from high-quality data, the gender data gap needs to firstly be closed. Governments and public institutions should make their increasing amounts of digitized information available for research purposes. Funding should be available to collect data through surveys, and these could in turn be combined with details available in administrative sources to take advantage of the breadth of survey data and the precision of official statistics. Information needs to be collected on a frequent and regular basis to make sure that the consequences of various major developments, such as legal changes, conflicts or natural disasters, can be identified. Innovative data sources, for instance information from mobile apps or social media, can provide additional useful insights into socio-economic trends, old and new dimensions of inequalities and regular timely updates on different aspects of gender disparities. These new data sources can become the basis for future innovative studies on gender inequalities, contributing to a better understanding of the mechanisms behind these inequalities, and providing evidence for policies and other efforts to effectively close the remaining gaps. Already now there is enough evidence to conclude that closing these gaps is not only just but that it also constitutes a fundamental basis for continued inclusive economic development.
Post Scriptum
Contributing to the existing pool of data sources we are happy to share a regional dataset with information on gender norms and gender-based violence: the FROGEE Survey 2021. The data was collected using the CATI method (phone interviews) in autumn 2021 in Belarus, Georgia, Latvia, Poland, Russia, Sweden and Ukraine. In each country interviews were conducted with between 925 and 1000 adults. The survey covered areas such as: basic demographics, material conditions, labor market status, gender norms, attitudes towards harassment and violence, awareness of violence against women and awareness of legal protection for gender violence victims.
The data collection was funded by the Swedish International Development Cooperation Agency (SIDA) as part of the FREE Network’s FROGEE project. The dataset and supporting materials are freely available for research purposes. For more information see: FROGEE Survey on Gender Equality.
References
- Angrist, D. J., and Evans, N. W. (1998). Children and their parents’ labor supply: Evidence from exogenous variation in family size. American Economic Review, 88(2), 450-477.
- Albrecht, J., Björklund, A., and Vroman, S. (2003). Is there a glass ceiling in Sweden? Journal of Labor Economics, 21(1), 145-177.
- Angelov, N., Johansson, P., and Lindahl, E. (2016). Parenthood and the gender gap in pay. Journal of Labor Economics, 34(3), 545-579.
- Black, S. E., and Strahan, P. E. (2001). The division of spoils: Rent-sharing and discrimination in a regulated industry. American Economic Review, 91(4), 814-831.
- Boschini, A., Gunnarsson, K., and Roine, J. (2020). Women in top incomes: Evidence from Sweden 1971–2017. Journal of Public Economics, 181, 104-115.
- Brainerd, E. (2017). The lasting effect of sex ratio imbalance on marriage and family: Evidence from World War II in Russia. The Review of Economics and Statistics, 99(2), 229-242.
- Chattopadhyay, R., and Duflo, E. (2004). Women as policymakers: Evidence from a randomized policy experiment in India. Econometrica, 72(5), 1409-1443.
- Criado Perez, C. (2020). Invisible women. Vintage, London.
- Dahl, G. B., and Moretti, E. (2008). The demand for sons. Review of Economic Studies, 75(4), 1085-1120.
- Goldin, C. (1990). Understanding the Gender Gap: An Economic History of American Women. Oxford University Press.
- Kleven, H., Landais, C., and Søgaard, J. E. (2019). Children and gender inequality: Evidence from Denmark. American Economic Journal: Applied Economics, 11(4), 181-209.
- Kuklinski, J. H., Sniderman, P. M., Knight, K., Piazza, T., Tetlock, P. E., Lawrence, G. R., & Mellers, B. (1997). Racial prejudice and attitudes toward affirmative action. American Journal of Political Science, 402-419.
- Jayachandran, S., and Pande, R. (2017). Why are Indian children so short? The role of birth order and son preference. American Economic Review, 107(9), 2600-2629.
- Peterman, A., Palermo, T. M., Handa, S., Seidenfeld, D., and Zambia Child Grant Program Evaluation Team (2018). List randomization for soliciting experience of intimate partner violence: Application to the evaluation of Zambia’s unconditional child grant program. Health Economics, 27(3), 622-628.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Impact of Rising Gasoline Prices on Households in Sweden, Georgia, and Latvia – Is This Time Different?
Over the last two years, the world has experienced a global energy crisis, with surging oil, coal, and natural gas prices. For European households, this translates into higher gasoline and diesel prices at the pump as well as increased electricity and heating costs. The increase in energy related costs began in 2021, as the world economy struggled with supply chain disruptions caused by the Covid-19 pandemic, and intensified as Russia launched a full-scale invasion of Ukraine in late February 2022. In response, European governments have implemented a variety of energy tax cuts (Sgaravatti et al., 2023), with a particular focus on reducing the consumer cost of transport fuel. This policy paper aims to contextualize current transport fuel prices in Europe by addressing two related questions: Are households today paying more for gasoline and diesel than in the past? And should policymakers respond by changing transport fuel tax rates? The analysis will focus on case studies from Sweden, Georgia, and Latvia, countries that vary in economic development, energy independence, reliance on Russian oil, transport infrastructure, and transport fuel tax rates. Through this study, we aim to paint a nuanced picture of the implications of rising fuel prices on household budgets and provide policy guidance.
Record High Gasoline Prices, Historically Cheap to Drive
Sweden has a long history of using excise taxes on transport fuel as a means to raise revenue for the government and to correct for environmental externalities. As early as in 1924, Sweden introduced an energy tax on gasoline. Later, in 1991, this tax was complemented by a carbon tax levied on the carbon content of transport fuels. On top of this, Sweden extended the coverage of its value-added tax (VAT) to include transport fuels in 1990. The VAT rate of 25 percent is applied to all components of the consumer price of gasoline: the production cost, producer margin, and excise taxes (energy and carbon taxes).
In May 2022, the Swedish government reduced the tax rate on transport fuels by 1.80 SEK per liter (0.16 EUR). This reduction was unprecedented. Since 1960, there have only been three instances of nominal tax rate reductions on gasoline in Sweden, each by marginal amounts in the range of 0.04 to 0.22 SEK per liter. Prior to the tax cut, the combined rate of the energy and carbon tax was 6.82 SEK per liter of gasoline. Adding the VAT that is applied on these taxes, amounting to 1.71 SEK, yields a total excise tax component of 8.53 SEK. This amount is fixed in the short run and does not vary with oil price changes.
Figure 1. Gasoline Pump Price, 2000-2023.
Source: Drivkraft Sverige (2023).
Figure 1 shows the monthly average real price of gasoline in Sweden from January 2000 to October 2023. The price has slowly increased over the last 20 years and has been historically high in the last year and a half. Going back even further, the price is higher today than at any point since 1960. Swedish households have thus lately been paying more for one liter of gasoline than ever before.
However, a narrow focus on the price at the pump does not take into consideration other factors that affect the cost of personal transportation for households.
First, the average fuel efficiency of the vehicle fleet has improved over time. New vehicles sold in Sweden today can drive 50 percent further on one liter of gasoline compared to new vehicles sold in 2000. Arguably, what consumers care about the most is not the cost of gasoline per se but the cost of driving a certain distance, as the utility one derives from a car is the distance one can travel. Accounting for vehicles’ fuel efficiency improvement over time, we find that even though it is still comparatively expensive to drive today, the current price level no longer constitutes a historical peak. In fact, the cost of driving 100 km was as high, or higher, in the 2000-2008 period (see Figure 2).
Figure 2. Gasoline Expenditure per 100 km.
Source: Trafikverket (2023) and Drivkraft Sverige (2023).
Second, any discussion of the cost of personal transportation for households should also factor in changes in household income over time. The Swedish average real hourly wage has increased by more than thirty percent between 2000-2023. As such, the cost of driving 100 km, measured as a share of household income, has steadily declined over time. Further, this pattern is consistent across the income distribution; for instance, the cost trajectory for the bottom decile is similar to that of all wage earners (as illustrated in Figure 3). In 1991, when the carbon tax was implemented, the average household had to spend around two thirds of an hour’s wage to drive 100 km. By 2020, that same household only had to spend one third of an hour’s wage to drive the same distance. There has been an increase in the cost of driving over the last two years, but in relation to income, it is still cheaper today to drive a certain distance compared to any year before 2013.
Figure 3. Cost of Driving as a Share of Income, 1991-2023.
Source: Statistics Sweden (2023).
Taken all together, we see that on the expenditure side, vehicles use fuel more efficiently over time and on the income side, households earn higher wages. Based on this, we can conclude that the cost of travelling a certain distance by car is not historically high today.
Response From Policymakers
It is, however, of little comfort for households to know that it was more expensive to drive their car – as a share of income – 10 or 20 years ago. We argue that what ultimately matters for households is the short run change in cost, and the speed of this change. If the cost rises too fast, households cannot adjust their expenditure pattern quickly enough and thus feel that the price increase is unaffordable. In fact, the change in the gasoline price at the pump has been unusually rapid over the last two years. Since the beginning of 2021, until the peak in June 2022, the (nominal) pump price rose by around 60 percent.
So, should policymakers respond to the rapid price increase by lowering gasoline taxes? The perhaps surprising answer is that lowering existing gasoline tax rates would be counter-productive in the medium and long run. Since excise taxes are fixed and do not vary with the oil price, they reduce the volatility of the pump price by cushioning fluctuations in the market price of crude oil. The total excise tax component including VAT constitutes more than half of the pump price in Sweden, a level that is similar across most European countries. This stands in stark contrast with the US, where excise taxes make up around 15 percent of the consumer price of gasoline. As a consequence, a doubling of the price of crude oil only increases the consumer price of gasoline in Sweden by around 35 percent, while it increases by about 80 percent in the US. Households across Sweden, Europe, and the US have adapted to the different levels of gasoline tax rates by purchasing vehicles with different levels of fuel efficiency. New light-duty vehicles sold in Europe are on average 45 percent more fuel-efficient compared to the same vehicle category sold in the US (IEA 2021). As such, US households do not necessarily benefit from lower gasoline taxation in terms of household expenditure on transport fuel. They are also more vulnerable to rapid increases in the price of crude oil. Having high gasoline tax rates thus reduces – rather than increases – the short run welfare impact on households. Hence, policymakers should resist the temptation to lower gasoline tax rates during the current energy crisis. With imposed tax cuts, households will, in the medium and long run, buy vehicles with higher fuel consumption and thus become more exposed to price surges in the future – again compelling policymakers to adjust tax rates, creating a downward spiral. Instead, alternative measures should be considered to alleviate the effects of the heavy price pressure on low-income households – for instance, revenue recycling of the carbon tax revenue and increased subsidies of public transport.
Conclusion
To reach environmental and climate goals, Sweden urgently needs to phase out the use of fossil fuels in the transport sector – Sweden’s largest source of carbon dioxide emissions. This is exactly what a gradual increase of the tax rate on gasoline and diesel would achieve. At the same time, it would benefit consumers by shielding them from the adverse effects of future oil price volatility.
The most common response from policymakers regarding fuel tax rates however goes in the opposite direction. In Sweden, the excise tax on gasoline and diesel was reduced by 1.80 SEK per liter in 2022 and the current government plans to further reduce the price by easing the biofuel mandate. Similar tax cuts have been implemented in a range of European countries. Therefore, the distinguishing factor in the current situation lies in the exceptional responses from policymakers, rather than in the gasoline costs that households are encountering.
Gasoline Price Swings and Their Consequences for Georgian Consumers
The energy crisis that begun in 2021 has also made its mark on Georgia, where the operational expenses of personal vehicles, encompassing not only gasoline costs but also maintenance expenses, account for more than 8 percent of the consumer price index. The rise in gasoline prices sparked public protest and certain opposition parties proposed an excise tax cut to mitigate the gasoline price surge. In Georgia, gasoline taxes include excise taxes and VAT. Until January 1, 2017, the excise tax was 250 GEL per ton (9 cents/liter), it has since increased to 500 GEL (18 cents/liter). Despite protests and the suggested excise tax reduction, the Georgian government chose not to implement any tax cuts. Instead, it initiated consultations with major oil importers to explore potential avenues for reducing the overall prices. Following this, the Georgian National Competition Agency (GNCA) launched an inquiry into the fuel market for motor vehicles, concluding a manipulation of retail prices for gasoline existed (Georgian National Competition Agency, 2023).
The objective of this part of the policy paper is to address two interconnected questions. Firstly, are Georgian households affected by gasoline price increases? And secondly, if they are, is there a need for government intervention to mitigate the negative impact on household budgets caused by the rise in gasoline prices?
The Gasoline Market in Georgia
Georgia’s heavy reliance on gasoline imports is a notable aspect of the country’s energy landscape. The country satisfies 100 percent of its gasoline needs with imports and 99 percent of the fuel imported is earmarked for the road vehicle transport sector. Although Georgia sources its gasoline from a diverse group of countries, with nearly twenty nations contributing to its annual gasoline imports, the supply predominantly originates from a select few markets: Bulgaria, Romania, and Russia. In the last decade, these markets have almost yearly accounted for over 80 percent of Georgia’s total gasoline imports. Furthermore, Russia’s share has substantially increased in recent years, amounting to almost 75 percent of all gasoline imports in 2023. The primary reason behind Russia’s increased dominance in Georgia’s gasoline imports is the competitive pricing of Russian gasoline, which between January and August in 2023 was almost 50 percent cheaper than Bulgarian gasoline and 35 percent cheaper than Romanian gasoline (National Statistics Office of Georgia, 2023). Given the dominance of Russian gasoline in Georgia, the end-user (retail) prices of gasoline in Georgia, are closer to gasoline prices in Russia than EU gasoline prices (see Figure 1).
Figure 1. End-user Gasoline Prices in Georgia, Russia and the EU, 2013-2022.
Source: International Energy Agency, 2023.
However, while the gasoline prices increased steadily in 2020-2022 in Russia, gasoline prices in Georgia increased sharply in the same period. This more closely replicated the EU price dynamics rather than the Russian one. The sharp price increase in gasoline raised concerns from the Georgian National Competition Agency (GNCA). According to the GNCA one possible reason behind the sharp increase in gasoline prices in Georgia could be anti-competitive behaviour among the five major companies within the gasoline market. Accordingly, the GNCA investigated the behaviour of major market players during the first eight months of 2022, finding violations of the Competition Law of Georgia. Although the companies had imported and were offering consumers different and significantly cheaper transport fuels compared to fuels of European origin, their retail pricing policies were identical and the differences in product costs were not properly reflected in the retail price level. GNCA claims the market players coordinated their actions, which could have led to increased gasoline prices in Georgia (National Competition Agency of Georgia. (2023).
Given that increased gasoline prices might lead to increased household expenditures for fuel, it is important to assess the potential impact of recent price developments on household’s budgets.
Exploring Gasoline Price Impacts
Using data from the Georgian Households Incomes and Expenditures Survey (National Statistics Office of Georgia, 2023), weekly household expenditures on gasoline and corresponding weekly incomes were computed. To evaluate the potential impact of rising gasoline prices on households, the ratio of household expenditures on gasoline to household income was used. The ratios were calculated for all households, grouped in three income groups (the bottom 10 percent, the top 10 percent and those in between), over the past decade (see Figure 2).
Figure 2. Expenditure on Gasoline as Share of Income for Different Income Groups in Georgia, 2013-2022.
Source: National Statistics Office of Georgia, 2023.
Figure 2 shows that between 2013 and 2022, average households allocated 9-14 percent of their weekly income to gasoline purchases. There is no discernible increase in the ratio following the energy crisis in 2021-2022.
Considering the different income groups, the upper 10 percent income group experienced a slightly greater impact from the recent rise in gasoline prices (the ratio increased), compared to the overall population. For the lower income group, which experienced a rise in the proportion of fuel costs relative to total income from 2016 to 2021, the rate declined between 2021 and 2022. Despite the decline in the ratio for the lower-level income group, it is noteworthy that the share of gasoline expenditure in the household budget has consistently been high throughout the decade, compared to the overall population and the higher-level income group.
The slightly greater impact from the rise in gasoline prices for the upper 10 percent income group is driven by a 4 percent increase in nominal disposable income, paired with an 8 percent decline in the quantity of gasoline (Figure 3) in response to the 22 percent gasoline price increase. Clearly, for this income group, the increase in disposable income was not enough to offset the increase in the price of gasoline, increasing the ratio as indicated above.
For the lower 10 percent income group, there was a 23 percent increase in nominal disposable income, paired with a 9 percent decline in the quantity of purchased gasoline (Figure 3) in response to the 22 percent gasoline price increase . Thus, for this group, the increase in disposable income weakened the potential negative impact of increased prices, eventually lowering the ratio.
Figure 3. Average Gasoline Quantities Purchased, by Household Groups, per Week (In Liters) 2013-2022.
Source: National Statistics Office of Georgia, 2023.
Conclusion
The Georgian energy market is currently fully dependent on imports, predominantly from Russia. While sharp increases in petrol prices have been observed during the last 2-3 years, they do not seem to have significantly impacted Georgian households’ demand for gasoline. Noteworthy, the lack of impact from gasoline price increases on Georgian households’ budgets, as seen in the calculated ratio (depicted in Figure 2), can be explained by the significant rise in Georgia’s imports from the cheap Russian market during the energy crisis years. Additionally, according to the Household Incomes and Expenditures survey, there was in 2022 an annual increase in disposable income for households that purchased gasoline. However, the data also show that low-income households spend a high proportion of their income on gasoline.
Although increased prices did not significantly affect Georgian households, the extremely high import dependency and the lack of import markets diversification poses a threat to Georgia’s energy security and general economic stability. Economic dependency on Russia is dangerous as Russia traditionally uses economic relations as a lever for putting political pressure on independent economies. Therefore, expanding trade and deepening economic ties with Russia should be seen as risky. Additionally, the Russian economy has, due to war and sanctions, already contracted by 2.1 percent in 2022 and further declines are expected (Commersant, 2023).
Prioritizing actions such as diversifying the import market to find relatively cheap suppliers (other than Russia), closely monitoring the domestic market to ensure that competition law is not violated and market players do not abuse their power, and embracing green, energy-efficient technologies can positively affect Georgia’s energy security and positively impact sustainable development more broadly.
Fueling Concerns: The True Cost of Transportation in Latvia
In May 2020, as the Latvian Covid-19 crisis began, Latvia’s gasoline price was 0.99 EUR per liter. By June 2022, amid the economic effects from Russia’s war on Ukraine, the price had soared to a record high 2.09 EUR per liter, sparking public and political debate on the fairness of fuel prices and potential policy actions.
While gas station prices are salient, there are several other more hidden factors that affect the real cost of transportation in Latvia. This part of the policy paper sheds light on such costs by looking at some of its key indicators. First, we consider the historical price of transport fuel in Latvia. Second, we consider the cost of fuel in relationship to average wages and the fuel type composition of the vehicle fleet in Latvia.
The Price of Fuel in Latvia
Latvia’s nominal retail prices for gasoline (green line) and diesel (orange line) largely mirror each other, though gasoline prices are slightly higher, in part due to a higher excise duty (see Figure 1). These local fuel prices closely follow the international oil market prices, as illustrated by the grey line representing nominal Brent oil prices per barrel.
The excise duty rate has been relatively stable in the past, demonstrating that it has not been a major factor in fuel price swings. A potential reduction to the EU required minimum excise duty level will likely have a limited effect on retail prices. Back of the envelope calculations show that lowering the diesel excise duty from the current 0.414 EUR per liter to EU’s minimum requirement of 0.33 EUR per liter could result in approximately a 5 percent drop in retail prices (currently, 1.71 EUR per liter). This at the cost of a budget income reduction of 0.6 percent, arguably a costly policy choice.
In response to recent years’ price increase, the Latvian government opted to temporarily relax environmental restrictions, making the addition of a bio component to diesel and gasoline (0.065 and 0.095 liters per 1 liter respectively) non-mandatory for fuel retailers between 1st of June 2022 until the end of 2023. The expectation was that this measure would lead to a reduction in retail prices by approximately 10 eurocents. To this date, we are unaware of any publicly available statistical analysis that verifies whether the relaxed restriction have had the anticipated effect.
Figure 1. Nominal Retail Fuel Prices and Excise Duties for Gasoline and Diesel in Latvia (in EUR/Liter), and Nominal Brent Crude Oil Prices (in EUR/Barrel), January 2005 to August 2023.
Source: The Central Statistical Bureau of Latvia, St. Louis Federal Reserve’s database, OFX Monthly Average Rates database, The Ministry of Finance of Latvia, The State Revenue Service of Latvia.
The True Cost of Transportation
Comparing fuel retail prices to average net monthly earnings gives insight about the true cost of transportation in terms of purchasing power. Figure 2 displays the nominal net monthly average wage in Latvia from January 2005 to June 2023 (grey line). During this time period the average worker saw a five-fold nominal wage increase, from 228 EUR to 1128 EUR monthly. The real growth was two-fold, i.e., the inflation adjusted June 2023 wage, in 2005 prices, was 525 EUR.
Considering fuel’s share of the wages; one liter of gasoline amounted to 0.3 percent of an average monthly wage in 2005, as compared to 0.12 percent in 2023, with diesel displaying a similar pattern. Thus, despite recent years’ fuel price increase, the two-fold increase in purchasing power during the same time period implies that current fuel prices may not be as alarming for Latvian households as they initially appeared to be.
Figure 2. Average Nominal Monthly Net Wages in Latvia and Nominal Prices of One Liter of Gasoline and Diesel as Shares of Such Wages (in EUR), January 2005 to June 2023.
Source: The Central Statistical Bureau of Latvia.
Another factor to consider is the impact of technological advancements on fuel efficiency over time. The idea is simple: due to technological improvements to combustion engines, the amount of fuel required to drive 100 kilometers has decreased over time, which translates to a lower cost for traveling additional kilometers today. An EU average indicator shows that the fuel efficiency of newly sold cars improved from 7 liters to 6 liters per 100 km, respectively, in 2005 and 2019. While we lack precise data on the average fuel efficiency of all private vehicles in Latvia, we can make an informed argument in relation to the technological advancement claim by examining proxy indicators such as the type of fuel used and the average age of vehicles.
Figure 3 shows a notable change in the fuel type composition of the vehicle fleet in Latvia. Note that the decrease in the number of cars in 2011 is mainly due to a statistical correction for unused cars. At the start of the 21st century, 92 percent of Latvian vehicles were gasoline-powered and 8 percent were diesel-powered. By 2023, these proportions had shifted to 28 percent for gasoline and 68 percent for diesel. Diesel engines are more fuel efficient, usually consuming 20-35 percent less fuel than gasoline engines when travelling the same distance. Although diesel engines are generally pricier than their gasoline counterparts, they offer a cost advantage for every kilometer driven, easing the impact of rising fuel prices. A notable drawback of diesel engines however, is their lower environmental efficiency – highlighted following the 2015 emission scandal. In part due to the scandal, the diesel vehicles growth rate have dropped over the past five years in Latvia.
Figure 3. Number of Private Vehicles by Fuel Type and the Average Age of Private Vehicles in Latvia, 2001 to 2023.
Source: The Central Statistical Bureau of Latvia, Latvia’s Road Traffic Safety Directorate.
Figure 3 also shows that Latvia’s average vehicle age increased from 14 years in 2011 to 15.1 years in 2023. This is similar to the overall EU trend, although EU cars are around 12 years old, on average. This means that, in Latvia, the average car in 2011 and 2023 were manufactured in 1997 and 2008, respectively. One would expect that engines from 2008 have better technical characteristics compared to those from 1997. Recent economic research show that prior to 2005, improvements in fuel efficiency for new cars sold in the EU was largely counterbalanced by increased engine power, enhanced consumer amenities and improved acceleration performance (Hu and Chen, 2016). I.e., cars became heavier, larger, and more powerful, leading to higher fuel consumption. However, after 2005, cars’ net fuel efficiency started to improve. As sold cars in Latvia are typically 10-12 year old vehicles from Western European countries, Latvia will gradually absorb a more fuel-efficient vehicle fleet.
Conclusion
The increase of purchasing power, a shift to more efficient fuel types and improvements in engine efficiency have all contributed to a reduction of the overall real cost of transportation over time in Latvia. The recent rise in fuel prices to historically high levels is thus less concerning than it initially appears. Moreover, a growing share of cars will not be directly affected by fuel price fluctuations in the future. Modern electric vehicles constitute only 0.5 percent of all cars in Latvia today, however, they so far account for 10 percent of all newly registered cars in 2023, with an upward sloping trend.
Still, politicians are often concerned about the unequal effects of fuel price fluctuations on individuals. Different car owners experience varied effects, especially when considering factors like income and location, influencing transportation supply and demand.
First, Latvia ranks as one of the EU’s least motorized countries, only ahead of Romania, with 404 cars per 1000 inhabitants in 2021. This lower rate of vehicle ownership is likely influenced by the country’s relatively low GDP per capita (73 percent of the EU average in 2022) and a high population concentration in its capital city, Riga (32 of the population lives in Riga city and 46 percent in the Riga metropolitcan area). In Riga, a developed public transport system reduces the necessity for personal vehicles. Conversely, areas with limited public transport options, such as rural and smaller urban areas, exhibit a higher demand for personal transportation as there are no substitution options and the average distance travelled is higher than in urban areas. Thus, car owners in these areas tend to be more susceptible to the impact of fuel price volatility.
Second, Latvia has a high Gini coefficient compared to other EU countries, indicating significant income inequality (note that the Gini coefficient measures income inequality within a population, with 0 representing perfect equality and 1 indicating maximum inequality. In 2022, the EU average was 29.6 while Latvia’s Gini coefficient was 34.3, the third highest in the EU). With disparities in purchasing power, price hikes tend to disproportionately burden those with lower incomes, making fuel more costly relative to their monthly wages.
These income and location factors suggest that inhabitants in rural areas are likely the most affected by recent price hikes. Distributional effects across geography (rural vs urban) are often neglected in public discourse, as the income dimension is more visible. But both geography and income factors should be accounted for in a prioritized state support, should such be deemed necessary.
References
- Commersant. (2023). Economic dependence on Russia is growing rapidly – reasons and risks. Commersant.
- Drivkraft Sverige. (2023). Drivkraft Sverige: Data Set. drivkraftsverige.se/statistik/priser/bensin/
- Hu, K. and Chen, Y. (2016). Technological growth of fuel efficiency in European automobile market 1975–2015. Energy Policy, 98, pp.142-148.
- IEA. (2021). Fuel Consumption of Cars and Vans. Tracking Report. International Energy Agency.
- International Energy Agency. (2023). End-Use Prices Data Explorer. https://www.iea.org/data-and-statistics/data-tools/end-use-prices-data-explorer?tab=Overview
- National Competition Agency of Georgia. (2023). Regarding the investigation carried out in accordance with the order of the Chairman of the National Competition Agency of Georgia dated August 16, 2022 N04/165.
- National Statistics Office of Georgia. (2023). External Trade Portal. Retrieved from https://ex-trade.geostat.ge/en
- National Statistics Office of Georgia. (2023). Households Incomes and Expenditures Survey. https://www.geostat.ge/en/modules/categories/128/databases-of-2009-2016-integrated-household-survey-and-2017-households-income-and-expenditure-survey
- Sgaravatti, G., Tagliapietra, S., & Zachmann, G. (2022). National policies to shield consumers from rising energy prices. Bruegel Datasets.
- Statistics Sweden. (2023). Average hourly wage statistics. http://www.statistikdatabasen.scb.se
- Trafikverket. (2023). Vägtrafikens utsläpp 2022. Technical report. Swedish Transport Administration.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Georgian Economy and One Year of Russia’s War in Ukraine: Trends and Risks
Russia’s invasion of Ukraine profoundly impacted the global economy, immediately sending shockwaves across the globe. The attack of a country that was once a major energy supplier to Europe on the country which was one of the top food exporters in the world, sent food and fuel prices spiralling, causing major energy shortages and the prospect of protracted recession in the United States and the European Union.
The unprovoked and brutal aggression resulted in nearly universal condemnation and widespread sanctions placed on Russia by the United States, the EU, and other Western allies. Financial sanctions were perhaps the most unexpected and significant with the potential for immediate impact on Russia’s neighbours, including those that did not formally join the sanctions regime. In addition to sanctions, the major consequence of the war was mass migration waves, particularly from Ukraine, but also from Russia and Belarus to neighbouring countries.
At the start of the war, it was expected that the Georgian economy would be severely and negatively impacted for the following reasons:
- First, as a former Soviet republic, Georgia historically maintained close economic trade ties with both Russia and Ukraine. The ties with Russia have weakened considerably in the wake of the 2008 Russo-Georgian war but remained significant. Russia was the primary market for imports of staple foods into Georgia, such as wheat flour, maize, buckwheat, edible oils, etc. Russia and Ukraine were both important export markets for Georgia. Russia was absorbing about 60 percent of Georgian wine exports and 47 percent of mineral water exports, while Ukraine was one of the leading importers of alcohol and spirits from Georgia (46 percent of Georgia’s exports). Tourism and remittances are other areas where Georgia is significantly tied to Russia and somewhat weaker to Ukraine. Before the pandemic, in 2019 Russia accounted for 24 percent of all tourism revenues, while Ukraine for 6 percent. Remittances from Russia accounted for 16.5 percent of total incoming transfers in 2021.
- Second, while the Georgian government chose to largely keep a neutral stance on the war (announcing at one point that they would not join or impose sanctions against Russia), the main financial and trade international sanctions were still in effect in Georgia due to international obligations and close business ties with the West. These factors were reinforced by strong support for Ukraine among the Georgian population, where the memory of the Russian invasion of Georgia in 2008 remains uppermost.
- In addition, Georgia is a net energy importer, and while the dependence on energy imports from Russia is not significant, the rising prices would have affected Georgia profoundly.
Original publication: This policy paper was originally published in the ISET Policy Institute Policy Briefs section by Yaroslava Babych, Lead Economist of ISET Policy Institute. To read the full policy paper, please visit the website of ISET-PI.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Rebuilding Ukraine: The Gender Dimension of the Reconstruction Process
The post-war reconstruction of Ukraine will have to comprehensively address a number of objectives to set the country on a path of stable, sustainable and inclusive growth. In this Policy Paper we argue that the principles of “building-back better” need to take the gender dimension under consideration. While the war has exposed women and men to different risks and challenges, various types of gender inequality were also pervading the Ukrainian society prior to it. Gender responsiveness in the preparation, design and execution of reconstruction programs is essential to ensure fair and effective allocation of the coming massive inflow of resources in the reconstruction effort. We argue that the principles and implementation mechanisms developed under the gender responsive budgeting (GRB) heading are suitable to apply in the process. We also document that the principles of GRB have in recent years become well established in Ukrainian public finance management and point out areas where the application of a GRB approach will be of particular importance.
Introduction
In August 2022, in the midst of the full-scale Russian invasion, the Ukrainian government adopted the State Strategy for ensuring equal rights and opportunities for women and men for the period until 2030 and approval of the operational plan for its implementation for 2022-2024 (Cabinet of Ministers of Ukraine, 2022), reaffirming its commitment to promote gender equality in Ukraine with a focus on empowering women and eliminating gender-based discrimination in all areas of life. The Strategy follows a number of earlier legislative initiatives that had placed gender equality at the center of Ukrainian public policy and included a comprehensive approach to the design of fiscal policy at the central and local government level, adopting the principles of gender responsive budgeting (GRB). Given substantial gender gaps in numerous areas of life in the Ukrainian society these principles will have to be considered in the future reconstruction process to address such disparities. Following the overall guidance presented by the authors of the CEPR Report published in late 2022, titled “Rebuilding Ukraine: Principles and policies” (Gorodnichenko et al., 2022), this Policy Paper examines some key dimensions of the future reconstruction of Ukraine from the perspective of gender equality with a focus on consistent and effective adoption of the principles of GRB.
Gorodnichenko et al. (2022) noted the critical importance of thinking already today about how Ukraine will rebuild after the war is over – “advanced planning and preparations now will save lives and increase chances of success (…) these steps will give hope to millions of Ukrainians that after the horrors of the war there is light at the end of the tunnel”. We argue, that if the reconstruction is to result in stable, sustainable development and bring tangible benefits to all Ukrainians, the principles of “building-back better” need to take the gender dimension under consideration. This is important for efficiency as well as equality reasons. Such an approach is fully consistent with the 2022 State Strategy which recognizes that gender equality is not only a human right but also a driver of economic growth and social development. The Strategy also provides a framework for mainstreaming gender into government policies and programs, including the budget, and recognizes the importance of gender budgeting as a tool for promoting gender equality and ensuring that public resources are allocated in a fair and equitable manner. Different forms of gender inequality permeated Ukrainian society before the war: while women were more educated than men, they were less likely to participate in the labor force, were severely under-represented in senior positions in business and politics as well as in fast-developing sectors such as information and communication technology, were earning lower wages, and were more likely to be victims of gender-based violence (see, e.g. World Economic Forum, 2021). The war has also exposed women and men to different risks and challenges (see, e.g., Berlin Perrotta and Campa, 2022). Gender responsiveness in the preparation, design and execution of the reconstruction programs is crucial to ensure fair and effective allocation of the vast amount of resources that will be mobilized through the reconstruction effort, providing a unique opportunity to address pre-war and war-related gender inequalities. We argue that the principles and implementation mechanisms developed under the heading of gender responsive budgeting are suitable tools to apply in the process. There are numerous examples from various post-disaster reconstruction experiences showing how sensitivity along the gender dimension can determine the success or failure of specific initiatives, and how thinking in advance along gender equality lines can help address the change from an ineffective and unfair status quo, to successfully “build-back better” (see Box 1).
The dimensions of post-war reconstruction of Ukraine covered in Gorodnichenko et al. (2022) range from necessary changes in governance, through reforms in the business and finance environment, energy and transportation infrastructure, as well as the labor market, the education and the healthcare system, to a discussion of the structure most efficient to deliver international aid. The Report offers an invaluable blueprint for peace-time reconstruction and development of Ukraine and constitutes a crucial reference point for the discussion about the efficient use of resources necessary to ensure rapid and sustainable development of the country. Below we build on its main principles, examine them through a gender lens and apply a gender responsive budgeting approach to highlight the areas where it can be used at different stages of the reconstruction process.
In what follows we draw on the growing literature in the fields, among others, of political economy, development, education and labor economics, that examines the importance of gender diversity and identifies implications of gender inequalities for socio-economic outcomes at the micro and the macro level. On the basis of this literature, we point out the dimensions of the reconstruction process where a gender responsive approach can be particularly beneficial, and specify the stages of the process where the principles of gender responsive budgeting can be effectively applied to ensure efficient and fair distribution of recovery resources. The paper begins with a brief introduction to gender budgeting (Section 2), followed by three sections focusing on key categories of the reconstruction. First, in Section 3, we discuss how a gender responsive approach can shape governance reforms in the post-war period. In Section 4 we examine how gender sensitivity combined with the principles of GRB can influence the allocation of recovery funds in the process of physical rebuilding after the war, as well as the design of the physical environment. Finally, Section 5 highlights the crucial role of human capital in post-war development and points out a number of areas where reconstruction policies might have to be carefully drafted, taking into consideration the specific needs and requirements of women and men. We stress throughout that the concept of gender budgeting and gender responsiveness has been exercised in Ukraine for some time and that it is well rooted in Ukrainian public policy making. These principles should thus come naturally to representatives of key institutions in the discussion of plans for the country’s reconstruction and their execution.
2. Applying Gender Responsive Budgeting Principles to the Process of Post-war Reconstruction
At the heart of gender responsive budgeting lies the recognition of the potential of financial and fiscal policies to influence gender disparities. Gender budgeting integrates “a clear gender perspective within the overall context of the budgetary process through special processes and analytical tools, with a view to promoting gender-responsive policies” (Downes et al. 2017). It is aimed at ensuring that fiscal policies and public financial management practices and tools are formulated and implemented with a view to promote and achieve gender equality objectives, and that adequate resources for achieving them are allocated (IMF, 2017). For GRB to be effective, gender considerations ought to be included in all the stages of the budget cycle, including:
- the setting of fiscal policy goals and targets
- the preparation of the annual budget and its approval by the legislature
- the control and execution of the approved budget
- the collection of revenues, the preparation of accounts, and financial reports
- the independent oversight and audit of the budget
At each stage of the process, different tools have been developed to ensure that discussion on the gender impact of a specific fiscal policy will constitute an integral part of budget decision-making, execution and reporting. These tools include documents ensuring that spending ministries and agencies are fully briefed on the legal and administrative procedures to be followed in implementing gender responsive budgeting as well as on the requirements to include gender-relevant indicators in budget requests, to provide data disaggregated by sex, or to request specific budgetary allocations for gender-related programs or projects (Budlender, 2015). Moreover, gender budget statements can be published with the budget document as strategic tools to implement gender-responsive policies by allocating adequate resources to reach strategic goals and measuring impact and results. Gender budgeting also includes requirements for gender-impact assessment of the potential direct and indirect effect of policy proposals on gender equality and more broadly on different groups in the society. The regulations may require such assessments to be made prior to implementation (ex-ante assessment) as well as after the roll out of the policies (ex-post evaluation).
The principles of GRB originated in the 1980s in the Australian government in the form of the so-called ‘Women’s Statement’. The principles were applied more broadly in transition and developing countries with support of UN Women and numerous NGOs and research institutions. In recent years, mainly as a result of recognition of the effectiveness of GRB from international financial institutions, such as the IMF, the World Bank and the OECD, the approach has been more firmly integrated with other existing budget tools. It has thus become much more common as a standard technical budget instrument in numerous developed and developing countries (For more details on the development of GRB theory and practice see for example: Budlender et al. 2002; O’Hagan and Klatzer 2018, and Kolovich 2018). Currently over ninety countries around the world apply some form of GRB. While in most of them its use has not been systematized and fully integrated in the overall budget process, countries such as Australia, Austria, Canada and the Spanish province of Andalusia apply GRB consistently across all levels of government and systematically monitor its execution. Ukraine is also among the countries that in recent years have made rapid progress towards comprehensive integration of GRB in its public policy (see Box 2).
The Ukrainian government firmly upheld the principles of GRB after the Russian invasion in February 2022, at a time when one might think that gender equality considerations would lose priority in the management of public finances. Throughout the war the Ministry of Finance has continued to ask line ministries to provide gender responsive budget requests, and fiscal policy has been monitored to ensure informed policies with regard to the distribution of the limited crisis-budget funds among different groups in society. These policies together with the State Strategy for ensuring equal rights and opportunities for women and men for the period until 2030 and approval of the operational plan for its implementation for 2022-2024 (Cabinet of Ministers of Ukraine, 2022), adopted in August 2022, reaffirm the Ukrainian government’s commitment to gender responsive policy making and lay the foundations for the application of such an approach during the post-war recovery process. Effective implementation of GRB principles requires specific knowledge and expertise, and the lack of which has often been a key challenge in meaningful integration of gender analysis in financial processes and documents. Competence in finance among civil servants in line ministries and the Ministry of Finance needs to be combined with gender expertise in sector budget analysis. Development of the combination of these competencies in Ukraine in recent years bodes well for integrating the GRB principles in the process of recovery and reconstruction.
At different stages of the reconstruction process the needs of various social groups along the gender dimension as well as others such as age, disability or religion, ought to be taken into account. To ensure fair and effective use of recovery funds the process should consider the following principles:
- Participation: consultation with different population groups by gender, age, disability, profession, and other characteristics should enable assessment of the priority objectives for reconstruction in specific localities.
- Equity: there is always a risk of neglecting the needs of different categories of people (e.g. people with disabilities) while focusing on the needs of the majority of the population.
- Addressability: it is important to realize that a reconstruction program aimed at “everyone” risks significant misallocation of funds, reaching “no one”. A careful approach needs to consider different economic, cultural, recreational, educational and service needs of well-specified groups of individuals.
The planning and execution of the reconstruction process could follow the lines of intersectional gender budgeting analysis which focuses on the analysis of how different budget measures impact different groups of citizens – women and men – taking into account their disability status, age, place of residence and other variables. Taking as an example a foot bridge reconstruction, a gender responsive analysis would enable information on the citizens in the area, their needs, and their use of the infrastructure. The reconstructed bridge should benefit pedestrians, often women who might sell their products at the marketplace, or whose access to various services requires to cross the river. The analysis would also consider employment levels among women in the reconstruction of the bridge, etc. Considering the example of a school reconstruction, the process needs to consider if there are children in the area and/or whether they will return to that area with their families; whether there is/will be sufficient access to transportation and whether – in case the school is not reconstructed – the children can conduct their education in other schools in the area. Reconstructed educational institutions should consider gender-sensitive infrastructure and account for design of facilities, such as ramps, to address the needs of individuals with disabilities.
The Ukrainian government is strongly committed to supporting gender equality trough, among other means, gender mainstreaming processes with well-established legal frameworks for gender budgeting. Reconstruction efforts shall acknowledge and use the existing analytical tools in Ukraine to ensure that donor funds, projects and initiatives achieve their objective of sustainable and equitable development. Effective and fair distribution of the reconstruction funds will require that substantial care is paid to the analysis of the beneficiaries at the stages of planning and during reconstruction.
3. The Gender Perspective on Governance in Post-war Reconstruction
The institutional arrangements adopted both at the national level in Ukraine and at the international level for the administration and distribution of reconstruction funds will be of crucial importance to the success of recovery efforts and their translation into rapid and sustainable development of the country. In this Section we take the gender perspective on these two dimensions of governance. First, we argue that, at the national level, improvements could be made in the Ukrainian electoral system to extend women’s access to elected political positions in order to increase women’s influence in the overall process of policy-making. Drawing on international evidence we argue that this would not only further ensure support for the application of the gender budgeting approach, but it would also help selecting more competent and non-corruptible politicians. Second, we build on the proposal in Mylovanov and Roland (2022) to create an EU-affiliated agency that would manage the funds from multilateral donors (the “Ukraine Reconstruction and European Integration Agency” – UREIA) and examine how the GRB principles should be applied to efficiently integrate them with other dimensions of such an agency’s activities.
3.1 Increasing Women’s Representation in Ukrainian Political Institutions
In international comparisons, Ukraine lags behind in terms of women’s representation in politics, with gender gaps persisting in national as well as local institutions – in spite of some recent progress. It is likely that a large presence of women in political institutions would help addressing concerns regarding the effective implementation of the gender budgeting principles. Local and central politicians could promote ex-post evaluations of local and national projects to verify that the intended gender-breakdown of beneficiaries were reached, and they could consider and implement corrective measures when unintended balances were found. In this respect we note, once again, that key decision-makers in Ukraine have shown strong commitment to the principles of gender-budgeting, by supporting and prioritizing its implementation – even during the dramatic circumstances of the Russian invasion (see Box 2). However, the commitment to gender-budgeting among policy-makers in Ukraine would likely become even stronger with a larger presence of women among them. The gender composition of political institutions has been shown to affect the allocation of public funds. For example, Chattopadhyay and Duflo (2004) find that female village chiefs in India tend to spend more money in budgetary areas that appear to be especially important for female villagers. Similarly, an analysis of the bills proposed by French legislators shows that women tend to work more on so called “women’s issues” (Lippmann, 2022). We would therefore expect female politicians to be more likely to support an effective implementation of gender-budgeting principles. Moreover, we expect project proposals crafted by more gender equal groups to be more representative of both women and men’s needs and priorities, which in turns should make the reconstruction process more balanced across different areas and allow it to address numerous inefficiencies of the pre-war status quo (see Box 1).
It is also worth noting that some literature in economics and political science documents that, as more women are elected to political institutions, the average “quality” of elected politicians tends to increase (Besley et al., 2020; Baltrunaite et al., 2018). Moreover, female policy-makers are less likely to engage in corruption and patronage (Brollo and Troiano, 2018; Dollar et al., 2001; Swamy et al., 2001), a dimension which will certainly be closely monitored at an international level, and one which is key in ensuring international public support for the reconstruction. Policies that increase women’s representation in politics could thus also help improve the quality of democratic institutions, a development that is of utmost importance in the face of Ukraine’s ambition to join the EU. While the existing empirical evidence does not unanimously link women’s representation in politics to more women-friendly budgetary expenditures or better institutions, it is worth noting that there is also no evidence of any major drawback from policies that help women accessing political institutions. Increasing women’s representation in Ukrainian political institutions would also be in line with the argument that bringing a critical mass of new people in politics will help counteracting “oligarchizing” tendencies (Mylovanov and Roland, 2022) in the development of Ukrainian democracy. Numerous options are available in terms of changes in the political ‘rules of the game’ to help address the current underrepresentation of women in Ukrainian political institutions. In Box 3 we list a few of these options.
3.2 Gender Budgeting in the Work of UREIA
Gender-budgeting in the reconstruction process requires an ex-ante gender-analysis of the different projects being financed, which relies on the availability of sex-disaggregated data and specialized skills. Given that gender-budgeting has been part of Ukraine public finance system for a number of years, there is likely a good supply of trained personnel who can work together with international experts right from the beginning of the reconstruction. Conducting the ex-ante work of gender assessment within the reconstruction agency should speed up the process that we envision, as the tasks involved will be routinely sourced to the same teams of skilled individuals who will analyze different projects through the gender-budgeting lens. The agency should then also be in charge of a centralized evaluation of the various gender-analysis results. This work of overview will provide a comprehensive picture of who is reached by the entire pool of available reconstruction funds, thus allowing to distinguish project-specific gender differences – which can be justified by specific needs being targeted at project-level – from a systematic bias toward one of the genders in the overall reconstruction process. A clear picture of who are the beneficiaries of specific reconstruction initiatives, including statistics disaggregated by gender and potentially by other characteristics, may play a key role in reassuring the Ukrainian society that the recovery funds are used to benefit a broad spectrum of the population, as well as in legitimizing the use of these funds in the eyes of the international donor community.
The conclusions of the international literature on the implications of women’s representation in political institutions for the scope of realized public initiatives mentioned in Section 3.1, pertain also to the functioning of the UREIA. The very design and composition of the agency’s staff ought to ensure gender diversity in its ranks at all levels of seniority to safeguard both the highest quality of the work being carried out by UREIA, as well as the appropriate scope of projects undertaken by the agency, most preferably supported by the principles of GRB. Recent empirical studies indicate that the personal traits of public procurement actors, such as their abilities or competencies, may play a key role in influencing procurement practices and outcomes (see, e.g., Best, Hjort and Szakonyi, 2022 or Decarolis et al., 2020), and gender-based variations in personal characteristics such as risk aversion, ethical values, and others have been demonstrated to be significant, including in the context of corruption (see a review in Chaudhuri, 2012).
4. Post-war Reconstruction: the Gender Perspective on Rebuilding the Physical Environment
The physical environment provides the background for the functioning of societies and at the same time, through its physical durability, imposes a long-lasting legacy that may determine the dynamics of social processes well beyond the time of construction. It shapes the organization of cities, the location and efficiency of public infrastructure, as well as the transport networks and it is also an influential precondition and determinant of behavior and outcomes. There is plenty of examples of how the physical environment affects economic outcomes, both at the individual and societal level. The presence of large infrastructures such as ports or highways determined the process of agglomeration (Ganapati, 2021; Faber, 2014), while paved roads and irrigation canals affect local development and structural transformation of rural areas (Aggarwal, 2018; Asher et al., 2022). Availability of urban green spaces has implications for health outcomes and violence (Kondo et al., 2018) and the safety of commuting routes affects girls’ college choices (Borker, 2021). Moreover, elements of the built environment may also affect social norms (Josa and Aguado, 2019; Baum and Benshaul-Tolonen, 2021).
The post-war reconstruction of the physical environment will shape the structure of Ukrainian cities and villages for decades to come, and hence the process ought to consider very broad aspects of influence of the built environment, with a clear focus on the identity of its users and beneficiaries. We firmly believe that the application of the principles of GRB will facilitate effective use of recovery resources and at the same time help address the inefficiencies of the pre-war status quo to create an environment which fairly takes into consideration the interests of both men and women. With respect to the physical environment in particular, obvious path dependencies limit swift changes to benefit women and other marginalized groups (Hensley, Mateo-Babiano, and Minnery 2014) and from this perspective the post-war recovery process can be thought of as a unique opportunity to address a number of imbalances.
4.1 Gender Mainstreaming in Urban Planning
It has been pointed out that gender mainstreaming in urban planning remains inadequate, which has been linked to the gender bias in the planning industry, both in terms of representation – who plans the cities affects how the cities are planned (Beall, 1996) – and the dominant culture (Sahama et al., 2012). It seems intuitive that a planning approach which takes into account how beneficiaries of the design are disaggregated by gender, and how the design affects the functioning of different groups, would result in an environment much more suited to the needs of these groups. The design should take into consideration different preferences with regard to employment, leisure, housing, open spaces, transportation, and the environment. Gender is relevant across all these issues in urban planning. Including more women in planning and decision-making might be the easiest way to ensure that such perspective is accounted for.
As we argue in Section 5, the effective use of Ukraine’s human capital will be essential for the success of its recovery process and further development. The built environment has important consequences in this realm and so, when rethinking cities, questions such as zoning, connectivity and mobility, as well as the quality of sidewalks and lighting need to be considered in relation to the necessity to juggle work, care for household members, and other daily duties (Grant-Smith, Osborne, and Johnson 2017). The rebuilt physical infrastructure will affect the lives of those who are particularly limited by safety concerns, and it will affect the quality of life of those who walk pushing a pram or supporting elderly relatives. These aspects have been shown to be particularly important for women, increasing their actual and perceived vulnerability when they travel around the city, cutting them off from after-dark activities (Ceccato et al., 2020), but also affecting life choices with a long-lasting impact (Borker, 2021). Utilizing Geographic Information Systems (GIS), satellite imagery and open data sources holds the promise of creating more effective methods for observing patterns of utilization of the city and incorporating a gender responsive approach along these lines in urban planning of reconstructed areas of Ukraine (Carpio-Pinedo et al., 2019).
4.2 Gender Sensitivity in the Design of Transport Infrastructure
Transport infrastructure is crucial to the development of society. When a large share of the infrastructure capital needs to be rebuilt or updated, as will be the case in Ukraine, this opportunity may be used to lay new foundations for both economic and social development. To make the most of such an opportunity, attention ought to be paid to a number of identified risks. Unequal resource distribution has been observed both in connection with new construction of infrastructure (MacDonald, 2005) and relocation of the same (Chandra, 2000; Unruh and Shalaby, 2012). The large stakes inherent in these projects can generate high incomes and rent-seeking leading to a deepening of inequalities and further marginalization of those already vulnerable from the conflict. As women have been particularly strongly affected by the war and the resulting internal displacement (Obrizan, 2022a), the reconstruction process ought to pay particular attention to the risks of exacerbating some unequal developments that emerged with the war. Women’s representation in budgeting, procurement, and decision-making might make these aspects more salient and facilitate their integration into the recovery process.
Mobility is connected with social inclusion, more general well-being and a higher quality of life (this literature is reviewed in Josa and Aguado, 2019). The transport infrastructure is particularly important from the point of view of gender equality as usage of transportation and transport mode preferences significantly vary across socio-economic groups, including by gender (Grieco and McQuaid, 2012; Ghani et al., 2016). In the reconstruction planning and rebuilding process the prioritization of public funding for roads, highways, and railways compared to slow modes, such as walking and cycling, should be put in relation to usage and preferences in different groups of the population. One way through which women are excluded, from mobility itself and from other economic outcomes that mobility would help to reach, such as education (Borker, 2021) and employment (Das and Kotikula, 2019), are safety concerns. In dozens of cities around the world, lack of safety and prevalence of sexual harassment in public transit has resulted in the creation of safe spaces to facilitate safer travel conditions for women (Kondylis et al., 2020). The reconstruction could put significant emphasis on the safety of public transportation which would benefit women in particular and facilitate their effective integration in the future aspects of socio-economic development.
4.3 The Gender Perspective in Increasing Energy Efficiency
One of the key focus points of post-war reconstruction will be rebuilding the energy infrastructure, which has, over the course of the war increasingly been a target of Russian bombing. This process will have to be accompanied by considerations of reorientation, in terms of the energy mix, with a focus on self-sufficiency and environmental sustainability, but also most likely of relocation. At the same time the country should pay significant attention to energy efficiency, which may significantly influence both the energy self-sufficiency of Ukraine and the environmental aspects of power and heating.
It is worth noting at this point that natural resources and their exploitation have significant implications for local communities with consequences from projects often spilling over to local attitudes, leading to gender inequalities through channels such as labor and marriage markets, environmental quality and health, fertility and violence (see a review in Baum and Benshaul-Tolonen, 2021). Both exploitation and new energy infrastructure projects – similar to other aspects of the build environment – will have to consider effective connection to the new urban and production mix, so that the energy infrastructure serves the new cities and the updated geographic distribution of various productive sectors, but also the impact that infrastructure positioning can have on surrounding communities. The presence of infrastructure may generate rents and inequality, and the same is true also for energy infrastructure.
The post-war reconstruction will also present a chance to substantially improve energy self-sufficiency through increased efficiency in energy consumption. Ukraine currently has an energy intensity in production that exceeds the EU average by a factor of 2.5. Although energy efficiency in industry and buildings represents the lion share of such gains, households’ consumption behavior has the potential to contribute substantially, both directly through the consumption of fuel and electricity, and indirectly through the consumption of goods and services (Bin and Dowlatabadi, 2005), as well as through the support for a green policy agenda (Douenne and Fabre, 2022). In this area women and gender-related attitudes might be particularly important. Recent literature claims that women tend to be more environmentally friendly than men, partly due to individual characteristics and attitudes considered more prevalent among women, such as risk aversion, altruism, and cooperativeness – important for environmental behaviors (Cárdenas et al., 2012 and 2014; Andreoni and Vesterlund, 2001). There is also empirical evidence that households where women have more decision power display higher energy-efficiency and energy savings (Li et al., 2019), while firms with more women in their board source significantly more energy from renewables (Atif et al., 2020). It might therefore prove instrumental that energy-efficiency policies directed to households (nudges, information/education, financial incentives) and firms respectively (including gender quotas in boards) take these aspects into account.
5. Post-war Reconstruction: the Gender Perspective on Rebuilding and Strengthening Ukraine’s Human Capital
The human cost of the Russian invasion of Ukraine, including the implications from the Russian occupation of Ukrainian territories since 2014, is immeasurable. The loss of lives, as well as the consequences of disabilities, physical injuries and mental trauma will scar the Ukrainian future for decades to come. The invasion has resulted also in massive displacement and emigration, as well as in the loss of numerous aspects of individual capacities. From the point of view of Ukraine’s reconstruction and future development, all these losses, apart from demonstrating dramatic individual human tragedies, need to be perceived as loss of an essential building block of socio-economic growth – human capital.
Successful post-war reconstruction of Ukraine and its long-term sustainable development can only be ensured if sufficient care is taken of areas which are key to the development and effective utilization of human capital. These cover, in particular but not exclusively, the areas of healthcare, education, research and the labor market and all of them have been extensively covered and discussed in Gorodnichenko et al. (2022, see chapters: 10, 11, 12, 13). Drawing on their general conclusions, we particularly focus on some of the gender aspects of human capital development in the context of planning Ukraine’s reconstruction. Highlighting gender aspects is sometimes misunderstood as being focused on achieving gender equality in numbers across domains. This is not our focus here. The starting point is to look at a number of empirical facts about actual conditions and, based on this, point to the importance of taking the gender dimension into account to achieve efficiency in the reconstruction process. Gender sensitivity seems particularly important in the area of human capital development, and given the fundamental role of human capital for growth (e.g., Barro, 2001; Squicciarini and Voigtländer, 2015; Goldin, 2016) it is essential for an effective use of reconstruction resources as well as for ensuring a cost-efficient, sustainable and fair process of redevelopment.
The reconstruction interventions we address in this Section are those in which the gender aspect is particularly salient. We categorize these under three broad overlapping headings: 5.1; supporting internally displaced individuals, returning international migrants, war veterans and other victims of conflict, 5.2; providing effective education and training to younger generations, and 5.2; reducing institutional constraints on labor market participation.
5.1 Supporting Internally Displaced, Returning International Migrants, War Veterans and Other Victims of Conflict
Forced internal displacement and international migration – apart from the resulting direct consequences for physical and mental health – comes with separation from family and local social networks, from jobs and schools as well as loss of physical and financial assets. According to UNWomen 7,9 million Ukrainians have been forced to leave the country and 90 percent of them are women with their children. Of the more than 5 million internally displaced 68 percent are women (as of Jan 2023; UNWomen, 2023). Many of those forced to move will either not be able to return home or will return to their localities devastated by the war along a number of dimensions.
Effective rebuilding and reconstruction will strongly rely on the input from these hundreds of thousands of individuals. We ought to bear in mind that a great majority of international war migrants are women, and supporting them in returning to Ukraine and in reintegration – often in places other than those they had left – will be of vital importance to the process of reconstruction. Significant care will also have to be taken of returning war veterans – most of whom are men, as well as victims of war related sexual violence – mostly women. Ukraine already counts more than 300,000 veterans from different armed conflicts on Ukrainian territory since 1992 – including 18,000 women or about 6 percent (Ministry of Veterans Affairs of Ukraine, 2022). According to the head of the Armed Forces of Ukraine, about 1 million are currently mobilized, with roughly 5 percent being women (Boyko, 2022). The Ministry of Social Policy of Ukraine (2022b) expects the number of veterans and their families to amount to 5 million. To support their involvement in the reconstruction process, short run interventions ought to address the following critical areas: housing and safety, physical and mental health, and active labor market policies. All these areas involve significant gender considerations.
a) Housing and safety
As many of the internally displaced and those returning to Ukraine from abroad will not be able to return to their homes, provision of safe and good quality housing will represent a major challenge in the reconstruction efforts. While ‘roof over your head’ is equally important for everyone, some aspects of the housing infrastructure, especially local safety and safe connectivity with other key locations, are of particular relevance to the wellbeing of women. Although already mentioned in in our discussion of reconstruction of the physical environment in Section 4, it is important to bear in mind that good quality housing and access to critical infrastructure and effective transportation networks have substantial implications for the effective ways of participation of different members of the society in its socio-economic activities. If the human capital of men and women is to be efficiently engaged in the reconstruction process and further developed, the physical context in which it will happen must be adjusted with the objectives of different groups in mind. Housing, neighborhood conditions, and safe transportation translate into access to jobs, training, education, and local services. The design of the physical reconstruction after the war ought to take these different perspectives into account along the lines of gender responsive budgeting to clearly delineate and correctly identify priorities for the allocation of recovery funds.
b) Physical and mental health support
It is clear that experiences from threat to one’s life and safety, the need to flee one’s home and search refuge, continued experience of insecurity, the direct exposure to terror and violence – including sexual violence – and war atrocities will leave a significant proportion of the Ukrainian population traumatized and in need of specialized mental health support. Additionally, numerous individuals will come out of the war with life-changing physical injuries, while to countless people the period of war will result in substantial neglect of common health problems which otherwise would have been taken care of. These dramatic consequences of war will have to be comprehensively addressed as part of the reconstruction effort to support the affected and vulnerable groups, with the aim to address both their physical and mental health deficiencies. The issues involved are too complex for a Policy Paper to deal with in detail – we can only highlight health as an area to be prioritized in the allocation of recovery funds. With that in mind it is important to stress that there are numerous examples in the public heath literature showing the significance of the gender perspective with regard to the efficient use of public resources and appropriate design of health interventions, taking into account the specific requirements of men and women both in physical and mental health (Abel & Newbigging, 2018; Chandra et al., 2019; Diaz-Granados et al., 2011; Judd et al., 2009; Oertelt-Prigione et al., 2017).
War veterans – primarily men – will be a group in need of particular concern and a comprehensive approach with regard to physical and mental health. Specific specialized support will have to be offered also to victims of conflict-related sexual violence – mostly women. The direct health support will often need to go along with education and training as well as assistance in such areas as housing and material conditions.
Already before the full-scale Russian invasion Ukraine had rolled out several programs in support of veterans from the ongoing 2014 conflict. These included establishing private or publicly co-funded therapy centers for treating posttraumatic stress disorder (Colborne, 2015) and creating organized groups of psychological and psychiatric specialists providing psychological assistance (Quirke et al., 2020). They also included conducting special trainings for general practitioners to provide mental health consultations to increase the overall capacity of Ukraine’s health care system to address mental health issues (Kuznetsova et al., 2019), and broadcasting national TV/social media awareness campaigns such as ‘Mental Health Awareness Week’ (Quirke et al., 2021). Since 2017, as part of the broader healthcare reform program, a thorough reform of the mental health services provision has been underway. The key identified challenges targeted with the reform were: securing human rights protection in mental health legislation, improving regulation of the mental healthcare sector and expanding delivery of mental health services outside of the institutionalized settings (The Ministry of Health of Ukraine, 2018; Weissbecker et al., 2017).
c) Active labor market policies (ALMP)
In precarious conditions in particular, women tend to be those responsible for care of elderly and children, which additionally contributes to disconnecting them from the labor market. It seems that large scale ALMP programs for displaced individuals and returning migrants will be essential to improve the match between skills and the local post-war labor market conditions.
With greater war time labor market disconnect among women, many of whom will have spent months without employment or in various forms of war-time subsistence work, ALMPs will be critical for many in the process of post-war reconstruction. Overview studies show that effectiveness of labor market interventions is generally positive for men and women (e.g. Card et al., 2010). These are often similar in size even though in settings with high employment gaps – such as in the case of Ukraine – the programs tend to be more effective for women (Bergman and van den Berg, 2008). Appropriate identification of skill shortages and provision of training can be an effective way of supporting the post-war Ukrainian labor market and the integration of women in particular. The design of these programs ought to pay special attention in order to avoid labor market stereotyping, to provide broad and integrated routeways to deliver the greatest pool of talent, and to ensure that men and women are appropriately matched to jobs suitable to their skills and abilities. Significant training programs should also be directed towards war veterans.
The skills training aspect of ALMPs has other important gender dimensions – women represent a large majority of Ukrainian teachers, and their skills can be utilized not only in schools but also in adult education and retraining, taking particular advantage of the extensive network of vocational education institutions. Similarly, around 83 percent of the country’s healthcare workers are women, and skills upgrading in the healthcare sector – especially focused on increasing the competence and skills of nurses to take over greater responsibilities for primary care – will constitute an important reform element in the Ukrainian healthcare sector (see Gorodnichenko et al., 2022, chapter 12).
5.2 Providing Effective Education and Training to Younger Generations
Ukrainian youth have in recent years faced a double blow to their educational development. The first one in the form of numerous Covid-19 pandemic related restrictions, followed by the disruption in their education process due to the Russian invasion. The latter especially affected those who had to flee their homes and leave their local schools, as well as those whose schools have been destroyed and rendered dysfunctional. However, many Ukrainian schools opted for or were forced to limit the extent of provided classes and/or provided some of the instruction online. According to UNICEF, the war in Ukraine has disrupted education for more than 5 million children (UNICEF, 2023). 60 percent of children have experienced different traumatic events such as separation from family and friends, moving to another region, shelling and bombing, having witnessed the death of relatives or loved ones, etc. In early 2023, 42 percent of children aged 3-17 studied online, 29 percent both online and in school/kindergarten, 26 percent attended educational institutions while 3 percent studied at home (Sociological Group Rating, 2023). As mounting evidence from the Covid-19 pandemic shows, such disruptions accumulate in the form of significant human capital losses (e.g., Gajderowicz et al., 2022, Contini et al., 2021) and post-war recovery will have to address these to minimize the losses to the pool of skills of the future Ukrainian work force.
Home schooling and school routines disrupted in various ways might, in particular in communities characterized by traditional gender norms, impose additional limitations on the education of girls who may be tasked with greater home and care responsibilities. Thus, while emphasis on catching up on effective learning will be of utmost importance for all students, from the point of view of gender equality, it will be particularly important to closely monitor the school coverage and return to standard school attendance among girls. As post-pandemic evidence from developing countries suggests this may be of particular relevance with regard to teenage students (Kwauk et al., 2021). Post-war recovery initiatives aimed at financial support for households ought to ensure that households with older children in particular do not need to trade off material conditions and schooling opportunities. This might call for programs designed to incentivize school attendance in particular among children in displaced families and for returning international migrants (Aygün et al., 2021).
The post-war reconstruction initiatives in education might also be a chance for the education system to be more forthcoming in promoting high skilled occupations among female students. The 2018 PISA study demonstrated that while Ukrainian 15-year-old girls and boys do equally well in mathematics and science, their objectives with regard to occupation – in particular in STEM areas – differ significantly (OECD, 2019).
5.3 Reducing Institutional Constraints on Labor Market Participation
In order to make most of the potential of the Ukrainian labor force in the process of post-war reconstruction, the plans ought to target various institutional constraints to labor market participation. In this respect the gender equality literature has stressed in particular the provision of early and pre-school childcare to facilitate employment of parents, and in particular of mothers (Addati et al., 2018; Attanasio et al., 2008; Azcona et al., 2020; Gammarano, 2020). Although much has been done during the past decades to improve women integration in the labor market, attitudes in the home and in the family care realm remain traditional and unbalanced (Babych et al., 2021; Obrizan, 2022b). This translates into an unequal division of care and work at home as well as participation in the labor market.
While childcare facilities have been shown to play a key role in supporting female participation in numerous contexts, they are going to be of particular importance to displaced families and returning international migrants, who may lack family support and social networks to organize informal care. Before the full-scale invasion, a relatively high proportion of children aged 3-5 and 5-6 (88 and 97 percent, respectively) were covered by institutional childcare (Ministry of Education and Science of Ukraine, 2021). Returning to such high levels of coverage will be an important element of the reconstruction process. Additionally, authorities should extend the coverage of childcare available to younger children, which in 2019 was much lower (18 percent).
Similarly, welfare arrangements in a broader sense are important to facilitate employment of all working age individuals, men as well as women. It is well established that in situations where government support is cut in various ways, it is typically the women who withdraw from the labor market to manage not just childcare but elderly care and other welfare functions (Mateo Díaz and Rodriguez-Chamussy, 2016). While a high proportion (54 percent) of people in Ukraine before the 2022 invasion declared that care duties should be equally divided between spouses, as many as 41 percent thought that it is the woman’s responsibility (Babych et al., 2021). This implies that it is still likely that, when faced with institutional and informal care constraints, it will be women who will be more likely to drop out of the labor market.
To facilitate effective reconstruction, high participation rates among both men and women will be of utmost importance. To achieve this, substantial reconstruction funding ought to be committed to ensure adequate care support directed both to parents of young children as well as to those with care responsibilities of older family members. Such support will be particularly important in localities with high numbers of internally displaced and returning international migrants. These needs should be correctly accounted for when planning the reconstruction process and allocation of funds, and the GRB approach is likely to be an essential instrument to ensure that objectives of different groups of the Ukrainian society are appropriately addressed.
Conclusions
Over the last few years, the Ukrainian government has introduced substantial reforms in the management of public finances with the aim of developing gender responsive procedures to ensure greater gender equality in the delivered outcomes. The government’s commitment was confirmed in August 2022 with the adoption of the State Strategy for ensuring equal rights and opportunities for women and men for the period until 2030 and approval of the operational plan for its implementation for 2022-2024 (Cabinet of Ministers of Ukraine, 2022). The implemented legislation and the experience from practicing gender responsive budgeting at different levels of government can prove to be an invaluable platform to be utilized in the post-war reconstruction process. Pre-war statistics from many areas of life in Ukraine demonstrated a high degree of inequality along the gender dimension. Gender gaps were high in employment, pay levels, the allocation of home and care responsibilities, and it could also be seen in senior positions in politics, company management, and academia. One of the many tragic consequences of the full-scale Russian invasion and the ongoing war is that these gaps are likely to grow.
If the post-war reconstruction process is to take the principles of “building-back-better” seriously, then, apart from many other dimensions which need to be considered (see Gorodnichenko et al., 2022), recovery planning and execution will also have to address various social inequalities, especially that along the gender dimension. As argued in this Policy Paper, to ensure fair and effective use of recovery funds, the reconstruction process should pay close attention to the identity of its beneficiaries, as well as the way decisions are being made. The authorities, including the central agency responsible for the reconstruction (e.g., UREIA, see Gorodnichenko et al., 2022), should take full advantage of existing tools and instruments of the gender responsive budgeting approach, as well as of an equitable representation within their ranks, and build on the basis of existing Ukrainian legislation and practice of gender budgeting (see Box 2). The reconstruction process will offer a unique chance to set Ukraine on the path of inclusive, stable and sustainable development. We have pointed out a number of areas in which the gender dimension will be particularly important – these include both the reconstruction and rebuilding of the physical environment as well as support and recovery of the full potential of Ukrainian citizens – old and young, men and women. The reconstruction of Ukraine will be a hugely challenging task, and it will have to involve massive resources. International support for channeling those funds to Ukraine and their effective use will depend on how effectively and how fairly they will be used. The application of gender responsive budgeting can help both in ensuring efficiency of allocation of the funds, and in strengthening the legitimacy for the provision of support by the international community.
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Gender Gap Widens During COVID-19: The Case of Georgia
Gender inequality has been a persistent (albeit steadily improving) problem for years. The COVID-induced crisis put women in a disproportionately disadvantaged position, jeopardizing decades of progress achieved towards equality between men and women. However, these effects of the pandemic were not universal across countries. This policy brief aims to evaluate the gender-specific effects of the COVID-19 crisis in Georgia, looking at labor market outcomes and entrepreneurial activities. As expected, the impact of the pandemic was not gender-neutral in this regard, being especially harmful for women. As the Georgian economy rebounds after the crisis, we show that the widened gender gaps are partially offset only in certain aspects. In order to countervail the disproportionate effects of the pandemic, targeted policy measures are needed to stimulate women’s economic activity.
Introduction
Past economic recessions, including the COVID-induced crisis, have never been gender-neutral (e.g., Liu et al., 2021; Ahmed et al., 2020). While economic crises are usually associated with disproportionate negative impacts on labor market outcomes of men compared to women, the impact of the crisis is, debatably, more severe for women-led businesses as compared to their male-led counterparts (e.g., Torres, 2021; Nordman and Vaillant, 2014; Grimm et al.,2012).
The disproportionate labor market outcomes of economic crises are claimed to be due to the fact that men are predominantly employed in cyclical sectors such as construction or manufacturing; therefore, women have to increase their employment during economic downturns as a means of within-family insurance (Alon et al., 2021). The recent COVID-induced crisis, due to its unique nature, turns out to be an exception in this regard. The pandemic and the subsequently-adopted measures primarily adversely affected contact-intensive sectors (where the worker is required to perform tasks in close physical proximity to other people) that predominantly employ women (Mongey, Pilossoph, and Weinberg 2020; Albanesi and Kim 2021). Moreover, large-scale lockdowns increased the burden of unpaid care, which is generally shouldered by women disproportionately (Babych, 2021), leaving less available time for them to work. It should be noted that gender gaps in the labor market were a persistent (albeit steadily improving) problem even before the pandemic (Eurofound, 2016). Therefore, COVID-19 poses a threat jeopardizing the progress achieved in this direction and worsening gender inequality.
COVID-19 brought unprecedented adverse consequences for not only employed workers but entrepreneurs as well. Increased unpaid care and housework pose additional burdens on female top managers, making women-led businesses more vulnerable to the crisis.
The unequal gender implications of the COVID-19 crisis have been widely debated. Growing evidence (Albanesi and Kim 2021; Torres et al., 2021; Alon et al., 2020; Caselli et al., 2020, Fabrizio et al., 2021) attests that, on average, the effects of the pandemic put women in a disproportionately disadvantaged economic position. However, the extent of this effect varies across countries and is absent in some cases (Campa et al., 2021; Torres et al., 2021).
This policy brief aims to examine the gender-specific nature of the COVID-19 crisis in Georgia. With this aim, we study the differential effects of the pandemic on the economic activity of women in terms of labor market outcomes and entrepreneurship. First, we contrast labor market outcomes for Georgian men and women during the COVID-19 crisis. Secondly, we try to assess the magnitude of the disproportionate impact on women-led businesses compared to men-led ones. We calculate gender gaps across different measures of firm-level performance, such as sales revenue, liquidity and owners’ expectations of falling into arrears. Finally, we examine whether there are any signs of recovery yet in 2021 and draw policymakers’ attention to emerging issues.
Labor market highlights
The adverse effects of the pandemic on female employment were conditioned by both supply and demand-side factors. The latter include decreased economic activity, mainly in service-related sectors (hospitality, personal care, etc.) that are dominated by women (Eurofound, 2021). In Georgia, as of 2019, women constituted the majority of workers in sectors such as hospitality (56%), education (83%) and activities of households as employers of domestic personnel (99%) that experienced some of the sharpest declines in employment during 2020. Moreover, women are more likely to be employed in part-time and temporary jobs (14% of women, as opposed to 11% of men, were employed part-time as of 2019, Geostat Labor Force Survey 2019), leaving them more vulnerable during times of crisis. Supply-side factors were triggered by the unequal burden of unpaid work generally undertaken by women in Georgia, mainly due to cultural reasons as well as the higher opportunity cost of time for men (women in Georgia on average earned 64% of men’s salaries in 2019, Geostat). School and daycare closures and decreased childcare involvement of grandparents increased household responsibilities for women. A UN Women survey-based study showed that in the midst of the pandemic in Georgia, around 42% of women reported spending more time on at least one extra domestic task as opposed to 35% of men (UN Women, 2020). This would naturally lead to more women than men leaving the labor force. Indeed, looking at the data, we see that in one year after the COVID-19 outbreak, women contributed to 98% (48,000 individuals) of the decrease in the Georgian labor force in 2020 (Geostat). Moreover, a close look at the percentage point difference between the labor force participation rates of Georgian men and women reveals a notable growth in the gender gap starting from 2020. The same can be said about employment rates (Figure 2).
Figure 1. Difference between male and female labor force participation and employment rates
To further elaborate on the tendencies in employment, Bluedorn et al. (2021) look at the differences between employment rate changes among male and female workers in 38 advanced and emerging economies. Replicating the exercise with the Georgian data, we can observe results similar to those obtained in Bluedorn et al. (2021). In Figure 2, we see differences between female and male employment rate changes. For each gender group, the latter is computed as an absolute difference between the quarterly employment rate and its annual average level from the previous year. Once the difference takes a negative value, implying that the drop in employment was sharper for women, one could say that we observe a “She-cession” phenomenon as termed by Bluedorn et al. (2021). As we can see, in 2020, the employment rate of women fell more than that of men. This widened gender gap was partially offset in 2021.
Figure 2. Employment rate changes by gender (deviation from the previous year average)
Remote work: a burden or a blessing for women?
One important aspect of the COVID-19 crisis was a wide-scale switch to remote work. This development had some gender-specific implications as well. The evidence shows that the prevalence of the switch to remote work was higher among women compared to men (41% vs. 37%) in the EU (Sostero et al., 2020). This tendency also holds in Georgia, where 11% of women as opposed to only 3% of men reported usually working from home in the last three quarters of 2020 (Julakidze and Kardava, 2021). It is not clear whether this tendency can be explained by gender-related occupational differences of male and female jobs (Dingel and Neiman, 2020; Boeri and Paccagnella, 2020; Sostero et al., 2020) or, rather, different personal choices of men and women working in the same occupations. Interestingly, across different countries, we observe a positive correlation between gender inequality (as measured by the Gender Inequality Index) and gender differences in the switch to remote work (measured by the ratio of the share of remote workers among female and male workers). To account for this observation, we can stipulate that gender differences in switching to remote work might be explained by differing gender roles in households, and in society at large, across countries (as proxied by the gender inequality index).
Figure 3. Relative prevalence of remote work among female and male workers
Regardless of the reason, remote work is likely to have some important implications on gender roles. However, the directionality of these implications is not straightforward. On the one hand, remote work offers flexibility for women to juggle household and work responsibilities. On the other hand, since women compared to men have been shown to be more likely to use the time saved from commuting to engage in housework, the switch to remote work might increase their “total responsibility burden” (Ransome, 2007) and lead to time poverty (Peters et al., 2004; Hilbrecht, Shaw, Johnson and Andrey, 2008). Indeed, according to CARE International South Caucasus (2020), around 48% of female survey participants in Georgia placed additional effort into housework and childcare in the midst of the pandemic. Moreover, as women are more likely and expected to use remote working as a means of balancing work-life responsibilities (Moran and Koslowski, 2019) their bargaining power at work decreases relative to their male counterparts. This could have some adverse career implications for female workers. Recent enforced lockdowns might pose an opportunity in this regard, as once-remote work becomes something close to a “new normal” employers will likely decrease the penalty for remote workers.
Spotlight on women-led business performance during the COVID-19 crisis
Calamities brought by the pandemic worsened financial outcomes for enterprises, affecting their ability to operate and have stable financial income. Similar to other crises, the pandemic has not been gender-neutral (Liu et al., 2021; Ahmed et al., 2020) in terms of the effect on business performance.
Gaps in the performance of women- and men-led businesses have been prevalent beyond any economic crisis as well, and have been documented in a number of studies (e.g., Amin, 2011; Bardasi et al., 2011), registering gender differences in sales and productivity in favor of men-owned enterprises. As suggested by Campos et al. (2019), these performance gaps may be due to lower levels of capital owned by women as opposed to men, a smaller number of employees hired by women-owned firms, as well as different practices in using advanced business tools and innovation. In addition, the existence of these gender gaps has also been explained as stemming from the prevailing social norms that assign certain obligations to women. Nordman and Vaillant (2014) and Grimm et al. (2012) suggest that unpaid housework and family-care led to a constrained number of hours women could afford to spend on the work and management of firms, negatively affecting their productivity.
According to the Women Entrepreneurship Report (Global Entrepreneurship Monitor (GEM), 2021), the pandemic imposed an additional burden in terms of increasing family-care duties on women. The GEM survey (2021) conducted in 43 countries worldwide shows that the likelihood of enterprise closure is 20% higher for women-led compared to men-led businesses. The higher likelihood of closure reflects the adverse factors that may have hindered the operating capacity of firms. For example, a survey conducted by UNIDO (2020) suggests that, as a result of the Coronavirus crisis, African and Middle Eastern women-led firms experienced diminished revenues. In addition, 41% of women-led firms were short of cash flow and unable to fulfill financial obligations, while only 32% of male entrepreneurs were exposed to the same problem.
More rigorous analysis on this matter has been conducted by Torres et al. (2021) and Liu et al. (2021). They try to examine the asymmetric effects of the COVID-19 crisis on women-led firms in several dimensions utilizing new datasets from the World Bank: COVID-19 Follow-up Enterprise Survey and the World Bank Business Pulse Survey. The findings of Liu et al. (2021) for 24 countries from Central Europe & Central Asia and Sub-Saharan Africa confirm that during the pandemic women-led businesses are subject to a higher likelihood of closure than men-led businesses and that female top managers are more pessimistic about the future than their male counterparts. Finance and labor factors were mentioned to be the major contributors to these disadvantages; for example, women-led businesses were found to be less likely to receive bank loans compared to men-led businesses. Lastly, the disadvantages experienced by women-led firms were claimed to widen in highly gender-unequal economies and developing countries. Torres et al. (2021) study the impact of the early phase of the COVID-crisis on gender gaps in firm performance for 49 mostly low- and middle-income countries. The results demonstrate that women-led businesses experienced a greater reduction in sales and lower liquidity compared to their male counterparts, which has been reflected in a higher likelihood for women-led companies in several sectors to fall into arrears. On the other hand, as a response to changing circumstances, women-led firms were found to be more likely to increase the utilization of online platforms and make product innovations. Nevertheless, they struggled to obtain any form of public support.
The impact of the pandemic on firms was not gender-neutral in Georgia
The pandemic-induced fragile environment had an adverse impact on entrepreneurs in Georgia– the effects of the shock were significantly more severe for female entrepreneurs than for their male counterparts. In order to assess the gender differences in the impact of the pandemic on firms, we utilize firm-level data on Georgian enterprises from the second round of the World Bank COVID-19 Follow-up Enterprise Survey, conducted in October – November 2020.
Following the methodology as presented in Torres et al. (2021), we assess whether there are differences in the magnitude of reduction in sales revenue (self-reported percentage change in sales revenue one month before the interview as compared to the same period of 2019) and available liquidity for women- and men-led businesses, and whether falling into arrears in any outstanding liabilities is more expected by female top managers (in the next six months from the interview).
Depending on the type of dependent variable, continuous or binary, either Ordinary Least Squares (OLS) or Probit models are estimated, respectively. Along with the gender of the top manager of firms, we also control for sector and firm size. The Georgian database contains a total of 701 enterprises (581 SMEs and 120 micro-businesses).
Table 1. Magnitude of the disproportionate impact of COVID-19 on women-led businesses in Georgia, October-November 2020
Table 1 presents the results of the regression analysis of gender differences among Georgian enterprises in terms of the impact of the pandemic. As observed, women-led businesses reported larger declines in sales, revenues, and liquidity. The predicted drop in sales was 18 percentage points (pp) higher for enterprises with a female top manager than for men-led firms. The larger drop in sales should have been reflected in the reduced cash flow availability and in hardship to cover operating costs. Indeed, as the results demonstrate, women-led enterprises are on average 12.9 pp more likely to have reduced availability of liquidity. This may explain women’s negative future expectations. Moreover, the average predicted probability of expecting to fall into arrears is 11.3 pp higher for women-led firms in Georgia as compared to men-led businesses.
The unequal effect of the COVID-19 crisis on women-led businesses might have been fueled by the disproportionate burden of unpaid care and housework shouldered by women in Georgia, leaving less time available for work and managing enterprises. On the other hand, as Torres et al. (2021) claim, female business owners tend to employ more female workers (the social group more exposed to the unequal burden of the pandemic) than male owners. This, in turn, could further hamper the productivity of women-led businesses and increase their vulnerability to economic shocks.
On the road to recovery
2021 has been characterized by a rather rapid recovery for the Georgian economy, as evidenced by the 10.6% (preliminary estimate) annual growth rate of real GDP. Signs of recovery can also be observed in the labor market – the labor force increased by 4% (YoY) in the 3rd quarter of 2021, while employment was also characterized by a growing trend (1%, YoY).
Along the lines of economic recovery, the gender gap in the labor market also seems to be narrowing. For instance, the steadily growing gap between male and female labor force participation rates seems to stagnate over 2021 (Figure 1). Moreover, as is illustrated in Figure 2 above, the difference between women’s and men’s employment rate changes is positive in 2021, meaning that the employment rate was increasing more (or decreasing less) for women. If this tendency persists, we might stipulate that the disproportionate effects of the COVID-19 crisis on female employment are on the way to recovery.
To examine whether Georgian firms have experienced concurrent movement in their performance along with the economic recovery, we utilize third-round data (from September 2021) of the World Bank COVID-19 Follow-up Enterprise Survey and scrutinize whether the gender differences have narrowed since the previous round of the survey (Table 2).
Table 2. Magnitude of the disproportionate impact of COVID-19 on women-led businesses in Georgia, September 2021.
Although the third-round survey data suggests that the predicted percentage drop in sales sharply declined for both men- and women-led businesses, the findings are not statistically significant and therefore cannot claim any signs of recovery in the gender gap in this respect. No signs of recovery are observed in terms of average predicted probability of reduced liquidity of firms and expectations of falling into arrears, either. Gender gaps in these two indicators still persist and are as strong in magnitude as in the second-round survey estimates (from October-November 2020). It seems that despite the economic rebound, not all traces of the pandemic crisis for firms have been eradicated from a gender perspective.
Conclusion
The pandemic came with high economic costs. It hit women disproportionately harder, adversely affecting their employment and entrepreneurial prospects. The unequal burden of the COVID-crisis shouldered by women in Georgia could be one of the reasons for the massive labor force dropouts among female workers and poor performance of women-led businesses. Georgian enterprises with female owners experienced a significantly larger decline in sales compared to their male-owned counterparts, consequently suffering from a shortage of cash flow and fears of falling into arrears.
Despite the great rebound in growth after the initial COVID-19 shock, the pandemic-associated increase in the gender gap seems to have been only partially offset in Georgia. In particular, there is a larger positive upsurge in women’s employment rate, as well as a diminishing difference between male and female labor force participation and employment rates. Following the ongoing recovery in sales revenue of Georgian enterprises (though the predicted gender difference was statistically insignificant), the gender gap in sales is shrinking too. But, in spite of the economic rebound, differences in available liquidity and expectations of falling into arrears have not yet been eradicated, indicating that the adverse influence of the pandemic on women still persists. It leaves female entrepreneurs a still more vulnerable group, which could be of special interest to policymakers to ease their liquidity problems.
Policies should also be directed towards encouraging women to become more economically active. In this regard, remote work seems to pose an opportunity if coupled with affordable childcare support policies.
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Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Female Representativeness and Covid-19 Policy Responses: Political Representation and Social Representativeness
There is anecdotal evidence that countries with female leadership in policymaking are more efficient in combating the Covid-19 pandemic. This paper studies whether countries with high female representativeness in political and social layers respond differently to the Covid-19 outbreak. We explore patterns at a cross-country level, which enables us to consider the variation of gender implicated institutions. Our findings indicate that it is women’s social representation, rather than female political leadership, that has the potential to capture cross-country variation in Covid-19 policy responses. Our study confirms that well-functioning and effective institutions are not established from the top-down but rather from the bottom-up.
Introduction
In light of the Covid-19 outbreak and the resulting actions developed and implemented by countries worldwide, questions have been raised about government policy responses and what can trigger them. The pandemic brought forward the need for measures that help mitigate the spread of the virus such as hand washing, reduced face touching, face mask policies, and physical distancing. In many countries, the implementation of lockdowns and social distancing measures had a large impact on employment, including reductions in working hours, furloughs, and work from home arrangements (Brodeur et al., 2020; Coibion et al., 2020; Gupta et al., 2020). There are notable concerns about the potential damage non-pharmaceutical interventions can inflict on economies and labor markets (Andersen et al., 2020; Kong and Prinz, 2020). Further, the implementation of these measures requires certain institutional and individual behavioral changes. While some countries were successful in developing and implementing policy responses that addressed the challenges of the pandemic, others have experienced considerable difficulties.
There is anecdotal evidence suggesting that countries with female leadership in governmental policies are more efficient in combating the Covid-19 pandemic. Several articles from prominent media outlets, such as CNN, The Conversation and Forbes, hypothesize that female leaders are systematically better at managing the pandemic and that this divergence can be attributed to gender differences in management style and risk-taking behavior.
This policy paper explores whether countries distinguished by higher female representation in government policies, both in development and implementation, responded differently to the Covid-19 outbreak, and if so, how the response differed from other countries. For this purpose, we identify two layers of female representation: political representation and social representativeness. The layer of political representation considers the role of women’s representation in public policy design and implementation at the top level of executive and legislative institutions. Social representativeness captures women’s representativeness in different layers of society and spheres of life. It reflects social norms, legal inequality between men and women in different spheres of private, economic, and business life, as well as realized gender inequality, e.g., in labor market participation, education, or local leadership.
With respect to political representation, we address the question of whether countries distinguished by a higher female representation at top executive and legislative levels differ in terms of policy responses to Covid-19. With respect to social representativeness, we aim to capture the variation in these responses that may originate from differences in the expected reaction of the public, which in turn is driven by women’s representativeness in different layers of society. We derive evidence-based conclusions capturing the role of female leadership at the country’s executive and legislative level, as well as the role of gender representativeness in other layers and institutions of society.
The motivation for this research stems from the extensive literature on differences in values and social attitudes between men and women. For example, women have been shown to be more trustworthy, public-spirited, and likely to exhibit ‘helping’ behavior (Eagly and Crowley, 1986), vote based on social issues (Goertzel, 1983), score better on ‘integrity tests’ (Ones and Viswesvaran, 1998), take stronger stances on ethical behavior (Glover et al., 1997; Reiss and Mitra, 1998) and behave more generously when faced with economic decisions (Eckel and Grossman, 1998). Thereby, one may ask to which extent these differences transmit to public policies in societies where women are better represented, either politically or socially. While our study primarily concerns Covid-19 policy responses, we discuss other related literature on the relationship between women’s representativeness and public policy in the next section.
Our analysis shows that it is the women’s social representativeness layer, which can explain government reactions to the Covid-19 pandemic. This goes in line with the institutionalist literature, suggesting that more a gender-balanced character of institutions translates into policy measures and related outcomes. With this finding, our study suggests further evidence on the central role of institutions. Consistent with the existing evidence, we claim that well-functioning and effective institutions are not established from the top-down, but rather from the bottom-up (Easterly, 2008; Dixit, 2011; Greif, 2006). In such institutions, women’s participation in labor markets, businesses, and other spheres is essential as these are factors that distinguish countries in their response to the pandemic. While the evidence provided is suggestive, it opens further avenues for studies to assess causal relationships.
Covid-19 Policy Measurements
To conduct our analysis, we collect data from a number of different sources. For data on the Covid-19 situation and government policy responses, we use the Our World in Data portal. This online platform compiles a number of data sources, most of them updated on a daily basis. Statistics on female participation and leadership is retrieved from the World Bank and UNDP. Summary statistics of the variables are reported in Table A1 of the Appendix.
The policy response variables are based on a number of different measures implemented by national governments. These are aggregated into three composite indices: Stringency, Containment & health, and Economic support. (The index methodology can be found here.) We present the components of the three indices in Table 1 and a detailed description of the policy measures and their scoring in Appendix C.
As seen in Table 1, the Stringency and Containment & health indices have some common dimensions; containment & closure policies (C1 – C8) and public information campaign (H1). Both are rescaled to a value from 0 to 100 (100 = strictest). The Economic support index records measures such as income support and debt/contract relief and does not share any common dimensions with the other two policy response indices. The scale of the index also ranges from 0 to 100 (100 = full support). The extent of heterogeneity in government policy responses across countries is illustrated in Figures 1 – 3. While containment and closure policies are stricter in many Asian and Latin American countries, economic support is more extensive in many European countries, Canada, New Zeeland, and few other countries.
Table 1. The structure of the Covid-19 policy measurements.
Figure 1. Stringency Index
Figure 2. Economic support index.
Figure 3. Containment & health index.
Female Representativeness: Layers and Indicators
Multiple studies in economics and political science suggest that the gender of public officials shapes policy outcomes (Chattopadhyay and Duflo, 2004; Iyer et al., 2012; Svaleryd, 2009). Evidence suggests that increasing the number of women in higher ranks of public administration (legislative bodies and ministries) has a substantial impact on the political office and policymaking (Borrelli, 2002; Davis, 1997; Reynolds, 1999). On the other hand, a number of studies demonstrate that gender has no association with policy outcomes (Besley et al., 2007; Besley and Case, 2003; Bagues and Campa, 2021). The role of the institutional setting and environment can, thus, be decisive in this regard. Women are also found to be more concerned about social policy issues and prefer higher social spending than men (Lott and Kenny, 1999; Abrams and Settle, 1999; Aidt and Dallal, 2008). Further, women are more likely to use a collective or consensual approach to problem and conflict resolution rather than an approach founded on unilateral imposition (Rosenthal, 2000; Gidengil, 1995).
In our study, the political representation layer is measured as female leadership at a country’s executive level (representation in government cabinets) and participation at the legislative institution (parliament) level. To assess this, we consider the following indicators: 1) the presence of a female president or prime minister and proportion of women in ministerial positions, and 2) women’s representativeness in legislative bodies measured as the proportion of seats held by women in national parliaments. The variation of these indicators across countries is illustrated in Figures B4 – B6 in the Appendix.
Our approach to social representativeness is in line with social role theory. This framework provides a theoretical explanation of a structural approach to gender differences (Eagly, 1987; Eagly and Karau, 2002; Wood and Eagly, 2009). It claims that men and women behave according to stereotypes associated with the social roles they occupy, and these differences can, in turn, influence the role of women in local governance and leadership. In line with other research on gender, the social role theory proposes a rigorous framework for analyzing the gendered aspect of government organizations. For instance, evidence shows that women tend to be more collaborative and democratic, hence demonstrating a more caring and community-oriented behavior (Eagly and Johannesen-Schmidt, 2001).
The gender aspect of local governance indicates that the personal preferences and opinions of leaders predominate and shape policymaking (Besley and Coate, 1997). Female leaders (including municipality heads) are more inclined to favor the inclusion of citizens in the decision-making process (Fox and Schuhmann, 1999; Rodriguez-Garcia, 2015), implying that the society is a more informed and engaged stakeholder in the public policymaking (Ball, 2009). Given that municipalities are taking on a greater and more interactive role in citizens’ well-being, they become a key channel in reinforcing trust in government. Furthermore, the literature finds an interrelationship between female voters and government outcomes, whereby women’s enfranchisement affects government size and spending (Lott and Kenny, 1999; Miller, 2008, Aidt and Dallal, 2008). As such, this can lead to improvements in government outcomes and policy effectiveness. The evidence from Bloomberg’s Covid-19 Resilience Ranking suggests that success in containing Covid-19 while minimizing disruption appears to rely more on governments fostering a high degree of trust and societal compliance.
Furthermore, the patterns of gender relations in societies reflect formal and informal institutional rules and policies. Gender equality enhances good governance and helps to further improve relationships between government and citizens (OECD 2014). Similarly, Elson (1999) argues that labor markets are structured by practices, norms, and networks that are “bearers of gender”. Societies with better legal frameworks for women have more balanced gender participation in labor markets, governance, and leadership, along with more equal gender roles and less gender-biased stereotypes. We anticipate that better representation of women in policymaking in such societies is also reflected in the choice and effectiveness of Covid-19 policy measures.
Building on the above theories explaining the relevance of women’s representativeness in diverse societal layers for policy development and implementation, we identify three indices that have the potential to capture the effect of social representativeness – Women, Business and the Law index (WBLI), Gender Development Index (GDI) and Gender Inequality Index (GII). The WBLI is composed of eight indicators, covering different areas of the law related to the decisions women make at various stages of their career and life. These indicators include mobility, workplace, salary, marriage, parenthood, entrepreneurship, assets, and pension. Hyland et al. (2020) show that, globally, the largest gender inequalities are observed in the areas of pay and parenthood. That is, women are most disadvantaged by the legal system when it comes to compensation and how they are treated once they have children. The index scales from 0 to 100 (100 = equal opportunities). The diagram in Figure 4 illustrates how the components of the WBLI index measure key activities of economic agents throughout their life.
Figure 4. The linkages of 8 indicators in Women, Business and the Law index (WBLI)
The second index, the GDI, measures gender inequality in the achievements in three basic dimensions of human development: Health, measured by life expectancy at birth; Education, measured by expected years of schooling for children and mean years of schooling for adults aged above 25; and Command over economic resources, measured by estimated earned income. The same dimensions are included in the Human Development Index (HDI), and the GDI is defined as the female-to-male HDI ratio (i.e. perfect gender equality corresponds to a GDI equal to one).
Turning to the third index measuring social representativeness, the GII reflects gender-based disadvantages in the following dimensions—reproductive health, empowerment, and the labor market. The index measures the loss in potential human development due to gender inequality in achievements across these dimensions. It ranges from zero, where women and men fare equally, to one, where one gender fares as poorly as possible in all measured dimensions. One of the dimensions of the GII, women’s empowerment, has a sub-dimension – “Female and male shares of parliamentary seats”, one of our indicators measuring political representation. Generally, we do not consider the two layers being as mutually exclusive, but intersections are expected to be minimal.
Central to our study, the three indices capturing social representativeness in a country encompass the institutional quality of its society from a gender development perspective. The distribution of each index across countries is shown in Figures B1 – B3 (See Appendix B).
Women’s Representativeness and Covid-19 Policy Responses: Partial Correlation Analysis
In this section, we explore the relationship between Covid-19 policy responses and the measures of political representation and social representativeness. For this purpose, we explore (i) correlations between the indicators and indices of the political and social representation layers and (ii) partial correlations between these measures and policy response indices.
We start with a correlation analysis of the different indicators in the layers. It shows that the WBLI is in high correlation with other representativeness variables. This index captures the legal equality between women and men which has been shown to be “associated with a range of better outcomes for women, such as more entrepreneurship, better access to finance, more abundant female labor supply, and reductions in the gender wage gap”. (WB, 2021). One can think of the GDI and GII indices, as well as the political representativeness indicators, as reflections of a broad policy framework in diverse areas of social, business, and legal activities. A legal environment that promotes gender equality, even if not sufficient by itself, is likely to lead to progress in these areas. Indeed, Hyland et al. (2020) show that greater legal equality between men and women is associated with a lower gender gap in opportunities and outcomes, fewer female workers in vulnerable positions, and greater political representation of women. This way, the WBLI may capture key predispositions for women’s representativeness in society. Further, Hyland et al. (2021) show that the WBLI index is in high (partial) correlation with country GDP per capita, polity score, legal origin, religion and geographic characteristics. This evidence suggests that the WBLI may have the capacity to reflect important country characteristics which ultimately shape cross-country institutional variation.
Table 2. Scatterplot table for GDI, GII and Women, Business and the Law Index, Proportion of seats in parliament held by women and Proportion of ministerial seats held by women.
Next, we explore partial correlations of these indicators with Covid-19 policy responses (Table 3). In this analysis, we control for a number of factors that potentially confound the relationship between a particular policy response and representation layer. Specifically, we control for (i) the number of infected cases per million inhabitants, (ii) the number of deaths per million, (iii) GDP per capita, and (iv) life expectancy. The number of infected cases and deaths enter the model in order to control for country differences in the spread and consequences of the virus. GDP per capita captures the stage of country development, accounting for cross-country differences in resource capacities and constraints. Both of these control variables are claimed to have an important role in Covid-19 related research (Coscieme et al., 2020; Aldrich and Lotito, 2020; Elgar, Stefaniak and Wohl, 2020; Gibson, 2020; Conyon and Thomsen, 2020). Life expectancy is an important proxy for country inhabitants’ resilience against the virus, conditioned by health and health infrastructures.
Significant correlations are observed between the WBLI and the three policy response indices. The correlation between the WBLI and Stringency (and Containment & health) index is negative, implying that lighter restrictions have been imposed in countries with better business and legal conditions for women. A positive correlation is observed between the WBLI and the economic support index, suggesting that countries with better conditions for women in diverse business and societal areas have provided more extensive economic support in the pandemic. This finding is in line with existing evidence showing that women are more concerned about social policy issues and prefer higher social spending than men (Lott and Kenny, 1999; Abrams and Settle, 1999; Aidt and Dallal, 2008). Also, lighter restrictions and more generous economic support do not presume any trade-off in terms of the allocation of financial resources constrained by a state budget.
Interestingly, we do not observe significant correlations between policy responses and other indicators of women’s representativeness. The only exception is a correlation between GDI and the Containment & health index, which is significant at the 10% level and hinges heavily on two outliers (if we drop the two outliers, the P-value of the correlation increases from 0.0931 to 0.2735).
Table 3. Scatterplots of policy responses and social representativeness and political representation variables.
In our partial correlation analysis, we do not control for the direct effects of the gender dimension of social norms and practices. Social norms, practices, as well as informal and formal rules can, however, explain a substantial part of the gender gap (Hawkesworth, 2003; Mackay, 2009; Franceschet, 2011; Elson, 1999; Froehlich et al., 2020) relevant for making decisions. Our measures of women’s political and social representativeness do not fully cover gender differences in norms and practices. As Hyland et al. (2020) point out, de-jure female empowerment does not necessarily translate into de-facto empowerment, especially in countries with social norms and informal rules that result in low representation of women in diverse societal spheres. The authors indicate that laws are actionable in a short period, while more time is needed to bring changes in social norms. In our paper (Grigoryan and Khachatryan, 2021), we attempt to address this issue by incorporating the Social Institutions and Gender Index (SIGI) into the model and evaluating the confounding effect on the covariates of the model. We show that the WBLI captures the effect of the gender gap owing to social norms and practices on Covid-19 policy responses as measured by SIGI. This result suggests that the endogeneity arising from the omission of a measure of such a gender gap is likely to be minimal.
Discussion and Conclusions
Our correlation analysis suggests that it is the layer of women’s social representativeness that can explain the policy reactions of governments in times of the Covid-19 pandemic. This result is in line with the institutionalist literature on gender inequality and social role theory, which suggests that a more gender-balanced character of institutions translates into policy measures and related outcomes. Among the three indices constituting the social representativeness layer, the WBLI is, by construction, more inclusive in terms of capturing women’s role in diversified societal areas. From Table 2, we observe that the WBLI is the only index that is in strong correlation with all other indicators. We also identify strong dominance of the WBLI in correlations with policy responses: it is the only indicator that is significantly correlated with all three policy response measurements (Table 3).
To conclude, our results establish an association between female social representativeness, as measured by the (legal) equality of opportunities between men and women, and Covid-19 related policies. One potential interpretation of these findings concerns the central role of the gender balance in different institutions and layers of society in understanding policy responses to the Covid-19 pandemic. While it was parliaments and governments that implemented policies, we find that the measures undertaken correlate more strongly with factors related to the social representativeness of women rather than those related to their political representation. This suggests a dominant role of gender-balanced institutions at the ‘grass root’ level in terms of the scale and scope of the crisis response. Naturally, these institutions may result (or be correlated) with more gender-balanced political representation, but the latter alone is not helpful in explaining the variation in the reaction to the pandemic. These results underline the importance of balanced gender representation in the labor market, business, and other spheres of social life. Further investment and development of ‘grass root’ institutions that improve women’s socioeconomic opportunities, could provide a fundamental foundation for policy development in a crisis situation.
There could also be alternative interpretations of our findings. There is rich evidence that the gender dimension is deeply implicated in institutions (Acker, 1992; Chappell and Waylen, 2013; Lovenduski, 2005). Gender norms and gender practices have been shown to have an influence on the operation and interaction between formal and informal institutions (see, for instance, Chappell, 2010; Krook and Mackay, 2011; Chappell and Waylen, 2013) and the gender dimension of political institutions is reflected in their practices and values, hence affecting their outcomes (such as laws and policies), formation, and implementation (for instance, Acker, 1992). In turn, governmental policies and rules shape societal norms and expectations. These considerations imply that our results could be driven by the overall values, culture, and institutions of respective societies. These factors would both result in a more gender-neutral legal environment and ‘grass-root’ institutions, and ultimately, distinguish countries in their response to the Covid-19 pandemic. In this way, our results open an avenue for future studies in this important domain to better understand the causality of observed relationships.
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(The Appendix can be found in the PDF version of the brief)
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Public Healthcare Expenditures in Transition Countries: Does Government Spending Respond to Public Preferences?
The transition from centrally planned to free-market economies in 1989 initiated a period of social and economic upheaval in post-communist countries, which affected healthcare quality, expenditures, and outcomes. We use data from the Life in Transition Survey (LiTS) to demonstrate that in spite of improvements across various measures of these facets of the healthcare system, it remains the first choice for additional government spending among the public in all countries of the region included in this study. Preferences in priorities for extra budget spending were similar among men and women in respective countries, but the preference for additional healthcare spending was stronger among women than men. The transition countries are compared with Germany and Italy – two Western European LiTs survey participants, countries with higher spending, and better healthcare outcomes.
Introduction
Across the globe, the outbreak of the COVID-19 pandemic has brought a new spotlight to the preparedness of healthcare systems for profound shocks (Anser et al, 2020). Critical care is a particularly costly element of healthcare provision, and thus, under-resourced systems are uniquely susceptible to spikes in mortality resulting from an oversaturation of intensive care units during an epidemiological crisis of this sort. (Fowler et al, 2008; Mannucci et al, 2020) Considering the widespread discussion surrounding health system capacity and the necessity for implementing economically painful lockdowns when those limits are reached, pressure from society to increase public spending may grow even further. With these developments in mind, in this policy paper, we confront past expressions of preferences regarding public expenditures with changes in government spending on healthcare between 2006 and 2017. The analysis draws on the one hand on the data from the Life in Transition Survey (LiTS), and on the other on publicly available data on government expenditures and outcomes.
In the context of preferences for additional public spending, we present a descriptive summary of trends in government expenditures on healthcare in Armenia, Belarus, Estonia, Georgia, Latvia, Lithuania, Moldova, Poland, Russia, and Ukraine. We include Italy and Germany as wealthier Western benchmarks, for which the data became available in the second wave of the survey in 2010. Data on public healthcare spending shows that despite a clear and strong public preference for increased investment in healthcare provision, additional spending as a proportion of total government expenditures between 2006 and 2017 has been moderate in most countries, and even negative in some. It must be underlined that expenditures are not always reflected in healthcare outcomes, quality, and coverage. Issues of efficiency, system design, and underlying health conditions of the population play a significant role in the returns on investment. For instance, the United States has spent drastically more per capita on healthcare than any other country and yet ranked lowest in the Healthcare Access and Quality (HAQ) Index among comparable countries (Fullman et al, 2016). However, due to the focus of the survey on government spending, we emphasize government expenditures on healthcare as a pertinent measure, especially in relation to overall GDP, per capita spending, and the public budget as a whole.
There is mounting evidence that one of the most important elements in the mitigation of COVID-19 mortality is the ability to expand system capacity and acquire the necessary equipment (e.g. respirators, ventilators) while ensuring that there is equitable access to measures for spread prevention (e.g. testing) (Khan et al, 2020; Ranney et al, 2020; Wang and Tang, 2020). The increasing pressure on healthcare systems, coupled with the additional fiscal strain resulting from the economic fallout of the pandemic, could lead to further divergence between public preferences and government spending on healthcare.
Healthcare Systems During the Transition
The ability of transition countries to absorb the risks and short-term economic shocks associated with pivoting from a centrally planned to a free-market economy has had dramatic implications for healthcare systems. Although countries in this region were divergent in terms of underlying health conditions, levels of expenditures, and health outcomes, most of them fell victims to deficient funding and additional health risks associated with the initial increases in poverty that were commonplace (Adeyi et al, 1997)
Compared to other transition countries, Georgia and Armenia faced a sharper economic collapse as well as armed conflicts, which caused scarcity in the availability of public healthcare providers and spikes in out-of-pocket expenses. Belarus was slower in the implementation of economic reforms and faced issues of fiscal sustainability further down the line (Balabanova et al, 2012). However, following this short tumultuous period, countries transitioning away from centrally planned economies have generally invested heavily in healthcare since the early 1990s. In many cases, these investments were facilitated by rapid GDP growth and accompanied by significant improvements in life expectancy. For example, between 1989 and 2012, Latvia, Lithuania, and Poland increased their per capita healthcare expenditures by more than 1,000 PPP per year, with an increase in life expectancy ranging from 1.7 years in Lithuania to 5.8 years in Poland (Jakovljevic et al, 2015). Despite heterogeneous and extensive reforms in many of these countries, as well as mixed results in measurements of efficiency and outcomes, healthcare expenditures consistently rank as the top priority for further government spending among both men and women in each country. This consistency lends itself to further policy considerations.
Preferences for Government Spending in Transition Countries
As is demonstrated by Figure 1, in 2016, healthcare was the most common answer to the question – “Which field should be the first priority for extra government spending?”- for all ten post-transition countries included in our analysis (the other options were: education, housing, pensions, assisting the poor, public infrastructure, the environment, and other). The survey was carried out on a representative sample that covers approximately 1,000+ respondents from each of the 29 countries in wave I and up to 1,500+ respondents from each of the 34 countries in wave III (EBRD: LiTS, 2020). Despite intercountry differences, in 2016 healthcare persisted as the top priority for both men and women in every transition country we studied apart from Belarus. While healthcare remained the top priority on average, men expressed a higher preference for additional investment in education. In the countries where preferences for health were particularly strong, healthcare was the first priority for as many as 53.5% of Latvians, 47.7% of Poles, and 43.9% of Moldovans (Figure 1a). Notwithstanding some fluctuations in scale, these preferences were not only common across countries but also across time, with people expressing very similar preferences in the first two waves of the survey in 2006 and 2010. (See Annex Figure A1 and Figure A2). While healthcare remained a popular choice in Germany and Italy, spending on healthcare as a percentage of GDP was nearly twice that of any transition country in Germany. There, education outweighed healthcare among men and women in both available waves (II and III), while pensions surpassed healthcare among men in the latter wave. In Italy, despite a more comparable level of healthcare spending relative to the transition countries, a drastic shift took place as healthcare fell from being the first priority by a large margin of 24.9 percentage points (pp) in 2010 to becoming the second priority after pensions in 2016. This can likely be attributed to the prominence of pensions as a major political campaign issue following the austerity-driven reforms of 2011 (Alfonso and Bulfone, 2019).
Figure 1: 1a (left) : Preferences for additional government spending, 2016. / 1b (right): Preferences for additional healthcare spending by gender, 2016
Moreover, it is evident that men and women within countries have rather similar preferences, as far as extra government spending is concerned. Not only is healthcare the first priority in all ten transition countries, but their second, third, and fourth choices are also very similar. When digging deeper into the differences that do exist, in every country except for Georgia women had a stronger preference for healthcare than men, and by as much as 8.8 pp, 8.4 pp, 7.8 pp, and 7.9 pp in Latvia, Germany, Belarus, and Russia respectively (Figure 1b). Conversely, in every case except for Georgia and Ukraine, men had a stronger preference for additional spending on education than women, most notably in Armenia – by 7.8 pp, Germany – by 5.7 pp, Lithuania – by 4.6 pp and Poland – by 3.9 pp. It is apparent that despite rapid investment in healthcare over the first two decades of the transition, there remains a widespread desire for further expansion of expenditures in this area.
Trends in Government Expenditures, 2006-2017
Considering the primacy of healthcare as the priority for additional government spending in all ten studied transition countries, we look at trends in aggregate statistics on government expenditures on healthcare over the surveyed period to explore the extent to which these preferences have been reflected in government spending. Taking the most basic measure into account in Figure 2a, i.e. public health expenditures as a percentage of GDP, among the transition countries only Georgia and Estonia have significantly increased their healthcare expenditures, by 1.6 pp and 1.2 pp, respectively. Lithuania, Poland, and Russia saw more moderate increases in the range of 0.6 pp and 0.2 pp. Other countries have remained essentially stagnant, apart from Moldova and Ukraine which saw a notable drop of 0.8 pp. Considering that this measure is sensitive to fluctuations in GDP growth, we also consider public health spending as a proportion of all government expenditures (see figure A3 in the Annex), which is a better indicator of government priorities for additional spending from 2006 until 2017. Georgia was the only transition country with a significant increase in healthcare spending proportional to total government expenditures, nearly doubling it from 5.2% to 9.5%. Belarus, Estonia, Lithuania, Poland have implemented a more moderate redirection of the budget towards healthcare, increasing proportional expenditures by a factor of 1.26, 1.15, 1.21, and 1.21 respectively. In spite of public preferences, Armenia decreased the proportional share of the budget dedicated to healthcare by as much as 2.6 pp, Moldova, Russia, and Ukraine by 1.3 pp, and Latvia by 0.8 pp. Regardless of the direction of the trend, notwithstanding some slight convergence, no transition country spent as much of its budget on healthcare as Italy and Germany. The latter spent nearly two to four times as much on healthcare as a proportion of total expenditures compared to the studied transition countries, and this gap has been widening relative to all of those included in the analysis, apart from Georgia.
Figure 2: Public healthcare expenditures (% of GDP)
While expenditures per capita are less indicative of government priorities in the budget, they are a better comparative measure for assessing the changes in healthcare provision, barring differences in efficiency. This comes with a huge caveat, namely that it is well established in the literature that additional healthcare expenditures often translate into “small to moderate” direct improvements in healthcare quality and outcomes due to inefficient spending or underlying factors (e.g. lifestyle choices, poverty) that are not addressed by investment in the healthcare system itself (Hussey et al, 2013; Self and Grabowski, 2003). Nevertheless, this measure is more likely to translate to an improvement in the quality of care each person receives, and the data paints a more positive picture considering the clear preference of both men and women for higher spending. In Figure 3 we present healthcare expenditures per capita in USD, and apart from Italy and Ukraine, all of the countries have significantly increased spending between 2006 and 2017. While expenditures per capita in transition countries are dwarfed by Germany and Italy, Estonia, Georgia, and Lithuania have more than doubled their expenditures, and Armenia has more than tripled. Belarus, Latvia, Poland, Moldova, and Russia have also significantly increased their per capita spending on healthcare, by factors in the range of 1.54 and 1.91. However, while expenditures per capita is one indicator of improving healthcare quality, it does not identify government priorities and is largely dependent on overall economic growth (Fuchs, 2013; Bedir, 2016).
Figure 3: Health care expenditure per capita, USD
In every country we include, increasing healthcare expenditure per capita is accompanied by advancements in many measures of healthcare outcomes for men and women. Between 2006-2017, life expectancy at birth increased across the board, with men in Russia experiencing the greatest improvement of 7.1 years (Figure 4a). These are promising trends – for women, life expectancy at birth improved by a larger margin in each transition country than in Germany or Italy, and the same can be said for men in every country apart from Armenia. Furthermore, the Healthcare Access and Quality (HAQ) index, which is composed of 32 indicators related to preventable causes of mortality, has improved across all 12 countries between 2005-2016. The change was most notable in Armenia, Belarus, Estonia, and Russia, constituting as much as 8.7, 10.2, 8.9, and 8.9 points out of a hundred, respectively (Figure 4b). These trends indicate convergence in the quality of healthcare as they significantly outpaced improvements in the HAQ index in Italy (3.1 points) and Germany (3.9 points). As of 2016, among the countries of interest, Georgia (67.1 points) and Moldova (67.4) had the lowest scores, while Germany (92.0) and Italy (94.9) scored highest, as could be expected based on healthcare spending measures presented in Figures 2 and 3.
Figure 4: 4a (left): Change in life expectancy, 2006-2017 / 4b (right): HAQ index
However, as presented in Figure 5, there is no clear relationship between the strength of the preference for additional healthcare spending and the scale of expansion in spending. Taking three of the four countries (Armenia, Belarus, and Russia) with the greatest improvement in the HAQ index as an example, there was virtually no change in healthcare spending as a percentage of GDP over the same period. These countries were also different in terms of how strong the preferences were for additional spending on healthcare as the first priority in 2006.
Figure 5: Public preferences and government healthcare spending (% of GDP)
Conclusion
As we have demonstrated in this brief, in the ten post-communist countries for which we have analyzed LiTS data, there was a consistent and common preference for healthcare as the first priority for extra government spending between 2006 and 2016. We also find that in each country except Georgia, on average, women had a stronger preference for additional public healthcare spending, supporting a wealth of literature that suggests that women utilize healthcare services more frequently and spend more out of pocket on healthcare than men (Owens, 2008; Cylus et al, 2011; Williams et al, 2017). However, over the period we study, these preferences have not translated directly into a reallocation of budgetary resources. The countries with the strongest preferences for additional healthcare spending in 2006 did not experience the highest increases in any of the discussed measures of public healthcare expenditures since then.
People living in Italy and Germany chose an increase in public spending on healthcare as their first priority less frequently than residents of post-transition countries. Better understanding these differences requires further research, but there is likely a combination of factors that play into this effect. For one, wealthier Western countries performed better when looking at simple measures of healthcare outcomes such as life expectancy and deaths from non-communicable diseases (WHO, 2020), and hence other priorities may have gained in salience. Furthermore, they allocated a greater proportion of the public budget towards healthcare. This in part stems from the significant challenges associated with the transition following 1989. Healthcare systems in post-communist countries experienced a fiscal shock when joining the global economy, with the loss of centrally controlled price mechanisms causing an increase in the relative prices of healthcare inputs such as medicines and equipment (Obrizan, 2017). This was exacerbated by a shrinking capability of governments to spend more on healthcare related to the general economic shocks at that time and led to the passing over of costs to patients in the form of out-of-pocket expenses (Balabanova, et al. 2012). Although access to healthcare and the quality of that care have improved after the transition (Romaniuk and Szromek, 2016), these have failed to converge towards Western European countries on a number of substantial measures up to this point. Before the commencement of the COVID-19 pandemic, government healthcare spending did not reflect the preferences of the public in any of the ten studied transition countries. The outbreak of the pandemic has not only intensified the pressure on the healthcare system but also brought about a number of negative economic consequences. This combination can be expected to simultaneously increase the strain on the public budget and necessitate difficult decisions of reallocation at a time when fiscal sustainability during a global recession is already being brought under question (Creel, 2020).
References
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- Afonso, A. and Bulfone, F., 2019. Electoral coalitions and policy reversals in Portugal and Italy in the aftermath of the eurozone crisis. South European Society and Politics, 24(2), pp.233-257.
- Anser, M.K., Yousaf, Z., Khan, M.A., Nassani, A.A., Alotaibi, S.M., Abro, M.M.Q., Vo, X.V. and Zaman, K., 2020. Does communicable diseases (including COVID-19) may increase global poverty risk? A cloud on the horizon. Environmental Research, 187, p.109668.
- Balabanova, D., Roberts, B., Richardson, E., Haerpfer, C. and McKee, M., 2012. Health Care Reform in the Former Soviet Union: Beyond the Transition. Health services research, 47(2), pp.840-864.
- Bedir, S., 2016. Healthcare expenditure and economic growth in developing countries. Advances in Economics and Business, 4(2), pp.76-86.
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- Cylus, J., Hartman, M., Washington, B., Andrews, K. and Catlin, A., 2011. Pronounced gender and age differences are evident in personal health care spending per person. Health Affairs, 30(1), pp.153-160.
- Fuchs, V.R., 2013. The gross domestic product and health care spending. N Engl J Med, 369(2), pp.107-109.
- EBRD, 2020. Life in Transition Survey (LiTS). European Bank for Reconstruction and Development.
- Fowler, R.A., Adhikari, N.K. and Bhagwanjee, S., 2008. Clinical review: critical care in the global context–disparities in burden of illness, access, and economics. Critical Care, 12(5), p.225.
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- Global Burden of Disease Collaborative Network, 2018. Global Burden of Disease Study 2016 (GBD 2016) Healthcare Access and Quality Index Based on Amenable Mortality 1990–2016. Seattle, United States: Institute for Health Metrics and Evaluation (IHME).
- Hussey, P.S., Wertheimer, S. and Mehrotra, A., 2013. The association between health care quality and cost: a systematic review. Annals of internal medicine, 158(1), pp.27-34.
- Mannucci, E., Silverii, G.A. and Monami, M., 2020. Saturation of critical care capacity and mortality in patients with the novel coronavirus (COVID-19) in Italy. Trends in Anaesthesia and Critical Care.
- Jakovljevic, M.B., Vukovic, M. and Fontanesi, J., 2016. Life expectancy and health expenditure evolution in Eastern Europe—DiD and DEA analysis. Expert Review of Pharmacoeconomics & Outcomes Research, 16(4), pp.537-546.
- Obrizan, M., 2017. Does EU membership prevent crowding out of public health care? Evidence from 28 transition countries.
- Owens, G., 2008. Gender differences in health care expenditures, resource utilization, and quality of care. Journal of Managed Care Pharmacy, 14(3), pp.2-6.
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Note: Annex included in the attached PDF.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Social Impacts of Covid-19 – Case for a Universal Support Scheme?
Beyond its impact on the healthcare system, the Covid-19 pandemic has already reached labor markets throughout every economy via economic shocks. As of 1 April 2020, ILO estimates indicate a substantial rise in global unemployment, leading to a 6.7% decline in working hours in the second quarter of 2020, which is equivalent to 195 million full-time workers.[1] In this policy note we will draw the reader’s attention to the potential scale of the impact on the labor market and the respective social consequences in Georgia. We will identify a wide variety of groups affected by the Covid-19 crisis, with a special emphasis on the labor market, and provide our judgement on the possible extent of the repercussions. The current crisis affects almost every segment of the population, including members of the following large social groups:
- Labor market participants face high risk of job loss. Fewer employment opportunities and broad scale layoffs force a large section of self-employed and salaried workers into challenging circumstances.
- Recipients of Targeted Social Assistance (TSA) are at great risk of slipping deeper into poverty. While members of this group mostly rely on social assistance layouts, the supplementary income that they receive, often from informal sources, could be cut. In addition, the increased prices on food and other essential goods could be particularly detrimental to this group of people.
- Senior citizens are extremely exposed to the danger of the virus and struggle with greater health risks.
Our analysis starts with an overview of the Georgian labor market and the short-term impacts of Covid-19 on workforce displacement throughout the various sectors. The impact is not gender neutral, as it affects men and women differently depending on the sector. Therefore, we will further provide the decomposition of the impacts on the labor market and propose gender-responsive solutions to the pandemic. To mitigate adverse effects across various vulnerable groups, we will review the existing theoretical and practical evidence on targeted and universal support schemes. An overview of international social support programs is moreover provided in this note. We will further analyze the relative merits and drawbacks of our pre-defined policy options based on a multi-criteria assessment in the context of the Covid-19 crisis and thereafter provide recommendations for policy implementation.
Covid-19 – Impact Across Sectors and an Overview of the Labor Market
Unemployment in Georgia is expected to experience a large-scale increase in the short-term, leading to massive social problems. Workers have been told to remain at home because of the broad virus containment measures taken during the outbreak. Those with the opportunity to work from home are relatively well-off, unlike the large variety of vulnerable groups affected by the lockdown. Low levels of economic activity impact almost all industries, and the most vulnerable sectors include accommodation and food services, most wholesale and retail trade and entertainment and recreation. These difficulties place hundreds of thousands at risk, either by downward adjustments to income or working hours, or by completely losing their jobs.
In order to evaluate Covid-19’s potential short-run effect on employment across various economic sectors, we have qualitatively assessed the strength of the impact at the sub-sectoral level,[2] taking into account the following: (1) list and scale of economic activities prohibited during the ‘lockdown’; (2) restrictions imposed on transportation; (3) drop in consumer demand; (4) fall in intermediate input use.
In Table 1 we present our assessment of the Covid-19 impact across sectors, coupled with the corresponding labor market statistics.[3]
Table 1: Covid-19 impact on possible workforce displacement across sectors.
The key findings from the labor market assessment include:
- Close to 30 percent of hired workers face a high risk of job displacement, mostly driven by an expected fall in economic activity in the trade, construction, manufacturing, and accommodation and food services sectors;
- The least impacted industries are projected to be education, public administration and defense, utilities, and health;
- The majority of self-employed are active in the agricultural sector, which faces a moderate impact for several reasons: the closedown of open food markets, restrictions on transportation, and a partial decline in demand (mostly from the food service sector). Although agriculture is not projected to be severely affected, a substantial number of the self-employed (mostly subsistence farmers) in this sector, considering their significantly lower than average baseline earnings, may require special policy emphasis within this group.
Finally, it should be emphasized that the severity of impacts across sectors will further depend on the longevity of the lockdown measures and the sequence in which they may be lifted for different economic activities.
In addition to the assessments in Table 1, Annex 1 presents a correlation between our estimates weighted by sub-sectors and the ILO’s assessment of the current global impact of the crisis on economic output across the sectors. It should be further noted that, in most cases, the scale of impacts coincide, and the remaining differences are due to: (1) our approach being based on more detailed sub-sectoral data; (2) the ILO looks at the global impact, whereas we focus solely on Georgia.
Short-term Workforce Displacement Risks in Vulnerable Sectors
To alleviate social problems stemming from the labor market shock during the strict, short-term quarantine measures, the clear need for safety net programs has raised the important questions of how they should be designed and who the recipients of support should be.
The discussion of social program designs requires a thorough analysis of the potential target groups. As mentioned in the previous section, after drastic quarantine and lockdown measures, many people in Georgia are at risk of finding themselves without jobs or with decreased salaries and earnings, which, in turn, is a main cause of social problems, like the inability to provide food and other necessities. The highly affected groups, as outlined in Table 1, can be clustered across the following sectors of economy:
- The accommodation and food service sector is currently the most directly and highly affected sector. Hotels and restaurants are completely closed for an uncertain period, except for the food delivery business. However, even this is constrained to certain periods of the day, since according to the state’s emergency rules after 21:00 all movement, including delivery, is forbidden.
Most people hired within accommodation businesses face temporary job loss. This group includes hotel administration staff, housekeeping staff, people working in hotel restaurants, etc. Similarly affected are employees in restaurants and cafés, faced with cutbacks in salaries, if not complete job loss.
Another significant group within this sector are the self-employed. Owners of small family hotels and restaurants, typically dependent on tourism expenditure, now find themselves without any cashflow.
- A significant portion of the wholesale and retail trade sector also faces major shutdowns. To begin with, employees of trade centers and individual stores are now out of work for an indefinite period. These include consultants in clothing stores, hardware stores, household appliance stores, etc. A very limited number of shops that continue to work via online sales have retained several employees on decreased salaries.
The reality is also harsh for the self-employed in retail trade. Open marketplaces, including construction materials shops and farmers’ markets have been shut, and such people are left without a vital income source. It should also be noted that most of these workers are members of a lower social strata and are less likely to have enough, if any, savings for the quarantine period.
- As for the relatively small, but equally affected, arts, entertainment and recreation sector, art galleries, museums, night clubs, theatres, movies, and sports and spa facilities, have all been closed down due to their ‘non-vital’ function. Salaried as well as self-employed workers in these sectors found themselves without employment soon after the state emergency was announced.
- Additional highly affected groups are those hired and self-employed in the transportation sub-sectors. The closing of public transportation has left hired bus, metro, and minibus drivers entirely without work.
Other than hired employees, self-employed drivers for intercity transportation are now left without work since intercity commuting is now forbidden under the state of emergency. Comparatively less affected are self-employed taxi drivers, who are still allowed to work, however only between 06:00-21:00. The fact that many drivers previously worked night shifts, combined with declined daytime demand, results in significant cutbacks in daily earnings for taxi drivers.
- Another significantly affected group are those workers employed in households. These include housemaids, nannies, private tutors, handymen, etc. Since everyone is being cautious and following social distancing instructions, many households have dismissed their hired help for an indeterminate period, and even those still employed have a hard time getting to work due to the suspension of public transport, and are therefore left without vital daily income.
- The agriculture, forestry, and fishing sector, the largest in terms of employment, remains less affected relatively, though it is facing restrictions since restaurants and cafés require fewer agricultural products than before. Moreover, as farmers’ markets have closed, their access to marketplaces has become significantly constrained. Farmers are now supplying only supermarket chains and restaurants with delivery services, a significant economic decrease compared to the normal environment. It should also be noted that self-employed small farmers are in the majority in the sector. Such workers are likely without strong links to supermarket chains or restaurants, and therefore, they will be more noticeably affected by the economic impact.
An important specificity of self-employed and domestic workers is that many are also informally employed, thus their identification by official sources (i.e. in tax returns or small business registers) is extremely problematic. Thus, the existence of a large variety of potentially affected groups, as well the inability to correctly estimate the severity of impacts across groups, highlights the need for a temporary social protection mechanism that will cover all affected parties, particularly since the people included in the groups above are not typically the main recipients of social assistance programs.
Decomposition of Labor Market Impacts by Gender
In this section, we present the gender decomposition of labor market impacts, and conclude that unemployment-driven assistance may benefit men considerably more than women.
Chart 1 summarizes the distribution of self-employed and salaried men and women across low, medium, and highly affected industries, based on the sub-sectoral assessments previously described and using gender-disaggregated employment data.
Figure 1: COVID-19 impact on possible workforce displacement, by gender
It is evident that the proportion of employed men is significantly higher in the most vulnerable sub-sectors. Such a picture is highlighted by the high male-employment ratios in construction, transportation, and parts of manufacturing, as well as the high female-employment in the minimally affected education and healthcare industries[4].
To summarize, during the current crisis men are more susceptible to job displacement, and if a social assistance policy is solely based on labor market outcomes, they will yield higher benefits. Such social support mechanisms will deepen existing gender inequalities[5] in the country as women face disproportionate and increasing burden of care work (in situation of lockdown).
Social Assistance Policy Objectives in a Crisis
Considering the diversity of groups influenced by the lockdown, any assistance program should have several main policy objectives:
- Maximizing the reach of a policy to those in need and minimizing their risk of impoverishment – a large part of the population is affected by the lockdown, thus there is a substantial risk of increasing poverty directly from job loss and indirectly via job losses within families. Social assistance should, in a best-case scenario, reach the maximum number of disadvantaged people, while avoiding providing assistance to the affluent.
- Minimizing fiscal pressure – social assistance can create substantial pressure on the budget, especially in the current situation as revenues have decreased due to the lockdown. Furthermore, people who do not require support should not receive assistance, thus, decreasing unjustified pressure on the budget.
- Progressivity and gender responsiveness – an assistance program should provide proportionally larger support to those in greater need and aim to balance support by gender.
To mitigate the negative social impact of the economic lockdown, the government will have to provide significant and effective social assistance. And this is where all governments face a key dilemma, as they decide between providing targeted versus universal assistance.
An Overview of Targeted vs. Unconditional Universal Assistance
Targeted assistance is based on the methodology to define target groups, this could be under a points-based system (similar to current targeted social assistance available in Georgia) or a certain criterion defining affected groups. Under any targeting approach, two major challenges exist: (i) missing certain affected people (exclusion error), where defining an ideal criterion is impossible; and (ii) supporting those who do not require any assistance (inclusion error). Hanna and Olken (2018)[6] show that targeted programs have the potential to maximize welfare, however, they require a substantial amount of data and effort to minimize errors in the inclusion and exclusion of recipients. They further illustrate that, under normal circumstances, to reach 80% of poor people, the inclusion error will be around 22-31%. Deciding on a targeting methodology can also be costly and time consuming. Klasen and Lange (2016)[7] highlight that there is little difference between simple targets, such as demography or geography, and more complex asset-based measures, and both make poor proxies as they do not capture poverty effects in great enough detail.
In contrast, a universal support scheme can also be considered; defined as an unconditional transfer to every member of society. From the administrative perspective it is substantially easier to organize and administer, as it will not require the formation of targeting methodology or identification of target groups. Compared to targeted assistance, universal support will simply not have exclusion errors. However, the universality of the scheme would be associated with large inclusion errors. Nevertheless, considering the current situation in Georgia, with a large variety of affected groups, the inclusion error need not be as high as in normal circumstances. As previously noted, due to the lockdown, the number of vulnerable groups will have increased substantially.
Unlike targeted support schemes, there is limited practical evidence behind the implementation of universal programs (Banerjee et al., 2019).[8] However, some of the impacts can be identified from existing pilot case studies, impact assessments of existing targeting schemes, and an analysis of theoretical knowledge. The key here is that the expected impacts depend substantially on the duration and type of the support scheme (i.e. direct cash transfers, provision of vouchers or coupons, tax credit).
For our purposes we assume that the duration of the support scheme will be relatively short-term (related to the length of the lockdown). Furthermore, there is nearly no practical evidence on the impact of the long-lasting universal support schemes (Banerjee et al. 2019). Theoretically, long-lasting universal support can have a negative impact on labor force participation. Moreover, Banerjee et al. (2017)[9] finds no evidence that unconditional transfers discourage work. Considering the characteristics of the crisis, labor market participation is already limited because of the lockdown.
In addition, direct unconditional cash transfers could serve the progressivity purpose well, as households in greater need will receive a larger portion of their income, compared to those who require less assistance. Progressivity will depend on whether the recipient of a cash transfer is a household or an individual. Providing a cash transfer to households might have a disproportionate impact on larger households, requiring them to sustain themselves with less money per capita. Another important point to consider is whether money should be provided to everyone or only to the working age population (those above 15 years of age).
Coupons and Vouchers vs. Direct Cash Transfer
The type of support scheme can have a substantial influence on its impacts from the welfare and macroeconomic perspectives. One form of support scheme is the provision of vouchers or coupons to help households with utility payments or to purchase essential goods. Utility vouchers will disproportionally support more well-off households that use more appliances. The universality of such vouchers is also questionable, as some households are not connected to the utility networks (for instance the natural gas network), and thus will not benefit at all from vouchers. Considering the situation, the positive impact of vouchers is that during such a lockdown utility companies will not face liquidity problems that may otherwise arise from increased delinquency rates.
On the other hand, cash transfers allow recipients to rationalize between the consumption of different types of goods. As opposed to the provision of coupons and vouchers, transfers could further increase welfare by allowing individuals to self-rationalize (Ghatak & Maniquet, 2019).[10]
A Review of Social Support Programs Internationally
In this section, we discuss various governments’ (Table 2) social protection measures during the Covid-19 crisis. The actions taken cover the different functions of social protection, such as unemployment benefits; special social assistance or direct cash transfers; wage subsidies; deferrals of tax payments; pensions and pension fund adjustments; sickness and childcare benefits; etc.
In order to promote income security and stimulate aggregate demand, several countries have introduced either universal or quasi-universal direct cash payments (e.g. Australia, Hong Kong, Singapore, Serbia, Greece, the US). In order to further ease liquidity constraints on individuals and enterprises, some countries have announced the deferral of certain tax payments, social security contributions, rent, and utility payments (e.g. Bulgaria, Estonia, Spain, Canada). In addition, several governments are providing grants and wage subsidies to SMEs, start-ups, and other hard-hit businesses to avoid the drop in revenues and safeguard employment. In most cases, these measures were supplemented by extended unemployment benefits.
Table 2: Covid-19 social protection measures, by country
Central, South, and Eastern European Countries | Certain Social Protection Measures Taken
|
Estonia |
|
Poland |
|
Latvia |
|
Serbia |
|
Bulgaria |
|
Albania |
|
Ukraine |
|
Asia-Pacific | |
Hong Kong, China |
|
Australia |
|
New Zealand |
|
Singapore |
|
Western Countries | |
United States of America |
|
Canada |
|
Germany |
|
Greece |
|
Spain |
|
Norway |
|
Source: Policy Responses to Covid-19, IMF policy tracker, April 2020; Social protection responses to the Covid-19 crisis, ILO, March 2020; Countries’ public announcements of Covid-19 economic responses.
Alternative Policy Options
Considering the existing social challenges, policy objectives, and possible alternatives implemented around the world, we propose the following five policy options:
Option 1 – Targeted Assistance
Considering the current situation in Georgia, the state’s capacity to implement a targeted exercise is extremely limited. This is largely due to the lockdown and the complexity of matching the current economic challenges and general characteristics of target groups. One way for the government to target different groups would be to use its administrative resources and revenue service databases to identify affected unemployed people no longer receiving salaries. However, using these resources, it will be hard to identify the majority of self-employed and informal workers who have also lost their income (fully or partially) and are facing hardships; examples of these individuals may include a small business owner working at the Eliava construction materials market, a self-employed tourism sector worker, a domestic worker – a nanny or cleaning lady, etc. Under normal circumstances, such individuals do not require any social assistance, however due to the lockdown they may not have enough cash inflow to sustain their families.
Furthermore, targeted assistance can create perverse incentives for some employees. Depending on the amount of the assistance, employees (that are still allowed to work) whose net salaries are close to the assistance threshold, might be discouraged from work. For example, if targeted assistance is 200 GEL, a grocery store worker with a gross salary of 300 GEL might prefer to leave their job temporarily (as unpaid leave for example).
Furthermore, the government could target following socially vulnerable groups that are easier to identify, such as:
- Receivers of targeted social assistance, adults – 297,094 individuals;
- Receivers of targeted social assistance, under 18 – 161,374 individuals;
- Pensioners – 765,911 individuals.
Providing additional support to these groups will mean indirectly covering some self-employed individuals and informal workers. Many of such socially vulnerable groups work informally or are self-employed. Furthermore, some individuals could potentially have family members that are either informally or self-employed.
To calculate the total number of people subject to the targeted scheme, we consider the above listed individuals and add the group of hired employees that may lose the job or may have to take unpaid leave. Based on our estimates, around 200,000 hired workers may lose their income. Adding this to the number of TSA recipients (458,468) and pensioners not receiving TSA payments (692,431) brings the total number of beneficiaries of a targeted assistance scheme to 1,350,899 individuals. Assuming, 150 GEL in assistance per adult, and 75 GEL for under 18s, this will bring the cost of targeted assistance to approximately 191 mln. GEL per month.
Option 2 – Income Tax Breaks
The second policy option to consider is a variation on a tax break (tax credit, lowering income, or other taxes)[11]. Such an assistance mechanism will not be universal and only benefit the taxpayers. Furthermore, it is not a fact that tax relief will be transferred from employers to employees. Thus, essential social assistance may not be provided to a large proportion of the population. In addition, due to the lockdown, opportunities for investments have shrunk and hence, most tax saving will not influence economic growth. Finally, a decrease in tax rates will create additional pressure on government revenues, already negatively influenced by the lockdown, which may potentially create fiscal problems.
Aside from the costs of tax breaks, one should also bear in mind that this policy option is only intended for income tax payers who managed to retain their jobs. In an optimistic scenario, about 200,000 of hired employees will be left jobless, thus, about 640 thousand people will be aided by tax breaks. If income tax for all these employees would be reimbursed, the cost of tax breaks would amount to approximately GEL 136 mln. (monthly). It should also be mentioned that if companies are not paying income tax to the government, they might fail to reimburse this money to their employees, leaving some people without any assistance.
Option 3 – Unconditional Universal Cash Transfers
The third policy option is unconditional universal cash transfers. In this case, the government would make an unconditional cash transfer to every member of society. From a practical perspective there are two important questions to be answered: (i) should cash transfers be provided to individuals or to households?; and, (ii) should cash transfers only be made to the working age population or to children as well?
To minimize the potential negative consequences stemming from the possible negative gender impacts, individual payments are the preferred system. This may be as men are more often than not considered to be heads of their households, and if assistance is household-based women may not be able to take full advantage of it.
Furthermore, to ensure the progressivity of a universal cash transfer, it should not be limited to the working age population. A common approach would be to give guardians of children a decreased amount of a standard Universal Basic Income (UBI) payment (Ghatak & Maniquet, 2019). The progressivity of such a scheme is an important advantage, as it ensures support to those people who are not participants of the labor market and dependents of employed family members. Thus, the universal system helps mitigate the substantial indirect impacts on poverty resulting from job losses.
A major drawback of the unconditional universal cash transfer is its expense. This is primarily due to the large inclusion error, which accompanies this system by its very definition. However, alternatively, in a targeted program the vast majority of the affected self-employed and domestic workers (in total, close to 50% of all employment) are nearly impossible to identify. Furthermore, due to the lockdown, the potential group under risk of impoverishment is greater than under normal conditions. Consequently, compared to a perfectly targeted system (without any inclusion or exclusion errors) an unconditional universal cash transfer would be only marginally costlier.
However, with imperfect targeting, an unconditional cash transfer would be substantially costlier compared to targeted assistance. Assuming 150 GEL assistance for all working age population (2,968,964 individuals) and 75 GEL for children (754,500 individuals), the total cost of unconditional universal cash transfers would be 502 mln. GEL per month.
Option 4 – An Opt-out/Opt-in Unconditional Universal Transfers
As previously mentioned, the significant cost of a universal support scheme is a notable challenge, particularly because budgetary fiscal pressure is already high due to decreased economic activity and tax revenues. Thus, implementing a potentially costly assistance program will be hard from a public finance perspective. To partially alleviate this problem and decrease the inclusion error of universal cash transfers, the government could implement it in the following ways:
- The government could offer unconditional transfers to all individuals whose income is impossible to identify, while providing an opt-out option in case they do not deem the assistance necessary (for example, individuals and their families with savings or those unaffected by non-labor income);
- The government may assist employed workers based on their income using the following two principles:
- Offer assistance using an opt-out option to everyone whose income is below a certain threshold (for example, 700 GEL gross salary for the month of March);
- Offer assistance using an opt-in option to everyone whose income is above the threshold.
Opt-out/opt-in universal cash transfers have the potential for governmental savings. To evaluate the expected cost of this option we assume that half of all employees (i.e. 430,000) with a salary of over 700 GEL gross would opt-in into the system. In this case, the total cost of opt-out/opt-in universal cash transfers would be up to GEL 470 mln. Furthermore, in the better-case scenario, where no employees with a gross salary over 700 GEL would opt-in into the system, the total cost of the cash transfer scheme would be up to GEL 437 mln. Thus, our expected cost of the opt-out/opt-in universal cash transfer will be an average of GEL 454 mln[12].
Option 5 – Conditional Cash Transfers
To decrease the fiscal pressure associated with unconditional universal cash transfers, the government could use relatively simpler methods to minimize inclusion errors in the system. In this case, the government could potentially exclude employees who may not face an urgent need for assistance. Firstly, the government could exclude individuals who received an income of over 40,000 GEL in 2019 from the program. Secondly, those workers with an average monthly income of 1,200 GEL in 2020 could also be left outside the assistance scheme. This will allow the government to limit the inclusion error of the cash transfer system, while keeping similar overall impacts.
We evaluate the expected cost of the conditional cash transfer assuming 30% of the hired workers (258,048) having monthly income above 1,200 GEL. Based on the same population data, as for calculation of the cost of the unconditional cash transfer, the expected cost for conditional cash transfer will be roughly GEL 463 mln.
Multi-Criteria Analysis of Policy Options
To summarize these options, we have created a multi-criteria assessment of the different possibilities for social assistance using our pre-defined policy objectives. We assess each policy option on a 5-point scale, with 1 representing the worst performance, while 5 showing perfect performance. The overall efficiency of the policy option is a simple average of points in each criterion.
Table 3: Multi-Criteria Assessment of different social assistance systems during Covid-19
Assessment Criteria | Option 1 – Targeted Assistance | Option 2 – Income Tax Break | Option 3 – Unconditional Universal Cash Transfer | Option 4 – Opt-out/opt-in Unconditional Universal Cash Transfer | Option 5 – Conditional Cash Transfer
|
Monthly Cost of the assistance Scheme (mil. GEL) | 191 | 136 | 502 | 454 | 463 |
1. Minimization of Exclusion Error (minimization of impoverishment risk) | 3 | 1 | 5 | 5 | 4 |
2. Minimization of Inclusion Error (minimization of fiscal cost) | 4 | 2 | 2 | 3 | 3 |
3. Ease of implementation | 2 | 5 | 5 | 4 | 4 |
4. Progressivity | 4 | 1 | 4 | 5 | 5 |
5. Gender responsiveness | 3 | 2 | 5 | 5 | 5 |
Overall Efficiency |
3.2 | 2.3 | 4.2 | 4.4 | 4.2 |
Summary and Recommendations
In this policy note, we have summarized the potential social impacts of Covid-19 and the subsequent lockdown caused by the pandemic. Our assessment of the sub-categories of employment show that there is a large group of mid to highly affected individuals among the employed populace. Around 30% of hired employees will be significantly influenced, while 22% will suffer a medium impact. The impact on the self-employed will also be substantial, roughly 15% of the group will be highly affected, where 84% of self-employed individuals will feel a medium impact from the lockdown. The impacts are also disproportionate from a gender perspective, posing a risk of unemployment-driven assistance benefitting men more so than women.
Having reviewed international responses to the Covid-19 crisis from 17 selected countries, the evidence compiled has helped to form possible designs for a social assistance program. We believe that direct cash transfers to individuals are preferable to providing assistance for the purchase of specific goods or services, as individuals can self-rationalize.
Our multi-criteria assessment shows that an opt-out/opt-in unconditional universal cash transfer is marginally better compared to other universal cash transfer schemes. It has the best performance in minimizing the risk of impoverishment. Furthermore, our analysis shows that under the current conditions, the government’s ability to correctly design a targeted program that is able to reach all affected individuals is limited. This is primarily due to the relatively high percentage of self-employed on the Georgian labor market. Consequently, a targeted program would have a limited impact on minimizing the risk of impoverishment. This is even more true for possible tax breaks. The greatest merit of a targeted program is that it imposes less fiscal pressure and is thus substantially less costly compared to a universal support scheme.
Annex 1 – Comparison of Sectoral Impact Assessments by ILO (globally) and ISET-PI (for Georgia)
Annex 2 – Summary of the assumptions used for calculating costs of different support schemes
Indicator | Amount | |
Population | ||
A | Working Age Population (>15) | 2,968,964 |
B | Population Below Working Age (<15) | 754,500 |
C | Total Population | 3,723,464 |
Hired Workers | ||
D | Total Hired Workers | 860,161 |
E | Hired Workers with salary above GEL 700 | 430,081 |
F | Share of hired workers with salary above GEL 1,200 | 30% |
G | Total number of hired workers who lose labor income | 200,000 |
H | TSA Recipients (>18) | 297,094 |
I | Pension Recipients | 692,431 |
J | TSA Recipients (<18) | 161,374 |
Cash Transfer | ||
K | Cash transfer per adult (GEL) | 150 |
L | Cash transfer per child (GEL) | 75 |
- [1] ILO Monitor 2nd edition: COVID-19 and the world of work, April 2020.
- [2] NACE 2 classification system, 4-digit level
- [3] Based on the Labor Force Survey, Geostat (2018)
- [4] One has to note that the working environment for frontline health workers has changed and they are exposed to higher health risk and psychological stress, which regardless of relatively stable labor market positions makes them more vulnerable physically and psychologically.
- [5] For example, more women live in poverty as demonstrated by the fact that 55% of social assistance recipients are women.
- [6] Hanna, R. & Olken, B. (2018). Universal basic incomes vs. targeted transfers: anti-poverty programs in developing
- countries. J. Econ. Perspect. 32(4):201–26.
- [7] Klasen, S. & Lange, S. (2016). How narrowly should anti-poverty programs be targeted? Simulation evidence from Bolivia and Indonesia. Discuss. Pap. 213, Courant Res. Cent., Göttingen, Ger.
- [8] Banerjee, AV., Niehaus, P. & Suri T. (2019). Universal basic income in the developing world. Annu. Rev. Econ. 11:961–85.
- [9] Banerjee, AV., Hanna, R., Kreindler, G. & Olken B. (2017). Debunking the stereotype of the lazy welfare recipient: evidence from cash transfer programs. World Bank Res. Obs. 32:155–84
- [10] Ghatak M. & Maniquet F. (2019). Some theoretical aspects of a universal basic income proposal. Annu. Rev. Econ.11.
- [11] For the purposes of this policy option we will concentrate solely on income tax breaks.
- [12] These scenarios do not consider additional potential saving from individuals with an opt-out option utilizing this opportunity.
Disclaimer
This policy brief was first published as an ISET policy note on April 17, 2020 under the title “The Social Impacts of COVID-19 – Case for a Universal Support Scheme?”.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Safety of Older People During the Covid-19 Pandemic: Co-Residence of People Aged 65+ in Poland Compared to Other European Countries
Bearing in mind that the estimated fatality rates related to Covid-19 infections are substantially higher among older people, in this Policy Paper we focus on the demographic composition of households of people aged 65+ as one of the social risk factors that influence the consequences of the pandemic. In light of plans of easing isolation restrictions and a gradual return to higher economic activity, a key challenge for the coming weeks is to ensure the safety of those most at risk. Although lifting the lockdown mainly affects the lives of the working population and children, attention should be paid to the channels that could enhance transmission of the coronavirus among older people. This includes the prevalence of co-residence with those who will get back to their workplaces or schools once they are open again. Compared to other European countries, Poland has the highest rates of people aged 65+ sharing their households with younger adults and children with nearly 40% living together with people aged up to 50 years old (excluding partners). On the other hand, Nordic countries, the Netherlands, Belgium and Germany report far lower rates of co-residence among the older population. In these countries however, older people commonly reside in formal care facilities, which, in turn, have proved vulnerable to outbreaks of infections. This emphasizes that each country has to carefully determine its own strategy on the way to recovery. Among other factors, the pace at which restrictions on social distancing are lifted should take into account the prevalence of co-residence among the older population.
Introduction
According to the WHO, at the early stage of the Covid-19 epidemic, the fatality rate among coronavirus-infected people was estimated at about 3-4% (WHO 2020a), although estimates based on the data from European countries suggest that the rate is lower and is closer to 1.5% (ECDC 2020). The rate is quite varied from country to country; it also fluctuates over time. To a large extent, the figure depends on the number of tests conducted and, consequently, the reliability of information on the number of people infected (Roser et al. 2020). Nevertheless, both the risk of experiencing serious symptoms of the coronavirus infection and the risk of death from complications arising from the disease increase significantly with the age of the infected person. Furthermore, the risk is definitely higher for the patients with underlying conditions, in particular cardiovascular diseases, diabetes, or hypertension (Emami et al. 2020). The highest risk is observed among older persons, with the fatality rate of people infected fluctuating from 1.8%-3.5% in the 60-69 cohort, to 13.0%-20.2% in the 80+ cohort (Roser et al. 2020). Therefore, a major challenge in the area of health and socio-economic policy measures in the coming months is to keep the older population safe and contain the spread of coronavirus in that population.
This Policy Paper presents an analysis of the housing situation of people aged 65+ in Europe. Co-residence may be one of the relevant social risk factors that determine the probability of being infected with viruses which, like SARS-Cov-2, are spread through droplet transmission. As shown by research on intra-household transmission at the early stages of the epidemic in China, the majority (75%-85%) of clusters (group illnesses) were observed within households (WHO 2020b). Depending on the data, the coronavirus secondary attack rate within households is estimated at 7.6%-15.0% (Bi et al. 2020; KCDC 2020b), and from this perspective it is important to note that the incidence rate is the highest in the 20-29 age group, with most of them showing no symptoms of the disease while being able to infect others (KCDC 2020a).
Given the limited scope of labor market activity in the 65+ population, compliance with the self-isolation regime by this group will not interfere much with the gradual easing of socio-economic restrictions. Things look different among younger people due to their work or study, and among the youngest members of the population due to their school or pre-school attendance. In line with the regulations introducing the state of epidemic in Poland, since March 23rd, 2020, many workplaces have been operating on a remote basis, with their labor force doing work from home, and many companies and organizations having been closed. Similarly, the nurseries, kindergartens, schools and universities have been closed since the 16th of March this year. However, the government has already announced a plan to ease some of the restrictions to pave the way for a phased return to more intensive social contacts and economic activity (Council of Ministers 2020). Because of the shortcomings of distance learning and serious inequalities in access to education in this system (Myck et al. 2020), and considering the adverse impact of closed schools and kindergartens on the working parents, it seems imperative to resume the operation of these facilities as soon as possible.
A key challenge for the coming weeks will therefore be to reconcile the socio-economic benefits of lifting the lockdown with the risk of health implications arising from less stringent social distancing restrictions. Those implications may be particularly severe for older people. Thus, this Policy Paper discusses structural determinants of the well-being of older people, with a focus on the housing situation in European societies and the rate of co-residence with the younger population. The analyses outline the status in Poland in comparison to other European countries, pointing to a great diversity of health risks for older people. One factor is the difference in the prevalence of co-residence between the older and younger populace, and another is the prevalence of formalized care facilities. Next to disease statistics, these differences should be taken into account in any decisions on lockdown easing or a detailed design of policy measures.
In Poland, the percentage of people aged 65+ in co-residence with other members of the household aged 50 or below (excluding a spouse or partner) is 37.4% for the female population and 38.6% for the male population, i.e. the highest in Europe. In Poland, 12.0% of people aged 65+ share a household with school-age children (aged 7-18), and 7.7% live together with children aged 0-6. Co-residence with minors usually means, for obvious reasons, that the adult parents of the minors live under the same roof as well. However, Poland also reports one of the highest percentages of co-residence with other adults without minors. For example, 7.6% of people aged 65+ live in one household with people aged 19-30, and 17.3% share a household with adults aged 31-50 who are not their spouses or partners. It is worth noting, however, that in the European countries considered here a high percentage of co-residence is negatively correlated with the prevalence of collective dwelling facilities that deliver formalized care for older persons. In Poland, the supply of such institutions – whether public or private – has been very limited, with only 1.6% of people aged 80+ living in those facilities. In contrast, in Belgium, almost every fourth person of that age is a resident of such a facility. When it comes to the pandemic, it must be underscored that although in such institutions the interactions with younger people can be quite easily limited, the experience of many countries has shown that they have been quite vulnerable to coronavirus clusters and epidemic outbreaks.
Considering that Poland reports the highest percentage of co-residence among people aged 65+, particular attention should be paid to the challenges for health and socio-economic policy measures introduced in Poland to manage the intensity of social contacts during the pandemic. This, in particular, applies to the regulations on students returning to schools and the easing of social distancing rules for students and working adults. Therefore, in countries such as Poland, the restoration of frequent social contacts, which is necessary, inter alia, to put the economy back on track, will have to be accompanied with adequate safeguards for those who are most heavily exposed to negative health effects of Covid-19.
The first section of this Policy Paper reviews co-residence percentage data for the 65+ population, based on data for Europe (the European Union member states and Norway, Switzerland and the United Kingdom, for the remaining European countries the data is not available), from the 2017 European Union Statistics on Income and Living Conditions study (EU-SILC.) The second section presents data on older people living in long-term care facilities in a number of European countries, collected in recent years by the OECD.
1. Older People in Co-Residence With Other Members of the Household
In the analytical discussions below, the terms “co-residence” or “shared household” refer to a situation where persons aged 65+ live in one household with adults who are not their spouse or a partner, or with children under 19 years of age. In Poland, the percentage of households shared by people aged 65+ and children aged 18 or younger is one of the highest in Europe. Of all the older people in Poland that live in a household setting on a permanent basis (i.e. excluding those living in formalized care facilities), as many as 16.9% of women and 16.6% of men aged 65+ share a household with persons under 19 years of age (cf. Figure 1). With the exception of Slovakia and Romania, other countries report a much lower rate. In countries such as Norway, Sweden, Denmark, or the Netherlands, the rate is between 0.1% and 0.6% for women, and between 0.5% and 1.2% for men (65+ population).
Figure 1. Population aged 65+ in co-residence with persons other than their spouse/partner, by the age of the youngest member of the household
a) Male
b) Female
In Poland, approximately 12% of women and men aged 65+ share a household with students aged 7-18. In other words, more than 460k women and 280k men aged 65+ in Poland have direct, daily interactions with students attending schools (Table 1). In addition, 13.9% of women and 14.7% of men aged 65+ (530k and 360k, respectively) share a household with persons aged 19-30, who – according to research findings from other countries – demonstrate the highest incidence of coronavirus disease (KCDC 2020a). On top of that, these proportions are significantly higher in rural areas, and over 40% of the 65+ population in Poland live in rural areas. Compared to other countries in Europe, it is especially in the rural areas that Poland reports a significantly higher percentage of older people in co-residence with younger people (Figure 2). For example, while in Poland 19.0% share a household with children aged 7-18, and 21.1% with people aged 19-30, in Sweden in the 65+ population in rural areas those percentages are 0.4% and 1.0%, respectively, and in Belgium 1.9% and 1.5%. In urban areas the disparities in the demographic structure of households between Poland and other European countries are less pronounced, but still the share of the 65+ population in co-residence with younger people is among the highest in Europe; with 7.2% sharing a household with school children and 9.5% with adults aged 19-30. In Sweden these percentages are 0.7% and 1.7%, respectively, and in Belgium 1.2% and 3.8%.
Table 1: Population aged 65+ in Poland in co-residence with other members of the household (other than a partner/spouse).
Urban | Rural | Total | |||||
Male | Female | Male | Female | Male | Female | Total | |
Population aged 65+ (in thousands) | 1 435 | 2 268 | 1 007 | 1 508 | 2 441 | 3 776 | 6 218 |
People in co-residence with a person aged (in thousands): | |||||||
– 0-6 | 82 | 107 | 117 | 175 | 199 | 282 | 481 |
– 7-18 | 91 | 174 | 190 | 288 | 281 | 462 | 743 |
– 19-30 | 142 | 210 | 216 | 315 | 359 | 525 | 883 |
– 31-50 | 353 | 546 | 446 | 681 | 799 | 1227 | 2026 |
People in co-residence with a person aged (in %): | |||||||
– 0-6 | 5.7% | 4.7% | 11.6% | 11.6% | 8.1% | 7.5% | 7.7% |
– 7-18 | 6.4% | 7.7% | 18.9% | 19.1% | 11.5% | 12.2% | 12.0% |
– 19-30 | 9.9% | 9.2% | 21.5% | 20.9% | 14.7% | 13.9% | 14.2% |
Source: Authors’ compilation based on the 2017 EU-SILC data.
Nota Bene: Share of 65+ population not living in formalized care facilities.
Figure 2. Population aged 65+ in co-residence with other members of the household (other than a partner/spouse), by age of the other members of the household.
- Urban
Rural
2. Residents of Formalized Care Facilities for Older Persons
Households where people aged 65+ live under one roof with younger people (usually they are all family members) reflect the financial status of the family on the one hand, but on the other they offer care to those who might need it to due to their age or health status. In that respect, unlike many other countries in Europe, Poland has a very low share of older people who, due to barriers to independent living, decide to relocate to a formalized care facility or a similar setting. In 2017, less than 1% of the 65+ population in Poland lived in formalized care facilities; and for the 80+ population the share was only slightly higher and reached 1.6% (Figure 3). One reason is the low number of vacancies in such facilities: in 2017 in Poland there were, statistically, 12 beds per 1000 inhabitants aged 65+. For comparison, in Nordic countries (Denmark, Finland, Norway, Sweden) more than 12% of the 80+ population live in formalized care facilities for older people; in Luxemburg and Switzerland the rate is close to 16%, and in Belgium it is 24%. These countries also report a much higher availability: from 50 beds per 1000 people aged 65+ in Denmark to over 80 beds in Luxembourg. The share of older people living in formalized care facilities is also relatively high in countries such as Slovenia (12.6% for the 80+ population) or Estonia (9.9%).
Figure 3. Long-term care facilities – resources and utilization.
The isolation regime introduced to restrict the frequency of visits, side by side with a system of appropriate checks and controls for the staff, are relatively simple ways to reduce the risk of external coronavirus infection in formalized care facilities. Yet, as we have learnt from numerous examples in Poland and internationally, infection transmission between the residents or between the residents and the staff has been a frequent source of infection clusters and outbreaks. For example, in South Korea, even more than 30% of new coronavirus cases could be the result of transmission between hospital patients or nursing home residents (KCDC 2020a). In connection with a coronavirus outbreak in a formalized care facility in the USA, more than half of the residents had to be hospitalized and, eventually, 33.4% died (McMichael 2020). It seems that keeping the residents of formalized care facilities safe from the infection should be a priority in an epidemic control policy. However, the pace at which social distancing restrictions are lifted so that students can get back to schools and the lockdown in public spaces can be removed, should not have a vital impact on the safety of those living in the facilities, in contrast to the situation of older persons who share a household with younger persons.
Summary
The well-being of the groups with the biggest exposure to the grave outcomes of coronavirus infection deserves special attention when lifting the lockdown introduced in connection with COVID-19 pandemic. In this context, the housing situation of older people and the nature of the underlying social contacts are among important aspects to take into account in developing detailed regulations. As outlined in this Policy Paper, different countries in Europe report different status in that respect. Of all the countries in Europe, Poland has the highest share of the 65+ population co-residing with younger people. On the other hand, less than 1% of the 65+ population live in formalized care facilities. In Europe, the lowest share of co-residence is reported in the Nordic countries, the Netherlands, Germany and Belgium. At the same time, the share of the 65+ population residing in formalized care facilities in those countries fluctuates from 4% to 8%, reaching over 10% in the 80+ population.
In formalized care facilities, lockdown lifting will not have material impact on the safety of the residents or the risk of coronavirus transmission. In contrast, the households where older people live side by side with the younger populace may actually represent a significant risk factor in terms of the spread of the epidemic and infection transmission to those who are most heavily exposed to the grave complications of Covid-19.
In general in Poland, 37.4% of women and 38.6% of men aged 65+ share a household with people under 50 other than their spouse or partner. This is the highest rate of co-residence with younger people for this age cohort in Europe. In Denmark, this percentage is 1.3% for women and 3.3% for men. Even in Spain it is much less common for people aged 65+ to share a household with younger family members (the rates being 28.0% for women and 26.6% for men, respectively). Additionally, in Poland, especially in rural areas, many people aged 65+ live under one roof with school-age children (7-18 years of age: 19.1% of women and 18.9% of men in this age group, respectively); and even more (20.9% of women and 21.5% of men) share a household with adults aged 19-30, which is the age group where coronavirus infection is the most prevalent (KCDC 2020a).
In view of major discrepancies in the demographic structure of households between countries, it seems necessary to differentiate the social distancing rules and the pace with which these rules are to be eased, if one of the objectives is to protect the people exposed to the most serious consequences of coronavirus infection. Especially in such countries as Poland, the policy of gradual opening of schools and other institutions and phased recovery of economic activity should be accompanied by a broad-based communication campaign on how to protect the most vulnerable household members. It seems advisable that the campaign be conducted both in the mass media and in schools, workplaces, and public spaces.
References
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Disclaimer
This Policy Paper was originally published as a CenEA Commentary Paper of 21st April 2020 on www.cenea.org.pl. The analyses outlined in this Policy Paper make part of the microsimulation research program pursued by CenEA. The analyses are based on EU-SILC 2017 data as part of microsimulation research using the EUROMOD model and have been provided by EUROSTAT, and on publicly available OECD data. EUROSTAT, the European Commission, the National Statistical Institutes in each country, or the OECD have no liability for the results presented in the Policy Paper or its conclusions.
This Policy Paper was prepared under the FROGEE project, with financial support from the Swedish International Development Cooperation Agency (Sida). FROGEE papers contribute to the discussion of inequalities in the Central and Eastern Europe. For more information, please visit www.freepolicybriefs.com. The views presented in the Policy Paper reflect the opinions of the Authors and do not necessarily overlap with the position of the FREE Network or Sida.