Latvia Living Standards Assessment Discussion of Salient Findings of the Draft Report

1. Latvia Living Standards Assessment Discussion of Salient Findings of the Draft Report Riga July 17th, 2006 Salman Zaidi The World Bank szaidi5@worldbank.org

2. AGENDA FOR TODAY • Workshop Objectives • Discussion of main findings related to: • 1. Poverty and Inequality Trends • 2. Recent Labor Market Developments and Poverty • 3. Targeting Effectiveness of Social Transfers • Preliminary Policy Recommendations

3. POVERTY AND INEQUALITY TRENDS

4. ECONOMIC GROWTH • The Latvian economy has grown considerably faster than the EU25 average. • Per-capita GDP (PPP adjusted) is now close to one-half that of the EU25.

5. GROWTH INCIDENCE CURVE: 1998-2004 all income-groups experienced high rates of growth (around 60–70 percent); growth was spread evenly across the income distribution

6. KEY POVERTY AND INEQUALITY STATISTICS

7. POVERTY SHARES BY REGION

8. POVERTY TRENDS ACROSS REGIONS Considerable variation in poverty incidence across regions; however, all regions experienced significant poverty reduction during 1998-2004

9. INTERNATIONAL COMPARISONS • Recent World Bank study “Growth, Poverty, and Inequality: Eastern Europe & the Former Soviet Union” takes stock of the impact of growth in the region on poverty and inequality during 1998 – 2003 • Provides internationally comparable poverty estimates using a purchasing power parity PPP-adjusted $4.30 per day poverty line

10. POVERTY AND INEQUALITY COMPARISONS

11. CROSS-COUNTRY POVERTY COMPARISONS

12. 2. RECENT LABOR MARKET DEVELOPMENTS AND POVERTY

13. SUMMARY LABOR MARKET INDICATORS Since 2000, employment rates have been rising by one percentage point per year, and unemployment has also been on the decline

14. UNEMPLOYMENT RATES BY AGE-GROUP The benefits of expanded job opportunities in recent years have been widely shared across different population groups

15. ETHNICITY AND EMPLOYMENT While ethnic differences persist, labor market tightening appears to have resulted in a considerable narrowing of the employment gap between the Latvian and non-Latvian population

16. WHO ARE LATVIA’S POOR? MAIN POVERTY CORRELATES (bivariate/multivariate analysis) • We examine the demographic and social characteristics of the poor based on the 2004 HBS data, and find that household size and gender, education and labor market status of the household head are significant to poverty.

17. POVERTY AND GENDER Poverty rates do not appear to vary much by gender … However, regression analysis indicates that, controlling for other explanatory variables, having a male household head is associated with a per-capita consumption premium of roughly 10 - 14 percent.

18. POVERTY AND EDUCATIONAL ATTAINMENT The 2004 HBS data show a strong negative association in Latvia between risk of poverty and the level of education of the household head.

19. POVERTY AND EMPLOYMENT STATUS In 2004, population groups with highest poverty headcounts were those where the household heads were unemployed or housekeepers (i.e. inactive in the labor market)

20. POVERTY AND SECTOR OF EMPLOYMENT Compared to other comparator countries in Europe, a relatively large share of Latvia’s workforce is employed in agriculture

21. POVERTY AND SECTOR OF EMPLOYMENT Poverty incidence is considerably higher among the population where the household head works in the private agricultural sector POVERTY INCIDENCE (PERCENT): 2004 HBS

22. 3. TARGETING EFFECTIVENESS OF SOCIAL TRANSFERS

23. SOCIAL PROGRAMS AND THE POOR: • 2004 Household Budget Survey Data • Survey collects information on receipt of transfers in the form of (i) pensions, (ii) state social security benefits, (iii) local government assistance benefits, and (iv) state social benefits, and these data can be used to ascertain • Targeting (i.e. how good is the program at reaching the poor?) • Coverage Rates (i.e. what share of population receives benefits?) • Adequacy (i.e. how important is the transfer for beneficiaries?)

24. (I) COVERAGE RATES: • Pensions and state social benefits reach a fairly large share of the poorest quintile, while local government benefits and the unemployment program have fairly low coverage rates

25. (II) ADEQUACY: • BENEFITS AS SHARE OF TOTAL CONSUMPTION: • Total transfers are an important income source for those receiving them, especially among the poorest quintile

26. (III) TARGETING EFFICIENCY: • State social benefits and local government benefits are the best-targeted transfers, with about 30 and 28 percent respectively of total transfers under these programs reaching the poorest quintile.

27. LOCAL GOVERNMENT BENEFITS: • The share of total recipients of local government benefits that are from the poorest population quintile is much lower in Riga as compared to other regions

28. PRELIMINARY POLICY RECOMMENDATIONS • Sustaining Latvia’s impressive growth performance is key to consolidating its achievement in poverty reduction, and macroeconomic management will thus be of fundamental importance also for these achievements; • Absolute measures of poverty are needed to complement relative measures, especially to capture welfare developments in the poorest segments of the population; • Improved targeting of state and local government benefits is needed to better reach the poorest, possibly through channeling more resources to lower-income regions.