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IDB: T&T’s social programmes TOO GENEROUS
Less than a full month apart, a second Washington-based multilateral lending agency (MLA) has said T&T’s make-work programmes, like Cepep and URP, are causing problems for the country. In its second quarter Caribbean bulletin released August 7, the Inter-American Development Bank (IDB) said this country’s generous labour and social programmes are causing duplication, escalating costs and disincentives to work.
The statement comes less than a month after the International Monetary Fund (IMF) concluded its own post-Article IV Consultation in a July 9 press release on T&T: “The unemployment rate has fallen to only 3.75 per cent, although this masks sizable underemployment in government ‘make-work’ programmes.” In a four-page report within the IDB bulletin, the MLA headlined its case with the question: “Trinidad & Tobago lending a hand...or two or...too many?”
“T&T has one of the most generous set of labour and social programmes, if measured by amount spent and variety, compared with other Caribbean countries. However, the increasing expansion and permanence of programmes has led to duplication of functions even within ministries.
“Moreover, without a monitoring and evaluation of their effectiveness, costs have escalated, and with less incentives for people to enter the workplace there are signs of shortage of certain types of labour. This section describes the social and labour situation in T&T and discusses the set of government programmes and what we know about their impact on economic welfare,” the introduction said.
The report began by looking at “characteristics of poverty and labour markets,” saying that T&T is “blessed with relatively high gross domestic product (GDP) per capita—valued at US$28,743 in purchasing power parity terms in 2011, but there is scant information on the socio-economic conditions of households.”
The IDB said data on poverty and social statistics has lagged behind, explaining that while the 2014 Survey of Living Conditions is available, the last measurement of poverty is from 2005 when estimates were that 11 per cent of households, representing 15.4 per cent of the total population, were poor. The report said food accounts for around 30 per cent of household expenditure among the country’s poorest.
The report noted that education is free in T&T and that the country ranked 48 out of 61 on the Programme for International Student Assessment, although countries that participate are mostly high-income countries, “so this is commensurate with its income levels but not spectacular.” The quality of education in T&T ranked 40 out of 144 countries in the Global Competitiveness Report of the World Economic Forum, the IDB said, adding that “the translation into the labour market shows an important catchup of women over men.”
Between 1980 and 2012, the country’s population grew by 22 per cent to 1.3 million, distributed mostly equally between men and women. “Moreover, during that period, the labour force participation rate grew from 55 per cent to 62 per cent, which is solely explained by an increase in the labour force participation rate of women, which rose dramatically from 32 per cent to 52 per cent,” the IDB said.
“This is an important change in the labour supply, which also impacts labour productivity as well as the types of jobs that could have a greater supply going forward,” the IDB said. “However, as is typical in many countries, the unemployment rate of women is larger: 6.2 per cent compared with 4.1 per cent for men, and average wages of men are higher. Given the better performance of girls in the education system, it may well be that the segmentation of the labour market is a factor in the possible withdrawal, or non-participation, on the part of some women.
“Since the Survey of Living Conditions yielded this poverty estimate, direct transfers and subsidies to households (excluding unemployment relief, training, and other services) have risen dramatically, from three to seven per cent of GDP between 2003 and 2013, with a big increase occurring in 2009 after the recession. Moreover, as will be discussed shortly, it is not clear whether there has been an impact on poverty and employment outcomes and, if there has, whether this has been achieved in the most efficient way possible financially.”
The IDB identified 62 social protection and labour programmes, out of which at least ten were created after 2007. “More importantly, many were expanded,” the IDB said. Of the 62, 27 were safety net programmes, 32 were active labour market programmes, and three were social insurance programmes. Human capital development, microenterprise development, training, cash, and labour market intermediation services were the “main benefits” provided across programmes identified.
“More than ten institutions (including government ministries and agencies, and statutory bodies) were found providing social protection and labour benefits through one or more programmes. Six main programmes of social protection and employment consume 63 per cent of the social sector budget in 2014, which is equal to almost $7 billion or 4.8 per cent of estimated GDP,” the IDB sid.
“While most programmes are means-tested, once some form of eligibility is established it is fairly easy to qualify and to apply for continuation. Most programmes are internally audited—although infrequently—but none of the main ones are monitored for efficacy and follow-through.”
For the main poverty safety net programme, the Targeted Conditional Cash Transfer Programme serves about 43,000 households “but has only 105 case workers,” the IDB said. “It provides food assistance in the form of a cash transfer and developmental programme to vulnerable households. The cash transfer component is delivered via the Trinidad and Tobago Debit Card (TT Card).”
The IDB also looked at the RISE-UP (Rights of Individuals to Social and Economic Security-Universal Prosperity) programme observing that it provides rehabilitative and developmental support through training, assistance in finding employment, budgetary and family planning, and career guidance, but “in addition to other programmes for handicapped and disabled individuals, almost 200,000 individuals are served, but few are evaluated.”
Turning to training and education grants, the IDB said: “Training has been expanded in recent years, and there has been an improvement in certification. While access to training and opportunities for vocational training are very important elements of human capital development, many of these programmes overlap and are not necessarily tied to demand needs in the workplace, at least not in a systematic manner.”
A 2007 IDB-financed evaluation found duplication in three main areas: the types of skills and training provided, the target group, and the type of accreditation, the report said. “Many programmes offer the same classes for the same group of people, and not all of them have accreditation,” the report said. Unfortunately, the IDB said, the effectiveness of programmes is not measured and students are not tracked after training.
Regarding GATE, the IDB said, neither a monitoring nor a tracer study of this programme exists to evaluate educational and employment impact of college graduates who received it. The report said: “Moreover, because the programme is not means-tested, students who can afford to pay tuition also receive free access, so overall the subsidy is biased in favour of wealthier individuals.”
Cepep and URP, the IDB said, are the two main employment creation programmes and though they are substantial in size, “little is known about their impact. Both are relatively large programmes where the size and activities are not tied to labour market conditions in the private sector.” By far the largest concern of these programmes is the lack of monitoring and evaluation, the IDB said, particularly given that a substantial part of the nation’s budget goes to them.
“Many of these social programmes, while virtuous on their own, are unfortunately part of an overgenerous state, which, in recent years, has markedly increased their current transfers and subsidies to households and public entities (from nine to more than 19 per cent of GDP in the decade ending in 2013).” This figure, the IDB said, does not include the full cost of the fuel and electricity subsidies, which could be more than six per cent of GDP and generally favour the wealthy (who consume more fuels and electricity per capita).
Eroding labour productivity
“The set of subsidies may also be eroding labour productivity,” the IDB said, as there are increasing complaints of scarcity of productive unskilled labour, a sense that work effort in Cepep and URP is “less well-monitored,” some households have sufficient benefits to afford a decent standard of living without having to look for full-time work, and “effective labour supply may be lower than demand” or put colloquially “people doh want to work.”
Another side effect of generous benefits to training and tertiary education is that many graduates are not able to find work commensurate with their skills, and have to settle for jobs below their qualifications, which itself erodes skilled labour productivity, the IDB said. The MLA recommended “dialogue with the private sector about the types of jobs that will be needed, particularly in more high-tech areas where T&T could create some value-added to products and services.
The report said training should be tied to prospective hiring as policies that lead to the attraction of more foreign investment or growth of dynamic export industries and link them more closely to training could help boost economic activity while increasing the chance of placement of trainees.
The IDB said: “At present, the set of programmes, although well-intentioned, may negatively impact the quality and quantity of labour supply. Cross-country evidence shows that structural, sustainable economic growth in the long term, which leads to reduced structural poverty, occurs as a result of increased labour productivity, not larger handouts.”