# **What good are unemployment insurance and social assistance/support buying us?**

120. All safety net programs can be thought of as income support programs, regardless of whether they are insurance-based, like unemployment insurance, or means-tested, like social assistance or social support. This particular dimension is likely to be important in situations of economic change and transformation, expected to affect a substantial fraction of the labor force or, in general, the population. The Slovak Republic has experienced such a period during the last decade or so, as part of the process of economic transition, hence it is only logical to expand the scope of our analysis to account for the effect that unemployment insurance and social assistance/support may have had on poverty.

121. Unfortunately, we can only present figures for 1996, a snapshot rather than a story in evolution. We use four different measures of poverty to check for the robustness of the results and, although the poverty numbers vary substantially according to the measure used, the qualitative effects of the programs are very similar across all four. To illustrate such effects, we perform the following exercise: we calculate poverty incidence based on total income (TI), and then we compare this number with incidence figures based on total income minus unemployment insurance, total income minus social assistance/support, and total income minus all social income.<sup>28</sup> The marginal effect of each program(s) can then be understood as the change in the poverty rate.

122. Not surprisingly, when we consider the total population as the group of reference, it can be seen that the effect of social assistance/support on poverty is much stronger than that of unemployment insurance (Table XVIII). After all, the eligibility rules for social assistance/support!SS are based on income, thus targeting the poor, and the number of recipients is much larger.

123. If instead we concentrate on a smaller segment of the population, namely active and unemployed individuals, and distinguish between these two groups, the results differ from the ones discussed above (Table XIX). In particular, unemployment insurance plays a very important role preventing poverty among the unemployed, while social assistance/support are most likely mechanisms of last resort for this group. In contrast, among active workers, social assistance/support/SS represent a more important source of support.

# **What to do next.**

124. In sum, although social assistance/support/SS take most of the burden in the fight against poverty, unemployment insurance plays a crucial role in the case of the unemployed. This protection does not come free. As we have shown in this paper, there are significant disincentive effects associated with benefit recipiency. Any reform plan should then take into account both aspects of these programs, together with the government goals and views on the ideal role of these different instruments.

_125._ There are, however, a series of recommendations that we can unambiguously make at this point, and that are very much in line with those contemplated in the Social Benefits Reform Administration Project. In particular, we consider that a higher degree of

> 28 Notice that in all cases pensions are included in total income.

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