8. Fostering social cohesion in the Western Balkans

A socially cohesive society is one that fosters the ability and willingness of its members to undertake collective action to improve societal well-being. To achieve a socially cohesive society, it is important to offer its members the opportunity to participate, to create a sense of belonging and promote trust among people, and to fight against exclusion and marginalisation (OECD, 2011[1]). Societies with low social cohesion suffer from disenfranchisement, making collective action more difficult. In turn, this limits the capacity of society to put in place means to share the benefits of progress. In good times, low social cohesion leads to increased inequality; in bad times, it can lead to violent manifestations of dissent. Actively fostering social cohesion can create a virtuous circle in which citizens feel they have opportunities to lead decent lives and to fulfil their personal objectives, and that they belong to a society that builds trust and improves the scope for collective action.

Investing in social cohesion is beneficial for citizens’ well-being and can support inclusive growth through multiple channels. Economies with more cohesive societies tend to have stronger institutions, which in turn support economic growth (Easterly, Ritzen and Woolcock, 2006[2]). The policies that support social cohesion, including social protection and labour policies, can kickstart a virtuous cycle by increasing citizen participation in society and the economy, fostering inclusive growth and opening fiscal and policy space for further improvements in inclusive institutions, in particular democratic governance institutions (Sommer, 2019[3]; OECD, 2011[1]). Available evidence supports key channels through which social protection policies in particular foster inclusive growth: social assistance contributes to increasing schooling among the poorest segments of the population, and social insurance reduces incentives for migration, especially among high-skilled workers (OECD, 2019[4]).

The Initial Assessment of this Multi-dimensional Review of the Western Balkans identified supporting social cohesion as a strategic priority for the region (OECD, 2021[5]). At present, several factors undermine such cohesion in the region. Underperforming labour markets leave many without attractive opportunities and strain the ability of citizens to be mutually supportive. Lack of participation in formal labour markets renders social protection systems, which are mostly contribution-based, unsustainable and under-dimensioned. Large inequalities between sub-regions and between ethnic groups add to the complexity. Local governments should be on the frontline in addressing these challenges, yet they often lack the capabilities in terms of organisation, incentives and funding.

Elements making up social cohesion feature high on the list of aspirations for the future in the region. The key elements include good governance, effective public services, rule of law and justice, decentralisation, quality health services, social protection and decent jobs. All ranked highly in four aspirational foresight workshops held in the region as part of the Initial Assessment of this review (OECD, 2021[5]). Having gathered a range of participants from various ministries and agencies, the private sector, academia and civil society, the workshops helped them to develop vision statements based on desired narratives of the lives of future citizens.

To provide suggestions for strengthening social cohesion in the Western Balkans, this report builds on an extensive peer-learning process with practitioners and expert assessment. Building on the Governmental Learning Spiral methodology (Blindenbacher and Nashat, 2010[6]), two peer-learning events brought together experts and practitioners from across the region and beyond to prioritise among challenges and solutions, develop ideas for action and learn from each other (Box 8.1).

Labour market policies and social protection constitute two complementary policy areas to foster social cohesion, as has become very clear during the COVID-19 pandemic. The complementarity stems from the ways in which the two policy areas interact and reinforce each other. Employment opportunities provide people income and prospects for personal development; in turn, it reduces financial pressures on the social protection system, making “room” to improve its quality. Social protection is vital in that it reduces poverty and inequalities, and serves as a safety net and support system. Co-ordinated policy efforts that create adequate employment opportunities while also establishing an effective and fair social protection system may set the stage for a cohesive society: i.e. one that offers opportunities to participate, fosters a sense of belonging, promotes trust among people, and fights against exclusion and marginalisation.

Across three sections, this chapter investigates the state of affairs for key elements of social cohesion in the economies of the Western Balkans and explores policy recommendations to improve them. Section 8.1 provides overarching analysis of key development outcomes across the regional labour markets and social protection systems. Sections 8.2 and 8.3 analyse policy challenges, and provide suggestions that may apply to all regional economies, albeit to different degrees. To support learning from others, whenever possible, policy suggestions are complemented with country examples. The regional outcomes of the peer-learning workshops constitute the key analytical basis for the present report and guide the policy analysis and suggestions in Sections 8.2 and 8.3 (Box 8.1).

Job creation remains inadequate. Employment rates have increased over the past decades in most Western Balkan economies; however, they remain comparatively low (Figure 8.1 – Panel A). Some economies (Bosnia and Herzegovina, Montenegro, and North Macedonia) show significant differences in employment outcomes across territories, further hampering social cohesion (Figure 8.1 – Panel B). To date, a rather slow structural transformation and economic diversification has not led to job creation. Western Balkan economies struggle with skills gaps and mismatches as well as low productivity. In this context, wage increases in recent years have contributed to weakening labour cost-competitiveness, as they do not reflect growth in productivity (OECD, 2021[5]).

Long-term unemployment and vulnerable employment are of particular concern for social cohesion. Many Western Balkan citizens find themselves unemployed over long time periods, leading to a potential loss of productive human capital and disconnection from labour markets. In 2019, up to 66.3% of the unemployed had been so for more than one year (Figure 8.2 – Panel A). At 52.9%, the rate of long-term unemployment among the unemployed young (15-24 years) is almost as high, in sharp contrast to a share of 11.3% across the OECD (World Bank/WIIW, 2021[11]; OECD, 2021[12]). Vulnerable employment, defined as the share of contributing family workers and own-account workers in total employment, is also very high at 22.4% in 2019, with the highest rate being in Albania at 51.2% (Figure 8.2 – Panel B).

Long-term unemployment affects persons across society, with particularly high shares among older and low-skilled people. Long-term unemployment among those unemployed aged 55-64 years is striking – averaging 81.3% across the region (Table 8.2). The lack of employment opportunities at this age implies that unemployed persons are likely to exit the labour market and live on their savings or welfare support. Indeed, at 46.7% in 2019, employment rates for older adults are 21 percentage points lower than for prime-age adults (67.7%). This situation can create significant pressure on welfare systems and represents an important loss of human capital, especially given the accumulated skills of older persons. Before the COVID-19 pandemic, 648 000 workers – across all skill levels – were long-term unemployed in the region (World Bank/WIIW, 2021[11]), Rates are particularly high among the unemployed with low skills. In Bosnia and Herzegovina, as many as 88% of unemployed persons with low skills are in long-term unemployment. The high share of long-term unemployment among medium and high skill levels is also a concern, especially given the level of investment in education.

Youth in the region are not well integrated in education and labour markets, leading to brain drain. About one in four people aged 15 to 24 does not participate in education, training or employment in the Western Balkans (Figure 8.3 – Panel A). Higher standards of living, better employment opportunities and higher salaries abroad are prompting the youth to migrate (Lavrič, 2021[14]). Recent estimates (Figure 8.3 – Panel B) show about one-third (33%) of young people across the region expressing a strong or very strong desire to emigrate, ranging from 26% in Montenegro to 43% in Albania.

Looming demographic changes are expected to exacerbate human capital deficits. Low fertility and high emigration rates (World Bank, 2021[8]) are expected to intensify demographic pressures and weaken long-term growth prospects throughout the region. These factors will drive the old age dependency ratio (the share of population aged 65+ relative to population aged 20 to 64) from 26.8% in 2020 to 47.3% in 2050 (United Nations, 2020[15]).

Women often lack equal opportunities to participate in paid work due to traditional norms, lack of care services and other barriers. While variations exist across Western Balkan economies, the regional gender gap in labour force participation (19.9 percentage points) is significantly higher than averages in the OECD (16.5) and the European Union (12.4) (Figure 8.4). There was a drop in labour force participation in 2020 in comparison to 2018 for both men and women, driven by the COVID-19 pandemic.

Employment does not guarantee well-being throughout the region. In-work poverty, the share of persons who declared to be at work (employed or self-employed) and who are at risk of poverty, is particularly high among workers in Bosnia and Herzegovina and Albania (Figure 8.5), suggesting that many people work but are unable to secure sufficient work or earn an adequate hourly rate. High in-work poverty rates affect self-employed and part-time workers in particular, which suggests that a low level of working time is a significant contributor to in-work poverty (Jorgoni, 2019[19]; Obradović, Jusić and Oruč, 2019[20]; Gerovska Mitev, 2019[21]; Haxhikadrija, Mustafa and Loxha, 2019[22]). Supporting the working poor may improve the number of quality jobs and reduce incentives for informal activities.

Despite positive economic performance in recent decades, many people in the Western Balkans still face a high risk of poverty. The share of people living at risk of poverty – defined as having an equivalised1 income below 60% of the national median income after social transfers – was 23.8% in 2020 (Figure 8.6 – Panel A). Relative income poverty, measured as at risk of poverty, particularly affects people living in rural areas, those with only primary education and the unemployed (Eurostat, 2021[13]).

Income inequality varies significantly across the region, depending on the effectiveness of social policies. Differences in market and income inequality (based on disposable income) reveal variations in both the effectiveness of tax-and-transfer systems in buffering inequalities and the underlying economic structures that constitute higher levels of inequality in some countries than in others. Overall post-redistribution income inequality (inequality based on disposable income) stands at 35.1 (as measured by the Gini index) in the region, compared with 29.5 in the European Union and 31.8 in the OECD (Figure 8.6 – Panel B).

Territorial inequalities in economic development and well-being exist in all economies in the region. One example of this is in Albania, where job opportunities are concentrated in Tirana, accounting for about 52% of all jobs. Social services, which are the responsibility of the local government (as in most regional economies), are either underdeveloped or missing in many parts of Albania, due to poor capacities and local authorities’ lack of experience. In Serbia, poverty rates in the Southern and Eastern Serbia (Region Južne i Istočne Srbije) are three times higher than in the Belgrade Region (Beogradski Region). Access to infrastructure, such as public water supply, remains an issue in rural areas in most economies.

Many minority groups, such as Roma and lesbian, gay, bisexual, transgender and intersex (LGBTI) people, face adverse well-being outcomes, also due to discrimination. Negative stereotypes, violence or denial of access to public services and jobs leave these groups largely marginalised. In all economies, Roma have very low health coverage, lower employment rates and poor access to education, public services and infrastructure (e.g. piped water and electricity), particularly in rural areas. Across economies, up to half the population believes homosexuality is a sickness and LGBTI communities often report personal experiences of harassment. Key institutional building blocks, such as empowered equity bodies can help efforts to address discrimination. However, when it comes to specific policies, the evidence suggests that closely targeting policies to the specific barriers faced by women and minorities is important for their success (OECD, 2020[24]).

Rapid population ageing will be a major challenge for achieving further increases in living standards and ensuring the financial sustainability of public social expenditure. Across the region, population ageing is already putting considerable pressure on the financial sustainability of social security systems, especially on pension expenditures and medical expenses, which tend to rise steeply at older ages. This is coupled with the rising challenge of providing quality of life and care for the growing elderly population.

Creating employment opportunities is essential for fostering social cohesion in the Western Balkans. This section analyses key regional labour market issues put forward by the peer-learning participants as well as policy suggestions based on international practice. The peer-learning participants selected low labour market integration of long-term unemployed and social welfare beneficiaries as a key issue in the region, noting that it leads to loss of skills and motivation for people while also representing a large burden on social protection systems. Lack of equal conditions for women, Roma and people with disabilities to participate in employment was identified as another major issue that hampers social cohesion and further reduces human capital, with potential negative impacts on growth. Sections 8.2.1 - 8.2.3 shed more light on these issues and suggest options for going forward.

Active labour market policies (ALMPs) play an important role in connecting people with jobs and making them job-ready2. The main goal of ALMPs is to increase employment opportunities for job seekers and to improve matching between jobs (vacancies) and workers (i.e. the unemployed) (European Commission, 2017[25]). To be successful, ALMPs need to give people motivation and incentives to seek employment while also increasing their employability, including by adapting their skills to current and future demand. In parallel, ALMPs should seek to expand employment opportunities. Various interventions can be included in ALMPs (European Commission, 2018[26]), which are broadly split into two categories: labour market services (Category 1) and labour market measures (Categories 2-7).3 Labour market services cover all services and activities of the public employment service (PES), together with any other publicly funded services for job seekers. Labour market measures cover interventions that aim to provide the unemployed or people at risk of unemployment with new skills or work experience in order to improve their employability, subsidise employers to create new jobs and/or take on unemployed people or provide placement in public jobs, and interventions supporting self-employment.

Unemployment benefits are an important complement to ALMPs but their development is uneven across the region. Unemployment benefits act as automatic stabiliser at the aggregate level by supporting job seekers in maintaining their living standards during unemployment and in seeking better job matches. To ensure complementarity, both unemployment benefits and ALMPs need to be well designed, for example by including job-seeking obligations and links to ALMP participation (OECD, 2018[27]). In Albania and Montenegro, unemployment benefits are very low, set at less than half the minimum wage. In Serbia and North Macedonia, benefits are set at 50% of previous average wages, which is in line with several OECD countries. In most economies in the region, benefits are available for 12 months; in Serbia and in Bosnia and Herzegovina (Federation of Bosnia and Herzegovina), eligibility can extend to 24 months. In general, throughout the region, unemployment beneficiaries have a mutual obligation to look for jobs and/or to participate in trainings. In reality, very often monitoring remains limited (OECD, 2021[28]) and in some economies such obligations are likely ineffective given the low levels of unemployment benefits.

The nature of labour market challenges varies among different groups of people and calls for two strategic approaches to effectively implement ALMPs:

  • First, ensure effective early interventions and make the most of existing job opportunities for people who have recently entered unemployment, aiming to re-integrate them into labour market. Rapid labour market re-integration of persons that have recently lost employment ensures that people continue earning income and applying their skills. Rapid re-integration can also reduce financial pressures on social protection systems and lower the risk that people become long-term unemployed.

  • Second, activate the long-term unemployed and people who have never been in employment (including young and vulnerable people) through intensified individualised support and an integrated implementation approach, involving collaboration with various stakeholders. Activating the long-term unemployed can reduce the need for welfare support and avoid further deterioration of valuable skills. Young persons and vulnerable groups, including Roma, often have not had an opportunity to participate in employment. These groups represent a particular challenge for ALMPs either due to their lack of work experience or low skill levels. Low integration of young and vulnerable groups is a missed opportunity that can hamper growth and social cohesion.

Although Western Balkan economies have various ALMPs in place, overall participation is low. The share of job seekers participating in ALMP measures (Categories 2-7) ranges from 5.3% of registered unemployed in Serbia (in 2018) to 9.3% in Kosovo (in 2016) (Table 8.3). Substantially higher shares are recorded (2016) in Croatia (22.1%), Slovak Republic (26.8%) and Hungary (71.4%) (European Commission, 2021[29]). With the exception of Bosnia and Herzegovina, most ALMP interventions across the region were focused on training. Sheltered jobs and supported return to work are the main form of ALMP in Bosnia and Herzegovina, and remain also quite sizeable in Serbia. Across the region, the share of youth participating in ALMPs is higher than that of adults (Table 8.3).

Unemployment registration with PES varies considerably across the region depending on their capacity and the requirements of social assistance programmes. In Bosnia and Herzegovina and Serbia, registered unemployment is significantly larger than unemployment as measured by the labour force survey (by 57% and 25% respectively). By comparison, registered unemployment is 37% of survey-measured unemployment in Albania, 70% in Kosovo and 47% in North Macedonia. Registration with the PES is tied to a range of social benefits in Serbia and in the Federation of Bosnia and Herzegovina,4 including basic health insurance coverage. This generates high incentives to register as unemployed, including for workers in the informal economy and those who are not actively looking for work (ILO/Council of Europe, 2007[34]; ETF, 2006[35]). By providing incentives for workers to register, such regulatory provisions increase the reach of the PES; however, they also stretch the ability of agencies to perform a control function and can overload placement officers with potential cases.

Low staffing levels in regional PES and high administrative workloads are key factors that limit the effectiveness of ALMPs and hamper connecting people with jobs. In 2016, the number of job seekers per PES counsellor ranged from 329 in Albania to 969 in Republika Srpska in Bosnia and Herzegovina (Table 8.4). Such a burden hinders the effectiveness of personalised counselling and job placement services (OECD, 2021[28]). In addition, PES counsellors in the region have to administer a large volume of requests for unemployment benefits. In Serbia and in Bosnia and Herzegovina, for example, unemployed persons need to register at PES in order to receive unemployment benefits, including health insurance; in Albania, social assistance beneficiaries need to register to obtain means-tested benefits. As this administrative burden falls on PES offices, counsellors are unable to effectively implement ALMPs and connect people with jobs. Even though more jobs were available per unemployed person, estimates from 2016 show large gaps in effectiveness to connect people with jobs among PES local offices within each of the regional economies. The highest effectiveness gap (i.e. lowest performance) is found in Montenegro. Serbia showed the lowest effectiveness gap. Simulations show that boosting the effectiveness of the worst-performing PES offices could improve job placement rates (Table 8.5).

Ensuring rapid labour market re-integration of those who have recently lost their jobs will require increased capacities of public employment agencies, closer collaboration with employers to leverage existing jobs and better integration of technological solutions.

  • Strengthening the capacities of PES to ensure a personalised and adapted approach to individual needs. Reducing the burden of PES counsellors is vital to provide better and more personalised services to job seekers. This could be achieved by reducing counsellors’ administrative tasks and/or by increasing the number of counsellors. To improve the quality of placement services, an experiment in Germany saw 14 local public employment offices hire additional caseworkers to lower the staff/client ratios to an average of 1:70 (from the usual 1:80 to 1:250). Evaluations showed that, with lower caseloads, PES offices could intensify counselling, monitoring and sanction efforts while also boosting contacts with local firms, resulting in shorter benefit durations for the unemployed. The costs of hiring additional caseworkers were offset by decreased unemployment benefit expenditures within a period of about ten months (OECD, 2016[38]). An option to increase resources with relative ease is to contract out employment services, for example for specific groups (disabled persons, long-term unemployed) through outcome based contracts. Some of the advantages of such an approach include increased flexibility to scale resources up or down with unemployment registrations, more efficient service provision, and more tailored services and choice for job seekers (Langenbucher and Vodopivec, 2022[39]).

  • Leverage existing jobs by increasing collaboration between employers and PES. Providing quality services to the private sector may improve the reputation of the PES as a reliable service provider for employers and increase the availability of vacancies advertised at the PES. Having dedicated “employer relationship” staff could be considered as a means to manage intake and registration of vacancies, inform employers about available ALMPs, provide targeted support for SMEs that lack human resource departments and carry out other activities. PES in the United Kingdom has put in place a Small Business Recruitment Service to serve the needs of companies with fewer than 50 employees. The service includes a specialist employer helpline, advice on the local labour market, additional support for advertising vacancies (e.g. wording and design), and post-recruitment support (OECD, 2015[40]). To further incentivise employers to publish vacancies at PES and to better link job seekers with employers, PESs could integrate job placements with job-related skills trainings to meet the labour demand of firms. South Africa offers a valuable example in which intermediary youth accelerator organisations work with the PES to provide demand-driven trainings that align with skills needed for specific jobs (Romero and Kuddo, 2019[41]).

  • Technology can cost-effectively boost the reach and accessibility of services by PES, with self-service options potentially reducing the need for personal encounters. Technology can facilitate the work of PES in several ways. The administrative burden of PES staff, for example, can be decreased by transferring the application for unemployment benefits to an online platform. Several OECD countries have implemented this option with varying degrees of take-up – from 1-2% of claimants in Spain to 88% in the United Kingdom (OECD, 2015[40]). Online training modules can be offered, as is done in Belgium (OECD, 2015[40]). Offering online encounters between employers and job seekers (replacing physical encounters in local PES offices) can also be effective, as shown by a programme offered by the PES in Sweden that replicates the concept of ”speed-dating” (OECD, 2015[40]).

  • Profiling tools help increase the efficiency of PES services by targeting resources to those most in need and offering job seekers services and support adapted to their profile. Statistical profiling can help increase the efficiency of PES service provision in the economies in the region given very high PES caseloads and the need to improve targeting. Statistical profiling includes the application of tools which assess the job-finding prospects of job seekers and help to deliver employment services more efficiently. Statistical profiling has several advantages: it delivers services more efficiently by placing clients in different groups depending on their needs, it assesses the prospects of job seekers to find work, it can help to improve the cost-efficiency of PES, and is an input into targeting and tailoring to job seekers’ needs, complementing or supporting the assessment carried out by case workers. The use of statistical profiling has become widespread across OECD countries (Box 8.2). To ensure a positive impact, it is important to overcome key potential limitations of statistical profiling, including data lags, a lack of accuracy, and a lack of transparency. Likewise, involving all stakeholders, especially case workers, in the implementation of any type of profiling early on is crucial (Desiere, Langenbucher and Struyven, 2019[42]).

  • Provide adequate opportunities to job seekers to take up trainings to reskill or upskill in line with the labour market needs. Skills are a key determinant of worker productivity and labour market outcomes. Workers with higher proficiency are more likely to be employed and command higher wages (OECD, 2018[27]). Evidence shows that training programmes that develop technical skills and competences generally improve the probability of finding employment. To be most effective, skills development programmes need to focus on skills demanded by the labour market and complement the formal education system (Sida, 2021[43]).

Activating long-term unemployed and vulnerable groups will require increased individualised attention, establishing incentives for PES staff to increase their focus on these groups, potentially introducing programmes that are different in nature and approach, and setting up an integrated targeting approach involving collaboration with various stakeholders.

  • Individualised support should be strengthened and promoted in the regional economies. PES can establish specialised units or case managers for specific groups (e.g. long-term unemployed young people, people with disabilities, Roma and other ethnic minorities) or rely on external provision when expert knowledge is required to deal with specific labour market integration issues. In Europe, employment services such as Arbetsformedlingen in Sweden or the VDAB in Flanders, Belgium, have diversified their services after the first offer of support. As such, they have tasked their staff with specific parts of counselling, while automating first level support to reduce the weight of basic and repetitive questions on initial job seeker contacts. For example, VDAB has so called job mediators who are specialised in relevant sectors in Flanders, such as construction, retail and ICT (Finn and Peromingo, 2019[44]). Reducing the burden on PES counsellors (see above) may also create space for more individualised support.

  • Establish incentives for PES to ensure adequate effort is directed toward better labour market integration of long-term unemployed and people lacking relevant job experience. Evidence has shown that attitudes of PES counsellors towards job seekers matter in terms of quality and effectiveness of the services provided (OECD, 2021[45]). The success rate of PES counsellors in matching hard-to-employ job seekers with jobs may also be increased by providing salary additions as a function of the staff member’s effectiveness.

  • Introduce special measures targeted at overcoming group-specific obstacles to employment. Due to their lack of work experience and relevant education, young people are one of the groups that face high barriers for entering employment. Youth Guarantee Schemes aim to improve the prospects of the young who register as unemployed by providing them with the right to a job offer, an opportunity to carry on with education or inclusion in an active employment measure. Activating this vulnerable group by offering pathways can help mitigate the risk of long-term unemployment and its deleterious effects on youth. North Macedonia launched such a scheme, the Youth Guarantee, in 2018. In its first year, 5 266 young people participated (2 694 of whom were women). Just under half (2 209 or 42%) successfully completed the scheme with 1 972 finding jobs (925 women) within four months. Over the next two years, participants quadrupled: by 2020, the scheme had 25 502 registered (12 863 women) with 7 684 finding employment within four months (ETF, 2021[46]). In the case of Roma, a population group facing more limited access to services and economic opportunities, technology can facilitate registration and follow-up with the PES. Contacting the PES via mobile phones, instead of in-person meetings or via e-mail, can increase the reach of the PES and boost placement chances of unemployed Roma. A similar approach has been used in South Africa, with trained youth accelerators reaching young job seekers who often live in informal settlements via phone calls. The accelerators carry out psychometric and qualitative assessments to profile the young beyond their often limited formal education qualifications (OECD, 2021[47]).

  • An integrated approach to activating long-term unemployed and vulnerable groups requires increased co-operation with other institutions such as non-governmental organisations (NGOs), social care services, educational institutions, local communities and other stakeholders that operate locally. The PES in Bulgaria has established a good practice in which youth mediators, Roma mediators and PES case managers work in the field to identify unemployed and provide help for their job-seeking activities, such as editing résumés, preparing job applications, and mediating between them and employers (Robayo-Abril and Millan, 2019[48]).

  • Entrepreneurship development programmes should be implemented alongside other ALMPs, especially in economies with high levels of self-employment and informal employment. Employment services that focus on matching job seekers to vacancies may not address the needs of self-employed workers and subsistence entrepreneurs, including small-scale agricultural workers in the informal economy (Sida, 2021[43]). Conversely, entrepreneurship promotion programmes can have very positive outcomes on employment and earnings in low and middle-income economies (Kluve et al., 2017[49]). Such programmes are most effective if they combine interventions that address the multiple obstacles to entrepreneurship, in particular they often combine capital injections with business or technical training.

The Roma constitute about 5% of the regional population and face particularly challenging labour market situations. Throughout the region, minorities – especially Roma – and people with disabilities face poor conditions to enter employment. Although accurate figures are scarce, estimates show as many as 1 027 500 Roma across the region, constituting 5.3% of total population, ranging from 1.7% in Bosnia and Herzegovina to 9.6% in North Macedonia (European Commission, 2014[50]). Labour market outcomes of Roma are significantly worse than those of other population groups (Figure 8.7). Roma have lower educational attainment and face various barriers to access on-the-job training and vocational skills. In addition, Roma generally have less access to networks and information about vacancies, placing them in a disadvantaged position when searching for jobs (Robayo-Abril and Millan, 2019[48]). This opens the scope for active labour market programmes designed to train them in occupations in which they are traditionally underrepresented to benefit from wage differentials between sectors.

People with disabilities also face barriers to employment, starting at early levels of education; they are also subject to many stereotypes and other forms of marginalisation. Some efforts are being made in the region to integrate people with disabilities into employment. Albania, for example, has made important progress by adopting two relevant laws: the law “On Promotion of Employment” (15/2019) defines a quota on employing people with disabilities (i.e. 4% of all employees); and the reforms to the law “On Protection from Discrimination” (124/2020) reinforces protection against discrimination. Despite these efforts, further progress is required to create employment opportunities for disabled persons who are able and willing to work and thus reduce pressures on social protection expenditures (OECD, 2021[28]).

Connecting people with disabilities and minority groups (such as Roma) with jobs requires policy actions targeted at their individual obstacles to enter employment, including overcoming discrimination, development of social enterprises, and other policies.

Take steps to reduce stereotypes in education and the workplace. The regional economies could conduct awareness-raising activities in the education sector and for the broader public, showcasing potential impacts of better integration of people with diverse backgrounds and abilities in terms of both increased social cohesion and impact on growth. Public institutions should serve as role models for inclusive workplaces while also encouraging private sector employers to work with disadvantaged groups.

Foster development of social enterprises (SE) as a stepping stone for integrating vulnerable groups into the labour market. SEs exist across the Western Balkans and often constitute an integral part of their development strategies, although many are still at an early stage of development and face several barriers for operations (Andjelic and Petricevic, 2020[51]). Low access to funds, which SEs need to grow and develop, is one main obstacle of particular importance considering that SEs focus primarily on social impact and operate with low profitability, given that they work with people with disabilities and other vulnerable groups with low skills and limited work experience. Currently, funding in the region comes mainly from grants and start-up investments (Andjelic and Petricevic, 2020[51]). To overcome the issue of low funding, SEs in Ireland can access loans through the provider Clann Credo, which shares 50% of loan default loss with the Social Finance Foundation. Adapted training is needed for social entrepreneurs in areas such as business development. Additionally, policies targeted at raising awareness among the general public could showcase the importance of SEs and their full potential, which in turn can increase their profitability. Likewise, the public sector could increase demand for SEs’ products by prioritising them in public procurement clauses. Co-ordination with an array of stakeholders for formulating such clauses has proven successful in the case of Barcelona City (OECD/European Union, 2017[52]). Finally, it would also be important to ensure that activities of social enterprises are oriented and adapted towards skills that vulnerable groups have and are in close geographical proximity to these groups.

Offer incentives for employers and ALMPs to increase chances for labour market participation of vulnerable groups. Various policy options – such as employment quotas, wage subsidies and services for employers – can increase incentives for recruitment of vulnerable groups. ALMPs tailored to the specific needs of vulnerable job seekers are also important. To integrate young people with mental disabilities into the labour market, the Dutch PES has been subcontracting specialised services, delivered by NGOs. Such services offer vocational training and the ability to obtain job experience (Scharle and Csillag, 2016[53]). Based on evaluation, about one in three participants achieved labour market integration in the period 2005-10. Complementary to such programmes, it would be important to improve rehabilitation, regulation on the level and conditions of disability benefits, and make changes in public education with an aim to improve access and quality.

Although there are variations across the Western Balkan economies, the low participation of women in paid work in the Western Balkans is striking. Studies show that the lack of women’s participation in the labour market has been hindering economic growth in the region (Suta, 2021[54]). Despite variations between the economies and recent progress, the regional gender gap in labour force participation of 19.9 percentage points (in 2020) is significantly higher than the OECD average of 16.5 in 2020 (Figure 8.4).

Women across the region face several barriers to entering formal employment, including lack of available childcare, institutional barriers and social norms. Women workers with children have to find ways to reconcile work and family life. In all Western Balkan economies, a comparatively long childcare gap, defined as the period in which families with children are unable to benefit from either childcare leave or a guaranteed place for their child in early childhood education and care (ECEC) until compulsory primary education, impedes access to work outside the home for several years (Figure 8.8). Enrolment in ECEC remains low in the region, especially in Bosnia and Herzegovina and North Macedonia (Table 8.6). Demand for ECEC exceeds available places in most regional economies (European Commission, 2019[55]).

Lack of flexible work arrangements also affect women’s participation in the labour market. Part-time work can be a way to combine family duties and employment and could potentially increase female labour market participation. In the Western Balkans, the share of women working part time ranges from 4.3% of total employment in Kosovo to 22.4% in Albania. By comparison, the share of women working part time in the OECD is 25.1% (World Bank/WIIW, 2020[56]). Economies that have relatively high mandatory minimum social security contributions, such as Albania, Bosnia and Herzegovina, North Macedonia and Serbia (Table 8.6), may be discouraging low-paid, part-time employment.

Social norms, such as gender stereotypes and patriarchal culture, continue to prescribe the unpaid caretaker role to women. Women bear the brunt of unpaid care work in the household (a main self-reported reason for labour market inactivity). Albanian women spend over six times more time on unpaid household chores than men, compared to around two times more in comparable regional economies (such as Serbia) and in the OECD (OECD, 2019[57]). Among those in the labour force, engagement as unpaid family workers is high among females in the region, ranging from 29.4% of female employment in Albania to 3.5% in Montenegro, compared with 1.4% in the European Union (Table 8.6).

Ensuring equal opportunities for women requires a multi-faceted approach, such as providing adequate and affordable childcare, addressing institutional barriers, and combatting negative stereotypes.

Improve access to childcare to facilitate labour market integration. Addressing limited access to childcare was a key issue put forward by peer-learning participants, especially in Bosnia and Herzegovina. Evidence shows that supplying low cost child care leads to increased employment and increased earnings for mothers (Sida, 2021[43]). Governments in the region should consider increasing supply and affordability of places in ECEC or investing in suitable alternatives, especially for children under the age of three. Several options exist to address the lack of childcare facilities, including increasing public investments for new facilities in areas where they are lacking, giving priority to low-income families in existing public facilities, and building a case for private sector investment in the childcare market. To increase access to funds, local government should also be better equipped to mobilise resources, including accessing EU grants that provide funding for childcare.

Provide appropriate frameworks for part-time work and improve flexible working arrangements. To do so, it would be important to first establish legislation to support the principle of equality between part-time and equivalent full-time workers to eliminate discrimination in hourly wages and conditions of work. In addition, it would also be important to review the structure of tax and benefit systems to avoid disincentives linked to minimum social security contributions and the loss of social benefits at low levels of labour income. Complementarily, introduction of flexible working arrangements can facilitate the return of women to work after maternity leave, including options for shared parental leave.

Address the root causes of low female labour market participation embedded in social norms. Appropriate normative and institutional frameworks are needed to promote, monitor and enforce equality and non-discrimination based on gender. The economies in the region have legislation mandating equal pay for work of equal value, but gender equality legislation and protection against gender violence and gender-based discrimination still has room for progress (OECD, 2019[57]). The approval in 2021 of the Law on Gender Equality in Serbia is a welcome development, as are discussions towards the approval of a Gender Equality Law in North Macedonia. Addressing gender gaps in wages, hours worked, occupations held and sectors of employment also requires specific action. Encouraging fathers to take parental leave can lead them be more involved in care duties, with lasting effects on their involvement in children’s growth and positive effects on children’s wellbeing. Father-specific parental leave quotas are used in a number of OECD countries (Iceland, Sweden) to that effect (OECD, 2016[65]).

Reduce stereotypes about women in education and in the workplace. The regional economies could conduct awareness-raising activities on gender equality in the education sector and for the broader public, showcasing the relevance of increased women’s participation in terms of both increased social cohesion and impact on growth. This can further empower women and encourage them to take part in professions traditionally done by men. Public institutions should serve as role models for higher inclusion of women.

Social protection is key for inclusive development and for building socially cohesive societies. This section analyses key regional issues affecting social protection as put forward by the peer-learning participants as well as policy suggestions based on international practice. At present, various labour market challenges undermine the effectiveness of social security systems to provide safety nets to people. In turn, these challenges are jeopardising the financial sustainability of such systems. Additionally, social assistance systems are often poorly targeted and inadequate, and do not sufficiently integrate beneficiaries into labour markets, thereby further increasing their dependency on welfare. Finally, local governments, which have a lead role in creating integrated social service delivery systems, often have very limited capacity and funding to fulfil their role. Sections 8.3.1 - 8.3.3 shed more light on these issues and suggest options for going forward.

Social protection systems in the region often do not provide adequate income security to those most in need. Most social protection systems in the Western Balkans combine contribution-based social security benefits with tax-financed social assistance and services. Public spending on social protection expenditure as a share of gross domestic product (GDP) (including healthcare) is 16% in the Western Balkans, ranging from 8.8% in Kosovo to 19% in Serbia; in comparison, the EU average is 26.5%5 (Figure 8.9 – Panel A). Most of the public social expenditure in the region is directed toward pensions. A high share of workers in the informal sector do not have access to benefits from the contribution-based system. Spending on means-tested benefits makes up only a very small share of overall social protection spending and – due to low benefit levels and, in some cases, poor targeting – does not sufficiently contribute to poverty alleviation (Figure 8.9 – Panel B). Meanwhile, some status groups (such as veterans and their families) receive more generous benefits in the form of pensions and social assistance benefits, regardless of their needs and labour market participation.

Current social security schemes do not provide a wide safety net for many people in the region. Across four Western Balkans economies for which data are available, only about 40% of the population is covered by at least one social protection benefit, leaving many without adequate protection (Figure 8.10 – Panel A). Except in Montenegro, the share of persons above retirement age who receive a pension ranges from 63.5% in Serbia to 69.5% in Bosnia and Herzegovina, indicating that about one-third of the elderly do not have income security in their old age (Figure 8.10 – Panel B).6 Regarding the unemployed more broadly, only about 6% receive unemployment benefits in Albania, Bosnia and Herzegovina, and Serbia, which is below other benchmark economies. This likely reflects that many long-term unemployed have exhausted their benefits, informality and limited opportunities for some, especially the young, to contribute to the social security system before becoming unemployed (Figure 8.10 – Panel B).

The structure of labour markets in the region is part of the challenge. Due to the lack of adequate and stable employment opportunities, many people, especially the young, do not contribute to unemployment insurance long enough to qualify for unemployment benefits. Additionally, many long-term unemployed have exceeded the duration of their unemployment benefit entitlements. This comes with an accompanying risk of exiting the labour market altogether, making future work less likely, which disenfranchises people. Finally, many people work informally and are very likely not contributing to the social security system; as such, they have no access to unemployment benefit entitlements and pension security.

High social security contributions in the Western Balkans, combined with lower and relatively flat personal income tax schedules, create a relatively high and regressive labour taxation, affecting especially low-wage earners. The overall level of labour taxes, measured as a tax wedge for a single worker at 100% of the average wage,7 is relatively high in three of the six Western Balkan economies (Serbia, Montenegro, and Bosnia and Herzegovina) – and also to some degree in North Macedonia (Figure 8.11 – Panel A). High tax wedges tend to discourage employers from formalising employment relationships with workers. The structure of labour taxes (the relative shares of personal income tax and social security contributions in total labour taxes) is tilted heavily toward contributions in almost all economies of the region. Furthermore, the progressivity of personal income tax8 is non-existent or very modest in all economies except Albania (Figure 8.11 – Panel B).9 The low degree of progressivity within the chosen range of the wage distribution, coupled with relatively high minimum social security contributions, means that low-earning workers in these economies face a higher relative tax wedge than those earning the average wage. This reduces the take-home pay of low-wage earners and those working shorter hours, often incentivising them to work informally or exit the labour market altogether (World Bank/WIIW, 2019[60]).

With rapidly ageing societies, current low levels of social security contributors in the active population are likely to negatively impact the financing of old-age pensions, an integral part of any social insurance system and a tool to foster social cohesion. Currently, uptake of private old-age insurance is very low in the region; public pension outlets generally make up the largest – and growing – share of overall social protection spending (OECD, 2021[5]). With the exception of Kosovo, all Western Balkan economies have undertaken major reforms of their pension systems in recent years, which has improved the financial sustainability of such systems in the short to medium term. Pension coverage is generally high and special-interest groups (such as war veterans) receive additional, non means-tested pensions; however, payments are too low to fully protect against old-age poverty (OECD, 2021[5]). In parallel, the relatively low number of pension contributors is creating additional pressures on the pension systems (Figure 8.12). In light of low labour market participation and population ageing, further efforts are needed to ensure the long-term sustainability of social protection systems and adequate protection for people. Regional economies have different pension systems with different implications for the trade-off between sustainability and generosity.

  • In 2014, Albania removed caps on maximum benefits, linking contributions and payments to incentivise pension uptake. The government also introduced means-tested social pensions, which improved the pension system’s fiscal sustainability and its overall adequacy. Despite the improvements, significant gender differences exist when it comes to adequacy: in 2018, women reaching pensionable age received 23.5% lower pensions than men. Given high informality and long-term unemployment, social security coverage needs to be increased: only 40% of the working-age population is currently covered by the pension system (Musabelliu, 2021[70]). Failure to increase coverage could lead to high reliance on social pensions in the future, which currently amounts to only 55.6% of the monthly at-risk-of-poverty threshold (Annex Table 8.A.1).

  • In Bosnia and Herzegovina, both entities have public pay-as-you-go based pensions systems, which have been reformed to introduce a points-based system, improving the outlook of the pension systems for the future (World Bank, 2020[71]). However, pensions remain inadequate for many. Although pensions constitute the largest share of social protection spending in Bosnia and Herzegovina, persons aged 65 and above are more exposed to the risk of poverty than other age groups. About 20% of individuals in this age group live below the poverty threshold (defined as 60% of median equivalised household consumption) (Obradović, 2021[72]).

  • Kosovo currently has a three-pillar pension system;10 however, lack of private savings and over-reliance on government revenues to finance pension expenditure affects pension adequacy. Without major reforms, these factors might jeopardise the system’s long-term financial sustainability. The three-pillar pension policy has advantages in terms of implementation, coverage and transparency, but also has several shortcomings. Currently, pensions rely mostly on Pillar I, which is government funded: 95% of all pensions come from government revenues, which creates significant financial pressures. That said, government-funded pensions are relatively small; more than 70% of retirees receive income worth just 21% of average net market wages. Given the low employment rates in Kosovo, the majority of citizens did not save under Pillar II (Mustafa, 2021[73]).

  • North Macedonia’s reform opted to maintain a pay-as-you-go basic pension, but also introduced (in 2019) a fully funded second pillar and price indexation of pensions, which helped to stabilise financial flows in the pension fund. Pension adequacy is good overall but the system shows significant gender gaps. Compared with men, older women have lower pensions and lower access to the pension system: among those aged 65-79, the gender gap in pension income is 22.7% while the coverage gap is 22.1% (Gerovska Mitev, 2021[74]).

  • Serbia has kept a single pillar pay-as-you-go system while also implementing various reforms to address pension fund deficits. Serbia introduced regulations that affected both the retirement age and the pension level from 2008 onwards. In combination with a 4 percentage point increase in the pension insurance contribution rate (in contrast to the reduction in contributions for health), these changes lowered the pension fund deficit (OECD, 2021[5]). Despite improved fiscal sustainability, this came at the price of lower pension adequacy. While the last in-depth projection and simulation exercise in Serbia was done in 2014, it is expected that decreasing trends in both expenditure and adequacy will continue (World Bank, 2020[75]).

Social security provision should be viewed as an integrated concept, taking into account insurance against a broad range of risks, including unemployment, healthcare needs, old age and disabilities. To close existing gaps in social security provision, Western Balkan economies will need to increase coverage, improve equity and ensure financial sustainability of the social protection system.

Increasing coverage of both social insurance and social assistance mechanisms matters for ensuring that a broad segment of the population has social security entitlements and may improve the overall financial sustainability of the system. Extending the coverage of contributory social insurance mechanisms is necessary across the region to ensure that all citizens have adequate protection against work and life risks. Such extension will require that adapted social insurance regimes are created to offer coverage to those in self-employment or in non-standard forms of employment. In the short run, the extension of social protection coverage also requires extending social assistance either through universal entitlements or through the extension of means-tested benefit schemes. Policy options to increase the coverage include:

  • Consider extending coverage of means-tested benefits. This might be especially important given that a large share of workers in the region are not fully covered by contribution-based schemes. Albania introduced (in 2015) a social pension for persons aged 70 years or above who have lived in Albania for the last five years but do not qualify for any pensions. The cost of the social pension is covered by the state budget. While this is an important initiative, its adequacy is rather low (30% of the minimum wage or EUR 62 per month). Social pensions also exist in North Macedonia, at EUR 97 per month. In Kosovo, a flat-benefit social pension of EUR 100 per month covers all citizens over 65 years living in Kosovo, with women who often did not work in the past being especially reliant on it (Annex Table 8.A.3). Universal benefits are an alternative to targeted, means-tested benefits. During the COVID-19 pandemic such interventions (like the EUR 100 grant to all adult citizens in Serbia) have proven effective, as they reach categories of citizens otherwise excluded from targeted measures. However, they are also relatively blunt and costly, by nature of their untargeted nature.

  • Simplify collection of contributions, especially for self-employed workers and those who work informally. A well-known international example are Monotax (Monotributo) schemes, which were used in Uruguay and other Latin American economies. Such schemes establish an institutional arrangement in which the tax collection agency and the social security institute agree on a simplified process and contribution rate to include micro-enterprises and self-employed workers in the contributory system. For small contributors, this simplified process includes better procedures for enrolment, payment of contributions and claiming benefits. The schemes are based on progressivity and include differential income categories (ILO, 2014[78]). In early 2000, most independent workers in Uruguay were excluded from social security coverage; introducing the Monotax scheme (in 2001) and its subsequent reform (in 2006) substantially increased social security coverage. The share of self-employed contributing to the Monotax schemes increased from 0.7% in 2006 to 7% in 2017 (Banco de Previsión Social, 2018[79]). Some features of the Monotax scheme (alone or their combination) could be particularly relevant in Albania and Kosovo, where very high shares of people work as self-employed and informally. For other Western Balkan economies, where payments can be monitored more easily, more administratively demanding systems could be considered which do not compound income tax and social security contributions, but simplify compliance for both, including flat payment social security regimes (such as Spain’s RETA) or simplified regimes (such as France’s “auto-entrepreneur”, which includes a reduced payroll tax and a simplified income tax, which is not flat, but calculated as share of turnover).

  • Consider introducing youth schemes to increase formal labour market participation and provide young people with opportunities to contribute to their social security system. Examples of such schemes are “first employment” programmes, which are essentially hiring subsidies directed at youth with no work experience and are de facto conditional on moving into formal employment. Specific examples include Mexico’s Programa Primer Empleo and Serbia’s My First Salary programme, the latter of which was implemented during the COVID-19 pandemic. To avoid deadweight loss, the OECD Jobs Strategy (OECD, 2018[27]) warns that such schemes should target low-skilled and long-term unemployed job seekers. The EU Youth Guarantee offers more sophisticated implementation forms for this concept (European Commission, 2020[80]).

  • Improve access to information and raise awareness on the importance of social insurance coverage and rights to social security for self-employed and informal workers. Limited access to information and lack of awareness, especially on potential benefits, can result in limited uptake of various schemes. To raise awareness, the Governments in the Western Balkans could consider the following policy options: providing information in formats that are simple to grasp, disseminating information through multiple channels, and ensuring involvement of workers’ and employers’ organisations and civil society organisations in disseminating information to workers and employers. A comprehensive awareness-raising and communication strategy from Cabo Verde provides a good example. Their communication strategy was divided into three stages. In the first stage, a communication campaign to target self-employed workers located in urban areas was developed. In the second stage, partnerships with workers’ organisations were established to enhance the outreach to independent workers. The third stage focused on establishing physical proximity to rural workers by enhancing the presence of the social security institution in rural areas (ILO, 2021[81]).

Improve the equity impact of the social security system by addressing the tax burden and phasing out benefit increases for special interest groups.

  • Consider changing the composition of labour taxation to shift some of the tax burden to other sources. This could be done by shifting healthcare insurance from social security contributions to personal income taxes, which would have several implications. First, it would reduce the burden of taxation on labour for both employers and employees: because the burden would be shared by all tax payers and also through other sources of income, everyone would pay less. Second, it would further reduce differences in fiscal treatment based on labour market status and income source, thereby weakening possible unintended tax incentives for self-employment or informal sector employment. Finally, this could help make the statutory minimum wage more effective in supporting pay for low-productivity workers (job quality), while mitigating any potential adverse effects on employment (job quantity) (OECD, 2018[27]). Such a shift would, however, entail increased taxation on groups without labour income (including, for example, pensioners) and would be regressive if the shift is towards value-added tax (VAT) or consumption taxes.

  • Phase out ad-hoc pension increases that favour special interest groups. In some economies (Bosnia and Herzegovina, and Kosovo), significant pension expenses are directed towards special interest groups such as war veterans. In Kosovo, amendments (in 2016) in the law on war veteran pensions introduced a spending ceiling of 0.7% of GDP. In 2020, spending remained above that threshold, at 1.1% of GDP and still dominated expenditure on subsidies and transfers (about 20%) (IMF, 2021[82]).

Ensuring financial sustainability of the social security system is key to delivering quality services on an ongoing basis and strengthening its resilience in times of crisis.

  • Recent reforms to pension systems in the region – largely through parametric reforms and, in particular, the extension of working lives – have improved their financial viability in the short term. Although the sustainability challenge is posed differently across the region, further reforms will be necessary to ensure financial sustainability beyond 10 to 15 years in most pension systems given the low ratio of contributors to pensioners. Notably, Albania, Bosnia and Herzegovina, and Serbia have among the lowest ratios in Europe. Recent reforms to limit the fiscal cost of pension systems have led to lower adequacy of pension payments, and call for systemic reforms to ensure minimum income in old age (through social pensions or minimum pension provisions) and foster retirement savings (through better implementation of complementary pillars).

  • Increasing participation in the labour force and in pension systems by boosting participation of vulnerable groups, women or persons with disabilities remains key to counterbalance the demographic pressures on social protection systems and to foster social cohesion. This implies labour market interventions as discussed in Section 8.2. It also necessitates further reforms in social protection systems to enable and incentivise work by work-able disabled persons and retirement-age persons able and willing to work.

Ensuring coherence across different elements of the social protection system both in policy design and at the operational level can help avoid perverse incentives, ease the administrative burden and allow better enforcement of eligibility rules.

  • Aligning eligibility rules and benefit levels across social protection and labour market programmes is important to ensure their coherence and avoid unintended perverse effects. For example out-of-work benefits that are more advantageous than unemployment benefit can reduce job-search intensity and increase the risk of long-term unemployment, fuelling an unemployment trap. Slovenia has recently aligned unemployment benefits and its key means-tested social assistance programme to address such an issue (OECD, 2020[83]). Coherence between social protection and labour market policies is also critical in ensuring coverage across workers with different labour market histories. Informal work and emerging non-standard forms of employment can be particularly challenging in this respect (OECD, 2019[84]). Finally, reforms in social protection tend to affect its redistribution role, and require careful balance to ensure buy-in from participating agents and build the necessary consensus.

  • Strengthened administration can also support fairer social protection systems. The prevalence of informal employment makes it difficult to enforce eligibility rules in systems with multiple regimes. Consolidated record-keeping and administration can greatly improve the ability of social protection system to deliver better and more fairly.

The prevalence of informal economic activity represents a significant policy challenge in the region and requires a holistic response that includes, but goes beyond, social protection policies. Effectively addressing informality can be greatly facilitated in a dynamic economy, underpinned by appropriate macroeconomic and sector policies, and requires protection measures for those workers who find themselves segmented out of formal jobs, and a combination of enforcement and promotion measures to incentivise formal employment among those opting out of formality (Jütting and de Laiglesia, 2009[85]). In the region, Kosovo and North Macedonia have mid-term strategies to address informality. They include monitoring and enforcement tools, but also improvements to the business environment, and incentives for the development of alternative forms of business organisation (cooperatives, social entrepreneurship) and incentives for formalisation. In Serbia, co-ordinated action is achieved through the National Program for Countering the Shadow Economy, which plays a similar role but has lower status in the strategic programming framework. Improvements in enforcement are particularly salient in all three cases, through multiple tools including inspectorate reform and the development of registries and electronic invoicing. Co-ordinated action can help make the most of specific improvements in enforcement by ensuring that they generate incentives for formalisation rather than contributing to destroy economic activity.

Social assistance is an important pillar of social protection systems to reduce poverty and create opportunities for participation in society and the labour market. In designing social assistance programmes, governments of the Western Balkans should consider several policy perspectives. First, social assistance programmes should prevent and mitigate shocks that are likely to have negative impacts on the poor. This has been particularly important during the current COVID-19 pandemic. Second, social assistance should be designed as an investment in creating growth through the economic participation of vulnerable groups. Social assistance should be seen both as a tool for poverty reduction and as a means to achieve equality of opportunity (Howell, 2001[86]). The latter is particularly important in the Western Balkans, where many long-term unemployed persons and other vulnerable groups are likely beneficiaries. At present, adequacy of social assistance is often too low in these economies, as it falls short of providing people with sufficient income. Rapid integration of these groups into the labour market should therefore be a key policy priority as highlighted in the peer-learning workshops.

Social assistance schemes are limited in the Western Balkans and have a limited impact on poverty reduction. Spending on social assistance makes up a very small share of overall social protection spending across the region, ranging from 1.6% of GDP in North Macedonia to 5% in Serbia in 2016, compared with 12.1% in the EU28. Last-resort social assistance spending makes up an even smaller share and benefit levels are inadequate: social assistance programmes across the region reduced the risk of poverty by only 3.9%, half the rate observed in the European Union (OECD, 2021[5]).

Although there is a wide variety of social assistance schemes across the Western Balkans, there is a common need to increase coverage, especially for the poorest population segments. All economies in the region have in place various non-contributory social assistance schemes, which are often topped on with various supplements and allowances. Despite differences in terms of both design and targeting, low coverage is an issue shared across all economies. Two key pro-poor social assistance schemes in Albania, economic assistance and social pensions, cover about 8.8% of the population, which is relatively low considering that in 2020 about 22% of persons lived at risk of poverty. In Bosnia and Herzegovina, large differences in access to social assistance exist between cantons (Federation of Bosnia and Herzegovina) and between municipalities (Republika Srpska); 1.9% of the total population and 6.2% of the poorest are beneficiaries of the right to permanent social assistance (Annex 8.A). Despite 18% of persons in Kosovo living in poverty in 2017, only 6% were receiving social assistance (the only programme specifically designed to protect against poverty); even in the poorest income quintile, only about 35% of households were receiving it (Haxhikadrija, 2020[87]). Major social assistance schemes in North Macedonia, including the recently adopted guaranteed minimum assistance (GMA), social pension and disability pension, cover about 3.4% of population (Barca et al., 2020[88]). Only 29 % of the poorest decile of households receive any type of social assistance in North Macedonia (ILO, 2020[89]). Serbia has two major, means-tested programmes targeting the poor: financial social assistance (FSA) and child allowance. Recent data show that FSA reaches only about 11% of the poorest quintile (UNICEF, 2019[90]).

Low coverage of social assistance should be addressed with more effective targeting and by addressing administrative barriers to obtain assistance. Albania recently undertook a major reform of its social assistance system, introducing (among other initiatives) a new targeting formula. To enable more effective targeting of the poor, the reform introduced changes in the scoring formula; given the extent of poverty, however, concerns remain that the weighting criteria still exclude a significant portion. At the time of nationwide rollout of the new formula (in 2018), about 33% of past beneficiaries were excluded (ILO, 2021[68]).11 In Bosnia and Herzegovina, the existing system of social assistance schemes creates inequalities among citizens by favouring certain groups. In both entities, a large share of social assistance is intended for the status-based, war-veteran category, leaving only a very small share going to those in need. At the same time, means-tested benefits in Bosnia and Herzegovina are conditioned on providing an incapacity to work, which can leave out many potential beneficiaries that are in need (Obradović and Jusić, 2019[91]). Recent efforts to modernise the social assistance scheme in Kosovo target its inadequate and outdated eligibility criteria,12 which exclude many in need. Despite strict eligibility rules, targeting outcomes are weak: only 68% of assistance went to the poorest quintile in 2016 (Government of Kosovo, 2019[92]). Thanks to reform in 2019, which raised the previous guaranteed minimum income threshold that excluded many people, North Macedonia’s social assistance is estimated to reach 50% more households (Gerovska Mitev, 2019[93]). In Serbia, property census and complex administrative procedures seem to explain low take-up of social assistance. Individuals who own more than a basic living area (defined as one room per family member) and agricultural land of 0.5 hectares are not entitled to financial social assistance, unless this property is mortgaged for valorisation of cash benefits. Likewise, applicants are required to submit substantial documentation, which might be a high burden for some segments of population, including Roma, many of whom do not have birth certificates (Vuković, 2014[94])

The regional economies should carefully assess adequacy of benefits to ensure impact on poverty. Comparing adequacy levels13 across various social assistance schemes in the Western Balkans shows that benefit levels are significantly below the poverty threshold (Annex 8.A). In Albania, the current average economic assistance payment of EUR 37 per month accounts for only about 14.7% of the at-risk-of-poverty threshold for a single-person household, and thus does not provide adequate support to persons in need. In Bosnia and Herzegovina, small variations exist between entities: in Republika Srpska, permanent social assistance is at 66.4% of the at-risk-of-poverty threshold for a single-person household; at 54.2%, it is even lower in the Federation of Bosnia and Herzegovina. In Kosovo, financial assistance covers only 39% of beneficiaries’ basic consumption needs. In North Macedonia, social assistance reduces poverty by only about 3 percentage points – very low against the 16 percentage points of poverty reduction associated with expenditure on pensions. In Serbia, transfers are also inadequate, especially for smaller families as the current support setup favours mainly large families; the rather generous child allowance is awarded in equal amounts to each of the first four children.

To foster social cohesion through social assistance, the regional economies should assess adequacy of social assistance schemes, increase coverage and improve targeting, and integrate vulnerable groups into the labour market.

Assessing adequacy of social assistance, and increasing the benefit amount where appropriate, can foster social cohesion by reducing poverty among the most vulnerable. According to ILO Recommendation (No. 202) (ILO, 2020[95]), cash and various in-kind benefits should at minimum secure protection against poverty, vulnerability and social exclusion. Further, minimum cash benefits can be considered as adequate if and when they provide beneficiaries with means corresponding to national poverty lines.

Increasing coverage and improving targeting should ensure that no one is left behind. Some specific policy options can include simplifying administrative procedures and streamlining enrolment, and, where appropriate, revising eligibility thresholds and exclusion criteria.

Improving linkages with local government, local communities and ALMPs can increase opportunities to participate in society and in the labour market. Creating such linkages can be achieved through community-integrated social services (Section 8.3.3).

  • Local governments and local communities, which play a key role in increasing social cohesion by providing quality social care services, require strong capabilities in terms of organisation, incentives and funding.

  • ALMPs should play a key role of bringing social assistance recipients into the labour market. They often require increased collaboration between PES and social workers responsible for administering social security benefits. Such programmes could be designed, including adapted trainings and vocational courses, specifically for individuals and families who are benefitting from cash assistance.

Establishing community-integrated social services is one of the key policy priorities that emerged from the peer-learning workshops. Community-integrated social services encompass a range of approaches and methods for achieving greater co-ordination and effectiveness between different services – such as elderly care, healthcare, education and others – with the aim of improving outcomes for services users14 (Figure 8.13). During the OECD peer-learning workshop, participants stressed the importance of community-integrated services as a key lever to strengthen social protection, deliver social care services and reduce long-term dependency on social welfare through better labour market integration.

Integrating social services provision can support efficiency and help address situations of complex needs, such as of the elderly, marginalised and long-term recipients of social assistance detached from the labour market. First, having integrated social services can lead to provision of higher quality services. Integrated elderly and healthcare, for example, can improve outcomes for older persons. Better integration of social services can reduce social exclusion of marginalised and geographically secluded persons, including through increased availability of specialised services (such as shelters) and more opportunities for social integration through education, especially when some services are lacking in some communities. Second, integration may also be more cost-effective, avoiding duplication of efforts and ensuring that each institution does what it does the best. Finally, integrated social services can be an effective way of bringing long-term unemployed and vulnerable people into the labour market, thus reducing their welfare dependency. Given the extent of issues hampering social cohesion at the local level, provision of community-integrated social services is especially important in the Western Balkans (OECD, 2021[5]).

The Western Balkan economies have a fragmented landscape of social services. Limited partnerships between key local stakeholders is often cited as a main challenge hampering the social welfare system in the region. In Albania, about 6 out of 61 municipalities have no social services.15 In Bosnia and Herzegovina most of the funds dedicated for social care (94%) go to financing institutional care, while other social services are underdeveloped (Sucur-Janjetovic, Kurta and Oruc, 2018[96]). In Kosovo, significant variation exists in the availability of social services across municipalities. Many municipalities also lack accurate data on population, which has negative impacts on planning and implementing activities (Mehmeti, 2018[97]). In North Macedonia, centres for social work and employment centres are normally physically situated together; however, lack of formal procedures and standards for mutual co-operation prevents them from collaborating (Petreski and Petreski, 2018[98]). In Serbia, social care services are still insufficiently available and unevenly developed. Homecare for the elderly and daycare centres for children with disabilities dominate social care services; others are available only in bigger cities (Matković, 2018[99]).

Local government should be on the front line of delivering community-integrated services in the region. Across the Western Balkans, local governments have the primary responsibility for publicly funded social care, such as providing information and advice, assessing care needs, arranging support for vulnerable individuals and commissioning a large range of care services to fulfil their obligations (CWC, 2019[100]). Over the last decades, decentralisation processes have given local governments greater responsibilities over social care services (Table 8.7).

Weak capacities hamper local governments from establishing effective community-integrated social services. Availability of financial means for local governments to implement and co-ordinate social services is one of the key challenges in establishing community-integrated social services. Often, resources available do not match with increasing levels of obligation (Figure 8.14 – Panel A). In some economies, shortage of local resources is evened out through transfers from the central government, including block and investment grants (Figure 8.14 – Panel B). However, some of these transfers are earmarked and therefore may not allow local government to assign resources according to needs. In turn, this undermines the subsidiarity principle, as per which higher level authorities should not intervene if issues can be dealt with effectively by lower levels of government (typically local authorities) (OECD, 2021[5]). An additional issue is that reliance on conditional transfers is uneven across local government: large cities can usually rely on a larger share of their own resources, which they can spend as they want. Secondary cities and rural areas cannot “tap” as much on local tax base, which is often shrinking under the pressure of depopulation, ageing, informality and other challenges. Other issues include highly dispersed or remote settlements in which potential beneficiaries live, and insufficient local government awareness of competencies needed in some areas of social protection.

Key preconditions for creating effective community-integrated social services are understanding the local needs of all beneficiaries, establishing shared objectives, securing commitments from all the relevant partners, setting a clear framework of responsibilities, ensuring adequate funding for local governments, and applying technological and digital solutions that can foster data sharing and facilitate collaboration.

Improving collection of population data and conducting related research is necessary for understanding the needs of people and local communities, and for providing targeted services. Across the region, estimates of the number of residents are generally based on often outdated census data and civil registration offices, which might not factor in migration flows within individual economies and abroad. As such, the current system of resource redistribution may underestimate local service users and exacerbate – rather than reduce – territorial inequalities. Likewise, missing census data might have implications for designing gender-sensitive and inclusive social and economic policies, especially during COVID-19 recovery. The implementation of the 2021 Census of Population and Housing in North Macedonia (the last census was carried out in 2002) is a significant milestone in this regard. High-frequency demographic data collection could help fine-tune the system. A second option could involve integrating geospatial data into administrative data to create a census, as is currently being explored in the Slovak Republic (Gabris, 2019[120]). Such data should also facilitate evidence-based policy making by enabling the evaluation of policies from an early stage. While existing good practices and international evidence can guide policy reforms and the design of instruments, country and population group specificities make each reform of social protection and labour market policy unique. For this reason, new policies and programmes need to be systematically and rigorously assessed (OECD, 2018[27]).

Improving co-ordination among different stakeholders is key to create shared objectives, ensure commitments of all partners, and set a framework of responsibilities. Beyond one local community, inter-municipal co-operation can make the provision of certain social services more efficient, especially in terms of sharing services. This would be particularly important for areas where some services are missing. Within local communities, it would be important to understand the potential availability of all relevant stakeholders and to support their efforts in data sharing and implementing social services. Key stakeholders that should be involved include social care services, NGOs, educational institutions, healthcare centers, local PES and others. NGOs, especially, can play an important role in providing social care services at the local level, particularly in those municipalities where social services are lacking.

Revising fiscal space of local self-governments. One option to help ensure adequate funding is to revise the mechanism of conditional grants allocation: for example, regulations could stipulate that disbursement be made conditional on achievement of certain targets, thus leaving municipalities more freedom to allocate resources. Establishing independent watchdogs of intergovernmental relationships (e.g. independent fiscal institutions [IFIs] based on OECD guidelines) with a mandate to oversee intergovernmental transfers and provide a level of ex ante control is another option that would enable relaxing strict rules on directed spending (e.g earmarked grants) so as to allow greater freedom at the local level. IFIs have this role in some OECD countries such as Belgium or Mexico (von Trapp, Lienert and Wehner, 2016[103]).

Digitalisation and adoption of technological solutions can streamline the implementation of services, decrease costs and foster collaboration. The COVID-19 pandemic, with its global shift to teleworking and digitalised services, has accelerated digitalisation. At a time when resilience requires the ability to keep an economy going while imposing physical distance between people, digitalisation is essential. The biggest potential of digitalisation might be in transforming governments and public service delivery. Inefficient government structures and lack of capacity for service delivery, especially at the local level, have been identified as major constraints to development in all initial assessments. Better governance and services were also among the top dimensions in all future visions. Examples of early-adopting economies, such as Estonia, show that digitalisation can help re-engineer structures of the public administration for higher performance at lower cost (OECD, 2021[5]).


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← 1. Equivalised disposable income is the total income of a household, after tax and other deductions, that is available for spending or saving. To reflect differences in a household's size and composition, the total (net) household income is divided by the number of “equivalent adults”, using a standard OECD equivalence scale. This scale gives a weight to all members of the household, then adds these up to arrive at the equivalised household size (Eurostat, 2021[13]).

← 2. Active labour market policies traditionally include different types of interventions: (i) matching job seekers with current vacancies; (ii) upgrading and adapting job seekers’ skills; (iii) providing employment subsidies; and (iv) creating jobs either through public sector employment or the provision of subsidies for private sector work.

← 3. Category 2 (training) aims to improve employability through training for target groups, including institutional training, workplace training, and special support for apprenticeship offering formal qualifications (incentives to recruit apprentices or training allowances for disadvantaged groups). Categories 3 and 4 (employment incentives) include subsidies covering labour costs for employers to encourage recruitment or prevent potential job losses. Category 5 (sheltered and supported employment and rehabilitation) aims to integrate persons with reduced work capacity, primarily those with disabilities, into the labour market through subsidies or rehabilitation measures to adjust to their disability such that they can then move on to work. Category 6 (direct job creation) covers non-market jobs that have been additionally created for community benefit or social use for hard-to-place job seekers. Category 7 (start-up incentives) includes measures that promote entrepreneurship through assistance in the form of targeted financial support, advice in form of targeted training and other interventions (European Commission, 2018[26]).

← 4. Republika Srpska changed the law on health insurance, whereby persons are covered by health insurance only for the duration of receiving unemployment benefits.

← 5. Data for Kosovo are for 2016; Albania and North Macedonia, for 2017; Bosnia and Herzegovina, Serbia and the EU, for 2018.

← 6. Analysis relying on survey data estimates that only about 10% of the Serbian population over retirement age does not receive a pension (European Centre for Social Welfare Policy and Research, 2021[117]). The two figures can be reconciled by the relatively wide use of early retirement schemes in Serbia and by accounting for survivor and disability pensions, on top of old-age pensions alone.

← 7. The tax wedge is defined as the ratio between the amount of taxes paid by an average single worker (a single person at 100% of average earnings) without children and the corresponding total labour cost for the employer. The average tax wedge is measured in percentage of labour cost.

← 8. Progressivity of labour taxation is calculated as the percentage point increase in the tax wedge between workers earning 67% of the average wage to workers earning 167% of the average wage (World Bank/WIIW, 2019[60]).

← 9. In terms of the progressivity of labour taxation, Albania is close to the EU and the OECD average, with tax wedge increasing by 6.5 percentage points between workers that earn 67% of the average wage to workers that earn 167% of the average wage.

← 10. Pillar I (Statutory pension schemes) is financed out of government revenue and managed by the government; Pillar II (a statutory funded scheme of individual pension savings) is managed by the Kosovo Pension Savings Trust (KPST), which is an autonomous body created by Parliament; and Pillar III are supplementary pension schemes.

← 11. Comparison of socio-economic characteristics between the eligible household and non-eligible households based on a similar sample size (690 and 696, respectively), reveals only small differences between households selected and those not admitted to the programme with regards to income, assets and access to services.

← 12. Categorical requirements for all family members unable to work, maximum one unemployed member with a child under five years, and absence of formal income (Haxhikadrija, 2020[87]).

← 13. For the purpose of this chapter, adequacy is measured by the size of the transfer relative to the at-risk-of-poverty threshold (60% of median equivalised income) for a single-person household and for a four-person household with two adults and two children, see Annex 8.A.

← 14. Definition from the Council of Europe (2007[116]).

← 15. Information provided by Ministry of Health and Social Protection in Albania.

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