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Inclusive Lithuania: Through Analysis-Based Policy Dialogue Towards Effective Decision Making

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Inclusive Lithuania: Through Analysis-Based Policy Dialogue Towards Effective Decision Making EUROPEAN CO MMISSION REPRESENTATION IN LITHUANIA INCLUSIVE LITHUANIA: THROUGH ANALYSIS-BASED POLICY DIALOGUE TOWARDS EFFECTIVE DECISION MAKING Economic Crisis Poverty and Social Impact Analysis (PSIA) Assessment Report Vilnius 2009 1 © United Nations Development Programme (UNDP) Lithuania Ministry of Social Security and Labour of the Republic of Lithuania European Commission (EC) Representation in Lithuania The opinions expressed in this Report do not necessarily reflect the views and opinions of the Ministry of Social Security and Labour of the Republic of Lithuania, the United Nations Development Programme and the European Commission Representation in Lithuania. 2 TABLE OF CONTENTS Introduction......................................................................................................................................................................... 4 Executive summary.............................................................................................................................................................. 6 1. Social impact of the economic recession in Lithuania ....................................................................................................... 17 1.1. Dynamics in the labour market......................................................................................................................................17 1.2. Characteristics and dynamics of the number of social assistance beneficiaries ............................................................ 21 1.3. Indebtedness of the population and developments ...................................................................................................... 23 1.4. Most vulnerable groups of the population..................................................................................................................... 25 2. Analysis of policy measures implemented in the country during the economic decline ........................................................................................................................................................................... 27 3. Survey on opinions of the most vulnerable groups of the population and experts ............................................................ 31 4. Long-term social consequences of the economic decline................................................................................................... 44 4.1. Macroeconomic developments and their influence on the country's social development in 2009-2015 .................................................................................................................................................. 44 4.2. Long-term negative social consequences of the economic decline................................................................................ 44 4.2.1 Increase in long-term unemployment and associated problems in the country .................................................. 45 4.2.2 Reduction in investment in human capital........................................................................................................... 40 4.2.3 Increase in the emigration of the population and associated problems in the country................................................................................................................................................................ 41 4.2.4 Escalation in addiction and related problems in the country............................................................................... .48 4.2.5 Increase in the crime rate in the country ............................................................................................................. .48 4.2.6 Growth of the shadow economy and corruption in the country .......................................................................... .49 5. Cost analysis of measures mitigating the negative social consequences of the economic recession........................................................................................................................................................ .51 5.1. Securing jobs.................................................................................................................................................................. .51 5.1.1. Public sector........................................................................................................................................................ .51 5.1.2. Private sector ...................................................................................................................................................... .54 5.2. Measures for integration into the labour market.......................................................................................................... .57 5.3. Support for the most vulnerable persons....................................................................................................................... .59 Conclusions.......................................................................................................................................................................... .66 Recommendations............................................................................................................................................................... .69 Sources................................................................................................................................................................................ .79 3 INTRODUCTION With Lithuania's economy still in decline, an increasing number of the population encounter various socio- economic problems (unemployment, social insecurity, income decrease, etc.). Seeking to assess possible long-term social consequences of the economic decline in Lithuania and to foresee feasible preventive and mitigating measures, the Institute of Labour and Social Research, under the request of the United Nations Development Programme in Lithuania, the Ministry of Social Security and Labour of the Republic of Lithuania and the European Commission Representation in Lithuania, carried out an assessment of the long-term consequences of the crisis in May-September 2009 (hereinafter referred to as the Assessment). The aim of this exercise is to assess possible long-term social consequences of the economic recession in Lithuania (with focus on the most vulnerable groups of the population) and put forward recommendations on the implementation of measures aimed at mitigating the consequences of the recession on the most vulnerable groups of the population in the country. For the purpose of the assessment, the survey entails the following key tasks: 1) to conduct the analysis of the socio-economic situation in the country, based on data from different national institutions (Lithuanian Labour Exchange, Bank of Lithuania, Statistics Lithuania under the Government of the Republic of Lithuania, etc.) and identify most socially vulnerable groups in Lithuania; 2) to conduct the analysis of measures implemented in the country to address poverty and social exclusion under the conditions of the economic decline (with emphasis on ongoing and newly designed measures in the country) and the analysis of interaction among these measures; 3) to estimate the impact of the economic decline on changes in poverty and social exclusion, as well as income inequality in the country; 4) to estimate the expected long-term consequences of the economic decline in Lithuania if no actions are taken to protect the most vulnerable groups of the population; 5) to conduct the cost-benefit analysis of alternative solutions: A) when implementing socio-economic policy measures launched since 1 January 2009 (after the change of the Government) and primarily aimed at balancing the national budget 1; B) when incorporating and implementing measures targeted at protecting socially vulnerable groups of the population (seeking to secure the current jobs, intensify (re)integration into the labour market, increase minimum income guarantees, etc.). 6) taking into account the results of the analysis of alternatives and the costs of different alternatives, to propose measures to mitigate the long-term consequences of the economic decline on the population (firstly protecting the most vulnerable groups of the population in Lithuania). For the purpose of the survey, long-term consequences mean consequences that will arise during the next six years, i.e. until 2015. Due to the specific character and rather short duration of the period under analysis, the assessment of the social impact of the economic decline given in Chapter 1 of the Report is based on the current statistical information (2008 – first-second quarters of 2009) which allows measuring the impact of the economic decline on the country's socio- 1 The forecasts presented in the Report do not cover amendments to the Law of the Republic of Lithuania on Support for Employment effective from 1 August 2009 as a time period is too short for assessing possible impact on labour market developments 4 economic development and reveals major changes in the national economy. Then, based on this information, projections for likely long-term social consequences of the economic downturn are made. Since economic fluctuations mostly affect socially vulnerable groups of the population (such as the unemployed, recipients of social benefits, persons having financial obligations, etc.), the assessment exercise entailed not only the analysis of statistical data but also the survey on opinions of the most vulnerable groups
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