Social Protection and Social Inclusion in Azerbaijan European Commission Directorate-General for Employment, Social Affairs and Inclusion Manuscript completed in 2011 European Commission Neither the European Commission nor any person acting on behalf of the Commission may be held responsible for the use that may be made of the information contained in this publication. Contractor: Caucasus Research Resource Center - Azerbaijan (http://www.crrccenters.org) Experts: Gursel Aliyev Anar Valiyev Sabina Rustamova Special thanks are given to Robia Charles, Malte Viefhues, Catherine Scott, Turkhan Sadigov, Rahima Guliyeva and others who have helped in the creation of this document. © European Union, 2011 Reproduction is authorised provided the source is acknowledged. 2 Table of Contents Executive Summary.............................................................................................8 Chapter 1: Economic, Demographic, Labor Market and Education Trends ........18 1.1 Economic Development after the Collapse of the Soviet Union ............................ 18 1.2 Main Macroeconomic Trends ................................................................................. 19 1.3 Budget, Fiscal Policy and Governance ................................................................... 21 1.3.1 Taxation.................................................................................................... 22 1.3.2 Governance and Business Environment................................................... 23 1.4. The Labor Market Situation................................................................................... 24 1.4.1 Labor Market Development ..................................................................... 24 1.4.2 Self-employment and Undeclared Work.................................................. 27 1.4.3 Inactivity................................................................................................... 29 1.4.4 Wage Policy ............................................................................................. 30 1.4.5 Unemployment ......................................................................................... 32 1.4.6 Labor Market Policy................................................................................. 33 1.5 The Education System ............................................................................................. 37 1.5.1 General Information ................................................................................. 37 1.5.2. Public Expenditures on Education and Wages........................................ 38 1.5.3. Access to Education ................................................................................ 39 1.5.4. The Quality of Education ........................................................................ 41 1.6. Demographic Trends .............................................................................................. 43 1.6.1 Emigration and Labor Remittances.......................................................... 46 1.6.2 Territorial Income Disparities and Regional Good Production................ 47 Appendix: .......................................................................................................................48 References ......................................................................................................................58 Chapter 2: The Social Protection System...........................................................62 2.1 Historical Development............................................................................................ 62 2.1.1 Social Assistance and Social Protection Schemes ................................... 63 2.2 Financing of Social Protection and Social Transfers ............................................ 64 2.2.1 Patterns of Revenue Collection and Expenditures ................................... 65 2.3 Types of Benefits and Services ................................................................................ 67 2.3.1 Contributory Benefits............................................................................... 67 2.3.2 Non-Contributory Benefits....................................................................... 69 2.4 Social Protection and Support for Most Disadvantaged ........................................ 72 2.5 Influence of International Organizations............................................................... 74 2.6 Key Challenges and Recommendations .................................................................. 75 Appendix: .......................................................................................................................77 References ......................................................................................................................79 Chapter 3: Poverty and Social Exclusion: Dimensions, Characteristics, Trends and State Programs............................................................................................82 3.1 Researching Poverty and Social Exclusion in Historical Perspective................... 82 3 3.2 Poverty and Exclusion in Azerbaijan...................................................................... 84 3.2.1 Official Poverty Incidence and Regional Disparities ............................... 84 3.2.2. Income and Consumption Inequality ...................................................... 87 3.3 Non-monetary Dimensions of Poverty .................................................................... 88 3.4 Government Programs to Eradicate Poverty and Address Social Inclusion....... 100 3.5 Key Challenges and Recommendations ................................................................ 101 Appendix: ..................................................................................................................... 104 References .................................................................................................................... 109 Chapter 4: The Pension System: History, Coverage, Sustainability and Reform Challenges.................................................................................................112 4.1. Introduction and Historical Perspectives............................................................. 112 4.2 Existing Pension System........................................................................................ 112 4.3 Pension Reform and the Drivers of Change......................................................... 114 4.4 Adequacy of Pensions, Sustainability of System................................................... 118 4.5. Public Awareness and Acceptance....................................................................... 122 4.6. Key Challenges and Recommendations ............................................................... 123 Appendix: ..................................................................................................................... 125 References .................................................................................................................... 127 Chapter 5: Health and Long-term Care Systems: Access, Viability and Reform Challenges.................................................................................................128 5.1 Structure of Health and Long-Term Care Systems in Azerbaijan....................... 128 Historical background ..................................................................................... 128 5.1.1 Health Outcomes (EU and NAT Indicators) .......................................... 128 5.1.2 Organization and Structure..................................................................... 129 5.1.3 Public Health Services, Primary and Secondary Health Care, Long-term Care ................................................................................................................. 130 5.2 Access and Quality of Health and Long-term Care Services............................... 131 5.3 Healthcare Financing and Expenditure ............................................................... 133 5.4 Policy Development, Reforms and Program Monitoring..................................... 136 5.4.1 Key Interventions ................................................................................... 136 5.4.2 Implementation: Capital and District Levels.......................................... 137 5.5 Key Challenges and Recommendations ................................................................ 138 Appendix: ..................................................................................................................... 140 References .................................................................................................................... 148 Table of Figures Table 1.1: Azerbaijan’s Economy After Independence................................................................. 48 Table 1.2.1 Azerbaijan: Functional Classification of State Budget Expenditure, 2003-10........... 50 Table 1.2.2 Share of Taxes in Overall Budget Revenues (%)....................................................... 51 Table: 1.3.1 Azerbaijan: Labor Market Indicators, 2003-2008..................................................... 51 Table: 1.3.2 Employment Rates by Age Groups (2008) ............................................................... 52 Table 1.3.3 Employment, Wages and Productivity among Selected Sectors in 2009................... 52 Table 1.3.4 Average Monthly Nominal Wages and Salaries by CIS Countries............................ 53 4 Table 1.3.5 Gross Domestic Product