ARMENIA: POVERTY REDUCTION AND SHARED PROSPERITY South Caucasus Poverty team Poverty and Equity Global Practice October 4, 2016 Acknowledgements This Poverty Assessment was prepared as part of the FY 16 South Caucasus Programmatic Poverty Assessment Technical Assistance (P156449). The Armenia Poverty Assessment team is comprised of Nistha Sinha (Task Team Leader), Moritz Meyer, Paul Andres Corral Rodas, Kadeem Ervyn Khan and Sasun Tsirunyan. The analytical work benefitted from discussions with Gohar Gyulumyan, Laura Bailey, Aleksan Hovhannisyan, detailed feedback from the Armenia Country Team. Arpine Azaryan and Armanda Carcani provided logistics and processing support. The report was written under the guidance of Mercy Miyang Tembon, Laura Bailey, Carolina Sanchez- Paramo, and Rashmi Shankar. The peer reviewers were Carolina Diaz-Bonilla and Congyan Tan. The team gratefully acknowledges all the comments and feedback received from the National Statistical Service of the Republic of Armenia (NSSRA), and participants of the consultation workshop held in Yerevan in May 2016. 1 Armenia: Poverty Reduction and Shared Prosperity, South Caucasus Poverty team Executive summary: patterns of poverty reduction and shared prosperity  Economic growth translated into higher levels of consumption for all parts of the welfare distribution and lower poverty. Consumption growth for the bottom 40 was lower than for the total of the population.  Between 2010 and 2014 poverty in Armenia declined. An international comparison shows that Armenia still has one of the highest poverty rates in Europe and Central Asia and only made limited progress after the global economic crisis hit the country in 2009.  Despite positive consumption growth for all households, (i) regional disparities between Yerevan, other urban areas and rural areas remain high, (ii) vulnerability to poverty persists, and (iii) non-monetary measures of welfare highlight development gaps. 2 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team Executive summary: drivers of income growth and poverty reduction  Income growth and poverty reduction: Decline in poverty benefited from (i) higher employment rates and wages, as well as growth in agricultural sales, (ii) remittances and (iii) social expenditure such as pensions.  Labor markets: growth of services and manufacturing translated into additional employment opportunities and higher wages. Growth of sales in the agricultural sector supported rural areas. Individuals in poor households (i) are more often unemployed, (ii) work fewer hours, (iii) are more often temporary or seasonal workers, and (iv) experience less protection due to different type of contracts. Other urban areas do not create sufficient employment opportunities in the non- agricultural private sector to accommodate decreasing employment in agricultural sector.  Migration: international migration creates employment opportunities for a landlocked country. At the same time, remittances are subject to substantial fluctuations triggered by shifts in the economic environment.  Fiscal activity: overall, taxes and expenditure reduce poverty and inequality; pensions are an important source of income and transfers through the family benefit program (FBP) reduce the intensity of poverty. Yet, poverty impact of FBP is small as budget is limited. 3 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team Executive summary: policy agenda Policy agenda: Patterns of poverty and shared prosperity suggest that policy agenda should focus on inclusiveness of economic growth: (i) Supporting growth, (ii) Investing in endowment, and (iii) Protecting the poor and vulnerable. 4 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team Agenda – Armenia: Poverty reduction and shared prosperity World Bank Twin Goals in Armenia: an international perspective Recent trends: economic growth, poverty reduction and shared prosperity Picture of poverty: who are the poor, how do they experience poverty and where do they live Sources of income growth and poverty reduction: composition of income and changes over time Behind aggregate figures: three facts on drivers of income growth and challenges Policy agenda: support, invest and protect 5 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team World Bank Twin Goals in Armenia An international perspective Economic growth An international contributed to comparison shows consumption growth Armenia’s poor for all households in performance on Armenia and poverty and shared supported poverty prosperity. reduction. Poverty reduction: In 2014, 26.3 percent of the population lived below the international poverty line of 2.5 USD PPP. Compared to 2010, poverty has declined, but the share of poor households is still higher than before the global economic crisis which hit the country in 2009. Economic growth and poverty in Armenia 60 60 GDP 50 50 growth 40 40 30 30 national poverty 20 20 10 10 2.5 USD 0 0 PPP 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2005 -10 -10 -20 -20 Poverty trend using the international poverty lines of 2.5 USD PPP, and the national poverty rate (yellow line), GDP growth in Armenia (bar graph). Note 1: World Bank staff calculation using a consumption aggregate drawn from ILCS data and harmonized for international comparison. Note 2: National consumption aggregate (using methodology adopted in 2009). Source: World Bank’s data base of harmonized consumption data (ECAPOV accessed 3/15/2016). 7 An international comparison illustrates that Armenia has one of the highest poverty rates in Europe and Central Asia. Other countries with same level of GDP per capita report lower poverty: nature of economic growth and distribution of wealth differ from other countries in the region. Poverty rate – the international poverty GDP per capita and international poverty lines of 2.5 USD PPP rate at 2.5 USD PPP 35 35 Kyrgyz Republic (2014) Georgia (2014) 30 26.3 30 25 Armenia (2014) 25 20 15 20 FYR Macedonia 10 15 (2013) Romania (2012) 5 10 0 Albania (2012) 5 Turkey (2013) Moldova (2014) 0 0 5000 10000 15000 20000 25000 Poverty rate the international poverty lines of 2.5 USD PPP (left) and relationship between GDP per capita in USD PPP and the international poverty rate at 2.5 USD PPP (right). Note: World Bank staff calculation using a consumption aggregate drawn from ILCS data and harmonized for international comparison. Source: World Bank’s data base of harmonized consumption data (ECAPOV accessed 3/15/2016). 8 Shared prosperity: Between 2009 and 2014 economic growth has contributed to consumption growth for households in the bottom 40. The distribution of growth has not been pro-poor: relatively poor households experienced larger welfare losses during crisis and slower growth thereafter. Shared prosperity—growth rate of average per capita consumption expenditure bottom 40 percent total population 6 4 3.38 3.42 3.58 2.35 2 1.64 0.69 0 2009 - 2014 2009 - 2010 2010 - 2012 2012 - 2014 -2 -4 -6 -5.47 -8 -7.54 -10 Trend in shared prosperity: growth rate of average per capita consumption expenditure (%). Note: World Bank staff calculation using a consumption aggregate drawn from ILCS data and harmonized for international comparison. Source: World Bank’s data base of harmonized consumption data (ECAPOV accessed 3/15/2016). 9 An international comparison shows that during time period from 2009 to 2014, Armenia (1) belongs into the group of countries where consumption growth for the bottom 40 and the total population has been positive, but (2) the bottom 40 grew on average slower than the total population. Patterns of shared prosperity in Europe and Central Asia, circa 2009 - 2014 10 8 Bottom 40% Total Population 6 4 2 0 -2 -4 Russian Federation (2007- Armenia (2009-2014) Turkey (2008-2013) Ukraine (2009-2014) Albania (2008-2012) Kyrgyz Republic (2009- Montenegro (2009-2014) Serbia (2008-2013) Georgia (2009-2014) Moldova (2009-2014) FYR Macedonia (2009-2013) Belarus (2009-2014) Kazakhstan (2009-2013) 2014) 2012) Patterns of shared prosperity in Europe and Central Asia using the growth rate of consumption for the bottom 40 of the welfare distribution and the total population (circa 2008 to 2013). Note: World Bank staff calculation using a consumption aggregate drawn from ILCS data and harmonized for international comparison. Source: World Bank’s data base of harmonized consumption data (ECAPOV accessed 3/15/2016). 10 Recent trends Economic growth, poverty reduction and shared prosperity Economic recovery Consumption Dynamic patterns increased welfare growth shows of poverty illustrate for all households fluctuations and large number of in Armenia and led disparities across vulnerable to a decline in the welfare households. poverty. distribution. Period of poverty reduction between 2010 and 2014 happens in a context of sluggish economic growth: following the global economic crisis which hit Armenia in 2009, the country is now growing at a much lower rate than during the pre-crisis period. Growth rate of GDP per capita 20 15 14.3 13.7 14.3 10.8 10 7.4 6.8 4.5 5 3.0 2.9 2.8 2.9 2.3 1.7 2.4 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -5 -10 -15 -13.9 -20 Growth rate of GDP per capita. Note: Growth rates are based on year on year changes of real GDP (at constant market prices). Source: World Development Indicators published by the World Bank. Forecast for 2015 to 2017 published by the World Bank (March 2016). 12 Poverty in Armenia declined from 35.8 percent in 2010 to 30.0 percent in 2014 (national poverty line). Over the same time period, poor households experienced positive consumption growth and moved closer to poverty line. But this pace of poverty reduction is slower than in pre-crisis years (2004-2007). National poverty rate in Armenia between 2004 and 2014 60 poverty headcount poverty gap squared poverty gap 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 National poverty rate in Armenia between 2004 and 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: Social Snapshot and Poverty 2015. 13 All parts of the welfare distribution benefited from most recent growth period and managed to increase their consumption levels. However, reduction in poverty could have been bigger if poor households would have grown at an equal pace as relatively richer households. Datt Ravallion decomposition for Armenia, 2010 to 2014 8 poverty rate poverty gap 6 4 2 0 -2 -4 -6 -8 -10 -12 Percentage point Change due to growth Change due to change redistribution Growth incidence curve (left) and Datt Ravallion decomposition (right) for Armenia, 2010 to 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014 14 Moreover, growth rates of consumption for different deciles of the welfare distribution show (1) large fluctuations over time and (2) substantial disparities between different groups of the welfare distribution. 25 Growth rates of consumption for different deciles of welfare distribution (from the poorest to the richest). 20 15 10 5 0 2009 2010 2011 2012 2013 2014 -5 -10 -15 Growth rates of consumption for different deciles of welfare distribution (from the poorest to the richest). Note: National consumption aggregate (using methodology adopted in 2009); year on year changes between 2008 and 2014. Source: World Bank staff calculations based on Armenia ILCS 2008 to 2014 15 Gini coefficient of 0.277 in 2014 indicates moderate to low levels of inequality: (1) inequality increased mildly between 2008 and 2014; (2) levels and change in inequality appear to be biggest for Yerevan; (3) inequality mostly within regions – not too much inequality between regions. Table X: Consumption inequality in Armenia Table X: Consumption inequality in Armenia, Gini coefficient Gini coefficient Theil (α=-1) Yerevan Other urban Rural Year Year 0.242 0.097 0.247 0.246 0.222 2008 2008 0.257 0.111 0.269 0.258 0.230 2009 2009 2010 0.265 0.115 2010 0.297 0.241 0.234 2011 0.266 0.117 2011 0.305 0.248 0.207 2012 0.269 0.123 2012 0.279 0.271 0.248 2013 0.271 0.124 2013 0.289 0.286 0.231 2014 0.277 0.129 2014 0.341 0.244 0.215 Patterns of inequality on the national level and by location. Note: National consumption aggregate (using methodology adopted in 2009). Gini and Theil coefficient range from 0 to 1, and Gini coefficient of 0 (Theil of 0) means perfect equality. Source: World Bank staff calculations based on Armenia ILCS 2008 to 2014. 16 Vulnerability to poverty persists, and reflects idiosyncratic and aggregate shocks. Between 2010 and 2014, 10.6 percent were poor in both periods and only 53.8 percent were not affected by poverty as defined by upper poverty line. Simulated transition between poverty and non-poverty between 2010 and 2014 53.8 23.8 10.6 11.7 POOR - POOR P O O R - NO N P O O R NO N P O O R - P O O R NO N -P O O R Simulated transition between poverty and non-poverty between 2010 and 2014. Note: Patterns of economic mobility are estimated on a sample that is restricted to households with household head between 25 and 55 years. National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2008 to 2014. 17 Picture of Poverty Who are the poor, how do they experience poverty and where do they live Poor households Poor households Poor households differ in experience worse are concentrated in demographics and housing conditions and around endowment from and lack access to Yerevan; regional non-poor public services – poverty rates are households. also regional highest in other variation. urban areas. Who are the poor: differences in demographics and gaps in the endowment such as health and education across the welfare distribution. Poor households have higher dependency ratios and are more often female headed; multiple deprivation related to basic education and health status. 30 Dependency ratios No household member has more At least one household member 6 25 than secondary education had to interrupt daily routine 25 5 20 because of health problems. 20 4 15 15 3 10 10 2 5 1 5 0 0 0 Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Quintile 1 Quntile 2 Quintile 3 Qunitile 4 Quintile 5 Quintile 1 Quntile 2 Quintile 3 Qunitile 4 Quintile 5 Share of female headed 12 At least one child between 6 and 25 Household was not able to make 40 households 17 did not attend school. use of health services because of 10 20 lack of money. 30 8 15 20 6 10 4 10 5 2 0 0 0 Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Quintile 1 Quntile 2 Quintile 3 Qunitile 4 Quintile 5 Quintile 1 Quntile 2 Quintile 3 Qunitile 4 Quintile 5 Deprivations linked to different dimensions of multidimensional poverty in Armenia. Note: Source: World Bank staff calculations based on Armenia ILCS 2014 19 How do they experience poverty: non-monetary measures of welfare highlight development gaps, which are persistent over time. Poor households report worse housing conditions and inferior access to public services; differs systematically across five quintiles of the welfare distribution and between locations. No access to adequate No access to healthy Living in a place which is Not having access to hot housing conditions heating (gas or electricity) considered overcrowded running water 45 60 70 80 40 70 35 year 2014 50 year 2014 60 year 2014 60 year 2014 30 year 2010 40 year 2010 50 year 2010 50 25 40 year 2010 30 40 20 30 20 30 15 10 20 20 10 5 10 10 0 0 0 0 Adequate housing Healthy heating Overcrowding Hot running water 40 100 60 100 80 50 80 30 40 Yerevan 60 Yerevan 60 Yerevan Yerevan 30 20 Other urban 40 Other urban 20 Other urban 40 Other urban 10 Rural Rural Rural Rural 20 10 20 0 0 0 0 2010 2014 2010 2014 2010 2014 2010 2014 Deprivations linked to housing and infrastructure for different quintiles of the welfare distribution for 2010 and 2014 (top) and by location (bottom). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 20 Where do they live: poverty rates are highest in other urban areas, and lowest in the capital city Yerevan. Spatial disparities between marzes in Armenia are high. Poverty rates by location – differences Regional poverty rates for eleven between Yerevan, other urban areas and different marzes in Armenia 50 rural areas 50 45 rural 45 areas 40 40 35 35 30 30 other 25 urban 25 areas 20 20 15 15 Yerevan 10 10 5 5 0 0 2008 2009 2010 2011 2012 2013 2014 Poverty headcount– differences between Yerevan, other urban areas and rural areas (left) and differences on the marz level (right). Note: National consumption aggregate (using methodology adopted in 2009). Source: Social Snapshot and Poverty 2015. 21 The concentration of population around capital city influences the distribution of poor households across marzes: 41 percent of the poor live either in Yerevan or Kotayk. Outside Yerevan, number of poor households is large in other urban areas in the country. Distribution of poor across marzes Aragatsotn Vayots Dzor Sjunik Tavush Yerevan Gegharkuni Ararat Armavir Kotayk Lori Shirak Distribution of poor across marzes (left) and number of poor households by administrative district (left). Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2014 and ILCS 2011 (for poverty map). 22 The poor tend to (1) live in bigger households with larger number of dependents, (2) reside in other urban areas of the country, (3) have lower education, (4) show lower employment rates, and (5) are less likely to receive (attract) international remittances. Household characteristics which … … decrease probability of being poor … increase probability of being poor Rural Urban Baseline: capital city Yerevan Household income: remittances greater than mean Percent of adults employed Number of children Number of people 65 and over in HH Number of adults College High school or vocational Less than secondary Education of household head - baseline: primary education Household head age (squared) Household head age Household head is female -40% -30% -20% -10% 0% 10% 20% 30% Household characteristics which decrease or increase probability of being poor. Note: Figure shows marginal effects estimated from a probit model with dependent variable being one if the household is poor. Results are obtained from repeated cross section between 2010 and 2014. Source: World Bank staff calculations based on Armenia ILCS 2014. 23 Sources of income growth and poverty reduction Composition of income and changes over time Income from labor Composition differs between markets and pensions are poor and non-poor the biggest income share households; lower share of for poor and non-poor labor income for the poor. households. Income growth and poverty reduction benefited from labor markets, agricultural sales, remittances and pensions. Both, poor and non- poor households experienced growth of income from 2010 to 2014. Composition differs systematically between poor and non-poor households: poor have lower levels and shares of (1) labor income and (2) remittances, and depend more on (3) pension income and (4) public transfers. Income from different sources of income 700,000 600,000 10.4 Assets 7.6 500,000 Private transfers 9.0 20.3 6.0 Public transfers 400,000 21.6 Remittances 7.1 300,000 Agriculture 29.6 200,000 25.5 56.6 Pension 56.4 Labor 100,000 47.3 49.6 0 poor 2010 poor 2014 non-poor 2010 non-poor 2014 Income from different sources of income (left scale constant 2014 AMD, per capita); labels show relative composition. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 25 Regional patterns in the composition of income highlight dominant role of labor earnings and pensions. Also: (1) sales from agricultural production and labor market earnings in agriculture in rural areas, (2) remittances in other urban areas, and (3) private transfers (internal migration) in Yerevan. Income from different sources of income - by location 800,000 700,000 7.3 Assets 600,000 20.7 Private transfers 500,000 11.4 6.4 Public transfers 17.8 400,000 9.5 9.5 21.6 Remittances 18.4 20.5 300,000 7.8 66.6 Agriculture 16.5 26.7 200,000 68.2 30.3 57.7 Pension 59.6 100,000 38.7 35.1 Labor 0 rural 2010 rural 2014 urban 2010 urban 2014 Yerevan Yerevan 2010 2014 Income from different sources of income (left scale constant 2014 AMD, per capita); labels show relative composition. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 26 Income growth and decline in poverty between 2010 and 2014 driven by (1) higher employment and wages, (2) increasing agricultural output but also employment in rural areas, and (3) additional remittances and (4) private transfers; also, (5) pensions helped households to escape poverty. Drivers of poverty reduction between 2010 and 2014 Employment -3.3 Labor income -3.8 Agricultural income -1.3 Remittances -2.6 Private transfer 0.2 Pensions -2.5 Public transfer 0.5 Property 0.2 Dependency rate 0.6 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 Drivers of poverty reduction to the change in the poverty rate between 2010 and 2014. Note: Negative estimated coefficients describe by how many percentage points corresponding factor has contributed to poverty reduction (and vice-verse). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 27 Behind the aggregate figures Three facts on drivers of income growth and challenges Cheat Sheet to Three Facts Fact 1 Fact 2 Fact 3 Structural Migration Fiscal and social transformation and policy labor markets • Private sector • Internal and • Social growth has raised external migration expenditures incomes for all have extended have protected households. domestic labor poor and • How will markets. vulnerable structural • How to explore households. transformation opportunities and reshape the mitigate economy? challenges? 29 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team Fact 1 Structural transformation and labor markets Private sector growth has raised incomes for all households.  Growth of services and manufacturing translated into new employment opportunities and higher wages.  Increasing agricultural sales, high productivity services in Yerevan and limited job creation in other urban areas.  Labor market outcomes for poor households: lower quality of employment and lower productivity of labor. Structural transformation: growth of services and manufacturing (excluding construction) translated into new employment opportunities and higher wages. Reallocation between different sectors of the economy. GDP production, by sector Total employment, by sector Monthly wages, by sector 2,500,000 600,000 250,000 2014 2010 2014 2010 2014 2010 2,000,000 500,000 200,000 400,000 1,500,000 150,000 300,000 1,000,000 100,000 200,000 500,000 50,000 100,000 0 0 0 GDP production (constant 2014, million AMD), by sector (left) total employment, by sector (middle) and monthly wages (constant 2014, AMD), by sector (right). Note: Sector by NACE 2 classification. Source: Central Bank of Armenia (accessed 03/15/2016). 31 Patterns of GDP growth describe differential performance across sectors of the economy. Expansion of agricultural sector and growth of industry and services; construction sector decreased substantially. GDP production, by sector GDP production, only service sector 2,500,000 600,000 2014 2010 2014 2010 500,000 2,000,000 400,000 1,500,000 300,000 1,000,000 200,000 500,000 100,000 0 0 Other services Education Arts, entertainment and recreation Information and communication Public administration Accommodation and food services Wholesale, retail trade and repair of Administration and support services Undifferentiated production and Professional, scientific and technical Тransportations and warehouse services of private households Human health and social work Real estate Finance and insurance motor vehicles economy activities Structure of GDP production (constant 2014, million AMD), by sector (left) and more disaggregated view into the service sector (right). Note: GDP production (NACE 2 classification) at current prices, million Armenian drams Source: Central Bank of Armenia (accessed 03/15/2016). 32 Total employment in Armenia decreased marginally between 2010 and 2014 – also driven by a decline of the working age population due to demographic shifts and migration. However, analysis by sector of employment illustrates that structural transformation led to substantial shifts between sectors. Total employment, by sector 600,000 Total employment, only service sector 140,000 2014 2010 2014 2010 500,000 120,000 400,000 100,000 80,000 300,000 60,000 200,000 40,000 100,000 20,000 0 0 Other services Arts, entertainment and recreation Education Administration and support Wholesale, retail trade and repair Information and communication Accommodation and food services Public administration Professional, scientific and Undifferentiated production and Тransportations and warehouse services of private households Finance and insurance Human health and social work Real estate Services Construction Industry Agriculture technical activities of motor vehicles services economy Structure of total employment, by sector (left) and more disaggregated view into the service sector (right). Note: Total number of employed. Source: Central Bank of Armenia (accessed 03/15/2016). 33 All sectors of the economy show a positive wage growth between 2010 and 2014. However, large gaps between sectors (in services) which link to differential labor productivity. Low productivity in agricultural sector. Monthly wages, by sector Monthly wages, only service sector 250,000 400,000 2014 2010 2014 2010 350,000 200,000 300,000 250,000 150,000 200,000 100,000 150,000 100,000 50,000 50,000 0 0 Other services Education Public administration Arts, entertainment and recreation Information and communication Accommodation and food services Undifferentiated production and Wholesale, retail trade and repair of Administration and support services Professional, scientific and technical Тransportations and warehouse services of private households Human health and social work Real estate Finance and insurance Services Construction Industry Agriculture motor vehicles economy activities Monthly wages (constant 2014, AMD), by sector (left) and more disaggregated view into the service sector (right). Note: Monthly wages in AMD. Source: Central Bank of Armenia (accessed 03/15/2016). 34 Regional view: Reallocation of employment for Yerevan, other urban areas and rural areas. Job creation in other urban areas to provide employment opportunities for people leaving agriculture. Sector of employment (and employment rates), by location 600,000 60.7 62.1 7% 500,000 6% 39.8 5% 400,000 41.8 41.8 37.1 4% 300,000 3% 200,000 2% 100,000 1% 0 0% Yerevan Yerevan Other urban Other urban Rural 2010 Rural 2014 annualized 2010 2014 2010 2014 change in labor income agriculture manufacturing construction service Sector of employment 2010 and 2014, by location (left), annualized change in labor income (right). Note: Employment rates (on top of each bar) calculated based on a working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 35 36 100 0 10 20 30 50 60 70 80 40 90 Total Agriculture, hunting, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Bank staff calculations based on Armenia ILCS 2014. Water supply, sewerage, waste management and… Construction Wholesale and retail trade; repair of motor vehicles,… Тransportations and warehouse economy Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration Education Human health and social work activities Arts, entertainment and Employment by location, different sectors of the economy recreation Other service activities Activities of private households as employers… rural areas could create new opportunities for additional employment – yet, geographic mobility matters. Yerevan other urban Employment by location, different sectors of the economy. Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Where are the jobs? Agriculture is concentrated in rural areas; 85 percent of service sector is in Yerevan. In times of declining employment in agriculture and construction, an intermediate sector in other urban Distributional view: Structural transformation also works for the poor. Helped to reduce poverty between 2010 and 2014. Yet, compared to the total population, poor experienced lower growth of labor income. Sector of employment for the poor (and employment rates), by location 200,000 7% 180,000 57.7 6% 160,000 57.5 5% 140,000 120,000 4% 31.5 100,000 34.6 3% 80,000 31.2 37.3 60,000 2% 40,000 1% 20,000 0 0% Yerevan Yerevan Other urban Other urban Rural 2010 Rural 2014 annualized 2010 2014 2010 2014 change in labor income agriculture manufacturing construction service Sector of employment for the poor in 2010 and 2014, by location (left), annualized change in labor income (right). Note: Employment rates (on top of each bar) calculated based on a working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 37 38 Undifferentiated production and services of private households Other services Arts, entertainment and recreation Human health and social work based on Armenia ILCS 2010 and 2014. Education Public administration 2014 poor Administration and support services Professional, scientific and technical activities 2010 poor Real estate Finance and insurance Information and communication Accommodation and food 2014 non poor services distribution have experienced shifts in sector of employment. Тransportations and warehouse economy Wholesale, retail trade and repair of motor vehicles Construction 2010 non poor Water supply, sewerage and waste management Electricity, gas and steam supply Sector of employment (poor and non poor) in 2010 and 2014 Manufacturing Mining and quarrying Agriculture, hunting, forestry and fishing 0 5 10 15 20 25 30 35 40 45 50 Sector of employment (poor and non poor) in 2010 and 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations employment between workers from poor and non-poor households; (2) all parts of the welfare Patterns of employment across sectors of the economy document: (1) no major gaps in the sector of Status of employment: Poor are less attached to labor markets and work fewer hours. Higher unemployment rates among individuals from poor households and higher levels of underemployment in rural areas. Labor market status Hours worked per week 100 100 15.1 13.2 90 90 18.5 19.3 23.6 Hired employee 29.9 32.2 50 hours plus 80 80 Own account worker 70 28.9 14.3 70 40 - 49 hours Contributing family 16.2 39.0 60 5.7 worker 60 45.4 58.5 Unemployed 30 - 39 hours 50 6.4 50 14.7 20.4 40 13.2 Pensioner 40 54.2 20-29 hours 13.2 19.3 30 11.1 7.7 Student 30 8.7 6.6 6.7 7.0 1-19 hours 20 Out of labor force 20 16.9 11.7 8.9 10 20.0 10 4.7 23.9 18.2 12.4 14.7 6.7 10.4 0 0 poor 2014 non-poor 2014 poor non poor Yerevan urban rural Labor market status for individuals from poor and non-poor households (left) and educational attainment for individuals from poor and non-poor households (right). Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 39 Quality of employment: Poor have less protection and worse contracts. Literature links both to vulnerability of employment (and welfare) and highlights relationship between informality and low productivity. Type of worker Type of contract 100 100 3.0 14.0 6.1 10.5 90 90 16.0 23.0 3.5 24.0 2.8 written contract occasional 80 41.4 80 4.5 1.2 50.9 6.1 verbal agreement 70 70 60.7 seasonal employer 60 78.8 60 12.6 50 50 41.8 own account in temporary 6.1 agriculture 88.9 82.1 84.1 40 other own account 40 77.2 74.1 24.4 11.1 30 21.9 30 contributing family permanent 4.5 member 20 12.1 20 7.2 8.1 7.9 24.5 10 10 11.5 13.1 12.2 10.2 3.9 0 0 poor non poor Yerevan urban rural poor non poor Yerevan urban rural Status of employment (left) and type of contract (right) – by location and poverty status of households. Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 40 Productivity of employment: Poor have less education which then translates into lower wages. Higher levels of education allow for productivity gains if demand and supply of labor markets is well-aligned. … decrease in labor income … increase in labor income Male Baseline: Other Industry Services Baseline: capital city Yerevan Urban Rural Baseline: primary education Less than secondary HS or vocational College Baseline: agegroup 20 to 24 years agegroup 25 to 29 years agegroup 30 to 34 years agegroup 35 to 39 years agegroup 40 to 44 years agegroup 45 to 49 years agegroup 50 to 54 years agegroup 55 to 59 years agegroup 60 to 64 years -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Individual characteristics which decrease or increase labor income earned from employment outside agricultural sector. Note: Figure shows estimated coefficients from a Mincer labor income regression where the dependent variable is the logarithm of labor income in constant AMD 2014. Results are obtained from repeated cross section between 2010 and 2014. Source: World Bank staff calculations based on Armenia ILCS 2014. 41 Fact 2 Migration Internal and external migration extend domestic labor markets  Opportunity for migration expands domestic labor market and generates additional income from remittances.  Role of internal and external migration as an equalizer between locations (poverty in other urban areas).  Sustainability: dependence on remittances also increases vulnerability through contagion of external shocks. Labor mobility characterizes small open economy: across all parts of the welfare distribution, 15.9 percent of households receive remittances from international migration and 3.5 percent of households receive private transfers from within the country. Share of households receiving remittances Composition of income by quintile of welfare and private transfers – by location distribution 25 1,000,000 900,000 Assets 20 800,000 Yerevan Private transfers 700,000 15 Public transfers urban 600,000 Remittances 10 500,000 Agriculture rural 400,000 5 Pension 300,000 Labor 0 200,000 remittances remittances transfers 2010 transfers 2014 100,000 2010 2014 private private 0 1 2 3 4 5 Share of households receiving remittances and private transfers – by location (left) and composition of income by quintile of welfare distribution (constant 2014 AMD per capita, right) . Source: World Bank staff calculations based on Armenia ILCS 2010 to 2014. 43 Individuals living in households which receive remittances or private transfers, are on average (1) better educated and have (2) lower employment rates than households which do not receive remittances. Educational attainment of individuals Labor market status of individuals living in households receiving … living in households receiving ... 100 100 Own account 90 worker 26.4 29.0 90 21.4 24.8 80 36.6 32.1 Contributing Bachelors and Post 80 family worker Grad 70 7.6 14.8 70 Unemployed 60 24.0 College/vocational 60 3.6 27.0 16.4 19.1 Non-participants 50 24.8 50 18.5 6.8 High school 40 Pensioner 40 16.8 14.5 12.8 30 42.7 General/primary or 30 Student 37.2 8.4 10.2 less 8.2 20 34.2 20 6.5 Out of labor force 10 10 20.5 20.7 15.4 6.9 4.4 6.9 0 0 neither private transfers remittances neither private transfers remittances remittances nor remittances nor private transfers private transfers Educational attainment (left) and labor market status (right) of individuals living in households receiving either private transfers, remittances or none of both. Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2014. 44 Large majority of international migrants leaves the country to work in Russia. Domestic migration with movements between Yerevan and other parts of the country – majority moves to Yerevan to study or leaves the household for family reasons. Destination for internal and external Migrant activity conditional on destination migrants 100 100 90 90 80 80 Russia other, mostly family 70 reasons, business or 70 hospital 60 other, mainly: 60 Europe and USA Study 50 50 Armenia 40 40 Work 30 30 Yerevan 20 20 10 10 0 0 2010 2011 2012 2013 2014 Yerevan Armenia Russia Elsewhere Share of internal and external migrants – by destination (left) and Population temporarily as migrants – by reason (right). Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 to 2014. 45 Remittances from abroad increased in 2014 and supported consumption growth for all parts of the welfare distribution; fluctuations reflect shifts in economic conditions in sending countries and a increasing number of return migrants imposes pressure on domestic labor markets. 700,000 Quarterly inflow of non commercial flows (nominal) 600,000 500,000 400,000 300,000 200,000 100,000 0 31/03/2007 30/06/2007 30/09/2007 31/12/2007 31/03/2008 30/06/2008 30/09/2008 31/12/2008 31/03/2009 30/06/2009 30/09/2009 31/12/2009 31/03/2010 30/06/2010 30/09/2010 31/12/2010 31/03/2011 30/06/2011 30/09/2011 31/12/2011 31/03/2012 30/06/2012 30/09/2012 31/12/2012 31/03/2013 30/06/2013 30/09/2013 31/12/2013 31/03/2014 30/06/2014 30/09/2014 31/12/2014 31/03/2015 30/06/2015 30/09/2015 31/12/2015 Quarterly inflow of non commercial flows (nominal, in million AMD). Note: Dotted line shows trend between 2007 and 2015. Source: Central Bank of Armenia (accessed 03/15/2016). 46 Fact 3 Fiscal and social policy Social spending protect poor and vulnerable households  Fiscal activity contributed to lower poverty and inequality.  Pensions and family benefit program are important to lift households out of poverty. Fiscal policy redistributes income in Armenia (status quo): (1) reduces poverty, (2) decreases inequality, and (3) expenditures on social protection, health and education are progressive. Poverty: poverty headcount Inequality: Gini coefficient 35% 0.4 0.35 30% 0.3 25% 0.25 20% 0.2 15% 0.15 10% 0.1 5% 0.05 0% 0 Net Market Income Final Income Market Income Consumable Income Market Income plus Final Income Market Income Net Market Income Consumable Income Market Income plus Disposable Income Disposable Income Pensions Pensions Plus Less Plus Less Plus in Plus Less Plus Less Plus in pension direct direct indirect kind pension direct direct indirect kind taxes transfers taxes benefits taxes transfers taxes benefits Findings for the fiscal incidence analysis in Armenia 2014: poverty head count (left) and Gini coefficient (right). Note: Armenia, Fiscal Incidence Analysis 2014. Source: Armenia ILCS 2014. 48 Equity of expenditure and taxes depends on progressivity and size of transfer. Progressivity of taxes and spending in 2014 (status quo): Near neutral (neither progressive nor regressive) for taxes; progressive for social spending. Progressivity: Kakwani index 2014 Marginal effect of each transfer to inequality All Social Protection All Social Protection Family Benefit Family Benefit In-kind Education Benefits In-kind Education Benefits In-kind Health Benefits In-kind Health Benefits Direct Taxes Direct Taxes Indirect Taxes Indirect Taxes -0.05 0 0.05 0.1 -0.5 0 0.5 1 Findings for the fiscal incidence analysis in Armenia 2014: Kakwani index 2014 and marginal effects. Note: Armenia, Fiscal Incidence Analysis 2014. Source: Armenia ILCS 2014. 49 Social pensions and old age benefits are an important source of income: (1) more than half of households receive pension income; (2) targeting accuracy reflects that pensions are part of social insurance and not assistance; (3) generosity shows how important income from pensions is. 80 Coverage for pensions Distribution of benefits (targeting accuracy) for pensions 70 80 60 60 40 20 0 50 40 30 60 Generosity for pensions 50 20 40 30 10 20 10 0 0 Total Quintile 2 Non-poor Quinitle 1 Quinitle 3 Quintile 4 Quintile 5 Extreme Poor Total Quintile 2 Non-poor Quinitle 1 Quinitle 3 Quintile 4 Quintile 5 Poor Extreme poor poor Key indicator on family benefit program in Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 50 The family benefit program supports poor and vulnerable: (1) coverage decreases for higher quintile of the welfare distribution; (2) targeting accuracy suggests that large parts of the money go to the poor; (3) generosity illustrates how important these benefits are for the bottom of the welfare distribution. 40 Coverage for family benefit Distribution of benefits (targeting accuracy) for family benefit 35 60 40 30 20 25 0 20 15 50 Generosity for family benefit 10 40 30 5 20 10 0 0 Total Non-poor Quinitle 1 Quintile 2 Quinitle 3 Quintile 4 Quintile 5 Extreme Poor Total Non-poor Quinitle 1 Quintile 2 Quinitle 3 Quintile 4 Quintile 5 Poor Extreme poor poor Key indicator on family benefit program in Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 51 Policy Agenda Basic policy agenda Context: Structural transformation of the economy and poverty reduction, but challenges to shared prosperity. Environment with global slowdown (in the short term), limited fiscal space and demographic transition (in the long term). 1 Supporting growth • Deepen structural transformation and promote productivity and employment growth • Raise agricultural productivity and non-agriculture private sector growth in other urban areas 2 Investing in endowment • Expand asset endowment (skills) and improve access to and quality of basic services • Enhance connectivity (infrastructure and people) 3 Protecting the poor and vulnerable • Strengthen safety nets (family benefit program) to reduce vulnerability to shocks and reforms (energy prices) while being mindful of fiscal sustainability reforms 53 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team BACKGROUND INFORMATION ON DATA AND METHODOLOGY SOUTH CAUCASUS POVERTY TEAM POVERTY AND EQUITY GLOBAL PRACTICE Data: Integrated Living Conditions Survey  The National Statistics Service of the Republic of Armenia (NSS RA) conducts the Integrated Living Conditions Survey (ILCS) on an annual basis. The survey is the official source to monitor poverty and measure social indicators in the country.  Analyses based upon household data inform decision makers in Armenia and serve as primary source of information on living standards for international organizations. Consequently, these data are heavily relied upon by the government.  The NSSRA produces an annual publication - Social Snapshot and Poverty in Armenia - presenting analysis of poverty along with employment and other social indicators using the ILCS. This report is used by line ministries (such as the Ministry of Labor and Social Affairs) and members of the public. The ILCS data and documentation is available through the website www.armstat.am. 55 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team Methodology: national poverty measurement methodology for Armenia  Official poverty estimates for Armenia are based on the National poverty measurement methodology for "Cost of Basic Needs" approach which determines three Armenia different poverty lines: (1) the food poverty line which uses the minimum required level of calories; (2) the lower  Metric and concept poverty line which refers to the "Consumption Basket • Absolute poverty using consumption Method;" and (3) the upper poverty line which makes use expenditure of the "Food Expenditure Method.“  Welfare aggregate includes food and nonfood  In 2014, the most recent year of published figures, the consumption three different poverty headcount rates were 2.3, 10.9 and • Durables and own produced goods 30.0 percent, respectively (exploring a consumption • Price adjustments: regional prices aggregate which is corrected using an adult equivalence • Scaling: per adult equivalent scale).  Poverty line (revised in 2009)  The World Bank estimates a harmonized consumption • Cost of basic needs: 2,232 calories aggregate from ILCS data which is then used for • Consumption patterns of the 2nd to 4th decile of international comparisons (such as international poverty the welfare distribution rates). The welfare aggregate includes food and nonfood consumption, durables and health expenditure. For more information on the micro data, see http://ecadataportal/. 56 Armenia: Poverty Reduction and Shared Prosperity, WB South Caucasus Poverty team APPENDIX South Caucasus Poverty team Poverty and Equity Global Practice APPENDIX: Recent trends Poverty trend using the international poverty lines of 2.5 USD PPP and 5.0 USD PPP Exchange rate movements between Armenian Dram and Russian Rubel, US Dollar and EURO Loans to enterprises and households Agricultural sector between 2010 and 2015 Income growth for bottom 40 and top 60 Poverty trend using the international poverty lines of 2.5 USD PPP and 5.0 USD PPP. Poverty trend using the international poverty lines of 2.5 USD PPP and 5.0 USD PPP 90 83.3 84.5 82.1 80 80.6 79.6 78.4 76.1 75.9 70 2.5 USD PPP 2005 60 50 40 5.0 USD 34.4 35.9 30 32.6 30.2 PPP 2005 29.8 30.1 26.0 26.3 20 10 0 2007 2008 2009 2010 2011 2012 2013 2014 Poverty trend using the international poverty lines of 2.5 USD PPP and 5.0 USD PPP 2005. Note: World Bank staff calculation using a consumption aggregate drawn from ILCS data and harmonized for international comparison. Source: World Bank’s data base of harmonized consumption data (ECAPOV accessed 3/15/2016). 59 10 12 14 16 0 2 4 6 8 11/1/2010 60 5/5/2010 26/08/2010 17/12/2010 20/04/2011 16/08/2011 7/12/2011 6/4/2012 6/8/2012 28/11/2012 4/4/2013 1/8/2013 22/11/2013 26/03/2014 Rubel exchange rate 23/07/2014 13/11/2014 17/03/2015 13/07/2015 0 100 200 300 400 500 600 11/1/2010 20/05/2010 28/09/2010 10/2/2011 22/06/2011 1/11/2011 19/03/2012 31/07/2012 7/12/2012 Exchange rates in Armenia. Note: Source: Central Bank of Armenia (accessed 03/15/2016). 30/04/2013 11/9/2013 29/01/2014 11/6/2014 USD exchange rate 17/10/2014 5/3/2015 16/07/2015 0 100 200 300 400 500 600 700 11/1/2010 12/5/2010 9/9/2010 14/01/2011 19/05/2011 19/09/2011 25/01/2012 31/05/2012 2/10/2012 8/2/2013 18/06/2013 Exchange rate movements between Armenian Dram and Russian Rubel, US Dollar and EURO. 17/10/2013 25/02/2014 EUR exchange rate 1/7/2014 29/10/2014 9/3/2015 10/7/2015 In November 2014, Armenia saw a substantial adjustment in the exchange rate between Armenian Dram and US Dollar: however, inflation did not increase beyond the inflation target; still, it affected households and firms through the real value of loans which are often denominated in US Dollar. Exchange rate Inflation in Armenia 115 600 Armenian Dram and US Dollar 110 500 105 100 400 95 CPI 300 90 85 Food 200 80 100 75 Services 70 0 65 19/04/2012 13/07/2010 14/04/2011 15/07/2011 14/10/2011 19/01/2012 25/07/2012 24/10/2012 31/01/2013 13/02/2014 20/05/2014 19/08/2014 14/11/2014 23/02/2015 26/05/2015 24/08/2015 7/5/2013 8/8/2013 11/1/2010 12/4/2010 8/10/2010 12/1/2011 6/11/2013 2010 - May 2011 - May 2012 - May 2013 - May 2014 - May 2015 - May 2010 - Sep 2011 - Sep 2012 - Sep 2013 - Sep 2014 - Sep 2015 - Sep 2010 - Jan 2011 - Jan 2012 - Jan 2013 - Jan 2014 - Jan 2015 - Jan 2016 - Jan Exchange rates between Armenia Dram and US Dollar (left) and Inflation in Armenia (right). Source: Central Bank of Armenia (accessed 03/15/2016). 61 62 1000000 1200000 0 200000 400000 600000 800000 31/12/2005 30/06/2006 30/12/2006 01/06/2007 01/09/2007 29/02/2008 31/08/2008 01/02/2009 01/08/2009 01/02/2010 01/08/2010 28/02/2011 31/07/2011 31/01/2012 31/07/2012 Loans to enterprises Loans to enterprises in FX 30/12/2012 Loans to enterprises in AMD 31/05/2013 31/10/2013 31/03/2014 30/09/2014 31/03/2015 30/09/2015 0 100000 200000 300000 400000 500000 600000 31/12/2005 30/06/2006 30/12/2006 01/06/2007 01/09/2007 29/02/2008 31/08/2008 Loans to enterprises (left) and loans to households (right). Note: Source: Central Bank of Armenia (accessed 03/15/2016). 01/02/2009 01/08/2009 01/02/2010 01/08/2010 28/02/2011 31/07/2011 31/01/2012 31/07/2012 Loans to households Loans to households in FX 30/12/2012 Loans to households in AMD 31/05/2013 31/10/2013 Loans to enterprises and households denominated in Armenian Dram and Foreign Exchange. 31/03/2014 30/09/2014 31/03/2015 30/09/2015 Increase in agricultural output – with lower levels of employment – reflects higher productivity which led to a positive supply shock. In consequence: (1) lower producer and consumer prices, (2) lower food inflation and (3) increasing exports with limited diversification. Output of plant-growing and animal husbandry Exports from Armenia: Food and live animals in million AMD (left), - trade volume in US Dollar and price index for agricultural products (right) animal husbandry (left) Rest of the World plant-growing (left) Georgia Russian Federation Price indices compared to december of the previous year (right) 1,200,000 150 120,000,000 140 1,000,000 100,000,000 130 120 800,000 80,000,000 110 600,000 100 60,000,000 90 400,000 40,000,000 80 70 200,000 20,000,000 60 0 50 0 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 Output of plant-growing and animal husbandry in million AMD (left scale), and price index for agricultural products (right scale) (left panel), and Exports from Armenia: Food and live animals - trade volume in US Dollar (right). Note: National consumption aggregate (using methodology adopted in 2009). Source: Central Bank of Armenia and UN Comtrade data 2010-2015. 63 Income growth for bottom 40 and top 60 benefited from (1) higher levels of employment, (2) positive growth of wages, and (3) expansion of agricultural activity; (4) remittances contributed relatively more to income growth for the top 60, whereas (5) pensions raised incomes for the bottom 40. Contribution of different factors to income growth for the bottom 40 and the top 60 of the welfare distribution Per capita remittances income 1.7 2.0 Per capita asset income -0.5 -0.5 Per capita public transfer income -0.3 0.1 Bottom 40 Per capita private transfer income 0.0 0.2 Top 60 Per capita pension income 1.6 1.1 Per capita agriculture income 0.7 0.8 Labor income per employed adult 1.7 2.5 Employment rate 1.6 1.1 Dependency rate -0.1 -0.1 Correction (ad eq. to pc) -0.5 -0.7 Consumption to income ratio -2.1 -1.7 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Contribution of different factors to income growth for the bottom 40 and the top 60 of the welfare distribution. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 64 APPENDIX: Structural transformation and labor markets  Labor market status – by location  Education attainment and labor market status – by gender  Sector of employment (capital city Yerevan) in 2010 and 2014 – by poverty status  Sector of employment (other urban areas) in 2010 and 2014 – by poverty status  Sector of employment (rural areas) in 2010 and 2014 – by poverty status Labor market outcomes differ systematically across locations: labor force participation and employment rates are lowest in other urban areas, whereas the share of self-employed and other employed is highest in rural areas. Labor market status – by location 100 90 16.2 18.0 Hired 29.1 employee 30.0 35.1 80 38.1 Own account worker 70 26.3 28.8 6.9 10.1 4.3 Contributing 60 5.9 family worker 50 18.2 24.5 18.5 18.9 Unemployed 15.2 17.4 40 Pensioner 10.6 10.3 10.9 11.0 13.0 30 12.5 4.5 6.4 5.7 7.7 9.5 8.0 Student 20 6.7 10 17.5 18.6 19.9 22.3 18.8 17.8 Out of labor force 0 rural 2010 rural 2014 urban 2010 urban 2014 Yerevan Yerevan 2010 2014 Labor market status – by location. Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 66 Heterogeneity in education and labor markets does not only exist between poor and non-poor: even though women obtain more education than men (27.6 percent versus 24.7 for tertiary education), labor force participation rates and employment status are worse for women. Education attainment – by gender Labor market status – by gender 100 100 Hired 90 22.4 90 20.2 24.7 24.8 27.6 Bachelors and 24.8 employee Post-Grad 33.3 31.9 80 80 Own account 11.1 worker 70 70 20.9 College/vocational 13.2 Contributing 21.2 8.9 60 27.0 family worker 27.4 60 15.1 18.3 8.2 Unemployed 50 50 19.2 High school 5.0 4.0 15.6 40 40 Pensioner 15.9 14.6 46.3 10.7 30 45.9 9.9 40.4 30 Student 39.9 General/primary 7.7 7.3 8.4 6.9 20 or less 20 6.3 7.4 Out of labor 10 10 21.5 21.2 force 15.6 17.6 10.3 8.2 7.9 5.1 0 0 male male female female male male female female 2010 2014 2010 2014 2010 2014 2010 2014 Education attainment – by gender (left) and labor market status – by gender (right). Note: Sample is restricted to individuals in the working age population between 15 and 75 years of age. Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 67 68 Undifferentiated production and services of private households Other services Arts, entertainment and recreation Human health and social work Education Public administration calculations based on Armenia ILCS 2010 and 2014. Administration and support industry are produced in Yerevan. services Professional, scientific and technical activities Real estate Finance and insurance 2014 Yerevan Information and communication Accommodation and food services Тransportations and warehouse economy Wholesale, retail trade and 2010 Yerevan repair of motor vehicles Construction Water supply, sewerage and waste management Electricity, gas and steam Sector of employment (Yerevan) in 2010 and 2014 supply Manufacturing Mining and quarrying Agriculture, hunting, forestry and fishing 0 5 10 15 20 25 Sector of employment (capital city Yerevan) in 2010 and 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff capital city. 54 percent of output in construction, 42 percent in industry and 85 percent in the service More than one third of the population lives in Yerevan and 29 percent of all jobs is concentrated in the Labor markets in other urban areas saw a decline in jobs in the construction sector. Public sector and wholesale and retail trade offer additional employment opportunities. Still, other urban areas outside Yerevan do not create sufficient number of jobs to absorb surplus workers leaving agricultural sector. Sector of employment (other urban areas) in 2010 and 2014 2014 other urban 2010 other urban 18 16 14 12 10 8 6 4 2 0 Mining and quarrying Construction Other services Electricity, gas and steam Education Public administration Accommodation and food Administration and support Water supply, sewerage and Manufacturing Arts, entertainment and Information and communication Wholesale, retail trade and Agriculture, hunting, forestry Professional, scientific and Undifferentiated production and Тransportations and warehouse services of private households Human health and social work Real estate Finance and insurance repair of motor vehicles technical activities waste management recreation services and fishing services supply economy Sector of employment (other urban areas) in 2010 and 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 69 In rural areas, 70 percent of employment in 2014 was in the agricultural sector – with a declining trend compared to 2010. Even though welfare increased through higher productivity, increased incomes and improved quality of employment, less employment opportunities create challenges for rural areas. Sector of employment (rural areas) in 2010 and 2014 2014 rural 2010 rural 80 70 60 50 40 30 20 10 0 Agriculture, hunting, forestry Construction Other services Education Public administration Accommodation and food Manufacturing Arts, entertainment and Administration and support Water supply, sewerage and Information and communication Wholesale, retail trade and Professional, scientific and Undifferentiated production and Electricity, gas and steam Mining and quarrying Тransportations and warehouse services of private households Human health and social work Real estate Finance and insurance repair of motor vehicles technical activities waste management recreation services and fishing services supply economy Sector of employment (rural areas) in 2010 and 2014. Note: National consumption aggregate (using methodology adopted in 2009). Source: World Bank staff calculations based on Armenia ILCS 2010 and 2014. 70 APPENDIX: Fiscal and social policy  Social expenditure: pensions and family benefit program  Taxes: PIT progressive, VAT regressive  Spending: (absolutely) progressive  Key indicators on social expenditure: Pension, Family Benefit Program and Child Benefit  Transfers from within Armenia and abroad Social expenditure created favorable environment for private consumption growth: (1) pensions reduced poverty the incidence of poverty but grew at a lower pace than other income (increasing gaps by demographic groups); (2) family benefit program reduced the severity of poverty. 2008 2009 2010 2011 2012 2013 2014 2015 Total number of pensioners 469,747 467,555 465,084 454,488 452,505 453,917 458,569 462,539 Monthly average pension per individual, AMD constant 2005 19,272 21,529 21,879 20,363 21,617 20,246 22,857 24,665 Change in average pension to previous year, inflation adjusted 11.7% 1.6% -6.9% 6.2% -6.3% 12.9% 7.9% Basic pension, AMD constant 2005 5,810 6,610 8,019 7,449 8,993 8,501 8,890 9,722 Value of one year of service, AMD 450 450 500 Total number of FBP beneficiary 121,160 107,493 150,005 91,575 96,306 102,570 104,130 105,300 households Monthly average FBP spending per household, AMD constant 2005 16,938 18,683 18,745 18,732 19,820 18,366 18,005 17,792 Change in average FBP to previous year, 10.3% 0.3% -0.1% 5.8% -7.3% -2.0% -1.2% inflation adjusted 72 Taxes: PIT progressive, VAT regressive Kakwani Index 2014: PIT  Personal income tax: • Three brackets; only 0.2 percent of households PIT, self-employment pay highest tax rate – effective tax rate 25.6 PIT, passive income percent. PIT, wages • Informal employment, yet many formal employees directly below poverty line. -0.2 0 0.2 0.4 0.6 0.8 Kakwani Index 2014: VAT and Excises  Value added tax: Alcohol excises • Formally 20 percent with some exemptions – effective Petroleum excises tax rate around 10.67 (2011 data). Import Duties VAT Tobacco excises -0.2 0 0.2 0.4 0.6 0.8 Findings for the fiscal incidence analysis in Armenia 2014: Kakwani index for PIT (top) and Kakwani index for VAT and excises (bottom). Note: Armenia, Fiscal Incidence Analysis 2014. Source: Armenia ILCS 2014. 73 Spending: Even though transfers are (absolutely) progressive, limited size of social budget constraints impact on poverty. Kakwani Index 2014: Social Protection  Social protection Family Benefit • FBP targeted towards poor households Social Pension • (non) contributory pensions Subsidized Rent (Housing) Child Care Benefit -0.2 0 0.2 0.4 0.6 0.8 Kakwani Index 2014: Education  Education (in-kind benefits) • Impact depends on level of education Secondary School Pre-school -0.2 0 0.2 0.4 0.6 0.8 Kakwani Index 2014: Health  Health benefits • Relative progressive In-patient Maternal Care -0.2 0 0.2 0.4 0.6 0.8 Findings for the fiscal incidence analysis in Armenia 2014. Note: Armenia, Fiscal Incidence Analysis 2014. Source: Armenia ILCS 2014. 74 Key indicators on social expenditure: Pension Quintiles of per ae consumption, net of all SA transfers Poverty Status Pension Total Q1 Q2 Q3 Q4 Q5 XP MP NP Average Transfer Value, Per 7,352.9 6,762.0 7,518.6 7,481.2 7,265.4 7,736.7 5,850.6 7,269.2 7,434.5 Capita Average Transfer Value, Per Capita, Beneficiary 13,316.1 10,809.7 12,447.1 13,911.9 14,633.5 15,563.1 8,717.1 11,931.2 14,137.6 Households Of Indicated Transfer Only Coverage 55.2 62.6 60.4 53.8 49.6 49.7 67.1 60.9 52.6 Distribution of Beneficiaries 100.0 22.6 21.9 19.5 18.0 18.0 2.8 30.4 66.8 Distribution of Benefits 100.0 18.4 20.5 20.3 19.8 21.0 1.8 27.3 70.9 (Targeting Accuracy) Relative Incidence 15.0 28.6 22.6 17.3 13.7 8.4 38.4 27.3 12.6 Generosity 28.6 45.5 36.9 31.5 27.3 18.1 56.9 44.4 24.9 Key indicator on Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 75 Key indicators on social expenditure: Family benefit Quintiles of per ae consumption, net of all SA transfers Poverty Status Family benefit Total Q1 Q2 Q3 Q4 Q5 XP MP NP Average Transfer Value, Per 853.1 1,533.3 829.0 823.4 690.4 390.1 2,077.6 1,294.3 639.8 Capita Average Transfer Value, Per Capita, Beneficiary 6,434.6 5,834.4 6,155.3 6,767.2 7,263.4 7,990.5 5,642.3 6,018.1 6,917.8 Households Of Indicated Transfer Only Coverage 13.3 26.3 13.5 12.2 9.5 4.9 36.8 21.5 9.2 Distribution of Beneficiaries 100.0 39.6 20.3 18.4 14.3 7.4 6.3 44.8 48.9 Distribution of Benefits 100.0 35.9 19.5 19.3 16.2 9.1 5.5 41.9 52.6 (Targeting Accuracy) Relative Incidence 1.7 6.5 2.5 1.9 1.3 0.4 13.6 4.9 1.1 Generosity 18.5 26.9 19.5 16.6 14.7 11.1 41.0 24.4 14.7 Key indicator on Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 76 Key indicators on social expenditure: Child benefit Quintiles of per ae consumption, net of all SA transfers Poverty Status Child benefit Total Q1 Q2 Q3 Q4 Q5 XP MP NP Average Transfer Value, Per 47.0 38.2 15.3 48.8 39.3 93.2 0.0 31.3 54.6 Capita Average Transfer Value, Per Capita, Beneficiary 3,615.5 3,176.3 2,897.5 3,592.2 3,801.2 3,930.3 n.a. 3,091.5 3,759.2 Households Of Indicated Transfer Only Coverage 1.3 1.2 0.5 1.4 1.0 2.4 0.0 1.0 1.5 Distribution of Beneficiaries 100.0 18.5 8.1 20.9 15.9 36.5 0.0 21.5 78.5 Distribution of Benefits 100.0 16.3 6.5 20.8 16.8 39.7 0.0 18.4 81.6 (Targeting Accuracy) Relative Incidence 0.1 0.2 0.0 0.1 0.1 0.1 0.0 0.1 0.1 Generosity 7.2 13.6 9.4 9.1 7.3 5.4 n.a. 12.8 6.6 Key indicator on Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 77 Transfers from within Armenia Quintiles of per ae consumption, net of all SA transfers Poverty Status Transfers from within Total Q1 Q2 Q3 Q4 Q5 XP MP NP Armenia Average Transfer Value, Per 666.0 227.3 256.5 555.4 545.9 1,744.5 108.4 290.2 831.9 Capita Average Transfer Value, Per Capita, Beneficiary 19,199.6 9,194.5 11,582.7 14,540.2 13,926.8 35,475.2 5,384.1 10,719.9 21,802.5 Households Of Indicated Transfer Only Coverage 3.5 2.5 2.2 3.8 3.9 4.9 2.0 2.7 3.8 Distribution of Beneficiaries 100.0 14.2 12.8 22.0 22.6 28.4 1.3 21.5 77.1 Distribution of Benefits 100.0 6.8 7.7 16.7 16.4 52.4 0.4 12.0 87.6 (Targeting Accuracy) Relative Incidence 1.4 1.0 0.8 1.3 1.0 1.9 0.7 1.1 1.4 Generosity 29.3 38.1 34.3 31.4 25.7 28.5 28.3 39.3 28.3 Key indicator on Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 78 Transfers from abroad Quintiles of per ae consumption, net of all SA transfers Poverty Status Transfers from abroad Total Q1 Q2 Q3 Q4 Q5 XP MP NP Average Transfer Value, Per 5,451.6 2,109.2 3,150.8 4,611.0 6,564.3 10,819.8 853.9 2,681.1 6,690.5 Capita Average Transfer Value, Per Capita, Beneficiary 34,225.4 19,653.7 22,870.9 29,071.7 32,612.8 56,525.9 28,936.4 21,376.4 37,839.7 Households Of Indicated Transfer Only Coverage 15.9 10.7 13.8 15.9 20.1 19.1 3.0 12.5 17.7 Distribution of Beneficiaries 100.0 13.5 17.3 19.9 25.3 24.0 0.4 21.7 77.9 Distribution of Benefits 100.0 7.7 11.6 16.9 24.1 39.7 0.4 13.6 86.1 (Targeting Accuracy) Relative Incidence 11.1 8.9 9.5 10.7 12.4 11.8 5.6 10.1 11.4 Generosity 65.2 81.7 69.3 68.2 60.9 63.1 179.3 80.2 63.1 Key indicator on Armenia. Note: Quintiles of per ae consumption, net of all SA transfers. Source: Armenia ILCS 2014. 79 THANK YOU