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Social Contracts: No Single Solution to Poverty

Encouraging entrepreneurship, providing social support services and helping people find jobs are all part of a new ‘social contract’ programme introduced across Russia to assist poor families in becoming financially self-sufficient. Using formal contracts to encourage low-income people to engage in economic activity is proving to be more effective than welfare handouts, according to researchers of the HSE Centre for Studies of Income and Living Standards.

In this context, a social contract is a formal agreement between a low-income individual and a social protection authority whereby the individual and their family are offered cash, services or essential goods, such as fuel, food, clothing, footwear or medicines, so that eventually they can become self-sufficient by tapping into their own resources, i.e. finding a job, starting a business or maximising the output of their smallholding.

This new type of social policy was approved by the central government in late 2012, but has actually been implemented by local authorities in some Russian regions since the early 2000s.

Regardless of whether a beneficiary fully succeeds in breaking free from poverty with the help of a single social contract, they see their living standards improve due to various types of assistance and tend to feel more empowered, with a better outlook on the future, according to Lydia Prokofieva and Irina Korchagina, senior research fellows at the HSE Centre for Studies of Income and Living Standards, and Anna Mironova and Ekaterina Tarnovskaya, junior researchers at the same Centre, who examined some of the outcomes and future potential for social contracts in Russia and presented their findings in the paper The Social contract as a mechanism enabling households to overcome poverty in Russia, published in the Journal of Social Policy Studies, issue 1, 2015.

The paper is based on the 2013 social contract programme performance data collected for the Russian Ministry of Labour as part of the regional statistics programme; the target audience has been analysed using data from the RLMS-HSE 2013 survey.

Jobs instead of Handouts

To be eligible for a social contract, a family has to qualify for low-income status. In most of the 36 Russian regions which were running the programme even before its federal endorsement in 2012, all types of low-income families were eligible, yet 10 regions selectively targeted families with children, and five regions focused particularly on families with three and more children (officially recognized as ‘large families’ in Russia).

Generally in Russia, families with children are more likely to live on incomes below the subsistence level, while their rate of poverty is twice that of households without children – 23% vs. 9.2%, based on the RLMS-HSE 2013 survey data. Assistance for low-income families with children can include arranging for day care and helping mothers find part-time or full-time jobs; in addition, young adults who are unemployed and living with their parents can benefit from assistance with employment. In fact, most social contract programmes mainly target families with active members who are unemployed.

Certain regions target rural households in particular; 57.5% of all social contract beneficiaries in these regions live in villages.

One-off Payments Most Common

Only 36 Russian regions collected data on the social contract programme performance in 2013. "The new programme has covered less than 2% of all recipients of social assistance and just 3% of those with officially low incomes," note the study's authors. Only in four Russian regions were social contracts offered to more than half of social assistance recipients with incomes below the subsistence minimum, while in nearly one third of all regions, less than one percent of this group were offered social contracts.

More than 60% of all social contracts in Russia in 2013 were implemented in the Tyumen region (28.1%), Khanty-Mansi Autonomous Area (19.7%) and the Nizhny Novgorod region (12.7%); these three regions have the longest history with social contracts since mid-2000s, evidencing the fact that coverage depends largely on how long the programme has been in place. Of all recipients of this type of social support, 85% are families with children aged 16 or younger and 43% are families with three or more children.

Social contracts can offer families monthly or lump-sum cash payments to be invested in a household farm or small enterprise, some also provide in-kind assistance and certain services. In 2013, six regions offered all three types of assistance, including Arkhangelsk, Astrakhan, Belgorod, Rostov and Nizhny Novgorod regions, and Tatarstan, while Buryatia only offered in-kind assistance.

According to the researchers, some 40% of the regions running social contract programmes offer both cash and in-kind assistance, while 58% of the regions only offer cash, usually as a lump sum averaging 30,000 rubles across regions and ranging from more than 100,000 rubles in Tver region, Yakutia and Yamal-Nenets Autonomous Area to less than 10,000 rubles in 13 regions; many regions only provide assistance for a limited period.

Business and Employment Support Not Common

Just three regions – Tula and Murmansk districts and Yamal-Nenets Autonomous Area – offer eligible beneficiaries assistance with employment and job retraining in more than half of all social contracts. In other regions, the share of such assistance is much smaller, while Bryansk and Tver regions and Altai Territory do not offer this option and focus instead on helping farmers.

Even less common is using social contracts to encourage self-employment (a.k.a. 'individual entrepreneurship') – only the Komi Republic and Yamal-Nenets Area offer such assistance to 25% and 35.6% of recipients, respectively.

While the programme’s stated goal is to help people become financially independent, Prokofieva et al. note that most measures under social contracts do not support this goal directly, as more than half of all assistance reported by regions include relief for families in crisis or struggling with social adaptation – such as household aid, food distribution, leisure activities and healthcare; in addition, 18% of all measures under the programme focus on helping households with repairing farm facilities, accessing medical treatment, etc.

Self-sufficiency Hard to Achieve

The effect of livelihood assistance programmes is often measured by the proportion of active unemployed individuals who have found jobs and the proportion of households which have increased their revenues or farm outputs as a result of the programme. Overall, the effect of social contracts in terms of encouraging self-sufficiency has been modest across Russia – just 15% of the unemployed household members found jobs and 9% of the families increased their revenues. Just in a few regions, including Ivanovo and Tula, Kamchatka, Komi Republic and Yamalo-Nenets Area, almost a third of all beneficiaries have found jobs or increased their earnings – partly due to the limited number of contracts offered in these regions, with more resources available per contract.

Of all recipients of support for their household farms, 35% were able to increase the farm's output; in a few regions, including Tambov, Orenburg, Tomsk, Arkhangelsk and Yaroslavl, Altai Territory and Karelia, more than half of the targeted household farms benefitted from assistance, partly due to the overall policy focus on rural households in these regions.

For families with active yet unemployed members, social contracts can be particularly effective because, in contrast to welfare handouts, they encourage people to mobilise their internal resources to provide a long-term effect, according to Prokofieva, Korchagina, Mironova and Tarnovskaya. In fact, international experience with livelihood support programmes reveals that even where families fail to break free of poverty at their first attempt, they still become less dependent on welfare as a result of these efforts.

Families Benefit from Different Types of Assistance

Admittedly, breaking free of poverty depends on external circumstances as well as one's own efforts.

The actual causes of poverty can differ. Thus, older people can be poor because their pensions are too small, while in families whose members work or study, poverty can be the result of being underpaid or having too many dependents. In more than half the poor households in Russia, at least one family member is employed, but their pay is insufficient to allow the family to make ends meet; these people may benefit from retraining opportunities to help them find a better-paying job.

According to the study’s authors, 24% of all poor households in the survey had active yet unemployed members, and such families could benefit from a combination of welfare payments and assistance with employment.

Many poor families have young members in their 20s who remain unemployed and dependent on their parents after finishing school or college – they could benefit from help with finding a job.

However, unemployed adults in some families are not actively seeking a job, because they care for children or elderly or sick relatives, while their communities lack daycare facilities and similar services; such carers could benefit from jobs with flexible schedules.

Thus, social contracts, while they clearly work for some people, cannot provide a single solution to poverty and need to be supported by other measures.


Author: Olga Sobolevskaya, September 08, 2015