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Çiço, A., Social Protection in Albania, (Budapest: International Labor Organization––Central and Eastern European Team, Report No. 9, 1994).
Henao, J., Agricultural Production in Albania: Socioeconomic Survey, 1993-94, (International Fertilizer Development Center, 1994).
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Perraudin, W. and Pujol, T., “A Framework for the Analysis of Pension and Unemployment Benefit Reform in Poland,” Staff Papers, International Monetary Fund (Washington) Vol.41 No.4.
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I would like to thank Scott Brown, Martin Fetherston, John King, Caryl McNeilly, Doris Schiesser and Caroline Van Rijckeghem for helpful comments and suggestions, as well as Huyen Le for valuable research assistance, and Albanian government officials for kindly providing data. Any errors, however, are mine.
Unemployment insurance, which is legally a part of the social security system, is administered by the Ministry of Labor through its local offices.
The Law refers to the lower boundary of gross wages on which social security contributions are levied as a minimum wage—leks 3180.
Most of the countries in transition experience low compliance with social security contributions. This might be explained by the fact that under central planning social security was primarily a public good. This notion has not changed significantly, so that “free riding” appears to be a serious problem for the social security system in transition.
These include benefits for the ex-politically persecuted and their families, state and merit pensions, and partial disability pensions.
Pay-As-You-Go schemes are usually run by the state. They are based on the fact that the state does not need funds in anticipation of future pension claims, but can tax the working population to pay the pensions of the retired generation.
Including unemployment benefits, which are contributory benefits although they are currently financed from the budget.
Early introduction of the funded system is complicated by underdevelopment of financial markets.
Previously work books were used, as in other transition economies. These documented work contribution history. But their use is no longer mandatory.
Enterprise Restructuring Agency was created to facilitate restructuring or closure of the thirty most politically sensitive state enterprises.
No individual contribution records were kept. The pension was dependent on the work history record derived from the work book held by each worker.
The waiting period for full old-age pension was raised from 25 years for men and 20 for women to 35 years irrespective of gender.
Unemployment benefits are not included, since they are financed out of the central budget and administered by the Ministry of Labor.
Full old-age base pension is set to be equal to the subsistence minimum level determined by the Council of Ministers.
Based on the assumption of two workers per family.
Agricultural Production in Albania (Socio-Economic Survey, 1993-94), and staff estimates.
A person has to retire from economic activity to qualify for an old-age pension.
Before the reform pensions of state farm workers were regulated by the same Social Security Law as pensions of those working in urban areas. Pensions of ex-employees of collective farms were regulated separately.
The reason for this significant discrepancy between rural and urban pensions was that the level of rural pensions is set separately. Initially they were lower than the pensions in cities, and they were not increased during the first year of implementation of the Social Security Law. They were increased at a flat rate in October 1994, and set at 700 leks.
According to the Social Security Law hard-work occupations are divided into three categories. Occupations included into category I are considered to be most debilitating, and grant eligibility for retirement at the age of 45 for women, and 50 for men, based on a service/contribution period of 15/20 years respectively. All employees working in underground mines and most employees in metallurgy are included in category I. Occupations in category II are surface miners, metallurgy and textile workers. These occupations grant eligibility for retirement at the age of 50 for women and 55 for men, based on a service period of 20/25 years respectively. Category III includes teachers and certain medical staff. Eligibility for retirement is granted at 55 years old for women and 60—for men, based on a service period of 20/25 years respectively.
Rural pensioners often draw their benefits once in 2-3 months, because of the remoteness of district offices and poor transportation.
This suggestion might only improve compliance, however, if pension benefits were substantially higher than social assistance benefits.
For example, in Russia maternity benefits were kept at about 0.2 percent of GDP, in Moldova 0.1 percent of GDP in 1993. However, family allowances in these countries accounted for an additional 0.6 and 0.5 percent of GDP respectively.
In principle, out of the total SSI contribution rate of 42.5 percent of wages, some 2.8 percentage points is dedicated to the financing of maternity benefits.
Public day care collapsed at the outset of the economic reform. The extended family helps to solve the problem of baby-sitting in many cases. In those families where only one member of the family is employed, the unemployed person takes care of children.
Extension of maternity leave to 12 months was at least partially caused by a high incidence of infant illness, which resulted in high spending on sick leave and created disincentives for employers to hire women.
The rate of social security contributions was adjusted downwards commensurately.
Evaluation of the adequacy of actual benefits and coverage is complicated by the fact that paid sick leave is administered by employers for the first fourteen days, and they do not report to the SSI.
The sick pay for the first 14 days is regulated by employment contract and Labor Code, but not to be below the level defined by the Social Security Law for the sick leave financed out of the social security contributions.
Growth of sick leave costs increases labor costs for employers, thus reducing labor demand and implicitly contributing to unemployment.
Although severance pay is not part of social insurance, it was used as a substitute for unemployment benefits in the case of mass lay-offs of workers from politically sensitive enterprises. New entitlements for severance pay were discontinued in August 1995.
The Law does not specify if one year of insurance is enough to qualify for unemployment benefits several times during the service period.
Miners with higher than average wages comprised the majority of severance pay recipients.
No explicit data are available on the duration of unemployment.
According to data from the Ministry of Labor and the staff estimates.
Female participation rate in the labor force in Albania is about the same as in other Eastern European countries.
These rates are based on the national labor force (including emigrants).
Only 0.1 percent of the unemployed claim that they are looking for their first job.
Estimates of unemployment rate by education level cannot be made since information on distribution of the labor force by education is not available.
No information about the incidence of unemployment among the graduates of vocational schools is available.
The World Bank has suggested developing “one stop shops”—an Irish model of combined labor and social insurance offices—as a sub-component of the “Technical assistance Project for Social Safety Net Development”.
Incomes are considered to be below the subsistence minimum level if they are less than the base pension.
This provision is not likely to result in leakages at the moment since the overwhelming majority of large families are poor. However, the lack of means testing might lead to problems with further income differentiation of households.
Implementation of the Social Assistance Law in July 1993 resulted in a substantial increase in social assistance costs since the eligibility for social assistance was extended to all low-income rural families, whereas the old law provided benefits only to the families located in the north-east mountainous areas with less than 0.2 hectares per person.
Detailed data on social assistance are available only through May 1995.
This is an estimated number, since social assistance benefits are paid to households rather than individuals.
According to the Ministry of Labor, about 40 percent of unemployed are moving on to social assistance once their unemployment benefits expire after 12 months.
Single pensioners drawing partial pensions comprise a significant number of urban partial social assistance recipients.
Beginning from January 1995 the requirement for social assistance benefit to be not less than 50 percent of a single person unemployment benefit was eliminated.
This figure includes bread, whose ceiling price remained above the cost-recovery level for state bakeries, but excludes electricity. By end-1995, however, the bread ceiling had become binding for many bakeries, but the Government postponed any increase until after the 1996 general election.
In practice, compensation for state enterprise workers was further reduced in the first half of 1994, and eliminated from July 1994.
Despite these initial provisions, bread compensation was paid at 100 percent of the compensable consumption level for both state-enterprise and state-farm workers during the period of eligibility.
Electricity theft is a widespread problem in Albania. The Government did not want to provide a pure transfer to the households which do not pay for the electricity consumption. Therefore, there was also a requirement that consumers show proof of a valid contract with the state electricity company, KESH, in order to receive the compensation. But this provision was never enforced.