Social contract as a tool for overcoming poverty of the working-age population: assessment of budget efficiency and directions of modernization

Romaikin Pavel Denisovich ORCID: 0009-0006-3423-4405 Student, Department of Public Finance, Financial University under the Government of the Russian Federation 49/2 Leningradsky Avenue, Moscow, 125167, Russia p.romaikin@mail.ru Other publications by this author

Introduction

The need to overcome the poverty of the population is outlined in one of the national development goals of the Russian Federation and formulated as "reducing the poverty level by half compared to the indicator of 2017". Despite the declaration of this goal, a comprehensive strategic planning document in the field of poverty reduction is currently missing ^[1], and measures to achieve the goal are carried out within the framework of the social assistance system for the population ^[2,3]. The de facto architecture of social assistance in its financial aspect at the federal level is a set of measures (enshrined in separate federal laws) to overcome poverty for 3 demographic groups of the population. Thus, for low-income families with children, a monthly allowance is provided in connection with the birth and upbringing of a child under 17 years old; non-working pensioners have the right to count on a federal or regional supplement to a pension, bringing its size to the subsistence minimum in the region of residence; able-bodied citizens can be provided with assistance on the basis of a social contract.

At the same time, the analysis of economic and financial relationships between these demographic groups allows us to draw an unambiguous conclusion that it is poverty (low incomes) of the working population that is the primary factor of poverty in other groups ^[4]. In families with children, this fact is obvious due to the fact that children are dependent on the able-bodied population and they automatically fall into the category of poor in case of insufficient incomes of able-bodied family members ^[5]. The dependence between the incomes of the able-bodied population and persons of retirement age is manifested in the long term within the framework of a solidary pension provision model, in which the number of able-bodied population and their income level determine the amount of funds in the Pension and Social Insurance Fund of the Russian Federation ^[6].

Thus, measures to increase the incomes of the working-age population are functionally a comprehensive tool for increasing the incomes of other demographic groups, and the fight against poverty of the working-age population seems logically the primary, most relevant and most difficult aspect of overcoming poverty of the population.

The purpose of this study is to formulate proposals for changing the legislation on social assistance that increase the budgetary efficiency of the functioning of the social contract instrument. The object of the study is social assistance to the population. The subject of the study is the effectiveness of the functioning of a social assistance tool based on a social contract.

Literature review

         The poverty of the working population is a subject of discussion in the scientific literature. In the modern theory of poverty, several concepts of poverty are distinguished, the main of which are behavioral and structural ^[7,8]. The behavioral concept, following the postulates of the classical school of economics, postulates the "personal choice of the individual" as the main factor of poverty. The structural approach is dominated by the idea that the main cause of poverty is economic, political and geographical imbalances that prevent the poor from gaining access to decent and sustainable jobs.

The structural approach to poverty analysis is mainly followed by domestic scientists conducting empirical research on the poverty of the working population. So, O. V. Selivanova, A. A. Razumov conclude about the predominance of low-paid vacancies, which require low-skilled labor ^[9]. In turn, V. A. Anikin and E. D. Slobodenyuk talk about the tendency of preserving poor jobs in the Russian economy, which do not reduce the risks of poverty even with high labor intensity ^[10]. In the Russian literature, there is a whole group of studies devoted to the class of "working poor" ^[11,12,13].

         Taking into account the above, the state's assistance to the population is being updated ^[14] in the issue of stable employment, which allows citizens to increase labor incomes and get out of poverty on their own without increasing the social transfers received. Currently, the instrument of such assistance is a social assistance program based on a social contract.

Problem statement

Social assistance based on a social contract is an agreement between a low-income household and social protection authorities. The key aspect of this agreement is the reciprocity of obligations between citizens and the state: in exchange for social benefits, a citizen participating in the contract undertakes to take additional actions to improve his financial situation. A citizen can carry out these actions in the following areas ^[15]:

1. Job search and vocational education (39.2% of contracts concluded in 2022);

2. development of your own business (32.7%);

3. development of a personal subsidiary farm (11%);

4. measures to overcome a difficult life situation (17.1%).

Thus, the concept of a social contract presupposes the support of a citizen in order to bring him to self-sufficiency by generating income from labor /entrepreneurial activity or additional production of goods for his own consumption.

The social contract mechanism has been in operation since 2012, but only starting from 2020, co-financing of regional budget expenditures from the federal budget is carried out, which has significantly expanded the coverage of the program (table 1). In 2021 and 2022, 63.2 billion rubles were allocated from the federal budget for the implementation of the program ^[15]. For the period 2024-2026, Federal Law No. 540-FZ dated 11/27/2023 "On the Federal Budget for 2024 and for the planning period 2025 and 2026" provides 105.5 billion rubles for this program.

Table 1 – key indicators of the implementation of the social contract

*Note: Index i refers to the ordinal number of the year in which the indicator is calculated

Source: compiled according to the data of the Ministry of Labor of Russia ^[16] and author's calculations

                The data obtained as a result of the initial analysis indicate the high efficiency of the program when using as a criterion the ratio of the indicators calculated in table 1 (line 5). Thus, despite the relatively small coverage of the program (6% of the population after the provision of federal co-financing), its results explain an average of 10% to 20% of the overall reduction in poverty. It is advisable to compare the social contract with similar instruments used in other countries.

The main challenge faced by foreign counterparts of the social contract program is the instability of the jobs occupied by the participants, most of which are also characterized by relatively low wages. For example, most of the participants in the program of the American TANF program are Temporary Assistance for Needy Families (rus. - temporary support for families in need)) they do not go out on self-sufficiency. Thus, studies show that the difference between the control and experimental groups in the level of employment disappears during the 5-year horizon of the program (i.e., households participating and not participating in TANF are characterized by the same levels of employment). Moreover, the employment of only 30% of the program participants is stable (i.e., the program participant has been working for at least 3 out of 4 quarters), and only 21% of the program participants have crossed the income poverty line (while among those who participated in the program until the end (during all 5 years), the proportion of those who left poverty is only 7%) ^[17,18].

The effectiveness of the RSA - Revenu de solidarit? active (Russian: income from active solidarity) program in France is also the subject of intense debate. According to the data of the Accounting Chamber of the Republic of France ^[19,20], since 2010, 65% of RSA recipients have been living below the monetary poverty line (with a poverty criterion of 60% of the median income of the country's population). The impact of the RSA on employment also did not meet the initial expectations of the program: on average, 7 years after joining the RSA, only 34% of the group of recipients of support left it and were employed – and only a third of them were employed stably.

Thus, the effectiveness of the social contract in Russia is comparable to the effectiveness of foreign programs (in all cases, the final goal of the program is achieved for about 30% of participants). It is advisable, however, not only to note the significantly smaller coverage of the Russian program, but also to indicate some methodological limitations of evaluating the effectiveness of the social contract instrument. Firstly, there is currently no continuity in evaluating effectiveness (since the program has been implemented in current volumes only since 2020), whereas foreign assessments extend over a longer period. Secondly, the methodology for evaluating the effectiveness of the social contract (hereinafter referred to as the Methodology), fixed by Order of the Ministry of Labor of the Russian Federation No. 506n, Rosstat No. 389 dated 30.09.2013, contains 7 indicators. De facto, the main indicator determining the achievement of the instrument's goal is the proportion of citizens participating in the program whose average per capita income exceeded the subsistence level. At the same time, the calculation of average per capita income includes many different payments, including a large number of social benefits established outside the law on social assistance (for example, benefits for families with children). The share of labor income received as a result of participation in a social contract in the total increase in household income is not estimated in any way, which does not allow us to identify whether the social contract was the main factor in income growth.

Table 2, in turn, shows an attempt to assess the budgetary effectiveness of expenditures on the provision of the analyzed type of social assistance. As an efficiency criterion, the indicator of budget expenditure per person who has come out of poverty has been adopted, which is calculated by dividing the value of column (1) by the values of column (4) and converting them into the same units of measurement. The lower the value of this indicator, the more effective budget expenditures should be considered.

Table 2 – assessment of the effectiveness of social assistance expenditures under the social contract

Source: compiled according to the data of the Accounting Chamber of the Russian Federation ^[15] and author's calculations

                The results of the analysis show that the lowest expenses (110 thousand rubles) They are necessary for overcoming poverty by a participant in the program who carries out employment activities. On the contrary, the least effective area of expenditure is the support of entrepreneurial activity, the comparable social effect of which is achieved at the expense of a larger amount of money (7 times). It should be noted that 60% of expenditures in 2021-2022 within the framework of the implementation of the social contract were directed specifically to support entrepreneurial initiatives, which indicates that the main share of budget funds was used for the least effective direction of the social contract in terms of overcoming poverty.

The technical nuance of the implementation of the social contract mechanism is the provision of subsidies from the federal budget for co-financing relevant regional programs. The methodology for the distribution of this subsidy is established by Decree of the Government of the Russian Federation No. 1559 dated November 30, 2019. The methodology is based on the standard principle of allocating a predetermined amount of funds in accordance with the indicator of the share of the regional budget's need for funds in the total amount of such a need for all subjects of the Russian Federation. In this case, such a need is determined based on the product of the amount of payments and the projected number of recipients of social assistance separately for each area of the social contract. At the same time, data from the Accounts Chamber of the Russian Federation indicate that a number of subjects of the Russian Federation were forced to request additional funding due to underestimation of demand for a new support measure, but received funds only three months after the request, which is a critical period, given the short duration of the social contract (up to 12 months). On the contrary, some co-financing participants returned unclaimed funds to the federal budget.

Thus, according to the results of the analysis conducted by the author of this article, the following problems have been identified:

1. inefficient use of budgetary funds in the context of activities under the social contract;

2. the presence of shortcomings in the methodology for allocating subsidies for co-financing expenditures of the budgets of the constituent entities of the Russian Federation for providing assistance on the basis of a social contract;

3. Methodological limitations of the methodology for evaluating the effectiveness of the social contract.

Discussion of the results

To solve the identified problems, the author proposes a number of changes in the provision of assistance on the basis of a social contract.

Firstly, in conditions of limited effectiveness of the direction of assistance related to business support, it is necessary to limit the financing of this amount of assistance within the existing mechanism of limits on the distribution of the number of recipients of state social assistance on the basis of a social contract (Decree of the Government of the Russian Federation dated 04/15/2014 No. 296), Taking into account that the costs in this direction are 3.8 times If the expenses for the most effective direction (job search) exceed, it is advisable to limit the maximum share of social contracts for entrepreneurial activity in the proportion of 1:4. Thus, at least 50% (in the current version – at least 10%) of recipients should receive social assistance in the direction of job search and additional vocational education, whereas the entrepreneurial direction Assistance should be limited at the level of 12.5% of recipients (currently there is no limit). The indicated increase in the number of recipients in the direction of job search may be accompanied by a more stringent approach to the payment of support. By analogy with foreign practice, the author proposes to be guided by the principle of "work first" when determining the payment scheme. Instead of the existing scheme: one payment immediately and 3 after the fact of employment - it is advisable to pay funds only within 4 months after employment. On the one hand, this approach optimizes the expenditure of funds in terms of renegotiation of the contract. On the other hand, the payment of support within 4 months after employment will allow citizens to "gain a foothold" in the workplace to a greater extent, which will reduce the likelihood of subsequent layoffs.

Such a restriction will also require social authorities to set stricter requirements for the business plans of citizens applying for financing their entrepreneurial activities.

Secondly, the author proposes to amend the methodology for allocating subsidies for co-financing expenditures of regional budgets (Decree of the Government of Russia dated 04/15/2014 No. 296) in order to reduce the risk of cash gaps if additional co-financing is necessary. It is advisable to provide for the possibility of saving unused subsidy funds as remaining funds in the accounts of the budget of a constituent entity of the Russian Federation. For these subjects of the Russian Federation, when determining the amount of subsidies for the current year, it is necessary to reduce the planned amount of co-financing by the appropriate amount of funds remaining. The released funds in the current period should be additionally distributed among the regions that requested additional financing in the reporting year in accordance with the volume of unaccounted additional demand that arose in the reporting year. These changes optimize inter-budgetary relations on the issue under consideration in the context of the objective complexity of forecasting voluntary demand for assistance within the framework of a social contract.

Thirdly, according to the author, it is advisable to supplement the Effectiveness Assessment Methodology (Order of the Ministry of Labor of the Russian Federation No. 506n, Rosstat No. 389 dated 30.09.2013) with an indicator named "the share of income from activities to which social contract measures were directed in the total increase in income of the recipient of social assistance based on the social contract during the term of the contract." The calculation of this indicator, according to the author, should be carried out according to the following algorithm:

1) determination of the absolute difference between the per capita monthly income of the recipient of assistance on the first and last day of the validity period of the social contract;

2) determination of the average per capita monthly income from the activities that the social contract was aimed at stimulating (the amount of wages or income from entrepreneurial activity);

3) determining the value of the final indicator by dividing the value according to item No. 2 by the value according to item No. 1.

The introduction of this indicator will make it possible to determine the net factorial impact of social assistance on the basis of a social contract on changes in the income of its recipients, which will improve the quality of evaluating the effectiveness of the tool.

Thus, Russian legislation provides for various areas of social assistance based on a social contract. The scientific novelty of this study is to assess the budgetary effectiveness of the social contract instrument in accordance with the proposed author's criterion of expenditures necessary to overcome poverty by one recipient of assistance. The results of the analysis indicate the different effectiveness of the areas of assistance under the social contract, which raises the problem of the need to redistribute budget funds between these areas. To solve the identified problems, the author proposes specific changes to the current legislation regulating the functioning of the social contract.

Thanks. The author thanks Igor Viktorovich Balynin, PhD, Associate Professor, Associate Professor of the Department of Public Finance, Faculty of Finance, Financial University under the Government of the Russian Federation for his assistance in conducting scientific research.