Sector Overview

Prior to the transition, ECA regions countries
exemplified cradle-to-grave security with
secure jobs for most, albeit low-paying, and with often mandatory labor force participation by both men and women, and pensions for all. Social assistance was quite limited since social protection needs were provided to families through their participation in the labor market or to individuals in residential institutions. Even so, there were some excluded groups, particularly the Roma, persons with disabilities, working poor and political prisoners. For the vast majority of the population, though, social protection was not a major concern.

Transition to a market economy disrupted this system. In most countries there was an immediate disruption in the labor markets, with jobs no longer secure and working-age people finding themselves unemployed.
There were tremendous opportunities for those with market-friendly skills and entrepreneurial talent. At the same time, however, a reasonably large share of the work force found themselves with outdated skills and limited opportunities.

These changes were immediately reflected in the pension systems, where the decline in wages and labor force participation rates resulted in declining contribution revenue.  As a result, governments had difficulties honoring pension obligations. In the absence of unemployment assistance, pensions and especially disability pensions were also used as a means of absorbing unemployed workers. Governments responded by going into arrears to pensioners, by cutting pensions, by inflating them away, or where pensioner pressure has been high, cutting other types of expenditures and going into debt.

At the same time, there were limited social assistance programs to provide the necessary safety net for those who found themselves without other means of support. The old systems had relied on price subsidies for essential commodities and reduced-price or provision of goods called "privileges" for certain categories of the population (particularly veterans). The removal of these price subsidies created an even greater burden for families whose means of support had disappeared, while "privileges" were erratically available, depending on local budgetary resources.

The changes brought by the transition to a market economy required a complete re-design of social protection systems.  This included changes in labor market programs, pension systems, and social assistance programs, complemented by social funds and other instruments designed to increase the level of community involvement and decrease the level of exclusion.