Challenges

Social Protection sector faces several challenges in the region.        

Dysfunctional Labor Markets
Labor market institutions and regulations developed under central planning are ill-suited to the needs of a market economy. However, they are politically difficult to reform given that the reforms usually give rise to more job insecurity and short run unemployment.

Need for Pension Reform
Pension expenditures have reached levels as high as 15% of GDP in Poland and Slovenia and 10% in Bulgaria, Hungary, Latvia, and Slovakia. These high levels burdened stabilization efforts and crowded out other needed government expenditures. Payroll taxes have been raised to pay for these expenditures, but are currently between 40-60% of employees' wages, putting enormous burdens on labor markets and encouraging growth of the informal sector.

Need for New Social Assistance Programs
Production and income initially fell up to 60% in the new transition countries, leading to burgeoning groups of poor and vulnerable people. However, there was little in the way of a resource base to fund new programs. In addition, people's expectations had not initially declined with their income levels and the benefits offered by programs which were fiscally feasible were not seen as adequate.

Postconflict Environment
During the transition period, many ECA region countries have experienced violent conflicts, with ethnic dimensions. These conflicts have inevitably amplified the burdens on the transition countries by increasing the segmentation of labor markets and the informalization, while reducing the levels of domestic and foreign investment.  As a result, this imposed additional institutional and administrative difficulties in the implementation of social protection programs whereas the need for the programs has increased.

Social Exclusion of the Roma and Other "Pockets of Poverty"
There is a concentration of deep and chronic poverty among the long-term unemployed and discouraged workers and among ethnic minorities, most deeply affecting the Roma. In Bulgaria, for example, the likelihood of being poor is nine times higher for the Roma and three times higher for Turks, than for ethnic Bulgarians. This has led to increased intolerance, segregation, mass migration, and occasionally civil unrest. Individuals with disabilities are often trapped in their apartments for lack of accessible infrastructure, or relegated to residential institutions, some of which with unacceptable living conditions and abuses.