New EUROMOD research has been published by the Organisation for Economic Co-operation and Development (OECD,) simulating alternative scenarios
for reforming the unemployment benefit and cash social assistance systems in Lithuania.
In 2015 the Lithuanian government launched an ambitious Social Model reform agenda aimed at balancing flexibility of the labour market and security provided through the system of social protection. The reform agenda included changes to the unemployment benefit but nor to social assistance. However, social assistance, as currently designed, has strong negative effects on the work incentives of the recipients.
The new EUROMOD study analyses a reform of the social insurance unemployment benefit along the lines proposed by the Lithuanian authorities within the new “Social Model”, as well as several potential social assistance reforms.
Researchers constructed and considered several reform scenarios: extending the current system of in-work payments; establishing earnings disregards; and modifying the equivalence scale used to adjust social assistance benefits for families of different sizes. The study examined the effects of reforms on financial incentives to search and accept a job as measured by the share of additional income that is taxed away through direct taxes, social insurance contributions or through benefit withdrawal when increasing labour supply (effective marginal tax rate). The researchers also investigated the impact of reforms on poverty, income distribution as well as their first – order financial costs.
The study used microsimulation techniques applied to a representative sample of Lithuanian households. The simulations are carried out using EUROMOD and micro-data from the 2012 Lithuanian component of the European Union – Survey of Income and Living Conditions (SILC)
Download the OECD Working Paper The Effects of Reform Scenarios For Reforming the Unemployment and Cash Social Assistance Systems in Lithuania