SOCIAL WELFARE IN CUBA

Carmelo Mesa-Lago University of Pittsburgh

ASCE Conference, Miami July 27, 2017

SUMMARY

Population aging

Employment and unemployment

Wages

Income inequality

Social expenditures

Pensions

Health care

Education

Housing

Poverty

Social Assistance

Conclusions

All data from ONEI, some calculations by author

I. POPULATION AGING

• Birth rate the lowest in the continent since 1978

• Net emigration rate increasing, -0.05% record in 2016

• Falling (age 0-14), start decrease productive (15-65) and increase elderly (60+)

• In 2016: 16.4% (young), 63.9% (productive) and 19.8% (elderly)

• In 2030: 15.5%, 54.4% and 30.1% respectively

• Dependency ratio will increase, heavier burden for productive

Population Aging in Cuba, 1953-2016

2.50 2.20 1.26 1.12 1.11 1.04 2.11 2.16 1.14 0.28 0.25 0.002

6.9

10.0

14.7

18.7 19.4 19.8

-5

0

5

10

15

20

25

1953 1970 1981 2002 2006 2012 2013 2014 2015 2016

Birth rate Population growth rate Population age 60 and above

II. EMPLOYMENT AND UNEMPLOYMENT

• Employment is declining due to population aging, oldest in the region

• 2015 labor force fell for first time by 2.5% and by 2.2% in 2016

• Visible unemployment lowest rate was 1.6% in 2006

• 2010 R. Castro need fire 1 million unneeded state jobs (hidden unemp’t)

• Visible unemployment rose to 3.5% in 2012

• Non-state sector didn’t grow enough to create jobs for all to be dismissed

• Only 500,000 were actually fired and Raúl ended dismissals

• Visible unemployment fell to 2.4% in 2015 and to 2% in 2016

• State labor surplus growing again

• Unemployment + underemployment: 28% of labor force in 2015

Economically Active Population and Employed EAP, 2010-2016

5112

5174

5078 5086 5106

4980

4868

4984 5010

4902 4919 4970

4860

4591

4400

4500

4600

4700

4800

4900

5000

5100

5200

5300

2010 2011 2012 2013 2014 2015 2016

Thou

sand

s

Economically Active Population Employed EAP

Visible and Hidden Unemployment, 1998-2015

6.6

1.6 1.7 2.5 3.2 3.5 3.3 2.7 2.4

25.1

35.2 34.7

26.1

31.7

37.7 37.9

28.1

0

5

10

15

20

25

30

35

40

1998 2008 2009 2010 2011 2012 2013 2014 2015

Perc

enta

ge o

f EAP

Visible unemployment Hidden unemployment Total unemployment

III. WAGES AND INCOME INEQUALITY

• In 1989-1993, state medium wage adjusted to inflation fell by 90%

• Slow partial recovery until 2016: still 39% of the 1989 level

• In 2016 purchasing power of workers 61% below 1989, 27 years after

• ECLAC starts series in 2007 showing 15% increase in 2015, highest in the region

• State medium real wage 740 CUP in 2016 equal to $30 monthly

• This is the lowest in Latin America

• Income in paladar 2,000 times higher than median state wage; lesser of house

7,000 times higher

• Expansion of income inequality, probably among highest in the region

State Medium Wage Adjusted for Inflation, 1989-2016

100.0 96.8

50.0

28.2

10.1 14.4

18.1 23.9 25.0

27.6 32.8 38.4 39.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.019

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

16

Income Inequality, 2015/2017

Type of annual income by sector CUP CUC Ratio (based on wage 1,0)

State sector (2015)

1. Medium assistance benefit 1.998 80 0,2

2. Minimum wage 2.700 108 0,3

3. Medium pension 3.238 130 0,4

4. Medium wage 8.244 330 1,0

Private sector

5. Average remittance per capita (2016) 451 1,4

6. Self-employed and tourism (2015) 1.900 5,8

7. Luxury paladar (2017) 94.000 284,8

8. Lease mansion to tourists (2017) 140.000 424,2

IV. SOCIAL EXPENDITURE, 2006-2015

53.4 55.4

47.3

28.9

36.6

28.2

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Social expenses % state budget Social expenses % GDP

V. SOCIAL SECURITY PENSIONS

• Pension reform in 2008 due to growing financial deficit

• Payroll contribution 10% paid by employer raised to 12%

• Contribution of 5% levy on high-wage workers (very few)

• In 2013 the total contribution had to be 21% to finance deficit in that year

• The state finances the deficit

• Retirement age raised five years in 4-year period: men 65, women 60

• Live expectancies at those ages highest in region

• Age increase postpones retirement at least four years and cut pension costs

• Effect started in 2014 , and cost fell to 15.6% in 2015

• Costs might resume increase in 2018 or 2019

• In 1989, 3.6 active workers for one pensioner, falls to 2.9 in 2015 despite reform

• Actuarial deficit huge, no valuation in last four decades

Deficit in Social Security Pensions, 2006-2015

6.7 7.1 7.6 7.4 7.2 6.9 6.5 2.5 3.2 3.1 3.2 2.4

1.5

37.4 35.3

40.5 41.5 43.1 43.8

35.2

23.3

0

5

10

15

20

25

30

35

40

45

50

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Pension cost % GDP Deficit % GDP Deficit % total cost

Pensions (continues)

• Another way to cut expenditures is keep “real” pensions low

• Government has full discretion to adjust (among few countries in the region)

• In 2016 real pension was half of the 1989 level, does not cover food need

• The medium real pension in 2015 was 270 CUP, equal to $11 monthly

• Most pensioners need family help or foreign remittances

• They are among the poorest groups in the population

• Many work in the streets selling peanuts or other things or begging

Medium Pension Adjusted to Inflation, 1989-2015

100.0 98.2

76.8

46.4

16.1

32.2 21.4 25.0

39.3 48.2 50.0 50.0 51.0

0

20

40

60

80

100

12019

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

1520

16

Inde

x N

umbe

r

VI. HEALTH CARE

• Number of hospitals declined 32% in 2007-2016 • Rural hospital closed in 2011, patients shifted to regional hospitals

• Total health personnel decreased 22% in 2008-2016

• Except for doctors that rose 21%, all other personnel fell

• Family doctors shrunk 40% (the rest are abroad)

• Severe scarcity of medicines

• Access to and quality of health care has diminished

• Infant mortality fell 5.3 to 4.2 in 2007-2014 (2nd lowest in continent) 4.3 in 2015-2016

• Maternal mortality rose from 31 to 42 in 2007-2016 (11 pp.)

Decline in Health Care Personnel, 2008-2016

336

262

107 89

139

64 74

90

32 13

0

50

100

150

200

250

300

350

400

2008 2009 2010 2011 2012 2013 2014 2015 2016

Thou

sand

s

Total Nurses Technicians Doctors Family Doctors

VII. EDUCATION

Due to aging and cuts, educational enrollment fell between its peak and 2015-16: Primary 19% Rural 25% Secondary 15% Rural 66%

Pre-university 32% Rural 82% University 78%

University Enrollment 2007-2015

University Enrollment % change 2007/1989

% change 2015/2007

Humanities/social sciences 3,943 -91 Medicine 403 -63 Economy 396 -87 Physical education 381 -91 Technical sciences 43 -35 Agronomy 38 -68 Education 8 -84 Math/natural sciences -39 0 Art -38 0 Total 208 -78

VII. HOUSING

• End 2016 official housing deficit was 883,050 dwellings, previous was 600.000

• My estimate is more than 1 million

• Dwelling construction fell 80% in 2006-2016

• The ratio of units built per 1,000 inhabitants declined from 9.9 to 1.9

• In 2011-2016, dwellings built by the state decreased from 72% to 42% of the total

• Those built privately (population) rose from 28% to 58% of the total

Dwelling Construction, 2006-2016

111.4

52.6 44.8

35.1 33.9 32.5 32.1 25.6 25.0 23.0 22.1

9.9 4.6 4.0 3.1 3.0 2.8 2.8 2.3 2.2 2.0 1.9

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dwellings built (thousands) Ratio per 1000 inhabitants

IX. POVERTY AND SOCIAL ASSISTANCE

• Poverty in Cuba has increased since de 1990s crisis (“The Special Period”)

• In 2000 it was 20% in Havana City and probably worse in the rest of the country

• There are no statistics but several factor have contribute to poverty:

Insufficient salaries to cover food needs

Extraction of products from the rationing list and selling at market prices

Deterioration of health services, informal payments

• Social assistance is needed to help the poor/needy but has decreased sharply

Decline in Social Assistance, 2006-2015

2.2 2.0

1.5 1.1

0.5 0.4 0.3 0.4

5.3 5.2

3.8

2.1

1.6 1.6

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Expenses % GDP Beneficiaries % population

Elderly Receiving Social Pensions, 2007-2015 (thousands and percentages)

Old-age assistance pensions

2007

2008

2009

2010

2011

2012

2013

2014

2015

Number

145.3

145.2

118.7

71.0

63.3

54.1

52.7

52.6

53.6

Index 100.0 99.9 81.7 48.9 43.6 37.2 36.4 36.2 36.9

X. CONCLUSIONS

• Cuba’s population is the oldest in the region, some adverse effects

• Labor-force fall started in 2015, continued in 2016 and will accelerate in future

• Unemployment + underemployment 28% of labor force 2015

• Medium state wage 61% lesser than in 1989, disincentive to productivity

• Social expenditures shrank 8 pp. of budget and GDP in 2007-2015

• Pension financial deficit 6.5% GDP cut short term, will expand medium term

• Pension is half of the 1989 level and doesn’t cover food needs

• All health-care personnel (save doctors) and facilities have been cut

• Education enrollment shrunk 72% in 2007-2015

• Dwellings built fell 80% in 2006-2016, official deficit rose to 800,000

CONCLUSIONS (Continues)

• Poverty and income inequality have risen notably

• Social assistance instead of expanding has contracted drastically

• Economic reforms have not had tangible effects on the economy

• But have worsened living standards among workers, pensioners, population

• Conditions will aggravate unless the reforms are deepened/accelerated and a

social safety net is established