How to fix the future?

КАКО ДА ЈА ПОДОБРИМЕ HOW TOАНАЛИЗА FIX THE ИДНИНАТА: И FUTURE ANALYZES AND AND RECOMMENDATIONS RECOMMENDATIONS FOR FOR SELECTED SELECTED PUBLIC PUBLIC POLICIES POLICIES IN IN MACEDONIA MACEDONIA ANALYZES ПРЕДЛОЗИ ЗА ИЗБРАНИ ЈАВНИ ПОЛИТИКИ ВО МАКЕДОНИЈА

КАКО ДА ЈА ПОДОБРИМЕ HOW TOАНАЛИЗА FIX THE ИДНИНАТА: И FUTURE ANALYZES AND AND RECOMMENDATIONS RECOMMENDATIONS FOR FOR SELECTED SELECTED PUBLIC PUBLIC POLICIES POLICIES IN IN MACEDONIA MACEDONIA ANALYZES ПРЕДЛОЗИ ЗА ИЗБРАНИ ЈАВНИ ПОЛИТИКИ ВО МАКЕДОНИЈА

This book is prepared within the project “FISCAST+: Fiscal transparency and accountability improves policies in quality of life, education and health” funded by the UK Government with the support of the British Embassy Skopje. The content of this publication does not necessarily reflect the position or the opinions of the UK Government.

Publisher: Finance Think – Economic Research & Policy Institute, Skopje Editor: Blagica Petreski and Despina Tumanoska Authors: Blagica Petreski, Pavle Gacov, Zoran Shapurikj, Sanela Shkrijelj ,Blaze Josifovski, Marjan Petreski, Nikica Mojsoska Blazevski, Maja Parnardzieva Zmejkova, Vladimir Dimkovski, Ana Mickovska Raleva, Ana Tomovska Misoska, Olimpija Hristovska Zaeva, Suzana Cherepnalkovska, Vesna Kostikj Ivanovikj Biljana Indova, Branko Adzigogov Design and Print: Milosh Gjuroski/Kontura Reviewers: Filip Ivanovski, Maja Gerovska Mitev, Rubinco Zarevski, Natasha Angeloska Galevska, Trajko Slaveski Proofreader Daniela Parat Jovanovska Printed Copies 300 Free Copy

CIP - Каталогизација во публикација Национална и универзитетска библиотека "Св. Климент Охридски", Скопје 351(497.7) HOW to fix the future? : analyzes and recommendations for selected public policies in Macedonia. - Skopje : Finance think, 2018. 283 стр. : илустр. ; 30 см Фусноти кон текстот. - Библиографија: стр. 283 ISBN 978-608-65704-6-0 а) Јавни политики - Македонија COBISS.MK-ID 107384330

СОДРЖИНА CONTENT

FOREWORD

4

OVERHAUL OF THE SOCIAL ASSISTANCE SYSTEM IN MACEDONIA: SIMULATING THE EFFECTS OF INTRODUCING GUARANTEED MINIMUM INCOME (GMI)

9

SUSTAINABILITY OF THE PENSION SYSTEM IN MACEDONIA

57

Comprehensive analysis and reform proposal with MK-PENS – Dynamic Microsimulation Model

FROM NUMBERS TO PRACTICE – IDENTIFICATION AND ANALYSIS OF THE INDICATORS RELATED TO THE QUALITY OF THE TEACHING PROCESS IN THE PRIMARY EDUCATION IN MACEDONIA

103

UNIVERSAL HEALTH INSURANCE IN THE REPUBLIC OF MACEDONIA AND EFFECTS FROM THE IMPLEMENTATION OF THE PROJECT “HEALTH INSURANCE FOR ALL”

159

EFFECTS FROM STATE INVESTMENTS IN PUBLIC HEALTH CARE FOR THE PERIOD 2010-2016

201

Analysis of the capital investments in public health care concerning the prevention and treatment of cardiovascular diseases as the most common noncommunicable disease

INFORMAL SECTOR INCLUSION IN THE SUSTAINABLE WASTE MANAGEMENT SYSTEM AS AN OPPORTUNITY FOR EMPLOYMENT AND SOCIAL INCLUSION OF VULNERABLE GROUPS

249

FOREWORD

HOW TO FIX THE FUTURE? ANALYZES AND RECOMMENDATION S FOR SELECTED PUBLIC POLICIES IN MACEDONIA

The need to adopt evidence and data-based policies is more and more obvious. The rapid changes, the complexity of societal trends and limited resources are some of the main factors imposing the need for measurable effects, forecasts and rigorous analyses.

The assessment of effects, potential scenarios and fiscal implications are some of the criteria for designing a policy and maximising its effects. In other words, to obtain the highest possible outputs for one MKD spent. In the practice of the development of economic policies in Macedonia, evidence-based decision-making is still a rarity. The lack of data, knowledge and capacities for rigorous analyses, accompanied by the populistic appetites, contribute to the design and implementation of measures and policies the effects of which are not assessed and measured, let alone maximised. At the same time, the Macedonian economy is still facing development challenges, high unemployment rate (21.9%), high poverty (22%), erosion of the quality of healthcare services, and decreased performance in education. Out of 70 countries in the world, according to the PISA testing for 2015, Macedonia was ranked on the 67th place in science and reading and the 66th place in mathematics. All these indicators define the quality of life. Consequently, the topic of efficiency and effectiveness of public policies in the quality of life context became more important in recent years.

Hence, the question “How to improve the future” was imposed as crucial. The purpose of the project “FISCAST+: Fiscal Transparency and Accountability Improves Policies in Quality of Life, Education and Health” is to analyse the efficiency of public policies in the area of quality of life, education and health care, to give adequate recommendations for reforms and to increase the awareness of citizens about the importance of these vital areas.

Six analyses and proposals for selected public policies

4

were researched by six teams of experts and civil organisations. The policies were selected based on the priorities and problems that citizens face and the urgency for reforms in given areas. Thus, three studies were developed in the quality of life area: measuring the effects of introducing guaranteed minimum income, proposed options for reform of the pension system and formalisation of the informal waste pickers; two studies in the healthcare area: the model of universal health insurance and the effects of the “Health Insurance for All” project and the effects of state investments in public healthcare for the period 2010-16; and one study on the quality of primary education. Data access, and the capacities for carrying out rigorous analyses were two key challenges in the process of developing these studies.

The analyses produced measurable indicators for the effects, fiscal implications and stakeholders, and offered solutions and recommendations for introducing new measures or enhancing the existing ones. The main recommendation, common for all studies, is that the policy makers should change the practices of adopting and implementing policies, and to significantly improve data transparency. Each public policy implementation should be preceded by an analysis measuring the effects, and the policy is to select the most optimum scenario maximising the effects. Only the adoption of policies with maximised effects could contribute to the prioritisation of measures, rational use of resources and, in the bottom line, to improve the future by enhancing the vital sectors and quality of life.

In the end, I would like to thank the British Embassy in Skopje that enabled financially the implementation of these studies and of this project. Gratitude for the readiness to invest in data, knowledge and evidence-based policy making, at a time when the research and analysis of public policies were marginalised. The project implementation would have been impossible without the dedication and work by the team of Finance Think, the experts and organisations involved. The studies would not have reached the wider audience without the participation of economic journalists and their cooperation and enthusiasm to get involved in investigative journalism. All participating parties contributed for the setting up of new criteria about how a public policy analysis should look like, and it led to a heated public debate.

Blagica Petreski Chief Executive Officer Finance Think Economic Research and Policy Institute

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OVERHAUL OF THE SOCIAL ASSISTANCE SYSTEM IN MACEDONIA: SIMULATING THE EFFECTS OF INTRODUCING GUARANTEED MINIMUM INCOME (GMI)

1

Marjan Petreski Nikica Mojsoska-Blazevski

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Overhaul of the social assistance system in Macedonia: Simulating the effects of introducing Guaranteed Minimum Income (GMI) scheme

Authors: Marjan Petreski University American College Skopje marjan.petreski@uacs.edu.mk Nikica Mojsoska-Blazevski University American College Skopje nikica@uacs.edu.mk

Reviewer: Maja Gerovska Mitev

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Introduction Employment is considered a primary pathway to individual independence and self-efficacy, as well as the best way to combat poverty and social exclusion. However, some categories of citizens face difficulty in accessing employment for different reasons, either temporary or for a prolonged period of time. The role of the social assistance is to provide for the material existence of those citizens and to preserve their living standard to a certain level, affordable and achievable by the state. Even among the workers who manage to find a job, there are some who will be employed at very low wages, working few hours, on temporary contracts, etc., hence still living in poverty (so called, working poor).

For many decades now, it has been believed that the economic growth and development are the main pathway to reducing poverty, inequality and social exclusion. However, in recent years, mainly following the global economic and financial crisis, a new line of thinking emerged according to which growth alone cannot solve social problems. Indeed, some of the famous economists, such as Nobel-prize winner Joseph Stiglitz, have been repeatedly bringing the attention to the rising inequalities. The OECD also asked for a new approach towards growth which should also be inclusive. There is a growing body of literature and authors arguing that greater support to those in need can lead to better economic and social outcomes (Crepaldi et al., 2017). Within the EU, there is a growing discussion and debate, as well as commitment towards strengthening the social dimension of the EU, even for introduction of a European Minimum Income scheme. There is a consensus for the need to implement various activities and initiatives to reach the goals of Europe 2020. The guaranteed minimum income (GMI) has an important place in the overall discussion on achieving the social targets, in particular the poverty target. At the same time, both at the EU level and in some states, the idea of introduction of universal basic income schemes is very vibrant and in experimental phase.

Although the GMI has been in place in the EU countries for almost three decades, the idea for introduction of similar program in Macedonia has only recently gained attention, being proposed as part of the pre-election program of the now ruling political party/government.

Though, within the program, there is no detailed explanation about the design of the GMI, which leaves a room for the present study to simulate different options of the GMI scheme and to recommend the most effective and efficient one. In particular, different considerations have to be taken into account such as the cost of the program, the effect on poverty and inequality, the potential effect on the labour supply (i.e. disincentives to work), implementation mechanisms, etc.

The rest of the paper is organized as follows. Section 2 sets the scene by reviewing the system of social assistance in Macedonia. Section 3 reviews the setup of similar programs 10

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

across the EU, main issues within the system and most recent reforms. Section 4 portrays the data and underlying methodology. Section 5 presents our own GMI designs. Section 6 presents the obtained regression results. Section 7 presents the effectiveness and efficiency of the proposed schemes for Macedonia. Section 8 concludes.

Setting the scene: Social assistance system in the Republic of Macedonia Similar to most European countries, Macedonia has a comprehensive system for social security which comprises: i) contributory benefits (such as pension and disability insurance), ii) passive and active labour-market programmes, and iii) social assistance programmes for protecting income and consumption of the poor. Passive policies are represented by the contribution-based unemployment benefit which is conditional on previous work history. However, given that about 80% of the unemployed in Macedonia are long-term unemployed, the coverage of the benefit in 2012 was only 9% (of the unemployed). Moreover, it is of short duration.

The social assistance system in Macedonia can be characterized as categorical rather than universal, given that it guaranties minimum resources/income to specific subgroups of population, such as unemployed, disabled, etc. In addition, the system is fragmented, 11

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consisting of many types of programs rather than having a single, comprehensive program. In total, there are 16 separate benefit schemes that are defined by laws as “entitlements” or “rights” and two social programs. Of those, 11 are social and 5 are child protection benefits. The main program is the social financial assistance (SFA). The other programs include: permanent social assistance (for those that are permanently unable to work, such as disabled, elderly), cash assistance for orphans, child allowances, benefits for care givers, one-time cash benefits, salary supplements for family members who face reduced work opportunities because of responsibilities to care for children with disabilities, housing, health insurance benefits, etc. In the last couple of years, the Government introduced new social protection measures aimed at further reducing the poverty, though some of those are in essence part of the demographic policy (to support fertility). The two social programs are the benefits for energy use and conditional cash transfers.

The SFA is the main social safety program, acting as a last resort support to poor individuals/households. It targets households whose members are able to work but are unable to make themselves materially secure. The amount of the benefit is related to family size (up to 5 members), and a maximum of MKD 7,020 (in 2017) or approximately EUR 115 per month, can be granted. It is means tested, meaning that the actual amount transferred to a household is calculated as the maximum amount (for the particular family size) reduced by any income earned by the family/household. The eligibility is lost if the family earns more than the SFA level.

The total spending on social assistance (SFA, child and family protection, non-contributory disability benefits, and war-related benefits) in Macedonia in 2016 was about one percent of GDP (0.99% of GDP). The SFA programme alone accounts for about 0.17% of GDP, whereas in recent years the most costly program is the third child allowance (0.37% of GDP in 2016).

The social assistance programmes have undergone several reforms in recent years aimed at improving targeting and efficiency. The introduction of the Management Information System (MIS), which provides an electronic connection among the social work centres (SWCs), has substantially decreased the number of SFA users through elimination of duplicative and flawed claims. Some changes were also made to some of the programs as to increase the activation component and to strengthen the link to the labour market. A large new program was introduced, the conditional cash transfer programme for parents of secondary-school pupils who are recipients of the SFA, as to break the vicious cycle of poverty and low education that transfers across generations. However, there were no 12

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detailed studies carried for the importance of the social assistance in reducing the overall poverty, nor strong efforts and commitment to deeply reform the system.

As elsewhere, while the SFA programme in Macedonia is aimed at safeguarding the income and social integration of poor citizens, there are some concerns about its potentially negative impact on the labour supply and welfare dependency. Vidovic et al. (2011) argue that there are two interrelated elements in the process of the activation of benefit recipients and their labour market integration. The first one is a demanding element; that is, whether an active job search is promoted by the legal environment. On the other hand, the enabling element should support poor and socially disadvantaged individuals in their job search efforts, as those individuals are likely to face some barriers to participation and/or employment. The assessment of the demanding and enabling environment in Macedonia shows that national legislation and policies do not provide a strong support for activity of the beneficiaries of the SFA (World Bank, 2013). Though, there are some incentives in the social system for speeding up the transition from SFA to work, such as: a) the declining benefit schedule (the benefit drops to 50% of the eligible amount after three years of receipt) and b) the legal pledge for keeping the entitlement to SFA while the beneficiary is engaged in a public work programme. However, there is no evidence that these incentives affect the labour market behaviour and outcomes of the SFA beneficiaries.

Pensions play a very important role in reducing poverty. Poverty before social transfers in 2015 was 40.5%, however pensions reduce the AROPE to 24.8. However, the effect of the social transfers on poverty is quite low, as they manage to further reduce the AROPE (after pensions are taken into account) to 21.5 (only by 3.3 percentage points). Though, the situation is similar even across the EU countries, where social transfers do not play an important role in reducing the poverty: the average effect for the EU-28 is 4.1 p.p., whereas the average AROPE in 2015 was 23.8% (Crepaldi et al., 2017). Major safeguard against poverty is the labour market status of a person. Despite the overall high poverty rate in the country (21.5% in 2015), employed persons face a relatively low risk of poverty, with 8.9% of employed persons living in poverty (i.e. being at-risk of poverty and social exclusion-AROPE). Poverty is highest among the unemployed (39.7%) and other inactive persons (other than pensioners), 26.7%.

There are generally three main arguments for more profound reform of the social assistance system in the country: i) the small effectiveness of the social transfers in reducing poverty; ii) the low spending on social assistance programs, and iii) the labour market disincentives arising from the social assistance given the low general level of wages and large grey economy.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Guaranteed minimum income programs across the EU: practices and recent reforms The design of GMI across the EU The European Pillar of Social Rights 1 defines the minimum income as providing “sufficient resources and social assistance to live in a manner compatible with human dignity and is part of a comprehensive and consistent strategy to combat poverty and social exclusion.�(p.1). Usually, the minimum income programs are last-resort schemes available to the poorest citizens to provide them with some minimum standard of living when they do not have other means of financial support. The minimum income programs provide safety net to those who cannot find a job, do not have access to decent job or who cannot work. In practice, its main beneficiaries are persons who are able to work but cannot find a job, given that unemployment is the main reason why people cannot enjoy an adequate living standard (Crepaldi et al., 2017).

The guaranteed minimum income (GMI) schemes fall into the category of noncontributory, general or universal assistance since they provide income support (cash benefits) to all eligible claimants whose income falls below some threshold, i.e. a specified minimum income. There are different approaches among Member States (MS) as how to set the threshold: some base the threshold on studies of poverty, some on other yardsticks within the economy, for instance minimum pension, reference budgets (for goods and services necessary to reach an acceptable standard of living), etc. They also provide indexation with inflation, or the annual changes are based on the government capacity to fund the GMI. The GMI support is means-tested, meaning the recipient receives the guaranteed income level minus earned income from different resources, whereas the nonmonetary income is rarely considered. GMI programs usually have built-in conditionalities, commonly related to labour market activity, active job search, obligatory participation in programs for social integration, participation in vocational training, in some community work, etc. These conditions are thought to make the GMI a comprehensive active inclusion strategy rather than a mere income support program.

The primary role of the GMI is to reduce poverty, although the evaluation studies for the EU countries show that they usually fail to do so (Figari, 2013; Penas-Casas, 2013). In particular, studies show that the GMI is a significant addition to the incomes of the poor,

Minimum Income-Towards a European Pillar of Social Rights, available at: https://ec.europa.eu/commission/publications/minimum-income-european-pillar-social-rights_en.

1

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

but still fail to lift many people out of poverty. The effectiveness of the GMI in reducing the poverty depends on the overall design of the program. The literature identifies several issues/elements of the program which are important in terms of the effectiveness (Farinha Rodrigues, 2004; Clavet et al., 2012; Frazer and Marlier, 2016; Crepaldi et al., 2017): -

Adequacy – the failure of the GMI programs to reduce substantially poverty is related to the adequacy of the scheme, i.e. generosity. Studies find that many poor who receive the GMI still remain below the poverty threshold level. The main reason is that the benefit levels are usually below the AROPE poverty threshold of 60% of the median income and even below what is considered as extreme poverty level (40% of the median income). Moreover, the benefit levels are usually far below the minimum wage (to avoid the potential disincentives effect), the take up is very low, but also countries generally spend little on GMI and some EU countries consider it as a residual scheme in the overall social assistance and redistribution schemes. For instance, Penas-Casas (2013) classifies EU countries into five groups based on the generosity of their minimum income schemes, with Denmark being most generous (minimum income is set at 50% of the median income), whereas Latvia, Poland, Bulgaria and Slovakia having a least generous threshold at 20% of the median income.

-

Poverty trap – Inadequate GMI schemes can lead to poverty trap. While the GMI helps people to satisfy their very basic needs, they can lock the beneficiaries into a cycle of poverty and dependency without improving their prospects for access to education, training, jobs, etc. or, in general, the access to opportunities.

-

Disincentives – GMI programs may lead to disincentives in the labour supply, further exacerbating the poverty trap problem (Farihna Rodrigues, 2004; Clavet et al., 2012). There are several possible situations in which GMI program may raise disincentives: a worker whose income from work is only slightly above the GMI level may decide to withdraw from the labour market and become a GMI beneficiary; an unemployed persons who is eligible to receive GMI may reduce his/hers job-search intensity and/or decline wage offers (the latter depends on the conditions for eligibility and strictness of the implementation); a low-wage worker receiving wage below the GMI threshold may not have an incentive to progress in the job as then s/he will no longer be eligible to receive the GMI. These situations for disincentives may be heightened in an economy with high grey economy; for instance, workers may ask employers to formally pay them lower wages in order to receive GMI, and to pay the rest of the wage in cash (envelope 16

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

wages). These disincentives are the primary reasons (in addition to the budgetary constraints) why the generosity of the GMI is low in many countries. It is important that the eligibility mechanisms and taxes are set as not to discourage people from making an effort to find a job or to earn more. Though, there are ways in which the disincentives may be reduced if not avoided fully. For instance, the GMI scheme may consider only 80% of the income form work in the calculations (Farinha Rodrigues, 2004). The in-work benefits are also designed as to minimize these disincentives.

-

Monitoring issues – As the main criteria for awarding the GMI is the individual/household income level, it is crucial to correctly calculate the income, from different sources. Within the legislation or by-legislation, countries define in detail all sources of income that are considered in calculation of the income, but in practice there are problems arising from the income earned in the informal economy, remittances (which can be large in some countries, as in Macedonia), non-monetary income, etc.

-

Incomplete take-up – Practice shows that not all eligible persons for the GMI apply for the scheme and receive the benefit. There are different factors leading to the incomplete take-up, such as lack of information among those in need of the program (the socially excluded), complexity of procedures and application, stigma associated with receipt of the GMI, etc. One can assume that these issues may be larger for the most vulnerable, socially excluded and poor citizens, i.e. those in the largest need for GMI. The incomplete take-up significantly reduces the effectiveness of the GMI. A recent study of EMIN Network (2015) shows that the non-take-up among the EU countries ranges between 20 and 75%.

These and other issues are the motivation for the continuous reforms of the GMI schemes across the EU, but have also given a rise to a new concept, that is the basic income. Most recent reforms in the GMI system across the EU countries were in following three areas (Crepaldi et al., 2017): 

Strengthening of the conditionalities and activation component of the GMI. The main goal is to reduce the labour market disincentives, though conditioning the eligibility with labour market activity, work commitments and employment policies. This trend led, for instance, to opening up of one-stop-shop centres for the GMI recipients (combining social and employment services), signing of a claimant commitment agreement (UK), etc. In general, across the EU countries, the nature of the minimum income schemes has been changed from economic 17

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

support measure to active measure aimed at supporting the poor to transition from social exclusion to an inclusive social and economic life. 

Increasing the strictness of the eligibility criteria, such as reducing the maximum time use of the GMI, reduction of the level of benefits (in Germany), etc.



To simplify the complicated systems of many types of benefits into a single, general minimum income program (such as in France, Italy and UK). However there are not yet studies showing the substitution effect of these new schemes relative to the old ones. Austria also moved from the traditional social assistance to GMI, with plans to open a one-stop-shop for all benefit recipients who are able to work at the Public Employment Service as to increase their attachment to the labour market. However, the latter plan failed due to resistance from the federal provinces. Cyprus established a GMI scheme in 2014 replacing the previous Public Assistance program. The GMI extended the coverage to some groups of citizens who were becoming increasingly vulnerable and at risk of deprivation. It should lead to better targeting of those in need relative to the previous program and hence to have a larger effect on poverty.

Some of the new MS are also designing new GMI schemes or improving the schemes already in place. Bulgaria has a basic GMI scheme in place and is currently piloting Centres for Employment and Social Assistance as a new model for integrated social and employment services. Croatia has introduced a general GMI scheme in 2014, replacing the previous system of fragmented and limited social assistance measures. The GMI in Croatia is means- and asset-tested. It was slightly changed in 2015 and 2016 so that there are no more time limits for receiving the benefit (even for work-able persons), and has a component of the in-work benefits (making work pay benefits), given that those beneficiaries who find a job will continue receiving the benefit for the first three months of employment.

Guaranteed minimum versus universal basic income On the other side, there is an increasing debate throughout the EU countries in the possibility of introducing a universal basic income (UBI). Although the Parliament’s Legal Affairs committee adopted a universal basic income, the European parliament plenary in a vote from 16 February 2017 rejected the UBI. However, some of the EU MS are proceeding with this idea and have started experiments to test it and to examine the potential effects. Moreover, the UBI were also an important topic discussed at leaders’ 18

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

gatherings, such as at the World Economic Forum (WEF) in Davos in 2017 and the International Economic Forum in St. Petersburg in 2017.

The main difference between the MGI and the UBI is that the UBI is unconditional, meaning that every person with income falling below some threshold level is eligible for the UBI, without conditioning the support on labour market activity or other behaviour. The idea of basic income has gained importance in the era of large structural changes that fundamentally affect the labour market. Automation, digital revolution, globalization and the economic crises increased the unemployment, reduced the chances for the unemployed to find a job, increased job insecurity, weakened the social protection, increased the poverty and inequality (European Parliament, 2016). All these changes and excepted future digitalization increase the interest for the unconditional basic income. The study of the European Parliament argues that the UBI would help in fairer redistribution of the benefits from automation and digitalization. The UBI, being simple, transparent and comprehensive may replace the current GMI schemes (or other social assistance programs) and produce greater effects on poverty reduction, rather than continuously reforming the GMI to avoid its administrative constraints and costs, complex rules, to prevent fraud and abuse, etc. Still, it seems that the introduction of such a scheme is more a privilege of the most developed countries rather than an option for all.

Switzerland was the first country to have held a referendum for introduction of an UBI of CHF 2,500 per month, in June 2016, but the proposal was rejected by the voters. Among the EU countries, Finland, Netherlands and Denmark have been implementing experiments throughout 2017 as to examine the potential effects of an UBI scheme. For instance, Finland will involve about 5,000-10,000 citizens in the experiment which will provide the participants with EUR 500-700 per month as an unconditional and universal monthly payment. The aim is to examine the effect of the UBI and potentially replace the current complex system of state subsidies for unemployment, housing, studying, parental leave, etc. The experiment is mainly devised as to assess the effect of UBI on employment (given the idea that basic income promotes employment) rather than the welfare dimension of the scheme. In the Utrecht experiment that started on 1 January 2017, the Dutch government tests several alternatives of an UBI scheme, such that some recipients receive the benefit unconditionally (plus getting some bonus if they do some volunteering work) and some with conditionality. The results of these experiments may further promote the idea of introduction of UBI or may show that the scheme is not effective and does not address the main deficiencies of the GMI.

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Methodology and data The methodological construct behind this study is composed of two parts: MK-MOD – the tax and benefit microsimulation model of Macedonia and MK-Labour – the structural labour supply model in Macedonia. Both constitute behavioural tax and benefit microsimulation model. They are explained as follows.

Tax and Benefit Microsimulation Model – MK-MOD MK-MOD is a tax and benefit micro-simulation model within the EUROMOD family. It is a static model where individual behaviour (labour-market activity, employment, childcare, saving, etc.) is assumed to be exogenous to the tax-benefit system. It belongs to the family of “standard” static models where individuals/households choose to supply labour (hours of work) until the point where the “marginal disutility of work equals the marginal utility of disposable (net-of-tax) income.” (Saez, 2010, p.180). In this setting, taxes and social transfers affect the labour-market behaviour by changing the relative value of work vs. leisure.

It allows the simulation of income assistance, child benefits, unemployment benefits, direct taxes and social security contributions. The advantage of the database we use here – the Quality of Life Survey 2017 is that provides detailed data on the income sources (such as income from wages, self-employment, pensions, dividends, interest rates, etc.) including social transfers (such as the social financial assistance, child allowance, unemployment benefit, financial reimbursement for assistance and care by other person, etc.) and remittances. We simulate direct taxes, social security contributions and social assistance benefits. The simulated versus the actual figures are provided in Table 1. Results from the simulations quite robustly mimic the actual figures, with the exception of the special and third child allowance. The large deviation with the former probably appears because of model’s inability to succinctly identify children with disabilities who are eligible for the benefit, while in the case of the latter, the deviation cannot be explained, especially considering that the rule for obtaining a third child allowance is quite simple. 2

At least small part of this difference can be explained by the fact that some households receive allowance for second and fourth child, as initially the law was granting such benefits.

2

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Table 1 – Validation of MK-MOD MK-MOD Estimation (Mil. MKD) Taxes 35,221,881,480 20,632,654,680

Official figures (Mil. MKD)

Deviation

34,952,000,000 20,682,477,000

0.8% -0.2%

2,342,015,940

2,160,000,000

15,229,451,640

15,306,000,000

8.4% 0.7%

1,014,634,285

1,020,401,047

-0.6%

Permanent financial assistance

336,136,456

376,245,664

-10.7%

Child allowance

129,988,405

103,114,064

26.1%

Special child allowance

160,054,096

390,648,341

-59.0%

Third child allowance

1,144,446,460

2,225,492,365

-48.6%

Disability care

1,567,824,206

1,713,987,026

-8.5%

60,943,968

59,265,000

2.8%

Pension contributions Health contributions Contributions for case of unemployment Personal income tax

Benefits Social financial assistance

Conditional cash transfer

Source: MK-MOD; Ministry of Finance; Ministry of Labour and Social Policy.

Moreover, MK-MOD allows for computation of the disposable income, replacement rates and effective marginal tax rates. It allows the reproduction of the budget constraint for each household, i.e. the latent set of working hours and household disposable income alternatives based on the simulated values, while the labour supply model rationalizes observed behaviour.

Labour supply model In order to conduct coherent policy simulations, the labour supply model must investigate individual behaviour in a theoretically consistent manner (Clavet et al. 2013). The nonlinearity of the budget constraints complicate the task when treating work hours as a continuous choice variable. Hence, the structural labour supply model we use here – MKLabour, is a discrete choice one (van Soest, 1995), appearing in two sub-models: one estimates the preferences for singles and the other one for couples. The computation of the model relies on a maximum-likelihood estimation of a conditional logit function. The 21

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

labour supply model is fully integrated with the static model. It is used to derive the budget sets under the baseline and reformed scenarios. It imposes revenue neutrality conditions taking into account the behavioural reactions. The MK-MOD along with the labour supply model compose a behavioural tax and benefit model.

For inactive and unemployed workers the hourly wage is not observed. We first need to construct wage predictions for these categories of individuals. Hence, we rely on the predictions from Heckman’s (1979) selection model for their estimation. 3 The Heckman model is of the standard two-stage form. In the first stage, the following probit model is used: Pr(đ??¸đ?‘šđ?‘?đ?‘– = 1) = đ?›ź2 + đ?›ž1 đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›ž2 đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›ž3 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›ž4 đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘žđ?‘– + đ?›ž5 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?›ž6 đ?‘?â„Žđ?‘–đ?‘™đ?‘‘đ?‘&#x;đ?‘’đ?‘›đ?‘– + đ?›ž7 đ?‘?đ?‘Žđ?‘&#x;đ?‘Ąđ?‘›đ?‘’đ?‘&#x;đ?‘– + đ?›ž8 đ?‘?đ?‘’đ?‘›đ?‘’đ?‘“đ?‘–đ?‘Ąđ?‘ đ?‘– + đ?‘˘đ?‘–

(1)

Whereby đ??¸đ?‘šđ?‘?đ?‘– takes a value of 1 if the person is in employment and 0 otherwise, regressed on a vector of explanatory variables: đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Śđ?‘– and đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Śđ?‘– are dummies for the level of education (the primary education being the referent category); đ?‘Žđ?‘”đ?‘’đ?‘– denotes person’s i age in years; đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘žđ?‘– is its square to capture wage non-linearity with age; đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– refers to individual’s gender; đ?‘?â„Žđ?‘–đ?‘™đ?‘‘đ?‘&#x;đ?‘’đ?‘›đ?‘– is the number of children of person i; đ?‘?đ?‘Žđ?‘&#x;đ?‘Ąđ?‘›đ?‘’đ?‘&#x;đ?‘– is a dummy taking a value of 1 if person i has a partner; and đ?‘?đ?‘’đ?‘›đ?‘’đ?‘“đ?‘–đ?‘Ąđ?‘ đ?‘– is the amount of social benefits (including pension) received by person i, in thousand denars; đ?‘˘đ?‘– is the idiosyncratic shock to the propensity of employment.

In the second stage, self-selection into employment is corrected by incorporation of the transformation of the predicted individual probabilities of (1) as an additional explanatory variable. We run the following wage equation: đ?‘™đ?‘›đ?‘¤đ?‘– = đ?›ź1 + đ?›˝1 đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›˝2 đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›˝3 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›˝4 đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘žđ?‘– + đ?›˝5 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?œ€đ?‘–

(2)

Whereby, đ?‘™đ?‘›đ?‘¤đ?‘– is the log hourly wage of person i, which is not observed if the person is not in employment; the other explanatory variables are as in (1); đ?œ€đ?‘– is the idiosyncratic shock to the wage. Under the assumption that the error terms are jointly normal, the following is obtained:

The estimation disregards the following groups: non-employed persons under 18 and over 64 years of age, students, pensioners, persons with a disability due to inflexible labour supply; employed with zero wages as these are likely not the result of their human capital, but a specific situation in the labour market; and self-employed due to the different factors affecting their wages.

3

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đ?‘™đ?‘›đ?‘¤đ?‘– = đ?›ź1 + đ?›˝1 đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›˝2 đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Śđ?‘– + đ?›˝3 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›˝4 đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘žđ?‘– + đ?›˝5 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?œŒđ?œŽđ?‘˘ đ?œ† + đ?œ€đ?‘– (3) Whereby đ?œŒ is the correlation between unobserved determinants of the propensity to work đ?‘˘đ?‘– and the unobserved determinants of wage đ?œ€đ?‘– , đ?œŽđ?‘˘ is the standard deviation of đ?‘˘, and đ?œ† is the inverse Mills ratio. Predictions of (3) are used to calculate the labour income of the non-employed for the three working time alternatives and the corresponding sets of disposable income.

After we calculate the disposable income for all choices and for all individuals, employed and non-employed, the next step is to apply the ML method on a conditional logit function so as to find out the preference parameters in the utility function.

The assumption is that each individual/partner in a couple may work 0, 20 or 40 hours, corresponding to non-participation, part-time and full-time employment4, respectively, leading to three alternatives for singles and nine alternatives for a couple, and providing a triplet of disposable income and working hours of the individual/partner. The choice of the individual/partner is given by by {h1, h2, ‌ hp}, whereby p is the number of choices of the work hours (0, 20, 40). Individuals/partners are assumed to maximize a well-behaved utility function defined over leisure, I, and net-income, y, with respect to time and income constraints: max đ?‘ˆ đ?‘– (đ??źđ?‘– , đ?‘Ś đ?‘– )

đ?‘ . đ?‘Ą. đ?‘Ś đ?‘– ≤ đ?‘Ś đ?‘– (đ??źđ?‘– , đ?‘¤) đ?‘Žđ?‘›đ?‘‘

đ??źđ?‘– ≤ đ?‘‡,

(4)

Where i corresponds to a given level of leisure. Hours of leisure, đ??źđ?‘– = đ?‘‡ − â„Žđ?‘– , are given by the time endowment, T, minus the work hours hi. Net income equals labour earnings, đ?‘¤â„Žđ?‘– , plus non-labour income, N, plus pensions and social benefits, B, less income taxes and contributions, T (Keane and Moffitt, 1998): đ?‘Ś đ?‘– (â„Žđ?‘– ) = đ?‘¤â„Žđ?‘– + đ?‘ + đ??ľ(đ?‘¤â„Žđ?‘– , đ?‘ , đ?‘? đ?‘› ) − đ?‘‡(đ?‘¤â„Žđ?‘– , đ?‘ , đ?‘? đ?‘› ),

(5)

Part-time working in Macedonia is not usual: neither employees nor employers are accustomed to ask for/ offer part-time contracts. Hence, the share of those working part-time in all working individuals is only 2.9%. The median hours per week of part-timers is slightly above 20. However, we decide to work with the 0, 20 and 40 hours options.

4

28% of our working sample are overtime workers, half of which work 48 hours. However, we decide to simulate in our analysis only up to forty hours, because we believe this reporting of overtime work is arbitrary, i.e. respondents mostly referred to ‘staying overtime’ rather than to ‘being paid overtime’ and having that embedded into the contract.

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Where đ?‘? đ?‘› is a vector of demographic variables. Note that only labour income and social assistance are dependent on the choice of the working hours and the respective wage rates. Hence, depending on the person’s choice of working hours, he/she may be or not eligible for social benefits. The disposable income we use here is the one computed within the MK-MOD (Section 4.1).

We write the translog utility function as the sum of a systematic part and a random component: (6)

đ?‘ˆđ?‘–đ?‘— (đ?‘Ś đ?‘– , đ??źđ?‘– ) = đ?‘‰(đ?‘Ś đ?‘– , đ??źđ?‘– ; đ?‘? đ?‘› , đ?œƒ) + đ?œ‰ đ?‘–

Whereby, đ?‘ˆđ?‘–đ?‘— is the utility of household i making choice j; đ?‘Ś đ?‘– , đ??źđ?‘– and đ?‘? đ?‘› are as before; đ?œƒ is a vector of parameters to be estimated; and đ?œ‰ đ?‘– is a random variable capturing the effect of unobserved variables upon the evaluation of (đ?‘Ś đ?‘– , đ??źđ?‘– ). For a couple, choices j=0,...,J correspond to all combinations of the spouses’ discrete working hours. In (4), we make the assumption that the utility function has a random component so as to allow for the possibility that individuals/partners may not know their utility levels perfectly, or for the fact that their optimal choice of labour supply may not correspond exactly to the discrete choice we mode; it also allows for the fact that the kinks introduced by taxation may generate bunching at levels of labour supply different from those specified by the discrete model that we implement. For the purpose of identification, đ?œ‰ đ?‘– is assumed to be independently and identically distributed as a Type-I extreme value random variate (i.e., the Gumble distribution) (Clevet et al. 2013).

The following estimable model is used: đ?‘ˆđ?‘–đ?‘— = đ?›ź3 + đ?›ż1 đ?‘Śđ?‘– + đ?›ż2 đ?‘Ś_đ?‘ đ?‘žđ?‘– + đ?›ż3 (đ?‘Ś ∗ đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Ś)đ?‘– + đ?›ż4 (đ?‘Ś ∗ đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Ś)đ?‘– + đ?›ż5 (đ?‘Ś ∗ đ?‘Žđ?‘”đ?‘’)đ?‘– + đ?›ż6 (đ?‘Ś ∗ đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘ž)đ?‘– + đ?›ż7 (đ?‘Ś ∗ đ?‘?â„Žđ?‘–đ?‘™đ?‘‘)đ?‘– + đ?œ?1 â„Žđ?‘– + đ?œ?2 â„Ž_đ?‘ đ?‘žđ?‘– + đ?œ?3 (â„Ž ∗ đ?‘ đ?‘’đ?‘?đ?‘œđ?‘›đ?‘‘đ?‘Žđ?‘&#x;đ?‘Ś)đ?‘– + đ?œ?4 (â„Ž ∗ đ?‘Ąđ?‘’đ?‘&#x;đ?‘Ąđ?‘–đ?‘Žđ?‘&#x;đ?‘Ś)đ?‘– + đ?œ?5 (â„Ž ∗ đ?‘Žđ?‘”đ?‘’)đ?‘– + đ?œ?6 (â„Ž ∗ đ?‘Žđ?‘”đ?‘’_đ?‘ đ?‘ž)đ?‘– + đ?œ?7 (â„Ž ∗ đ?‘?â„Žđ?‘–đ?‘™đ?‘‘)đ?‘– + đ?œ?8 (đ?‘– ∗ â„Ž)đ?‘– + đ?‘˘đ?‘– (7) Whereby, đ?‘ˆđ?‘–đ?‘— is a dummy variable taking a value of 1 when the observed choice of household j equals the assigned choice, and zero otherwise; đ?‘Śđ?‘– stands for the disposable income of person i; â„Žđ?‘– is the hours worked by person i; đ?‘?â„Žđ?‘–đ?‘™đ?‘‘ is a dummy for single parent; while other notations are as before (here used as interactions with the income and hours).

Note that in the case of couples, đ?‘Śđ?‘– represents the disposable household income, đ?‘?â„Žđ?‘–đ?‘™đ?‘‘ will be a dummy for the joint child(ren) of the couple, while all the other terms enter the regression for the two spouses separately, as well a term for their interacted hours of work.

As in Mojsoska-Blazevski et al. (2015), we estimate the labour supply effects by comparing the predicted probability of each choice under the pre-reform and post-reform conditions.

Predicted probabilities of the post-reform scenarios are based on the optimal behaviour 24

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

conditional on the pre-reform budget constraints, i.e. the same estimates from the prereform conditional logit coefficients, and the new income, from the post-reform scenario.

Data The study is based on the newly-collected Quality of Life Survey in Macedonia 2017. It is a nationally-representative survey of 1.200 households and 4.071 individuals providing rich dataset on labour income, social income, pensions and remittances. Other existing surveys do not provide all sources of income.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Design of the scheme in Macedonia For the purpose of this research, and in absence of information about potential scheme design from government officials, we present three designs of the guaranteed minimum income frequently found in the literature. The first two rely on the so-called equivalence scales5: the first on the ‘old Oxford’ OECD equivalence scale (OECD, 1982) whereby the head of the family obtains a value of 1, each next adult a value of 0.7, while each child a value of 0.5; the second is a newer scale also proposed by the OECD (2011), whereby the square root of the total number of the family is taken. The utilization of different equivalence scales may affect the calculation of poverty and other indicators. For instance, a scale giving larger prominence to each subsequent member of the household will result in lower poverty for adults and higher for children (Förster, 1994).

The sum of the weights within the equivalence scales is then multiplied by a monetary value. In the former case, this is the value of 4.000 MKD, while in the second it is the 35th percentile of the relative poverty line, presently being equal to 4.830 MKD. With this design, a family composed of two parents and two children will receive maximums of 10.800 MKD and 9.660 MKD, respectively, if their total income (labour income and pensions) is below these levels. If they receive some income below these thresholds, they would still be entitled to receive the difference between the threshold and the income they already receive. The specific of these two schemes is that the maximum benefit families could receive does not exceed the current minimum wage of 10.800 MKD, which is essential so as it does not exert distortions on the labour market. The scheme contains provisions for disabled persons and lone parents to take into account the level of vulnerability of the recipients and their individual needs (which, in the current system, is done through different types of social assistance programs, as previously explained). All details are presented in Table 2.

5

The rationale behind the use of equivalence scales is based on the simple fact that e.g. a six-person

household cannot be expected to live as cheaply as a single person household, but, as a result of economies of scale, a six-person household does not need six times the resources of a one person household to reach the same welfare level. There is an elaborate literature on equivalence scales, ranging from normative scales devised by experts and equivalence scales implied by the social security system in question to equivalence scales estimated from consumer demand models, and equivalence scales based on subjective welfare measurement (see e.g. Hagenaars, 1986; Buhmann et al., 1988). The utilization of the equivalence scales may affect the composition of the poor population; de Vos and Zaidi (1997) document that this is the case. Bishop et al. (2014) provide some evidence about the effect of subjective equivalence scales on poverty.

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The third scheme is slightly different than the other two. It targets all households with income below 15.300 MKD, which is well above the minimum wage, but the benefit is tied to the currently earned income, so that it prevents any possible distortion on the labour market. In this scheme, a family is entitled to receive a benefit which equals between 5070% of the earned income, depending on the number of children, up to 9,000 MKD. This is done with two objectives: i) families to be incentivized to report all earned income, especially the one paid in cash and/or in the grey economy; and ii) to prevent that individuals decline job offers as the benefit per family mimics the minimum wage per person. When the family earns income between 9,000 and 15,300 MKD, the benefit equals the difference between the maximum (15,300 MKD) and the earned income. Even though one of the objectives of this scheme is to incentivize activation of the claimants, it still provides minimal income to those families without income as well, with the objective to draw them out of extreme poverty, but not necessarily from relative poverty. Hence, those families will receive a benefit at the level of the extreme (also called absolute) poverty line (1.125 MKD) increased by 30%, per household member. For a standard 4-member family, this would imply a benefit of 5,850 MKD, being at a similar level with the current level of the SFA of 5,973 MKD. The scheme also incorporates provisions for disables persons and lone parents. All details are presented in Table 2. Based on these designs, we continue with presenting the results.

A note on the issue of take-up. Our analysis here is based on the assumption of a full takeup of the scheme, which may be the theoretical maximum. However, the methodological construct of the model described in Section 4 is not set to allow for lower take-up rate, in the sense of the selection issue, i.e. who actually does not take up the assistance. If these are random families, then the model does not require any additions. However, it is likely that the probability for take up is lower among the most excluded, less literate and those living in distant areas. Hence, any approach to simulate the scheme effects onto vital indicators, given a take-up rate lower than 100%, would require proper consideration and modelling of the selectivity issue. This is presently beyond the current study.

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Table 2 – Design of three GMI schemes

Right to receive

OECD Equivalence scale (“Old Oxford” scale) -

An equivalence value of 1 to the first household member

-

An equivalence value of 0.7 to each additional adult

-

-

The equivalence value per family equals the sum of individual equivalence values

Square root scale

Making work pay scheme -

-

An equivalence value of 1 for each household member

An equivalence of 0.5 to each child

-

The equivalence values increase by 20% if an adult or child is physically or mentally disabled; or if an adult is a lone parent, or a child lives with one parent

The equivalence value increases by 20% if an adult or child is physically or mentally disabled; or if an adult is a lone parent, or a child lives with one parent

-

The equivalence value per family equals the square root of the sum of individual equivalence values

All families with income below 15.300 MKD

Families with no income

Financial remuneration

-

4.000 MKD per unit of the equivalent scale (e.g. a family with 2 adults and 2 children receives 10.800 MKD)

-

-

If the income of a family (labour and pension income) exceeds the estimated amount of GMI, the family is not entitled to GMI;

-

-

If the If the income of a family (labour and pension income) is below the estimated amount of GMI, the family is receiving the difference between their income and estimated GMI;

-

35% of the 60th percentile of the median per unit of the equivalent scale

-

1,463 MKD per family member (30% over the absolute poverty line)

-

3,677 MKD for one disabled adult; 5,148 MKD for two disabled adults, if the family has no children

-

1,575 MKD per member of family with children if family has one disabled adult; 1,800 MKD per family member if family has two disabled adults Families with income

-

If the income of a family (labour and pension income) exceeds the estimated amount of GMI, the family is not entitled to GMI; If the If the income of a family (labour and pension income) is below the estimated amount of GMI, the family is receiving the difference between their income and estimated GMI;

Source: Authors’ proposals, based on literature.

29

If the family has income below 9,000 MKD, the benefit is: o

50% of the earned income in families with 2 or fewer children

o

60% of the earned income in families with 3 children

o

70% of the earned income in families with 4 or more children or with at least one disabled child or for lone parent

-

If the family receives between 9,000 and 15,300 MKD, then the benefit equals the difference between 15.300 MKD and the earned income

-

80% of the minimum pension for disabled adult/child, or elderly over 65 or lone parent of child smaller than 3 years of age in families with non-zeroincome lower than the minimum pension

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

The proposed design of the schemes is based on the issues and problems of the current system of social assistance (see section 2), as well as the experience and lessons that can be drawn from the EU countries (section 3). Table 3 describes whether and how the three proposed schemes address some of the major challenges in the system. As the Table shows, the schemes mitigate most of the issues of the GMI schemes, with some superiority (especially related to activation component) of the MWP program.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Table 3 – The effect of the proposed schemes on the major problems of the GMI schemes Issues

Old Oxford scale

Square root scale

MWP scheme

Adequacy of the scheme (levels compared to the poverty thresholds)

At the relative poverty threshold

- For those who do not work, the program is set at 30% over the absolute poverty line; - For the employed persons, the program is more generous

Complicated system with many types of programs

- Addressed, one scheme with some provisions for the most vulnerable individuals and families (for instance, disabled persons, etc.)

- Large reduction in administrative costs and burden of the SWCs

- Addressed, one scheme though with slightly different provisions for the working and non-working poor - Reduction in administrative costs and burden of the SWCs, although a reorganization of the work is required

Poverty trap

Can be reduced significantly given that the case-workers at SWCs will have time to focus on the real needs of the poor and help them to access education, training or employment

Labour market disincentives

Can be addressed, if the scheme incorporates conditionality (we cannot simulate the effect of conditionalities but we do provide some recommendations for that)

Stronger decline of disincentives compared to the other two programs. The scheme can incorporate some conditionality, but the major strength of the scheme is that it has built-in incentives for people to search for a job and to accept a job offer

Income earned in the informal economy

Means-tested program but we do not envisage in the first 4 years any attempt to correctly capture the informal income (either from informal work or from remittances and similar). The conditionality and activation component should capture those who work informally, but will not address the issue of seasonal workers, farmers, etc.

Means-tested program focused on reporting, as well on incentivizing formalization of income for the lower-tail earners.

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Issues

Potentially low take-up

Old Oxford scale

Square root scale

Since the administration will be made easier, the take-up should increase

32

MWP scheme Since the administration will be made easier, the take-up should increase. Though, we may expect a bit lower take-up of the employed persons

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Model results Heckman estimates Estimates of the wage equation (3) are presented in Table 4. All coefficients have the expected sign. Education pays off, but the effect is stronger for women. Age, on the other hand matters for men only. The gender wage gap is 10%, suggesting that it shrank compared to previous estimates (Petreski et al. 2014), likely mainly due to the introduction of the minimum wage in 2012. Results are similarly as expected in the selection equation: higher education increases the probability of employment. Older persons do have higher probability of employment, but up to a certain age after which this probability declines.

Males have higher probability of employment than females. The three exclusion restrictions show significance, which is one of the two conditions for a good instrument, despite the first two are not significant all the times. However, expectedly, the number of children aged up to 6 years in the household is prevalently important for female labour market participation: the sigh correctly predicts that presence of children reduces mother’s probability to work. On the other hand, marriage (having a partner) is important for the probability of work of males; expectedly, married men are considered the main breadwinners in a patriarchal-minded households and, hence, their inclination to work increases after marriage.

The inverse Mill’s ratio (lambda) suggests a significant selection bias, i.e. a non-random selection into the labour force, though the coefficient is significant for males only.

Unobserved factors that make employment more likely tend to be associated with lower wages for males.

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Table 4 – Heckman results VARIABLES

ALL

FEMALES (2) 0.429*** (0.142) 0.798*** (0.194) 0.009 (0.015) 0.000 (0.000)

MALES (3) 0.100 (0.094) 0.344*** (0.101) 0.005*** (0.002) 0.000 (0.000)

3.965*** (0.489) 1.564*** (0.170) 2.473*** (0.188) 0.144*** (0.033) -0.002***

4.656*** (0.132) 1.345*** (0.157) 2.073*** (0.176) 0.117*** (0.035) -0.001***

0.000 -0.057 (0.059) 0.143 (0.089)

0.000 -0.288*** (0.096) -0.204 (0.127)

0.000 0.069 (0.087) 0.515*** (0.130)

The amount of social benefits

-0.031*** (0.007)

-0.032*** (0.010)

-0.025** (0.011)

Gender (1=male)

0.768*** (0.065) -4.203*** (0.495) -0.416***

-4.583*** (0.685) 0.097

-3.576*** (0.696) -0.534***

(0.148) -0.891*** (0.037)

(0.322) -1.057*** (0.043)

(0.121) -0.805*** (0.039)

Observations Censored N lambda SE lambda

1,942 786 -0.16 0.055

986 532 0.033 0.11

956 254 -0.22 0.045

rho sigma

-0.39 0.41

0.096 0.35

-0.49 0.45

(1) 0.139* (0.082) 0.409*** (0.097) 0.031*** (0.010) -0.000*** (0.000) 0.101*** (0.031) 4.005*** (0.263) 1.418*** (0.108) 2.281*** (0.124) 0.116*** (0.024) -0.001***

Secondary education Tertiary education Outcome equation (dependent: log of wage)

Age Age squared Gender (1=male) Constant Secondary education Tertiary education Age Age squared

Selection equation (dependent: probability of employment)

If the household has a child aged 3-6 If the person has a partner

Constant athrho lnsigma

LR test of indep. eqns. (rho = 0): 7.87 0.09 19.3 Prob > chi2: 0.005 0.76 0.000011 Source: Authors’ estimations. *, ** and *** refer to statistical significance at the 10, 5 and 1% level of significance, respectively. Standard errors are robust to heteroskedasticity.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

The utility function Estimates of the conditional logit utility function are provided in Table 5: column (1) presented preferences for singles, while (2)-(4) for couples. Marginal utility of individuals increases with income and reduces with hours of work. In particular, the coefficient on the hours of work is quite high. Additional income, however, at higher age provides smaller marginal utility. Similarly, the marginal disutility with additional working hour is smaller at higher ages and for tertiary educated individuals.

In the case of couples, utility is not correlated with household income, especially in the case of men. In the case of women, additional income brings higher marginal utility, but this is taken up by the cross-product of income and education variables, since the marginal utility of income is different for females with distinct education. Apparently, both secondary and tertiary education bring about quite higher marginal utility of the earned income than primary education. This finding may be related to the prevalent inactivity of females with primary education, who do not contribute to family income and hence have considerably different utility than higher-educated females who more frequently are in employment.

On the other hand, hours worked are significant for both males and females in the couples.

Additional hour of work reduces utility for women more than for men, which could be explained by the household and child-raising chores of the women in patriarchal-minded society. In both cases, additional hour reduces marginal utility, but only up to a certain threshold: 25 hours for women and21 for men. Longer work reduces marginal utility in smaller portions with the rise of education, the effect being stronger for females.

Overall, the pseudo R-square suggests satisfactory goodness of fit of the utility functions: 39.2% and 51.5% of utility could be explained by the variance of the included regressors for singles and couples, respectively.

35

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Table 5 - Preference estimates (translog utility function) Singles Both Income *Age *Age squared *Secondary education(a) *Tertiary education *Children(b) Income squared

Hours of work *Age *Age squared *Secondary education.(a) *Tertiary education *Children.(b) Hours squared

(1) 0.072*** (0.027)

Male

(3)

(4)

-0.003**

-0.001

0.001

(0.001) 0.000** (0.000) -0.001 (0.007) -0.007 (0.008) 0.011 (0.023) 0.000 (0.000)

(0.002)

(0.002)

0.080*** (0.017) 0.055** (0.022)

-0.004 (0.033) -0.033 (0.035)

-0.457*** (0.054) 0.001 (0.001)

-0.340*** (0.063) 0.000 (0.001)

0.044*** (0.015) 0.082*** (0.020) -0.019 (0.026) 0.009*** (0.001)

0.021 (0.020) 0.072*** (0.025) 0.004 (0.031) 0.008*** (0.001)

-0.002** (0.001)

-0.002* (0.001)

0.001 (0.058) 0.002* (0.001)

-0.814*** (0.142) 0.021*** (0.007) -0.000*** 0.000 0.051 (0.038) 0.095** (0.044) -0.035 (0.107) 0.008*** (0.001)

Male and female hours interaction

Income*Hours of work

(2) -0.002 (0.098)

Couples Female

0.001** (0.000) 0.000 (0.000)

N (c) 1,380 5,580 Pseudo R Square 0.392 0.515 Wald test: joint significance [Chi2 (16)] -307.1 1404 Prob > Chi2 0.000 0.000 Source: Authors’ calculations.

Notes: (a) Primary education omitted;.(b) Dummy variable for single family with child in the singles case.

36

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

The coefficients we obtained here determine the elasticity of labour supply. The mean elasticities are presented in Table 6. Two notable patterns could be observed in the table.

First, married males do have lower elasticities than singles, while the pattern for females is the opposite. This is expected result as males in couples are considered the main breadwinners and hence cannot afford themselves not to work (McClelland and Mok, 2012; Mastrogiacomo et al., 2013),. On the other hand, the pattern of females could be explained with the more pronounced inactivity of married women, who usually rely on spouse’s income, especially in rural areas, so that additional earned denar is more valuable for them.

Table 6 - Hours of work and participation elasticity for singles and couples Singles

Couples Females Males 0.731 0.366 0.730 0.351

Hours elasticity 0.640 Participation elasticity 0.621 Source: Authors’ calculations.

Note: Elasticities have been computed numerically by increasing by 1% the gross wage of males and females and re-computing optimal labour supply. Labour supply responses are averaged over the whole sample.

37

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Cost and effects of the GMI scheme The cost of the GMI schemes We first present the results related to the budgetary cost of the proposed schemes. Table

7 presents the average amount of the GMI per family, the total absolute and relative cost and the size of the eligible recipients. The first column presents some comparative figures for the current social protection scheme in place, while the subsequent three columns present each of the three schemes we simulate herein. The simulations suggest that the three schemes have similar total cost of slightly below 250 million euro, being nearly 2.5% of GDP and 2.5 the size of the current cost for the social protection. One should note that the cost of the scheme is determined by the total potential amount per receiving family, which is dictated by the minimum wage, which represents a ceiling for our benefit. As an additional note, these estimated effects (both effect on the poverty and budgetary costs) are related to a 100% take-up rate, meaning that every eligible person receives the benefit.

However, as we explained in section 3, in some countries and cases, the take-up can be very low.

38

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Table 7 – Cost and recipient-families of various GMI schemes Current social protection scheme Budget cost 5,889 (Mil. MKD) Budget cost (% 0.73 of GDP) Number of recipient 110,575 families or individuals % of recipient families in total families Average guaranteed minimum NA income per family Source: Authors’ calculations.

OECD Equivalence scale scheme

Square root scale scheme

Making work pay scheme

14,877

14,460

15,573

2.45

2.38

2.56

205,686

202,300

399,945

23.0

22.6

44.7

6,027

6,057

3,244

Devised this way, the reach of the GMI schemes far exceeds the reach of the current scheme, expectedly. However, there are notable differences among the three schemes. As the first and the second scheme are similar, their coverage is slightly above 200 thousand families, representing slightly below a quarter of the total number of families. On the other hand, the MWP scheme reach is double, i.e. 400 thousand families, hence being half of the total number of families. This is expected, since MWP ‘works’ on the principle of ‘percentage of earned income’ hence allowing for higher amount of minimum income per family (15,300 MKD versus on average 10,800 MKD in the other two schemes). As a consequence, the average GMI benefit in the first two schemes is about 100 EUR per month, while above 50 EUR per month under MWP.

39

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

The effects on poverty and inequality Table 8 presents some development indicators: relative and absolute poverty, the Gini coefficient and the s80/s20 ratio. Column 1 presents the values of these development indicators had the current scheme for social protection not existed. Column 2 presents the values with the current scheme, while columns (3)-(5) those stemming from the simulation of the three GMI schemes. The readers should note that these estimates are done at the household rather than at the family level, so as to secure comparison with the national statistics, despite the benefits are defined and assigned at the family level.

Had current social transfers not existed, the relative poverty would have been 31.1%, while the absolute one 4.8%. The income inequality would have been 40.9% according to Gini, while the highest quintile would have had 10.6 times larger total income than the lowest quintile. The corresponding relative poverty from the national statistics for 2016 is 24.8%, hence being lower than our estimate. With the current social-protection scheme in place, the relative poverty drops by 5.8 p.p. to 25.3%. The drop in the national statistics is smaller, by 3.3 p.p. to 21.5%. The absolute poverty is halved to 2.5%, while income inequality reduces but marginally: by 2 p.p. (Gini) and by 12.2% (s80/s20).

Table 8 – Poverty and inequality effects of various GMI schemes Values without current social protection scheme 31.1%

Values with current social protection scheme

OECD Equivalence scale scheme

Square root scale scheme

Making work pay scheme

Relative 25.3% 21.1% 22.0% 22.0% poverty* Absolute 4.8% 2.5% 0% 0% 0% poverty** Gini 40.9% 38.9% 35.7% 35.9% 36.2% coefficient S80/S20 10.6 9.3 6.6 6.8 7.1 Source: Authors’ calculations. * families living below 60% of the median; ** families living with PPP $1.90 (36.9 MKD) per day per member The three GMI schemes produce plausible results. In all three cases, relative poverty declines by a maximum of 10 p.p., i.e. by a sizeable third. Similarly, absolute poverty is 40

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

eradicated completely. Income inequality improves by about 5 p.p. (Gini) and by about a third (s80/s20). Still, when the three schemes are compared among each other, the ‘old Oxford’ scheme produces the most favourable results, while the MWP scheme the least favourable results. Still, the differences among the three are not statistically significant.

The labour supply responses Finally, we present the labour- supply responses of people to the schemes. This is especially important for two reasons: i) any benefit scheme to be introduced in the country must not exert distortions onto the labour market, especially at the low-skill end; and ii) labour-market reactions may be important for the policymakers when they design the GMI scheme when different GMI schemes produce similar development-indicator results, as is the case in Table 8.

In the next figures, we present the results for singles (with or without children) and couples (with or without children) separately, along the construction of out MK-Labour Labour Supply Model, while the tables with the background figures are presented in the Appendix for easier navigation through the difference.

In each subsequent figure we present a couple of responses’ sets. The ‘actual’ laboursupply responses are those which are presently observed on the labour market, while the ‘current’ refer to the predicted labour-supply responses from model emulation of the current scheme. It is very critical that the predicted responses from the current scheme in place are as close as possible to the actual ones, which is a vein to test the model. It could be observed on the figures that this is the case all the way through, suggesting that the mode produces robust results. Then, ‘OECD’, ‘square root’ and ‘MWP’ refer to the three GMI schemes we simulate (see Table 2).

Figure 1 presents the labour-supply responses for singles. When the entire sample of singles is observed, results for the first two schemes suggest that labour market inactivity is avoided (there is no increase of non-participation), but there is a small reaction of singles to switch from full-time to part-time job. The first result is driven by the construct in which the GMI does not exceed the minimum wage, while the second by the construct that GMI is topped up onto the earned income until the maximum provided by the equivalence value per family is attained. The reaction under MWP is further plausible and stronger. The MWP scheme drags singles out of non-participation, at the ‘expense’ of both part- and fulltime work. The interest for part-time work increases 3.5 times the current setup, while the 41

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

inclination to full-time job increases by 4.8 p.p. These are significant results driven by the scheme construct in which if the person does not earn, then the GMI is minimized so that the person is derived from absolute but not necessarily from relative poverty. Therefore, the scheme incentivizes activation, since working is a precondition for receiving higher benefit beyond the one determined by the absolute poverty line. The readers, though, must note that these are the responses from the supply side and they need to be matched with adequate demand in order to convert in actual jobs, which is plausible assumption with the exception of the part-time jobs which are not customary in the Macedonian labour market.

The disaggregation of the sample on poor and non-poor, as well on males and females, brings about similar conclusions. Still, the results of the MWP scheme, despite being stronger than under the other two schemes, are weaker for non-poor and males. Such result is expected, as the benefit is more prevalent on the left tale of the income distribution (where poor feature), as well will predominantly incentivize women since their non-participation is large on the Macedonian labour market.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Actual Current OECD Square root MWP Actual Current OECD Square root MWP Actual Current OECD Square root MWP Actual Current OECD Square root MWP Actual Current OECD Square root MWP

Figure 1 – Labour supply responses for singles

ALL SINGLES POOR SINGLES Non-participation

NONPOOR SINGLES

Part-time employment

Source: Authors’ calculations.

42

MALE SINGLES

FEMALE SINGLES

Full-time employment

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Figure 2 and Figure 3 present the result for the male and female partner in couples, respectively. In general, both figures suggest that the labour-supply responses for the couples are weaker than in the case of singles, which could be mainly attributed to the fact that the benefit is gauged/compared with one minimum wage. Expectedly, the responses are slightly higher under MWP, but still weaker than in the singles case, despite the pattern of the reactions is similar: reduction of inactivity at the ‘expense’ of part- and full-time jobs.

Reactions are further emphasized among poor, and especially among female poor, while there is no reaction among non-poor couples.

ALL Non-participation

POOR Part-time employment

Source: Authors’ calculations.

43

NONPOOR Full-time employment

MWP

Square root

OECD

Current

Actual

MWP

Square root

OECD

Current

Actual

MWP

Square root

OECD

Current

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Actual

Figure 2 – Labour supply responses for males in couples

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

ALL Non-participation

POOR Part-time employment

Source: Authors’ calculations.

44

NONPOOR Full-time employment

MWP

Square root

OECD

Current

Actual

MWP

Square root

OECD

Current

Actual

MWP

Square root

OECD

Current

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Actual

Figure 3 – Labour supply responses for females in couples

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Conclusion The aim of this research study is to propose options for reform of the social assistance system in Macedonia through an introduction of a guaranteed minimum income (GMI) scheme. We design and simulate three different GMI schemes which take into account the major issues of the current social assistance system in the country, as well as the experiences and designs of the GMI schemes in EU countries.

The methodology behind this study is composed of two parts: MK-MOD – the tax and benefit microsimulation model of Macedonia (resembling the EUROMOD - tax and benefit simulation model of the European Union) and MK-Labour – the structural labour supply model in Macedonia. Both constitute behavioural tax and benefit microsimulation model.

Simulations show that in all three cases/designs, relative poverty declines from the current 31.1% (25.3% with the current social assistance system) to close to 20%. The GMI scheme based on the OECD equivalence scale (the Old Oxford scheme) produces largest decline in poverty, to 21.1% although the poverty declines substantially (to 22%) with the other two designs as well. Absolute poverty is eradicated completely within the three schemes.

Income inequality improves by about 5 p.p. (Gini) and by about a third (s80/s20), with similar result across the three programs. Still, when the three schemes are compared among each other, the ‘old Oxford’ scheme produces the most favourable ‘living standard’ results, while the MWP scheme the least favourable results. Still, the differences among the three are not statistically significant.

The labour supply model, examining the potential effect of the schemes on the disincentives to work show that the three schemes have larger effect on incentivising singles to enter the labour market, rather than couples. However, all three schemes do not produce disincentives and manage to lift poor people out of inactivity and low job-search activity. Labour market responses are further emphasized among the poor, and especially among female poor, while there is no reaction among non-poor couples. There is a slight superiority of the MWP scheme in this respect relative to the other two schemes which is expected as the scheme itself has a main goal to promote activation and reduce disincentives to work.

We, therefore do not make a strong proposal to the government of which form of GMI to implement. Rather, the decision of the optimal or appropriate scheme should be made by the government (actually, the society), based on the ideology and the priority given to equity vs. efficiency. In particular, the first two schemes are inherently focused on equity, 45

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

redistributing the income towards the most vulnerable citizens. Although, the conditionalities which will be part of the scheme add an element of efficiency, in case of their strict implementation. The third scheme aims at finding a balance between equity and efficiency, i.e. ensuring some minimum living standard for the most poor, but also giving incentives for work and possibility for self-efficacy.

There are, nevertheless, several issues that we want to raise related to the simulation technique and results, and which are pertinent to the policy advice: -

Within the simulation of the three schemes/scenarios, we assume that all eligible individuals/households will apply and will receive the social assistance. In other words, within the model, we assign the social assistance to all eligible individuals/households (a take up of 100%). The reality from other countries shows that the take up can sometimes be very low, which means that we might overestimate the effect of the schemes on poverty, but also the costs of the schemes. Within the current administration of the SFA, there is no possibility to identify the take-up rate and even refusal rate of the applicants. We therefore advice policymakers, in case of a reform, to put a strong effort on informing the citizens / raising awareness about the program, assisting them in applications and especially reaching to those most in need (who are usually those with lower probability of applying and take up, due to issues of unawareness, ignorance or insufficient literacy).

-

Whatever GMI scheme the authorities devise and implement, there has to be a strong activation component in the program. As previously explained, the MWP program has built-in activation component, i.e. provides incentives for the poor, unemployed persons to search for a job and accept a job offer. On the other hand, the other two programs have to provide strong conditionalities. These conditionalities are commonly related to labour market activity, active job search, obligatory participation in programs for social integration, participation in vocational training, etc. The legislation which will be developed for introducing the new system has to be very clear in defining what can be considered as active job search, which job offers cannot be refused, etc. For those individuals who are not work-able, the schemes can involve requirements for participation in some community work, volunteering work, etc.

-

However, the strict implementation of the conditionalities will require strong coordination between the SWCs, the Public Employment Service, but also adult education and training system as to ensure access of the vulnerable citizens to 46

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

education, training and employment. These coordinated actions can help to avoid the poverty trap and the vicious cycle of poverty that transfers from one to another generation.

-

We propose that in the first 4 years of the introduction of the system, the authorities do not focus on investigating if the applicants have some informal income, receive remittances and similar. This is important as to avoid some situations from the past in which one-off income stream of the beneficiaries have led them to losing the right to SFA. Once the system is well in place, the implementation works smoothly, data will be analysed and then some provisions related to the additional (informal) income can be made (also based on the experience from the EU countries).

-

Introduction of any of the three proposed social assistance schemes wold require a change of the current organization of the work of the SWCs. In particular, the current system of case work where each social worker administers one type of social assistance program should be replaced with a case management system.

In the latter, the social worker will work with the household/family for all types of support (actually, there will be one type of support, but the specific support granted to a family is related to some conditions of the individuals such as health, presence of children in the household, etc.).

-

The current system of social assistance in Macedonia is based on the households’ support. The simulations presented above, on the other hand, are related to a family. This is done given that the labour supply model and predictions are related to decisions made within a family, i.e. a family cannot have more than two adults over 26 years of age. It does not necessarily mean that the system should be switched to a family (as was the system prior to 2000), although the design of the schemes can address the arguments which were used when switching to this system. For instance, if two families are living in a same household (grandparents, parents and children), then the level of the support to which they are entitled would be reduced by certain percentage or absolute amount (to take into account that they are sharing the utilities and similar costs).

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References Bishop, J., Grodner, A., Liu, H. and Zarco, I.A., (2014) Subjective poverty equivalence scales for Euro Zone countries. The Journal of Economic Inequality, 12(2), p.265–278.

Buhmann, B., L. Rainwater, G. Schmaus, and T. M. Smeeding, (1988) Equivalence Scales, Well-being, Inequality, and Poverty: Sensitivity Estimates Across Ten Countries Using the Luxembourg Income Study (LIS) Database, The Review of Income and Wealth, 34, 115-42.

Clavet, N. J., Duclos, J.-Y., and Lacroix, G. (2013) Fighting poverty: Assessing the effect of guaranteed minimum income proposals in Quebec. Canadian Public Policy, 39(4): 491-516.

Crepaldi, C., Da Roit, B., Castegnaro, C. and Pasquinelli, S. (2017) Minimum Income Policies in EU Member States. European Union.Available at: http://www.europarl.europa.eu/supporting-analyses.

De Vos, K. and Zaidi, M.A. (1997) Equivalence Scale Sensitivity of Poverty Statistics For The Member States of The European Community. Review of Income and Wealth, 43(3), p.319-333.

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Farinha Rodrigues, C. (2004) The Redistributive Impact of the Guaranteed Minimum Income Programme in Portugal. Paper of the Department of Economics, ISEG School of Economics and Management, University of Lisbon. Available at: http://pascal.iseg.utl.pt/~depeco/wp/wp092004.pdf Figari F., Matsaganis M. and Sutherland, H. (2013) Are European social safety nets tight enough? Coverage and adequacy of Minimum Income schemes in 14 EU countries.

International Journal of Social Welfare, 22(1), p. 3-14.

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Förster, M. (1994) Measurement of Low Incomes and Poverty in A Perspective of International Comparisons. OECD Labour Market and Social Policy Occasional Papers, No.14.

Frazer, H. and Marlier, E. (2016) Minimum Income Schemes in Europe, A study of national policies. Brussels: Directorate-General for Employment, Social Affairs and Inclusion.

Hagenaars, A. J. M., The Perception of Poverty. North-Holland, Amsterdam, 1986.

Heckman, J.J. (1979) Sample Selection Bias as a Specification Error. Econometrica, 47(1):153-161.

Keane, M. P., and R. A. Moffitt (1998) A Structural Model of Multiple Welfare Participation and Labor Supply. International Economic Review, 39:553–589.

Mastrogiacomo, M. N.M. Bosch, M.D.A.C. Gielen, and E.L.W. Jongen. (2013) A structural analysis of labour supply elasticities in the Netherlands. CPB Discussion Paper 235, The Hague.

McClelland, R., and S. Mok. (2012) A Review of Recent Research on Labor Supply Elasticities. Working Paper no. 2012-12. Washington, D.C.:Congressional Budget Office.

Mojsoska-Blazevski, N., Petreski, M. and Petreska, D. (2015) Increasing labour market activity of poor, females and informal workers: Let’s make work pay in Macedonia. Eastern European Economics, 53(6):466-490.

OECD (1982) The OECD List of Social Indicators, Paris.

OECD (2011) Divided We Stand – Why Inequality Keeps Rising, Paris.

Pena-Casas, R. and Ghailani, D., Sabato, S. and Nicaise, I. (2013), Towards a European minimum Income, European Economic and Social Committee, No EESC/COMM/03/2013. Available at: http://www.eesc.europa.eu/en/ourwork/publications-other-work/publications/towards-european-minimum-income Petreski, M., Mojsoska-Blazevski, N. and Petreski, B. (2014) Gender wage gap when women are highly inactive: Evidence from repeated imputations with Macedonian data.

Journal of Labor Research. 35(4):393-411.

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Saez, E. (2010) Do Taxpayers Bunch at Kink Points? American Economic Journal: Economic Policy, 2(3): 180–212.

Van Soest, A. (1995) Structural models of family labor supply: A discrete choice approach. Journal of Human Resources, 30:63-88.

Vidovic, H., Gligorov, V., Haupfleisch, R., Holzner, M., Korolkova K. and Natter, M. (2011) Developing Efficient Activation Approaches and Identifying Elements for regional Cooperatoon in the Western Balkans. The Vienna Institute for International Economic Studies Research Report, No. 374. Available at: http://ideas.repec.org/p/wii/rpaper/rr374.html.

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Photo credits: pixbay.com, pexels.com

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Appendix Table 9 – Labour supply responses for singles Nonparticipation 43.3%

Part-time employment 2.0%

Full-time employment 54.8%

Current

43.9%

2.0%

54.1%

OECD

43.0%

3.9%

53.1%

Square root

42.9%

4.0%

53.1%

MWP

34.4%

6.7%

58.9%

Actual

78.2%

1.3%

20.5%

Current

78.7%

1.3%

20.1%

OECD

76.7%

3.1%

20.2%

Square root

76.6%

2.7%

20.7%

MWP

66.5%

9.1%

24.3%

Actual

5.4%

2.7%

91.9%

Current

6.3%

2.7%

91.0%

OECD

7.1%

4.7%

88.2%

Square root

6.5%

5.2%

88.3%

MWP

3.8%

4.0%

92.2%

Actual

40.7%

1.2%

58.1%

Current

41.5%

1.2%

57.3%

OECD

41.0%

3.2%

55.8%

Square root

41.1%

3.1%

55.8%

MWP

38.1%

3.2%

58.7%

Actual

46.4%

2.9%

50.7%

Current

46.9%

2.9%

50.2%

OECD

45.7%

4.6%

49.7%

Square root

45.6%

4.8%

49.6%

MWP

37.6%

8.5%

54.0%

Actual ALL SINGLES

POOR SINGLES

NONPOOR SINGLES

MALE SINGLES

FEMALE SINGLES

Source: Authors’ calculations.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Table 10 – Labour supply responses for males in couples Nonparticipation 21.6%

Part-time employment 1.6%

Full-time employment 76.8%

Current

21.6%

1.6%

76.8%

OECD

21.6%

1.6%

76.8%

Square root

21.6%

1.6%

76.8%

MWP

20.4%

2.4%

77.2%

Actual

53.9%

0.6%

45.5%

Current

53.9%

0.6%

45.5%

OECD

53.7%

0.6%

45.7%

Square root

53.7%

0.6%

45.7%

MWP

48.1%

2.1%

49.8%

Actual

9.7%

2.0%

88.3%

Current

9.7%

2.0%

88.3%

OECD

9.8%

2.0%

88.2%

Square root

9.8%

2.0%

88.2%

MWP

9.6%

2.1%

88.3%

Actual

ALL

POOR

NONPOOR

Source: Authors’ calculations.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Table 11 – Labour supply responses for females in couples

ALL

POOR

NONPOOR

Nonparticipation 53.9%

Part-time employment 1.3%

Full-time employment 44.8%

Current

53.9%

1.3%

44.8%

OECD

54.1%

1.3%

44.6%

Square root

54.0%

1.3%

44.7%

MWP

51.2%

2.3%

46.5%

Actual

88.0%

0.0%

12.0%

Current

88.0%

0.0%

12.0%

OECD

88.4%

0.0%

11.6%

Square root

88.3%

0.0%

11.7%

MWP

73.5%

6.0%

20.5%

Actual

41.3%

1.8%

57.0%

Current

41.3%

1.8%

57.0%

OECD

41.4%

1.8%

56.8%

Square root

41.4%

1.8%

56.8%

MWP

41.3%

1.8%

56.9%

Actual

Source: Authors’ calculations.

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SUSTAINABILITY OF THE PENSION SYSTEM IN MACEDONIA Comprehensive analysis and reform proposal with MK-PENS – Dynamic Microsimulation Model

2

Blagica Petreski Pavle Gacov

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Sustainability of the pension system in Macedonia Comprehensive analysis and reform proposal with MK-PENS – Dynamic Microsimulation Model

Authors: Blagica Petreski Finance Think – Economic Research and Policy Institute, Skopje blagica.petreski@financethink.mk

Pavle Gacov Agency PROAGENS p_gacov@proagens.com.mk

Reviewer: Trajko Slaveski

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Introduction The deficit in the pension system in Macedonia - the difference between the original revenues and total expenditure of the Pension and Disability Insurance Fund - has a tendency to grow over time, and in 2016 it reached 26.6 billion MKD, or 43% of the Fund’s total expenditure. This figure also represents 4.5% of GDP, while central budget transfers have increased 1.8 times over a period of ten years. This pension deficit trend is caused by several factors. Firstly, structural changes were made in the pension system design: a transition was made from a mono-pillar system (Pay as You Go) to a three-pillar system in 2006, and the contribution rate was reduced from 21.2% to 19% in 2009 and then to 18% in 2010, which all together led to a decrease in the Fund’s original revenues. On the expenditure side, between 2006 and 2016, pensions were increased on several occasions in amounts that usually exceeded the amount envisaged by the statutory adjustment. In addition, the expert debate frequently emphasises the increased amount of pension claims based on early retirement for workers in arduous or hazardous jobs (hereafter: reduced years of service), and the pressure that will be put on the Fund by subsidised employment in the future. However, there is no more detailed information about either of these aspects. The multiple ad-hoc pension increases in Macedonia have been noted as one of the factors undermining its fiscal consolidation (European Commission, 2016).

Similarly, the International Monetary Fund, in its annual report for 2017, argues that the increased budget deficit in recent years is also partly due to the great increase in pensions, creating the need for pension reform aimed at fiscal and pension consolidation (IMF, 2017).

The literature identifies several key factors affecting the sustainability of the pension system, namely: demographic changes, labour market movements, and pension adjustment to the potential of the economy. The aging of the population , the decrease in the fertility rate, and the increase in life expectancy are some of the factors putting pressure on the pension systems, designed in a traditional manner and for a different socioeconomic context, to be sustainable, fair, and efficient (Verbic, 2007). Blake and Mayhew (2006) suggest that from now on, each generation will be smaller because of lower fertility rates and population aging. According to the United Nations report, the number of persons aged over 60 will double by 2050 globally compared to 2017; in Europe, 25% of the population is already over 60 years of age (World Population Prospects: The 2017 Revision). Such trends place a more significant and heavier burden on the pension system, which was designed as a Pay-as-You-Go (PAYG) system, which has a tendency of imposing an even greater burden on future generations who will be in employment. However, Blake and Mayhew (2006) argue that the combination of population aging and declining fertility creates benefits through the so-called “demographic dividend,” where there is a lower number of young dependants and, at the same time, a higher number of persons in the mature stage of productivity. But, these benefits are enjoyed by approximately one 58

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generation only, and specifically at the beginning of this trend. Japan is an example of a country affected in the highest degree by the problem of an aging population, but in the last several decades it used this “dividend.� Labour market movements is the second group of factors affecting the sustainability of the pension system. One dimension of labour market movements are the sectoral shifts connected with changes in labour demand. The trend of these shifts demonstrates an increase in the size of the service sector and a slowing down in the traditional industries, such as agriculture and industry. These shifts could impact wages and prices in the sectors (Kakes and Broeders, 2007), as well as the imbalance between the supply and demand in the labour market (Bonin, 2009). Another dimension of these labour market movements is the decrease in labour supply in the labour market, which is principally driven by demographic changes. However, the labour force figures do not only depend on the population structure, but also on the labour market activity rate (in particular, that of women), the average retirement age, and the average age of labour market entrance (a number that usually increases because of spending a greater number of years in education). Decreases in the working age population increases the dependency ratio, leaving each worker with a higher number of retirees that he/she has to support.

Other than the labour market demographic characteristics and structure, imbalance between the amount of pensions and the potential of the economy to finance those pensions is the third factor for the unsustainability of the pension system. The pressure for higher pensions is mainly driven by the power of retirees to impact policies, due to their increasing numbers and their importance as an electorate (Kruse, 2010). Higher pensions increase the replacement rate (the share an average pension has in an average wage) and the need to make larger contributions in order to ensure the payment of pensions. According to the Pension Sustainability Index, developed by Allianz (2017), the pressure exerted by the pension system on public finance is one of the four key aspects required for the sustainability of the pension system (Allianz, 2017).

The models assessing the sustainability of the pension systems and making projections for fiscal implications and development indicators are mainly developed by the key institutions in pension systems (such as the Pension and Disability Insurance Fund), but also by international organisations. The common component in these models is the possibility to make microsimulations; hence, they are also known as microsimulation models. They simulate changes in a representative sample of individuals, usually collected through surveys or obtained from administrative data (Gal et al. 2009). These models are divided into static and dynamic categories. The dynamic models have the possibility of modelling the changes over time (Dekkers, 2007). Thus, the dynamic models create a theoretical life path for each person in the sample, including their probability of death, a 59

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

change in their economic status, their year of retirement, their earnings, etc. (Emmerson et al. 2004).

Considering the current design of the pension system in Macedonia and the pressure that the pension system deficit exerts on the central budget, the sustainability of the pension system in Macedonia has become a burning issue, and it emphasizes the critical need for reform. Analysis of the pension systems’ sustainability is encouraged mainly by international organisations, pension insurance funds, and those in charge of reforms.

Empirical and scientific studies are rarer. Therefore, the purpose of this paper is to examine the fiscal effects of potential pension reform in Macedonia and its effects on development indicators such as, unemployment and poverty. . To that end, we created the MK-PENS dynamic microsimulation model, and we simulated several scenarios of pension reform. In the scenarios simulated, we proposed two types of reforms: reforms that will mainly affect one concerned party (pensioners or insured persons i.e. contributors), and reforms with a shared burden.

The paper is organised in the following manner. Section 2 presents stylised facts about demographic developments, the design and financing of the pension system, and also provides an overview of a pension sustainability index. Section 3 explains the simulations for potential pension reform, including a description and methodology, input information, and scenarios for pension reform. Section 4 presents the results of the model, including fiscal implications and effects of the simulated pension reform scenarios on the poverty and unemployment rates. . Section 6 provides the conclusion and summary of the main recommendations.

Stylised facts: Structure and financing of the pension system and demographic developments The pension system design, the dependence on public finances, and the demographic changes are three of the aspects that must be taken into consideration for the sustainability of the pension system, and they will be described for the case of Macedonia in the following three sections.

The pension system design The Macedonian pension system is based on the principle of inter-generational solidarity, i.e. pay-as-you-go (PAYG), where the current contribution payments are used to finance the current pensions. Hence, until 2006, the pension system of Macedonia had only one pillar. In 2006, there was a reform of the system’s design that introduced the principle of fully-funded pension insurance, where in addition to the first pillar, two more pillars were added, a mandatory and a voluntary private pension pillar in 2008. As a result, today, the pension system structure in Macedonia consists of three pillars, where: the first pillar 60

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(mandatory) is still based on the principle of inter-generational solidarity, while the second (mandatory1) and third pillars (voluntary) operate on a fully-funded basis. The first pillar provides a portion of the old-age pension, disability and survivor pensions, and the minimum pension (PDIF, Actuarial Report for 2014, 2015). The second pillar provides an additional portion of the old-age pension for those pensioners paying contributions in this pillar. Meanwhile, the third (voluntary) pillar provides additional material security.

The rights from pension and disability insurance depend on the funds invested (determined by a person’s average wage during their working life), length of service, and manner of investment (whether the contributor made payments in the first pillar only – for old contributors before 2003 and who decided to remain in the first pillar only, or in both pillars – for contributors after 2003 and those before 2003 who decided to join the twopillar system). Rights arising from this type of insurance are: old-age pension, survivor pension, disability pension, occupational rehabilitation and entitlements to adequate monetary allowance, entitlement to monetary compensation for a bodily injury, and entitlement to a minimum pension. 99.4% of the beneficiaries are based on old-age, survivor, and disability pensions. Table 1 gives a summarised overview of the main requirements2 for obtaining these rights and how they are established.

For contributors who were employed after 1 January 2003, joining the two-pillar system is mandatory. For contributors in employment before 2003, joining the two-pillar system was voluntary.

2 This table includes only the general criteria for acquiring and establishing the rights for the needs of this paper’s simulations. The detailed and specific requirements for acquiring and establishing the rights are explained thoroughly in the Law on Pension and Disability Insurance.

1

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Table 1: Types of rights from pension and disability insurance and eligibility requirements Pension type Old-age pension

Acquiring and establishing the rights

Pension amount

 64 years of age (man) and 62 years of age (woman);  Minimum 15 years of service;

Survivor pension

Members of the family of a deceased contributor: spouse, children and dependent parents.

They acquire the right to a survivor pension if the deceased contributor:  has a minimum five year-period of insurance or minimum ten years of pensionable service; or  has met the requirements for an oldage or disability pension; or  was a beneficiary of an old-age or disability pension.

The spouse shall be entitled to use the survivor pension upon reaching 50 years of age.

A child shall be entitled to the survivor pension until he/she reaches 15 years of age, and if the child is attending school until he/she reaches 26 years of age.  Disability caused by an injury at work or occupational disease – regardless of the length of pensionable service.  Disability caused by an injury outside of work or by a disease, provided that on the date when the disability occurred the person met specific requirements in terms of age and years of service completed.

The pension base is determined by the average monthly valorised wages that the contributor has earned in his/her working life.

The pension amount is defined by the pension base in a percentage determined by the length of the pensionable service. Depending on whether the contributor is in both pillars, or only in the first pillar, different replacement rates apply.

The pension amount is determined by the percentage of the old-age or disability pension that the contributor would have had at the time of death, namely:  70% for one family member;  10% for each next member, but not more than 100% in total.

Disability pension

 80% of the pension base when the disability is caused by an injury at work or by an occupational disease.  The pension base depending on the length of pensionable service and years of age when the disability is caused by an injury outside of work or by a disease.

Source: Law on Pension and Disability Insurance.

The statutory retirement age is 64 for men and 62 for women. However, the effective retirement age is lower, namely, 62 for men and 61 for women (PDIF). The lower effective rate of retirement is due to early retirement, which is allowed by the legislation for specific groups of contributors and survivor and disability pensions, and due to reduced years of service in certain occupations.

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Two indicators that particularly affect the current condition of the pension system and its future sustainability are the coverage of current pension beneficiaries by contributors (rate of insured employed persons vis-à-vis pensioners) and coverage of working age population by contributors (rate of insured employed persons vis-à-vis working age population). The decrease in these indicators worsens the condition of the pension fund and vice versa. The indicator for contributors’ participation in the labour force points to two aspects of pension system sustainability: first, the potential for fulfilling the needs of the pension system; and second, the extent to which the working age population has ensured their financial security after retirement. The second indicator is more important for countries with more developed voluntary pension systems. But, on the other hand, the current design of the social protection system in Macedonia is such that adults lacking financial security are covered at the expense of the system, which has fiscal implications.

Graph 1 shows the coverage indicators (left figure) and the replacement rate (right figure).

In Macedonia, the contributors’ participation in the labour force has increased by more than 10 percentage points (pp) over the period under analysis (from 23% in 2001 to 34%

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in 20163). The indicator for the pension beneficiaries’ coverage also experiences an upward trend (from 1.5 contributors for every pensioner in 2001 to 1.86 in 2016). This is due to the increase in employment, which in recent years was mainly driven by the entry of foreign direct investments into the country and active employment measures, which were not always compensated by payments in the PDIF because of the exemptions and subsidised contributions for pension insurance in some of these recruitments.

Graph 1: Coverage of the labour force and pension beneficiaries by contributors and replacement rate

Source: PDIF, State Statistical Office of the Republic of Macedonia, estimate by the authors In parallel with the increase in the number of contributors and the coverage of pension beneficiaries, there was an increase in the replacement rate. This indicates that the growth in the beneficiaries’ pensions was higher than the average wage growth. Also, the replacement rate experiences a decrease until 2008, and then an accelerated growth, which corresponds to the ad-hoc pension increases. In this context, in the circumstance of there being a considerable risk of population aging and low coverage of working age population, such a trend of growth in the replacement rate is a risk that could have a significant negative impact on the pension system’s sustainability.

Financing and expenditure of the Pension and Disability Insurance Fund in Macedonia The main financing of the Pension and Disability Insurance Fund is provided through the contributions of the wages of insured persons, which are paid by employers. The pension

This rate is not to be confused with the employment rate, because it only covers those employed persons for whom funds are paid in the PDIF. Therefore, this rate is lower than the total employment rate.

3

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contribution rate for the first pillar is 18% of the gross wage (for contributors insured in the first pillar only), and 6 percentage points of those (6% of gross wage) are transferred to the second pillar (for contributors insured in both pillars). Smaller revenues in the PDIF are provided by the Employment Service Agency from payments by natural persons and excise revenues, and the dividends and sale of stocks. The difference between these revenues and the pension expenditures is offset by utilizing the central budget. PDIF’s total revenues have been trending upwards, and nearly tripled between 2000 and 2016 (Graph 2). However, in the same period, the original revenues from contributions doubled, mainly due to economic growth (and hence the growth in wages) and growth in the number of contributors. Consequently, the revenues from the Budget of the Republic of Macedonia increased six-fold between 2000 and 2016. This brought about a significant change in the PDIF’s revenue structure, where the original revenues remained prevalent (55% in 2016), but their share dropped significantly when compared to 2000 (73%). On the other hand, the budget revenues increased their share from 18% in 2000 to their maximum, 43%, in 2016.

Graph 2: PDIF’s revenue structure, 2000 - 2016

Source: PDIF The Fund’s expenditures were also growing over the period analysed, and at a faster pace after 2008 (Graph 3). In part, the Fund’s expenditures grew as a result of the introduction of the second pillar (in 2006) and the costs incurred during the transition from one system to the other (so-called transition costs). However, these transition costs account for 10% of the Fund’s total expenditures. In the Fund’s expenditure structure, the pension

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expenditures are dominant, with 78%, and they experience a relatively insignificant decrease in 2016 compared to 2000 (86%), mainly due to transition expenditures.

Graph 3: Fund’s expenditure structure, 2000-2016

Source: PDIF The faster growth in pension expenditures as compared to the original revenues of the PDIF increased the Fund’s deficit from MKD 4.2 billion in 2000 to MKD 26.4 billion in 2016 (Graph 4). This deficit growth is due to several factors that caused a faster increase in expenditure than in revenue. On the one hand, the increase in expenditure was mainly driven by: i) the introduction of the second pillar in 2006 and the transfer of assets from the first to the second pillar; these expenditures account for 25% of the total deficit in 2016; and ii) the increase in pensions on several occasions, which usually exceeded the amount envisaged for adjustment and exceeded the national economic growth rate. This trend of “imbalance” began in the period after 2008, when besides the one-off increases in pensions, almost all regular pension adjustments were higher than the economic growth and the wage growth of that year. Before 2008, the economy, on average, experienced growth of 3.1%, and the pensions of 2.9%; whereas after 2008, the economy grew by 2.4%, on average, and the pensions saw their growth almost triple by growing by 6.5%. In addition, in circumstances of low inflation rate, the increase in pensions is even higher than the need for adjustment to the cost of living. On the other hand, the lower revenue growth was mainly driven by the decrease in the social contributions rate from 21.2% to 19% in 2009 and to 18% in 2010.

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Graph 4: Pension fund balance

Source: PDIF The pressure that the pension system exerts on public finances is the third aspect of the system’s sustainability. Three indicators are used to measure this pressure: transfers from the budget of the Republic of Macedonia to compensate for the shortfall in assets in the pension fund, pension expenditure as a share of the gross domestic product, and the budget deficit (Graph 5). Pension expenditure accounts for 10% of the gross domestic product and has grown by two percentage points during the period analysed. But, at the same time, the transfers from the budget of the Republic of Macedonia for compensating for the shortfall in assets in the pension fund have doubled, and reached 19.1% of the central budget in 2016. From 2001 to 2004, budget transfers were increasing as a result of the decreased number of contributors and a parallel increase in the number of pension beneficiaries. From 2004 to 2009, the number of contributors was increasing, and this contributed to the decrease in budget transfers. After 2009, the transfers were again growing rapidly. This period overlaps with a decrease in the contribution rate and in the ad-hoc increases in pensions. The amount transferred from the central budget is 1.5 times greater than the system’s deficit. Therefore, the pressures on public finances were increasing in the analysed period and public finances are faced with the challenge of sustainability.

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Graph 4: Sustainability of public finances

Source: Final account of the budget (2001-2016), Ministry of Finance, PDIF

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Demographic changes According to the projections of the United Nations, the population in Macedonia is aging (Graph 6). In 2000, the population aged over 65 accounted for 15% of the total working age population. Until 2050, it is expected that the old-age dependency ratio will reach a record high of 42%. In addition, this ratio is higher among women: in 2000, it was 16% for women compared to 13% for men, and the expectations are that in 2050 this gap will widen and the ratios will reach 46% and 38% respectively.

Graph 5: Old-age dependency ratio 65+/ (15-65)

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision, custom data acquired via website.

Pension sustainability index Based on the three aspects of pension system sustainability (demographic developments, pension system design, and the sustainability of public finances), in this section we will construct a sustainability index. The index was constructed according to the methodology of Allianz Pension Sustainability Index (Allianz, 2004) 4 and it includes: the selection of indicators, normalisation, and the weighting and aggregation of the indicators into one index. Allianz’s index has been published for 54 countries worldwide, but not for Macedonia, and this is the gap in the research that this piece fills. The purpose of the index 4 The index covers all construction steps proposed in the methodology, the three pillars and the majority of indicators. However, due to lack of information, some of the indicators were replaced by alternative indicators providing the same or similar information.

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is to assess the trends of the pension system’s sustainability over the analysed period, and to make a comparison of the Macedonian pension system with the pension systems of other countries. Hence, this index will serve as a good basis for comparison for any country’s pension system with the pension systems of other countries. The index ranges from 1 to 10, where one means complete unsustainability, and 10 means complete sustainability of the pension system5. Table 2 summarizes the information that serves as input for the index.

Table 2: Pension Sustainability Index in Macedonia - elements Sub-index

Weighting

Demographic characteristics6

0.3

Pension system design

0.35

Public finances7

0.35

Indicators

Weighting of the sub-index indicators

Old-age dependency ratio in 2010 Old-age dependency ratio in 2050 Change 2010-2050 Legal retirement age for men Effective retirement age for men Legal retirement age for women Effective retirement age for women Replacement rate Coverage of working age population Pension expenditures (% of GDP) Public debt (% of GDP)8 Transfers from the central budget for pensions (% of total expenditures)

0.2 0.4 0.4 0.05 0.075 0.075 0.075 0.35 0.35 0.333 0.333 0.333

Source: Author’s estimate based on the methodology of Allianz Pension Sustainability Index (Allianz, 2004) Graph 7 presents the composite index for measuring the sustainability of the pension system in Macedonia. In the period under analysis, the index ranges from 4.7 to 5.7 ranking

All indicators have been categorised for each year from one to ten, according to the matrix of the Pension Sustainability Index proposed by Allianz.

6 The sub-index does not include assumptions about the projections of the change in pension benefits until 2050.

7 The sub-index does not include assumptions about the projections of the pension expenditures as a share of GDP until 2050.

8 The categorisation was made for a scale of the public debt ranging from zero to 60% of GDP, as a critical level identified in the study “Sustainability of Macedonian General Government Debt” (Finance Think, 2017).

5

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and is designed similarly to the indices of Slovenia and Greece9. Additionally, the index categorizes the Macedonian pension system in the group of countries with low pension system sustainability and urgent need for reform. The index notes a continuous improvement of the sustainability until 2008, and then there is significant deterioration from one year to the next in all the years following. The deterioration is mainly driven by the sub-index for the sustainability of public finances: increases in the pension expenditures as a share of the economy, increases in the share of pension transfers from the central budget in total expenditures, and increases in the public debt.

In the comparison, the indicator’s adjustments to the public debt are to be taken into consideration, relevant for Macedonia, and the absence of available data about indicators with a forecasting component.

9

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Graph 6: Pension sustainability index 5.80 5.60 5.40 5.20 5.00 4.80 4.60 4.40 2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

4.20 Source: Ministry of Finance of RM; PDIF; State Statistical Office of RM; UN Population; author's estimate.

Simulations for a potential reform of the pension system Methodology and data The starting point for the methodology of this paper is MK-MOD, the tax and benefit microsimulation model within the EUROMOD family (Petreski and Mojsoska Blazevski, 2017). It is a static model where individual behaviour (labour-market activity, employment, childcare, saving, etc.) is assumed to be exogenous to the tax-benefit system. It belongs to the family of “standard” static models where individuals/households choose to supply labour (hours of work) until the point where the “marginal disutility of work equals the marginal utility of disposable (net-of-tax) income.” (Saez, 2010, p.180). In this setting, taxes and social transfers affect labour-market behaviour by changing the relative value of work versus leisure. The model allows, in the starting year, the simulation of taxes, benefits and contributions of pension, health and unemployment insurance, social transfers, and the replication of pensions on a system level. Despite the extensiveness of the static model for simulations and replication of indicators in the system as a whole, the simulation of the pension system and the projections of future developments require dynamic components as well. Hence, this model was upgraded by the MK-PENS dynamic microsimulation model based on individual data about Macedonia.

Dynamic models have a possibility of modelling changes over time (Dekkers, 2007).

Microsimulation models simulate all foreseen changes on a representative sample of 72

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individuals, usually collected through surveys or administrative data (Gal et al., 2009). Our MK-PENS model has a dynamic form and includes the movement of individuals from the sample in a time range, enabling the individuals to be followed as they age, considering the interpersonal (family) relations of the individuals in the sample, their behavioural responses, and the effects from the changes in their labour market status on development indicators (mainly, poverty and unemployment). Thus, dynamic models create a life path for each individual in the sample, including the probability of death, change in economic status, time of retirement, earnings, etc. (Emmerson et al. 2004). In the following section we briefly address each of these dynamic components.

The first component of the MK-PENS dynamics is population flow over time. This flow can be determined by both static and dynamic components. In models with static population aging, projections are given exogenously and the groups are only re-weighted, without changing the individual characteristics over time (age, change in economic status, mortality etc.) (Merz, 1993; 1994). On the other hand, in models with dynamic population aging, individual characteristics change endogenously over time (Caldwell, 1990), considering that there is some probability of the characteristics changing. The number of variables that could be foreseen in a dynamic way depends on the availability of data, risks, and the ability to predict the probabilities (Dekkers, 2003). In our model, the projections of fertility and total population are given exogenously, i.e. they are taken from the projections in UNPopulation (static component), while the total mortality is a residual and is scaled to replicate the mortality rate published by the State Statistical Office of Macedonia. However, the mortality of individuals in the sample was derived from the health function (dynamic component), and we used the following two equations for that purpose: For persons aged from 25 to 62 (women) and 64 (men) Pr(đ??ťđ?‘’đ?‘Žđ?‘™đ?‘Ąâ„Žđ?‘– = 1) = đ?›ź1 + đ?›ž1 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›ž2 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?›ž3 đ?‘’đ?‘‘đ?‘˘đ?‘?đ?‘Žđ?‘Ąđ?‘–đ?‘œđ?‘›đ?‘– + đ?›ž4 â„Žâ„Žđ?‘–đ?‘›đ?‘?đ?‘œđ?‘šđ?‘’đ?‘— + đ?›ž5 â„Žđ?‘&#x;đ?‘œđ?‘›đ?‘–đ?‘?đ?‘– + đ?‘˘1đ?‘– (1) For persons aged over 62 (women) and 64 (men): Pr(đ??ťđ?‘’đ?‘Žđ?‘™đ?‘Ąâ„Žđ?‘– = 1) = đ?›ź2 + đ?›ž11 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›ž12 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?›ž13 đ?‘?đ?‘’đ?‘›đ?‘ đ?‘–đ?‘œđ?‘›đ?‘– + đ?›ž14 đ?‘šđ?‘Žđ?‘&#x;đ?‘&#x;đ?‘–đ?‘’đ?‘‘đ?‘– + đ?‘˘2đ?‘–

(2)

Where: đ??ťđ?‘’đ?‘Žđ?‘™đ?‘Ąâ„Žđ?‘– is a binary variable obtaining a value of 1 if a person i is in good health (where the self-reported health condition is good, very good or excellent) and 0 when the person is in ill-health (the self-reported health condition is poor or very poor); đ?‘Žđ?‘”đ?‘’đ?‘– denotes the age of person i in years; đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– denotes sex, and has a value of 1 for men and 0 for women; đ?‘’đ?‘‘đ?‘˘đ?‘?đ?‘Žđ?‘Ąđ?‘–đ?‘œđ?‘›đ?‘– is a categorical variable about the level of education (primary education being the referent category) of person i; â„Žâ„Žđ?‘–đ?‘›đ?‘?đ?‘œđ?‘šđ?‘’đ?‘– is the household income level đ?‘— in MKD; 73

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

đ?‘?đ?‘’đ?‘›đ?‘ đ?‘–đ?‘œđ?‘›đ?‘– is person’s đ?‘– pension amount, in MKD; đ?‘šđ?‘Žđ?‘&#x;đ?‘&#x;đ?‘–đ?‘’đ?‘‘đ?‘– denotes marital status, and obtains a value of 1 for married individuals, and 0 for all others. đ?‘˘1đ?‘– and đ?‘˘2đ?‘– are the usual idiosyncratic errors that are assumed to be well-behaved. In the model, the life status (alive-dead) changes over time based on the probability of health defined in these two functions. The predictions of both functions (1) and (2) are used to determine what person will die after a given period. Hence, persons aged over 62/64 whose predicted probability of good health is under 0.15 die according to the model, and this value in the working are population is 0.53. The total mortality rate published by the SSO is replicated according to these dynamics of dying.

The second dynamics component is the change in the individuals’ economic status as it concerns their behavioural responses. The purpose of behavioural microsimulations is to assess the behaviour of individuals as a function of variables that directly depend on the change in the policy being simulated (Spadaro, 2007). Pension reform has different effects and will cause different behaviours among different groups in the sample. Therefore, the assessment of individual behaviours to the policy change is important for later simulations of the taxes, benefits, and expenditure. Individuals in the model are classified into the following economic status categories: unemployed, employed, inactive working-age persons, pensioners and persons without pensions aged over 62/64. The main assumptions about the transfer from one economic status to another are the employment rate, which is an exogenous variable, and the assumption about the employment growth.

This assumption is that employment growth is on average, 4 percentage points in a fiveyear period, according to the average annual growth in recent years. Individuals obtain an employed -person status according to the derived function of employment probability, regressed from a vector of variables. The equation calculates the probability that individuals with an unemployed and inactive status will transition to employed personsstatus10. The equation has the following form: Pr(đ??¸đ?‘šđ?‘?đ?‘– = 1) = đ?›ź3 + đ?›ž31 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›ž32 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?›ž33 đ?‘’đ?‘‘đ?‘˘đ?‘?đ?‘Žđ?‘Ąđ?‘–đ?‘œđ?‘›đ?‘– + đ?‘˘3đ?‘–

(3)

Where đ??¸đ?‘šđ?‘?đ?‘– takes a value of 1 if the person is employed and 0 otherwise, regressed on a vector of explanatory variables: đ?‘Žđ?‘”đ?‘’đ?‘– denotes the age of person đ?‘– in years; đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– denotes sex, and has a value of 1 for men and 0 for women; đ?‘’đ?‘‘đ?‘˘đ?‘?đ?‘Žđ?‘Ąđ?‘–đ?‘œđ?‘›đ?‘– is a categorical variable about the level of education (primary education being the referent category). đ?‘˘3đ?‘– denotes the error. Hence, the likelihood of transition of inactive working age individuals and unemployed individuals from their status to the status of employed individuals is established by a dynamically-determined probability of employment, calculated through We leave the possibility for an easy transition from an inactive to employed status, considering that inactivity in Macedonia is not a particular constraint to employment.

10

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

the equation given in (3). Function (3)’s predictions are used to determine which individuals will be employed after a given period. Hence, individuals whose predicted employment probability is over 0.7 are employed. The average employment rate of the previous 5 years is replicated according to these employment dynamics.

However, this transition from unemployment and inactivity is problematic. Namely, for individuals transitioning to employed persons status, wage is unknown, and it is key for determining the increase in contributions driven by the increase in employment. To determine the wage, we use the following Mincer earnings function: đ?‘™đ?‘›đ?‘¤đ?‘– = đ?›ź4 + đ?›ž41 đ?‘Žđ?‘”đ?‘’đ?‘– + đ?›ž42 đ?‘”đ?‘’đ?‘›đ?‘‘đ?‘’đ?‘&#x;đ?‘– + đ?›ž43 đ?‘’đ?‘‘đ?‘˘đ?‘?đ?‘Žđ?‘Ąđ?‘–đ?‘œđ?‘›đ?‘– + đ?›ž44 đ?‘’đ?‘Ľđ?‘?đ?‘’đ?‘&#x;đ?‘–đ?‘’đ?‘›đ?‘?đ?‘’đ?‘– + đ?œ€đ?‘–

(4)

Where đ?‘™đ?‘›đ?‘¤đ?‘– is the logarithm of monthly earnings of employed person đ?‘–; đ?‘’đ?‘Ľđ?‘?đ?‘’đ?‘&#x;đ?‘–đ?‘’đ?‘›đ?‘?đ?‘’đ?‘– is person ’'s experience, and the other explanatory variables are the same as in (3); đ?œ€đ?‘– is the idiosyncratic shock to the wage. The predictions from equation (4) are used to estimate the income from the work of the unemployed-inactive individuals, who it is assumed will be employed according to the predictions in equation (3).

Children, students, and pensioners change their economic status in a static way by aging over time. Children transition to the status of students when they reach the age of 6 ; students transition to the status of inactive working age individuals when reach the age of 15 ; and employed individuals transition to pensioners after meeting the retirement requirements defined in Table 1. After a change in status, the model re-weights the individuals in the sample according to their new status. This re-weighting is done only for the statically determined statuses (children, students, inactive working age population, and persons in the age of retirement without a pension).

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Being designed in this way, the model is able to replicate the initial level of the number of contributors, pensioners, and the average pension amount (per pension type), original contributions and benefits for pension, health and disability insurance, the amount of original pension expenditures, poverty rates and unemployment (Table 3).

Table 2: Validation of the model’s results by official statistics

Official figures

Replicate d figures according to the model

Devi ation

Original revenues and expenditures for the pension system Pension insurance contributions (million MKD)

35,475

36,456

3%

Original pension expenditures (million MKD)

55,789

57,852

4%

Deficit (original, million MKD)

(20,314)

(21,396)

5%

Deficit (% of GDP)

-3.2%

-3.4%

5%

Number of pensioners and average pension Number of pensioners (old-age)

191,592

191,592

0%

Number of pensioners (survivor)

76,052

76,052

0%

Number of pensioners (disability)

37,465

37,465

0%

Total pensioners

305,109

305,109

0%

Average pension (old-age)

15,321

15,105

-1%

Average pension (survivor)

11,336

10,648

-6%

Average pension (disability)

12,788

12,354

-3%

Employment and poverty Employment rate

44.1%

44.5%

1%

Unemployment rate

22.6%

22.4%

-1%

Poverty rate (before pensions)

41.6%

41.1%

-1%

Poverty rate (after pensions) 25.7% 23.7% -8% Source: Ministry of Finance of RM; PDIF; State Statistical Office of RM; own estimates based on the 2017 Quality of Life Survey The results show that the model fully replicates the official data, with a maximum deviation of -6% in the case of an average survivor pension and of -8% in the poverty rate after pensions. In the first case, the deviation could be caused by two underestimations: underestimation of the deceased person’s pension base (which is very hard to estimate 76

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

adequately, due to lack of information on the deceased person) and the underestimation of the number of beneficiaries in one family.

The model’s dynamic component allows for microsimulations and projections of future developments regarding these indicators under simulated assumptions about policy changes. As an advantage, the database allows the gathering of all the information on the individual characteristics of persons (age, education, economic status, health status, revenues on different grounds, etc.), information about household composition, and information about socioeconomic status. The Quality of Life Survey in Macedonia - 2017 was the data source used in this paper, and it was answered by a random sample on a national level of 1,200 households, covering 4,071 individuals.

Input information and assumptions about the simulations of pensions and benefits For future projections, as inputs, we take the assumptions about the eligibility requirements to be entitled to a pension as well as its type, amount of the pension, the number of benefits, and the adjustment rate.

In the simulations, we modelled the following pension types: old-age, survivor and disability11 pension. The number of pension beneficiaries is defined as the sum of the number of existing pensioners in the baseline year, for each type, increased by the number of new pensioners and decreased by the number of deceased pensioners (previously identified by health equation 2).

The eligibility requirements to be entitled to a pension are in accordance with the conditions set out in the Law, listed in Table 1, namely: 



For an old-age pension, the beneficiary has a minimum 15 years of service and has reached 62 years of age for women and 64 years for men. In the old-age pension, individuals with reduced years of service due to having worked in military occupations12 have been simulated separately. The eligibility requirements for an old-age pension beneficiary with reduced years of service are: the person had a military occupation, has reached 50 years of age for women and 55 years for men, and has a minimum 25 years of service; For survivor pension, the beneficiaries are members of the deceased person’s family: a spouse with the status of a widow(er), whose economic status is

It is difficult to predict the injury at work for future beneficiaries, therefore we simulate only a disability triggered by disease.

12 We did not simulate the reduced years of service in other occupations, because the survey contains information of the main occupation groups only, such as military occupations.

11

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life



unemployed, having reached 50 years of age; all children being under the age of 15 or between the age of 15 and 26 years if they have the status of students. For future beneficiaries of survivor pensions, the pension right is acquired by members of the family, under the previously identified criteria, for a person whose status has transitioned from alive to deceased, according to the health function (2).

For a disability pension, we considered the current disability pension beneficiaries regardless of the reason for the disability, and for future disability pension beneficiaries, we simulated only beneficiaries whose disability is caused by a disease. The disease is derived from the health function (1), when the person has a probability of ill health, within limits that replicate the current rate of disability pension beneficiaries.

The pension amount is determined by a person’s earnings during their career and the length of their service. Career earnings are approximated to the average net wage earned in the last three years for individuals that are still in employment, or the last three years before retirement for pensioners, adjusted to the wage growth from a five-year average.

The length of service refers to the years spent in work for which contributions and benefits have been paid. Depending on the length of service, we applied the replacement rates, as defined in the Law on Pension and Disability Insurance, to the average earnings. For contributors covered by the mandatory pension and disability insurance before 2001, the replacement rate is: for 15 years of pensionable service, 35% for men and 40% for women, for each following year of pensionable service this rate increases by 1.8 percentage points for men and 2.6 percentage points for women until the 20th year of service, and 1.8 percentage points for each year following 20 years. The maximum replacement rate is 80% for 40 years of service completed for men and 35 for women. For each additional year of pensionable service completed after 1 January 2013, the pension is calculated in the amount of 1.84 for women and 1.61 for men from the pension base. The amount obtained in this manner is the total pension, which is received in the case of an old-age pension. The maximum old-age pension amount is limited to MKD 45,000. In the survivor pension, the pension amount is obtained as a percentage amount from the old-age pension to which the contributor is entitled, 70% for the first member, 10% more for each next member, but the maximum is 100%. The disability pension amount is 70% of the calculated old-age pension to which the contributor is entitled.

In calculating the pension, we included the pension adjustment in recent years, and we considered the assumption for future adjustments. For pensioners retired in the period between 2007 and 2016, we calculated a cumulative pension adjustment according to the actual annual pension adjustments in that period (maximum 40%). For pensioners retired before 2007, we included a fixed cumulative adjustment in the amount of 51%. Future 78

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

adjustments were made in accordance with the legal provisions, 50% of the wage growth and 50% of the cost of living, and in our case, this adjustment was set at 1.5% annually.

The wage benefits and taxes were calculated through the net wage identified. The gross wage is calculated based on the net wage, which is reduced by tax exemptions, which is the basis for the calculation of taxes and benefits and depends on whether the person has full-time or part-time insurance. For pensioners, we only calculated the health and disability insurance13 in the amount of 13% of net pension.

Scenarios for potential pension reforms Once the basic parameters have been identified (the number of contributors and beneficiaries, original benefits, and original expenditures), the paper continues with the dynamic simulations over a time horizon of five and ten years. In this context, the simulations have a dual purpose: 1) to estimate the future developments of the basic parameters if there are no reforms in the pension system; and 2) evaluate the fiscal effects and effects on poverty and unemployment of the potential reforms in the pension system.

In the simulated scenarios, we proposed two types of reforms: 1) reforms wherein the burden will mainly affect one concerned party (pensioners or contributors), 2) reforms with a shared burden and 3) a reform where the burden is shared and the reform is cascading and gradual. Also, in the simulations, reforms concern the following: a change in the contribution rate and in the retirement age limit for different types of beneficiaries, including beneficiaries with reduced years of service due to having military occupations.

The reform scenarios are the following: 1) The burden is borne by the individual groups concerned:  



Increase in the contribution rate from 18% to 22%, thus the burden is borne by current contributors; Retirement age limit for old-age pension is extended by 2 years (from 62 years for women and 64 years for men to 65 and 67 years, respectively ), thus the burden is borne by future pensioners; Retirement age limit for survivor pension is extended by 3 years (from 50 years for widow(er) to 53 years);

In accordance with the Law on Personal Income Tax, the pension income is subject to personal tax to be paid by the PDIF on behalf of the pension beneficiaries. The income tax calculated for the earnings based on pensions and disability benefits is transferred to the PDIF. However, the Fund only records this amount on an accrual basis, but it is not actually paid in the budget.

13

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life



Retirement age limit for pension beneficiaries with reduced years of service is extended by 3 years (from 50 years for women and 55 years for men to 53 and 58 years, respectively.

2) The burden is shared between the concerned parties: 





3) 

Increase in the contribution rate by 2 percentage points and extending the retirement age limit by 1 year for old-age pension, 2 years for survivor pension, and 2 years for pension-based on reduced years of service; Increase in the contribution rate by 3 percentage points and extending the retirement age limit by 2 years for old-age pension, 2 years for survivor pensions, and 2 years for pensions based on reduced years of service; Increase in the contribution rate by 3 percentage points and extending the retirement age limit by 2 years for old-age pension immediately, and by an additional 1 year after five years, 2 years for survivor pensions, and 2 years for pensions based on reduced years of service.

The burden is shared between the concerned parties, and the reform is cascading and gradual.

Increase in the contribution rate by 2 percentage points immediately and an additional 1 percentage point after 10 years; extending the retirement age limit, age limit for survivor pensions and reduced years of service by 1 year after five years and by an additional 1 year after 10 years.

In all scenarios, the pension adjustment is for the legally envisaged level only. Therefore, current pensioners also bear the burden of the difference for the higher adjustment than the one set out in the Law, which they were receiving in the past years.

Results Results from the input equations for health, employment and wage The estimates from the functions for health, employment, and wage are given in Table 4.

Column (1) shows the results for the probability of pensioners’ good health; column (2) shows the results for the probability of good health in the working age population; column (3) shows the results for the probability of employment; and column (4) shows the results for wage. All ratios are the reported marginal effects in the case of probit functions (1-3).

The ratios also include the expected sign. Age, sex and income from pensions are statistically significant for the health of pensioners. As expected, each additional year of age reduces the probability of good health in pensioners. Men have a higher probability of good health, and higher pensions increase the probability of having good health.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Education and marital status are statistically insignificant for the health of pensioners (and they are not used for the additional estimates).

The health of the working-age population depends on age, education and family income.

As in the case of pensioners, an additional year of age reduces the probability of good health. However, in the working-age population, the magnitude of this ratio is drastically lower. This is to be expected, because in the older populations, an additional year of age has a higher adverse effect on health than in younger generations. Higher education and family income increase the probability of better health, while the existence of chronic diseases reduces this probability. Unlike the case of pensioners, sex in working-age population is not statistically significant.

The three wage explanatory variables of age, education and sex are important for the probability of employment. Older individuals, men, and individuals with higher education have a greater probability of employment. As in the probability of employment, age, education and sex are significant for wage amount. Older individuals have a higher wage.

This is probably due to experience and to wage negotiation skills, which do not appear as observed variables in this equation. Men, on average, earn a higher wage than women by 18%, which confirms the results for the adjusted gender wage gap in Macedonia in the study by Petreski and Mojsoska-Blazevski (2015). As expected, individuals with higher education have higher wages.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Variables

Age Sex (1=male) Education Pensioner’s marital status (1=married)

Equation for the health of pensioners (conditional probability of good health) (1)

Equation for the health of working age population (conditional probability of good health)

Equation of employment (conditional probability of employment )

Wage equation (conditiona l log. wage)

(2)

(3)

(4)

-0.0263***

-0.000715**

0.0131***

0.00527***

(0.0031)

(0.0003)

(0.001)

(0.001)

0.118***

-0.0015

0.257***

0.178***

(0.036)

(0.0059)

(0.021)

(0.018)

-0.00585

0.00328*

0.138***

0.0954***

(0.0084)

(0.0018)

(0.007)

(0.0073)

-0.0406 (0.0376)

Pension income 0.0000065** (0.000) Income in the family, on all grounds

0.0000006*** (0.000)

Chronic diseases

-0.347*** (0.0393)

Constant

8.786*** (0.078)

Observations

895

2,087

R-squared

2,422

1,280 0.187

Source: Author’s estimate based on the 2017 Quality of Life Survey. *, ** and *** refer to statistical significance of 10, 5 and 1 percent, respectively. Standard errors have been corrected for heteroskedasticity and are given in parentheses.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Fiscal effects from the pension reform Table 4 presents the fiscal effects if the pension system remains with its current design and if no reform is made. Column 1 shows the replications of official figures and the basic scenario for comparison with the results of the reforms proposed; column 2 shows the fiscal effects if the pension adjustment in the past period did not exceed the maximum stipulated in the Law for adjustment to the wage growth and cost of living; columns 3 to 5 show the results after 5, 10 and 20 years, respectively, if the system design remains the same and there is no pension reform.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

The results indicate that if the pension increase in the past period was only within statutory adjustment, today, the original deficit (the difference between original revenues and original expenditures, without transition costs) would have been 35% lower, and the share in GDP would have been lower by 1.2 percentage points. If there is no pension reform in the next twenty years, and the pension growth remains only on the statutory adjustment level, the original deficit will continue to grow in absolute amount, but at a slower pace, while its relative share in GDP will start to slightly decrease.

Table 4: Fiscal effects for 5, 10 and 20 years if there is no pension reform Basic scenario If the pensio ns are Replica adjust ted ed to figures the to the statut actual ory situati rate on only

If there is no reform

(1)

(2)

(3)

(4)

After 20 years (5)

36,456

36,456

42,331

47,561

59,521

57,852 (21,39 6)

50,412 (13,95 6)

65,760 (23,42 9)

75,900 (28,339 )

90,588

-3.4% 191,59 2

-2.2% 191,59 2

-3.1% 221,68 4

-3.0% 255,088

76,052

76,052

62,532

59,152

37,465 37,465 305,10 305,10 Total pensioners 9 9 Source: 2017 Quality of Life Survey, author’s estimate

38,185 322,40 1

37,465 351,70 5

Pension insurance contributions (million MKD) Original pension expenditures (million MKD) Deficit (original in million MKD) Deficit (% of GDP) Number of pensioners (old-age) Number of pensioners (survivor) Number of pensioners (disability)

After 5 years

After 10 years

(31,067) -3.3% 290,149 51,546 24,496 366,191

Table 5 presents the fiscal effects from the simulated scenarios for pension reform in the next five and ten years. Columns 1 to 4 show the results from the scenarios of stronger individual shocks, when the burden falls on an individual group concerned, namely: (1) increase in the contributions to 22%; (2) extending the retirement age limit for old-age 84

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

pension by 2 years; (3) for survivor pension from a spouse by 3 years; and (4) for old-age pension with reduced years of service by 3 years. Columns 5 to 7 show the results from the scenarios of a combined pension reform, with simultaneous changes in the contribution rate and retirement age limits. Column 8 shows the results from the combined cascading reform.

The effects of the simulated scenarios showed that the reforms proposed could significantly reduce the deficit in PDIF; and after 5 years, the deficit will range from 1.5% to 3.1% of GDP, or between 0.7% and 3.3% after 20 years. The increase in contributions to 22% reduces the deficit by 40% after 5 years, 38% after 10 years, and even by 49% after 20 years. It seems that the greatest reduction in the deficit occurs in this individual scenario.

The increase in the retirement age limit by 2 years reduces the deficit by 18% after 5 years, 19% after 10 years, and 35% after 20 years. The effects of the change in the retirement age limit for survivor pensions and old-age pensions for the beneficiaries with reduced years of service are small, i.e. they reduce the deficit by one percentage point only. However, this is due to two facts: the number of survivor pension beneficiaries is relatively smaller compared to the old-age pension beneficiaries, and the changes proposed concern only those cases where the spouse is the beneficiary; whereas, for the old-age pension beneficiaries with reduced years of service, we covered only the beneficiaries of people from military occupations and the effects are significantly underestimated. Nevertheless, the shortcoming of this type of reform with individual shocks is in the fact that the burden is borne by one generation and the shocks are stronger.

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PIC + 3pp, limit +2 (until the 5th), +3 (after the 5th) survivor pension +2, reduced service +3

(4)

(5)

(6)

(7)

PIC + 2pp (until the 10th) + 3pp (after the 10th), limit +1 (after the 5th) +2 (after the 10th) survivor pension and reduced service +3

PIC + 3pp, limit +2, survivor pension +2, reduced service +2

(3)

PIC + 2pp, limit +1, survivor pension +2, reduced service +2

(2)

Reduced years of service, +3 years for eligibility

Retirement age limit +2

(1)

Survivor pension, +3 years for eligibility

Contributions are increased to 22%

Table 5: Fiscal effects for 5, 10 and 20 years from the simulated scenarios about the pension reform

(8)

After 5 years 51,861

43,314

42,436

42,331

47,521

50,655

47,259

65,760

62,424

65,196

65,760

63,864

62,172

65,196

(13,899)

(19,110)

(22,760)

(23,429)

(16,343)

(11,517)

(17,937)

-1.8%

-2.5%

-3.0%

-3.1%

-2.1%

-1.5%

-2.3%

Number of pensioners (old-age)

221,684

204,567

221,684

221,684

213,401

204,567

221,684

Number of pensioners (survivor)

62,532

65,067

59,152

62,532

59,997

63,377

59,152

Number of pensioners (disability)

38,185

37,465

38,185

38,185

38,906

37,465

38,185

322,401

307,099

319,021

322,401

312,304

305,409

319,021

Pension insurance contributions (million MKD) Original pension expenditures (million MKD) Deficit (original, in million MKD) Deficit (% of GDP)

Total pensioners

86

PIC + 3pp, limit +2, survivor pension +2, reduced service +2

PIC + 3pp, limit +2 (until the 5th), +3 (after the 5th) survivor pension +2, reduced service +3

(3)

(4)

(5)

(6)

(7)

PIC + 2pp (until the 10th) + 3pp (after the 10th), limit +1 (after the 5th) +2 (after the 10th) survivor pension and reduced service +3

PIC + 2pp, limit +1, survivor pension +2, reduced service +2

(2)

Reduced years of service, +3 years for eligibility

Retirement age limit +2

(1)

Survivor pension, +3 years for eligibility

Contributions are increased to 22%

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

(8)

After 10 years 58,340

48,861

47,671

47,730

53,775

57,269

57,993

53,400

75,900

71,676

75,504

75,900

73,308

71,412

70,212

74,406

(17,560)

(22,815)

(27,833)

(28,170)

(19,533)

(14,143)

(12,219)

(21,006)

-1.9%

-2.4%

-3.0%

-3.0%

-2.1%

-1.5%

-1.3%

-2.3%

Number of pensioners (old-age)

255,088

237,419

255,088

255,088

246,530

237,419

232,450

250,809

Number of pensioners (survivor)

59,152

60,842

56,616

59,152

57,462

59,152

58,730

57,039

Number of pensioners (disability)

37,465

37,465

37,465

37,465

37,465

37,465

37,465

37,465

351,705

335,726

349,169

351,705

341,457

334,036

328,645

345,313

Pension insurance contributions (million MKD) Original pension expenditures (million MKD) Deficit (original, in million MKD) Deficit (% of GDP)

Total pensioners

87

PIC + 3pp, limit +2, survivor pension +2, reduced service +2

PIC + 3pp, limit +2 (until the 5th), +3 (after the 5th) survivor pension +2, reduced service +3

(3)

(4)

(5)

(6)

(7)

PIC + 2pp (until the 10th) + 3pp (after the 10th), limit +1 (after the 5th) +2 (after the 10th) survivor pension and reduced service +3

PIC + 2pp, limit +1, survivor pension +2, reduced service +2

(2)

Reduced years of service, +3 years for eligibility

Retirement age limit +2

(1)

Survivor pension, +3 years for eligibility

Contributions are increased to 22%

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

(8)

After 20 years 72,894

62,415

59,521

59,704

67,793

72,492

74,273

70,171

90,588

82,560

90,588

90,588

86,604

82,560

80,538

84,582

(6,265)

(14,411)

(17,694)

(20,145)

(31,067)

(30,884)

(18,811)

(10,068) -0.7%

-1.5%

-1.9% 290,149

-2.2% 274,137

-3.3% 290,149

-3.3% 290,149

-2.0% 282,971

-1.1% 274,137

274,137

278,554

Number of pensioners (survivor)

51,546

47,321

51,546

51,546

48,166

47,321

47,321

47,744

Number of pensioners (disability)

24,496

24,496

24,496

24,496

24,496

24,496

24,496

24,496

345,954

350,794

366,191

345,954

366,191

366,191

355,633

345,954

Pension insurance contributions (million MKD) Original pension expenditures (million MKD) Deficit (original, in million MKD) Deficit (% of GDP) Number of pensioners (old-age)

Total pensioners

Source: 2017 Quality of Life Survey, author’s estimate

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The combined reforms, depending on the intensity of changes, reduce the deficit from 0.7% to 2.1% of GDP, which is a decrease from 30% to 57% compared to the situation where there is no reform. Fiscal savings from the reform range from EUR 10 to 193 million annually for up to 5 years, and to EUR 230 million after 10 years. Certainly, the greatest effect is produced by the reform where the contribution is increased by 3 percentage points, the retirement age limit is extended to 64/66 years immediately and to 65/67 years after 5 years for old-age pension, to 52 years for survivor pension, and to 53/58 years for old-age pension with reduced years of service. In this scenario, the deficit would come down to 1.3% of GDP after 10 years and to 0.7% of GDP after 20 years, which represents a significant consolidation of the pension system. The combined reform takes into consideration burden sharing between generations, and the shocks are weaker, but all changes start immediately.

The third type of reform has similar effects as the individual changes, but with weaker fiscal effects than the combined reform that starts immediately. This reform reduces the deficit to -2.3% of GDP up to five and ten years, but in the long-term of 20 years, the gradual reform reduces the original deficit of the pension fund from 31 billion MKD to 14 billion, which is 1.5% of GDP, compared to 3.3% of GDP if there is no reform. The combined gradual reform has the following advantages: the reform burden is shared between generations, and the changes are gradual and allow concerned parties to adjust.

Effects on poverty and unemployment Table 6 presents the results of the effects on unemployment and poverty rate. The assumptions are that the employment rate will increase, on average, by 1 percentage point annually over the next 20 years, and would reach an employment up to 60% after 20 years, which is derived from its average increase in the previous period. Therefore, unemployment is a residual in the model. The simulations indicate that the pension reform will not have an adverse effect on unemployment. The unemployment rate will decrease insignificantly or will remain the same compared to the basic scenario where there is no reform, except in the scenario for increasing the eligibility limit for the survivor pension of the spouses, where the unemployment rate insignificantly increases. The greatest decrease in the unemployment rate is seen in the scenario that increases the retirement age limit and the combined reform with contribution growth by 3% and increases the retirement age limit by two years.

At the same time, there are no significant changes in the poverty rate as a result of the pension reform. It increases insignificantly only in the scenario that increases the contribution rate in the simulations for a five-year period. This development is expected 89

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because contributions directly affect the lower net earnings of workers. Meanwhile in the simulations of effects over a 10-year period, the poverty rate is in decline or remains the same. However, at the same time, this is the scenario where the pension effects on reducing poverty are the greatest. This is due to the fact that the main burden in this scenario falls on the current contributors and working-age population. On the other hand, the increase in the retirement age limit reduces the poverty rate before and after pensions, as a result of the increased income of the individuals that remained in employment compared to the income that these individuals would receive from their pension, but this reduces the effect of pensions on poverty. The greatest effects are achieved in the combined scenarios, i.e. the poverty rate after pensions is the lowest.

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Reduced years of service, +3 years for eligibility

PIC + 2pp, limit +1, survivor pension +2, reduced service +2

PIC + 3pp, limit +2, survivor pension +2, reduced service +2

PIC + 3pp, limit +2 (until the 5th, +3 (after the 5th) survivor pension +2, reduced service +3 PIC + 2pp (until the th 10 ) + 3pp (after the 10th), limit +1 (after the 5th) +2 (after the 10th) survivor pension and reduced service +3

44.5%

48.1%

48.1%

48.2%

48.2%

48.1%

48.2%

48.3%

48.3%

Unemployment rate

22.4%

17.6%

17.6%

17.4%

17.7%

17.6%

17.6%

17.4%

17.6%

Poverty rate (before pensions)

43.2%

42.7%

42.9%

40.9%

42.7%

42.7%

42.1%

40.9%

42.9%

Poverty rate (after pensions)

26.6%

26.5%

26.6%

26.3%

26.7%

26.5%

26.4%

25.9%

26.8%

Effect of pensions on poverty

38.4%

37.9%

38.0%

35.7%

37.5%

37.9%

37.3%

36.7%

37.5%

Contributions are increased to 22%

Survivor pension, +3 years for eligibility

No changes

Employment rate

Retirement age limit +2

Replicate of official figures

Table 6: Effects on poverty and unemployment

After 5 years

After 10 years Employment rate

51.5%

51.5%

51.7%

51.7%

51.6%

51.8%

51.7%

51.9%

51.7%

Unemployment rate

12.3%

12.3%

12.2%

12.4%

12.3%

12.3%

12.3%

12.1%

12.3%

Poverty rate (before pensions)

42.9%

42.0%

42.0%

42.9%

42.9%

41.8%

42.1%

41.6%

41.9%

Poverty rate (after pensions)

24.7%

24.4%

24.4%

24.7%

24.5%

24.3%

24.1%

23.9%

24.2%

Effect of pensions on poverty

42.4%

41.9%

41.9%

42.4%

42.9%

41.9%

42.8%

42.5%

42.2% 59.9%

After 20 years Employment rate

59.1%

59.1%

59.9%

59.1%

59.1%

59.6%

59.5%

60.1%

Unemployment rate

6.9%

6.9%

6.3%

6.9%

6.9%

6.7%

6.3%

6.0%

6.3%

Poverty rate (before pensions)

42.0%

42.0%

40.3%

42.0%

41.9%

41.6%

40.2%

39.8%

40.2%

Poverty rate (after pensions)

21.4%

21.2%

21.0%

21.4%

21.2%

21.2%

20.9%

20.8%

20.9%

Effect of pensions on poverty

49.0%

49.5%

47.9%

49.0%

49.4%

49.0%

48.0%

47.7%

48.0%

Source: 2017 Quality of Life Survey, author’s estimate 91

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Conclusion and recommendations The purpose of this paper is to propose a pension reform design and to examine the fiscal effects and effects on the development indicators of unemployment and poverty from the potential pension reform in Macedonia after 5, 10 and 20 years. To that end, we constructed the MK-PENS dynamic microsimulation model, which simulates scenarios for reforms in the pension system in Macedonia. The model has a dynamic form and includes the movement of individuals from the sample over a period of time as they age, considering the interpersonal relations of the individuals in the sample, the behavioural responses and the effects from a change in their labour market status on development indicators (such as poverty and unemployment). Thus, the dynamic model creates a life path for each individual in the sample, including probability of death, change in the economic status, time of retirement, earnings, etc. As the data source, we took the 2017 Quality of Life Survey in Macedonia, which was conducted on a representative sample on a national level of 1,200 households covering 4,071 individuals.

The results show that the model fully and quite robustly replicates official data, with a maximum deviation of -6% in the case of average survivor pension and -8% in the poverty rate after pensions. For future projections, as inputs, we take the assumptions about the eligibility requirements to be entitled to a pension and its type, amount of the pension, amount of the benefits and the adjustment rate. In the simulations, we modelled the oldage, survivor and disability pensions. The simulations have a dual purpose: to estimate the future developments of the basic parameters if there are no reforms of the pension system; and to evaluate the potential reforms of the pension system’s fiscal effects and effects on poverty and unemployment. In the scenarios simulated, we proposed three types of reforms: reforms whose burden affects one main concerned party (pensioners or contributors), reforms where the burden is shared between the generations, and a reform where the burden is shared and the changes are cascading and occur gradually in a time horizon of 20 years. In addition, in the simulations, the reforms concern a change in the contribution rate and in the retirement age limit for different types of beneficiaries, including beneficiaries with reduced years of service based on having a military occupation.

We simulated the following reform scenarios: 1.

Reforms where the burden is borne by individual concerned parties o Increase in the contribution rate from 18% to 22; o The retirement age limit for old-age pension is extended by 2 years (from 62 years for women and 64 years for men to 64 66 years, respectively ); o The retirement age limit for a survivor pension is extended by 3 years (from 50 years for widow(er) to 53 years); 92

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The retirement age limit for pension beneficiaries with reduced years of service is extended by 3 years (from 50 years for women and 55 years for men to 53 and 58 years, respectively ); o The retirement age limit for survivor pension beneficiaries based on reduced years of service is extended by 3 years.

Reforms where the burden is shared between the concerned parties, but the changes occur immediately o Increase in the contribution rate by 2 percentage points and extending the retirement age limit by 1 year for old-age pensions, 2 years for survivor pensions, and 2 years for pensions based on reduced years of service; o Increase in the contribution rate by 3 percentage points and extending the retirement age limit by 2 years for old-age pensions, 2 years for survivor pensions, and 2 years for pensions based on reduced years of service; o Increase in the contribution rate by 3 percentage points and extending the retirement age limit by 2 years for old-age pensions immediately, and by an additional 1 year after five years, 2 years for survivor pensions, and 2 years for pensions based on reduced years of service.

Reform where the burden is shared and the changes are gradual and cascading o Increase in the contribution rate by 2 percentage points immediately and an additional 1 percentage point after 10 years; extending the retirement age limit, the age limit for survivor pensions and reduced years of service by 1 year after five years and by an additional 1 year after ten years. o

2.

3.

The results indicate that if the pension increase in the recent period was only within the statutory adjustment, today, the original deficit would have been 65% lower, and its share in GDP would have been lower by 1.2%. If there is no pension reform in the next period, and the pension growth remains only on the statutory adjustment level, the original deficit after 5, 10 and 20 years will continue to grow in absolute amount, but at a slower pace, while its relative share in GDP will start to slightly decrease.

The effects of the simulated scenarios showed that the reforms proposed could significantly reduce the deficit in PDIF; and after 5 years, it would range from 1.5% to 3.1% of GDP, from 1.3% to 3% after 10 years, and from 0.7% to 3.3% after 20 years. The increase in contributions to 22% reduces the deficit in PDIF by 40% after 5 years and by 38% after 10 years. The increase in the retirement age limit by 2 years reduces the deficit by 18% after 5 years, 19% after 10 years and up to 43% after 20 years. The combined reforms with the changes that would occur immediately reduce the deficit from 0.7% to 2.1% of GDP, which 93

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is a decrease from 30% to 80% compared to the situation where there is no reform. The combined cascading and gradual reform moderately reduces the deficit by 26% over up to 10 years, but the effects on the long-term period of 20 years are stronger and halve the original deficit.

Fiscal savings from the reform range from EUR 10 to 193 million annually up to 5 years, and to EUR 403 million after 20 years, in the best scenarios. The combined cascading reform will result in fiscal changes of EUR 89 million annually over up to five years, EUR 119 million over up to 10 years, and EUR 271 million over up to twenty years.

The effects of the simulated scenarios on poverty and unemployment are favourable, but the intensity differs. In the scenarios where some of the individuals remain in the labour force due to late retirement, and the combined reform with increases in contributions by 3% and increases in the retirement age limit by 2 years, unemployment reduces insignificantly. The effects on poverty are maximised in the combined scenarios. Besides the reduction in poverty after pensions, in these scenarios, the pension effects on poverty are greater than in the scenario where there is no reform.

This paper gives the following recommendations to policy makers: 









The pension adjustment in the upcoming period should not be higher than the statutory maximum, 50% of the increase in cost of living and 50% of the wage growth; All types of additional measures affecting the decrease in the effective retirement age limit (increase in the advantages and facilitating the requirements for reduced years of service, old-age pensions, and similar advantages) and measures that will bring about additional burdens to the pension and disability insurance fund are to be avoided; The pension system has to be subject to a structural reform in order to achieve its fiscal consolidation in the next 5 to 10 years and to halve the original deficit, and so that the central budget savings would reach even up to EUR 403 million annually in 20 years. The first effect of the reform would be felt immediately; and after five years, the savings would reach around EUR 90 million annually.

Although the fiscal effects of the stronger individual reforms (mainly increases in the contributions or increases in the retirement age limit) and the combined reforms yield similar results, the combined reforms give better results for unemployment and poverty, principally due to the fact that they distribute the burden of the pension reform among the concerned parties; The pension reform should be combined so as to split the burden between the current generations, while the implementation should be gradual and cascading.

The reform addressing these aspects, and which is the proposed reform of the 94

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life



 

pension system in this paper, includes: an increase in the contribution rate by two percentage points immediately (from 18% to 20%) and increasing by an additional 1 percentage point after ten years, extending the retirement age limit by one year after five years and by an additional one year after ten years (including survivor pensions and pensions based on reduced years of service); The increase in the age limit should take into consideration and offer special benefits for the workers in labour-intensive sectors and workers whose length of service exceeds 35 years, or the later retirement for these workers should be on a voluntary basis; The cost of the increase in contributions should potentially be shared between the employer and worker; Until the time when the retirement age limit increases, stimulating programmes should be introduced for voluntary later retirement by introducing an additional premium, higher replacement rate or a one-off allowance.

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References 2016 Pension Sustainability Index. (2016). Allianz International Pension Papers 1/2016.

Blake, D. and Mayhew, L. (2006). On the sustainability of the United Kingdom state pension system in the light of population ageing and declining fertility. Discussion Paper PI0413. The Pensions Institute, London.

Bonin, H. (2009). 15 Years of Pension Reform in Germany: Old Successes and New Threats.

IZA Policy Paper No. 11. Institute for the Study of Labour, Bonn.

Caldwell, S. (1996) Health, Wealth, Pensions and Life Paths: the CORSIM Dynamic Micro simulation Model, in Harding, A. (ed.) Micro simulation and Public Policy, Amsterdam: Elsevier, pp. 505-522.

Dekkers, G. J. M. (2007): Construction of a dynamic cross-sectional micro simulation model: the state of affairs. Intermediate report 4.10, task 4.1. AIM Interim Research Report 4.10. Brussels: manuscript.

Emmerson, C., H. Reed and A. Shephard, 2004, An Assessment of PENSIM2, IFS Working Paper WP04/21, London: Institute for Fiscal Studies.

European commission, (2016). The former Yugoslav Republic of Macedonia 2016 Report.

Brussels, European commission, p.25.

Gál, R., Horváth, A., Orbán, G. and Dekkers, G. (2009) PENMICRO Monitoring pension developments through micro socioeconomic instruments based on individual data sources: feasibility study.

Gomez, R. and Hernandez de Cos, P. (2003). Demographic maturity and economic performance: the effects of demographic transitions on per capital GDP growth.

Working Paper 0318. Bank of Spain.

International Monetary Fund. European Dept, (2017). Former Yugoslav Republic of Macedonia: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Former Yugoslav Republic of Macedonia. Country Report No. 17/354, p.14.

Kakes, J. and Broeders, D. (2007). The Sustainability of the Dutch Pension System. Occasional Studies (4), 6, 1 – 92 .

Kruse, A. (2010). A Stable Pension System: The Eighth Wonder. In: Bengtsson, T. (ed.), Population Ageing - A Threat to the Welfare State? Research in Labor Economics 22, 369 – 413.

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Merz, J. (1993) Micro simulation as an Instrument to Evaluate Economic and Social Programmes, Working Paper no 5, Forschungsinstitut Freie Berufe FFB, University of Lueneburg.

Merz, J. (1994) Micro simulation – A Survey of Methods and Applications for Analyzing Economic and Social Policy, Working Paper no 9, Forschungsinstitut Freie Berufe FFB, University of Lueneburg.

Petreski, M., Mojsoska-Blazevski, N. and Petreski, B. (2014) Gender wage gap when women are highly inactive: Evidence from repeated imputations with Macedonian data.

Journal of Labor Research. 35(4), p.393-411.

Saez, E. (2010) Do Taxpayers Bunch at Kink Points? American Economic Journal: Economic Policy, 2(3): 180–212.

Spadaro, A. (2007) Microsimulation as a tool for evaluation of public policies – Methods and applications. Bilbao : Fundación BBVA. United Nations (2017). World Population Prospects: The 2017 Revision.

Law on Pension and Disability Insurance (2016).

Pension and Disability Insurance Fund of Macedonia (2014). Report on the Pension System in the Republic of Macedonia, with Actuarial Projections. Skopje, PDIF. Pension and Disability Insurance Fund of Macedonia (2015). Report on the Pension System in the Republic of Macedonia, with Actuarial Projections. Skopje, PDIF. Photo credits: freepik.com, pexel.com, pixbay.com

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FROM NUMBERS TO PRACTICE – IDENTIFICATION AND ANALYSIS OF THE INDICATORS RELATED TO THE QUALITY OF THE TEACHING PROCESS IN THE PRIMARY EDUCATION IN MACEDONIA

3

Ana Mickovska-Raleva Ana Tomovska Misoska Olimpija Hristova Zaevska Suzana Cherepnalkovska Vesna Kostikj Ivanovikj

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Education

From Numbers to Practice – Identification and Analysis of the Indicators Related to the Quality of the Teaching Process in the Primary Education in Macedonia

Authors: Ana Mickovska-Raleva Center for research and policy making mickovska@crpm.org.mk Ana Tomovska Misoska University American College Skopje tomovska@uacs.edu.mk

Olimpija Hristova Zaevska Impakt – Research Institute Olimpija.hristova@gmail.com Suzana Cherepnalkovska scherepnalkovska@yahoo.com Vesna Kostikj Ivanovikj Macedonian Montessori Association vesnaki@yahoo.com Reviewer: Natasha Angelovska Galevska

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Introduction The formal education process is aimed at preparing students for their future life.

Therefore, oftentimes, the competencies that students acquire or what they learn to do at the end of specific educational cycles is considered as the most important indicator of an education system quality. The competencies / student achievements are an output indicator that is affected by different factors / variables of the environment, including: national education policy, school policy and teaching process in the classes. Therefore, student achievement cannot be analysed in a vacuum and instead numerous factors should be considered in their interpretation.

The PISA testing administered by OECD is aimed at determining the competencies of 15year-old students in science, mathematics and reading literacy; and at the same time to find what factors have a predominant impact on the teaching quality and, hence, on the competencies that participants acquire. Macedonian students were included in the testing in 2000 and in 2015. The results from both measurements indicate that Macedonian students achieve results under the international average. This means that students in Macedonia, during their primary education, do not acquire sufficient competencies through which they would offer a higher value on the national labour market, thus contributing to the economic growth. At the same time, this also means that with their competencies they are not sufficiently competitive on the global labour market and they will have difficulties fitting in the new economic trends of the so-called “knowledge-based economy�. Insufficient human resource quality, on the other hand, has consequences for the development of economy in both national and international context.

In the past 15 years, since Macedonia began participating in international achievement testings, the education policy makers have an insufficiently systematic approach to the problem of low student achievement. Reforms being implemented are usually not based on systematically collected data; they are often not interrelated and are not debated with a large portion of the stakeholders (factors) in the education system. Consequently, oftentimes, the reforms are not fully accepted and fail to achieve the envisaged objective.

Therefore, in a period of 15-years between the two testings, not only did student achievement not improve, but it deteriorated. Specifically, the score in mathematics was reduced from 381 in 2000 to 371 in 2015; while in science it went from 401 in 2000 to 384

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in 2015 (OECD, 2016a). From the aspect of proficiency levels defined in PISA1, students from Macedonia, in average, continuously reach the second lowest level (1a), which indicates “the ability to use basic or everyday content and procedural knowledge to recognize or identify explanations of simple scientific phenomenon. With support, they can undertake structured scientific enquiries with no more than two variables” (OECD/PISA, 2015).

Although there are other competencies important for the development and long-term success of students, the competencies measured by PISA are good performance indicators of the education policy (Schleicher, 2007). Namely, PISA testing is administered on a sample of 15-year-old students, who at that age are still covered by the formal education system (OECD, 2016); and it focuses on the ability of students to apply their knowledge and skills in everyday situations (Valijarvi et.al., 2000) through internationally recognized benchmarks for competencies (OECD, 2001), and through additional information on the characteristics of the education systems and characteristics of students. As such, PISA testing results are used as starting information for educational reforms and assessment of the education policy in several European countries (Grek, 2009).

The main focus of PISA in 2015 was to determine the competencies in the domain of science. This domain covers the ability for critical review and understanding of concepts linked to science and scientific approach. As students who have a good level of science literacy are considered those with competencies to: (1) explain different concepts scientifically; (2) evaluate and design a scientific approach when reviewing phenomena (able to critically assess scientific findings); and (3) interpret data and facts by applying a scientific approach (able to interpret the meaning of scientific evidence and their implications for a specific audience, in their own words and, if necessary, by using charts or other presentation methods) (OECD, 2016c).

Studies show that there are multiple factors impacting student performance in specific cognitive domains. However, most of the studies until now were based on cross-

1

PISA 2015 defines seven levels of proficiency - from 1b to 6, with the following lowest

score for each level (in brackets): 1b (261), 1а (335), 2 (410), 3 (484), 4 (559), 5 (633) и 6 (708).

For more information see: http://www.oecd.org/pisa/test/summary-description-sevenlevels-of-proficiency-science-pisa-2015.htm 105

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tabulations and correlations, so it is particularly important to start measuring effects and testing the interconnection of various factors with the performance in different domains of PISA, which is one of the objectives of this research.

In addition, on national level, no in-depth analysis has been made concerning the results of PISA testing or a research on the policy impacting these results. Therefore, this research is aimed at examining the link between existing data about student achievement and factors related to them. Also, the analysis enables the development of a policy based on specific, scientifically collected and analysed data.

Methodology Tasks of the research 1.

To determine the factors linked to student achievement in the 2015 PISA testing.

2.

To investigate the opinions of teachers and students concerning the factors determined as the most significantly linked to student achievement in the 2015 PISA testing.

3.

To issue recommendations to specific factors in the education system for overcoming the issues detected by the analysis.

The research used combined research techniques: quantitative (regression analysis of data from the databases of the 2015 PISA testing; descriptive and correlation analysis of data collected through a field survey) and qualitative (analysis of the contents of the focus group discussions). Therefore, the research consists of three parts: (1) analysis of the results from the international PISA testing in 2015 intended to find the most important factors impacting student achievement; (2) analysis of teachers’ perceptions about the teaching practice and student achievements through surveys; and (3) analysis of the perception of students in the ninth grade about the teaching practice and achievements through focus groups. The combination of these methods was selected in order to obtain a more comprehensive picture as to where Macedonia stands in the context of international education practice, and also how the style of work and reforms being implemented impact student achievement.

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Analysis of 2015 pisa results In order to identify the dominant factors impacting student achievement, an analysis was performed on the 2015 PISA testing results. In addition, an analysis was performed on the level of competency development and on the PISA knowledge levels achieved by students in Macedonia in comparison to the international average.

In the first part, a regression analysis was performed on the data from the most recent results of the PISA survey. In 2015, 72 countries participated in the PISA testing, covering a total of 540,000 students. This is the second time that Macedonian students have participated in this testing. The main focus of PISA in 2015 was to determine the competencies in the domain of science. This domain covers the ability for critical review and understanding of concepts linked to science and scientific approach. In fact, this means that most of the cognitive questions in the testing are from the domain of science literacy, and a smaller portion are a combination of questions for mathematics and reading literacy. Also, the additional questionnaires for students, teachers and parents contain questions relating to the teaching, learning and support that students receive for mastering course contents relating to science. This is precisely why the analysis of factors important for the difference in student achievement focuses on the proficiency in the domain of science literacy.

Another limitation in the data analysis arises from the fact that different countries may choose additional questionnaires that would be included in the survey. This, in effect, means that in certain countries data is collected only from students answering cognitive questions and filling in questionnaires on their educational experience. In other countries there could also be data from teachers filling in a questionnaire about the teaching practice, principals providing an assessment of the school and education system, and from parents expressing their own views on the educational process of their children and on the support they provide and on specific family circumstances.

In order to get a comprehensive picture about the factors impacting student achievement, this research includes an analysis of the data from the highest-performing countries and from the lowest-performing countries in PISA 2015 in the domain of science literacy. In the analysis, we used the publicly available databases. In the two regression equations we used the same parameters so that the factors impacting student achievement could be seen from a comparative aspect. The selection of factors was made based on previous 107

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research and analyses on the factors impacting student achievement of PISA in different domains (Bailey and Borooah, 2010; Fuchs and Woessmann, 2004; Lee, 2009; OECD, 2015; OECD 2015b; OECD 2016a; OECD, 2016b), One regression equation was developed for the highest-performing countries, and the other one for the lowest-performing countries. The highest-performing countries include: Singapore, Japan, Estonia, Finland and Canada. The lowest-performing countries include: Tunisia, the Republic of Macedonia, Kosovo, Algeria, and the Dominican Republic. Since most countries lacked data from the questionnaires for principals and parents, the regression equations included data from the cognitive questions as dependent variables, and certain indices obtained through statistical procedures for merging several questions on the same topic from the questionnaires for students and teachers. In addition, a regression equation was also developed only for data from the Republic of Macedonia.

All three regression equations used a linear regression (Ordinary Least Squares - OLS), while the dependent variables were extracted from the plausible values of PISA’s database.

In order to overcome potential problems arising in the sample selection in each country, and to obtain more adequate assessments of the population, the analysis used a statistical adjustment of the sample per student. In parallel, we again used an index from the base following PISA’s recommendations for data analysis (OECD, 2009). The parameter F was used to estimate the significance of each regression equation. In the regression, we also use R2, which essentially denotes what percentile of variance of the independent variable could be attributed to the variance of independent variables, which are part of the equation. To estimate the participation of each individual parameter from the equation of the dependent variable we used β-coefficients, which are standardised coefficients to allow a comparison of the relative importance of each parameter from the regression equation. If they are positive, then there is a positive connection between the dependent and independent variable, and if they are negative, then the increase in the independent variable is connected to the decrease in the dependent variable. When a β-coefficient is statistically significant, then for each increase or decrease in the independent variable for one standard deviation in the dependent variable there is either an increase or a decrease for the value of that B-coefficient. In the interpretation of results, this could be important from the aspect of estimating those independent variables that contribute more to the increase or decrease in the dependent variable.

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Analysis of the perceptions of teachers for the teaching practice and achievements - surveyS Complementary to the first part, the second part of the research includes surveys of teachers from ten primary schools in the Republic of Macedonia intended to determine their practice and views on different aspects important for the teaching process quality.

Surveys were conducted with teachers in ten primary schools in the Republic of Macedonia, from four regions: Southeast, Vardar, West and Skopje region, both urban and rural. The surveys were conducted in March 2017. (School details are provided in Table no.

1).

Table 1. Schools covered in the field analysis School type

Number of respondents

School

rural

26

“Simche Nastevski” PS - Vratnica

urban

29

“Lirija” PS - Tetovo

rural

20

“Kliment Ohridski” PS - Drachevo

urban

28

“Zhivko Brajkovski” PS - Skopje

urban

23

“Metodi Mitevski - Brico” PS - Lozovo

rural

41

“Tode Hadji Tefov” PS - Kavadarci

urban

18

“J.A.Komenski” PS - Skopje

rural

15

“Avram Pisevski” PS - Bardovci

urban

22

“Vidoe Podgorec” PS - Strumica

rural

26

“Geras Cunev” PS - v. Prosenikovo

Total:

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A total of 248 respondents were covered, 202 of them were female and 45 male. One of the respondents has not filled in the gender field. 37 of the respondents are between the ages of 22 and 34 years, 114 are between the ages of 35 and 49 years, and 80 of the respondents are over 50 years old. 86 percent of the respondents have completed higher education, 10 percent have postgraduate education, and four percent have an associate degree. Regarding the years of work experience in the profession, 39 percent have 0 to 10 years of work experience, 28 percent have 11 to 20 years of work experience, 19.5 percent have 21 to 30 years, 13 percent have 31 to 40 years, and 0.5 percent has over 40 years of work experience in the profession. The sample covers 1.4 percent of the total number of teachers in the regular primary schools2, and has a relatively high degree of statistical error (+/- 6). Hence, in the sample formation, attention was paid to make it diverse in terms of the demographic characteristics of respondents, and characteristics of the school where they work (regarding the location, but also socio-economic and ethnic structure of students).

Questionnaire The questionnaire included fourteen questions, which were divided into sub-questions in four areas. Respondents answered by level of agreement (strongly agree - strongly disagree), frequency (every hour, two or three times a week, once a week, less than once a week, never), and level of satisfaction (very satisfied, partially satisfied, and very unsatisfied).

In the preparation of questionnaires for teachers, some of the questions were developed for the needs of the specific study, but also questions from previously used international studies were adjusted (The Study of Instructional Improvement (University of Michigan, 2001); OECD Teaching and Learning International Survey (TALIS) (OECD, 2013); PIRLS Teacher Questionnaire (IEA, 2006), PISA 2015 Teacher Questionnaire (OECD, 2016).

2

17,887 in 2016/17 (State Statistical Office, Education and Science: key indicators) 110

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Table 2. Structure of the questionnaire for teachers (Appendix 1) Categories of questions

Area

Methods / techniques applied in the classes

Teaching

Instruments for assessing student achievement Curricula Textbooks Additional and supplementary instruction Time spent in one school class Time spent during a typical school week Aspects from the work of a teacher

Profession / school

Teaching profession Decision making and effects of the decisions / reforms Participation in professional development trainings Work appraisal Teaching and learning

Students

Co-operation with parents

Co-operation with parents and with the community

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Analysis of student perceptions of the teaching quality The third part of this research covered twelve focus groups carried out in the selected schools with 8 to 10 students from the ninth grade. In the selection of students, attention was paid to the gender and ethnic balance and to the balance of students from urban and rural areas. Two of the focus groups were conducted in Albanian language, and the others in Macedonian language. (See question in Appendix 2.)

Analysis Analysis of 2015 pisa results This part of the text explains the findings from the regression equations on the factors impacting student achievement in the PISA testing in different countries. In addition, there is a separate presentation of the results of the five highest-performing countries, the five lowest-performing countries and of the Republic of Macedonia.

The main focus of PISA in 2015 was to determine the competencies in the domain of science literacy. That is the reason why the regression equations included student achievements in the domain of science literacy and specific indices obtained through noncognitive questionnaires. Also, the regression equations included student achievement in the field of science as a dependent variable and various composite indices relating to different aspects of the educational process as independent variables.

The indices are also part of the publicly available data on the PISA testing. The analysis included numerous indices in order to get a comprehensive picture of the factors relating to student achievement. However, only those indices concerning the teaching process and certain students’ views were included, with the purpose of obtaining an insight into the parameters that could be influenced systematically in the education system in order to improve student competencies in the domain of science literacy. Previous studies indicate that the achievements in the three domains are correlated (Guzel and Berberoglu, 2005), so a systematic approach to changes in the education system would have an impact on all types of competencies investigated by PISA, even though the focus of the analysis is only on science literacy.

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For the Republic of Macedonia, a separate regression equation was also developed to find what factors have a statistically significant connection to student achievement in science literacy. This regression equation does not include all parameters either because some of the parameters are not available for the Republic of Macedonia or some of the questions were not posed or answered in the country.

Table 3 shows the results obtained from the three regression equations. The table notes whether a given parameter has a statistically significant connection to student achievement for each regression equation separately so as to get a comparative overview of the factors. The regression analysis for the five lowest-performing countries explains 44.8 percent of the variability of the dependent variable (R2=0.448) and is statistically significant (F=1258, p=0.00). For the five highest-performing countries, the model explains 38.6 percent of the variance (R2=0.386) and is statistically significant (F=16299, p=0.00). The regression equation for the Republic of Macedonia is statistically significant (F=329.466, p=0.00) and explains 30.4 percent (R2=0.304) of the variance. For all three regression equations there is a large portion of the variance that is not explained by the relevant regression equations. This is primarily due to the fact that PISA includes numerous questions and indices and data from different sources. This research includes only students’ answers, and many of the questions are not answered in all countries.

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Table 3. Results from the regression equations (dependent variable - student achievements in the domain of science) Republic of

Factors

Macedonia

Five lowest-

Five highest-

performing

performing

countries

countries

Discipline in class

+ (β.045***)

+ (.095***)

+ (.172***)

Teacher support

- (-.026***)

- ( -.085***)

- (-.104***)

Enquiry-based approach to lessons

- (-.088***)

- ( -.148***)

- (-.054***)

Good instruction by the teacher

+ (.064***)

+ ( .068***)

+ (.028***)

+ (.038***)

insignificant

+ (.154***)

not available

insignificant

+ (.042***)

- (-.085***)

- ( .111***)

- (-.058***)

+ (.110***)

+ ( .060***)

+ (.121***)

+ (.057***)

+ ( .070***)

- (-.015***)

not available

- ( -.040***)

+( .019***)

+ (.278***)

+ (.227***)

+ (.118***)

not available

- (-.187***)

- (-.064***)

Self-efficacy in science

+ (.115***)

+ (.107***)

+ (.009***)

Epistemic beliefs

+ (.119***)

+ (119***)

+ (.212***)

ICT availability at school

not available

- (-.027***)

- (-.017***)

ICT availability at home

not available

- (.083***)

- (-.034***)

ICT use outside of school for school-related tasks

not available

+ (.012**)

+ (.078***)

ICT use outside of school for entertainment

not available

+ (.0.90***)

- (-.045***)

not available

- (-.136***)

- (-.020***)

Time spent studying outside of school

not available

+ (.038***)

- (-.034***)

Time spent studying science (total weekly)

not available

- (.027***)

+ (.145***)

Material well-being

- (-.024**)

+ (.237***)

- (-.214***)

Socio-economic status

+ (.172***)

+ (.125***)

+ (.214***)

Sex (male)

insignificant

+ (.077***)

+ (.062***)

Intrinsic motivation (enjoyment of learning science) Interest in scientific knowledge Instrumental motivation (science courses as a means for future achievement) Expectations for future profession related to science Subjective feeling of well-being Achievement motivation Awareness of the environment Environmental optimism

Participating in out-of-school science-related activities

** level of significance 0.05 *** level of significance 0.01 114

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The results show that there are differences in the connection of different factors with PISA achievements in different countries. The first set of factors investigated is related to the manner of organising the lessons and the teacher’s approach to students. This set indicates that, in all three cases, the discipline in class and teachers’ manner of instruction are positively related to student achievement. This means that when students feel that during science classes students are listening to the teacher without making noise, they quickly start working and work without interruptions, they have a higher score. Also, students with higher scores mention that their teachers teach well, which means that they are capable of explaining scientific ideas well; they answer students’ questions; they have discussions during classes and demonstrate how things function. These findings are in line with the findings from previous surveys (OECD 2016b).

The teacher support and enquiry-based approach to mastering science material are negatively linked to student achievement. Specifically, students who perceived that, in the teaching process, teachers very often provide individualised support to students in mastering the material have lower score. These findings are partially in line with previous surveys indicating that the socio-economic status is an important variable moderating the relationship between perception of support and score. Namely, the relationship of individualised support is positive in students with lower socio-economic status, primarily because these students need additional assistance since the likelihood of receiving that assistance outside of school is small (OECD 2016b). In fact, these findings indicate that there should be a close investigation of the relationship between the type of support provided by teachers and student achievement, and of specific demographic variables for each country separately.

Also, in those situations where teachers use an enquiry-based approach more often, for instance, experiments in classes and allowing students to draw conclusions by themselves, to design experiments and debate on the results, students get lower score / results. This is also in line with previous research (OECD 2016b). In interpreting the results, it should be taken into account that this index covers several different activities. Within the index, not all activities are equally associated with PISA results. Therefore, the highest negative association, according to previous surveys, is of the activities covering laboratory work and designing experiments, while activities such as discussions and explanations may also have a positive association (OECD 2016b). In other words, use of specific activities in the teaching process, for instance, laboratory experiments without adequately explaining the cause-and-effect relationship in the experiment and stimulating critical discussion on that 115

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topic may negatively affect the readiness of students to use science knowledge. This means that for enquiry-based learning to have a positive impact, teachers have to be well prepared and skilled in “manipulating ideas as well as objects” (OECD, 2016b). Teachers have to be prepared for designing different well-structured teaching methods, techniques and activities with a view to stimulating discussions, explanations and critical thinking in students.

The PISA testing also included questions related to different student views, interests and motivations. One of the important aspects in the education system is stimulating and fostering motivation and interest in students about different areas. Namely, student motivation is linked to their achievement, and may be stimulated or decreased through methods and techniques used in the teaching process, and through different school activities (Hampden-Thomson and Bennett, 2013; Logan and Skamp, 2013).

The findings also show that those students who indicated they would like to pursue a science-related career have higher results than other students who expect to have a different profession. Also, those students who stated that learning science is only a means for attaining other objectives (instrumental motivation), for instance a good career, have lower scores. In addition, intrinsic motivation in students from countries with the best results and in Macedonia is positively associated with student achievement, while in the countries with the lowest results it has no impact on achievement. What is important for the Republic of Macedonia in this domain is that other studies indicate that, unlike other countries, in Macedonia, girls show a higher intrinsic motivation than boys (OECD 2016а).

Achievement motivation, that is, motivation for continuous improvement and achieving better results is positively associated with student achievement in the five top-performing countries and is negatively associated with the results of students from the five lowestperforming countries. For the most part, achievement motivation is associated with better results. Nevertheless, studies indicate that, in specific circumstances, students who have high level of achievement motivation may feel greater pressure to succeed, which may inhibit their achievement because students have too many doubts and fail to make a decision, and on the other hand, they feel greater test anxiety. For instance, in the Dominican Republic, which is one of the countries with the lowest score in PISA, whole 90 percent of students have high achievement motivation, but also 65 percent have high anxiety level even when they believe they have mastered the material, which may have a negative effect on the performance (OECD, 2017).

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Interest in broad science topics, such as biosphere, disease prevention, motion and forces, universe and its history etc., is positively associated with student achievement in the five highest-performing countries and is not related to the PISA results of the five lowest-performing countries.

The findings also show that epistemic beliefs and feeling of self-efficacy in science learning are positively associated with student achievement. Epistemic beliefs refer to understanding the process of scientific enquiry and discovering science knowledge, and also changing science knowledge over time (OECD 2016c). Self-efficacy refers to students’ belief that they have well-developed abilities to use their science knowledge in everyday situations and for solving problems related to science knowledge, which is particularly important for future achievements and for future success of students. The findings in this research are in line with the findings in other studies indicating that the manner in which students receive feedback may be associated with their level of self-efficacy, same as teaching methods and school activities (OECD 2016а).

As part of the general beliefs and interest of students in science knowledge and environment, PISA also evaluates the awareness of environmental issues (student interest in different topics of ecology and environmental protection) and environmental optimism (how many of the students believe that some aspects associated with environmental protection will improve over the next 20 years). Students with greater awareness of the environment have better scores, while the level of environmental optimism is negatively associated with student achievement. These findings are in line with previous studies, which also indicate that students, in general, have low levels of environmental optimism (OECD, 2015a).

The findings on ICT availability and use are interesting. Namely, ICT availability at home and at school is negatively associated with the PISA score in science. However, the picture is a bit more complicated than it seems at first glance. Namely, what is positively associated with student achievement in both highest and lowest-performing countries is the use of ICT for preparation of tasks related to the teaching process. In the highest-performing countries, the out-of-school use of ICT for entertainment purposes is negatively associated with student achievement; while in the five lowest-performing countries, the use of ICT for entertainment purposes is positively associated with student achievement. Such findings are in line with previous recommendations, which indicate the need of rational ICT use and of improving the proficiency levels for reading and mathematical literacy before focusing 117

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on ICT use (OECD, 2015b). Unfortunately, there are no data for the Republic of Macedonia as these questionnaires are optional in PISA. Regarding the time spent studying, there is a noticeable diversity. Namely, in the five highest-performing countries, time spent studying science in school has a positive impact on students’ results; and in the five lowest-performing countries, it has an adverse effect.

On the other hand, regarding the total time spent by students in mastering school tasks out of school, the impact is reverse, i.e. more time spent studying out of school leads to better results of students in the lowest-performing countries in PISA and worse results of students in the five highest-performing countries. Previous studies indicate that out-ofschool study time in many countries is of compensatory nature, i.e. it serves to master the material that was not learned during regular classes, which means that more attention should be paid to the manner of learning science at school and to the time spent learning it (OECD, 2015b).

The participation in extracurricular science-related activities is negatively associated with the PISA performance. Such results are not surprising if taken into account that other studies also indicate that time spent studying does not necessarily mean better learning quality and that sometimes students learn more efficiently from their environment. Also, findings show that different countries have different study time efficiency; thus in Finland, which is one of the five highest-performing countries, each hour spent in additional learning leads to 14.7 more points in PISA; and in the Dominican Republic, each hour leads to 6.6 more points (OECD, 2016b). This leads to the conclusion that the education system should ensure efficient use of learning time in school and of additional out-of-school learning.

Part of this research is indented to determine to what extent education systems provide equal opportunities for student achievement, regardless of their personal circumstances.

In fact, this is a vital part of the education system, since it is particularly important that education offer equal opportunities to all and the acquiring of at least basic knowledge by all students (OECD, 2016a). It is also evident from the results that students of higher socioeconomic status have better PISA score in the science domain. PISA estimates the socioeconomic status based on parents’ education, parents’ occupations, material well-being and number of textbooks and other educational resources available in the home. These findings are not surprising as students of higher socio-economic status have more possibilities to attend programmes of better quality and more science classes (OECD 118

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2016a). What is particularly important to emphasise is that the recommendations are aimed at providing equal opportunities for all students to use their capacities and talent and to allow at least a basic level of knowledge for all students (OECD 2016a). Many authors criticise the education systems for supporting divisions and inequality (Leathwood and Archer, 2004; Lucas, 2001; Oakes, Joseph and Muir, 2004) and indicate that providing adequate support to students who belong to the risk group of low-performers on different grounds will contribute to improving their chances for social mobility and raising their socio-economic status in the future (Leathwood and Archer, 2004). Results also indicate that boys have better scores than girls, except in the Republic of Macedonia where there is no significant difference in the scores of both sexes.

If the results from the regression equation for the Republic of Macedonia are considered, it can be concluded that there are parameters strongly associated with student achievement. In some cases this link is stronger, even in comparison to the highestperforming countries. Most of those links are due to students’ beliefs, views and motivation. Hence, for instance, awareness of environmental issues, i.e. students’ knowledge about the condition of the environment, has the highest association with student scores in the Republic of Macedonia, which is also the highest coefficient from the regression equation and is higher than the coefficients for the same parameter in the countries with the lowest and those with the highest scores. There is a similar situation with science self-efficacy, i.e. students’ belief that they may apply their knowledge in everyday life. In the Republic of Macedonia, there is also a high association of epistemic beliefs and expectations for building a career in the domain of science or related areas.

The association of students’ socio-economic status with their PISA results is also significant.

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Achievement in developing science literacy competencies: students from Macedonia versus the international average If Macedonian students’ scores are analysed in terms of the development level of the three science literacy competencies measured by the PISA testing, it is evident that quite a small percentage of them have correctly answered the questions assessing these competencies.

Specifically, on average, only 30 percent3 of students achieve the competency “Explaining phenomena scientifically”, which means that they are able to recognise, offer and evaluate explanations for a range of natural and technological phenomena. Internationally4, the average is 39.6 percent. Furthermore, 27 percent of students in Macedonia have achieved the competency “Evaluating and designing scientific enquiry”, which means that they are able to describe and appraise scientific investigations and propose ways of addressing questions scientifically, unlike their peers from other countries (combined) where the percentage is 36.4. Finally, one in four students (24 percent) in Macedonia achieves the competency “Interpreting data and evidence scientifically”, which refers to the ability to analyse and evaluate data, claims and arguments in a variety of representations and draw appropriate scientific conclusions, unlike the international average for achievement of the competency, which is 35.2 percent.

As a whole, all competencies of Macedonian students are significantly less developed compared to the international average (all differences are significant at a level of p<0.01) (Chart 1).

3

The percentage is extracted as an average of students having answered correctly all questions

measuring the three competencies. For instance, if there are three questions measuring competency (1), and 30 percent of the students being assessed have answered the first question correctly, 40 percent have answered the second question correctly, and 50 percent have answered the third question correctly; the average would be 40 percent.

4

This includes all countries participating in PISA 2015.

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In PISAâ&#x20AC;&#x2122;s analytical framework, competencies refer to the existence of specific type of knowledge, i.e. understanding of facts, concepts and theories, which are the basis for scientific knowledge. Such knowledge includes (1) knowledge of both the natural world and technological artefacts (content knowledge), (2) knowledge of how scientific ideas are produced (procedural knowledge), (3) and an understanding of the underlying rationale for the scientific procedures and the justification for their use (epistemic knowledge).

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The proficiency level in specific knowledge types follows the development of the three levels of competencies and refers to the tendency to achieve knowledge that is required by the PISA testing from every fourth student in Macedonia. Even though content knowledge (theories, ideas, information, facts) is the most stimulated one by the Macedonian education system, nevertheless, it is developed in only 30 percent of students.

Procedural knowledge (how specific knowledge is produced) is developed in 27.4 percent of students, while the level of epistemic knowledge (understanding of the nature and origin of knowledge) is achieved by only 22.8 percent of students. Compared to the international average, a significantly lower number of students from Macedonia have acquired all three levels of knowledge comprising science literacy (all differences are significant at a level of p<0.01). (Chart 2)

Results from the field survey The following section presents the results from the field survey intended for examining specific aspects from the teaching process, which, according to the findings from the data analysis of the PISA testing, are significantly associated with student achievement. This, primarily, refers to the teaching (and assessment) methods, use of ICT in the teaching process, discipline in class, student motivation, learning time, teachersâ&#x20AC;&#x2122; perception about their profession and co-operation with different factors in the educational process.

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1. Views about the teaching process According to the data analyses of the PISA surveys, an important aspect associated with student achievement5 is the work method in classes, specifically, methods of teaching / learning and monitoring the progress / grading. As a result, these aspects will be given particular attention in the analysis below. In addition, both the views of teachers and students will be analysed concerning the curricula and textbooks used in the teaching practice, as elements inextricably associated with the teaching process.

1.1. Application of different teaching methods and techniques In the last 20 years, various initiatives were implemented to modernise the teaching methods, although it took some time before they became an integral part of the official state policy. The first step was made through the indicators for schools’ work quality, which are used by the State Educational Inspectorate during the integral evaluation of schools, where teachers are required to “use different teaching forms and methods”, and “wellplanned and appropriate active methods for working with students on an individual basis, in small groups or with the whole class”. In addition, teachers are required to use “ICT and new educational technologies in the teaching process”. (SEI, 2009) However, answers by teachers-respondents in the survey indicate that oral lecture is still predominant in the classes, i.e. 75 percent of teachers practice this method in every class.

According to the results of the regression analysis, this method may be effective, if properly applied, i.e. provided the teacher is able through the lecture to explain the contents well, to connect them to real life and thus arouse students’ interest. The next most frequently used method is work in groups / pairs, which is practiced by more than 90 of teachers at least once a week. According to the answers of more than half of the teachers, discussions / debates and enquiry-based activities are also practiced at least once a week. (Chart 3)

5

In addition to the time spent teaching science 123

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In order to determine how many teachers use teaching methods which require greater engagement and critical thinking by students, we created a composite index variable called “methods for critical thinking, creativity and enquiry” 6, which includes teaching methods that require active and logical thinking by students and thinking directed towards problem solving, namely: discussions and debates, problem solving, enquiry on a given topic, simulations, jigsaw and crossword puzzles, schemes and maps, and quizzes. The variables which are part of this composite variable have a positive correlation between them. Also, the Cronbach’s alpha coefficient, which refers to the internal consistency of variables, and is over 0.7, is a conventional standard. In the case of our composite variable, “methods for critical thinking, creativity and enquiry”, Cronbach’s alpha is 0.741.

Regarding the use of teaching methods and manners of assessment, there is a positive relation between the application of “methods for critical thinking, creativity and enquiry” and all types of assessment: maintaining a portfolio of students, keeping notes, selfassessment, peer assessment, tests, oral examination, essay questions and project assignments. Hence, we can conclude that the manner in which teachers decide to assess students is not overriding in the selection of teaching methods. Nevertheless, the strongest

6

Later in the text, the composite variable is also referred to as “modern teaching methods” 124

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relation is between the use of modern teaching methods and the use of peer assessment as a grading method (r=0.297, p=0.00).7 This relation is expected, given that teachers use methods in which students have to think logically and adopt a critical approach to problems presented; and, at the same time, we would like them to encourage students to apply the principles of critical thinking by evaluating the work of their classmates.

School location (rural or urban) has no effects over the type of teaching methods that are being used, which is a positive indicator signalling that teachers from rural schools do not fall behind with respect to the application of modern teaching methods. The teacher type, on the other hand, is strongly associated with the methods applied by teachers during the lessons. Namely, class teachers, unlike subject teachers, use critical teaching methods more often. This is somewhat expected given that class teachers receive significantly more pedagogical and methodological education during their formal education.

Most of the students participating in focus groups confirmed they have experience with different teaching methods and techniques, although there is prevalent view that the traditional methods are dominant (teacher gives a lecture, while student are passive listeners). The least applied methods are the following: conducting experiments, simulations / role play, and quizzes (to a certain extent), while discussions and watching videos are used more often. (“We had inter-class games once; we learned grammar through a quiz. We asked for more activities of this type, but they never repeated it”.)

Student answers indicate several aspects that make the teaching process interesting and, at the same time, provide for better mastering of contents: (1) having a friendly relationship with the teacher that allows them to comment / ask questions during classes, and the teacher adequately answering them; (2) teacher’s engagement in transferring contents in a clear, interesting and provocative manner; (3) use of modern teaching methods and techniques (enquiry / experiments/ working in groups, quizzes). (“On those [note: interesting] classes, students have the possibility to pose questions and the teacher is always ready and willing to answer”).

This indicator shows that two variables are related, or that when there is change in one of the variables, there is also a change in the other variable. The higher the coefficient, the greater the covariance between variables is. To interpret this coefficient, it has to be statistically significant, which can be seen from the p value that should be p < .05.

7

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On the other hand, classes perceived as boring are characterised by: (1) predominance of the teacher during the class and students’ lack of freedom to pose questions / comments; (2) insufficient explanation of contents, which leads to students having difficulties in following and mastering contents. What is worrisome is that such classes are perceived as more common. If this data is analysed in the context of factors indicated by the regression analysis as significant for student achievement, it suggests that, for the most part, students are not working in conditions associated with high performance.

Some of the students said that communication depends on the teacher’s disposition, i.e. on his/her mood. According to student statements, some teachers are not sufficiently concerned to answer additional questions. Moreover, students may even be criticised if they ask for clarification of something that is not clear to them. In one school, students mentioned: “…sometimes they even insult us that we are not smart if we are asking that question”; thus students realised that questions concerning further clarification of some aspects from the material are not welcome, which discourages them from posing questions if something is not clear to them in the future. Because of teachers’ critical attitude towards students posing additional questions, very often, when the teacher asks if there is anything unclear, the majority of students do not dare pose a question, or they simply answer that everything is clear (“Some professors do not include us during the lesson at all, except in the end of the lesson when they ask if we have any questions, which we never do”.). However, students agree that the communication problem is not general and refers only to some teachers.

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1.2. Application of different methods and techniques of assessment In the last decade, the education policy makers increasingly focused on continuous monitoring of student progress (SEI, 2009) and on the use of diverse methods, including techniques for so-called formative assessment or “assessment for learning”. (BDE, 2015) Results from the teacher survey indicate that they use different methods for monitoring and assessment of the achievements, but the most commonly used technique is oral examination, which is applied by 77 percent of teachers in every class. In addition, almost all teachers stated that they practice keeping notes on student achievement; most of them do that in every class, or at least two or three times per week. These data indicate the tendency of using methods intended for continuous monitoring of achievements, which is in line with the recommendations on effective teaching. (Chart 4)

The use of methods requiring critical reflection by students (self-assessment, peer assessment of students) is less common, which is in compliance with the data on rarer use of methods stimulating critical and creative thinking. When conducting written evaluation of knowledge, teachers more often use tests compared to essay questions. Teachers use project assignments less than once a month, which is understandable given that they require more time to be implemented.

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Student answers confirm that teachers usually assess them by posing oral questions or in writing through tests, while the methods of self-assessment and peer assessment are used less often, and only one school mentioned that in the self-assessment process students are governed by criteria set by the teacher.

Regarding what is required for students to know, most of them agree that, in the assessment, teachers usually demand memorising and reproduction of data or definitions as they are presented in the textbook, while the personal opinion of the student or paraphrasing of information are required much less often. (“Some professors require writing only according to their method, for instance, the mathematics professor accepts that a mathematical task is solved only if it is done through his method, even though, for instance, there are two methods to solve that task.”; “The tests never require of us to apply any knowledge, that is, to apply what we have learned by solving some problem from our everyday life, some case, etc. We are required to answer in the same way as it is written in the book and as presented by the teacher”.) Such data is discouraging, particularly given that students will learn in the same way as they will be assessed. Therefore, the application of modern teaching methods that stimulate higher thinking processes is insufficient per se if not accompanied by assessment methods of higher thinking processes.

Small number of student statements report assessment methods that deviate from said model. However, they would also single out teachers who in the assessment process require higher levels of understanding of the material. (“In biology we have the most creative tests (with tables, drawings, by circling, pictures, true / false)..., and we need to explain an experiment that we have conducted in class; in physics there is something similar, that is, we need to explains a specific experiment”.)

What is characteristic is that the majority of students agree that their knowledge is not the only criterion in which they are assessed. In their opinion, (1) discipline in class often has an impact on grades (“it may happen that sometimes I am not disciplined, and even though I get an ‘A’ on the test, I receive a lower grade”; “discipline is more important to teachers than the level of our knowledge”), and the same is true of (2) grades in previous years, (3) grades in other subjects, (4) results from external testing, but also (5) parents, their position and political affiliation. The mentioning of these factors as influential in grade formation is particularly problematic given that grades should be based only on the proficiency level of the curriculum objectives for a specific subject. Other aspects such as discipline, student motivation etc. can be graded through the assessment of students’ behaviour.

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1.3. Views on curricula The Law on Primary Education prescribes that “the curricula shall define the teaching objectives, contents, basic terms, activities and methods in the teaching process, assessment of student achievement, and conditions for implementation of the curriculum and teaching staff norms”. (“Official Gazette of RM” No.103/08) Given that teachers are obliged to conduct their teaching in accordance with the guidelines stipulated in the curricula, it is particularly important that they consider these curricula as appropriate.

Teachers-respondents in the survey broadly agree about the objectives defined in the curricula, and show a tendency to agree in the view that objectives are clearly defined.

There is a partial agreement concerning the curriculum appropriateness to student age, potential to stimulate the development of personal and social competencies, and its systematic and gradual processing of contents. (Chart 5)

* Note: The chart shows the mean values from teacher answers to questions in a fourpoint scale (1 - strongly disagree; 4 - strongly agree) However, despite the positively indicated aspects of curricula, the majority of teachers agree that they are too extensive, and only 20 percent strongly disagree with that view.

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What is interesting about teachers who think that the curricula are too extensive is that they believe to a greater extent that there are no clear objectives (r= -.0.152; p=0.02), which opens the question whether a comprehensive curriculum is necessary for achievement of set teaching objectives. Another aspect requiring attention is the adjustment of curricula to students with different educational needs, since the majority of teachers believe that they are not adjusted or that they are only partially adjusted.

Regarding desired changes in the curricula, students-respondents said that they would like to be able to select curriculum subjects according to their own interest, i.e. subjects they want to learn, such as: programming, graphic design, medicine, life skills, drama classes, etc. (“I do not like the subjects that we currently have as elective. I think that they need to introduce new ones”.) Also, students would like for more practical lessons, experiments, more excursions, organised trips and visits to sites, museums, theatres, companies etc.

1.4. Views about the textbooks used in the teaching process The answers of teachers - respondents in the survey concerning the quality of the textbooks they use are partially aligned with views expressed about the curricula.

Specifically, there is a moderate tendency to agree with the claims that textbooks are written in a clear manner; that they stimulate critical thinking; that they use questions / exercises promoting enquiry. At the same time, there is also a tendency to agree with the claim that textbooks are too extensive, i.e. burdened with facts. Teachers are most critical concerning the potential of textbook adjustment to students with different educational needs. (Chart 6)

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* Note: The chart shows the mean values from teacher answers to questions in a fourpoint scale (1 - strongly disagree; 4 - strongly agree) Although the general conclusion would be that teachers are partially satisfied with the textbooks they use, there are differences depending on the type of teaching. According to the independent t-test between two groups, class and subject teachers have different views on whether textbooks are written in a clear and comprehensible manner and whether textbooks are overburdened with facts.8 Specifically - class teachers are more critical concerning the manner in which textbooks are written and their overburdening with facts, probably because they work with younger students for whom the textbook is a particularly important medium for mastering contents.

From the student focus group discussions, it can be concluded that they prefer textbooks that (1) are written in a nice /comprehensible manner, that contain (2) pictures, (3) examples, (4) interesting tasks, and (5) that emphasise the important parts. On the other hand, students view as inadequate those textbooks that (1) lack sufficient information, but also those that (2), in their opinion, contain too much unnecessary information, (3) contain too many unfamiliar words / phrases, and (4) have contents (e.g. experiments) that cannot be applied during the classes.

8

Clear textbooks: class (М=2.24, SD=0.786), subject (М=2.62, SD=0.869); Overburdened with facts:

class (М=2.81, SD=0.848) subject (М=2.14, SD=0.985).

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What is characteristic is that students from different schools have opposing views on the same textbooks. For instance, regarding science textbooks (in accordance with the “Cambridge” programme), many students are critical and stress that: “The new ‘Cambridge’ textbooks are incomprehensible”.

“The lessons are too short and have too little data”.

“They contain only texts, no formulas”.

However, for other students, these textbooks are among the better ones: “The most interesting textbook is the one for physics. It has many experiments, pictures, texts with explanations below the pictures. Also, the biology textbook has drawings, pictures.”

“We learn the most from the physics and biology textbooks because they contain experiments and are very illustrative. That is knowledge that remains forever, I memorised it visually, unlike what I learn by heart that is only momentary knowledge. After the text I quickly forget it”.

The same applies to other textbooks such as the history textbook, which is mentioned by students in one school as a good textbook because “it has a lot of information, and a lot can be learned from it”, whereas in another school the same textbook is pointed out as inadequate because “the lessons are too long, they continue for three or four pages, and they are difficult to remember as there are too many facts and data”.

The fact that there are different views on the same textbooks, apart from the fact that it probably depends on students’ personal interests, also suggests that, probably, the teacher is the key medium who “serves” and adjusts textbook contents to students. This conclusion is also reflected in the words of one female student whose favourite subject is biology “because the teacher explains well the material and it is easier for us to understand”.

However, the findings that there are opposing views about some textbooks also indicate that there is a need of an additional analysis of the quality of textbooks used, and of the manner in which different teachers bring textbook contents closer to students.

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2. Use of ICT in the teaching process One of the main factors that seem important in relation to student achievement is the frequency and ways of using ICT in the teaching process. Therefore, one policy intended to increase the use of ICT in the teaching process in Macedonia was the measure for using ICT in the teaching practice in 33 percent of classes; and the project “Computer for Every Child” was implemented to that end. However, these two types of policies are not necessarily complementary given that the number of computers per student as an indicator is usually negatively associated with student achievement (OECDb). This means that ICT availability, per se, does also mean appropriate use of this technology for attaining the curriculum objectives, which is also confirmed by the regression analysis results.

Teacher answers leave the impression that most of them (80 percent) use ICT at least once a week. However, the frequency of ICT use is not associated with the school’s technical equipment satisfaction. Therefore, given that more than a half of the teachers (62.5 percent) are only partially satisfied with the technical equipment of their schools, while 15.7 percent are not at all satisfied, a dilemma arises as to how they conduct one third of the classes by using ICT. Students’ answers give a different picture concerning the use of ICT in the teaching process and bring into question teachers’ answers relating to the use of ICT in their lessons.

Nevertheless, there are great differences depending on the school where students come from.9 In a small number of schools, students indicate that they frequently use computers (one to three times a week), particularly in specific subjects (usually - science), students research contents on the Internet, make presentations, do exercises from specific web pages etc. On the other hand, in a larger percentage of surveyed schools, computers are almost not used in any way in the teaching and learning process, except for conducting the external testing. Students indicate that computers are broken and there is not a sufficient number of functional computers to be used on classes, except in the computer science class. (“We do not have enough computers. Those we have are broken, and when something malfunctions, we are required to pay the damage:”; “Computers are fixed only before the external testing and then they are down again”.)

9

Not related to the type of school - urban or rural.

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Although schools have different practice concerning the frequency and way of using ICT, students are unanimously expressing the need of ICT use in the teaching process. When asked about the characteristics of their ideal school, inter alia, students said they would like to learn in schools with modern equipment, classrooms and cabinets with technology, computers, smart boards, and LCD-projectors.

3. Views on the discipline in class All examinations included in PISA results refer to the fact that discipline in class has a particularly strong association with student achievement. Although it is complex to determine this element of the teaching process through indirect methods (selfassessment), it was nevertheless checked through some of the questions.

Teachers, in general, perceive discipline as a necessary element in the teaching process by expressing strong agreement regarding the view that “quiet atmosphere in the classroom is necessary for effective learning” (77.4 percent agree). Personal assessments of teachers concerning the time during classes used for maintaining discipline indicates that a relatively small portion of the class is spent for this purpose. Specifically, on average, 11 percent (or four minutes) of the class duration is used for maintaining discipline, 13 percent for administrative work, while the largest portion of the class (73 percent on average) is used for conducting the teaching process. Class teachers spend more time maintaining discipline in the classroom compared to subject teachers10, whereas the latter dedicate more time instructing and working on the material. These results were expected having regard to greater scope of contents to be adopted in subject teaching. However, what could be further investigated is whether students in the subject teaching are more disciplined than those in class teaching or, because the material in the subject teaching process is more extensive, teachers do not have that much time to spend maintaining discipline.

What is somewhat surprising is that, despite the importance that teachers place to discipline, the majority of them mentioned that parents are not very interested in student discipline (68 percent disagree or partially agree with the view that “parents are very interested in student discipline”).

10

Class teachers (М =11.6, SD=99), subject teachers (M = 9.2, SD=8.7), t=1.892, p=0.06 134

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Students, in general, agree with teachers that they are able to learn a lot better on those classes where there is discipline, order, peace and quiet. (“If there is peace and quiet in the classroom, it is easier to learn the material and to remember the lesson”.) However, they believe that discipline does not depend on students only, but also on teachers, who should be able to make the lessons interesting so that students are disciplined in class (“Classes should be interesting, we should conduct more experiments, tests, so that we are disciplined”).

According to the students, the classes with the highest discipline are those of the stricter teachers (“We fear those teachers because they are stricter, and so we are much more disciplined on those classes”.). On the other hand, the least disciplined are those classes held by younger, more inexperienced and more lenient teachers.

4. Views on learning motivation Learning motivation (specifically, orientation towards objectives for learning and intrinsic motivation), according to different surveys, has been identified as one of the most significant factors associated with high performance (Covington, 2000). However, teachers often feel insufficiently ready and trained in techniques for stimulating student motivation.

In addition, teachers believe they lack parents’ support in stimulating intrinsic motivation in students given that the majority of them (almost 70 percent) think that “parents attach more importance to grades than to students’ knowledge”.

This reinforces student answers indicating the predominance of instrumental learning motivation. Specifically, they are primarily motivated to get high grades as an instrument for attaining other goals such as responding to parents’ pressures and to the desire of making their parents happy and proud, but also for enrolment in secondary school.

“Pressured” by the demands for high grades by their teachers and parents, students do not have much room to focus on knowledge per se, although they are aware of its importance. (“We are aware that knowledge is more important than grades, but my parents care about the grade, and so that matters to me too”. ) However, students are aware that expecting them to have high grades in all subjects is unrealistic because they are not interested in each and every subject; hence, they lack intrinsic motivation to dedicate themselves to each subject equally. (“Our parents force us 135

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to study, that is why. But it is really difficult for me to get straight ‘As’ because I do not find all subjects interesting”.)

Given such parents’ expectations, it comes as no surprise that the majority of surveyed students indicated they study for grades (“Rarely does someone study because that is interesting; the ambitious and curious students are very rare.”), which makes them quickly forget what they have learned (“I study so that I get the best grade possible, but I quickly forget the things I have learned”.).

Students indicating that knowledge per se is also important for them and not grades only are rare (“I want to learn for myself, to have knowledge, but I also want to have good grades”.).

Some of the students emphasised that they study for knowledge only if the subject, or the curriculum material is particularly interesting, which incites their intrinsic motivation (“There has to be something that really attracts you to make you study for knowledge”.). Given that, according to the regression analysis, students in Macedonia expressing a lower level of intrinsic motivation are those who achieved lower results in PISA 2015, the generally low level of this type of motivation in students is not surprising. However, this should be worrisome, especially in the context of the new educational trends emphasising the need for schools to develop a motivation for lifelong learning.

In addition, appropriate and proactive communication between teachers and students is an important factor in stimulating interest and student motivation to actively participate in classes, to be motivated to improve their knowledge and proficiency. Namely, as an additional factor impacting motivation, students also emphasised the manner in which the teacher instructs and believe that the teacher can have an important role in their motivation to study, even in those cases where the curriculum subject is not particularly interesting to them (“Sometimes the subject may be good, but the teacher not”.).

On the other hand, teachers’ answers show that the use of traditional teaching methods is predominant: oral lectures, homework, and examination for the material learned. There is a much smaller percentage of methods departing from the traditional frameworks and stimulating a critical approach and creative activity in students, such as simulations, quizzes, debates etc.

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grades from the sixth grade, and they insult these students before the entire class. But, also, a large portion of students mentioned that there are teachers motivated to help them, whom they can always ask if there is anything unclear or if they have some difficulties with the material. “With most teachers I can openly say if something is not clear to me or if there is something I cannot understand...”, was reported by one female student.

When asked about their vision of the ideal school, students emphasised they want to have teachers who will be more friendly to them, with whom they could communicate more easily and more freely and will be able to confide in them, and students believe that in this way they will be more motivated to study.

5. Views on the time spent studying and the help / support in studying The analysis of factors impacting the achievement in PISA testing indicated that time spent studying in the lowest-performing countries is positively associated with the scores. In Macedonia, the Bureau for Development of Education has developed Guidelines for Homework, according to which “recommended minutes per day for completing homework vis-à-vis student age are: first period 10-30 minutes, second period 30-90 minutes, third period 50-120 minutes. Hence, time for doing homework shall not last more than one hour in class teaching, and one to two hours in subject teaching.” (BDE, 2013) Student answers relating to the time spent studying at home (including homework) indicate that there are vast individual differences between them, from students who do not study on a daily basis at all, to students spending three hours studying per day.

However, in general, the typical time spent doing homework is 60-90 minutes per day, which is in line with the recommendations of BDE. But, students emphasise that in days before testing or written assignments, they might spend one hour to a whole night (three-four hours) studying. The time depends on the type of knowledge assessment. (“If we have essay questions that the teacher announced or told them to us, we study around 1.5 to 2 hours.”; “If we are not told the questions, and we need to learn entire lessons, then we study around three to four hours.”).

Given that a significant portion of students have difficulties mastering the material, they first seek help from teachers, but when they cannot get it, they usually turn to members of the family who could help them. However, generally, they agree that not all parents are 137

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ready to help them in the studying because there are contents that not even the parents know. (“It depends on the subject. They cannot help in all subjects”.). Consequently, for specific subjects (usually mathematics and science) some students also hire tutors / attend private classes. (“We cannot understand everything in class, for instance, in physics I have to attend private classes so I can understand the lesson - I do not sufficiently get it in school”.)

Since, according to the analyses on the association between time spent studying and achievement, out-of-school study time is considered as a compensation for what is not learned at school, it can be concluded that a significant portion of students fail to adopt the science course content during regular classes. Therefore, regular and appropriate practice of additional instruction and different forms of student tutoring is particularly important.

However, although MES has developed a Programme for Tutoring in Primary Education (MES, 2016) according to which students may be hired as tutors of students needing free additional lessons, the application of this practice was not mentioned by students. Only one of the schools mentioned that the teacher hires students who have more knowledge to help those experiencing difficulties.

For students that cannot master the material during classes, the Law on Primary Education provides for additional instruction to be organised “for students showing continuously poor results in the studying”. (“Official Gazette of RM” No.103/08, Article 27). On the other hand, supplementary instruction “is organised for students achieving significant results in individual subjects (talented students). The teacher is obliged to offer supplementary instruction (...) to students, and students decide whether they will attend the supplementary instruction”. (“Official Gazette of RM” No. 103/08, Article 28) The State Educational Inspectorate, among other indicators, assesses the level of planning and implementation of the additional and supplementary instruction by teachers. (SEI/MES, 2009) The teachers’ survey indicates that they are almost unanimous concerning the importance of the additional and supplementary instruction. Namely, the majority confirm that “supplementary instruction enables the development of student potential” and “supplementary instruction refers to the use of additional literature”. Regarding additional instruction, the majority agree that “it is adjusted to student needs” and that “it helps in improving their achievement”. A slightly smaller number of teachers agree with the claim 138

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that “additional instruction stimulates interest in the subject”, which suggest that although the implementation of additional instruction is expected to increase achievement, it is not expected to increase student motivation.

Students have experience in both types of instruction, although more in additional instruction. However, the implementation mostly varies depending on the school from which they come. The majority report that additional instruction is conducted once a month, and only students from one school reported that this type of instruction is conducted once or twice a week. It is sometimes conducted at the request of students, and sometimes at the request of teachers. These classes are used for (1) repeating the lesson; (2) for further explanation of some aspects from the regular class; (3) for allowing teachers to “further examine” students; and (4) for correcting grades. However, not all teachers apply this form of instruction and some even avoid it.

6. Views on teacher co-operation and professional development The need of continuous professional development of teachers is an already recognised fact by our educational institutions as well. The imperative that teachers should undergo professional development is also prescribed in the Law on Teachers (“Official Gazette of RM” No.127/16; Article 19, Article 21). Therefore, in the last decade, the competent educational institutions - MES and BDE (co)organised many trainings for professional development of teachers and for improvement of their competencies.

Consequently, it was not surprising that from the teachers surveyed, 81 percent reported they attended trainings / workshops for a particular subject or for teaching methods and techniques, or on topics relating to education in the last three years. There are also a considerable percentage of teachers (40 percent) who attended qualification programmes (postgraduate or doctoral) and participated in conferences or seminars related to topics and issues from the area of education (39 percent). As regards the methods allowing for more practical ways of professional co-operation and exchange of experience, every third teacher reported being involved in professional networks, but a relatively small share participated in study visits to other schools (12.6) or mentorship (21 percent).

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variables indicates that there is a positive relationship between attending trainings and using this type of methods in the teaching process (r=0.185, p=0.003), which suggests that competencies acquired at trainings are applied in teachers’ everyday practice. However, the findings should also be evaluated by other methods, since it is possible that teachers who attended more trainings have “overestimated” the use of modern teaching techniques because of the awareness of their importance and the desire to show themselves in a socially favourable light.

The analysis of the question about different aspects of teacher work leads to the conclusion that teachers are most satisfied with the co-operation with expert services (whole 73.7 percent reported being very satisfied), they also reported a high percentage of satisfaction with the co-operation with school management (70.5 percent), but there is also a relatively high percentage of satisfaction with colleague-to-colleague cooperation in schools. Teachers are least satisfied with parents’ co-operation, i.e. more than a half of teachers (58.4 percent) reported they are partially satisfied with this aspect of their work.

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7. Views of the teacher profession and agency Besides many external factors (adequate valuation of teacher work, achievements, working conditions etc.) affecting the opinion, view, attitude of teachers to their own profession, a very important factor for the implementation of quality teaching is teachers’ intrinsic motivation and their attitude to the profession.

From teachers’ answers in the survey conducted within this research concerning the teacher profession and the possibilities and challenges it brings to the profession, it can be concluded that almost everyone unanimously believes that the profession is particularly important (М=3.7, SD=0.65). Also, what is relevant is the strong agreement that the profession brings satisfaction and challenges, but it also allows for professional development. However, despite the reported positive characteristics, surveyed teachers have a tendency to agree with the view that their profession is filled with stress and burden (М=3.0, SD=0.91) (see Chart 7). Teachers are almost divided in their opinions as to whether they had more enthusiasm at the beginning of their careers or later, i.e. some believe their enthusiasm for the profession was greater at the beginning, and some partially agree or do not agree with this claim.

* Note: The chart shows the mean values from teacher answers to questions in a fourpoint scale (1 - strongly disagree; 4 - strongly agree) 141

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Regarding their profession, it is evident that teachers with longer work experience more strongly agree with the view that the teacher profession is monotonous (r=0.129, p=0.02), and that it is not so important (r=-0.161, p=0.01). Perhaps this is due to their professional burnout, which leads to a decrease in enthusiasm and feeling of agency. This is also confirmed by the regression analysis, which indicates that younger male and female teachers have reported in a smaller percentage that the teacher profession is filled with stress. On the other hand, the longer the experience in this profession, the higher the perception that it is filled with stress.11 Regarding the connection between views of the profession and application of traditional versus modern teaching methods, the results from the statistical regression indicate that modern methods are used more by those teachers who believe that (1) the teacher profession offers possibilities for development and progress (r=0.203, p=. 0.02), (2) brings satisfaction and challenges (r=0.84, p=0.01), (3) their work is important (r=0.192, p=0.02), but also those who (4) believe the profession is filled with stress (r=0.206, p=0.02). Although statistically insignificant, nevertheless, there is a negative correlation between the use of modern teaching methods and views that (1) the teacher profession is monotonous and (2) that over time the initial enthusiasm of the profession dampens. This indicator is worthy of further investigation because it indicates the negative relationship between methods important for creative and critical thinking of students and negative attitude to teachers’ own profession.

In addition to the views of their own profession, teachers’ involvement in the changes of curricula, adequate training on the newly introduced programmes, and continuous consultation and surveying of teachers’ opinions on the planned changes to the curricula, teaching methods etc. is of vital importance for improving the quality of teaching, and for improving all other aspects of the educational process. However, despite the general satisfaction with the profession and the possibilities it offers, teachers report a relatively low level of agency showing a tendency to disagree on the possibility to impact the changes in curricula, although they have a tendency to agree that the curricula change too often.

Namely, the majority of teachers (completely or partially) agree that the curriculum changes are too often (83.8 percent), while only 15.3 percent reported that they directly disagree with this view. What is problematic is that frequent change in curricula is not accompanied by appropriate training of teachers, which is evident from the low tendency

11

The model has R2=0.059, F=3.710, p=0.03 142

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to agree with the following view: “we are appropriately trained for the curriculum changes”) (Chart 8). This leads to the conclusion that those directly implementing the curricula are almost not involved / consulted in their development and changes. Therefore, it is to be expected that the insufficient feeling of “ownership” of the new policy will lead to its incomplete and inadequate implementation.

* Note: The chart shows the mean values from teacher answers to questions in a four-point scale (1 - strongly disagree; 4 - strongly agree)

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Regarding the possibility to impact, teachers from urban environments feel they have a greater impact on changes in the curricula compared to those from rural schools (r=-0,200; p=0.02), which suggests that even when consultations are held, they are not sufficiently inclusive. Surprisingly, teachers with more years of work experience in the profession feel to a lesser degree they could impact the changes in curricula (r=-0.236; p=0.00). Perhaps this is due to the personal experience of teachers with a longer length of service who have not been consulted so far in the implementation of changes, while younger teachers still have enthusiasm and optimism regarding their role as policy makers.

* Note: The chart shows the mean values from teacher answers to questions in a fourpoint scale (1 - strongly disagree; 4 - strongly agree)

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Regarding teachers’ views about learning and teaching, there is a relatively strong agreement in terms of all offered views (Chart 9). What is interesting is the correlation between the views of two claims, which are essentially opposing claims (“good teachers demonstrate to students how to solve problems” and “students learn best when they find the solution to a problem independently”). The reason is perhaps the inability of teachers to determine the difference between the two claims, or the view that the two claims equally apply, depending on the specific needs of the teaching process.

Probably, due to the low variation in answers, a connection has not been identified between the use of modern teaching methods and teachers’ views of what is important for learning and teaching. Regarding the association between the views about learning and teaching and the methods of teaching, there is a positive association between selfassessment and the view that it is good for students to think for themselves before teachers provide them with the solution to a problem (r=0.129, p=0.01). This means that teachers who believe that students need to think by themselves about problem solutions use more frequently the method of self-assessment as a way of evaluating students’ knowledge.

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Conclusion Findings from the analysis of PISA testing results confirm that student achievement is associated with different indicators, directly or indirectly linked to the teaching process.

Specifically, the results confirmed the importance of the method for science instruction and teachers’ readiness to apply different types of approach for mastering the material. It could be concluded that applying methods of discussion, debate and similar methods stimulating the development of critical thinking leads to better student performance.

Nevertheless, the results also refer to the fact that teachers need to be careful when using experiments and enquiry-based methods in the teaching process, because their inadequate application may adversely affect student achievement. Namely, it is not enough that students witness the experiment; they have to understand why the experiment is conducted, to extrapolate conclusions from the procedure and to be able to discuss the results.

In addition, data confirms the importance of maintaining high learning motivation, and also of maintaining discipline during classes. Discipline does not mean that students should be passive during instruction, rather, that they need to be focused on the course content that will attract their interest and will encourage them to participate with their own questions, comments, suggestions; without worrying that they will be criticised for their opinions.

At the same time, the analysis indicates that a very small percentage of Macedonian students have developed competencies and knowledge on the three levels being measured in the PISA testing, and they are considerably below the international average.

Specifically, one in four students in Macedonia has competencies required for understanding, application and evaluation of scientific enquiry. This data shows that the education system insufficiently develops critical thinking and scientific approach in students’ review of information. Students do not perceive course contents as adequately related to everyday life or applicable.

Probably, because of the above mentioned reasons, student motivation is mostly instrumental and almost all agree that they study for grades, because parents show greater interest in the grades they get than in the knowledge they acquire in school.

However, in those cases when the teacher is particularly engaged in making the class more interesting and learning essential to students’ life – students do not lack interest.

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This leads to the conclusion that in order to improve science literacy of students, the education system in the country should undergo changes that would be aimed at improving students’ motivation and their interest in science concepts. That requires use of teaching methods and techniques, and different activities that will be interesting to students and will be perceived as adequate, and which at the same time will enable the development of critical thinking.

However, this is not the practice of our education system. Although the majority of teachers were involved in different forms of professional development and have an opportunity to choose different methods and techniques for teaching and assessment; nevertheless, they still predominantly use traditional methods of instruction, where the teacher is the one who transfers knowledge and the students are recipients; and assessment where the teacher is the one who evaluates student achievement. ICT is not sufficiently used for instruction and learning, so the dilemma arises as to how the envisaged 33 percent of classes with ICT are implemented when the schools are insufficiently equipped with computers and other technical devices.

In addition, besides the curriculum objectives that include acquiring of competencies on different levels according to Bloom’s Taxonomy 12, teachers usually expect students to reproduce knowledge. Therefore, given that students will learn in the same way as teachers assess them, it should not come as a surprise that students’ focus is on learning based on memorising and reproduction of data, and conformity with teachers’ views, instead of developing a critical and creative thinking.

The analysis of results from the field survey show that teachers, in general, have a positive attitude to their profession, they believe it brings challenges and satisfaction, and possibilities for professional and career development; but, on the other hand, many teachers view their teaching profession as stressful and demanding. Teachers are most critical about the possibility to impact curriculum reforms. It can be concluded that they are practically not involved and consulted on the changes in the education system and in the curricula, which they directly implement or are affected by their changes. What is

12

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particularly worrying is that less than half of the teachers believe they are adequately trained for implementation of the new programmes.

There is an evident lack of appropriate and essential co-operation with parents and their involvement as more active factors in the learning process, and not only as recipients of information about their children’s performance (i.e. grades). This type of co-operation is particularly important for reducing the impact of students’ socio-economic status on their educational results.

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Recommendations General recommendations on the objectives of the education system 

The education system should develop critical thinking and enquiry-based approach to

students’ review of information. At the same time, it should stimulate students’ achievement motivation, develop their interest in a scientific approach to phenomena and develop their self-efficacy and awareness of the environment. 

In the development of educational reforms, attention should be paid to make sure

they are directed towards developing intrinsic motivation for learning, i.e. “learning for knowledge” versus “learning for grades”. 

In addition, the education system should enable effective and efficient use of time

spent in school. Classes should be held in a relaxed working atmosphere, where students feel free to ask questions and to voice their opinion. However, there should be appropriate discipline in class and all students should focus on mastering the material. 

Education policy should ensure conditions and support for all students in achieving

the baseline knowledge regardless of their origin and socio-economic status.

Recommendations for MES and institutions within MES 

The curricula should be revised. They should pay attention to the volume of

envisaged material and to the link between the curriculum contents and objectives.

Objectives defined in the programmes should be linked not only to specific knowledge, but also to competencies that will prepare students for further education and knowledge application in everyday life. Curricula should also contain aspects of their adjustment to the different educational needs of students. 

Textbooks should be analysed to see if the contents are linked with the objectives

defined in the curricula. In this context, teachers need additional materials, which could be used for attaining the curriculum objectives and for adjusting the contents to the different educational needs of students.

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Teachers need additional trainings from different areas in order to improve the



teaching process and thus increase student achievement. Specifically, they need: 1. Detailed and practical training on the curricula they implement. Adequate training of teachers is the starting point for quality teaching, and the small percentage of teachers who believe they are adequately trained indicates that additional trainings are needed for better implementation of curricula.

2. Psychological readiness and strengthening the skills for motivating students. In this context, teachers need training on how to use different teaching and assessment methods so as to stimulate student motivation for learning and developing lifelong learning competencies.

3. Teachers’ sensitization to the consequences from professional burnout and mechanisms for overcoming professional burnout so as to increase satisfaction, positive energy and will to work, but also the sense of fulfilment from their work.

4. Subject teachers should receive additional trainings and expert and collegial support in using modern teaching methods.

In addition, trainings should be accompanied by continuous expert and mentorship support to teachers by BDE, and to expert services within schools, with the purpose of maintaining the effects.

The method of using ICT in the teaching process should be redefined, without



insisting on its use in one third of the classes; instead, the method of using ICT should be aimed at learning and development of student competencies. The use of ICT in the teaching process should be well-structured and rational, and more attention should be paid to providing equal opportunities to all students for mastering the material through different teaching methods and techniques, instead of insisting on the use of ICT in the teaching process at all cost. 

The teaching staff should be more involved in the education policy making process

and they should participate in the decision making concerning innovations in the teaching process. The involvement levels may range from assessment of the perceptions and views regarding a given policy through surveys, organising discussions / debates with the teaching staff, and participation in working groups (on local and national level) for adoption of a specific policy. In parallel, attention should be paid to include teachers from different environments and with different experience regarding the structure of students with whom they work.

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 In the context of insufficient co-operation detected between different factors in the education system, it is necessary to have joint discussions involving teachers (school staff), parents and students, which would help locating the critical points where there is a discrepancy between the mutual expectations and responsibility.

Recommendations for schools 

The processes of adopting curriculum contents should be adjusted to student needs.

They should provide students with clear information transferred in a comprehensible manner. During classes, methods should be used stimulating discussions, development of concepts and ideas; visualisation means for demonstrating the functioning of natural phenomena; and to establish a continuous evaluation as to whether and to what extent have students understood the material. Teaching methods should also encourage critical thinking and connecting information to real life, and the assessment methods should evaluate the acquired competencies for critical and creative thinking. 

Students’ time spent at school should be filled with activities that will help them master

the material, so that students would not be overburdened in out-of-school learning of the material. This means that the structure of material and classes should be adjusted so that students receive applicable information at school, which would enable them to use their out-of-school time for informal education. 

Schools should be more engaged in organising and holding additional and

supplementary instruction, and to develop forms of tutoring between students. Students should perceive these classes as interesting and important, which would increase their interest to participate. At the same time, this type of instruction may provide additional support to students at risk of becoming low achievers so that equal opportunities are provided to all students. In addition, greater importance should be placed on supplementary instruction, which is seldom applied, and so gifted and talented children very often do not get the necessary support for further development of their abilities. 

On both school and regional level, forms of co-operation between teachers should

be activated (learning groups / teams), which will be intended for exchange of experience and good practice, and for providing assistance and support in the implementation of contents.

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

Parents’ participation as active factors in the education of their children should be

reinforced through their greater involvement in the participation forms at school level (e.g. parent councils). In addition, it is also recommended to develop new models of cooperation, through which parents will be able to get closely familiar with the objectives of the educational process and to act as a support mechanism to their children in cooperation with the teachers.

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References Bailey, M. and Borooah, V.K. (2010) What enhances mathematical ability? A cross country analysis based on test-scores of 15 year olds. Applied Economics, 42, p. 37233733.

Bureau for Development of Education (2013) Guidelines on the Method and Form of Preparing, Planning, Giving, Completing and Monitoring Homework for Students in Primary Education.

Bureau for Development of Education (2015) Formative Assessment in Classroom Teaching: Manual.

Covington, M.V. (2000) Goal Theory, Motivation and School Achievement: An Integrative Review. Annual Review of Psychology, 51, p. 171–200.

Fuchs, T. and Woessmann, L. (2004) What accounts for international differences in student performance? A reexamination using PISA data, CESifo Working Paper no 1235.

Grek, S. (2009) Governing by Numbers: The PISA ‘Effect’ in Europe. Journal of Education Policy, 24 (1), p. 23-37.

Guzel, G and Berberoglu, G. (2005) Analysis of PISA 2000 mathematical literacy data for Brazilian, Japanese and Norwegian students. Studies in Educational evaluation, 31, p. 283-314.

Hampden-Thomson, G. and Bennett, J. (2013) Science teaching and learning activities and students' engagement in science. International Journal of Science Education, 35 (8), p. 1325-1343.

IEA (2005) Progress in International Reading Literacy Study (PIRLS) 2006: Teacher Questionnaire.

Leathwood, C. and Archer, L. (2004) Social class and educational inequalities: the local and the global. Pedagogy, Culture and Society, 12 (1), p. 5-13.

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Lee, J. (2009) Universals and specifics of math-concept, math self- efficacy and math anxiety across 41 PISA 2003 participating countries. Learning and Individual Differences, 19, p. 355-365.

Logan, M.R. and Skamp, K.R. (2013) The impact of teachers and their science teaching on students’ ‘science interest’: a four-year study. International Journal of Science Education, 35 (17), p. 2879-2904.

Lucas, S.R. (2001) Effectively maintained inequality; Education transitions, track mobility and social background effects. The American Journal of Sociology, 106 (6), p. 16421690.

Ministry of Education and Science of the Republic of Macedonia (2016) Programme for Providing Tutoring to Students in Primary Education.

Oakes, J., Jospeh, R. and Muir, K. (2004) Access and achievement in mathematics and science: Inequalities that endure and change in J.A. Banks and C.A.M. Banks (Eds) Handbook of Research on Multicultural Education (2nd edition). San Francisco: Jossey-Bass.

OECD (2009). PISA Data Analysis Manual SPSS Second Edition. OECD Publishing, Paris.

OECD (2013) Teaching and Learning International Survey (TALIS): Teacher Questionnaire. OECD Publishing, Paris.

OECD (2015) Students, Computers and Learning: Making the Connection. OECD Publishing, Paris.

OECD (2016) PISA 2015 Background Questionnaires: Teacher Questionnaire” in PISA 2015 Assessment and Analytical Framework: Science, Reading, Mathematic and Financial Literacy. OECD Publishing, Paris.

OECD (2016a) PISA 2015 Results (Volume I): Excellence and Equity in Education.

OECD Publishing, Paris.

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OECD (2016b) PISA 2015 Results (Volume II): Policies and Practices for Successful Schools. OECD Publishing, Paris.

OECD (2016c). PISA 2015 Assessment and Analytical Framework: Science, Reading, Mathematic and Financial Literacy. OECD Publishing, Paris.

OECD (2017) PISA 2015 Results (Volume III): Student’s Well-Being. OECD Publishing, Paris.

Official Gazette of the Republic of Macedonia 103/08 (2008) Law on Primary Education.

Official Gazette of the Republic of Macedonia 127/16 (2016) Law on Teachers in Primary and Secondary Schools. Consolidated text.

Schleiher, A. (2007) Can competencies assessed by PISA be considered the fundamental school knowledge 15-year-olds should posses? Journal of Educational Change, 8, p. 349-357.

State Educational Inspectorate (2009) Indicators for Schools’ Quality of Work.

University of Michigan, Survey Services Lab (2001) The Study of Instructional improvement: Teacher Questionnaire, 2000-2001.

University of North Carolina, The Center for Teaching and Learning. Division of Academic Affairs (2004) Writing Objectives Using Bloom's Taxonomy.

Valijarvi, J., Linnakula, P., Kupari, P., Reinikainen, P. and Arffman, I. (2000) The Finnish success in PISA - and some reasons behind it. OECD.

Photo credits: Freepik, Pixbay

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UNIVERSAL HEALTH INSURANCE IN THE REPUBLIC OF MACEDONIA AND EFFECTS FROM THE IMPLEMENTATION OF THE PROJECT “HEALTH INSURANCE FOR ALL”

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Maja Parnardjieva - Zmejkova Vladimir Dimkovski

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

Universal Health Insurance in the Republic of Macedonia and Effects from the Implementation of the Project “Health Insurance for All”

Authors: Maja Parnardjieva - Zmejkova University American College Skopje mparnar@yahoo.com Vladimir Dimkovski Vladimir.dimkovski@gmail.com

Reviewer: Rubin Zarevski

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Introduction Everyone is entitled to adequate health care. A significant obstacle to exercising this right is often the high price of health services vis-à-vis individual income. Therefore, the countries’ health financing policy is based on risk pooling mechanisms aimed at protecting individuals from the barriers to health services, usually with a particular emphasis on those most affected, namely the most destitute.

Around one-half of the world’s population is not covered by any form of social health care, and is forced to incur out-of-pocket expenditures when using health care, i.e. mobilising their own resources to finance health services. More than 90 percent of the population unable to receive adequate health care lives in low-income countries. Even within the countries, the highest risk of a serious disease, death and financial catastrophe related to health expenditure is run by the poorest portion of the population.

One of the top priorities of health systems is the establishment of a system that will ensure financial protection of the population in meeting health needs, i.e. providing health services without the risk of a financial catastrophe and impoverishment (WHO, 2010).

Such concept and goal is known as universal health coverage and is the basis for preventing poverty and resolving inequalities in health systems.

Recognising the importance of the concept and need of establishing adequate health financing systems in the countries, WHO in 2005 with its then 192 members endorsed a resolution titled “Sustainable health financing, universal coverage and social health insurance, calling for countries to develop financing systems ensuring access to services needed by the population without the risk of financial catastrophe.

The priority of universal health coverage was additionally increased by its inclusion in the United Nations as a target group in goal 3 of the sustainable development goals (SDI), whereby UN members committed to ensure a better care level in the agenda after 2015.

That is why today the majority of countries, particularly those with low and middle income level, design and implement strategies for progress or attainment of this goal.

The universal coverage concept is not based only on the population’s health insurance, which is just one of the three dimensions of this goal (World Health Organization, 2013).

Figure 1 shows the three dimensions of universal coverage, namely: breadth in terms of population, depth of health services covered and height indicating the extent of financial protection. With regard to the Macedonian health system, breadth means the number of insured population, depth means health services covered by health insurance, and height means the level of co-insurance paid by insured persons.

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Universal coverage may be assessed as fully achieved when these three dimensions are completely filled. However, no country in the world has covered 100 percent of the services for 100 percent of the population by covering 100 percent of the expenses. Even so, all countries strive to achieve an increasingly greater coverage in all three dimensions of universal health coverage, within the possibilities and funds available to them.

Figure 1 Three main dimensions of the basic package of universal health coverage

Source: Adjusted from Busse R, et al. 2007 Although all three dimensions cover different aspects of the concept, the common thing is that they all impact the level of out-of-pocket expenditures.

Household out-of-pocket expenditures in using health services are the most unorganised form of health expenditure, but on the other hand, they make the largest share in the structure of total expenses in the low- and middle-income countries (World Health Organization, 2014). Their adverse effect on the poor forces people to use expensive coping mechanisms, such as loans with high costs and interest rates, assets and property sale, decrease in other spending. It is estimated that worldwide, about 150 million people are affected by health expenditure, and around 100 million are pushed below the poverty line due to out-of-pocket health expenditures. In addition, predominant share of the poor are not able to afford health care and suffer from ill-health for a longer period.

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Table 1 Health financing sources

Low income

5.7

41.1

Private funding as % of the total 58.9

Low middle income

4.5

36.2

63.8

3.3

Upper middle income High income

6.1

56.0

44.0

0.2

12.0

61.9

38.1

0.0

Globally

9.9

60.1

39.9

0.2

Group of countries

% of GDP

Public funding as % of the total

External sources 28.4

Source: WHO Global Health Expenditure Database

If in the low- and low-middle-income countries the high level of out-of-pocket expenditure is due to the absence or weak characteristics of the social health systems; in the middle162

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and high-income-countries, the high private spending is due to co-insurance in health expenditure (in a different form) or health systems failing to provide adequate health care coverage for the vulnerable share of the population. However, the chart below shows that each country has a unique structure of health expenditure (amount in terms of GDP, relationship between public and out-of-pocket expenditures). Namely, the USA has a market health system where the expenses for health services are the highest and participate with the largest share of GDP; where in 2007, 70 million people had medical debts, and 62 percent of personal bankruptcy was due to medical reasons. In the EU, on the other hand, unmet health care needs, which were previously in constant decline, increased during the crisis as a result of the decreased public funding for health care and the rise in health care needs, usually by reducing public expenses in terms of GDP and transferring the financial burden for health care to the population; and in 2014, they again reached the level from 2007 (determining that the cyclical health policy produces unfavourable results and gradually going back to the previous level of expenditure) (Thomson, S. et al. 2016).

Figure 2 Health expenditure, structure per counties, 2014

Source: OECD Health at a glance 2016 The emergence of financial crises emphasised the reality of limited health resources, as a significant element hampering the universal health coverage progress. On the one hand, the needs for funding are continuously on the rise based on several factors: aging of the population, chronic diseases, new technology, demand; and on the other hand, the available resources are limited by economic growth. Consequently, it is impossible for any 163

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country to offer unlimited free health services for the entire population. Therefore, it is necessary to ensure an optimal way of using the available resources generated in the health system. Also, it is important to pay attention to out-of-pocket payments, namely, although after the financial crises most of the countries increased the share of out-ofpocket payments vis-Ă -vis public payments for health care, nevertheless, all countries have to avoid this unfavourable trend because it directly affects the impoverishment of the population using health services.

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Figure 3 Annual average health spending growth in EU and in Macedonia, 2014

Source: OECD Health at a glance 2016, WHO Global Health Expenditure Database Our study focuses on the level of universal health coverage of the population in Macedonia, which is the first analysis of this type for the country. Based on the three dimensions of the concept, we will evaluate the level of universal coverage achieved, and we will assess the effects from the measures in this part of the health and social system in the last 10 years, inter alia, those of the project “Health Insurance for All”, as one of the main measures.

Namely, this study will present for the first time estimates and analyses in the part of:      

Identification of persons without health insurance in the Republic of Macedonia; Comparative analysis of the number of persons living below the poverty line with persons who have health insurance as “poor”; Calculation of the health insurance contribution and expenses of the insured persons in the health system per categories of insured persons; Simulation of the structure of out-of-pocket expenditures, i.e. identification of the highest risks for the population in out-of-pocket expenditures; Calculation of the co-insurance level and analysis of the total exemptions in the health system; Calculation of the indicators for the impact of health expenditure on the financial situation of households (extent of the so-called “catastrophic health expenditure”).

The study should provide specific conclusions related to each dimension of the universal health insurance in Macedonia, with a particular review of the trend and structure of outof-pocket payments, but also recommendations to improve the system’s efficiency.

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Analysis of the situation of universal insurance in Macedonia The Macedonian health financing system, as the majority of systems around the world, is a combination of characteristics from the popular health financing models. The system’s origin, as in all countries with socialist system in the past, is from the Semashko model present in the Yugoslav health system. In 2000, the system was reformed by implementing the Bismarck model of health insurance, the characteristics of which are still prevalent in the system today. Therefore, the right to health insurance in this system is based on a deducted part of the individuals’ income in the form of contribution, which they pay in the single health insurance fund.

The system of compulsory health insurance introduced in this manner is prescribed in the Health Insurance Law, the principles of which include comprehensiveness, solidarity, equality and effective use of funds. This means that the system strives towards an increasingly greater coverage of the population, where all pay an equal percentage of their income or as much as they could afford, and have an equal right to use services based on their needs. At the same time, all factors are obliged to take care of the health care denar and to use it in the most effective way possible. The Law also prescribes that the Budget of the Republic of Macedonia shall determine and pay a transfer to the Health Insurance Fund for financing the majority of services, or the majority of the population’s needs for services, than the funds collected in the form of contributions. As of 2014 until 2017, the Budget of RM has not envisaged or paid such transfer to the Health Insurance Fund, i.e. health services purchased by the Fund have for several years been financed exclusively by funds received on the basis of paid contributions.

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Health expenditure in Macedonia, compared to the EU countries (public and private) In the last 20 years, Macedonia allocates six to 10 percent of GDP as total funds for health care. In 2014, as the last available year for internationally comparable data, Macedonia allocated 6.5 percent of GDP for health care. This percentage is a modest amount compared to the European countries, and a similar amount of funds intended for health care from countries in the region is also seen in Montenegro.

Figure 4 Total funds for health care as a percentage of GDP, 2014

Source: WHO Global Health Expenditure Database Although the total amount of funds is an important indicator, from the aspect of financial protection, the structure of funds in the health system is even more significant. As also seen in the previous chart, the structure in the countries concerning the share of public sources of funding and the share of private sources of funding differs; namely, it ranges from 87 percent for the share of public sources of funding in the Netherlands to 55 percent for private sources of funding in Cyprus.

In the analysis of indicators for health care funding published by international organisations, it should be noted that due to the absence of national health care accounts in Macedonia, they have be taken with some reservation, and this particularly applies to out-of-pocket health expenditures. Namely, the research led to the conclusion that the estimates used for private funding, from the database of WHO, are based on the household consumption survey by the SSO, or data about average household health expenditures and the total number of households. The survey, unlike the practice of other countries, does not include further analysis of the health category, which additionally 167

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increases the unreliability of this data. Hence, it is evident that data vary from year to year, depending on the answers provided by the household sample represented in the survey.

In Macedonia, the structure is predominantly comprised of public funding for health care.

Despite the annual oscillations mentioned above, it is evident that after 2005, in a period of around 10 years, the share of public funding is continuously increasing compared to the share of private funding in the structure of total health care funds. Thus, by 2013, public funding increased by 10 percentage points, while private funding decreased by the same percentage (Milevska Kostova N., et al., 2017). According to the estimates made for private funding in 2016, they amount to 13.1 billion denars or 34.2 percent of the total health care funds. Health care funds from external sources are in a continuous decline, which is a normal phenomenon with the development of the system and of the country.

Table 1 Structure of health care funds per years 1995

2000

2005

2010

2013

2016*

External funding sources as a % of the total health expenditure

1.45

2.81

1.64

0.71

0.31

0.08

Public funding for health care as a % of the total health expenditure

58.10

54.89

60.27

62.51

69.01

65.70

Private payments as a % of the total health expenditure

40.45

42.30

38.09

36.78

30.68

34.22

Source: WHO Global Health Expenditure Database *The data for 2016 are estimates of the authors based on the methodology used by WHO, and information available from HIFM, SSO, OECD, UNECE Previous analyses show that, unlike the prevalent number of other countries, both developed and undeveloped, where out-of-pocket expenditures grow in relative aspects, in Macedonia, out-of-pocket payments are quite stable, with a downward trend, which is considered a success for a moderately developed country in protecting the population from impoverishment.

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Dimension 1: Breadth - who is insured?

The number of insured persons in Macedonia ranges from 1.74 million to 1.96 million or, in terms of the estimated population number, from 85 percent to 96 percent. Such percentage of population coverage, compared to other countries with social health insurance systems, is very high. This percentage in comparable countries ranges from 40 to 55 in Albania, 87 in Bulgaria, 94 in Estonia, to 97 in Croatia and 100 in Slovenia and in some former Soviet Union countries (Josef K, et al.2010).

However, due to the oscillations indicated, we could comment with greater reliability the period after the establishment of an IT-system in HIFM and the connection with other institutions as of 2012 onwards. In the previous years, as indicated in the annual reports of HIFM, in several occasions, the database of insured persons was being updated and that caused the number of insured persons to decline in both absolute and relative amount. In addition, these activities coincide with the introduction of the “insurance for all” measure, which from the aspect of health insurance coverage makes the analysis more complex.

Figure 5 Number of insured persons and percentage of population coverage

Source: HIFM, SSO

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An additional factor to be taken into consideration when analysing health insurance coverage of the population is the “accuracy” of population estimates, which for the needs of this analysis were taken from the State Statistical Office.

The unreliability of data about the population estimates is also indicated by data on the age and regional structure of the population.

Figure 6 Insured persons and population per regions in 2015

Source: HIFM, SSO Namely, in comparing the number of insured persons and population estimates there are differences on regional level; i.e. in the Skopje region there are 1.5 percent more insured persons in terms of the population, while the greatest negative difference is seen in the Polog region where the number of insured persons is lower for notable 23.5 percent compared to the estimated population number.

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Figure 7 Insured persons and population per age in 2015

Source: HIFM, SSO

But, a more important fact for the population estimate is the age group comparison.

Namely, in the zero to six years age group, we have the smallest difference because of the birth rate accuracy when making the estimates. There is a difference of around 10 percent in the age groups from seven to 18 years and from 35 to 65 years; while the difference in the group from 19 to 34 years is the highest, 24 percent. However, the difference that particularly brings into question the population estimates is the category of people aged over 65 years, where the number of individuals with health insurance is 6.5 percent higher than the estimated population in this age group.

If some explanation can be found for the previous differences, e.g. there are more insured persons in Skopje than residents due to the daily commutes of people from surrounding towns who work in Skopje, or a failure to update the place of residence, or a failure to update the situation with the emigrants which causes a great difference in the ratio between insured persons and the population in some regions where, generally, the population goes to work abroad (e.g. Tetovo, Gostivar, Kichevo, Makedonski Brod, etc.), the last difference, however, where there are more insured persons aged over 65 than residents in Macedonia aged over 65 is an absolute proof that the population estimate does not reflect the state of play with the population in Macedonia).

Despite these issues in the analysis of the number of insured persons, vis-Ă -vis the estimated number of population, as authors of this study, nevertheless, we consider that regarding the breadth, the Republic of Macedonia has ensured almost 100 percent of health insurance coverage of its population living in Macedonia.

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From the analysis of legislation, according to which each citizen of the Republic of Macedonia can have health insurance, and from civil society conclusions on the field, we could identify four groups of people lacking health insurance in the country:  Individuals employed in international organisations who have international private health insurance. (Although these individuals are outside of the compulsory health insurance system, they have, however, health insurance, and for the purpose of this analysis we consider them as included in the system);  Individuals without documents (identity cards) who, according to the estimates of MLSP, are around 500 persons. (These are the only people in Macedonia who at the moment do not have health insurance because they lack identity cards or certificates of citizenship, and who are marginalised - the most destitute families in the country, and the country has to find a way to include these people in the health insurance system);  Individuals who do not live in the country and have not been recorded in the health insurance system. (These are individuals who although not updated in the population data are not, however, insured in Macedonia because they neither live nor work in Macedonia, and for the purpose of this analysis, we exclude them from the population number);  Individuals living in Macedonia, who do not have formal employment, and as they do not need health services at the moment, they are not registered in the Fund as insured persons. However, these individuals know their insurance rights, i.e. that in the moment they need health services, they could immediately register in the Fund and use the services covered by the Fund that very day. Thus, during the short validity of the obligation to pay contributions for fees received from freelance work in the second quarter of 2015, around 3,500 persons obtained insurance on this basis. (For the needs of this project, we believe that these individuals are not a problem in the universal coverage system in Macedonia, because the system provides them with free health care for emergencies even if they are not insured; the system would immediately provide health insurance on the first day of registration in the Fund.)

Analysis of the effects from the project “Health Insurance for All” As part of the initiative adopted within the World Health Assembly for promoting health financing and universal health coverage, in 2009, the legislation in the Republic of Macedonia was amended to ensure the possibility for all citizens to have a basis to obtain health insurance.

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This measure also introduced characteristics of the Beveridge model into the system.

According to this measure, the country provides funds from the Budget for health care contribution for that portion of the population that was previously without health insurance because they could not afford such insurance financially. This method allows further expanding of the population coverage and provides each citizen with a basis for obtaining health insurance. With the additional regulation of the legislative framework in 2011 by defining a limit of the income that the persons earned, the measure is directed towards individuals with low-income, and at the same time prevents the system abuse from overspill of other categories of insured persons. This limit of 132 thousands per year, with the adoption of the Minimum Wage Law in 2012, was reformulated in the annual amount of the minimum wage in the country.

With the adoption of this measure, all individuals who obtained the right to health insurance on the newly defined basis were required to register / apply in the HIFM once a year by submitting a declaration of earned income in the past year, in order to establish that they meet the maximum annual income requirement. As of 2015, this obligation was revoked (what remains is the obligation of official communication and verification of the families insured on this basis in the Fund with the PROâ&#x20AC;&#x2122;s database concerning the tax returns submitted and their amount at a family level). The obligation to register in the Fund applies only to new persons, who were previously not included in this category, and to those whose earned income was changed, higher or lower than the defined limit.

According to the figures of HIFM, the number of individuals-holders in this category ranges from 193 thousand to 234 thousand persons, depending on the years when the compulsory annual registration existed. With the revocation of the obligation for annual registration, the number was stabilised to around 230 thousand holders, or in total with members to around 457 thousand persons.

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Table 2 Fluctuation of the insured persons covered by the project “Health Insurance for All” holders

Sept.2011

Dec. 2011

Jun. 2012

Dec. 2012

Jun. 2013

Dec. 2013

Jun. 2014

Dec. 2014

Dec. 2015

Dec. 2016

members

total

193,144

224,588

417,732

216,965

247,483

464,448

197,073

233,779

430,852

223,470

241,083

464,553

202,122

230,157

432,279

230,677

242,306

472,983

203,194

226,110

429,304

221,222

231,111

452,333

229,733

227,209

456,942

234,410

223,779

458,189

% of the total number of insured persons

23%

25%

24%

27%

25%

27%

24%

25%

25%

24%

Source: HIFM As mentioned, this measure has a specific social nature, namely, its focus is to provide health insurance to persons without income or with low income. Given that a considerable number of individuals use this basis for the so-called free health insurance (25 percent of the population in Macedonia), with this analysis we want to answer the following questions: 1.

Did the project achieve the expected results?

Considering that this project included in the health insurance system those individuals who previously could not afford the contribution costs, and given that Macedonia with this measure achieved almost 100 percent health insurance coverage of its population, the project definitely achieved the expected results. In fact, this was also confirmed by OECD 174

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in the Health at a Glance 2016 Report, where Macedonia was placed in the group of countries that had established a system for 100 percent universal coverage of the population.

Figure 8 Percentage of universal health coverage

Source: OECD Health at а glance 2016, WHO Global Health Expenditure Database

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2.

Is the number of persons insured on this basis commensurate with the number of people living below the poverty line in Macedonia?

We raise this question because the purpose of the project is to cover those people in Macedonia who are below the poverty line, and for whom the country pays health care contributions. Whereas those individuals above the poverty line are assumed to earn enough to pay contributions in the health insurance system.

To answer this question, we believe it is necessary to compare the poverty indicators in the country with the coverage of poor people by the measure as one of the ways for its evaluation.

The chart below provides a comparison between the poverty rate from the Income and Living Conditions Survey conducted by the State Statistical Office in the period 2011-2015 regarding the persons insured through the measure and persons insured through the Ministry of Labour and Social Policy (social welfare recipients etc.). According to the chart, as of 2012 the number of persons with health insurance as socially vulnerable groups is higher compared to the poor population in the country. Although the number of persons in both categories is decreasing, the difference between them is increasing; thus in 2015, the difference between the two categories was 3.5 percentage points.

Figure 9 Poverty rate and persons insured through the MLSP and MH, per years

Source: HIFM, SSO

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The logical reason behind this situation could be the lower poverty line defined by SSO compared to the limit laid down by law for one person with his or her family to be insured at the expense of the state.

To confirm this thesis, we tested it in a chart presenting the financial threshold on an annual level under which a four-member family is defined as poor regarding the annual financial income and in which case that person and his or her family could be insured at the expense of the state.

Figure 10 Poverty line and limit for contribution payment by the state, per years

Source: HIFM, SSO The income line for defining the poverty line and income limit for insurance of a family at the expense of the state coincide in the first year of the introduction of the “Health Insurance for All” project, but then the limit is determined on the level of annual amount of minimum wage, which is a lower level than the poverty line. This leads to the opposite conclusion from what was mentioned regarding the number of poor people vis-à-vis the number of persons insured as poor, i.e. although the income limit of poor people for health care contributions paid by the state is lower than the poverty line, their number is higher compared to the number of poor people in the country.

The answer to the question posed as to whether the number of persons insured on this basis is commensurate with the number of people living below the poverty line is negative because the number of persons insured as poor (whose contributions are paid by the state) is higher than the number of poor people in Macedonia. This indicates to the need 177

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of a detailed analysis relative to the project arrangement and its modification so as to obtain greater effectiveness of the funds used for this purpose, or to reduce the number of people insured on this basis, because they have income exceeding the poverty line.

Are the financial costs of this project (contributions paid) commensurate with the actual costs of these insured persons?

To answer this question we need to compare the data about the amount of paid contributions by the Ministry of Health with the expenses for health services incurred by the insured persons. Given that always, statistically, poor people also have more serious health issues, it is assumed that the average monthly costs for health services for all insured persons would be lower than the average monthly costs for services for this category of people.

Based on the available and received data for health expenditure incurred for health insurance, for the first time in the country, we estimated the costs for the four largest groups of insured persons covering 97 percent of all insured persons. In the calculation we used data from HIFM (annual reports, reports on insured persons, and data about health expenditure), SSO (population estimates, communications on average salary paid), PDIFM, legislation and other sources. The calculation refers to 2015, thus the largest portion of data relates to that year, but taking into account the availability, some older data was used and adjusted in the calculation. Given that costs in the health system generally depend on the sex and age, the expenditure calculation for each category reflects their demographic structure. At the same time, due to the principle of holders and members in the insurance, the cost is adjusted at the level of insurance holder; or to compared it with the contribution payment (which is done by the holder), the cost reflects the expenses of the holder with his or her members (or of the entire family).

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Figure 11 Comparison of the paid and spent amount in health insurance (denars)

Source: Estimate by the authors with data from HIFM, SSO and PDIFM It can be concluded from the figure that contributions paid on behalf of the groups of insured persons do not correspond to the costs incurred by the Health Insurance Fund for health care of these insured persons. If the category of poor people insured by the state is shown on a total annual level, then the total health expenditure for it would be 4,190 million denars, which is a 72 percent higher amount than the funds allocated by the state for this purpose (2,440 million denars). Or seen through the prism of public and private spending, if these persons did not have health insurance, they would have had to pay this amount out-of-pocket or, in a worse scenario, if they could not afford the costs, their health condition would deteriorate.

Therefore, accentuating the difference in the contributions and expenditures, it is proposed that the amount of the contribution rate should be redefined for this category.

Namely, each category of insured persons, in accordance with the law, has a defined rate and basis for calculation of the health care contribution.

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Table 3 Rates and basis for payment of the health insurance contribution

Contribution rate

Insured persons Actively employed persons Active farmers

7.30%

gross salary

7.30%

20% of the average gross salary pension

13%

Retired persons Unemployed persons (without insurance)

Calculation basis

5.40%

50% of the average salary

Source: Annual Report of the HIFM for 2016 Based on the analyses performed, it can be concluded that despite the high costs for this group of insured persons, the payments by the Ministry of Health are much lower. In fact, the solidarity is very evident here because individuals making higher payments for health care (usually employed persons, retirees etc.) are in a way subsidising the Budget of the Republic of Macedonia, which pays the health care contributions on behalf of the most destitute people in the country, but with unrealistic rates, i.e. lower than what is needed to cover the expenditures for health services. However, solidarity in a given system should be aimed at enabling the richer to help the poorer and not the other way around, like in this case, where the employed persons and retirees help the Budget of the Republic of Macedonia, which pays less than what is needed for the poor category of insured persons.

3.

What is the reason behind the continuous increase in the number of people whose health insurance is paid by the state?

As evident from Table 1, there is a continuous increase in the number of persons insured as poor whose contributions are paid by the state (the oscillations throughout the year until 2015 were explained earlier). Does this mean that the population is increasingly poorer or that the system has some weaknesses from a control aspect. Considering that the number of these individuals is continuously higher than the number of poor people, we are led to the conclusion that the number of these category of insured persons is constantly growing due to control weaknesses. We would mention here three potential weaknesses, although they were not subject to any previous analysis, and this is the first attempt to analyse the control system of this legal solution:

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A) One of the reasons for this phenomenon is abuse of the system, i.e. submitting false declarations about the income level when registering in HIFM. During 2014, the Fund by comparing data with the PRO detected around 20 thousand false declarations by these individuals, which corresponds to the difference between the two categories reached in 2015 (Chart 4).

B) Until 2015, the Fund was obliged to document and submit these false declarations to the Public Prosecutorâ&#x20AC;&#x2122;s Office for criminal liability of these individuals due to the submission of false information, and causing damage to the state budget. In 2015, the Health Insurance Law was amended and the obligation of the Fund to detect and prosecute these offences was revoked. Thus, the system loosened the control and penal policy for these persons, allowing them to continue using free health insurance without any consequences, but also encouraging others to do the same.

C) With the revocation of the annual declaration, the obligation remained that the Fund shall leave in the system the insured persons who in accordance with PROâ&#x20AC;&#x2122;s data at a family level submitted annual tax returns in an amount lower than the limit defined in the law. This set-up of the system assumes that all citizens in Macedonia submit the annual tax returns, even when their only income is for instance based on rents, tourism income etc., and that if someone has not submitted a tax return he or she has not earned income throughout the year, so the state provides that individual with free health insurance. This study cannot assess the extent of the validity of this assumption, but for the existing legal solution to be justified, it is necessary for the PRO to confirm that all persons who have any income in Macedonia have fully declared the income through the annual tax returns, or in practice this means that in Macedonia there is no grey or informal economy.

Dimension 2: Depth The Macedonian basic package of health services is defined through a negative list, namely, everything that is not defined in the 25 items under Article 10 of the Health Insurance Law is covered by health insurance. With this approach, the basic package of health services characterises the system as broadly set-up. Thus, specific services such as dental care for all persons and levels are covered by health insurance, which is not the case in other countries that have even more funds available than the Macedonian system.

In addition, the process of public health modernisation introduced numerous methods and technologies, inter alia, such that in some more developed and more restrictive countries are not covered by compulsory health insurance.

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Besides said extensions of the package through new methods and technologies in public health care, in the past period, the regulation was subject to several more amendments increasing the spectrum of services covered by the Fund. They include: -

Biomedical assisted fertilisation (in vitro) up to the fourth child; Possibility to receive specialist and some surgical procedures in private health care institutions; Laser correction of dioptre; New devices (diapers etc.); Medicines that are not on the positive list, but are purchased by hospitals upon prior approval by the Ministry of Health and the Health Insurance Fund.

Individuals finance directly (out-of-pocket) the use of services not covered by the package, i.e. listed in Article 10 of the Law. However, even health services indicated in Article 9 (positive list) are financed out-of-pocket if they are purchased in institutions that have not signed an agreement with the Fund or outside of the procedures prescribed in the Law. Simulation of the structure of out-of-pocket expenditures The survey conducted by the SSO, unlike the practice in other countries, concerning resources used for health purposes makes no distinction of the allocation of health expenditure. Namely, this amount includes all expenses related to health in any aspect, which would mean that, besides the co-insurance, private health services and medicines, this category also includes various cosmetic and medical preparations, vitamins and supplements and other non-health expenditures.

In this study, based on specific data from the institutions, foreign studies and assumptions, we tried for the first time to make a simulation of the structure of out-of-pocket health expenditures. In this way, we could identify the greatest risks in out-of-pocket expenditures for the population, and consequently give some recommendations for overcoming the risks.

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Figure 12 Simulation of the structure of out-of-pocket expenditure in 2015 Total coinsurance 24%

Services purchased outof-pocket 26% Medicines purchased outof-pocket 26%

Medicines with prescription, purchased outof-pocket Refunds 7% 1%

Additional payment for medicines 12% Informal payments 4%

Source: Estimate by the authors according to data from SSO, HIFM, WHO, “My Term” The simulated structure of health expenditure is done with the “top-down” approach, i.e. we broke down the data about the total out-of-pocket expenditure into segments of known costs such as co-insurance, additional payment for medicines, refunds and private health insurance, and then we estimated the prescriptions realised privately, and we also included some information from international surveys or studies by international organisations (informal payments). The remainder of private funds, after defining the previous items, was equally allocated for medicines and health services purchased privately in full.

It is important to stress that if we separate the costs on all bases related to medicines, they have a dominant role with 49 percent of the out-of-pocket health expenditures. The dominant part of medicines is expected because a large portion of this type of surveys conducted in countries with middle- and high-income-level have shown the same result.

The complex analysis in this study leads to the conclusion that in RM the medicines are the most dominant costs incurred by citizens, which they pay from their own income. This also includes medicines that are on the positive list (for which there is co-insurance and additional payment of 16 percent); medicines that are on the positive list, but the individual decides to use i.e. purchase them without going to the doctor and without a doctor’s recommendation; and also to purchase and use medicines that are not on the positive list (with or without a doctor’s recommendation).

Next step after this finding is to conduct the necessary, detailed analysis of the medicine consumption by MALMED (data that the institution should receive and monitor on a regular basis, and which it perhaps does not receive or analyse). The analysis is needed to show what medicines are being purchased privately by the population and to investigate the reasons behind that (whether, perhaps, these medicines are antibiotics and antidepressants that without medical recommendation increase the risk of inappropriate 183

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use or wrong diagnosis given by the individuals themselves; or these are medicines that are not on the positive list, which could be a useful data when expanding / revising the positive list; or these are privately purchased medicines that are on the positive list, but there were no quotas for them in the pharmacies and so the individuals had to pay for them out-of-pocket). Each reason may stimulate the undertaking of appropriate measures by competent institutions (educating the population on the excessive and detrimental use of medicines, increasing the medicine quotas, revising the positive list, scientific research, expert supervision of doctors concerning their recommendations outside of the medical protocols, etc.).

Two insurance packages In the text above we mentioned harmonisation as a potential change in the system, or approximation of the contribution to the health expenditure for some of the categories, option that requires additional budget funds. As an alternative, and in accordance with the conclusion that Macedonia has a very broad health care package, which requires continuous financial strengthening of the system, we propose to consider the development of two health care packages, one broadly defined like until now for everyone who pays contributions in health financing (employed persons, retired persons, selfemployed persons etc.), and another narrower package for persons not paying contributions, but the contributions for them are paid by the state. Thus, the unfairness in the system concerning low payments by the state will be overcome, when the proportion of expenditure in the health system for services for these individuals is much higher. But, what is perhaps even more important it that this will stimulate those individuals trying to abuse the system by obtaining free health insurance to declare their actual family income so as to enter in the group of users of the broad health care package. This measure may also be seriously accepted as a measure for reducing grey economy in the country by motivating people to declare all their income.

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Dimension 3: Height Besides setting apart a contribution from their income, when using health services, people also participate in the health service price. Main goal of cost-sharing, like in other types of insurance, is to serve as a control mechanism of the insurer, i.e. to control the motive for the increased use of health services, or the moral hazard, and thus to be a source of income in the system. On the part of the insured person, this cost increases his or her financial burden. Macedonia applies the system of co-insurance, i.e. a defined fixed amount, which is related to the amount of the health service price.

More measures have been taken in the cost-sharing, or the payment of co-insurance. The co-insurance rate in the Law is limited to 20 percent of the service value although, in practice, the co-insurance is much lower than this limit.

In Macedonia there are two types of limitation regarding the co-insurance rate: a maximum amount that could be paid for a single service and that is 6,000 denars; and a maximum amount for co-insurance that could be paid by one person annually. The annual limit is 70 percent of the average salary, but it is defined at a lower level of 40 percent and 20 percent of the average salary for specific age and social categories.

Apart from these, the system also includes additional exemptions from co-insurance payment, which are based on the social or health status of the population, such as blood donors and organ donors, different social categories, retirees with low pension, different rare and communicable diseases etc.

An important change in terms of co-insurance, particularly for financial protection of the population, is the limit of co-insurance rate for treatment abroad. Namely, before 2013, individuals referred for treatment abroad had to cover 20 percent of the total costs, which considering that referrals for this type of treatments are issued for the most complex conditions means that in some cases they had to pay even 50 thousand euro. The limit of 12 thousand denars provided an important financial protection for these cases (families) when using health services.

Co-insurance as a share of the out-of-pocket health expenditures One part of the structure of out-of-pocket health expenditures for which there are relatively accurate data is the share in service price or co-insurance.

The co-insurance rate in Macedonia is set at a maximum 20 percent of the service value, whereas the bylaws of the Fund define a scale calculating the co-insurance rate depending 185

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on the service value. If we compare the total annual co-insurance amount presented in the previous chart in relation to the value of health services performed, the average coinsurance in Macedonia is at a level of 5.6 percent of service value. This percentage is almost four times lower than the legal maximum, which is due to the vast number of exemptions from co-insurance payment and low rates of the co-insurance defined per service.

With a view to explaining the reasons for such a low co-insurance level in the system, we made an analysis of the number of persons exempted from co-insurance payment. Thus, using different laws, bylaws and state programmes, we identified the number of persons on all grounds and we grouped those who are exempted from co-insurance payment for all or some of the services. Therefore, 42.5 thousand persons per year are exempted from co-insurance payment for health services (with the exception of medicines, orthopaedic aids and treatment abroad), while 160 thousand persons are exempted from a substantial portion of health services such as retired persons with low pension for all inpatient services and pregnant women, women who have recently given birth and infants for birth-related services. Apart from these exemptions, the system also exempts the co-insurance payment for various specific services covering over 100 thousand persons of the population.

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Table 5 Exemptions from co-insurance in 2017 Persons exempted from co-insurance payment for most of the services Blood donors and organ donors Social categories according to the HIL Persons who during the year reached the defined limit (70, 40 or 20% of average salary) Persons exempted from co-insurance payment for multiple services Inpatient care for retired persons with pension below the average Women who have recently given birth and infants up to one year of age Persons exempted from co-insurance payment for specific services Diabetes Growth hormone Haemophilia Sports medicine PSA-testing of men aged 50-55 and 45-50 with a family risk Cytology-based screening for PAP-testing Treatment in the mental health centres Dialysis patients Specific diseases Malignant diseases In vitro Source: Adjusted from HIFM, HIL, Programmes of the Ministry of Health

42,500 30,000 9,000 3,500 160,000 12,000 40,000 100,770 39,500 55 315 5,000 20,000 20,000 700 1,500 5,000 7,300 1,400

According to the table, over 300 thousand persons are exempted from co-insurance payment on different grounds. If this number of persons is compared to 1,358,799 patients who sought medical assistance at least once in 2016 (“My Term”), it turns out that 22.3 percent of patients were exempted from co-insurance payment for the health service received.

It can be concluded from the average co-insurance presented and the percentage of persons exempted from co-insurance payment that in this dimension of the universal health coverage the state removed all financial barriers for health care use. In this context, we believe that this level of co-insurance and numerous exemptions lead to another problem, which concerns the purpose of having a share in the insurance “damage”, i.e. the 187

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extent to which this can be considered as a control mechanism for excessive use of the system, which would have an adverse effect on the financial sustainability of the system, which has only modest funds available in any case. Therefore, we believe that a revision is needed, primarily for specific exemptions, which do not play an important role in improving the access to health services, such as the exemption for retired persons with a below average pension, who even previously were subject to the maximum annual coinsurance of 40 percent of the average net salary, or if they have monthly income of less than 60 percent from the average net salary, this limit is on the lower level of 20 percent.

Without the intention to underestimate the effects of some measures in the co-insurance practice, such as the limit for treatment abroad mentioned above, and the exemption for women who have recently given birth and infants, which has produced effects in the improvement of health indicators, particularly in the Roma population, we believe that policy-makers have to be careful with the additional changes in the co-insurance rate given the already reached high level of exemptions and low co-insurance.

Other indicators for access to health services The Income and Living Conditions Survey, based on the respondents’ answers, provides indicators for the health system affordability. The indicators include percentage of people who needed health services during the year, but did not seek medical assistance, and a division of the reasons for unmet health service needs. The indicator for financial barriers of the system from these parameters is the percentage of unmet health service needs because the respondents could not afford them.

According to the SSO’s survey of 2015, 2.1 percent reported they had an unmet health need due to financial reasons, which is almost identical to the EU level of this answer. In 2015, this indicator in the lower income groups is minimally higher than the European average. Compared to 2010, when this survey was conducted in Macedonia for the first time, the country indicators note a significant progress, namely in 2015 they reached the European level.

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Table 4 Unmet health needs that people could not afford, as a % of the income quintiles Quintile 1

2

3

4

5

Total

Macedonia 2010

20.2

13.6

7.8

6.4

2.3

10.1

2015

4.7

3.7

1.6

0.5

0.1

2.1

Croatia (2015)

2.6

0.7

0.4

0.3

Serbia (2015)

8.5

5.2

3.2

1.1

0.9

3.8

EU28 (2015)

4.1

2.6

1.7

1.1

0.5

2.0

0.8

Source: Eurostat Compared to the countries in the region, Croatia’s total indicator of 0.8 percent is significantly higher than Macedonia’s indicator and thus higher than the European average; while Serbia with 3.8 percent notes a lower level of the population’s financial protection when using health services.

Impact of the out-of-pocket health expenditure on the financial situation of households The most important indicators about the level of a population’s financial protection when using health care are those measuring out-of-pocket expenditure in relation to households’ available funds. Such main indicator is the level of “catastrophic health expenditure” in the country. In this context, as catastrophic health expenditures are considered those that push households to reduce the consumption of basic necessities to cover health expenditure.

These indicators are usually estimated by data from the household consumption surveys.

In Macedonia, until now, no estimate or analysis has been made for this type of indicators, and they are not included in the SSO’s publication arising from this survey. In addition, due to this institution’s lack of openness, the authors of this study were denied access to data from the survey necessary to calculate and make a more thorough analysis of such indicators for Macedonia and their fluctuation throughout the years. Consequently, a survey was conducted for the needs of this study on a sample of 1,200 households with 4,068 members in total, which included a calculation of their monthly expenditure. The survey is representative at the national level with stratification per regions and per settlement type, in accordance with the methodology applied by the SSO. 189

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There are two basic methodologies for the threshold over which health expenditures are considered as catastrophic. The first one is applied when measuring the fulfilment of sustainable development goals and sets the threshold at 25 percent of the total household capacity to pay; whereas the second one is applied by WHO and it sets the threshold at 40 percent of non-subsistence expenditures, i.e. the remainder of household funds after food consumption. We applied both methodologies to the survey data and the two approaches produced a similar result, namely 1.89 percent of people had health expenditure higher than 25 percent of the total household expenditure and 2.24 percent of people had health expenditures higher than 40 percent of the householdâ&#x20AC;&#x2122;s remaining resources after food consumption. Also, the analysis of these households with catastrophic health expenditure shows that most of them or 75 percent have a total consumption higher than their total income.

On the other hand, in the total number of households participating in the survey 32.5 percent of people had no health expenditure at all, and 37.3 percent had expenses lower than five percent of their total monthly expenditure. In absolute values, the average monthly health spending from this survey is 1,010 denars per household or 298 denars per person.

Table 5 Catastrophic health expenditure per country

Country

more than 25% of the total expenses

Bosnia and Herzegovina Bulgaria Estonia France Georgia Latvia Moldavia Russia Turkey Ukraine Average Macedonia Source: World Health Organization and World Bank, 2015 Note: Data for Macedonia are estimates by the authors

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0.3 2.1 2.7 1.7 4.8 1.8 3.2 2.4 0.7 0.3 2 1.9

more than 40% of the total expenses (net of food) 0.5 2.9 2.5 0.8 5 2.4 4.6 4.7 0.4 1.1 3 2.2

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

According to the comparable data of such indicators available from other countries, namely from 10 countries of Europe and Central Asia, the indicators calculated for Macedonia, as seen in the table, are below the average.

Limiting factor when using this survey is that the estimate was based on the monthly household consumption, unlike the SSO’s survey, which is conducted based on annual data. The annual analysis is more appropriate because it would eliminate household income and expenditure of seasonal nature (for instance, income of agricultural families).

In addition, due to lack of annual data, it is not possible to estimate the second indicator for impoverishing health expenditures, which measures the share of households with health expenditures that pushed them below the poverty line in the country (calculated on an annual level). Given that the survey was structured according to the model of SSO’s survey on consumption, another limiting factor is the reservation mentioned concerning the use of health spending data, i.e. the high likelihood that the health expenditure category also includes some non-health items.

Impact on health indicators The chart below shows the fluctuation in life expectancy in Macedonia. It notes a trend of continuous growth, and in the analysed period, life expectancy increased from 74.4 years in 2008 to 75.3 years in 2014, or by 0.9 years in a period of six years. This life span level is an indicator similar to the European average, and according to the world ranking, the country is ranked 57 in terms of average life expectancy.

Figure 13 Life expectancy in Macedonia

Source: WHO Health for All Database

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As seen in the chart, the increasing trend of life expectancy is a continuous process during the entire time frame covered in the figure, which is due to numerous factors such as measures undertaken in the country and external factors, primarily, the progress in medicine. Hence, the impact of the policy for easier access to health services and financial protection in their use cannot be shown separately neither for the growth in life expectancy nor for the indicators of population mortality and morbidity.

Conclusion and recommendations One of the main objectives of health systems, besides keeping population healthy and providing treatment for the sick, is to protect people from the financial risk of high health expenditure.

Having regard to the elaboration and analysis of all aspects of the universal health coverage concept for the population in Macedonia, but also comparing the country to other countries at its income level and to more developed countries, it can be concluded that the system ensures a high level of financial protection for the population when using health services.

Despite the lack of accurate data for the population living in the country, it can be concluded that almost the entire population is covered by health insurance, with a minimum portion that is not covered and that requires a wider approach to find a systemic solution (translated into legislative amendments). This entire population has equal access to all rights provided in the basic health service package, which is broadly set-up with minimum limits about what is not covered by health insurance. Basic health services such as primary care and emergency care are available without any payment by patients, while for the majority of other services in the system, according to the analysis, persons’ share in the use of said services is a minimum percentage of the total health service amount. In addition, the system among other rights provides many co-insurance payment exemptions.

Despite this set-up of the system aimed at ensuring high financial protection of patients in the system, the indicator for out-of-pocket health expenditures, which shows a downward trend in the last 10 years, is still on a relatively high level of 34 percent from the total health expenditure. As elaborated in the study, there is a high reservation in using this data due to the absence of national health care accounts. However, even from this uncertain number, we can conclude that one half of these expenditures is related to medicines, but also there is a large percentage of funds paid for using “private” health services, meaning services in private hospitals. If services in private hospitals are related to their business 192

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and marketing strategy aimed at the upper class and persons who do not trust the public sector, medicines although, in theory, as expected take up a large portion of out-of-pocket expenditure have to be subject to further analysis by policy-makers.

Such generous set-up of the system must also be seen through the financial prism of the system. If, on the one hand, the Macedonian system with 6.5 percent of GDP for health care has relatively modest funds available, on the other hand, we have a system offering practically everything to everyone with minimum cost-sharing. This imbalance may be one of the reasons behind the level of out-of-pocket expenditures mentioned above, and on the other hand is a risk to the financial sustainability of the health system. Namely, each expending of rights, in any of the three dimensions analysed, creates a need of additional funds, but also a need for analysing and potentially enhancing the capacities of health care institutions providing health services to insured persons, in order to fulfil the newly awarded rights and health needs of the population. If these rights are not accompanied with an adequate level of funding, on the one hand, that will bring into question the financial sustainability and, on the other hand, the staff potential available to the health system.

The health and financial authorities in the country have to seriously start analysing this challenge, whether some rights already offered by the system are justified, and to review with particular attention the proposals for new rights arising from the political programmes.

This need is also additionally accentuated by the global pressure to increase health resources. To that end, countries for several years have been intensively working on introducing HTA (Health Technology Assessment) systems through which each novelty (new medicine, technology, method etc.) will be evaluated and ranked according to the effect on continuing the life span, quality of life and price, thereby introducing the most efficient novelties in accordance with the resources available in the system.

In the segment of health expenditures’ impact on households’ financial situation, the Republic of Macedonia, in accordance with the catastrophic expenditure indicator, calculated for the first time (with all the limitations in the estimate), is below the average compared to other countries with similar and even higher development level, which is positive for the health system of the country.

The analysis performed relative to the population’s financial protection when using health services, led to the following recommendations: -

The lack of a state census of the population is a limiting factor, not only for this study, but also for the analysis necessary for policy makers to undertake 193

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-

-

-

-

-

-

-

-

-

measures in this area. To that end, it is recommended to update data about the population in Macedonia by conducting a state census; After the new state census of the population is implemented, it is necessary to carefully compare the Fund’s database of insured persons with the census data, in order to identify the persons not covered by the health insurance system and make a more detailed analysis and check the reasons why they are not in the system and if, perhaps, the system should undergo some improvements; The Law should define a health insurance mechanism for the persons lacking personal documents / citizenship and living in Macedonia for a longer period, who are not insured because of those reasons; The Republic of Macedonia through its responsible institution (SSO) should develop national health care accounts as the most reliable way for assessing outof-pocket health expenditure and, hence, for financial protection provided by the system to the population in the use of health services; Revise the rate of health care contribution payment through which the Ministry of Health insures persons registered in the system as poor, who cannot afford to pay contributions; Make an analysis of the justification for defining two health care packages, one for those paying contributions in the Health Insurance Fund and another package for persons whose health care contribution is paid by the state or increase the contribution rate paid by the state for persons below the poverty line; Strengthen the control mechanisms between institutions to check whether persons using free health insurance at family level really do have lower total income than the legal limit; Strengthen the legal sanctions for persons detected as circumventing the system for free health insurance and financially damaging the country by hiding their income from the institutions; Introduce controls by the PRO for everyone failing to submit annual tax returns, and exercising the right to free health care; Revise some of the co-insurance exemptions not related to improving the population’s access to health services, and carefully manage the policy in this part of the health system considering the risk they bring to the system’s financial sustainability; Focus on the policy in the area of medicines causing out-of-pocket expenditures for the population, and find the reasons behind these phenomena, and also define measures to improve the situation, i.e. reduce private burden for medicines in Macedonia (namely, stimulating the promotion of medicine use without additional payment, setting up HTA systems (for introducing new therapies, increased control of prescription and issuance of medicines, etc.); 194

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-

-

-

Monitor continuously the indicators for catastrophic health expenditure, both as a trend in Macedonia and compared to other countries, but based on an annual data estimate, in order to timely signal the health policy makers if the indicators deteriorate; Also, calculate the indicator for impoverishing health expenditures for Macedonia and continuously monitor it, in order to get a complete insight into the impact of out-of-pocket expenditure over the householdsâ&#x20AC;&#x2122; financial situation in the country.

To ensure a sound health system in the medium and long term, it will be necessary to make an analysis of the financial sustainability of the existing health system, which, as we mentioned in this study, provides a wide package of awarded rights with a relatively modest level of funds.

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References Busse R., SchreyĂśgg J., Gericke C. (2007) Analyzing changes in health financing arrangements in high-income countries: a comprehensive framework approach. HNP Discussion Paper. Washington, DC, World Bank.

HIFM (2017) Annual Report for 2016, Health Insurance Fund of Macedonia, Skopje.

Kutzin, J., Cashin, C, and Jakab, M. (2010) Implementing Health Financing Reform: Lessons from countries in transition. The European Observatory on Health Systems and Policies, World Health Organization Regional Office for Europe, Copenhagen.

Milevska Kostova, N., Chichevalieva, S., Ponce, NA., van Ginneken, E. and Winkelmann, J. (2017) The former Yugoslav Republic of Macedonia: Health system review.

Health Systems in Transition. WHO Copenhagen.

OECD/EU (2016) Health at a Glance: Europe 2016: State of Health in the EU Cycle.

OECD Publishing, Paris.

Thomson, S., Evetovits, T., Cylus, J. and Jakab, M. (2016) Monitoring financial protection to assess progress towards universal health coverage in Europe. Public Health Panorama 2(3), p. 249-400.

World Health Organization (2010) The world health report 2010, Health Systems Financing: The path to universal coverage. WHO Geneva.

World Health Organization (2013) The world health report 2013: research for universal health coverage. WHO Geneva.

World Health Organization (2014) Making fair choices on the path to universal health coverage. Final report of the WHO Consultative Group on Equity and Universal Health Coverage. WHO Geneva.

World Health Organization and World Bank (2015) Tracking universal health coverage: first global monitoring report. WHO Geneva.

Photo: pixbay.com,

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EFFECTS FROM STATE INVESTMENTS IN PUBLIC HEALTH CARE FOR THE PERIOD 2010-2016 Analysis of the capital investments in public health care concerning the prevention and treatment of cardiovascular diseases as the most common noncommunicable disease

5

Biljana Indova Branko Adjigogov

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Health

Effects from state investments in public health care for the period 2010-2016 Analysis of the capital investments in public health care concerning the prevention and treatment of cardiovascular diseases as the most common noncommunicable disease

Authors: Biljana Indova Pharmalink B&GP d.o.o.e.l.Skopje, biljana@pharmalinkbgp.com.mk Branko Adjigogov Health Insurance Fund of Macedonia, BrankoA@fzo.org.mk Reviewer: Rubin Zareski

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Introduction Health is a factor impacting the social status of the population and is one of the requirements for a sound economic development of every country. Therefore, the commitments of every government should be aimed at developing a health system that takes into consideration the actual needs of its citizens, which will improve, promote and maintain the health of all citizens. As a strategic priority, from the independence in 1991 until today, the health system in the Republic of Macedonia (RM) is continuously being improved and reformed with a view to attaining the objectives envisaged.

The effects from the investments in the health sector are more discussed by the expert and general public from the aspect of the financial value of the investments, their planning and implementation within the periods envisaged, without an in-depth analysis of the objectives achieved and their results. This is partly due to the limited availability and transparency of comprehensive data, which hinders the development of a detailed overview of the funds invested for the implementation of numerous projects and the reforms carried out in the health sector by the competent state institutions. Unlike the RM, we have witnessed positive examples of the industrially developed countries where the manner of investment planning in the health sector, the transparent publication and analysis, and the accountability for the effects produced contribute to the high efficiency of the health system. This state of play in the RM, which was identified and pointed out in the very beginning, is a huge challenge to performing an economic analysis in the Macedonian health sector in general.

Initial indicators about the level of investments in the health sector aimed at reforming the health system are the percentage share of health expenditure in the total expenditure of the Budget of RM and in the gross domestic product (GDP) annually, the percentage share of the development sub-programmes in the total expenditure and in the health expenditure. In addition, the analysis covered the data about the level of capital investments, where the investment priority lies, and what effects were produced in terms of improvement and modernisation of the health capacities. The effects will be measured through the mortality rate, healthcare services provided, hospitalisations, interventions and consumption of medicines. In addition to these indicators, concerning the achievements from the reforms in the healthcare of RM, the analysis also covered the assessments for Macedonia according to the European Health Consumer Index (EHCI), as the most frequently quoted health index source in our country by the local healthcare authorities. EHCI is a multiannual project comparing and ranking since 2006 the health

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systems in the European countries from the perspective of patients, the health service consumers.

The mortality, as one of the key indicators of quality of life and health care in each country, is one of the primary indicators of the efficiency level of the health system. In the world, all healthcare authorities strive to reduce the rate of premature death. Hence, it has to be determined what is the mortality level in RM in recent years compared to previous years, according to the Institute of Public Health (IPH) and according to the data of the World Health Organization (WHO). At the same time, it also is important to know what is the share of cardiovascular diseases (CVD) as a reason for premature death in our country and compared to Europe. CVD are in the focus of the study because they were also declared as a global pandemic by the WHO, as one of the three noncommunicable chronic diseases, because the largest percentage of the state budget, in addition to renal diseases and diabetes mellitus disease, is spent on CVD therapy. The burden on the state healthcare budget also includes treatment of complications due to CVD, caused by late detection and monitoring of the disease progression. All of the above indicates that CVD are a leading cause for premature death, for loss of productivity and, at the same time, they are also a financial burden to the health system in RM, thus the analysis of the effects from the investments is focused on this area.

Starting from the above mentioned, the subject of this study is to determine the effects produced by the investments realised by state money only in the public healthcare in the field of cardiovascular diseases for the period 2010-16, specifically in the following segments: 

investments in equipment (purchase of new equipment for the public healthcare institutions (public HCI) aimed at facilitating accessibility to the services, introducing completely new methods through the purchase of new or purchase of more recent technology);



investments in the capacities (renovation of the existing facilities in public health care or building new ones);



investments in staff (education of the existing employees and new recruitments in the public HCIs);



establishing a state cardiac surgery clinic;



new prescription medicines (extending the list of medicines covered by the HIFM by new medicines); and



prevention programmes (early and timely detection of CVD).

The aim of this study is to determine the level of investments, which in the past period defined have been allocated for CVD. At the same time, the data analysis is to determine what share of the total investments in health care has been allocated to the 203

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CVD prevention and treatment. In addition to determining the level of investments, the aim is also to identify the effects produced by the investments, the level of efficiency and whether there is a possibility for more optimum investment and achieving greater effects by the funds invested. The measurement and comparison of the effects from the different investments will contribute to reaching conclusions on the issue of the effects’ measurability and on the re-allocation of resources based on where the investments have been more efficient.

Materials and methods Generally, the publicly available media for providing information by the line ministry and by state institutions contain very few available official, comprehensive data and a detailed overview of the funds invested for implementation of the numerous projects and reforms carried out in the health sector by the Ministry of Health (MoH). Partial information can be obtained from the press-centre on the web page of the MoH, communications and statements by the Minister of Health, the Directors of the public HCIs and by other authorised persons from the health sector.

Consequently, for performing the analysis, we first asked from the MoH and obtained partial data about the investments in health care in the CVD area for the period 2010-16.

The investment effects were also analysed through several indicators, the data of which were obtained, upon request, from: the HIFM from the HIF system for healthcare services provided at a specialist consultation level – ambulatory packages and hospitalised patients (DRG); the HIFM from the HIF system for the implementation of prevention measures and activities by general practitioners (prevention check-ups, especially concerning CVD); Public HCI - University Clinic for Cardiology; “My Term” – Agency for Electronic Communications in Health Care.

For carrying out the analysis, we also used the final accounts of the annual budget of RM from the Ministry of Finance and the annual reports of the HIFM published on its web page, public information, as well as the databases of MAKSTAT, WHO and the reports of the IPH. We have to mention that for the needs of this study, the period of data collection was timelimited, initially until January – March 2017, and then the deadline was extended until 12 May 2017.This was also the period when the RM was faced with a political crisis and changes in the managerial structure caused by the change of government, which was an additional limiting factor in obtaining the data required. Until the end of the analyses, the data requested were not provided in its entirety to the researchers.

The data available concerning the investments showed that they are directly and exclusively linked to CVD only in a small number of cases (procurement of angiography machines, new recruitments and staff education, introducing the “Clopidogrel” medicine into the list of medicines covered by the HIFM). Most of the equipment invested is also 204

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being used for services not related to CVD, therefore the effects from this equipment could only be partially analysed through CVD. Data about the staff investments (recruitment and education) were not broken down per healthcare institution and not all of them were expressed in monetary units, which also affects how the analysis was performed. As a result, we decided to perform a segmented analysis of the investments: equipment, capacities, staff, state cardiac surgery, medicines and prevention programmes.

The healthcare economy recognises four types of analyses: Cost minimization analysis (CMA), cost-benefit analysis (CBA), cost-effectiveness analysis (СЕА) and cost-utility analysis (CUA). CMA is the most basic research methodology where the method of cost minimization analysis determines the treatment alternative, which has the lowest costs. СВА is used when the outcome produced can be expressed in monetary units, which in reality in health care is difficult because, for instance, you cannot put a monetary value to a life that was saved, primarily, for ethical reasons. With CEA, the costs are expressed in monetary units, while the efficiency is measured vis-à-vis the effects produced by the treatment / intervention (number of lives saved, patients cured, increased therapeutic efficiency etc.). CUA analysis is used from the patients’ health aspect, and also from the aspect of healthcare budgets and insurance companies for determining the need to give treatment, subject to the analysis. CUA incorporates QALY - Quality of adjusted life.

Guided by the experience in the developed countries, the analysis applied CEA, which estimates the outcomes of the treatment alternatives that are not measured in monetary units, but rather in physical values (years of extended life, complication avoided). This allows to sum up the health benefits vis-à-vis the assets applied with regard to health protection programmes offered. The consequences of the therapy and health service in economic estimates are expressed in two ways: efficiency and benefit. They also represent the basis for: the cost-benefit analysis and the cost-effectiveness analysis.

For the needs of this study, the researchers saw numerous analyses using QALY in combination with CEA because QALY includes a threshold, which is used by the healthcare budget and insurance companies to determine the cost-effectiveness of the treatment in monetary value. The utility, as a measurement of the therapy consequences, shows the quality of life in the extended years .It calculates all levels of the health status – from 0 (death) to 1 (normal life).When the utility is multiplied by the quality of life years, it shows the so-called QALYs - quality of adjusted life years (Zareski, 2011).For QALY to be applicable in RM, it is necessary to have a national register of weightings where living with a specific disease and/or the outcome after the treatment is valued between 0 (death) and 1 (perfect health). The healthcare authorities in RM, until now, have not made or published weightings. The second requirement for QALY are the adjusted life years, e.g. how long will, on average, patients live after the treatment / intervention. These two determinants are fundamental for the estimation of QALY because different countries value life expectancy and disease gravity differently. The third component of QALY is the costeffectiveness threshold, which is determined differently by different countries (e.g. NHS values 1 QALY at 20,000 – 30,000 pounds from 2004; since 2009, although the threshold was 30,000 pounds, treatments of 50,000 pounds were also being approved; and since 205

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2016, the threshold was increased to 100,000 pounds for treatments of rare diseases (Claxton et. al, 2015).1 QALY is one year of life in one year of perfect health. Because the cost-effectiveness threshold is not calculated in RM, numerous analyses use a multiplier of GDP per capita and usually it is three times the GDP per capita, in accordance with the WHO’s recommendations (Marseile, et. al, 2015). In recent years, QALY sparked off a considerable expert debate and, generally, the health economists from continental Europe and Great Britain have conflicting opinions. While economists from the European Union, without Great Britain, recommend to reject QALY as an indicator and to use a pure CEA, if possible confirmed by interdisciplinary groups, health economists from Great Britain are still of the opinion that QALY should continue being applied in deciding whether to introduce new treatments. The European consortium in healthcare outcomes and costbenefit research recommends to reject QALY because the health level as an indicator, before and after treatment / intervention is not a scientific data, but is rather obtained from personal views of the patients or doctors, in accordance with standardised questionnaires. In addition, nobody using the QALY method has confirmed or proven what perfect health means (1 as a maximum weighting). Because of the serious debates globally about the application of QALY, and the lack of a QALY definition nationally until now, the researchers of this paper will primarily keep to the level of CEA. However, in the interest of stimulating the expert debate and future analyses with or without the application of QALY, a simulation will be developed for some of the projects that were analysed so as to determine whether the results obtained by СЕА will differ with or without the application of QALY.СЕА is usually applied in deciding on the allocation of funds, and it measures the increased costs needed to achieve a greater health benefit expressed as a specific health outcome that differs depending on the treatment indication. The researchers performed this type of analysis retrospectively in order to identify the effects from the investments until now.

In order to test whether most of the conclusions coincide with the personal experience of health service consumers, a focus group interview was carried out (Appendix 1). For the needs of this study, the organiser of the analysis announced a public call for applicants to take part in a focus group through its web page on the social networks on the following topic: “To what extent do citizens feel the investments in the health care”? Without entering into the reasons, from nine persons that initially applied to participate, only two of them showed up on the date that was set. Due to the small number of respondents and the lack of statistical basis, the data obtained from the interview was not taken for further analysis.

The authors are aware of the need for obtaining the opinion of health service consumers, but at the same time, assessed that it was better to reduce the analysis quality for the benefit of objectivity. As a result, the further analysis took into consideration only the opinion of consumers obtained through the EHCI. Despite all constraints identified for a complete CEA, the analysis was made primarily with the purpose of determining the initial effects from the investments until now by calculating the ratio of cost per unit of effectiveness and the ratio of effectiveness per unit of cost. The data available was analysed in order to draw initial conclusions, but also to help identify 206

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the shortcomings of the current situation such as existence, recording and availability of data so as to enable the necessary conditions for pharmacological analyses in the future, which will help in the implementation of efficient reforms.

DATA ANALYSIS AND RESULTS For the period 2010-16, the health expenditures were, on average, 4.9 percent of GDP, and from the total budget expenditures, on average, 15.7 percent went to the health sector. In absolute values, the annual health expenditures have a trend of continuous growth with an average amount of MKD 1.2 billion annually. The highest growth was in 2015, which was MKD 1.77 billion, compared to the previous year. For the development sub-programmes within the Ministry of Health (MoH), on average, 5.9 percent of the total health expenditures were allocated (the highest percentage was in 2012, i.e. 9.2%), but only, on average, 0.9 percent of the total budget expenditures (the highest percentage was in 2012 with 1.5%).

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Table 1: Annual expenditures in health care and their percentage share in the total budget expenditures FINAL ACCOUNT ('000,000 MKD) 2010 2011 2012 2013 2014 2015 2016 GDP (World Bank) 435,684 498,858 454,626 482,777 574,481 566,656 635,727 Budget expenditures final account 142,692 148,649 155,837 159,505 168,062 180,632 185,407 Ministry of Health expenditures 2,147 2,648 5,545 6,018 5,560 5,851 5,631 Contributions for unemployed persons paid by MoH to HIFM 2,091 2,130 2,106 2,206 2,440 State Sanitary and Health Inspectorate expenditures 16 45 45 HIFM expenditures 19,806 20,967 21,436 21,887 22,571 24,120 26,031 Development subprogrammes health expenditures (part of the MoH expenditures) 939 1,284 2,280 2,184 1,479 1,235 1,175 Capital investments in health care 785 1,239 2,180 2,107 1,434 1,143 1,120 Total annual health expenditures 21,953 23,616 24,891 25,775 26,041 27,810 29,266 % health expenditures of GDP 5.0% 4.7% 5.5% 5.3% 4.5% 4.9% 4.6% % health expenditures of total expenditures 15.4% 15.9% 16.0% 16.2% 15.5% 15.4% 15.8% % development subprogrammes of total expenditures 0.7% 0.9% 1.5% 1.4% 0.9% 0.7% 0.6% % development subprogrammes of total health expenditures 4.3% 5.4% 9.2% 8.5% 5.7% 4.4% 4.0% Source: Final reports on the final accounts of the Budget of RM, Ministry of Finance and World Bank

Compared to the developed countries in Europe and the countries of the region, Macedonia is among the lowest listed countries according to the allocation of funds for health care. If in 2014, Sweden was listed on the top with health expenditure of 10 percent of GDP, and Albania was listed on the bottom with 2.9 percent, on the list, Macedonia is only positioned before Albania, Cyprus, Ukraine, Lithuania, Romania, Turkey and 208

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Montenegro. Hence, if we want to achieve the European quality level of healthcare services, it is necessary to allocate more funds, which will enable further improvement aimed at timely diagnosis and modern treatment.

However, this study should help understand the effects of the funds available and what has been achieved with the investments so far in promoting the healthcare capacities, which will result in improving the health of population. For these reasons, we started an in-depth analysis of the health expenditures, in particular for the development subprogrammes. Out of the total funds invested in development sub-programmes within the MoH amounting up to MKD 10.6 billion for the period 2010-16, 97 percent were allocated for capital investments, namely 60 percent were invested for procurement of medical equipment for the public HCIs, 23 percent for reconstruction of the existing public HCIs, and 14 percent for building clinical hospitals in Tetovo and in Shtip and for the Clinical Centre in Skopje. The remaining three percent are for implementation of other development sub-programmes. The investments distribution is shown on Graph 1: Graph 1: Distribution of capital investments per sub-programmes in the health care for the period 2010-16 (â&#x20AC;&#x2DC;000.000 MKD)

Source: Final reports on the final accounts of the Budget of RM, Ministry of Finance

It is evident from the data shown that the capital investments go exclusively towards reconstruction of existing and building new facilities and mostly in the procurement of new equipment, but not towards investment in education and additional training of the medical staff, which has a key role in the improvement of the health system efficiency and in raising the health service quality.

In the same period 2010-16, there is a rise in the total healthcare services provided to patients, but also in individual ambulatory and hospital services. The number of hospitalised persons was continuously rising throughout that period, with the exception of 2015, when it declined by 6.5 percent compared to 2014. Data about the number of healthcare services per years is given in Table 2: 209

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Table 2: Number of healthcare services covered by the HIFM for the period 2010-15 NUMBER OF HEALTHCARE SERVICE Ambulatory services* Hospitalisations (Public HCI + Private HCI) Average length of hospital stays (in days) Total services

2010

2011

2012

2013

2014

2015

2016

16,932,989

17,615,749

18,899,361

234,642

219,297

223,163

208,674

206,418

210,308

223,439

5.9

5.8

5.7

5.5

5.5

5.5

5.3

208,674

206,418

210,308

223,439

17,167,631

17,835,046

19,122,524

Source: Annual reports of HIFM and annual work reports of DRG, HIFM *HIFM has no data on ambulatory services until 2014

The decrease in inpatient care at the expense of ambulatory care, which on the one hand reduces the treatment costs, but at the same time also reduces the risk of additional nosocomial infections, is the goal of all health systems. This explains the expectations that investments will contribute to the decrease in inpatient care. It is evident from the data shown that this is not the case in Macedonia. However, to get a more accurate notion of the effects from the individual investments, it is necessary to make an individual analysis for different diseases.

For the needs of this study, and for CVD in the RM, we initiated an analysis of the hospitalisations and rehospitalisations. What is particularly important in the performance indicators of health systems are the rehospitalisations for a specific diagnosis within a given period. The data shows whether the patient was successfully cured and whether he/she was given proper instructions with medical therapy so as to prevent hospital readmission. An interesting fact is that the health systems, such as those in the U.S., have seriously noticed this problem concerning hearth diseases, because over 50 percent of all cases of hospital admission have been readmitted to hospital within six months of discharge. Initially, it was revealed that the problem was due to billing. Namely, the rehospitalisation brings in more money to the hospital treating the patient. Therefore, although that patient due to some pains could have been stabilised in an ambulatory care clinic, hospitals would readmit him/her. Some health insurances in the U.S. have resolved this issue by increasing the price paid to hospitals if the patient appears for the first time, and by reducing the price for rehospitalisation (Desai and Stevenson, 2012). In Macedonia, this is not the case because not only is the price the same, in accordance with the DRG methodology, but in the rehospitalisation cases, due to the greater number of procedures incorporated in the DRG coding, the price is higher compared to the first acute admission 210

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of the patient. Concerning rehospitalisations, their intensity is a direct indicator of the health service quality because the higher number of rehospitalisations indicate poorer health service quality. In accordance with the U.S. source used, 75 percent of the rehospitalisations may be preventable if some recommended measures are undertaken.

Rehospitalisations could never be reduced to zero, but the percentage should be as low as possible. In parallel, the percentage of rehospitalisations cannot be reduced to the same level in different healthcare institutions, particularly if they are from a different health care level. For instance, general hospitals would have a high percentage of rehospitalisations unlike clinical hospitals and the University Clinic.

Graph 2: Number of hospitalisations and rehospitalisations for the period 20102016

Source: HIFM

It is evident from the data shown in Graph 2 that out of the total number of hospitalisations, 57.33 percent are rehospitalisations with 67.48 percent of the sum. The percentage of rehospitalisations is slightly better in the three-year period, 2014-2016, when 47.76 percent go to rehospitalisations with 59.45 of the sum. The period 2014-2016 (three years) was separately processed for rehospitalisations, in accordance with the number of rehospitalisations in the same patients, thus patients were differentiated per number of rehospitalisations by 2, 3-5, 6-10 with first admission per year. It was determined that for two hospitalisations, the number in 2015/2014 declined (Graph 3), but for 2016/2015 it was again on the rise. For three hospitalisations it is continuously rising (Graph 4), while for 4-10 hospitalisations it is in decline.

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Graph 3: Annual number of second

Graph 4: Annual number of third, fourth and

rehospitalisation

fifth rehospitalisation after the first admission for the period 2014-16

Source: HIFM

The large number of rehospitalisations, particularly in the three-year period analysed, is a negative indicator of the health system concerning the hospital part for heart diseases.

Certainly, it should be taken into consideration that the iteration of hospitalisations is partly due to the population aging and to the extended life expectancy, the disease gravity etc.

Mortality rate All investments in the health care should lead to improvement and modernisation of the health capacities, with the purpose of enhancing the quality and efficiency of healthcare service, resulting in a decreased mortality rate, decline in the incidence, better health condition and quality of life. We took the mortality rate as one of the indicators demonstrating the effects of the investments in CVD prevention and treatment.

In the RM, mortality is still on a high level, compared to the European countries, and is on par with the countries of Eastern Europe and the developing countries. Cardiovascular diseases (CVD) are a leading cause for premature death in Europe and in our country. In accordance with the IPH’s public information, the CVD mortality trend in the RM has a tendency to grow, while in the past decades in Europe it is in decline. If in 2008 there were 531.8 deaths per 100,000 population, in 2015 that number increased and was 576.7 cases. The mortality trend of circulatory diseases for the period 1975-2015, which has a tendency to grow, is shown on Graph 5. At the same time, WHO’s data do not coincide with IPH’s data for the period until 2010. According to the WHO, the trend notes a decline in mortality.

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Unfortunately, 2010 is the last year of available data from the WHO. For this analysis for 2007, we used data from the WHO; and for 2015 from the IPH (as the most recent data).

Graph 5: Mortality trend of circulatory diseases for the period 1975-2015

Source: Institute of public health and WHO

The Macedonian health care according to the European Health Consumer Index (EHCI) EHCI aims at setting standards for a well-functioning and organised health system.

According to this index, in 2014, out of the total 35 countries, Macedonia made the most remarkable advance in the EHCI scoring in the history of the index, moving from 27th to 16th place, mainly because of the elimination of waiting lists by implementing the “My Term” e-booking system; and in 2016, it dropped to 20th place. In 2014, according to EHCI, Macedonia got the best score regarding accessibility to healthcare services with 17 points, and it also showed the most remarkable score concerning patient rights and information with high 33 points, if we consider that the highest score of 35 points was achieved by the Netherlands that same year.

The improvement of the access to healthcare services is only one of the prerequisites for an efficient health system. Important parameters, which also demonstrate the efficiency of healthcare services as a result of successful reforms, are the quality of services, prevention, quality of medicines, facilities and equipment, and education of healthcare workers.

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Therefore, what is worrisome is the EHCI score concerning the medical treatment results, as one of the most important indicators of a well-functioning health system, where Macedonia in 2014 had only 10 points, placed not only behind the economically more developed countries, but also behind its neighbouring countries, expect for Serbia, which had two points less. This position also did not change in 2016.

One of the indicators through which EHCI measures the treatment outcome is the mortality decrease from cardiovascular diseases (CVD). Unfortunately, the score of RM for this indicator was one, which means poor mortality decrease (Bjornberg, 2017; Stevanovic and Stevanovic, 2016).

In the next part of the study, for clearer inspection of the effects from different investments, we performed a segmented analysis of the different categories of investments: A. Treatment on all three levels of health care (equipment, capacities, staff, state cardiac surgery and medicines) and B. prevention.

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A. TREATMENT EQUIPMENT Globally, health systems are compared according to the robust medical equipment per population. As a result, we compared the more important investments in order to see where the Macedonian health system stands vis-a-vis the European systems.

Out of the total MKD 6.35 billion invested in medical equipment for the period 2010-16, MKD 1.6 billion were invested in the procurement of 15 computed tomography scanners (CT scanner), six magnetic resonance imaging units (MRI), seven monopolar angiography systems, and two echocardiography ultrasound machines that are completely or partially applied during CVD diagnosis and treatment. The total quantities of some of the equipment with the total amount are given in Table 3: Table 3: Investments in the procurement of medical equipment for the period 2010-15 intended for cardiovascular diseases

EQUIPMENT

quantity

Total value with VAT ('000,000 MKD)

Computed tomography scanner

15

736.9

Magnetic resonance imaging

6

624.2

Monopolar angiography system* Echocardiography ultrasound machine, mobile echocardiography machine

7

357.5

2

10.6

Source: Data received upon request for access to complete public information, Ministry of Health *The amount also includes preparation of the area, in accordance with the contract notice published, but unfortunately it does not separate the price of the angiography system from the total value

Through the purchase of this type of medical equipment, the health system in R. Macedonia comes closer and becomes comparable, but only to a small number of countries in Europe. With the new 15 CT scanners until 2014 and with the existing four CT scanners or 9.5 per 1,000,000 population, the health system in RM is only ahead of Hungary (8) of the European countries, and almost on the same level as the United Kingdom (9) in that year. Macedonia has 3.5 CT less compared to Slovenia, as the closest country regarding the beginnings of the health systems, number of population and proximity. With the six MRI purchased until 2014 and with the existing two, or four per 1,000,000 population, the health system in RM is again only ahead of Hungary (3), and is now on the same level as Russia (4.4) per one million of population for that year. The number of CT scanners and of MRI per 1,000,000 population for different European countries in 2014 is shown on Graph 6 and Graph 7 respectively:

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Graph 6: Number of CT scanners

Graph 7: Number of MRI per 1,000,000

per 1,000,000 population in 2014

population in 2014

Source: Organization for Economic Co-operation and Development It should be noted that investments in health systems in the countries worldwide are a continuous process, so the situation throughout the years is changing. Thus, in Slovenia, the number of CT grew from 13 to 14.1 per one million of population in 2016. Similar to the CT scanners, where there was a considerable advance in 2015 compared to the previous year, in Hungary, the number of MRI per one million of population grew to 3.6 from 3.1 in 2014.

Waiting list The purchase of the equipment and putting it into service, expectedly resulted in enhancement of the health system in terms of modernisation of diagnostic methods, increasing the speed and accuracy and reducing the number of days in waiting lists. The latter is confirmed by the data obtained for 2017, compared to 2013. Thus, for CT, the number of waiting days decreased by 59 percent, from 100 to 41 days; while for MRI, it decreased by 47 percent, i.e. from 75 to 40 days. Data about the waiting lists in 2013 and in 2017 is shown in Table 4: 216

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

Table 4: Waiting list for diagnostic procedures

Waiting list (in days)

SEPTEMBER 2013

Computed tomography

FEBRUARY 2017 100

41

Magnetic resonance imaging

75

40

Echocardiography

30

20

Echo diagnostics

30

8

Source: HIFM and “My Term”

However, despite the low number of CT and MRI compared to other countries, the extent of the optimum use of the equipment purchased should be taken into account as well as the level of patients’ actual satisfaction and whether they feel the benefits of these capital investments.

Besides the limiting factors addressed in the introduction to this study, an additional constraint for a full CEA analysis in reference to the equipment was the failure to obtain data about the equipment distribution per public HCI, the date when it was put into service and the individual value (the equipment was purchased in several occasions and a 217

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different unit value was achieved in the procedures conducted). Due to the lack of data on the equipment distribution per public HCI, and using the data obtained from the HIFM concerning the packages invoiced for MRI, CT and for angiography, we indirectly analysed the allocation of equipment purchased, and the numbers are shown in Table 5 and in Table 6: Table 5: Number of packages invoiced to HIFM for CT and MRI for the period 2014-16

Town

Skopje

Skopje

Skopje

Skopje

Public Healthcare Institution “MAJKA TEREZA” CLINICAL CENTRE “8 SEPTEMVRI” CITY GENERAL HOSPITAL UNIVERSITY CLINIC FOR SURGICAL DISEASES – “SV. NAUM OHRIDSKI”-SK. HEALTHCARE INSTITUTION SKOPJE

COMPUTED TOMOGRAPHY

MAGNETIC RESONANCE IMAGING

TOTAL PACKAGES

TOTAL PACKAGES

2014

2015

2016

2014-16

13,286

11,528

14,745

39,559

8,339

7,350

9,219

5,486

5,349

4,392

15,227

4,154

4,909

4,414

3,089

3,493

3,021

9,603

3,214

3,206

2,509

-

74

1,908

1,982 3,809

4,046

4,533

Bitola

CH BITOLA

3,177

4,795

4,416

12,388

Tetovo

CH TETOVO

2,649

3,386

5,138

11,173

Shtip

CH SHTIP

3,040

3,345

2,010

8,395

Veles

GH VELES

1,961

2,355

2,274

6,590

GH GOSTIVAR

3,439

2,691

2,068

8,198

GH KUMANOVO

3,568

1,576

3,660

8,804

Ohrid

GH OHRID

2,508

2,902

3,259

8,669

Prilep

GH PRILEP

1,727

2,349

2,767

6,843

GH STRUMICA

2,057

2,283

2,824

7,164

45,987

46,126

52,482

144,595

Gostivar Kumanovo

Strumica

Total

Source: HIFM

218

2014

632 1,579

21,727

2015

1,118 883

21,512

2016

625 2,233

23,533

201416

24,908

13,477

8,929

12,388 2,375 4,695

66,772

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

Table 6: Number of packages invoiced to HIFM for procedures in an angiography room for the period 2014-16

Town

Public healthcare institution / private healthcare institution that has concluded a contract with the HIFM

Skopje

Public HCI “MAJKA TEREZA” CLINICAL CENTRE

Skopje

Public HCI “8 SEPTEMVRI” CITY GENERAL HOSPITAL

Skopje

Private HCI SISTINA – CLINICAL HOSPITAL FOR CARDIAC SURGERY

Skopje

Private HCI SPECIAL HOSPITAL FOR SURGICAL DISEASES “FILIP VTORI” - CARDIAC SURGERY DEPARTMENT

Ohrid

Public HCI - CENTRE FOR PREVENTION, TREATMENT AND REHABILITATION OF CARDIOVASCULAR DISEASES

Bitola

Public HCI - CLINICAL HOSPITAL BITOLA

Tetovo

Public HCI - CLINICAL HOSPITAL TETOVO

Shtip

Public HCI - CLINICAL HOSPITAL SHTIP

Strumica

Public HCI - GENERAL HOSPITAL STRUMICA

Angiography procedures covered by the HIFM

2014

2015

5,030

5,137

-

365

446

556

531

1,042

1,183

197

219

52

321

361

622

-

Total

165

7,603

286 8,910

2016

2014-16

5,275

15,442

908

1,073

327

1,138

532

1,619

1,360

3,585

442

858

404

777

666

1,649

394

680

10,308

26,821

Source: HIFM

From the three-year data on the package-services provide in relation to CVD, it is evident that 70 percent of the total number of MRI packages, or 46 percent of the total number of CT, were provided in Skopje. After the City of Skopje, the second town that provided the largest number of this type of services is Bitola accounting for 19 percent of MRI and 13 percent of CT. We noted the low percentage of packages for MRI (7%) and for CT (11%) for the Eastern-South-eastern region (Shtip, Strumica), and in the Polog region (Tetovo, Gostivar, Kichevo) four percent of MRI and 13 percent of CT, considering the number of population.

The reasons for the lower usage of services in Shtip and in Tetovo, vis-à-vis Skopje, could be due to the delayed putting of the equipment into service, lack of sufficient number of staff or timely trained staff for implementation of most of the packages, non-critical use of equipment in the Skopje region etc. We cannot draw a more precise conclusion because of the absence of initial studies and lack of complete available data.

Unlike the situation with the CT and MRI, concerning the angiography systems purchased, which have been put into service, the investment is exclusively related to CVD, and it is 219

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evident from the data obtained from the HIFM for the period 2014-16 regarding the interventions provided in angiography rooms that there is a more frequent use of angiography machines in the Eastern region, Shtip and Strumica (9%), compared to the Western region, Tetovo (3%), while the highest number of interventions are still provided in Skopje, i.e. 72 percent of the total number of interventions. To determine the reason behind the regional differences in the use of angiography systems, we should also take into consideration the education of staff and the number of staff available, which is subject to further analysis and conclusion in the following section of this study dedicated to staff.

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Capacities and state cardiac surgery clinic In the period that is subject to analysis of this research, out of the total MKD 10.0 billion that the MoH has invested in the period 2010-2016, 1/3 or 33% have been invested in reconstruction of the existing capacities or building new ones. When it comes to cardiovascular diseases, a total of MKD 42.6 million have been invested in setting up a state cardiac surgery clinic. This investment, along with the investments in equipment and staff, enabled the University Clinic for State Cardiac Surgery to have a continuous rising trend in cardiac surgery interventions in 2014.

According to HIFMâ&#x20AC;&#x2122;s reports, 2015 and 2016 have seen a continuous increase in the amount of the co-payments agreed for cardiovascular surgery services in comparison to previous years, which is shown in Table 7: 221

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Table 7: Co-payments agreed for cardiovascular surgery services (‘000 MKD) and number of services Realised income (with co-insurance)

Healthcare Institution

2014

2015

2016

18,421

14,819

15,564

65,787

54,880

50,670

7,865

41,166

86,638

Private HCI “Acibadem Sistina”

335,102

349,176

349,265

Private HCI “Filip Vtori”

373,521

367,880

367,981

TOTAL (MKD)

800,697

827,920

870,119

Public HCI - University Clinic for Thoracic and Vascular Surgery Public

HCI

-

University

Clinic

for

Paediatric Surgery Public HCI - University Clinic for State Cardiac Surgery

2015

vs

2016

vs

2014

2015

-19.56%

5.03%

-16.58%

-7.67%

423.43%

110.46%

4.20%

0.03%

-1.51%

0.03%

3.40%

5.10%

of healthcare services

Healthcare Institution

2014

2015

2016

82

69

68

67

57

51

20

110

254

Private HCI “Acibadem Sistina”

1,006

1,085

1,103

Private HCI “Filip Vtori”

1,133

1,108

1,123

TOTAL (number of services)

2,308

2,429

2,599

Public HCI - University Clinic for Thoracic and Vascular Surgery Public

HCI

-

University

Clinic

for

Paediatric Surgery Public HCI - University Clinic for State Cardiac Surgery

2015

vs

2016

vs

2014

2015

-15.85%

-1.45%

-14.93%

-10.53%

450.00%

130.91%

7.85%

1.66%

-2.21%

1.35%

5.24%

7.00%

Source: HIFM’s annual reports, request to HIFM

What is encouraging is the fact that the state cardiac surgery has had an exponential growth in the number of healthcare services provided since its establishment. If the trend 222

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of increase in the number of healthcare services provided continues, and if the budget funds follow this trend of growth, the public healthcare system in the segment of cardiac surgery in the medium term could be expected to reach the number of cardiac surgeries performed in the private healthcare system, thus becoming one of the rare success stories of public health care in the Republic of Macedonia. For now, covering only 10 percent of the total number of cardiac surgeries, it still cannot impose itself as a serious competitor to the private healthcare system. Unfortunately, the lack of comprehensive and wellorganised data on previous investments makes it impossible to conduct complete analysis with the aim of establishing and measuring their cost-effectiveness.

STAFF â&#x20AC;&#x201C; MoH PROGRAMMES Staff education in respect of CVD is covered by the cardiovascular disease prevention programmes of the Republic of Macedonia, which began to be implemented as of 2013.

Through this programme, in the period of 2013-2016, the MoH invested a total of MKD 76 million. The largest portion, or 68.5 percent of the investment, was allocated to staff education, which at the same time is an investment in the treatment of patients.

Programme costs broken down in different segments and years are shown in Table 8: Table 8: Cost structure of cardiovascular disease prevention programmes in the Republic of Macedonia for 2013-2016 2013

2014

2015

2016

Database

1,240,000

12,000

90,000

90,000

Evaluation

2,520,000

60,000

60,000

60,000

Staff education

3,720,000

4,408,000

22,470,000

21,470,000

-

-

-

12,000,000

2,000,000

380,000

380,000

380,000

520,000

50,000

-

-

-

3,090,000

-

1,000,000

10,000,000

8,000,000

23,000,000

35,000,000

Treatment Population education Planning Miscellaneous Amount in MKD Source: Ministry of Health

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According to the data obtained from the MoH, in the period from 2013, when the education programme for doctors and medical staff was adopted for the first time, up until 2016, there have been continuous investments in education of the existing staff and increase in staff size through new recruitments.

In order to develop the cardiology network, in the period of 2013-2016, the state cardiac surgery clinic for adults and children held 260 education sessions for doctors and middlelevel medical staff from the cardiology units of the public HCIs. Also, two sub-specialty courses in the field of cardiac surgery were completed. During the same period, there have been new recruitments: 10 recruitments aimed at developing the cardiology network, 44 recruitments aimed at developing the state cardiac surgery and 7 recruitments aimed at developing the paediatric cardiac surgery.

In addition, in line with the programme, and aimed at educating the doctors and medical staff for development of the cardiology network, the state cardiac surgery for adults and childr With reference to the data for the period 2014-2016 about the greater frequency of interventions in the angiography rooms in Shtip and Strumica (9%) in comparison to the Western region, and having regard to the fact that it was exactly in the Eastern region that intensive investments were made in educating doctors and developing the cardiology network, it can be concluded that the investments in equipment and staff in this subsegment yield results.

For the period 2010-2012, i.e. before the introduction of the programme in the MoH, which is also part of this study, the MoH did not submit data on staff education completed. Also, there were no specific data on the distribution of staff education events per public HCI that could make it possible to conduct an analysis of the total investments per public HCI and of the benefits thereof.

This is another example that shows insufficient transparency of the data on healthcare investments.

Public HCI - University Clinic for Cardiology â&#x20AC;&#x201C; angiography laboratory The available information on interventions performed in the angiography laboratory of the Public HCI - University Clinic for Cardiology allow us to make an analysis of the investments in terms of procurement of angiography systems for treatment. Two angiography systems were put into operation in this institution. Their value amounts to MKD 86.5 million. Other investments, according to the information obtained from the clinic, are related to staff and include: education of the existing staff, new recruitments and specialty trainings. For the latter, there is no accurate financial data available that could be added to the investment in equipment and show the total investment value for this type of interventions.

The results from the investments in equipment and staff in the University Clinic for Cardiology can be evaluated through the performance of the angiography laboratories, as one of the indicators. Therefore, an analysis was carried out on the annual number of total interventions performed in the angiography laboratories, as well as on individual 224

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interventions (percutaneous, carotid and peripheral) for the period 2007-2016 and they are shown in Table 9: Table 9: Total number of interventions per year in the angiography laboratory of the Public HCI - University Clinic for Cardiology for the period 2007-2016 Total number of interventions in the angiography laboratory of the Public HCI - University Clinic for Cardiology in the period 2007 â&#x20AC;&#x201C; 2016

Yea r

200 7 200 8 200 9 201 0 201 1 201 2 201 3 201 4 201 5 201 6

Peripheral interventi ons

Total number of interventi ons

Total interventi ons to number of patients ratio

5

4

1244

43%

1428

27

7

1462

42%

4097

1721

67

8

1796

44%

4282

1966

76

16

2058

48%

4679

2301

111

16

2428

52%

4497

2371

110

21

2502

56%

5220

2835

124

31

2990

57%

5417

2826

100

43

2969

55%

5326

2772

117

87

2976

56%

5661

2832

109

70

3011

53%

45532

22287

846

303

23436

Total numb er of patien ts

Percutane ous interventio ns

Carotid interventi ons

2888

1235

3465

Source: Data obtained from the Public HCI - University Clinic for Cardiology by submitting an application for access to public information

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There is an evident continuous growth in the total number of interventions throughout the period for which data is available, except for 2012 and 2015 when the annual number of interventions has decreased by 3.9 percent, i.e. 1.7 percent, in comparison to the previous years, which after all has no statistical significance. In the last three years, the average annual increase in the annual number of total interventions is smaller in comparison to the period 2011-2013 (for the period 2014-2016, the average increase in the number of interventions amounts to 147 vs 313 for the period 2011-2013).

The general conclusion that can be drawn from this is that there is a trend of increase in the total number of interventions in the angiography laboratories of the clinic as a result of investments in equipment and education of staff, and in response to the needs of the patients.

However, it should also be noted that the annual figures depend on the service demanded, i.e. the established indication, and of course, they are limited by the existing capacities and available resources.

When analysing the data on individual types of interventions, it can be observed that the increase is present in all three types of interventions: percutaneous, carotid and peripheral interventions, when compared to 2010. Such an increase in the annual number of peripheral interventions is due to the increased number of staff and their training to perform this type of interventions. However, from the point of view of pharmacoeconomics, in order to determine the cost-effectiveness of the entire investment, it is necessary to have a detailed overview of the invested funds broken down in categories in order to measure the extent of their effect.

In the last three years, there has been an increased number of hospital deaths following a percutaneous intervention during the hospital stay. If the number of recorded cases in 2014 has been only one, in 2016 it reached 23. Expressed as percentages, although statistically insignificant, 0.81 percent of the patients in 2016 suffered hospital death, which is the highest percentage for the period 2014-201621 and is in line with the expected risk margin. This is due to the additional training of staff and to the admission of increasingly more difficult cases of multi-vessel coronary disease and stenting of left main stem coronary artery; procedures that have previously not been performed and where patients were usually sent to bypass surgery.

Table 10: Hospital death cases following a percutaneous intervention during the hospital stay in the Public HCI - University Clinic for Cardiology for the period 20142016 Year

PCI

Hospital death cases of patients

%

2014

2826

1

0.04%

2015

2772

5

0.18%

2016

2832

23

0.81%

Source: Data obtained from the Public HCI -University Clinic for Cardiology by submitting an application for access to public information 226

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MEDICINES In the RM, the consumption of cardiovascular medicines has been prevalent in the primary health care (PHC). According to HIFM’s annual reports, 2016 has seen a total of 9.67 million prescriptions being dispensed, which is the largest number for the period of 2010-2016 and accounts for 43.4 percent of the total number of prescriptions covered by the HIFM. The number of prescriptions dispensed for CVD in 2016 shows a 56 percent increase in comparison to 2010 and a 4.8 percent increase in comparison to 2015. Data about the number of prescriptions dispensed for CVD in PHC expressed as millions of prescriptions are shown in Graph 8: Graph 8: Number of prescriptions dispensed for CVD in PHC for the period 2010-2016 expressed as millions 12 10 8 6 4 2 0 2010

2011

2012

2013

2014

2015

2016

Source: Annual reports, HIFM

The increase in prescriptions dispensed is accompanied by an increase in the amount of funds allocated for this group of medicines on annual level with the total amount exceeding MKD 700 million in 2016, which is a 59 percent increase in comparison to 2010.

This growth, however, does not reflect the absolute annual incidence, since HIFM’s budget for medicines is limited and proportioned to every legal entity that issues prescription medicines. In the event of exhausting HIFM’s funds, the prescription medicine shall be paid by the patient as out-of-pocket expenditure, and as such, it shall not be registered in the records of dispensed prescriptions in HIFM’s reports.

In the consumption of medicines in 2015 and 2016, the medicine “Clopidogrel” is included at the expense of HIFM. Namely, as of 01/11/2014, the list of medicines covered by the HIFM has been extended to include the medicine “Clopidogrel”, indicated for prevention of atherothrombotic events and prevention of atherothrombosis and thromboembolism in patients with atrial fibrillation. For the purpose of introducing this medicine in the 227

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

positive list, in 2016, the HIFM allocated MKD 20.9 million, which at the same time can be considered as an investment. Table 11 shows the number of prescriptions on an annual level and the total amount that the HIFM has allocated for dispensing the prescriptions for this medicine: Table 11: Annual consumption of the medicine “Clopidogrel” covered by HIFM for the period 2015-2016

Clopidogrel of prescriptions Amount (MKD)

2015

2016

59,977

84,768

14,700,527

20,884,260

Source: Information obtained from the HIFM

It should be noted that this medicine was approved and released for the first time in the U.S. in 1997, and also in Europe a year later. The number of prescriptions dispensed points out to the need for using this medicine to prevent undesired events in 7,000-14,000 patients on an annual level, which for the majority of health insured persons was not available up to 2015.

The introduction of a new medicine in the positive list for CVD is not the case with the other therapeutic groups. The failure to set up commissions, in accordance with the manner and methodology for introducing new medicines in the list of medicines covered by the HIFM that was introduced in 2012, made it impossible to have continuity in the modernisation of the therapy. In the context of CVD, the introduction of “Clopidogrel” 17 years after its release on the global market is a belated investment, taking into consideration the necessity of its use in large number of patients and the risk of a fatal outcome if not used.

B. PREVENTION In line with WHO’s guidelines, the HIFM introduced the obligation for prevention check-ups of insured persons by their respective general practitioners. WHO’s recommendations regarding the prevention were based on the projections that the health systems will become increasingly burdened by the most common chronic non-communicable diseases – CVD, diabetes and kidney diseases, because the number of people who suffer from those diseases will become increasingly higher and because of the fact that, year after year, the health systems will be facing increasingly higher expenditures for this type of diseases.

Treatment is always much more expensive than prevention. The chronic patient, for a long and continuous period of his/her life, will have a limited working ability and, at the same time, will incur bigger expenses to the healthcare budget. Preventive check-ups in the form of obtaining standardised results about the level of risk were introduced as part of the work of the general practitioners, targeting a certain age group of insured persons in a 2year cycle. The first cycle that was completed in 2014-2015 covered 100 percent of the 228

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insured persons at the age between 14 and 65, whereas the second cycle that was completed in 2016-2017 covered 90 percent of the insured persons at the age between 35 and 56. This was done because it was established that the biggest potential risk for developing a CVD in the next 10 years of life of the insured person lies exactly with this age group.

For methodological comparison, the 35-56 age group from the first cycle was singled out, as well as the first year from the second cycle.

For the purpose of prevention and early detection of these diseases, the HIFM measures the performance of general practitioners expressed as percentage for each disease individually, as well as a certain percentage for secondary prevention (advices, monitoring the health condition, brochure on the disease) of patients who have already developed the disease.

This research has only covered the persons with cardiovascular prevention. Data on the programmes implemented in the period 2014-2016 are shown in Table 12: Tabel 12: Implemented CVD prevention programmes among insured persons at the age between 35 and 56 for the period 2014-2016 CARDIOVASCULAR PREVENTION GENERAL PRACTITIONERS among healthy persons at the age between 35 and 56 Total capitation paid â&#x20AC;&#x201C; general practitioners (MKD) Maximum funds for CVD for potentially healthy patients (MKD) Capitation percentage Number of prevention exercises performed on healthy persons at the age between 35 and 56

Year

2014

2015

2016

1,820,013,916

1,875,105,657

1,971,961,088

127,400,974 7%

131,257,396 7%

98,598,054 5%

173,783

149,080

196,266

Source: Information obtained from the HIFM

Capitation percentage is the amount paid as part of the fee calculated by the HIFM for each patient individually. In the first cycle (2014-2015), as part of the capitation fee, the HIFM allocated the maximum amount for cardiovascular disease prevention, which amounted to 7 percent of the capitation of the general practitioner, whereas for the second cycle, it amounted to 5 percent of the capitation. The number of prevention exercises performed on healthy individuals at the age between 35 and 56 refers to insured persons who paid a visit in person to their general practitioner for this purpose. The insured persons who were invited but failed to show up in the office of their general practitioner are not taken into consideration.

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The identification of risks is based on lab tests (blood lipids) and on the age group of insured persons along with their blood pressure, and smoking as a risk factor, in accordance with the risk matrix for countries with low and medium living standards and with high risk of developing heart diseases. The HIFM together with the association of cardiologists, the Public HCI University Clinic for Cardiology and the Heartscore risk charts (heartscore.org – interactive tool for assessment and management of the risk of heart attack and cardiac arrest) adjusted and published, and distributed them to all general practitioners. The general practitioners filled out the prevention forms electronically by entering the data in the software of the HIFM – donation from the Association of General Practitioners of the Republic of Macedonia (ZPLRM). The risk assessment itself is a percentage of the likelihood of death occurring as a result of cardiovascular event (heart attack, stroke, etc.) in the following 10 years. 0-5 percent shows low and medium risk, 6-10 percent shows high risk, and above 10 percent shows extremely high risk. The results on the levels of risk among insured persons covered by prevention programmes are shown in Table 13: Table 13: Risk of developing heart disease among the population between 35 and 56 years of age Prevention programme results

2014

number Low or medium risk (0-5% deaths in 10 years) 172,133 High risk (5-10% deaths in 10 years) 1,571 Very high risk (over 10% deaths in 10 years) 79 Total number of patients covered by the CVD prevention programme 173,783 Source: Information obtained from the HIFM

2015

2016

%

number

%

number

%

99.05%

148,100

99.34%

195,572

99.65%

0.90%

916

0.61%

659

0.34%

0.05%

64

0.04%

35

0.02%

149,080

196,266

In order to calculate the number of patients that belong to each risk group, average values of the percentages in the risk group were used, except for the group of very high risk where it is set at 10 percent of the number in that group.

Risk to insured persons expressed in terms of numbers (from the first cycle of prevention in 2014 and 2015) shows that 8,005 persons with low and medium risk and 201 persons with high and very high risk will die as a result of a cardiovascular event in the next 10 years, provided that they don’t change their life habits (stop smoking, lose weight, stop taking in fats and salts, and start exercising). It is important to note that all these persons will still be fit for work in the category of people up to 65 years of age.

What could be noted as a positive indicator is the number of insured persons at the age between 35 and 56 in the category of high and very high risk, which shows a decreasing 230

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trend after the first cycle, whereas the number of persons with low and medium risk is increasing, which is evident from Graph 9 and Graph 10: Graph 9: Risk level 0 and 1-5

Graph 10: Risk level 5-10 and >10

2016 vs 2014-2015

2016 vs 2014-2015

Source: Information obtained from the HIFM

This speaks of the positive effects of the prevention programmes aimed at reducing the death rate in such a way that the insured persons take measures for the benefit of their own health, after receiving recommendations and advice.

COST-EFFECTIVENESS ANALYSIS In order to identify and measure the effects of the investments that have been made so far, a retrospective CEA (cost-effectiveness analysis) was conducted. With the aim of triggering an expert debate and further analyses, QALY was additionally applied to some of the analyses by simulating some of the projects analysed. Concerning the costeffectiveness threshold, the recommendation of WHO was taken into account, i.e. three times GDP per capita, and without the two weightings. С= monetary units E= non-monetary value of effectiveness (for example, lives saved) C/E = ratio of cost per unit of effectiveness – (having a lower ratio from various projects is better) E/C = ratio of effectiveness per unit of cost (higher ratio is better) 1GDP per capita (2015) = EUR 4,377.00 = MKD 269,186 231

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QALY cost-effectiveness threshold = 3 x GDP per capita = 3 x MKD 269,186 = MKD 807,557 Q – health weighting Y – adjusted life years Although it does not fall within the period of 2010-2016, which is subject to this analysis, in some of the analyses that were performed, 2007 was taken as an initial year before the beginning of the investment cycle, which is subject to this analysis, in order to have an insight into the situation before and after the investments were made.

In accordance with the data that is available, an analysis was conducted on four different projects, for which data is available for a period of at least five years, or where the effects were evident within a shorter cycle. From all individually analysed data presented in the results, the following four topics have the required minimum parameters for further analysis. The projects that lack the required minimum parameters for CEA are not included in this analysis, however, they are discussed in the separate chapters within this study and individually they have a certain value.

From the analysis of the four projects, the following results were obtained, as shown in Table 14: Table 14: Project ranking according to their cost-effectiveness Projects E/C sorted – higher is better; C/E sorted – lower is better 1. Lives saved from CVD risk through prevention check-ups by general practitioners 2. Justification for increasing investments vs patients treated in hospitals 2010 vs 2015 3. Patients treated in an angiography room vs purchased angiography machines (Public HCI University Clinic for Cardiology) 2007/2015 4. Lives saved vs total investments

C/E

E/C

31,520.64

0.0000317252

33,700.46

0.0000296732

49,967.01 8,748,277.90

0.0000200132 0.0000001143

Lives saved from CVD risk through prevention check-ups by general practitioners 2014-2015 C (total amount paid for CVD prevention in potentially healthy insured persons) E (potential deaths detected)

C/E 258,658,370

8,206

C/E – MKD 31,520.64 for one life saved from CVD

232

31,520.64

E/C 0.0000317252

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Health

E/C â&#x20AC;&#x201C; 31.73 insured persons saved from potential death from CVD per MKD 1,000,000 paid out The HIFM has paid MKD 258.7 million for preventive screening for CVD to general practitioners, whereby a total of 322,863 insured persons at the age between 35 and 56 were examined in the period 2014-2015. According to the level of risk of a fatal CVD outcome in the next 10 years detected through the screening, out of all risk groups, 8,206 insured persons will have a fatal cardiovascular outcome in the next 10 years. Since this preventive screening made it possible to detect the risk before the disease has even developed, it is believed that the lives of these 8,206 patients will be saved if they observe the recommendations, hence their life expectancy will be extended for additional 10 years at least, which is within the expected life expectancy in the RM. In this case, QALY is additionally used with a weighting 1 (perfectly healthy before and after screening).

In the graphs, the threshold is presented with a green line, so everything below the green line shows cost-effectiveness.

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Graph 11: QALY of lives saved from CVD risk through prevention check-ups by the

Health weighting

respective general practitioner

1 0.9 0.8 0.7 0.6 0.5 0.4

0.3 0.2 0.1 0 0

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20

Life years without prevention

Y = 20 years – 10 years = 10 years Q=1 10 QALY = MKD 31,521 QALY = MKD 3,152

234

Adjusted life years with prevention

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The result of MKD 3,152 obtained for QALY (1 additional year in perfect health) is much below the cost-effectiveness threshold which amounts to MKD 807,557. In terms of lives saved, it is even an ultra-efficient health measure according to the WHO that categorises as ultra-efficient all health treatments/interventions that are lower than GDP per capita, which in this case in Macedonia amounts to MKD 269,186.

Justification for increasing investments vs patients treated in hospitals in 2015 compared to 2010 C/E 2010

2015

C (MKD)

785,000,000

E (hospitalisations)

208,674

C (MKD)

1,143,000,000

E (hospitalisations)

219,297

C (MKD)

358,000,000

E (hospitalisations)

10,623

E/C

3,761.849

0.000265827

5,212.110

0.000191861

ICER 2015/2010

33,700.461

0.00002967

C/E – MKD 33,700.46 additionally invested funds per additionally treated patient in hospital E/C – 29.67 additionally treated patients per additional MKD 1,000,000 This analysis shows that with the increase in the level of investments as of 2010, for additional MKD 358,000,000 that are spent, at the same time, there is an increase in the total number of hospitalisations for 10,623 in 2015, including those as a result of CVD, when making a year by year comparison. Although, as an indicator, it makes a direct link to the additionally invested amount of MKD 33,700 per additional hospitalisation, it is not an absolute value because the increased number of hospitalisations is, primarily, affected by the health condition of the insured persons and the need of hospitalisation. This increased value should not be used as an indicator, i.e. it doesn't mean that if MKD 1,000,000 is invested in healthcare now, additional 30 patients will be hospitalised. This value refers to the period analysed and it cannot be reflected in an upcoming period. Especially due to the fact that every healthcare system aims at reducing the number of hospitalisations in the long term, thus reducing the inpatient care cost.

When analysing this project, we do not use QALY cost-effectiveness threshold because the weightings before and after hospitalisation, due to the different pathology, are not known, and neither are the adjusted life years after hospitalisation.

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Patients treated in an angiography room vs angiography machines purchased (Public HCI University Clinic for Cardiology) 2016 in comparison with 2007 2016/2007 C (total value of angiography machines purchased in MKD) E (additionally treated patients in the angiography room)

85,319,900

C/E

E/C

48,285

0.0000207

1,767

For the purpose of this CEA, the data that is used refers to investments for procurement of new, additional angiography machines and adjustment of premises, as well as additional diagnostic and interventional equipment that did not exist prior to the period of investment. The investment value does not include the amount spent on staff education due to the absence of precise data in the form of monetary units, which if available, would have provided a more realistic picture.

An investment of MKD 85.3 million makes it possible for 1,767 patients to be treated additionally in 2016 compared to 2007 (the year before the investment cycle). The results obtained are as follows: C/E – MKD 48,285.00 additionally invested per additionally treated patient E/C – 20.71 additionally treated patients per additional MKD 1,000,000

Graph 12: QALY for patients treated in angiography room vs angiography machines purchased (Public HCI University Clinic for Cardiology) in 2016 compared to 2007

In order to measure the QALY, it was assumed that all patients treated in the angiography room are in a life-threatening health condition and that a stent has been inserted to save 236

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Health

their lives. Therefore, as an initial Q, the researchers take 0 (death). After the intervention, in the absence of local data, the U.S. weighting in value of 0.815 (Maud et. al 2010) was used. At the same time, in accordance with the assessment of the community of cardiology professionals, a period of five years was taken as an average period of extended life expectancy without additional complications or need for repeated intervention. Therefore: Q = 0.815 C/E = MKD 48,285 Y=5 QALY = Q x (C/E) / Y = 0.815 х MKD 48,285 / 5 years = MKD 7,870 The result of MKD 7,870 obtained for QALY (one year without any health problems) is much below the cost-effectiveness threshold which amounts to MKD 807,557. In terms of lives saved, this value also shows an ultra-efficient health measure in accordance with the categorisation by WHO.

Lives saved vs total investments This analysis used the latest mortality rate data published by the Institute of Public Health for 2015 and compared them with the mortality rate data from 2007 published by the WHO as a source of more relevant statistics, because the data republished by the Institute of Public Health for 2007 do not tally with the figures of WHO. In respect of this discrepancy, a separate recommendation was given which appears as a third general recommendation in the section that refers to discussion and conclusions.

The analysis takes into account the difference in the total mortality rate versus the total investments in health care.

2015/2007 C (2010-2015 in MKD) E (lives saved, mortality rate difference in 2015 compared to 2007)

C/E 8,890,000,000

8,748,277.90

E/C 0.000000114

1,016.20

C/E – invested additional MKD 8,748,277.90 per life saved E/C – 1.143 patients saved per additional MKD 10,000,000 invested In this case, because we are talking about mortality caused by various diseases, we cannot apply a deduced health weighting. At the same time, due to the different age groups of patients included in the total mortality rate, adjusted life years cannot be established either. Therefore, the analysis is reduced only to a CEA, adjusted for the time period that 237

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Health

is used for comparison. The adjustment factor in this case would amount to six, since it involves investments for a six-year period of comparison (2010-2015), unlike the comparison of the mortality rate in 2015 and 2007 on an annual level. The newly established value amounts to additional MKD 1,481,333 per life additionally saved on annual level. This value, in comparison to the recommended cost-effectiveness threshold that amounts to MKD 807,557, is higher and points out to lack of cost-effectiveness of the total additional investments compared to the additional effect from them. The results are presented in Graph 13 where the X-axis shows the period that is being analysed, whereas the Y-axis shows the amount of investments on average or per years adjusted to the decreased mortality rate during the period (1,016.2 of the total population). The mortality trend is also included.

Graph 13: Total capital investments vs cost-effectiveness threshold vs mortality trend in the period 2010-2015

By looking at the data shown in the graph, it can be concluded that the additional total investments for the period 2010-2015 exceed the cost-effectiveness threshold. At the same time, the slight decrease in the mortality rate during the period analysed does not coincide with the funds that have been invested.

The analysis of the individual projects can affirm the cost-effectiveness of additional investments only in some of the projects (CVD prevention check-ups by the respective general practitioner, procurement of angiography machines), but not in all of them.

Therefore, targeted investment of the available funds is needed for increasing their costeffectiveness, which in the end would result in improved outcome from the treatments 238

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and improved health condition of the population. The projects that were subject to QALY analysis correlate with the ranking of the projects by the CEA analysis. In these cases, the value of QALY gives a clearer picture because it includes the adjusted life years. Therefore, it is necessary for the healthcare authorities to keep health statistics on health weightings and adjusted life years, at least from a purely methodological point of view for comparison purposes when developing health strategies.

Conclusion Health as a factor that has an impact on the social status of the population, and as a prerequisite for economic development of the country, is a strategic priority, hence, the investments in continuous improvement and reform of the health system. The real effects from the investments made in the health sector through the implementation of numerous projects would become visible and would be felt after a period of 5 to 10 years following their implementation. Given that the health investment cycle that is subject to this analysis ends in 2016, it is too early to draw final conclusions on the effects produced. However, the analysis that was conducted, and the discussion involving the data that is available, provided certain conclusions and recommendations that are useful for the health authorities. Some of the conclusions can be used as indicators for further research and monitoring of the effects from the funds invested.

For further improvement of the health services and for their approximation to the European standards, it is necessary to make a short-term increase from 4.5 percent of GDP for the healthcare budget in 2016 to 6.0 percent, in comparison to the average of the countries in the region (Serbia, Croatia, Bulgaria and Slovenia), which are also reference countries for the HIFM. This increase should be based on identified priorities supported by pharmacoeconomic analyses. This growth should be driven by continuous efforts for meeting the increased needs of keeping the population healthy as one of the prerequisites for economic development of the country, and considering the current situation of the healthcare system, where high CVD mortality rate of 577 per 100,000 people, low level of successful therapy outcome in comparison even with the other developing countries, and lack of diagnostic and therapeutic capacities point out to lack of investments or low costeffectiveness of investments, if any. However, before making a step towards allocating additional funds, it is necessary to look into the effects produced by the investments that have already been made: whether cost-effectiveness can be increased with the current resources and how, and where additional investments are needed.

In terms of improving the management of resources that are available in the country, as well as in the healthcare system, it is necessary that the health authorities rely on evidence based on cost-effectiveness analyses, and to adopt decisions on future investments by following the example of the European countries. This necessity is also pointed out by the World Bank in its report from 2015, where it describes the public spending efficiency in Macedonia in comparison to the first 16 European Union member states (World Bank, 239

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Health

2015). The index of public spending efficiency in Macedonia is ranked at the low 10th position, which points out to the possibility of achieving better results with the existing resources or achieving the same results with fewer public resources. This also refers to giving priorities in the decision-making process concerning the introduction of new treatments, procurement of equipment, introduction of new procedures or modern innovative medicines on the positive list.

Therefore, one of the main general recommendations is that in the future, before making decisions on new investments in the healthcare sector, pharmacoeconomic and health economic analyses should be conducted. Applying the recommendations from the analyses when deciding where to invest taxpayers' money and additional, multi-annual monitoring and analysis of the effects of investments will contribute towards improving the effects of the funds invested.

When conducting the analysis, it was impossible to fully analyse the data and to measure the effects produced by the investments, mainly because of the absence of available and precise data (for example, investments in state cardiac surgery, staff, etc.). Therefore, the second general recommendation is to establish a regular practice of transparency and accountability for the budget funds spent by the Ministry of Health and all the public HCI. The existence of epidemiological data, which at the same time is essential, is the basis of every health policy, which is not the case in the RM. For a country that claims to have a developed health system, it is unacceptable not to have data on mortality, incidence and prevalence of all diseases, especially of the most common and life-threatening ones, for a period of seven years. Basic objective of the transparency of the healthcare authorities, apart from informing the general public, is to enable the data to be analysed by independent experts who will have access to them, thus giving their contribution in the improvement of the health policy and future reforms. Therefore, we give the third general recommendation according to which the Ministry of Health, together with the IPH and the WHO, should take measures and activities on harmonisation and publication of all epidemiological data related to the indicators that are being monitored and compared in countries around the world.

The CEA undoubtedly confirmed that the investment of the healthcare Denar is more efficient when it is invested in prevention, which at the same time contributes to a healthy and fit-for-work population. Early detection of the disease, continuous monitoring and timely treatment of the patient will not only reduce mortality, but it will also indirectly contribute towards reducing inpatient care costs. Due to the aforementioned reasons, the recommendation is to continue in future with ongoing and long-term investments in CVD prevention. With relatively small amounts, and with an observable effect even in the short-term, prevention programmes should continue to be the main focus of future investments/reallocation of available funds.

However, it should be noted that every citizen of the RM is legally entitled to health care which is based on the unity of the preventive, diagnostic-therapeutic and rehabilitation measures, and on the principles of affordability, efficiency, continuity, fairness, comprehensiveness and provision of good quality and reliable healthcare treatment.

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Therefore, it is necessary to create conditions for timely diagnosis and efficient treatment of the patients. The continuous growth in the total number of hospitalisations year after year, the increase of CVD rehospitalisations, which at the same time is a negative indicator of the health system, should be a red flag for the health authorities that should deeply commit themselves to identifying the reasons and taking health measures to reduce them. Exhausting the options for outpatient treatment or treatment in a day care hospital in accordance with the medical assessment, if the patient has a slight deterioration of his/her health condition, should continue being a goal in the treatment, before considering inpatient care.

Introducing, for example, deterrence measures affecting the budget of the institution in the event of rehospitalisations, and indicators, both for public and private healthcare inpatient clinics, for monitoring their work, should help in improving outpatient treatment and reducing the number of hospitalisations.

The following recommendations give an overview of the individual investments and the effects of investments on treatment.

Equipment – The procurement and putting into service of modern equipment as part of the capital investments has initial positive effects on: increasing its accessibility to the patients and reducing the number of days spent on the waiting lists for CT and MRI. The possibility for modern diagnostics and the use of available capacities are reflected positively in some segments through the increase in the number of services provided for the period 20142016. On the other hand, comparative analyses with other European countries show that the Macedonian health system still needs to continue purchasing large diagnostic equipment, such as CT, MRI, etc. However, before making a decision on starting a new cycle of investments of this type, a more detailed previous analysis should be conducted concerning the level of usage of the existing equipment and its rational use and to identify the reasons for disproportion in the number of realised packages in different public HCIs in Skopje and in Macedonia. In fact, conducting regional/institutional pharmacoeconomic analyses identifying the specific needs of the population in different regions will help in identifying precisely how many new MRI and CT machines are needed, if any, and where they should be put into service, thereby taking into account the long-term strategy for disburdening the tertiary health care based in the capital city from cases that could be treated on secondary level. Before proceeding with the purchase of new equipment, in addition to the decision based on pharmacoeconomic analysis, it is necessary to ensure that all prerequisites have been met both in terms of space and in terms of recruitment and training of staff in order to be able to put the equipment into service as soon as it is delivered.

Capacities – From the capital investments, it is evident that they are exclusively focused on reconstruction of the existing and construction of new facilities, immediately after the procurement of the medical equipment. The refurbishment of the existing facilities and/or the construction of new facilities in times of limited financial resources, regardless of their necessity, points out to the need of previous detailed analysis, timely and comprehensive planning and timely implementation. The outdated capacities that have not been renewed for many years cannot justify the lack of planning and rationality when investing in their renewal.

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Staff – The data analysed shows that the past capital investments have been primarily focused on the procurement of new equipment and partly on modernising the capacities; however, they have not been focused on education and additional training of the medical staff. Investments in staff are unfortunately only partially visible and the effects are partially measurable.

Positive effects were identified through the increase in the number of interventions and the introduction of new interventions. In the absence of more detailed information on this type of investments (individual amount, allocation per healthcare institution and effectuation period), we could not give a more precise overview. The advancement and modernisation of medicine speaks clearly of the future need to plan funds for continuous education, in such a way that it will accommodate the specific needs of the current situation, thus further upgrading the knowledge in a particular field. Further balanced and continuous training of specialists from different regions is needed, in order to strengthen the cardiology network and reduce the pressure on the healthcare institutions in Skopje region. Effects can be observed by monitoring certain indicators and by perceiving the customers and measuring their satisfaction with the health services. Ensuring sufficient and high-quality staff is vital for improving the efficiency of the health system, maximum utilization of the equipment and of the other available capacities and raising the quality of health services.

Medicines – Investing in new modern medicines is, certainly, one of the factors that has a positive impact on the final outcome and on the effects from the therapy. According to the example with the CVD, there are 7,000-14,000 patients every year who have direct benefit from the introduction of “Clopidogrel” on the list of medicines at the expense of HIFM. Considering that this medicine became available to health insured persons in Macedonia 16 years after its initial release in Europe, it raises the question whether earlier and much better effects could have been achieved had funds been allocated to this medicine much sooner? If the modern innovative therapy is seen as an investment that will improve the health condition of patients, by identifying the expected benefits from the therapy and from the financial implications, the funds could be planned timely and in the long term. Nevertheless, the objectivity and criticism in the decision-making should be left to the experts in the respective field, whose engagement will restore and maintain the process of regular and timely updating of the positive list.

Finally, with regard to the new investment cycle, the recommendation to the healthcare authorities would be that future policies and decisions should be based exclusively on analyses produced by the expert and professional community, and the effects from the public money invested should be measured by using previously established indicators. In order for this to happen, they should provide accurate and public information, transparency and accountability in their work. Only in this way we can be sure that taxpayers’ money is spent rationally and with a view to improving the health and quality of life of the population in the Republic of Macedonia.

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References Зарески, Р. (2011) Основи на фармакоекономија Bjornberg, A. (2017) Euro Health Consumer Index 2016 – Report. Helath Consumer Powerhouse Claxton, K., Martin, S., Soares, M., Rice, N., Spackman, E., Hinde, S., Devlin, N., Smith, PC. and Sculpher, M. (2015) Methods for the estimation of the National Institute for Health and Care Excellence cost-effectiveness threshold. Health Technology Assessment 19(14) Desai, A. and Stevenson, L. (2012) Rehospitalization for heart failure: Predict or prevent? Circulation 126, p. 501-506 Haddix, A., Teutsch, S. and Corso, P. (2003) Prevention effectiveness: A guide to decision analysis and economic evaluation. Oxford University Press Marseile, E., Larson, B., Kazi, D., Kahn, J. and Rosen, S. (2015) Thresholds for the costeffectiveness of the interventions: alternative approaches. Bulletin of the World Health Organization 93, p. 118-124 Maud, A., Vazquez, G., Nyman, JA., Lakshminarayan, K., Anderson, DC. And Qureshi, A. (2010) Cost-effectiveness analysis of protected carotid artery stent placement versus endarterectomy in high-risk patients. Journal of Endovascular Therapy 17(2), p. 224-229 European consortium in healthcare outcomes and cost-benefit research. (2015) European guidelines for cost-effectiveness assessment of health technologies Stevanovic, I. and Stevanovic, M. (2016) Effectiveness of Serbian health care system in 2014. Serbian Dental Journal 63(1), p. 35-43 World Bank (2015) FYR Macedonia public expenditure review: Fiscal policy for growt

Photo: Freepik.com, poxbay.com

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INFORMAL SECTOR INCLUSION IN THE SUSTAINABLE WASTE MANAGEMENT SYSTEM AS AN OPPORTUNITY FOR EMPLOYMENT AND SOCIAL INCLUSION OF VULNERABLE GROUPS

6

Zoran Sapuric Sanela Shkrijelj Blazhe Josifovski

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Informal sector inclusion in the sustainable waste management system as an opportunity for employment and social inclusion of vulnerable groups

Authors: Zoran Sapuric University American College Skopje sapurik@uacs.edu.mk Sanela Shkrijelj

Sanela.irr@gmail.com Blazhe Josifovski Ajde Makedonija baze@ajdemakedonija.mk

Reviewer: Filip Ivanovski*

*”The content of this Study does not necessarily reflect the opinions of Reviewer”

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Introduction This document contains the results of the analysis on the topic “Informal sector inclusion in the sustainable waste management system as an opportunity for employment and social inclusion of vulnerable groups”. The objective of the analysis is to identify the possibilities and challenges in the creation of an enabling environment for inclusion of the informal sector in the waste management system. More specifically, the tasks of this analysis are as follows: Establish the potential to reduce costs when applying sustainable waste management methods; Establish the current functioning method of informal pickers and their impact; Establish the possibilities and challenges to include this group of citizens in the waste management system which would produce an impact on the improvement of the material and social status of this vulnerable category of citizens and improvement of the environment situation.

Methodological approach This research uses an approach that analyses the current functioning method of the informal waste picking in Macedonia. In addition, comparison is made of the formal and informal waste management and the valuation thereof. The analysis maps, measures, models, and monetises both costs and benefits from informal activities, by including direct costs and benefits, as well as other socio-economic impacts. Potential impact of formalised actions of waste pickers is analysed through scenario modelling. The proposed formalisation model provides an answer to the question: what would be the economic impact on the society, as well as the economic impacts on the formalised municipal waste management system if informal pickers are recognised, supported, and integrated into an organised waste management system.

The analysis uses quantitative and qualitative research approach, as follows: - Cost-benefit analysis of costs and benefits of current operations of informal pickers, as well as analysis of costs and benefits in case of future sector formalisation when specific conditions are met. This analysis was performed in accordance with the criteria of the following documents: 1.

2.

(2005) Guide to Economic Appraisal: Carrying out a cost benefit analysis. The Public Spending Code. Standard Analytical Procedures. Central Expenditure Evaluation Unit in the Department of Public Expenditure and Reform. (Part of the Irish Government Economic and Evaluation Service).

Ellen Gunsilius, Bharati Chaturvedi, Anne Scheinberg (2011). Working Group on Solid Waste Management in Low- and Middle-income Countries. Eschborn, Germany: GIZ - German Society for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit) 250

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3.

4.

5.

6.

(2011) Cost-Benefit Analysis for Environmental Impact Assessment. Damir Rajkovic. Zagreb University, Faculty of Mining, Geology and Petroleum Engineering.

(2007) Recycling: Cost-Benefit Analysis. Covec Ltd upon request of the Government of New Zealand.

(2010) Valuing the future: The Social Discount Rate in Cost-Benefit Analysis.

Melbourne, Australia.

(2006) Waste Management. Report no. 38. Productivity Commission. Australia.

- Analysis of the current situation with waste management, relevant legislation, and different programmes for support of marginalised groups; The following data collection tools were used for the analysis: - Interviews with the most important actors divided into several categories: decisionmakers at national and local level, waste collection and treatment operators, economic operators for waste management, utilities, Employment Agency, and civil society organisations working with the informal waste pickers; - Field survey with informal waste pickers. Questionnaire was developed for the needs of the field survey, which provided insight into: a) The socio-demographic features of the target group, that is, the number of household members, number of children and women, housing conditions, access to health and social protection, access to children's education, documentation, and sources of income in the family/household. b) Insight into their daily activities related to waste picking: types of waste, quantities, areas, prices and markets; number of family/household members included in the picking activities and revenue from waste picking.

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Informal Waste Picking in Macedonia Waste is one of the most considerable environmental problems in Macedonia. Annually and per capita, about 376 kg of waste are generated or total of 796,585 tonnes; however, the total quantity of collected municipal waste amounts to 610,227 tonnes. The difference between the total collected and total generated waste ends anywhere in the nature. The landfill situation is not satisfactory; out of 54 landfills, only the â&#x20AC;&#x153;Drislaâ&#x20AC;? landfill meets specific minimal standards; however, it also needs significant infrastructure and technological improvements. The percentage of primary selection and primary waste collection is rather low, resulting in low percentage of recycling and other forms of processing.

Waste from packaging has high economic value, and it accounts for 15% to 22% of the total municipal waste quantities. In Macedonia, citizens on average generate about 50 kg per capita at annual level of packaging waste or about 115,000 tonnes (Ivanovski et. al, 2016).

Most of the packaging waste is a resource with market economic value.

The participation of the so-called informal sector is significant in the primary waste collection and selection. Individuals and families who valorise parts of waste through activities which are not organised, recognised, taxed (except partially for the personal income tax) and monitored by the official authorities responsible for waste management in the country (Gunsilius et.al, 2011) can be considered as informal waste collection sector in Macedonia. Unlike other countries with waste pickers, Macedonia has no forms for their organisation into a cooperative, social enterprise, small enterprise, or employment in a utility.

There are several main forms for waste valorisation by the informal pickers in Macedonia.

First, they are focused on picking and selecting recycling materials from waste containers for mixed municipal waste or landfills. The second form is waste picking for personal and commercial use through use of picked materials for warming of their homes or sale of materials which could be reused or fixed and sold at both formal and informal markets in Macedonia. The third form is picking of extra food for feeding the family and the animals they keep.

It is important to mention that these are often marginalised groups living at the edge of existence. In different socio-economic conditions in Macedonia, the earnings from municipal waste recycling materials would be assets for the utilities or other entities; however, these materials are currently a non-formalised social programme which provides means for living of 3000 to 5000 citizens 1. On average, 3000 persons2 are engaged with informal picking daily. However, considering that this is an unstable activity, they The number is obtained by means of calculating the total quantities collected by the informal pickers in Macedonia and dividing them by the individually collected quantities per informal picker.

At the same time, the research of (2009).MDC-Ti.Net resulted in similar numbers (page 11). Website visited on 15 June 2016). www.mdctinet.org.mk/en/projects/data/pet.html.

2 This claim is produced according to our calculations of the revenues and quantities of collected waste.

1

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frequently engage in other work activities; therefore, they revert to collection of recycling waste materials only when they have to. Therefore, formalisation of informal pickers essentially means formalisation of a different social programme.

Health consequences are also negative externalities from informal waste picking. Informal waste pickers are often subjected to injuries since they most often lack the access to hygienic or health means, such as: protective equipment, washing means, medical equipment etc. There is significant room for improvement of their conditions and access to protective and health services; however, it can reduce the cost-effectiveness of their activity due to the low quantities which are currently individually picked by them. They currently act in a non-registered, informal manner, which makes them vulnerable to competition and subjected to exploitation. Therefore, many of them would like to be recognised and formalised, pay taxes, although they do not know how to make this change.

According to the assessments of the collective packaging waste handlers, about 80% of the packaging waste being recycled in Macedonia is collected and selected by the informal waste pickers; the problem is the lack of separate records of the exact quantities originating from the informal pickers. If one takes into account that for 2014, collective packaging waste handlers have reported 16,050 recycled tonnes, which means that informal pickers, during that year, have collected and selected about 12,840 tonnes or about 1.82% of the overall municipal waste quantities in Macedonia, whereas for 2015, an increase was observed to 22,719 tonnes3 of recycled quantities of packaging waste. There is lack of precise records of collected, selected, and recycled waste quantities, resulting in incomplete waste data system in the country, indicating the need for increased control of the state authorities in terms of credibility of reports of all entities acting in the field of waste.

Annual report on environmental quality for 2016. Ministry of Environment. (2017). Website; http://www.moepp.gov.mk/wp-content/uploads/2014/11/2016Vkupen_GodisenIzvestaj.pdf Visited on: 05.08.2017. Skopje 3

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As previously mentioned, within the analysis, field survey was conducted in the period from 15.04.2017 to 28.04.2017 with the informal waste pickers. All 274 surveyed persons were of the Roma community, 80 of which were children who are actively and daily engaged in waste picking activities. Regarding the educational level, 90% of the respondents are without or with unfinished primary education. In terms of the housing status, 95% of the respondents have declared that they possess no property, and only 8% have declared permanent residence. Others live in substandard conditions, and 44% lack the access to water in the immediate surrounding area, and only 10% have toilets in their dwellings. In reference with the health insurance, 30% of the respondents lack such insurance, and accordingly, have no general practitioner. Only 5% of the respondents have two-room housings, and the number of persons with whom they share the housing is between two to twelve. When referring to children included in the informal waste picking, it is important to emphasise that as high as 89% of the children of informal pickers do not attend school.

Table No. 1: Field survey with informal waste pickers – basic data yes

No

Owns property

5%

95%

Has permanent residence

8%

92%

Access to drinking water in the surrounding area

56%

44%

Toilet in the dwelling

10%

90%

Health insurance and general practitioner

70%

30%

Children attending school

11%

89%

/

100%

Cooperation with PUC “Komunalna higiena" survey conducted in the period April – May, 2017

Regarding the question on the types of waste being collected, PET packaging, iron and paper are mostly collected, whereas electronic waste is rather infrequently picked. In terms of quantity, males’ average is 2 4 bags a day, and women collect less or about 1 bag, since children often accompany them and make them less effective in their wor k.

Informal pickers indicate that, usually, up to 25 kg can be fitted in one “jumbo” bag; however, buyers seldom recognise the entire weight, and usually pay them for 20 kg.

4

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Legal framework Law on Environment The objectives of the Law on Environment are as follows: “conservation, protection, renewal, and improvement of the environment quality” (Official Gazette of the Republic of Macedonia 39/15). In accordance with this objective, the Law requires licensing in the fields of waste management and processing. This means that entities active in the field of waste management shall have to prepare an environmental impact assessment. Entities included in the handling and/or processing of dangerous waste have to develop an additional study.

Informal waste pickers undoubtedly contribute to the environment quality; however, they cannot acquire the required licences prescribed by the Law on Environment. The reasons for the previous encompass the low education level and lack of access and knowledge of relevant procedures, as well as the lack of financial possibilities for incorporation of a legal entity which shall enable

them to execute their activities within the formal

economy.

Law on Waste Management Law on Waste Management is a standardised EU legal act based on the “polluter pays” principle. This Law requires that waste handlers are licenced for collection, transport, processing, storage, and disposal of waste. Such licenced operators are the only entities authorised for collection of waste materials and they are required to own documentation that verifies the proper disposal of collected waste by the producers.

In accordance with the Law on Waste Management, waste collectors are natural or legal entities with licence to collect and/or transport waste. The existing Law on Waste Management practically does not take into consideration informal pickers. Given the fact that they do not own licences required by the Law, their activities are essentially illegal.

Law on Packaging and Packaging Waste Management The main objective of the Law on Packaging and Packaging Waste Management is creation of conditions for establishment of a system for returning, selection, collection, reuse, processing, and recycling of packaging waste (Official Gazette of the Republic of Macedonia 39/16).

The Law, as “lex specialis", elaborates the principles of the Law on Environment and the Law on Waste Management, in particular the “polluter pays” principle. Accordingly, each waste generator – producer should act with a view to improving management of packaging and packaging waste. The Law enables the waste producer to choose to handle packaging and packaging waste in one of the three methods: independently; by concluding a contract 255

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with collective handlers, or by payment of a fee to the state for each type of packaging waste generated. Pursuant to the Law, collective handlers - operators shall have to meet specific requirements so as to be issued a licence from the Ministry of Environment and Physical Planning and be registered as collective handlers. The enforcement of the Law and the number of collective packaging waste handlers have varied so far, depending on whether they meet the envisaged requirements prescribed by the Law and the work licences. In addition, it should be emphasised that pursuant to the Law on Packaging and Packaging Waste Management, the so-called small waste producers (established per quantities for each waste type) are exempted from actions in accordance with the Law, which additionally complicates the situation, especially with regard to the accurate records of waste quantities generated. Also, more accurate records can be produced through increased promptness of the inspection authorities in terms of the packaging waste handling by the waste producers.

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Waste Management Strategy of the Republic of Macedonia 2008-2020 The “Waste Management Strategy” covers the period from 2008 to 2020, and invites the local self-government units to develop local waste management plans (Government of the Republic of Macedonia, 2009). On the other hand, the “National Waste Management Plan”, which expired in 2015 and which was not replaced with a new one, sets the objectives for recycling of waste materials (Ministry of Environment and Physical Planning, 2008).

Although the majority of informal waste pickers are Roma, neither the “The Strategy for Roma in the Republic of Macedonia 2014-2020” (Ministry of Labour and Social Policy, 2014), or the “Employment Strategy of the Republic of Macedonia 2016-2020 (Ministry of Labour and Social Policy, 2015) and the relevant “National Employment Action Plan 2016-2020” (Ministry of Labour and Social Policy, 2015) identify or include informal waste pickers as target groups.

Plans and programmes for waste management of the local self-government units The Ministry of Environment and Physical Planning is the key central-level institution with regard to waste management; however, the responsibilities related to the daily operations in this field are generally decentralised to the local authorities. Relevant activities delegated to the local self-government units include organisation of collection, transport, disposal of municipal waste; supervising the transport and disposal of hazardous industrial waste; and also, another competence of the municipalities is the establishment, financing and supervision of landfills, as well as closing of informal landfills (Ministry of Environment and Physical Planning and the Swedish Environmental Agency, 2011).

Similar to the services for maintenance of green areas or funeral services, the waste collection at local level can also be taken over by a local public utility company, through the public utility enterprises for waste which are obliged to develop a plan, programme and annual reports (Official Gazette of the Republic of Macedonia 95/12). In addition, waste management companies incorporated in accordance with the Law on Packaging and Packaging Waste Management are included in the local-level waste collection.

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Costs and benefits from informal waste pickers in Macedonia for the period 2009- 2016 Informal waste picking, as a phenomenon typical for countries with lower GDP level, is the life reality for thousands of our citizens. Latest literature considers that countries with citizens with lower income and where productivity is more dependent on the direct physical force shall have to utilise the openness to reception of the marginalised waste picking groups, since non-formalised activities also contribute to mitigation of poverty and other adverse social phenomena, and also save resources and protect the environment.

Our aim was to verify these claims for the case in Macedonia and to measure the results provided by the existing method of functioning in case of non-formalised conditions, and we started with the initial assumptions that such informal actions of waste pickers produce more benefits than costs for our society. Despite the specific expenses of the state for this marginalised category of citizens, we believe that benefits exceed costs. We hope that based on the results obtained, we would be able to set a sustainable model in the future for their formalisation which shall produce even better results.

For the purposes of measuring the impact of informal waste picking in Macedonia, we decided to use the cost-benefit analysis method. Costs were divided into direct and indirect. Direct costs were the following: health insurance costs, social welfare costs and costs of informal pickers for maintenance and use of their means for work. Health insurance costs are currently fully covered by the state for about 70% of the informal pickers. Social welfare costs are provided for about 21% of the informal pickers, since for various reasons, this type of revenue is denied to them; therefore, those with social welfare, generate the waste revenues through payments in cash from other informal pickers who record the quantities as their own through transaction accounts. Waste pickers currently use means for work which are very suitable for maintenance purposes and which protect the environment; therefore, they have, on average, 1750 denars of maintenance and transport costs per person on a monthly basis, which include fuel (those with motor vehicles) and replacement of parts for the transportation means. Low costs, inter alia, result from the ability of informal pickers to mostly self-service their work-related means.

Benefits were divided into direct and indirect. Direct benefits were as follows: revenues of informal pickers, revenues of the state from the personal tax paid by the informal pickers and fees for licences paid by the companies to the state for operations with waste which in 80% originate from the informal pickers. Revenues of informal pickers shall be calculated in accordance with the 2015 data of the collective packaging waste handlers as latest official relevant data and they shall be considered as relevant from 2009 onwards, given that the quantities collected by informal waste pickers have not increased, and only the record-keeping process has improved. For 2015, 22,719 tonnes of packaging waste given to recycling were reported, i.e. it can be concluded from the collective handlersâ&#x20AC;&#x2122; reports that out of the types of waste collected by the informal pickers, paper and cardboard account for 59.89%, plastic for 44.36%, and metal for about 1.47%. In order to 258

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

calculate the value, mean values shall be used for purchase of selected waste provided by the recyclers throughout the country, that is, 10 denars on average for plastic, 3 denars for paper and cardboard, and 10 denars for metal. From those quantities, the assumption is that 80% of that waste was collected by the informal waste pickers; Serbia is taken as comparison, since its situation regarding the collection of recycling parts of waste by informal pickers is almost identical to Macedonia. According to the data of the “Serbian Association of Packaging Waste Recyclers”, 80% of the recycled quantities, both there and in Macedonia, originate from the informal pickers 5. In addition, the statement that they collect between 80% and 85% of the packaging waste in Macedonia is also supported by the assumptions of some of the collective handlers, which means that informal pickers take the credit for collection of 18175 tonnes of packaging waste or, expressed in quantities, they have collected 6472 tonnes of plastic, 10328 tonnes of paper and cardboard, and 27 tonnes of metal6.

Indirect benefits are increasing, and they include: export of waste generated by companies with materials which are 80% obtained from the informal pickers, followed by the new private-sector employments resulting from the waste obtained from informal pickers, and cost reduction of the utilities for collection, transport and disposal of collected and selected waste by the informal pickers.

The benefits which the utilities have in the form of savings of resources for collection, transport and disposal of municipal solid waste are costs of the utilities for the services they offer, which also include transport and costs for employees.

Website: www.asocijacijareciklera.com/index.php/26-srpska-asocijacija-reciklera-ambalaznogotpada-trazi-izmenu-zakona-o-ambalazi-i-ambalaznom-otpadu Visited on: 10.07.2017 6 Metal as waste material is still considered as “grey zone” for which there are no real data 5

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

2009

2010

2011

2012

2013

2014

2015

2016

Costs (in EUR) Direct costs Health insurance costs of informal waste pickers

131,307

131,307

131,307

131,307

131,307

131,307

131,307

131,307

Social welfare costs of informal waste pickers

8,359

8,359

8,359

8,359

8,359

8,359

8,359

8,359

Costs of informal waste pickers for maintenance of their means for work

142,107

142,107

142,107

142,107

142,107

142,107

142,107

142,107

Total direct costs

281,775

281,775

281,775

281,775

281,775

281,775

281,775

281,775

Total costs

281,775

281,775

281,775

281,775

281,775

281,775

281,775

281,775

Benefits Direct benefits Income of informal pickers Income of the state on personal income tax basis

1,558,705

1,558,705

1,558,705

1,558,705

1,558,705

1,558,705

1,558,705

1,558,705

171,457

171,457

171,457

171,457

171,457

171,457

171,457

171,457

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life Fees for licences for treatment and storage of electrical waste, waste batteries and accumulators and municipal waste (metal, paper, glass, rubber etc.)

-

6,022

6,022

6,314

6,314

5,583

5,583

5,583

Fees for licences for transport of nonhazardous waste

5,262

5,262

5,262

5,262

5,262

5,262

5,262

5,262

1,735,775

1,741,798

1,741,798

1,742,090

1,742,090

1,741,359

1,741,359

1,741,359

Total

Effects of increase in production activities in GDP Waste export according to tariffs of customs classification (paper, glass, plastic and waste batteries and accumulators)

2,065,140

3,016,828

5,614,601

4,664,826

6,659,661

8,175,610

8,175,610

8,175,610

Total

2065140

3016828

5614601

4664826

6659661

8175610

8175610

8175610

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

2009

2010

2011

2012

2013

2014

2015

2016

Costs (in EUR) Direct employment effects in the Republic of Macedonia New private-sector employments (through costs for employees through financial reports of CRM - packaging waste handlers) New private-sector employments (through costs for employees through financial reports of CRM – electronic waste handlers and handlers of waste batteries and accumulators) Total

-

-

54569

85843

116801

142215

142215

142215

-

-

-

454

4568

9831

10156

10497

-

-

54575

86307

121384

152065

152371

152712

Indirect effects of processing / recycling of different types of waste instead of their disposal Cost reduction for utilities for waste collection and transport, which is collected on their behalf by the informal pickers without any compensation

835664

882562

881429

933756

892496

977465

1009950

1045033

Total

848094

892041

934207

973202

928110

1115319

1174115

1211901

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

Total benefits

4,634,209

5,638,390

8,288,481

7,423,410

9,411,222

11,040,696

10,921,194

10,956,259

Net (Benefits – Costs)

4,352,552

5,356,733

8,006,824

7,141,753

9,129,565

10,759,039

10,639,537

10,674,603

Net present value (discounted)

4,352,552

4,917,481

6,749,753

5,527,717

6,491,121

7,014,893

6,936,978

6,959,841

0.918

0.843

0.774

0.711

0.652

0.652

0.652

Discount rate (8.90%) Total Net Present Value

48,950,339

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

The results of the calculation of costs and benefits of the informal pickers have verified the thesis that their actions produce more benefits than costs.

Regarding the results we obtained through the calculation of revenues of informal pickers, it can be concluded that if we compare them to their average earning obtained from our field survey, and if we aggregate them according to their numbers of about 3000 active informal pickers, we get similar numbers, which means that the combination we chose for calculating the revenues of informal pickers is credible to be used. Namely, informal pickers in Macedonia, on average, earn about 31,991 per year per waste picker only from packaging waste; the resulting differences are assumed to originate from the lack of realistic and much higher numbers regarding the exact metal quantity collected, the amount of e-waste collected (not included in calculations, earnings from batteries and accumulators (not included in calculations), as well as the earnings from bulky waste (not included in calculations) which is reused and resold at markets throughout the country.

The informal sector, in the existing work conditions, has saved, for the local authorities alone, about 1,045,033 Euros per year. Savings are high since utilities do not have to collect, transport and dispose waste, which is a service they have already charged to the citizens. Savings are generated for transport, depending on the part of the process in which the material is collected from the informal pickers; therefore, when that is done directly from the combined waste containers, it can be stated that the costs of utilities are prevented from the earliest stage. Therefore, it is illogical that the collection of municipal waste from the waste containers of the public utility companies by the informal pickers is currently considered illegal, since the sooner they pick it, the less costs are generated for the formal pickers, which are currently the public utility companies. In addition, the cleaner the materials, the higher the values thereof. Waste picked by the informal pickers is often soiled and undesired for purchase.

Particularly important is the effect on the budget of the Republic of Macedonia, as well as on the GDP, of the increased waste export in the previous period, compared to 2009, taken as a baseline year. Nevertheless, this item should be carefully considered, taking account of the impossibility to exactly verify the percentage of this export attributed to the relevant waste fractions selected by the informal waste pickers, and what is the exact level which can be attributed to them.

However, if one takes into consideration the available data, it can be observed that earnings of the informal pickers are below the minimal guaranteed salary in Macedonia, and it is still selected as a better option for their earning compared to other alternative methods. It can be concluded from the results obtained that the role of revenues from the informal picking depend on an individual family basis. It is obvious that not all informal pickers deal only with waste picking throughout the year; therefore, it can be noted that about 30% of them also engage in other economic activities, such as, for example, seasonal alternatives in agriculture or industry. It is interesting to note that similar results were 264

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

obtained in the German study on informal waste picking in the city of Cluj, in Romania (Gunsilius et. al, 2011).

1. Case Studies Sao Paulo and Belo Horizonte (Brazil) Pune (India) The examples taken in our case studies do not include any Balkan examples, since latest results have indicated that there are no successful examples. Therefore, we decided to take slightly more remote examples, which are most successful in the world when speaking of formalisation of informal pickers and improvement of their actions.

The cooperative “Coopamare” is one of the first forms of organisation of informal waste pickers in Brazil. Their social exclusion was extremely high, since they were perceived as a potential threat due to the “dirty” work they engaged in relating to waste. Their workrelated revenues were at a low level (Leubolt and Romao, 2015).

After they have joined, they managed to obtain financial support for procurement of equipment and space which improves the protection of their occupational health, they increased the collected and selected waste quantities, and have also started to process waste by themselves, thus securing higher prices. Their management is collective. All workers are given the same salary, based on the job hours performed in the cooperative.

Decisions are made collectively on assemblies, which are held once a month. They have a management board consisting of a president, a financial manager, and an accounting committee so as to attend to the daily job responsibilities.

This model, proven as the most successful one, is the model of informal pickers in Belo Horizonte, which already has 8 cooperatives and a network of 400 partner organisations.

The system functions in three manners: door-to-door waste collection, the second one is waste collection from specific green points with placed different bins for waste selection, and the third one includes utility companies which use their trucks to empty the bins for waste selection placed together with the bins for mixed municipal waste.

It is interesting to note that the selected waste collected is taken by the public utility companies to the centres of the cooperatives of waste pickers. Following its processing and sale, they fully retain the obtained funds. This is one of the methods by which local authorities support organised forms of waste pickers (Dias and Alves, 2008).

On the other side of the world, in the city of Pune in India, waste pickers have been functioning for more than 10 years through their cooperatives, and such organised method of actions has changed their lives. At the same time, reinforced state measures were undertaken for their support, protection of their dignity, and practicing of social justice.

They act as a registered, recognised and valid profession through which they exercise their special rights. They are registered as authorised persons of the city of Pune and carry identification cards and have secured health insurance (Gunsilius et al. 2011).

They collect, door-to-door, the selected waste by households, businesses and other 265

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entities, and have managed to double the quantities of collected and recycled waste, which in turn doubled their revenues. What is innovative is the introduction of the possibility of crediting so as to advance the infrastructure and work-related means of the cooperatives in order to further increase their work and initiate activities for repair and reuse of waste, with a view to additionally increase their income (WIEGO, 2012).

Formalisation of waste pickers in Macedonia -

Positions of stakeholders o Local authorities o National authorities o Business sector

Positions of the central government The responsible persons in the Ministry of Environment and Physical Planning are aware of the huge problems in the domain of waste management in all its segments.

In that respect, it is emphasised that a firm, and not only a declarative commitment, is required by all authorities and involved entities for improvement of the situation, and that a multi-sectoral approach is needed to deal with these problems. A particular issue that was indicated was the lack of a precise database which produces significant unknowns in the field of waste management, and that, at the same time, significant efforts are made to improve the database in terms of generated, collected, recycled and treated waste quantities. As regards informal waste pickers, there is awareness that they are a reality, and are not covered by the system, as well as that there is a lack of records and control of the packaging waste quantities that are collected and handed over, in particular regarding the PET packaging, metal, glass, paper, and cardboard.

Furthermore, according to their assessments of the waste collected by the informal sector, it is emphasised that PET packaging is represented to a significant extent.

However, it was indicated that informal pickers also collect electrical and electronic waste, in addition to packaging waste. They are aware that these pickers are not included in the waste management system, which poses an additional problem for collection and processing of waste data and for obtaining a complete insight in all waste management phases. In addition, they are aware that, according to their general assessments, informal pickers significantly contribute to waste recycling. The risk faced by the informal pickers is also emphasised, since besides the above-ground containers for mixed waste, they also collect waste from the underground containers and landfills, thus facing significant health risks. In order to improve and regulate the method of waste handling or collecting, amendments to several laws and bylaws are required.

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ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

The representatives of the Ministry of Labour and Social Policy believe that informal pickers could be included in the waste management system, and that this is a rather vulnerable category of citizens. Informal pickers are socially sensitive in every aspect, both in terms of low income, extremely poor living conditions, as well as in terms of the problems pertaining to the education of the children of these citizens. In addition, it is indicated that for the present moment, apart from the declarative commitments in some of the strategic and planning documents, there are no more specific measures for this group of citizens, except through the social minimum welfare provided to them. Legislation is an additional problem, since it envisages such welfare to be denied if they generate other revenues, such as waste picking revenues. Therefore, according to them, it is necessary to first carefully identify all consequences and to then consider the legislative amendments.

Positions of the local government Representatives of the local government, that is, of the City of Skopje, who were interviewed within the surveys of this project, mainly gave statements that they act in accordance with the legislation, and that legislative amendments are required to obtain more specific competences. They are not against informal waste pickers, and are aware of their contribution in the improvement of waste recycling and processing, as well as of their non-inclusion in the system. Their plans and programmes for waste management do not cover informal pickers; the inclusion thereof shall require legal amendments. In their opinion, until the primary selection and primary waste disposal is significantly developed, which is currently still far away, the informal sector will have a significant contribution in recycling and other forms of waste processing. In addition, it is indicated that local authorities only have partial and occasional cooperation with the informal sector, mainly through different pilot projects financed by foreign donors; however, following the completion of these pilot projects, such cooperation is discontinued. In order to improve this cooperation, in their opinion, significant financial means are required, as well as legislative amendments. Local authorities believe that they have no insight in the manner and quantities of waste collected by informal pickers, which disables the control of all flows of movement in all waste phases.

Positions of the business sector The representatives of the business sector in the field of waste management indicate that significant investments are required in the field of waste management, as well as increased engagement of the inspection authorities in terms of control over the enforcement of the provisions of the Law on Packaging and Packaging Waste Management and the Law on Electrical and Electronic Waste Management. In addition, they believe that it is necessary to increase the private sector involvement in all waste management parts. They are not against informal pickers of municipal waste; however, 267

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

they believe that the state should develop a system which would completely include them. They also indicate the poor public awareness of the citizens as a specific issue, as well as the low prices for services in the field of waste. They emphasise that informal pickers have their share in the selective waste collection and in the recycling of packaging waste. The business sector believes that, within waste management, in the part relating to waste collection, there is almost complete monopoly by the public local companies, and that stronger entry and increased openness of the local authorities towards the private sector shall result in increased competitiveness and quality of waste management.

Potential costs and benefits in the formalisation of waste pickers Results obtained from the previous calculation of current costs and benefits of the informal waste pickers in Macedonia allowed us to assume that in case of formalised conditions, the benefits would be increased. The calculations that we will make with regard to the potential costs and benefits for the formalisation of waste pickers shall be based on the assumption that the quantities collected and selected by them will be doubled, considering that all formalisation examples indicate at least double increase in their effectiveness. Formalisation estimates do not take into account children as contributors or, according to the field research conducted, we should deduct about 20% of the collected waste quantities.

In order to create a sustainable formalisation model, as a pre-requirement, we took the organisation through: cooperative, social enterprise or public-private partnership.

Investments in capital and operational needs for formalisation are given after previous consultation with the business sector for waste management in Macedonia and they pertain to a period following the formalisation of informal pickers pursuant to their needs and our envisaged recommendations. The following was indicated under capital expenditures: procurement of equipment for recycling of up to 80 tonnes per year, which will produce granulate, procurement of new transport means, and construction activities for compliance with the standards. The calculated operating expenses for the organised activities of waste pickers were as follows: costs for producing granulate, operational licences, maintenance and use of work-related means and ongoing expenses for electricity and water. We believe it is necessary to start with a lower capacity so as to test the functioning of the entire system. The improvement of their machinery and work-related equipment shall enable waste pickers to commence collecting glass waste with the purpose of increasing the revenues.

Most of the costs and benefits mentioned in the previous calculation were used for calculation in the case of formalised conditions for a period of at least 12 years. The remaining costs and benefits that were included in the calculations are based on two-shift operations of 3000 informal pickers by using new 1500 tricycles. The calculation included the assumption that, in accordance with our opinions, the social welfare will not be cancelled in the first two years of the waste pickerâ&#x20AC;&#x2122;s registration; therefore, one of the 268

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

benefits following the first two years for the state is reduction of the social welfare costs.

However, we consider that, within a specific period until the situation is stabilised from the aspect of the social enterprise (or other forms of their association), health and pension insurance should be covered by the state, since the additional costs would be a huge burden for the organisation which will be responsible for the operations of the formalised waste pickers. In parallel, it is necessary that all waste pickers have health insurance; currently, only about 70% have that right.

Our aim was to develop a calculation of the opportunity cost when excluding children from the job process of waste collection, since the family community shall have less funds because the children will stop working. As waste quantities that would be achieved in the case of formalised form of work, we took the quantities twice increased, since all experience worldwide indicates at least a double increase in the case of organised collection. The authors believe that the reuse centres which would ensure repair, creative rethinking of items and other forms of conversion, in accordance with the European practices, can secure a great number of highly-productive and well-paid job positions (RREUSE, 2015). However, this possibility was not indicated in this document, since we believe that in the first phase of their formalisation, they are far from acquiring and using skills for waste conversion.

269

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Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

499,508

-

-

-

-

-

-

-

-

-

-

-

882,059

-

-

-

-

-

-

-

-

-

-

-

99,089

-

-

-

-

-

-

-

-

-

-

-

1,480,657

-

-

-

-

-

-

-

-

-

-

-

Costs Capital costs Investment s in recycling equipment Investment costs for transport means (tricycles, vans) Investment s in constructio n activities Total capital costs

Operating expenses Operating expenses for maintenan ce of the workrelated means Operating expenses for

143,761

143,923

144,004

144,085

144,167

144,248

144,329

144,410

144,492

144,573

144,654

48,342

48,342

48,342

48,342

48,342

48,342

48,342

48,342

48,342

48,342

48,342

270

144,650

48,342

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

341

-

-

-

-

-

-

-

-

-

-

192,325

192,146

192,227

192,308

192,390

192471

192,552

192,633

192,714

192,795

192,877

192,958

131,334

131,334

131,334

131,334

131,334

131,334

131,334

131,334

131,334

131,334

131,334

Costs Capital costs production of granulate Costs for a licence for storage, transport and processing of waste and for a licence to perform the activity and collect waste by the newlyestablished legal entity of the informal pickers Total operating expenses

-

Direct costs for the state Health insurance costs of informal waste pickers

131,334

271

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Costs Capital costs Costs for pension insurance Social welfare costs of informal waste pickers Total direct costs for the state

43,362

43,362

43,362

43,362

43,362

43,362

43,362

43,362

43,362

43,362

43,362

43,362

8,361

8,361

-

-

-

-

-

-

-

-

-

183,058

183,058

174,697

174,697

174,697

174,697

174,697

174,697

174,697

174,697

174,697

174,697

-

Indirect costs for the informal pickers Exclusion of children from the work Total indirect costs for the informal pickers Total direct and indirect costs Direct benefits Income of the informal pickers

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

623,607

998,310

990,035

1,022,455

1,022,536

1,022,617

1,022,698

1,022,780

1,022,861

1,022,942

1,023,023

1,023,104

2,494,43 1

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,494,431

2,478,225

2,494,431

272

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Costs Capital costs Income of the state on the basis of personal income tax Income from the sale of granulate Reduced social welfare costs for the state relative to the informal waste pickers Fees for a licence for treatment and storage of electrical waste, waste batteries and accumulat ors and municipal waste

282,964

282,964

282,964

282,964

282,964

282,964

282,964

282,964

282,964

282,964

282,964

282,964

77,972

77,972

77,972

77,972

77,972

77,972

77,972

77,972

77,972

77,972

77,972

77,972

-

-

8,361

8,361

8,361

8,361

8,361

8,361

8,361

8,361

8,361

8,361

6,315

6,374

6,725

6,783

6,842

6,900

6,959

7,017

7,075

7,134

7,192

7,251

273

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Costs Capital costs (metal, paper, glass, rubber etc.)

Fees for licences for transport of nonhazardous waste New privatesector employme nts (through costs for employees through financial reports of CRM – packaging waste handlers) New privatesector employme nts (through costs for employees

5,263

5,328

5,393

5,458

5,523

5,588

5,652

5,717

5,458

5,523

5,588

291,611

298,759

305,906

313,054

320,201

327,349

334,171

341,643

348,791

355,938

363,086

370,233

20,023

20,380

20,641

21,030

21,683

22,008

22,332

22,657

23,307

23,632

23,957

24,282

274

5,652

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

3,176,603

3,184,22 7

3,200,402

3,208,058

3,215,976

3,223,567

3,230,834

3,238,749

3,246,340

16,353,13 3

16,678,0 17

17,002,90 1

17,327,78 5

17,652,66 9

17,977,55 2

18,302,43 6

18,627,32 0

18,952,20 4

2027

2028

2029

3,253,931

3,261,522

3,269,114

19,277,088

19,601,97 1

19,926,855

Costs Capital costs through financial reports of CRM – electronic waste handlers and handlers of waste batteries and accumulat ors) Total direct benefits Indirect benefits Waste export according to tariffs of customs classificatio n (paper, glass, plastic and waste batteries and accumulat ors)

275

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Costs Capital costs Potential revenues from collection of glass from packaging waste to be sold for recycling purposes Cost reduction for utilities for waste collection and transport, which is collected on their behalf by the informal pickers without any compensat ion Total indirect benefits

469,908

469,908

469,908

469,908

469,908

469,908

469,908

469,908

469,908

469,908

1,765,330

1,797,81 8

1,830,307

1,862,795

1,895,284

1,927,772

1,960,260

1,992,749

2,025,237

2,057,725

2,090,214

2,122,702

18,576,80 4

18,933,9 54

19,291,10 4

19,648,25 4

20,005,40 3

20,362,55 3

20,719,70 3

21,076,85 3

21,434,00 2

21,791,152

22,148,30 2

22,505,452

469,908

276

469,908

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life Year

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Total benefits

21,753,4 08

22,118,1 82

22,491,5 06

22,856,3 12

23,221,3 80

23,586,1 21

23,950,5 37

24,315,6 02

24,680,3 43

25,045,084

25,409,82 5

25,774,566

Net (Benefits – Costs)

19,275,1 83

21,119,8 71

21,501,4 70

21,833,8 56

22,198,8 43

22,563,5 03

22,927,8 38

23,292,8 22

23,657,4 82

24,022,142

24,386,80 1

24,751,461

17,694,6 18

17,804,0 51

16,642,1 38

15,523,8 72

14,473,6 46

13,515,5 38

12,610,3 11

11,762,8 75

10,977,0 71

10,233,432

9,535,239

8,885,774

Discount rate (8.90%)

0.918

0.843

0.774

0.711

0.652

0.599

0.55

0.505

0.464

0.426

0.391

Total Net Present Value (12 years)

159,658,5 70

Costs Capital costs

Net present value (discounte d)

277

0.359

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

It can be observed that initial investments and enabling of conditions could result in increased revenues of the waste pickers, on average, some 51186 denars per picker annually. Taking into account the lack of more realistic data on the metal, e-waste, bulky waste, and other types of waste, it can be concluded that potential formalisation could enable 3000 informal pickers to reach the current non-subsidised Macedonian minimum salary.

The results obtained also indicate that even in case of excluding children from the work, which leads to a reduction of 20% of the waste quantities collected which are current contribution of the children, the collected waste quantities will still be significantly increased compared to the pre-formalisation quantities, which means that formalisation would allow children to not have to contribute to the waste collection and attend school classes.

278

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA â&#x20AC;&#x201C; Quality of Life

Conclusions and recommendations The research has shown that informal waste pickers in Macedonia are more active and more effective in the activities for processing and usage of waste as resource in the existing conditions of action compared to the formal sector. Their waste valorisation activities are performed at lower costs compared to the formal sector, since being left to their own devices has thought them, through practical experience, how to valorise waste, even the waste whose value is potentially not well known. It is clear that they have high level of specific knowledge for identification of valuable materials and for the use thereof.

Moreover, the work of the informal pickers uses rather low or no quantities of fossil fuels.

This is a result of their use of own or animal powers, against the use of motorised transport. Therefore, they generate rather low greenhouse gases and contribute to the prevention of high quantities of potential greenhouse gases from the landfills.

Informal pickers create social benefits, both direct and indirect, through their activities. If they lacked the current revenues from waste collection and selection, this marginalised group of low-qualified labour force would have to be provided with additional financial assistance or would have been involved in other illegal activities. Formalisation and integration of informal pickers would result in increased quantities of selected waste ready to be processed, which would generate savings for the public utility companies and the citizens, would extend the life-cycle of landfills and provide for environmental protection.

The development of policies and measures to improve the quality of life of the informal waste pickers, in accordance with the results of the cost-benefit analysis, and of the remaining part of the society, has to be carried out systematically. Therefore, the profession first has to be recognised so that they could be registered. This shall enable, on the basis of records, the development and implementation of support policies for this marginalised group of citizens and the ascertaining of their rights by the state. Results have shown that this is a group of about 5000 citizens on an annual level, who engage in this activity; however, on average, this involves 3000 citizens on a daily basis. When seasonal work earnings are better, some of them discontinue the waste collection activities, although most of them continuously engage only in this type of activity. The organising of informal pickers, could improve their potential negotiating position with the industry sector, mainly with the relevant institutions, and they could also improve their poor social and economic position by reducing poverty through the development of their activities in the field of waste. Through the various organisation forms, they would be able to conclude contracts with companies of the industry and apply to receive grants from national and foreign donors. One of the main advantages of their formalisation and organisation, is the 279

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

possibility to conclude contracts with the local authorities. The relocation of their activities outside of the landfills and other places for waste disposal shall significantly reduce the risks for their health caused by the high-risk working conditions. Their association and organisation would secure them stability, improved revenues and improved work and living conditions through legalisation of their activities. The organisation of informal waste pickers in a legal entity, by following the best practices from other countries, could result in increased economic and environmental benefits. Specifically, we would like to emphasise the environmental benefits. Local and national authorities, as well as the whole society, would have significant environmental benefits if in addition to collection and selection of some of the municipal waste, informal pickers are also provided with financial and other material support to select the organic part of the waste so that it could be composted or otherwise processed and for reuse of bulky, construction and other types of waste through the opening of reuse centres.

Furthermore, their organisation is possible in three potential models for organisation of waste pickers: social enterprise (civil society organisation or company), cooperative and public-private partnership. Considering the low education level and the knowledge of the social flows, their organisation in the initial phase shall have to be organised through an external factor. ○ ○

○

○ ○

○

Recognising and registration of waste pickers as profession Securing of social benefits for the waste pickers ● Transitional period with the right to a two-year use of social welfare, besides their additional legal revenues from waste collection ● Obligatory health insurance ● Obligatory social insurance ● Scholarships for education of the children of informal waste pickers State support for formalisation of waste pickers ● Provision of land for temporary use purposes ● Financing of the main assets for work of the capacity Utilisation of the possibilities for recycling of: organic waste, rubber, textile, glass, collection of e-waste and other types of recycling waste Opening of centres for recycling and other forms of waste processing with previous training of the informal pickers for acquiring of skills, such as: processing of furniture, processing of metal, PET packaging, glass, and other types of waste (opening of a state programme for support of informal pickers) Adoption of local and national plans and other documents for waste 280

ANALYZES AND RECOMMENDATIONS FOR SELECTED PUBLIC POLICIES IN MACEDONIA – Quality of Life

○ ○

management which envisage the work of waste pickers Revocation of the penalties for waste pickers who will register as individuals performing an activity Recording and issuing of documents for the informal pickers

281

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References Government of the Republic of Macedonia, Waste Management Strategy 2008-2020.

Ministry of Environment and Physical Planning and Swedish Environmental Agency, (2011) Plan for closing of non-standard landfills in the Republic of Macedonia.

Ministry of Environment and Physical Planning, (2008) National Waste Management Plan 2009-2015.

Ministry of Environment and Physical Planning, (2017) Annual report on environment quality for 2016.

Ministry of Labour and Social Policy, (2014) Strategy for Roma in the Republic of Macedonia 2014-2020.

Official Gazette of the Republic of Macedonia 39/16. Law on Environment.

Ministry of Labour and Social Policy, (2015) National Employment Action Plan 20162020.

Ministry of Labour and Social Policy, (2015) Employment Strategy 2016-2020.

Official Gazette of the Republic of Macedonia 95/12. Law on Communal Activities.

Official Gazette of the Republic of Macedonia 39/16. Law on Packaging and Packaging Waste Management.

Dias, S. M., and Alves, G. (2008) Integration of the Informal Recycling Sector in Solid Waste Management in Brazil.

GIZ - Deutsche Gesellschaft für Internationale

Zusammenarbeit.

Gunsilius, E., Chaturvedi, B. and Scheinberg, A. (2011) CWG - Collaborative Working Group on Solid Waste Management in Low- and Middle-income Countries. GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit.

Ivanovski, F., Sapuric, Z. and Dimitrovski, D. (2016) Functionality of Packaging Management in Macedonia. Journal of Environmental Protection and Ecology 17(3), p. 1029 – 1036.

Leubolt, B. and Romão, W. (2015) Good practice Report Collectors of Recyclable Material in Brazil. Universidade Estadual de Campinas.

RRUSE (2015) Briefing on job creation potential in the re-use sector. The Reuse and Recycling EU Social Enterprises network.

WIEGO (2012) Informal Economy Monitoring Study: Pune’s Waste pickers: Realities and Recommendations.

Photo: pixbay.com, pexels.com 282