Impact of social expenditure on regional disparities in Poland

Social expenditure in Poland appears to increase regional employment disparities. In particular, the farmers' social fund (KRUS) seems to contribute to the rising regional dispersion in the number of recipients of social transfers. This is the result of KRUS benefits being poorly related to recipients’ prior labour activity. Moreover, they are low, thus creating a potential "poverty trap". In contrast, the pension reform, which tightly links pensions to life-time income in the general system, appears to have attenuated regional dispersion. Nevertheless, there are still unreformed areas in the general system, such as disability benefits and early pensions, which encouraged the low-skilled to become less active or inactive. These findings support calls for an integration of KRUS in the general system or at least a major change of KRUS contribution-benefit ratios, the detachment of social assistance from the old-age saving or disability insurance and precise targeting of this assistance towards those who are really unable to remain active. In the general system, the early pension system should be replaced by activity-stimulating transfers such as e.g. on-the-job training subsidies or wage top-ups for the least-skilled. Finally, greater regional differentiation of social benefits could be introduced, taking into account differences in the cost of living, to stimulate mobility by reducing incentives to stay in underdeveloped regions.