Productive role of safety nets : background paper for the World Bank 2012-2022 social protection and labor strategy

The paper contains a framework for linking social protection with growth and productivity, an updated review of the literature, new original work filling in gaps in the available evidence, and a discussion of operational implications. The paper demonstrates that there was a shift in the economists'view on social protection, and now they are seen as a force that can make a positive contribution towards economic growth and reduce poverty. The paper looks at pathways in which social protection programs (social insurance and social assistance programs, as well as labor programs) can support better growth outcomes: (i) individual level (building and protecting human capital, and other productive assets, empowering poor individuals to invest or to adopt higher return strategies), (ii) local economy effects (enhancing community assets and infrastructure, positive spillovers from beneficiaries to non-beneficiaries), (iii) overall economy level (acting as stabilizers of aggregate demand, improving social cohesion and making growth?enhancing reforms more politically feasible). Most social protection programs affect growth through all of these pathways. But the evidence is very uneven; and there are knowledge gaps. The paper discusses operational implications for the design and implementation of Social Protection (SP) programs and proposes a work program for addressing knowledge gaps.