Journal number 1 ∘ Murman Tsartsidze ∘ Shota Gabadadze ∘
Peculiarities of Determination and Regulation of the Subsistence Minimum in Georgia

https://doi.org/10.56079/20221/2

 

Improving the quality of working lifes and the living standards of the population is a priority in the socio-economic policy of any country. According to the country's constitution, Georgia is a social state, which cares of the community: strengthening the principles of social justice, social equality and social solidarity; on human health and social protection, to provide a living wage and decent housing, to protect the well-being of the family. To successfully address these issues, the state will develop a targeted social policy, which, together with other important social norms, is based on a living wage. This last one should be the basis of social protection and social guarantees for the citizens of the country, was aimed at supporting the less wealthy part of the population and actually reflecting the change in the living standards of the population. 

       Due to the urgency of the issue, in this scientific article it presented review of the economic and legal framework for determining and regulating the subsistence minimum in Georgia. Particular attention is paid to the principles of its formation, use and revision. There is analyzed the existing methodology for calculating the subsistence minimum, gaps in this area are highlighted, the necessity of its improvement is substantiated and specific measures to be taken in this direction are formulated. The paper also discusses structural analysis of the subsistence minimum, the minimum consumer basket in developed and developing countries in Georgia and abroad. It is calculated real level of the subsistence minimum, (Ratio between food and non-food basket) taking into account changes in the structure of the minimum consumer basket considering the socio-economic situation in Georgia, the consequences of the economic crisis caused by the global pandemic, and the level of economic development of the country, the features. 

       Key words: Standard of living, subsistence minimum, minimum food basket, non-food basket, social protection, social policy.

JEL Codes: I30, I31, I38

 

Introduction

       Subsistence level is an important social landmark, which is used in many countries, including Georgia, as a policy of targeted social protection. In particular for: reflect changes in the standard of living of the population; identification of the least well-to-do part of the population and implementation of targeted social policy; salary, pensions, scholarships, determination of the minimum amount of benefits and other social payments; to develop social programs and more. It calculated from 2004 year by month in Georgia by National Statistics office and published on its official website (www.geostat.ge). In particular the subsistence level is set according to the working age, average consumer and family type (One-person, two-person, three-person, four-person, five-person, six-person and more). The calculation of the subsistence minimum, the principles of its formation and use, as well as the procedure for approval and revision are determined by the law of Georgia "On the rule of calculation of the subsistence minimum". According to this "Subsistence is a value expression of consumer goods per capita, which in accordance with the level of socio-economic development of the country, it ensures the satisfaction of the minimum physiological and social needs of a person.“ (LawN649, 1997). The law also provides for the gradual approach of the minimum wage to the subsistence level“ (Law N2292, 2009). The normative-statistical method is used to calculate the subsistence level in the country (see table 1)

Subsistence Level Calculation Methodology in Georgia

 Scheme 1

 

 

The normative method is used to form a food basket, based on the minimum norms of food consumption, but the statistical method is used to calculate costs for non-food goods and services, according to the actual level of consumption. Average prices for current purchases are used in the process of calculating the cost of living and the basis of its formation is the food basket of the able-bodied population. Compositions of this last one norms and norms are set and the revise if necessary by the regulation of the relevant normative-legislative act Ministry of IDPs from the Occupied Territories of Georgia, Labour, Health and Social Affairs (Law N3070, 2018) (Order N111/n, 2003).  In particular, it is determined by 40 products and provides a total 2300 kcal of energy, recommended composition of the minimum food basket for men of working age, taking into account the amount of physiologically necessary food for normal life and work capacity, its constituent elements and the minimum number of calories. 

       In various scientific papers, is presented a broader and more meaningful definition of subsistence level as about an important social category and landmark. For example, according to one definition, "The subsistence level is a natural set of foods that contain the calories necessary to maintain human health and vitality, also costs for non-food goods and services, taxes and mandatory fees. The subsistence level is differentiated according to the level of development of the countries and the socio-demographic groups of the population" (Labour Economics, 2021: 109).  

 

Dynamics of Subsistence in Georgia

 

The cost of living in Georgia in November 2021 was 223.7 GEL for men of working age, 198.1 GEL for the average user and for the household it was 328.5 GEL. Over the last 10 years, its size for the average consumer has increased by 49.5% but the average subsistence level for a household averaged 30.9% compared to 2010 (see table-1). 

 

Subsistence Level in Georgia between 2004-2021

Table  1

 

As we can see this definition is more capacious, it is complete and clearly defined according to it that the basis for calculating the subsistence level is not only food products, but also other important consumer values, mandatory payments and etc.  From all the above it is clear that according to table N1 amount of the subsistence minimum calculated at the official level, there is no way to reflect its real level and it is very low compared to the latter in conditions of current economic situation, standard of living, current prices and inflation.  Moreover, the existing method of its calculation is characterized by a number of shortcomings. It's hard not to agree with the conclusion, "Currently, the subsistence level in Georgia is unrealistic - it creates a misconception about the adequacy of food consumed by the population, illusion, that a food ration that completely deviates from real physiological norms is normal. Focusing on them increases the risk of the population becoming victims of various serious diseases" (Archvadze, Koghuashvili 2020).  In addition to the above, the real value of the grocery basket is reduced, where mechanically used "Trade Ratio" plays a defined role. What about the amount of food, its composition and amount of calories, it is quite low compared to the real physiological norms. For example, the food ration is designed for 40 products and 2300 kcal, while the latter should not be less than 2500 kcal. 

       According to the law, the subsistence level is the basis for a targeted social policy by the state and its use is provided to determine the minimum amount of salaries, pensions, scholarships, allowances and other social benefits, also social programs to develop a model for the development of the national economy, which provides a gradual approximation of the consumption norms of citizens to the norms corresponding to  the international standards (Law N649, 1997). Despite, although 24 years have passed since the adoption of the law and significant changes were made to it in different periods (Law N2292, 2009); (Law N4469, 2011); (Law N1245, 2013); (Law N3070, 2018) the implementation of these principles has not yet been implemented, in particular, the connection between the subsistence level and basic social indicators is very weak, or it can be said that it is completely lost (Minimum Wage, Pension, Scholarship, Various Allowances, Poverty Rates and etc). It was not possible to gradually approach consumption norms to the international standards. To date, the ratio of total livelihoods to food and non-food items has not changed. (70% / 30% -grocery bucket -70%, and non-food basket -30%).

 

Subsistence Level in Foreign Countries

 

       The experience of developed countries abroad shows that the complete calculation of the subsistence minimum is based on the elaboration of justified norms of a separate group of consumer values, which is carried out on the basis of special investigations and the involvement of large groups of specialists in this process. For example, the consumer basket is processed according to the so-called ,,Geller budget“ scheme in USA. It includes the goods and services that are necessary for a normal human life, and for the normal reproduction of its workforce. According to ,,Geller budget“ food products should not exceed 30.0% of the value of the "basket", non-food items - 47.0% (between them clothing, footwear 20.0%; furniture and cultural goods 18.0%; Other values 9.0%) other goods and services accounted for 23.0% (for-ua.com). In Germany there are the most important categories in the consumer basket: apartment, water, energy, different types of gas and fuel (32.0% of the total value), transport (13.0%), recreation, entertainment and Culture (11.0%), food and non-alcoholic beverages (10.0%). The basket also includes various goods and services (7.0%), furniture, home appliances (5.0%), restaurant services (5.0%), healthcare (5.0%) clothing and footwear (5.0%). The remaining 7.0% is for alcoholic beverages and tobacco products, communications and education. In the structure of the consumer basket, 20.6% accounts of food and non-alcoholic beverages in USA, but 11.5% in the UK (Яблокова Ю.С...,2021). Recently, the structure of the minimum consumer basket has changed in post-Soviet countries. For example, minimum consumer budget in Russia consists of more than 200 items of goods and services, including 80 types of food. The share of the latter in the total budget is 45.1% (www.bibliotekar.ru/), in Belarus it is 49.4% (myfin.by) (see schedule – 2).

 

Composition and Structure of  the Minimum Consumer Budget 

in Russia, Ukraine and Belarus

 

schedule  2

 

According to the state statistics service of Ukraine, this is 57.5%. In 2021, Ukrainians would have spent most of their money on food, soft drinks and utility bills. "According to the UN standards, a country where food expenditures account for 50-60% of total income is considered a country with a low standard of living" (ukraina.ru). According to the above data it is unfortunate, in Georgia, as mentioned above, the share of food products in the total cost of living remains at 70%, which is completely unacceptable. To determine the share of actual expenditures on food, beverages and tobacco, it is interesting to consider the structure of household expenditures according to the data declared in Georgia. (see table – 3). 

Distribution of Average Monthly Household Expenditures Per Capita by City and Village in Georgia in 2010-2020 (GEL)

Table  3

In 2020, the total volume of average monthly expenditures per household in Georgia amounted to 230.25 GEL, which is 60.2% more than in 2010 and 13.4% more than in 2015. Expenditure levels are on average 28.0% higher than in urban areas compared to rural areas. As for spending on food, drinks and tobacco products, in 2020 their share in total cash spending in the city was 40.8%, and in rural areas - 45.0%. As the analysis of the amount and structure of costs shows, the average level of consumption in Georgia is very low, both for the household as a whole and for its individual members. In particular, it lags significantly behind the level of consumption of the population of both developed and post-Soviet countries, according to its total volume, as well as its constituent elements, structure. This once again indicates the high level of poverty, depth and severity in Georgia. Therefore, in the end, in the process of calculating the subsistence minimum in Georgia, we considered the average option. In particular, the share of food products was defined as 50.0% of the average level achieved in the post-Soviet countries (Russia, Belarus, Ukraine). According to the above, in December 2021 we calculated the minimum consumer basket of a man of working age, whose minimum value was set at the level of 550.00 GEL. Accordingly, the subsistence level in the country in the current period should not be less than 550.0 GEL (Average equivalent of $ 178.0). If we compare the current figure of the former post-Soviet countries, the Russian Federation (158.00 USD) and Tajikistan (USD 147.0) are approaching this level of subsistence while in other countries it is relatively low. Compared to developed countries, this figure is at least 4 times (Spain) and at most 14 times lower than Luxembourg (see table  4). 

 

Subsistence Minimum in Developed and Post-Soviet Countries of the World as 

of  2020-2021 per month (EURO ,USD)

 Table  4

 

       What about the developed countries, the subsistence level here is much higher and according to the 10 advanced countries, its value ranges from 645.0 euros (Spain) to 2000.0 (Luxembourg). In France and Germany, its size is 1254.0 and 1240.0 euro. In Finland and the UK, 1170.0 and 1087.0 euro. These states belong to the category of countries with a high standard of living. 

       As the experience of other countries shows, the subsistence level operating in Georgia in the current period, the methodology of its definition and regulation, the normative-legislative base need to be thoroughly revised and improved. It is vital for the country to develop a new methodology for determining the subsistence minimum, the minimum consumer budget and the minimum wage, to form an appropriate legal framework in this regard. In our opinion, special attention should also be paid to the adoption of laws on remuneration and the minimum wage. We have been conducting relevant research on these issues for years, to which have been dedicated several number of scientific papers. (Tsartsidze, 2012); (Tsartsidze, 1999); (Tsartsidze, 1993); (Tsartsidze..., 2020); (Tsartsidze, 2019); (Tsartsidze, 2004); (Tsartsidze, 2016). Accordingly, important proposals and recommendations were developed, whose main purpose was to improve the social protection of the population and the quality of working life; improving the legal-methodological basis for the calculation of the minimum consumer budget and the minimum wage. 

 

Conclusions and Recommendations:

• The value of the official subsistence level calculated in the country, in the current economic situation, standard of living, current prices and inflation, can not reflect its real level and it is very low compared to the latter. Moreover, the existing method of its calculation is characterized by a number of shortcomings. In particular: the real value of the grocery basket is reduced; where the defined role performed mechanically applied the "trade ratio"; amount of food in the food basket and the amount of calories are quite low compared to the real physiological norms. For example: food ration is designed for 40 products and 2300 kcal, while the latter should not be less than 2500 kcal; consumption norms are significantly below the level of international standards;

• The connection between the subsistence level and basic social indicators is lost (minimum wage, pension, scholarship, various allowances, poverty rates and etc.)

• To date not changed the ratio of total livelihoods to food and non-food items (70% / 30% -grocery bucket -70%, and non-food basket -30%). Compared to Georgia, in other post-Soviet countries this figure ranges from 45% to 60%, but in developed countries it is in the range of 20% -30%. As mentioned above, according to the UN standards, a country where food expenditures account for 50-60% of total income is considered a country with a low standard of living;

• The analysis of the amount and structure of household expenditures shows that the average level of consumption in Georgia is very low, as a whole household, as well as its individual members. In particular, it lags far behind the consumption levels of both developed and post-soviet countries, according to the structure of the total volume, as well as its constituent elements. This once again indicates the high level, depth and severity of poverty in the country.

• To determine the real subsistence level in the country, it is necessary to: it should be calculated based on the actual defined consumer basket, where will be set the minimum required of food, non-food products and services, which is necessary to maintain human health and ensure his life. In it we must necessarily take into account the mandatory taxes and fees, without which human existence today is unthinkable;

• It is necessary to change the composition and structure of the food basket, establish real physiological norms of food consumption, which will be calculated at not less than 2500 kcal and actually ensure the maintenance of normal health and vitality of a able-bodied person;

• The total value of the food and non-food basket should be calculated taking into account the real market value, prices;

• It is necessary together develop proposals, Georgian National Statistics Office, Ministry of IDPs from the Occupied Territories of Georgia, Labor, Health and Social Affairs, Ministry of Finance of Georgia and Ministry of Economy and Sustainable Development of Georgia to be thoroughly revised and make changes as in the Law of Georgia on the ,,Rule of Calculation of the Subsistence Minimum“ (Law N649, 1997), as in the rules for determining the norms and norms of the composition of the food basket necessary for determining the subsistence minimum (Order N111 / N, 2003) to gradually bring this legislation closer to international standards and norms. The norms should be selected in such a way to contribute the improvement of the food ration of the population and ultimately to a complete nutrition. For this, in our opinion, it is first necessary to change the structure of the subsistence minimum and instead of (70% / 30%), the ratio between the values of the food and non-food basket, as mentioned above, should be set at 50% / 50%. So that, in the first stage, the share of food products in the total consumer basket value should be provided at the level of 50%. At the next stage, it will be desirable to reduce this ratio to 40% / 60%, to gradually approach the rate of developed countries (30% / 70%).  This average option was taken into account in the process of calculating the subsistence level in Georgia. In particular, the share of food products was set at 50% of the average level achieved in the post-Soviet countries (Russia, Belarus, Ukraine). According to this, in December 2021, the minimum consumer basket value of working age man was set by us at 550.0 GEL. Accordingly, the subsistence level in the country in the current period should not be less than 550.0 GEL (Average equivalent to $ 178.0 USD). 

• It is also interesting that from September 2021, in accordance with Article 14 of the ,,Law of Georgia on Employment Promotion“, a certain connection was established between the subsistence level and the level of remuneration. It is established that the monthly salary for full-time work should be at least twice the subsistence level (Law N6819, 2020). If we consider that subsistence level in Georgia in November 2021 was 223.7 GEL for men of working age, minimum level of remuneration in the country for this period should not be less than 447.4 GEL. However, it should be taken into account the fact that in this case we are talking about full-time work. Then it would be appropriate, that mentioned minimum amount was set in the form of a minimum wage at the level of 550 GEL, which would be consistent with the real subsistence rate.

 

References:

• Archvadze I., Koghuashvili P. (2020). Subsistence in Georgia and  the Need to Determine its Optimal level. ,,Economics and Business“N1, (tsu.ge); (in Georgian.)

• Gaganidze G. (2020). World Economic before Pandemic, During Pandemic and after Pandemic.  ,, Economics and Business“ Volume XII, N2; (in Georgian.)

• Koghuashvili P. (2014). Reduce level of Subsistence is the Murder of the Population. ,,New Economist“ N2, (geoeconomics.ge); (in Georgian.)

• Kharaishvili E., Erkomaishvili G., Natsvlishvili I., Lobjanidze M. (2021). Challenges of Food Transportation and Policy Priorities in Georgia. ,,Economics and Business“,          vol. XIII, N3. (in Georgian.) 

• Mekvabishvili E. (2020). Impact of Global Economic Crisis on the Georgian Economy, ,,Economic and Business“ Vol. XII, N2. (in Georgian.)

• Papava V. (2020). Coronomic and Economics in the face of Crisis. (in Georgian.) https://for.ge/view/ %20182671/koronomika-da-ekonomika-krizisis-winaSe.html;

• Papava V., Charaia V. (2020). The Coronomic Crisis and Some Challenges for the Georgian Economy. GFSIS, Expert Opinion, No. 136.https://www.gfsis.org/files/library/opinion-papers/136-expert-opinion-eng.pdf;

• Silagadze A., Atanelishvili T. (2014). The Main Economic Indicators of the EU and Georgia “Topical Problems of the Development of Economy and Economic Science.” Collection of Scholarly Works of Paata Gugushvili Institute of Economics TSU, 2014;

• Standard of living. Subsistence level - National Statistics Office of Georgia. 2021 year (geostat.ge); (in Georgian.)

• Tukhashvili M. (2012). Georgian Labour Market in the Condition of Political and Economic Crisis.In the book: Youth Employment: Challenges and Opportunites. Timisoara. Eurostampa;

• Tsartsidze M. (2022). Unemployment and Poverty in Georgia. Monograph. Iv.Javakhishvili Tbilisi State University. Publisher of  TSU. Tbilisi; (in Georgian.)

• Tsartsidze M. (1999). Reproduction of the Workforce and Remuneration in the Process of Forming a National Labor Market. Monograph. Publisher of TSU ,,Source of knowledge“ Tbilisi. http://www.nplg.gov. ge/; (in Georgian.)

• Tsartsidze M. (2004). Labour Market Formation and Reproduction of Labour Force in Georgia. Doctoral dissertation. TSU, Tbilisi; (in Georgian.)

• Tsartsidze M. (2016).Poverty and the Economic Development Factors in Georgia. «European Journal of Humanities and Social Sciences», Scientific journal, №1,  Vienna;

• Living Wage in the Countries of the World 27.12.2020. (in Russian.)https://visasam.ru/emigration/vybor/ prozhitochniy-minimum-v-mire.html#-2;

• Yablokova Yu.S., Kuryanova D.A. (2022). Consumer Basket of Different Countries. scienceforum.ru  (in Russian.)

 Laws and Regulations:

• Constitution of Georgia. Parliament of the Republic of Georgia. 24.08.1995 year. (matsne.gov.ge); (in Georgian.)

• Law of Georgia N6819, "On Employment Promotion", Tbilisi, 14th July, 2020 year. (matsne.gov.ge); (in Georgian.)

• Law of Georgia N649, "On the Rule Calculation of the Subsistence Minimum", Tbilisi, 17th April 1997. https://www.matsne.gov.ge/document/view/29824?publi-cation=7; (in Georgian.)

• Order Minister of Labour, Health and Social Affairs of Georgia N111/N ,,Physiological Needs of Organism for Nutrients and Energy on the Approval of the Norms and Norms of Composition Food Basket Necessary for the Determination of the Subsistence Level. 08th May 2003 year.(matsne.gov.ge). (in Georgian.)

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