By Dr. Gyan Pathak
In a context of rapidly changing labour markets, a new report of the International Labour Organisation (ILO) has said that strengthening social protection for all type of workers have become urgent. Robust social protection systems are essential in helping people, societies and economies to navigate the change, it says.
The report has also pointed out the financing gaps in social security protection. Encouraging examples notwithstanding, the annual financing gap to achieve universal social protection in low- and middle-income countries remains vast, standing at 3.3 per cent of GDP. Of this, 2.0 per cent of GDP is required for essential health care and 1.3 per cent for the following five key benefits: 0.6 percent of GDP is for child benefits, 0.3 per cent for old-age pensions, 0.2 per cent for disability benefits, 0.2 per cent for unemployment benefits and 0.05 per cent for maternity benefits.
The report titled “Universal Social Protection in changing labour markets: Protecting Workers in all types of employment” has emphasized that social protection needs to play a greater role to mend and reinvigorate currently strained social contracts. This requires not only a strengthening of social protection systems, including floors, but also increased policy coherence and coordinating social protection with other relevant policy domains.
Social protection coverage is often tied to people’s employment situation, a relationship made more complex as the world of work changes and diversifies, it says. When it comes to social insurance coverage, the reality is more complex than what can be captured by a simple dichotomy of “standard” versus “non-standard” forms of employment. Depending on national contexts, coverage levels can differ greatly among and within different subcategories of workers (including part-time, temporary and self-employed workers), pointing to the importance of policy design in shaping coverage results in specific labour market contexts.
One of the reasons for persistent coverage gaps is the fact that many workers and their families are neither covered by contributory mechanisms (especially social insurance) nor by non- contributory (usually tax-financed) mechanisms – they fall through the cracks of both types of mechanisms, and thus are often referred to as the “missing middle”, leaving them vulnerable.
Some categories of workers are less likely to be covered by social insurance than others, for instance, workers on temporary contracts (especially seasonal workers, those with very short contracts or those in casual labour), in part-time work (especially those with very few and irregular hours), workers on digital platforms, agricultural workers and those in self-employment, depending on national policy and legal frameworks and their implementation. As a result, many of these workers find themselves in informal employment, which further contributes to their high vulnerability.
Another key factor that influences social insurance coverage is enterprise size. In almost all countries, social security coverage of employees in smaller enterprises is lower than for those in larger enterprises. Low coverage is a particular challenge for enterprises with less than five workers, often due to exclusion from legal frameworks, relatively high administrative cost of registration or low compliance.
For social protection systems to support people in navigating work and life transitions, a focus on reducing poverty is not enough – a shift towards preventing poverty is necessary for better outcomes, it says.
Intervening only once people have fallen into poverty is neither in line with the universal right to social security, nor conducive to human and economic development. In many cases, policy debates focus on “the poor” and “the non-poor” as if these two categories were distinct and stable over time. However, longitudinal data demonstrate that for some people and households, poverty might be a transient experience, others move in and out of poverty, while for others, poverty is chronic.
Such high levels of flux at the lower end of the income distribution are one of the reasons for which narrow poverty targeting often results in high levels of exclusion. Recognizing such poverty dynamics and designing policies and programmes in a more forward-looking way contributes to preventing negative coping strategies, such as selling valuable assets, taking on debt or reducing expenditure, including on children’s food and education.
To ensure human and economic development in a world of heightened vulnerability and volatility, developing more effective social protection systems is an urgent priority. Instead of being primarily reactive, social protection should address the root causes of poverty by establishing dependable systems that reduce vulnerability, reinforce people’s capabilities and prevent people from falling into poverty in the first place.
Finally, the report says, it should be noted that universal coverage of a social protection system does not necessarily need to be achieved by universal programmes. In contexts where contributory pensions have significant coverage, social pensions, for instance, may be pension-tested and provided only to those without a sufficient contributory pension. Advantages of integrating contributory and non-contributory forms of social protection include lower levels of expenditure on tax-financed schemes and the potential for higher benefit levels through the expansion of social insurance benefits.
Here it is important to ensure that the interaction between contributory and non-contributory forms of social protection does not create negative incentives towards contributing to social insurance, which could happen, for instance when making even a small contribution to the social insurance system would immediately disqualify one from tax-financed benefits, or when tax-financed benefits are higher than contributory benefits. To avoid such situations, the careful coordination between contributory and non-contributory schemes is advisable. For example, a tapered pension test can ensure that for those on lower incomes, tax-financed pensions complement social insurance pensions, and are gradually withdrawn at higher levels of income. (IPA Service)
