Exploring a fairer and more inclusive social protection paradigm for the world’s informal workers

(c) ILO

Global frameworks and the widely recognized importance of social protection during the COVID-19 crisis have generated momentum toward the realization of Universal Social Protection (USP). At a global level, the Social Protection Floors (SPF) and USP frameworks, which are grounded in human rights principles, International Labour Standards and the Sustainable Development Goals (SDGs), provide a key set of principles and actions that should underpin the extension of social protection to all, including workers in informal employment. They call for the development of social protection systems that are based on rights and provide protection for  throughout the life course via a mix of equitably financed social assistance and social insurance. Despite these frameworks and important improvements over the last few years, substantive coverage gaps remain, especially for the world’s two billion workers in informal employment who remain largely excluded from social protection.

One reason for the slow progress is a set of influential ideas that hold back the expansion of social protection to informal workers. Of course, ideas in themselves are not the only reason for this lack of progress; there are always more factors at play. But as scholars of public policy have long pointed out, policy communities, made up of experts, international and national policy-focused organisations and interest groups, are critical to developing policy agendas and their alternatives – framing the realm of the possible through their ideas (Kingdon, 1984). Often, these ideas are rooted in a “policy paradigm” – a set of assumptions about economic, social and political systems which serve as a guide to experts, and which mean that similar proposals continue to be made, even as contexts change (Béland, 2005).

We believe that current dominant policy paradigms and their constituent policy options must be more closely examined and more openly debated if we are to see fair and inclusive proposals for the extension of social protection to informal workers. Considering the importance of knowledge production in the contestation of policy agendas, we focused on the production of high-quality research in some of the key areas of contestation. The aim was to develop – and continue to develop – a more diverse and nuanced set of policy ideas, informed by rigorous research, that may point towards alternative policy paradigms. While some of this work focused on a critique of certain dominant ideas which we feel are particularly unhelpful in developing fair and inclusive forms of social protection, other pieces of research turned towards positive examples of what can be done to push an alternative agenda forward.

Expanding fiscal space for social protection – focus efforts on taxing the working poor, or finding creative ways to leverage contributions from more powerful economic actors?

The key question in any discussion about the expansion of social protection is how to open up domestic sources of financing, mainly through general taxation. Within this, a particularly concerning idea has been one which suggests that fiscal space can quickly be gained by taxing the “hidden goldmine” of the informal sector (Monye & Abang, 2022). Together with collaborators at the International Centre for Tax and Development (ICTD) and the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana, we conducted a representative survey of the informal sector in Accra. The results revealed that informal sector operators do already pay a range of taxes, permits, levies and fees, and that, especially for those at the lower end of the income spectrum, the ratio of taxes to earnings is substantially higher than that of the formal sector. The report concludes that “for substantial proportions of the informal sector there is little room for further taxation or contributions” (Anyidoho et al., 2003).

So how might we increase fiscal space to better cover informal workers? A set of answers to this question are contained in a UN resource on the topic (Ortiz et al., 2017). One missing option – particularly relevant for self-employed informal workers – is an exploration of where and how it might be possible to leverage economic relationships outside of the employment relationship for the financing of social protection. Two commissioned case studies from the work of organisations of informal waste pickers show how this might be done. In Argentina, the Unión de Trabajadores y Trabajadoras de la Economía Popular (UTEP) has drafted a law based on Extended Producer Responsibility legislation to address environmental and labour rights challenges in waste management practices. The draft law includes a tax that would compel packaging-producing companies who benefit from the labour of waste pickers to directly finance improved working conditions and social protection (Cappa et al., 2023). In India, Kagad Kach Patra Kashtakari Panchayat (KKPKP), a trade union of waste pickers, is showing how it is possible to make claims for social protection benefits from various actors in recycling value chains, including municipalities, citizens and businesses – beyond employment and general tax financing (Chikarmane & Narayan, 2023). The hope is that these case studies can stimulate more innovative thinking on how to ensure fair financing of social protection in contexts of high informality and self-employment, to avoid downloading responsibility solely onto workers themselves.

Is social insurance really dying? If not, how can we ensure that systems include self-employed informal workers?

The role of social insurance within the social protection mix has long been contested. For some time there has existed an idea that mixed systems of social protection, combining employment-linked social insurance with tax-financed social assistance for low-income informal workers, drive up levels of informality by establishing a financial incentive for workers and firms to exit the formal economy. This of course sets up a problem for poorer informal workers who, because of their low and inconsistent earnings, will be reliant on some form of subsidy to access meaningful benefits.

We turned to the most prominent “natural experiment” at the forefront of this debate – Mexico’s Seguro Popular health insurance scheme which covered close to 50 million people, and is often portrayed as the world’s leading example of informality-inducing social policy (Levy, 2008; UNDP 2021). Now discontinued, the scheme nevertheless generated a significant amount of research on labour market effects (Bosch & Campos-Vasquez, 2014). However, most of these studies used labour force data, which is not representative at the municipal level where Seguro Popular was rolled out. Collaborating with economists, we re-ran the data using representative municipal data and more sophisticated econometric techniques – to find that Seguro Popular had no impact on formality (Seira et al., 2023). Why? Well, for one thing, informal and formal jobs are not perfectly substitutable – it just isn’t always that easy for people to switch between the two, especially at the lower end of the earnings spectrum. And for most of these workers, informality is far from a choice.

A second important idea about social insurance is that it is becoming “increasingly irrelevant” in labour markets dominated by informality and self-employment, where social contributions can be hard to gather (World Bank, 2019). But is this really the case? Together with the ILO, we looked at the numbers and found that worldwide social contributions still make up almost 20 per cent of total tax revenue. Moreover, over the last two decades, contributions have remained a stable source of financing, with a slow but steady increase after the financial crisis of 2008 (Calligaro & Centrangolo, 2023).

While on an intuitive level, it might make sense that employment-linked social protection might not serve the interests of informal workers, the reality is that social insurance continues to play an important role in comprehensive social protection systems – supporting higher-level benefits for working people, opening up fiscal space for social assistance, and establishing pathways for redistribution. And on the positive side, we have been documenting some of the social insurance schemes that are experimenting with ways to cover self-employed informal workers, with a focus on the experiences of workers themselves – bringing greater attention to their perspectives on what works.

A question for the future is whether and how we can think about such schemes incorporating elements of innovative financing such as those described earlier.

New Ideas – The Time is Now

Policy ideas are important, and how they are framed is particularly critical in the context in which we now find ourselves – a time of crisis, but also an inflection point; a time when new ideas – and bold ideas – may be more likely to gain traction. This is also the moment to actively question ideas which ultimately lead to regressive outcomes for the majority of the world’s workers. It is a time to push forward more progressive ideas and build the evidence base to support them. It is also an opportunity for the international social protection community – so critical to the dissemination of ideas – to come together and engage in open and robust debate about social protection for informal workers. We need to work together towards a coherent vision for fair and inclusive systems which do not download further costs and responsibilities onto the world’s working poor.

This is the tenth blog post in the USP2030 blog series. It was first published on 3 May 2023 on socialprotection.org

References

• Kingdon, J.W.1984. Agendas, Alternatives and Public Policies. Harlow: Longman.
• Béland, D. 2005. Ideas and Social Policy: An Institutionalist Perspective. Social Policy and Administration, 39 (1): pp 1-18.
• Monye, J and O. Abang. 15 Oct 2022. Taxing the Informal Sector—Nigeria’s Missing Goldmine. Bloomberg Tax.
• Anyidoho, N.A, M. Gallien, G. Ismail, F. Juergens-Grant, M. Rogan & V. van den Boogaard. 2022. Tight Tax Net, Loose Safety Net: Taxation and Social Protection in Accra’s Informal Sector. WIEGO Working Paper No. 45.
• Ortiz, I, M. Cummins, K. Karunanethy. 2017. Fiscal Space for Social Protection and the SDGs Options to Expand Social Investments in 187 countries. Extension of Social Security Working Paper 048. Geneva: ILO.
• Cappa, A,  A. Bertellotti, M. Murad, J. Campana, P. Basílico, F. Juergens-Grant. 2023. Efforts of Argentina’s Informal Waste Pickers to Finance Decent Work and Social Protection through Extended Producer Responsibility Legislation. WIEGO Resource Document No. 34.
• Chikarmane, P and L. Narayanan. 2023. Pune Waste Pickers’ Innovative Efforts to Fund the Extension of Decent Work and Social Protection. WIEGO Resource Document No. 33
• UNDP. 2021. Regional Human Development Report 2021. Trapped: High Inequality and Low Growth in Latin America and the Caribbean.
• Levy, S. 2008. Good Intentions, Bad Outcomes. Social Policy, Informality, and Economic Growth in Mexico. Brookings Institution Press.
• Bosch, M and R.M. Campos-Vazquez. 2014. The Trade-Offs of Welfare Policies in Labor Markets with Informal Jobs: The Case of the “Seguro Popular” Program in Mexico. American Economic Journal: Economic Policy, 6 (4): 71-99.
• Seira, E,  I. Meza, E. González-Pier & E. Alcaraz Prous. 2023. Did Mexico’s Seguro Popular Universal Health Coverage Programme Really Reduce Formal Jobs? WIEGO Working Paper No. 46.
• World Bank. 2019. World Development Report 2019: The Changing Nature of Work. 
• Calligaro, F and O. Cetrangolo. 2023. Financing Universal Social Protection: The Relevance and Labour Market Impacts of Social Security Contributions. WIEGO/ILO Working Paper No. 47.