SOCIAL PROTECTION AND

THE INFORMAL WORKFORCE

Marty Chen

Harvard University

WIEGO Network

REMARKS

• Context

– increasing informality

– widening institutional mismatch

• Scale and Nature of Problem

• Reducing the Coverage Gap

– guiding principles

– promising examples

– key preconditions

CONTEXT # 1:LARGE AND GROWING INFORMAL ECONOMY

• share of informal/unprotected employment in total employment:– developing countries: 60-90 %– developed countries: 25-40 %

• informality is expanding: both -– old forms + new forms– self-employment + wage employment

• informality is expanding: under conditions of both - – labour market regulation + labour market de-regulation – economic growth + economic stagnation + economic crisis

CASE OF INDIA

• Composition of Workforce: 2001< 10% formally employed 50% self-employed 40% or so engaged in informal/unprotected jobs (notably in agriculture but also in

construction, manufacturing, and services)• Trends in Workforce: under conditions of high GDP

growth • decline in wage employment• increase in self-employmentSource: ILO 2002 and Chandrasekhar and Ghosh 2006

CONTEXT # 2:

INSTITUTIONAL MISMATCH

• social security systems: premised on model of modern industrial job + male breadwinner (rather than multi-sectoral labor markets + multiple earners)

• social safety nets: premised on notion of short-term residual social problem (rather than long-term central economic problem)

SOCIAL PROTECTION AND THE INFORMAL WORKFORCE:

STATUTORY SYSTEMS

• formal system: in most developing countries, covers only 5-20% of total labour force

• extension of some components of formal system to some informal workers: a few countries with limited and targeted coverage

• universal system for all workers: growing number of country-specific models

• alternative schemes for informal workers: many countries with a patchwork of small schemes

• safety nets for informal workers: growing number of countries since financial/economic crises of late 1990s

Coverage of Formal Pension Systems in South Asia,Latest Year Available, Preliminary Data (in %)

SOCIAL PROTECTION AND THE INFORMAL WORKFORCE:

VOLUNTARY SYSTEMS

• market-based systems: often too expensive for the working poor in the informal economy

• NGO systems: mostly pilot schemes with low coverage

• mutual systems: very region-specific with low coverage

• traditional “informal” systems: low and declining coverage

+ limited provisions

CASE OF INDIA

• formal social security system: only 6-7% of the workforce

• patchwork of other schemes: only 4-5% of the workforce

• little or no formal system coverage: 90% or so of the workforce

Source: NCEUS 2006

UNDERSTANDING THE COVERAGE GAP:GLOBAL VALUE CHAIN # 1

Horticulture Sector in Chile

1. Continuum of Employment Arrangements

Permanent workforce (small core)Temporary or seasonal workersCasual workers for short periods or on a daily basisContract labourers – employed by a third party labour contractorSmallholder producers

2. Social Security Coveragepercent contributing to a pension plan:

permanent workers – 52%temporary workers – 33%other workers – 0%

2001 - official commissions set up to offer the following to temporary workers:occupational health and safetychild caretraining

UNDERSTANDING THE COVERAGE GAP:

GLOBAL VALUE CHAIN # 2

Garment Sector in Thailand

1. Continuum of Employment ArrangementsFormal workforce in factories (small core)Agency workers in factories – supplied by a third part contracting companyIndustrial outworkers in small workshops or at home – sub-contracted to a

third party contractor

2. Social Protection CoverageFormal workers – employer contributions to social insurance +

full package of worker benefits Agency workers – employer contributions to social insurance +

sick leave with hospital certificationIndustrial outworkers – no employer contributions to social

insurance + no worker benefits

REDUCING THE COVERAGE GAPFOR INFORMAL WORKERS:

GUIDING PRINCIPLESReducing the social protection coverage gap for informal workers will require:

• context-specific mixes of statutory and private systems

• schemes that are redistributive in nature and that do

not download risks or risk management onto the working poor

• collective action and contributions by all stakeholders

REDUCING THE COVERAGE GAPFOR INFORMAL WORKERS:

PROMISING EXAMPLES• extended statutory social protection: for embroidery

homeworkers on island of Madeira

• industry-funded social welfare funds: for bidi-rollers and other sector-specific groups of workers in India

• voluntary retirement fund: for informal worker members of Ghana Trade Union Congress

• voluntary health and pension insurance: for informal workers in Costa Rica

• voluntary life, health, and asset insurance scheme: for >100,000 of SEWA members in India

REDUCING THE COVERAGE GAPFOR INFORMAL WORKERS:

KEY PRECONDITIONSTo ensure that social protection systems are accessible to and

appropriate for informal workers will require:

– official visibility of informal workers in national data on social protection coverage - through improved national statistics on all forms of informal employment

– representative voice in the design of social protection systems – through participatory processes and inclusive institutions

THANK YOU