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: % –developed countries: % 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-employment Source: 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 workers Casual workers for short periods or on a daily basis Contract labourers – employed by a third party labour contractor Smallholder producers 2. Social Security Coverage percent contributing to a pension plan: permanent workers – 52% temporary workers – 33% other workers – 0% official commissions set up to offer the following to temporary workers: occupational health and safety child care training

UNDERSTANDING THE COVERAGE GAP: GLOBAL VALUE CHAIN # 2 Garment Sector in Thailand 1. Continuum of Employment Arrangements Formal workforce in factories (small core) Agency workers in factories – supplied by a third part contracting company Industrial outworkers in small workshops or at home – sub-contracted to a third party contractor 2. Social Protection Coverage Formal workers – employer contributions to social insurance + full package of worker benefits Agency workers – employer contributions to social insurance + sick leave with hospital certification Industrial outworkers – no employer contributions to social insurance + no worker benefits

REDUCING THE COVERAGE GAP FOR INFORMAL WORKERS: GUIDING PRINCIPLES Reducing 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 GAP FOR 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 GAP FOR INFORMAL WORKERS: KEY PRECONDITIONS To 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

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