Social Protection: Including People in the Informal Economy

Article originally published in the public group on Social Protection

Workers in the informal economy do not usually benefit from social protection because they - or their employers - do not contribute to any scheme or fund. It is no surprise, then, that extending social protection has become central to strategies of transition from the informal to the formal economy. The most recent estimate of informal employment (ILO, 2018) is as high as 61% of total world employment and 51% of non-agricultural employment.

Across the world, a wide variety of social protection programmes aim at covering the largest numbers of people against the widest range of risks. But these programmes are most often limited to formal wage workers. According to the most recent statistics, 69.4% of the working age population have little or no access to social protection (ILO, 2021) and only 46.9% of the world population are covered by at least one social protection benefit.

The horizontal and vertical extension of social protection coverage has become a major concern for most governments and is central to the achievement of SDGs and the transition from the informal to the formal economy (ILO, 2015).

Taking stock of the multiple experiences in extending coverage to workers in the informal economy, allows for three main challenges and lessons learnt to be addressed.  

1. Reaching out to potential beneficiaries requires a strong political will and efficient coordination.

The heterogeneity of informal workers is a first challenge. Agricultural small holders, micro-entrepreneurs of the informal sector and their dependent workers (including street vendors and home-based workers), informal workers in the formal sector and in households do not have the same social protection needs. Recognizing this heterogeneity, policymakers need to consider diverse factors in designing social protection for informal workers: the priorities of potential beneficiaries (e.g. health, maternity, employment, old age), the levels and regularity of their income, their awareness as well as their ability and willingness to contribute to social protection.

Decentralised administrative structures and reliable membership-based organisations are central to the effort to extend coverage. They are the ones most likely to engage in raising awareness, registering beneficiaries, collecting contributions and providing benefits in a sustainable way. Strong political will is needed to ensure their staff are adequately informed and trained.

Coordination is also key. A common obstacle faced in registration campaigns is the lack of birth certificates. For some populations, especially in rural areas, the chain that leads to social protection starts with the issuance of birth certificates or identity cards, requiring the participation of the Ministries of Justice and Home Affairs. As seen in point 3, the use of digital tools facilitates many of these processes, particularly collective registration and collection of contributions.

2. Prioritising types of benefits and target populations must take place within the existing social protection systems and their adaptation to informal realities.

For practical reasons (lack of financial and human resources) not all social protection benefits can be guaranteed or provided at the same time for all categories of population. Experience suggests that, after a decent income, informal workers prioritise access to health services (including maternity care and leave) and savings/security for old age. Reflecting this preference, many countries have embarked on universal health coverage programmes at national level. Childcare services and family allowances are also important, as they bring immediate benefits.

Some groups are also easier to access to start with. For example, craft workers or small farmers generally have their own professional organisations or cooperatives that can represent them. These structures facilitate outreach and awareness-raising. These populations are deemed to be good candidates for participation in contributory systems.

Participation in policy processes and reform is also of vital importance for the efficient and successful inclusion of informal workers. Extending existing social protection schemes does not mean for “informal workers to be integrated into mainstream systems and models, but rather for mainstream systems and models to be modified and adapted to reflect informal realities” (WIEGO, 2021). Most contributory schemes can be complemented with non-contributory schemes for those who remain excluded or cannot afford to make regular or substantial contributions. This strategy should be followed in combination with nationally defined social protection floors. Re-building trust and establishing a new social contract must not be an afterthought.

3. Financing mix, efficient delivery of benefits and partnerships can be improved, including through digital tools.

A sustainable financing mix must be sought: contributions from informal workers can be achieved by adapting the procedures, contribution rates and benefit packages of existing social protection mechanisms and by mobilising co-contributors (such as cooperatives and membership-based organisations of the social and solidarity economy).

One of the most successful tools for ensuring the transition from the informal to the formal economy is the implementation of a unique presumptive tax, synthesising the various and numerous existing taxes (including municipality fees) and social contributions into one single amount, the payment of which has flexible periodicity and flexible collectors. Partnerships with other agencies that have a better distribution of local offices (such as postal services or even private sector enterprises such as banks, cooperatives or local shops or kiosks) have emerged as being efficient in increasing the number of local access points. Payment itself proves that the payer is in compliance with the laws and can have access to the benefits of formality.

Benefit levels must live up to the contributors’ expectations. Contributory schemes must deliver higher benefits than those of the existing social assistance schemes, otherwise the preference for informality will prevail. Access to benefits and services can also be improved, by adapting opening hours, or allowing access to health facilities other than those attributed at registration time, e.g. close to a new workplace rather than close to home. Greater flexibility in the choice of contact points is key to bringing services closer to the people concerned.

Digital tools, particularly mobile phones, are now widespread and operative in even the most remote areas. Tablets can improve the registration of beneficiaries and delivery of cash transfers by social protection schemes and agencies. Mobile temporary offices of the relevant agencies facilitate these services. Combined with the registration and development of a single identification number and register, digitalisation is also key to ensuring the portability of rights and entitlements. It also ensures the portability of benefits, especially in humanitarian situations and in conflict and displacement contexts.

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