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Developing social insurance schemes for informal and ‘gig’ workers

Adapting to post-COVID-19 realities

Chatham House briefing Updated 29 March 2021 ISBN: 978 1 78413 454 9

Photo of a delivery courier wearing a protective mask riding through Medellin, Colombia.

Dr Christopher Sabatini

Senior Research Fellow for Latin America, US and the Americas Programme

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This briefing, which is published under the Global Economy and Finance Programme’s ‘Rebuilding International Economic Cooperation’ project, highlights how the COVID-19 pandemic is exacerbating economic and social insecurity for more than 2 billion people employed in the informal sector, and adding to global inequality. A radical rethink of the nature of work and social insurance is needed.

Today’s social insurance programmes largely exclude informal and ‘gig economy’ workers. Reforms will need, among other things, to fill this gap by expanding the coverage of voluntary, individualized social insurance to these sectors. Given that fiscal pressures associated with the pandemic will make it difficult for governments to subsidize new schemes sufficiently, there is a role for the G20 and international financial institutions to provide assistance, for example through conditional loans, grants and debt relief.

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Introduction

In the early months of the COVID-19 pandemic, governments in the developing world responded quickly to the threat of infection, and to the economic contraction that followed from quarantine measures. A range of governments, in countries from India to Nigeria to Peru, aggressively pushed through stimulus packages intended to shore up economies and provide critical income lifelines to families hit by loss of work or business. The international financial institutions (IFIs) and some developed-country governments stepped up as well, with the IMF making up to ‘$250 billion of its $1 trillion lending capacity’ available to member countries,1 the G20 recommending a temporary suspension of debt payments for the world’s poorest countries, and the World Bank promising to provide ‘up to $160 billion in financing from April 2020 to June 2021’.2

As economic difficulties continue and poverty and inequality increase, the need to rethink insurance schemes and the social contract between state and society has become pressing.

But as economic difficulties continue and poverty and inequality increase, the need to rethink insurance schemes and the social contract between state and society has become pressing. Indeed, the situation demands no less than a structural reimagining of the nature of work and social insurance in the context of the fractured labour markets that have evolved over the past 30 years. The pandemic is exacerbating the economic and social insecurity of those employed in the informal sector, reflecting a failure of domestic and international policy prescriptions.

A coordinated response is needed between IFIs and national governments to develop flexible, individual and publicly subsidized insurance schemes that provide social safety nets to informal and self-employed workers in developed and developing economies alike. The major shareholders in the IMF and the World Bank will need – with the support of developed economies such as those in the G7 and G20 – to push for policy changes that will specifically support social insurance agendas and programmes targeting informal sector and ‘gig’ workers. The IFIs will need to develop the capacity to advise on the development of these programmes, and systematically monitor and evaluate their effectiveness, in collaboration with beneficiary governments.

Box 1. The limitations of basic minimum income schemes

One of the ideas that has become a favourite for policymakers seeking to address inequality and economic insecurity is the creation of a basic minimum income (BMI). However, such schemes, while seemingly elegant in their simplicity, would leave out large portions of the economy most affected by the pandemic: the informal sector and self-employed or ‘gig economy’ workers. Moreover, they would not address the structural deficiencies of labour markets that have persisted for decades and are one of the major causes of global inequality. Large BMI schemes would only provide an income floor for the extremely poor; the presence of a functioning, inclusive, formal labour market with effective social insurance remains the key to providing a sustainable, long-term path for socio-economic development and economic growth.

International Monetary Fund (IMF) (2020), ‘The IMF’s Response to COVID-19’, 28 October 2020, https://www.imf.org/en/About/FAQ/imf-response-to-covid-19 (accessed 13 Dec. 2020).

World Bank (2020), ‘How the World Bank Group Is Helping Countries with COVID-19’, https://www.worldbank.org/en/who-we-are/news/coronavirus-covid19 (accessed 13 Dec. 2020).

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