Credit: (Photo: Walter G. Allgöwer/ imageBROKER/Newscom)

A “New Deal” for Informal Workers in Asia

Era Dabla-Norris, Changyong Rhee

April 30, 2020

عربي,  中文, Español, Français,日本語, Português, Русский

Full or partial lockdowns to curb the spread of COVID-19 are having crippling effects on businesses and workers across Asia, as elsewhere. Among the most vulnerable of the workers are the ones working in part-time and temporary jobs without social insurance, and in sectors of the economy that are neither taxed, nor regulated by any form of government.

Known as informal workers, they are particularly vulnerable to dramatic collapses of income and loss of livelihoods.

Effective policy responses must reach informal workers and their families quickly to prevent them from falling (deeper) into poverty.

Informal workers account for a large share of the workforce in many countries in the region but typically have no access to sick leave or unemployment benefits. Their access to health benefits is often precarious. And, for many of them, savings are either nonexistent or extremely limited. Many workers, especially the self-employed and daily wage earners, live hand-to-mouth. If they cannot work for extended periods of time, their family’s income is at risk. Protecting their earnings—whether by increasing unemployment benefits, reducing income taxes, or extending paid sick leave—and reaching them through transfers, is nearly impossible.

Time is everything. Effective policy responses must reach informal workers and their families quickly to prevent them from falling (deeper) into poverty and to protect their livelihoods. Even with their budgetary and capacity limitations, countries in the region are implementing measures to help the most vulnerable. But given the size of the economic shock, much more is needed.

Pervasive informality in the region

Informal workers in the Asia-Pacific region account for nearly 60 percent of nonfarm employment, higher than in Latin America and Eastern Europe, and ranging from around 20 percent in Japan to over 80 percent in Myanmar and Cambodia. This includes workers with very different characteristics in terms of employment status, income, and sector of activities. It includes wage workers without social protection or other formal insurance arrangements in both informal and formal sector enterprises, and the self-employed, such as street vendors and their contributing family members, as well as daily laborers.

Informal workers are twice as likely as formal workers to belong to poor households. While some of these poor households are beneficiaries of transfer programs, coverage and adequacy of benefits to combat the COVID-19 shock remain an issue.

Policy responses

As countries across the region cast wide emergency safety nets, a broad patchwork of old and new policy solutions is emerging.

Looking ahead: a post-pandemic “New Deal” for the region

The COVID-19 outbreak has exposed the challenges in protecting informal workers and vulnerable households in Asia. But these extraordinary circumstances also provide an opportunity to address longstanding inequalities—in access to health and basic services, finance, and the digital economy—and to enhance social protection for informal workers.

Already, the pandemic is upending conventional norms on education provision and social assistance, with internet, mobile, and digital payment platforms reaching broader swathes of populations than ever in the past. What informal workers need now is a “New Deal” that provides immediate social protection against the pandemic’s economic fallout while putting in place the building blocks for a stronger safety net for the future. How can this be done?

Addressing the pervasive informality in Asia will also require comprehensive measures to improve the business environment, remove onerous legal and regulatory obstacles (especially for startups), and rationalizing the tax system. Specific policies will depend on country circumstances but should aim to bring informal workers into basic social safety nets while enhancing their productivity.

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