Reimagining Social Protection
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- Authors: MICHAL RUTKOWSKI
- Published: December 1, 2018
The need for new systems
- Traditional industrial-era social insurance policies tied to stable employment contracts are increasingly ineffective as the nature of work changes.
- Such payroll-based insurance systems were developed during an era of "jobs for life" with mandatory contributions and payroll taxes on formal wage employment.
- New systems are needed that serve all people regardless of how they engage in the market and that are adaptable and resilient to dynamic economic, social, and demographic forces.
- The changing nature of work shifts demand from employer-provided benefits toward welfare benefits provided by the state.
Technology’s impact on work and informality
- Worldwide total freelancer population is estimated at about 84 million, or less than 3 percent of the global labor force of 3.5 billion.
- Informality persists on a vast scale in emerging market economies—as high as 90 percent in some low- and middle-income countries.
- In developing economies, informality, defined as the share of the population not participating in traditional social insurance and related protections, is currently about 80 percent of the labor force.
- In Bangladesh, India, Indonesia, Nigeria, and Pakistan, which account for about a third of the world’s population, the number of people covered [by social insurance] hovers around a single digit, with virtually no change in decades.
- Convergence: labor markets are becoming more fluid in advanced economies while informality persists in emerging markets; challenges faced by gig and short-term workers mirror those in the informal sector.
Objectives and principles for a new social contract
- Core objectives of social protection remain: prevent poverty, cover catastrophic losses, help households and markets manage uncertainty, and provide a foundation for more efficient and equitable economic outcomes.
- Policy implication: adopt a more neutral policy stance regarding factors of production and where/how people work.
- Recommendation: guarantee basic protections publicly, then allow individuals to upgrade security via progressively subsidized programs—mandatory contributory insurance and savings where feasible; voluntary market options where appropriate.
- Distinguish policy objectives (risk pooling, poverty elimination, equality/redistribution) and use different risk-sharing arrangements and financing channels accordingly.
- Principle of "progressive universalism": as countries expand social protection toward universality, prioritize and give special attention to the most vulnerable so that universality benefits the poorest first.
Social assistance design options (enumerated)
- Means-tested guaranteed minimum income program: distributes cash to households with benefits gradually declining as income rises; typically distributed monthly.
- Universal basic income: unconditional cash transfers to all, independent of income or employment; distributed monthly.
- Negative income tax: provides money to people below a certain income level with a relatively high threshold and gradual withdrawal of benefits; tends to be paid annually because it is woven into the tax declaration cycle.
- Intermediate/mixed options: smaller guaranteed minimum income supplemented with programs such as universal child allowances and social pensions.
- For informal economies: use identification and consumption monitoring to enable targeting approaches at the nexus of universal basic income, negative income tax, guaranteed minimum income, or even a negative consumption tax—targeting based on proxy indicators from special surveys and linked administrative databases.
Financing and risk-sharing architecture
- The largest and most effective risk pool to prevent people from falling into poverty is a country’s national budget.
- Financing choices should follow the consideration of appropriate policy instruments (risk pooling, saving, prevention) and the proportionate policy response relative to private availability.
- Stylized package: an innermost core of guaranteed minimum support to cover catastrophic losses with greatest social costs; outer rings shift responsibility gradually toward household/individual financing and market provision.
Opportunities to leapfrog via technology and systems
- Technological change enables governments, especially in low-income countries with low legacy coverage, to leapfrog industrial-era models and adopt modern social protection systems.
- Examples cited:
- India’s Direct Benefit Transfer: digital subsidies directly to bank accounts of the poorest.
- Ghana’s Labor Intensive Public Works programs: digitization and biometric machines reduced payment time from four months to a week.
- World Bank investments and platform reach:
- The World Bank is currently investing $15.1 billion in delivery systems and related technology.
- About 75,000 girls and women in rural Zambia can now choose digital payments via bank, mobile wallet account, or prepaid card.
- A foundational ID platform in West Africa aims to cover 100 million people regionally by 2028.
- In Indonesia, a cash transfer program has reached 10 million poor households, expanding into remote eastern regions.
- Investments in social registries, IDs, and payment mechanisms are critical assets that make proposed policy ideas feasible.
Key findings and policy implications (summary bullets)
- Informality is a major bottleneck: about 80 percent of the labor force in developing economies not participating in traditional social insurance.
- Traditional payroll-based social insurance increasingly harms labor market decisions and formal employment and is ill-suited to fluid, diverse modern work arrangements.
- Social assistance options range from means-tested guaranteed minimum income to universal basic income and negative income tax; choice depends on fiscal capacity, desired targeting, and delivery cadence.
- Progressive universalism should guide expansion to ensure the poorest benefit first.
- National budgets are central risk pools for catastrophic-loss prevention; complementary financing instruments should be matched to policy objectives.
- Digital identification, registries, and payment platforms—supported by significant investments—create practical pathways to extend protection to excluded populations.
Reimagining Social Protection, MICHAL RUTKOWSKI, December 2018 — IMF Finance & Development Magazine.
Content in this bundle
- إعادة النظر في الحماية الاجتماعية
- Reinventar la protección social - Revista Finanzas y Desarrollo del FMI | diciembre de 2018
- Imaginer une nouvelle protection sociale – Magazine Finances & Développement du FMI | décembre 2018
- Reimagining Social Protection – IMF Finance & Development Magazine | December 2018
- 重塑社会保障 - 金融与发展 - 国际货币基金组织季刊