Formulating strategies for the extension of coverage
Extending social security coverage for workers in the informal economy requires a comprehensive understanding of the situation of different groups of workers, the risks they face, and the different factors contributing to their vulnerability.
This module addresses some of the key elements that should inform national strategies for the extension of coverage to workers in the informal economy and adresses key questions around the extension of coverage and the building of comprehensive social protection systems for all. Such strategies could be stand-alone strategies, but in most cases would be part of national social protection strategies or national strategies to foster transitions from the informal to the formal economy. In all cases, they should follow the guidance that is set out in Recommendation No. 202 as well as in Recommendation No. 204.
- What needs to be taken into account when formulating strategies for the extension of coverage? How can strategies for the extension of coverage be formulated through a national dialogue process?
- How to identify social protection coverage gaps and priority needs of workers in the informal economy?
- How can universal coverage be achieved through a combination of different financing mechanisms, including contributory and non-contributory mechanisms?
Formulating strategies based on an evidence-based and participatory approach
International experience shows that a stepwise approach provides a useful framework for the formulation of policies and their implementation:
- Diagnostic of the situation of workers in the informal economy, including with regard to the identification of coverage gaps and barriers to coverage for different categories of workers, both women and men, as well as with regard to the situation of economic units in the informal sector. This assessment should be based on sufficiently detailed quantitative and qualitative information, which is complemented by a broader assessment of the labour market & macroeconomic situation at the national or local levels.
- Review of regulatory and policy frameworks and practices, focusing in particular on identifying and analysing barriers to coverage, and identifying options for possible reform, taking into account priority needs and the diversity of situations of those in the informal economy.
- Priority setting, to identify and select policy options, and agree on a sequence of actions and timeframes for the extension of coverage to workers in the informal economy.
- Development of an integrated policy framework that ensures policy coherence and a well-functioning institutional setup
- Implementation and monitoring, including a monitoring and evaluation system as well as impact assessment; which also provides the basis for a regular review, and if necessary adjustment, of the policy framework.
The policy cycle for the extension of social security to workers in the informal economy and supporting their transition to the formal economy can be represented in a schematic way:
- Addressing the extension of coverage in assessment-based national dialogues on national social protection systems: Many countries choose to use an assessment-based national dialogue (ABND) approach to formulate their national social protection or social security strategies and to build their social protection systems, including floors.
- Ensuring the participation of all relevant stakeholders: Formulating strategies for the extension of social protection coverage to workers in the informal economy should be based on a broad national dialogue that takes into account the different perspectives of the government, workers and employers, and other stakeholders.
Identifying social protection coverage gaps and priority needs
The extension of coverage to workers in the informal economy should start with an informed assessment of current social protection coverage gaps and priority needs, and take into account the priority needs as well as the diversity of situations of those in the informal economy.
- Identifying social protection coverage gaps and barriers to coverage: An expanded assessment matrix can be used to identify social protection gaps and barriers to coverage. This assessment matrix offers a detailed analytical framework for a detailed analysis of the current situation, social protection gaps and barriers to coverage.
- Identifying priority needs: Depending on the context and already available protection mechanisms, different social protection areas, such as health protection, maternity protection, employment injury protection, disability benefits, unemployment protection, old-age protection, may be identified as constituting a particular priority for the extension of social security coverage. Mechanisms of prioritization and sequencing may have to be found in case it is not possible to address all of these priority areas at the same time.
Achieving universal coverage: policy choices
- Building integrated and comprehensive social protection systems through a combination of contributory and non-contributory schemes: Many countries combine contributory and non-contributory schemes to reach universal coverage and ensure higher levels of protection to as many people as possible. Non-contributory schemes are key to ensure a basic level of protection for everyone, in particular for those groups who do not have access to any other social protection mechanisms, while contributory mechanisms will continue to play a vital role in providing adequate benefits.
- Mandatory vs. voluntary coverage: One of the policy choices that governments need to make is whether the extension of coverage should be mandatory or voluntary, that is, whether the covered workers should have a choice of joining the scheme or not. Many governments choose to extend coverage on a voluntary basis, so as to avoid forcing workers (and their employers) to pay contributions they cannot afford. However, international experiences show that voluntary schemes suffer from adverse selection and small risk pools.
- Formulating strategies for the extension of coverage should be based on a thorough diagnosis of the situation and needs of workers in the informal economy, taking into account the diversity of contexts and needs, which depends, among other factors, on their status in employment and sector of activity.
- When formulating strategies for the extension of social protection to workers in the informal economy, some fundamental policy choices need to be made, particularly with respect to the extent to which the protection mechanisms should be contributory or not, whether mandatory coverage can be realized in the specific circumstances, how to ensure the coordination of different protection mechanisms within the broader social protection system.
- The formulation of extension strategies should be based on a dialogue which includes the voice and participation of workers in the informal economy.