Anyone who studies welfare systems, particularly on providing social protection or social security for every citizen, usually goes back to the argument between the approaches defended by 19th century German Chancellor Otto von Bismarck and UK progressive economist Lord William Beveridge.
These two models have divergent objectives: while Bismarck’s is to assure a standard of living, the Beveridge system focuses on securing a subsistence level. Although there is some convergence, both models are still being practiced throughout the world.
People are however more familiar with the two main components of social protection systems: contributory social insurance and tax-funded social assistance. So, are these two models still relevant in the changing landscape of future work?
Presently, the nature of work is being shaped by global trends such as digitalization, socio-demographic changes, and globalization. These global trends affect the social contract between employer, employee, and state, and the growing diversification of work arrangements has become a distinct feature of today’s labor markets.
Recent reports from the International Labour Organization (ILO) and the OECD indicate that while some of the more traditional forms of employment are disappearing or transforming in the wake of labor market transformation, new forms of employment have been growing, with new emerging occupations and sectors. Many of the latter qualify as non-standard employment (NSE).
For example, today’s gig economy characterized by the prevalence of short-term contracts or freelance work as opposed to permanent jobs, where workers are almost classified as independent contractors. What does that imply for workers' social protection schemes?
Developing Asia has and will be hit hard by rapid socio-demographic changes. A clear example is the rapidly growing population of older people, which is expected to triple in the next three decades.
Given the effects of these changes, like the average life expectancy of a 60-year old being 25 years, can pension funds pay their retirees for a quarter-century? And will states be able to provide social assistance such as subsidized health insurance to all citizens?
Unlike in European countries, the coverage of social protection programs in Asia is still very low. ADB’s Social Protection Indicator shows that in 2015 less than half of Asia’s population was fully covered by at least one social protection scheme; the range varies from Japan with more than 90% coverage, to Nepal with less than 30%.
The good or bad news, depending on one’s perspective, is that most of the Asia’s elderly remain in the labor market because they can’t afford to retire. The gap in social protection provision, coupled with the growing informality of the labor market and the region’s demographic transition, means that the implicit social contract under either the Bismarck or the Beveridge model is coming under increasing strain.
When coming up with solutions to ensure that Asians will not be deprived of social protection throughout their life cycle, what’s clear is that there is no one-size-fits-all fix. However, below are a few critical points that should consider and act on before it’s too late.
First, close the gap on population coverage and adequacy of benefits. When the benefits of pension, health insurance and welfare assistance are insufficient and have never been adjusted to inflation, this creates economic insecurity, particularly for poor and vulnerable groups such as women-led households, people with disabilities, migrant workers, and ethnic minorities.
Coverage should be extended to NSE workers, especially the self-employed and/or working in the gig economy, who are often not covered by social protection schemes. Extending social protection to all forms of employment will ensure better protection for workers and their families and facilitate labor market mobility.
Second, create innovative policy and regulatory frameworks and ensure compliance. While the current labor market model is still based on the simple classification of formal vs. informal economy, future work envisions a more complex landscape.
Policy innovations to enhance the coverage of social protection schemes for NSE workers are key to prepare social protection systems for future work, as will be regulatory frameworks that can adapt to cover NSE workers when they expand social insurance coverage and benefits. Expanding social insurance schemes will reduce the state’s financial burden in providing non-contributory social protection or social assistance schemes.
Third, design sustainable financing mechanisms. This is very important for social assistance or non-contributory or social protection schemes like conditional/unconditional cash transfers, old-age social pension, and disability benefits that are financed by general taxation.
Social expenditure as a share of GDP in Asia is about half the global average. Roughly three-quarters of total social expenditure in the region is devoted to pensions and health care.
The wide range of expenditure levels again reflects the diverse social and economic profiles of Asian countries. For example, Uzbekistan is over 10% of GDP, while Armenia, the People’s Republic of China (PRC), the Kyrgyz Republic, and Thailand are between 5-10%.
While there is still room to expand social protection programs to increase coverage, the key challenge is designing a sustainable financing mechanism, including addressing the fiscal space. The good news from ADB’s analysis of 16 countries indicates that all, even the poorest ones, have fiscal space for more and better social protection.
According to 2017 ILO study, some options to expand fiscal space are increasing tax revenue, boosting social insurance contributions, and reallocating public expenditures, among others. Fiscal and tax reforms are currently ongoing in Indonesia and the Philippines.
In the Philippines, the so-called TRAIN tax reform program provides income tax cuts for the majority of taxpayers to support accelerated spending on infrastructure and social services. To mitigate TRAIN’s impact on the poorest 10 million households, the government is providing targeted cash transfers sourced from higher consumption taxes on fuel or vehicle purchases.
Fourth, harness new technology to improve delivery of social protection. New technology, including digital platforms and mobile services, can facilitate providing social protection to the different categories of NSE workers, whose key challenge is that they often have many different jobs, but are also occasionally unemployed.
The role of the private sector is critical in developing and expanding registration, collection, and delivery of social protection programs. There is plenty of space for public-private partnerships in harnessing new technology to expand social protection programs in Asia.
The good news is many countries in Asia have already implemented innovative policy solutions to address those challenges. For instance, Indonesia, the PRC, and Thailand have adopted adaptive universal health coverage with cross-subsidies for the poor and vulnerable. Similarly, Bangladesh, Myanmar, Mongolia, and the Philippines have expanded the coverage for child benefits through cash transfers, and Nepal, Sri Lanka, Thailand, and Viet Nam are boosting old-age social pensions.
Several countries have opened up their regulatory frameworks to include NSE workers in contributory schemes. Let’s hope that more follow their lead.