Well-functioning labor markets and well-designed social policy are mutually dependent and mutually reinforcing. Social policy not only is about making society more equitable but also is an essential ingredient in making a country’s economy more efficient. A central purpose of social policy is to foster growth by sharing risk—too much risk is bad: a reliable safety net supports individuals’ enterprise, business startups, and innovation; but too little risk is also bad, as shown by the performance of the communist economic system.
Since the time after the Second World War, when social policy became deeply integrated in advanced economies, the world has changed. But the policy objectives—alleviating poverty, protecting against risk and uncertainty, assisting planning over the life course, and investing in health and skills—have not, and should not.
The traditional model of social protection in rich countries was based on the assumption that the majority of working people would be in full-time employment for most of their working lives, and that they would pay mandatory contributions and payroll (labor) taxes in exchange for coverage. Increasingly, the viability of this traditional, employment- and payroll-based insurance model is being challenged by the decline of standard employment contracts. In advanced economies, the changing nature of work is making long-term employment less frequent, with more people in part-time work, self-employment (often holding multiple jobs), the gig economy, and zero-hour contracts, and as a result, coverage is declining. In this changing world, what happens and what should happen to the traditional model of social protection tied to formal wage employment?
In developing economies, where there has been little progress in expanding formal employment, traditional social protection systems generally never achieved a significant scale. In Bangladesh, India, Indonesia, Nigeria, and Pakistan—which together make up about one-third of the world’s population—coverage of social insurance languishes in the single digits, with virtually no change over recent decades. Most workers—especially the poor—are engaged in informal livelihood activities with little or no access to social protection. In low-income countries, social assistance (i.e., noncontributory transfers) cover less than 20 percent of the poor. What happens, and what should happen, to workers in informal subsistence agricultural and service jobs? How can workers be guaranteed at least a minimum level of consumption and manage risks in a diverse and diversifying world of work? The issue is relevant not only in developing economies: the absence of universal health coverage persists also in many high-income economies.
In addressing these key questions, this white paper is very explicit that the original objectives of social policy remain; the ways in which societies seek to achieve those objectives, however, need to fit the world as it is now and as it will likely be. Bluntly, the welfare state (like Shakespeare plays) should not be set in aspic.
The white paper therefore explores how the traditional model should adapt in order to serve the needs of everyone, regardless of their employment status, and to be responsive and resilient in the face of economic, social, and demographic change. What is needed, in other words, is a new social contract, a central point in the World Development Report 2019: The Changing Nature of Work. Given the endemic nature of the challenge, the authors argue that social protection should be organized in ways that are less dependent on a person’s work situation. Poverty relief through social assistance can and should be enhanced to include larger swaths of informal sector workers, and benefits offering insurance (e.g., against medical risks, disability, or old-age poverty) could be financed through broadly based taxation unrelated to the nature of a person’s job status. Recent experience with flagship safety net programs, for example, in the Arab Republic of Egypt, Ethiopia, Indonesia, Pakistan, and the Philippines demonstrate that it is possible to extend protection to more people living in or vulnerable to poverty, regardless of employment status. New technologies, including digital identification and payment systems, are making this outcome even more possible.
Once robust basic protections are in place, people could keep upgrading their security with various progressively subsidized contributory plans—with contributory social insurance, public or private, pay-as-you-go or funded, or anything in between—in which conducive conditions exist, but also through a range of voluntary options, where the state and markets are able to offer them. The white paper wholly endorses the objective of universal social protection espoused by the international development community. Its purpose is to show new pathways for achieving that objective.
Scholars recognize that the rapidly changing nature of work across countries at all levels of development requires new thinking to ensure continuing robust and effective social protection. The imperative for clarity is reinforced by the persistence of the view that in the end people will all converge on the model of a standard employment contract and the design of social protection that is dependent on it. Aimed at readers interested in social protection, the white paper examines options that reflect current reality: new, changing, and more diverse forms of work in developing economies, emerging market economies, and high-income countries.
The white paper has five key messages for policy makers:
- The foundation of effective risk sharing is poverty prevention and subsidized protection against catastrophic losses, financed from broad-based taxes.
- With robust protections from impoverishment in place, available to all people wherever and however they work, government mandates can be less distortive.
- Rather than protect workers from change, governments can shift efforts to protecting them for change: supporting job transitions and reemployment.
- Given daunting resource and capacity limitations in most countries, the white paper proposes arrangements that cover the needs of the least well off first, before expanding coverage to other households (the authors refer to this strategy as “progressive universalism”).
- Digital technology can be harnessed to mobilize tax resources and to deliver protection more effectively, efficiently, and equitably.