WIEGO_SIDA_Orthodoxies_Report

Photo: Head antenatal nurse Margie Harriet Egessa providing antenatal counseling and checkups for a group of pregnant women at Mukujju clinic in Tororo, Uganda. Credit: Jonathan Torgovnik/Getty Images/Images of Empowerment

Photo Credit: Jonathan Torgovnik/Getty Images/Images of Empowerment

Challenging Global Orthodoxies that Undermine Universal Social Protection Project

Table of Contents

Pages

The Project in Numbers

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Papers

Institutional partnerships strengthened or developed with key allies or advocacy targets in the social protection field

Blogs in outlets like the IDB Gente Saludable blog and socialprotection.org

Podcasts outlining key learnings from the project

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Book Chapter in the OECD’s forthcoming report, “Informality Revisited”

Overview

Over 60 percent of all working people in the world and 70 percent of those working in middle- and low-income countries work in the informal economy. While not all workers in informal employment are poor, the risk of poverty is higher in the informal economy. A critical aspect of creating better quality employment is ensuring that all workers – formal and informal – have access to social protection.

However, most workers in informal employment are excluded from social protection systems. They make up what is often called the “missing middle” of social protection — excluded from employment-linked social insurance schemes, they also often fall outside of poverty-targeted social assistance schemes which tend to focus on those outside of the labour market or are means-tested.

Although the Universal Social Protection (USP) framework has gained support from a wide range of actors, key principles remain contested at both the level of international financial institutions (IFIs) and within the roll-out of schemes at national level. This has its roots in assumptions informed by economic theory, resulting in powerful policy ideas which counteract key principles of USP and undermine the equitable extension of social protection to informal workers.

With support from the Swedish International Development Cooperation Agency (Sida), WIEGO has undertaken an 18-month project (from August 2021 to March 2023) to challenge these powerful ideas (orthodoxies). The project objective is to get global development policy makers in a targeted set of key institutions working on social protection and informality (ILO, World Bank, IMF, OECD, Bilateral Donors) to use new, more robust evidence in their own research products and recommendations.

The project assumes that orthodoxies promoted at global level, in particular by international financial institutions (IFIs), play a key role in influencing policies at the national level. There are two main components to challenging these orthodoxies: the production of a credible alternative evidence base and ensuring that newly generated evidence is widely read and understood.

The main targets of the project’s advocacy are those organizations which most actively promote the orthodoxies – the World Bank and the International Monetary Fund (IMF) – as well as intermediary organizations and policy spaces, with which WIEGO has established relationships and which have good links to the target organizations.

Orthodoxies that Undermine Universal Social Protection

Orthodoxy #1:

Social expenditure, including that on social protection and social services, is an economically unproductive expenditure.

Orthodoxy #2:

Social protection systems which combine social assistance, social insurance and state-subsidized public services establish “perverse incentives” which promote the informalization of the labour market.

Orthodoxy #3:

Increasingly informalized labour markets mean that employer contributions are no longer a viable financing mechanism for social protection.

#1:

economically unproductive expenditure.

Why is this a problem?

The power of this idea means that the social expenditure required to build universal social protection is particularly vulnerable to budget cuts from fiscal consolidation adopted in the wake of the COVID-19 crisis, as currently promoted by the IMF (Kentikelenis and Stubb 2021; ILO 2021).

How did we challenge this orthodoxy?

Generating evidence

To enable members of WIEGO, worker leaders and allies to more effectively make the case that spending on social protection for workers in informal employment is a productive investment, we have partnered with the ILO and Dominic Richardson, an economist and social protection expert, to develop a comprehensive literature review of the benefits of social protection. The evidence mapping includes social assistance but mainly focuses on social insurance, which is central for workers in informal employment and where there currently is an evidence gap. It will also provide guidance for future research on how to estimate the ‘cost of inaction’ regarding the provision of social protection for informal workers.

Richardson, Dominic. Forthcoming. Towards a better understanding of the benefits of enrolment in social insurance and how to measure them. WIEGO and ILO.

Engaging, sharing and advocating

The evidence will become a central element of WIEGO’s advocacy on the expansion of social insurance to informal workers. For instance, the report has been presented at the European Commission Directorate-General for International Partnerships’ (INTPA) annual thematic seminar on social protection. The collaboration with the ILO will further ensure the take-up of the study’s findings in their advocacy efforts and upcoming reports.

Orthodoxy

Social expenditure, including that on social protection and social services, is an

Why is this a problem?

At its core, this ‘perverse incentives thesis’ (PIT) argues that social protection systems that combine employment-linked social insurance with tax-financed social assistance for low-income workers are claimed by some to be key drivers of informality. To avoid this, it is argued, contributory social insurance should be dismantled and replaced with a poverty-targeted safety net financed through consumption taxes, as well as voluntary private insurance.

This idea is problematic in several respects because it relies on several questionable assumptions: that social policy is a lead driver of informality (as opposed to other factors such as lack of formal work), and that workers have a choice as to their employment status. While this may be the case for some, most workers in informal employment have little choice as to their position within the labour market. Moreover, the dismantling of social insurance systems weakens a fundamental element of a social protection system. Social insurance funded by employer, state and worker contributions opens greater fiscal space for social assistance programmes which rely on general taxation, and they may even cross subsize such programmes, thereby playing an important redistributive role.

While this may sound technical, these claims have real-world impacts. Following a presentation on this issue by WIEGO to the Inter-American Social Security Conference (CISS) in November 2022, Miguel Ramírez Villela, the organisations’ Head of the Projects Division, told us the following:

Orthodoxy #2: Social protection systems which combine social assistance, social insurance and state-subsidized public services establish “perverse incentives” which promote the informalization of the labour market.

“Today when someone presents a proposal to create some new benefit, one of the first objections raised is whether it would not create more informality. In general, this idea, that non-contributory programmes encourage informality, was adopted quickly and uncritically. It has been almost a dogma and very few people have dared to question it. ”

- Miguel Ramírez Villela, Head of the Project Division at the InterAmerican Conference on Social Security (CISS) at the 31st Session of the Permanent Seminar on Welfare in the Americas.

How did we challenge this orthodoxy?

Generating evidence

WIEGO established partnerships with a number of well-respected economists and, together, we developed a three-pronged challenge to this orthodoxy.

One, we undertook a critical review of the existing literature to assess the strength and direction of existing evidence. Reviewing 27 studies, we find that the existing evidence is mixed and inconclusive. Some studies find evidence of social protection programmes on informality/formality, others do not. If papers do find impacts, they tend to be for population subgroups and effect sizes are almost always small.

Orozco, Mónica and Roberto Vélez-Grajales. Forthcoming. A critical review of the literature of the impact of social protection and informality. WIEGO Resource Document.

Two, we re-evaluated the most rigorous and prominent study on the ‘perverse incentives thesis’ (Bosch & Campos-Vazquez 2014), which finds that Mexico’s Seguro Popular universal health coverage programme induced small reductions in formal employment. With more data and improved statistical methods, our re-evaluation shows that their study is not robust and that Seguro Popular did not reduce formal employment, which is in line with most studies on Seguro Popular.

Three, we worked with noted heterodox economists Jayati Ghosh and James Heintz to understand and challenge the idea that social protection drives informality from a theoretical perspective. Their work highlights the argument’s blind-spots – in particular regarding gendered informal labour markets and the ability of workers to freely choose employment – and how contemporary economic theory and evidence offers a more nuanced and convincing view of the interaction between labour markets and social protection.

Heintz, James and Jayati Ghosh. Forthcoming. Critique vof the perverse incentive thesis of social protection and informality. PERI or WIEGO Working Paper.

Engaging, sharing and advocating

As the ‘perverse incentives thesis’ is most influential and debated in Latin America, we placed a particular focus on reaching policy makers in that region, which was facilitated by the fact that all our consultants working on this issue were from Latin America.

“I am impressed with the analytical rigor of the paper and will circulate it among interested colleagues. Of course, I am glad to see that the paper continues to debunk previous myths about the effects of Seguro Popular on informality.”

- Mexican former minister

Together with the ILO and the Inter-American Social Security Conference (CISS) we organized on the social protection sector’s popular knowledge sharing hub socialprotection.org to bring together and share the evidence we have developed. We were also invited by the CISS to address their membership with a presentation on this issue at the 31st Session of the Permanent Seminar on Welfare in the Americas. To reach governments, national and international policy makers, we integrated our findings on the ‘perverse incentives issues’ into a chapter on Extending Social protection to Informal Economy Workers we have jointly written with the OECD for their forthcoming report Informality Revisited. Furthermore, we were told by the World Bank that our research has led them to nuance the findings on labour market effects of social protection in their upcoming global flagship report on jobs.

“As a reader of the papers that you have been putting out, I must say, I am very impressed by your capacity to produce new research and knowledge to effectively question an orthodoxy that does more harm than good. So, a huge congratulations to you!”

- Shahra Razavi, Director, ILO Social Protection Department in an email to WIEGO.

We succeeded in establishing as the consensus view that the effects of social security contributions as a driver of informality, “if they exist, are generally marginal rather than economy wide’, in the Global Partnership for Universal Social Protection to Achieve the Sustainable Development Goals (USP2030) – Working Group of Financing.

Why is this a problem?

This means that expanding fiscal space for social protection for workers in informal employment must rely mainly on the state and ensuring that workers themselves contribute to voluntary social insurance schemes and pay more taxes through the expansion of regressive taxes (World Bank 2019). This idea also allows powerful private sector actors in the formal economy - such as large national or multinational corporations - to bypass their commitments to financing social protection while downloading production costs onto poorer workers in their value chains.

How did we challenge this orthodoxy?

Generating evidence

We partnered up with the International Centre for Tax and Development (ICTD) and the Institute of Statistical, Social and Economic Research (ISSER) at the University of Ghana to conduct a representative survey of taxes paid by the informal sector in Accra, Ghana. The results revealed that informal sector operators do already pay a range of taxes, permits, levies and fees, and that, especially for those at the lower end of the income spectrum, the ratio of taxes to earnings is substantially higher than that of the formal sector. The report concludes that for substantial proportions of the informal sector there is little room for further taxation or contributions.

We joined with the ILO to study the relevance of social insurance contributions in the overall financing mix over time and reviewing the evidence on the relationship between contributions and formal/informal employment. At the global level at least, data on contribution rates and prevalence of informality shows no pattern and indicates no correlation between contribution rates and informality. Reviewing the existing literature on the impacts of reduced or subsidized social insurance contributions on labour markets, the authors find that most studies find no significant employment or formalization gains. At the same time, any reduction in social security contributions creates an effective loss in government revenue in the short term.

We commissioned a number of case studies on existing efforts to ensure that those who benefit from the labour of workers in informal employment contribute to the financing of their social protection. In Argentina, the Unión de Trabajadores y Trabajadoras de la Economía Popular (UTEP) has

Orthodoxy #3: Increasingly informalized labour markets mean that employer contributions are no longer a viable financing mechanism for social protection.

drafted a law based on Extended Producer Responsibility legislation to address environmental and labour rights challenges in waste management practices. In India, Kagad Kach Patra Kashtakari Panchayat (KKPKP), a trade union of waste pickers is showing how it is possible to make claims for social protection benefits from various actors in recycling value chains, including municipalities, citizens and businesses - beyond employment and general tax financing. To highlight that India’s informal sector welfare boards, have for decades, found ways to gain co-financing from those who benefit from informal workers’ labour, we have commissioned a case study on Maharashtra’s head-load porters welfare boards (Chikarmane & Narayan, forthcoming).

Chikarmane, Poornima and Lakshmi Narayanan. Forthcoming. I Will Not Auction My Back: Maharashtra’s head-load porters welfare boards. WIEGO Resource Document.

To show that it is possible to adapt social insurance systems to be more inclusive to self-employed and informal workers, we partnered with the ILO to document global experiences, with a focus on the experiences of workers themselves - bringing greater attention to their perspectives on what works. An in-depth case study on Uruguay’s experiences with expanding social security coverage to workers in informal employment through its monatax scheme is currently being used by the Chilean government to design the country’s own version of a monotax scheme.

Sebastián Aguiar, Mauricio Coitiño, Cecilia Matonte, Martín Sanguinetti and Ana García. 2023. Monotax and Social Monotax in Uruguay. WIEGO and ILO.

Also with the ILO, we explored how the financing of social protection systems can be adapted to a changing world of work with high levels of informality and precarity, while maintaining key principles of International Labour Standards, including solidarity in financing.

Challenging Global Orthodoxies that Undermine Universal Social Protection Project

McClanahan, Shea, Holly Seglah, Daisy Sibun and Anasuya Sengupta. Forthcoming. Inclusive social insurance – exploring real solutions to reach the self-employed. WIEGO and ILO. ILO Working Paper.

Cook, Sarah and Ruth Castel-Branco. Forthcoming. The financing of social insurance in a changing world of work. WIEGO and ILO.

We shared the Ghana tax research in two webinars, one co-hosted with the OECD, International Centre for Tax and Development (ICTD), Statistical, Social and Economic Research (ISSER), and the other with Human Rights Watch (HRW), African Platform for Social Protection (APSP), Development Pathways, International Trade Union Confederation (ITUC), ITUC Africa and socialprotection.org. We were further invited to present our research on how governments are including self-employed workers in social insurance schemes and critique of the ‘perverse incentives thesis’ at a technical exchange on extending social protection to the informal economy organized by the Global Partnership for Universal Social Protection to Achieve the Sustainable Development Goals (USP2030), the European Union, UNICEF, ILO and the Global Coalition for Social Protection Floors (GCSPF). Evidence generated on the financing of social protection for workers in informal employment and on inclusive social insurance have also been presented at the OECD’s Third Thematic Expert Meeting: Extending Social Protection to Informal Workers (June 2023). We also wrote a WIEGO blog and a brief with the ILO in Jordan highlighting how approaches to extend social insurance to workers in informal employment need to be affordable based on the principle of financial solidarity.

A study summarizing initial findings from the tax survey in Accra, Ghana, has been selected to be presented at the 2023 Conference of the UK Development Studies Association. The findings of the tax survey and case studies on innovative efforts to ensure co-financing for self-employed workers were furthermore included in a chapter on Extending Social protection to Informal Economy Workers written jointly by WIEGO and the OECD for the OECD’s forthcoming report Informality Revisited

Engaging, sharing and advocating

In the Global Partnership for Universal Social Protection to Achieve the Sustainable Development Goals (USP2030) – Working Group of Financing, we succeeded in having the following recognised as the consensus view within the social protection community: “[Extension of social protection coverage] should include analyses of the taxes and fees already paid by informal workers, which are not always accounted for and can add up to a regressive tax-to-income ratio for poorer informal workers, limiting contributory capacities”. We also contributed to the development of detailed guidance for the social protection sector on how to ‘Increase revenues from social insurance contributions by expanding coverage of social insurance schemes to previously uncovered workers’ for USP2030’s Joint Statement: Principles for Financing Universal Social Protection in October 2022.

Bringing generated evidence on all orthodoxies together

We brought the evidence together in a Blog of the Month for socialprotection.org and an accompanying video, and we discussed the findings on two episodes of WIEGO’s Social Protection Podcast. Further lessons were accumulated in a paper published by UNU-WIDER.

Partnerships and relationships developed and strengthened

Throughout the project, we undertook a variety of activities to ensure that the new evidence being produced was widely read and understood by global development policy makers in key institutions working on social protection and informality. Below we summarize some of the collaborations, partnerships and relationships which were developed or strengthened during the project:

Joined USP2030 at the start of the project, became co-chair of Financing Working Group (with UNICEF in March 2023) and representing global civil society in the USP2030 Steering Committee. Leveraged USP2030 Financing Working Group as a platform to organize a discussion on financing of social protection in contexts of informality, with the active participation of the IMF, Sida, World Bank, OECD, EU, ILO and others.

Used as a platform to share project research, including through the Financing Working Group’s resource mapping.

“Really appreciate the frankness of this conversation and I hope we can keep going in this type of format. I really enjoy hearing all of these different views.”

- IMF official

Joined SPIAC-B at the start of the project and became co-lead of a new Gender and Informality Workstream (with ILO in March 2023) within the Gender Working Group. WIEGO is currently exploring with the ILO what the focus and approach of the workstream should be.

Closely collaborated with the ILO’s social protection department on the project strategy and jointly developed and published four global reports and the in-depth case study on Uruguay’s social protection scheme for informal workers (monotax).

Leveraged the ILO’s regional and in-country expertise in support of project research (e.g. ILO staff in Thailand and Uruguay supporting in-depth qualitative research; ILO’s Global Technical Team reviewing global case studies and research).

Co-hosted webinar on social protection and informality.

Presented project research in ILO-hosted events on the extension of coverage (USP2030 & SPPFM technical exchange on extending social protection to the informal economy).

Recognised as a key partner of the ILO Flagship Thematic Area on the Informal Economy.

Co-hosted webinar on taxation and informality.

Joint chapter on the extension of social protection coverage to workers in informal employment in the upcoming Informality Revisited report.

WIEGO organized a consultation for members of the Global Coalition for Social Protection Floors with the World Bank’s Social Protection and Jobs Practice on a draft of the World Bank’s new social protection strategy, the Social Protection and Jobs Compass, and drafted a public response letter from civil society.

Ensured the active participation of the World Bank’s Social Protection and Jobs Practice in discussions on financing social protection in contexts of informality hosted by WIEGO at the USP2030 Financing Working Group.

International Labour Organisation (ILO)

Organization for Economic Cooperation and Development (OECD)

Ensured the active participation of the IMF staff working on social protection in discussions on financing social protection in contexts of informality hosted by WIEGO at the USP2030 Financing Working Group.

Co-hosted webinar on whether social protection drives informality as part of the 31st Session of the Permanent Seminar on Welfare in the Americas.

Co-hosted webinar on socialprotection.org on whether social protection drives informality.

Published a blog on the findings of our study showing that Seguro Popular had no disincentive effects on employment on the IDB’s Gente Saludable blog.

Researchers from the IADB reached out to WIEGO to discuss our research on social protection and informality and explore common ground.

Developed relationships with key research communities:

• Global experts on taxation and informality: Centre for Tax Policy and Administration; International Centre for Tax and Development (ITCD), Institute of Statistical, Social and Economic Research (ISSER).

• Latin American economists working on informality and social policy

• Heterodox economists

• Global experts on social protection and labour

Lessons Learned

Next Steps

2023

Integrating the lessons learned from this project into a planned three-year capacity development journey targeted towards WIEGO team members and leaders of informal workers’ networks to enable them to push back against harmful narratives, as well as the WIEGO-led development of a new TRANSFORM social protection training curriculum on the expansion of coverage to informal workers.

2023-2024

Continue disseminating and communicating evidence developed in this project.

2023-2024

Continue engaging in global fora (USP2030, SPIAC-B, GCSPF) and strengthen relationships with IFIs, in including through a planned 12-month Global Learning Exchange on Understanding Complexity in the Informal Economy with key IFIs and IO (IMF, WB, ILO, OECD, Sida).

June 2023

Work on training programme development begins

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November/December 2023-2024

Work on TRANSFORM social protection training curriculum to start in Nov/Dec 2023 and continue throughout 2024

November 2023

Global Learning Exchange on Understanding Complexity in the Informal Economy is expected to start

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About WIEGO

Women in Informal Employment: Globalizing and Organizing (WIEGO) is a global network focused on empowering the working poor, especially women, in the informal economy to secure their livelihoods. We believe all workers should have equal economic opportunities, rights, protection and voice. WIEGO promotes change by improving statistics and expanding knowledge on the informal economy, building networks and capacity among informal worker organizations and, jointly with the networks and organizations, influencing local, national and international policies. Visit www.wiego.org.