Politically orienting ourselves towards a redefinition of “work” and “value” allows the state to theorize the expansion of social insurance programs for a variety of labor sectors.

Successful examples of the extension of social security coverage to workers in the informal economy have focused on two broad policy approaches. In many countries, the extension of social security to larger groups of the population has followed an approach that could be described as “extend social protection through formalization”, focusing mainly on existing social protection mechanisms (typically social insurance, to some extent also mutual funds (mutuelles) and other community-based microinsurance). This approach tends to prioritize specific groups of workers who are already close to the formal economy and have some contributory capacity, and may therefore be relatively easily covered by employment-based social protection mechanisms. In many cases, the extension strategy includes not only a change in legislation but also the adoption of measures to remove administrative obstacles to contributions by facilitating administrative processes and adapting contribution rates and benefit packages. Some examples are the inclusion of domestic workers in maternity and unemployment insurance (South Africa); occupation-/sector-based mutual funds or mutuelles (Senegal); facilitating registration and the collection of taxes and contribution collection through monotax mechanisms (Argentina, Uruguay); and the inclusion of self-employed workers in social insurance schemes (Algeria). In other countries, the extension of social security to larger groups of the population has been pursued through a large-scale extension of non-contributory social protection mechanisms to previously uncovered groups, independently of their employment status and largely financed through government revenue derived from taxation, mineral resource revenue or external grants. This approach could be described as “extend social protection independently of status”, based on the expectation that investing in people through social protection helps workers to facilitate their access to health and education and enhance their income security and enable them to take greater risks, thereby enhancing productivity and facilitating the formalization of employment in the medium and long terms. Some examples are the introduction and expansion of cash transfer programmes for children and families (Brazil, Mexico, Mongolia), persons with disabilities (South Africa) and older persons (social pensions in Lesotho, Mauritius, Namibia, Nepal, Timor Leste, South Africa), as well as national health services.

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Bringing uncovered workers under the umbrella of existing social protection schemes or establishing new schemes, focusing largely on contributory mechanisms (see dark blue arrow in Box 1.12). Establishing a nationally defined social protection floor through a combination of non-contributory and contributory mechanisms (see light blue in Box 1.12). Such a social protection floor guarantees a basic level of social security to all, providing them at a minimum with effective access to health care and a basic level of income security. Both approaches to extending social protection are not mutually exclusive but can support each other in many ways. In fact, many of the countries that have successfully extended their coverage have combined the two approaches in integrated two-track social protection strategies that pursue the principle of universal protection, while taking into account the contributory capacities of different groups of the population. There is no-one-size-fits-all solution: instead, countries have combined the two approaches to extend social protection to previously uncovered workers, while progressively providing higher levels of protection to as many people as possible and promoting transitions from the informal to the formal economy. Box 1.12: Strategies for the extension of social protection coverage for workers in the informal economy Level of protection Poor Social protection floor Informal employment Population Extension Extension Formal employment 18 X Extending social security to workers in the informal economy In the light of today’s changes in the world of work, shaped by digitalization, climate change, migration, globalization and widespread inequality, both approaches will remain crucial for achieving universal and adequate social protection, and for extending social protection to workers in the informal economy. Many observers agree that the way forward to universal social protection requires a combination of contributory and non-contributory (tax-financed) social protection mechanisms. Tax-financed schemes play an important role in ensuring that everyone enjoys a basic level of protection, in particular those groups who do not have access to any other social protection mechanisms. Contributory mechanisms play a vital role in providing adequate benefits because they tend to offer broader scope and higher levels of protection. If existing forms of social protection are weakened in favour of private or individual savings mechanisms, with their limited potential for risk-pooling and redistribution, coverage and benefit levels will be eroded. In particular, vulnerable groups of workers will not be able to accumulate sufficient entitlements under private arrangements owing to their work and income patterns. This will likely exacerbate inequality, especially gender inequality (ILO 2018e). For these reasons, social insurance will continue to play an essential role in providing higher levels of protection to workers, based on the principles of risk-sharing and solidarity. If well designed and adapted to ensure the coverage of larger groups, social insurance can facilitate the transition to the formal economy and contribute to more inclusion and social cohesion. Therefore, rather than dismantling existing forms of social protection, social protection systems will need to evolve to deliver continued protection for workers in all types of employment, including those who move between wage employment and self-employment, between different enterprises and sectors of the economy or between countries. This is an important element of a human-centred approach to the future of work (Global Commission for the Future of Work 2019) which is at the core of the Centenary Declaration for the Future of Work adopted by the governments, workers’ and employers’ organizations of the ILO’s 187 member States in June 2019. A number of middle- and low-income countries have significantly extended social protection coverage to those in the informal economy and facilitated their transition to the formal economy through a two-track approach. Some examples are the extension of health protection in Thailand (universal health coverage scheme, formerly known as the “30 baht scheme”; see Box 2.6) and Ghana’s national health insurance, which was subsidized for vulnerable groups (see Box 6.22). Other examples are to be found in Argentina (combination of contributory and non-contributory social protection programmes for child and maternity benefits), Brazil (Bolsa Família; rural pension scheme) and Cabo Verde and South Africa (social insurance and large grants programmes), among others. In fact, both approaches, to extending social protection, as well as and their combination in an integrated two-track approach, are reflected in both the ILO Social Protection Floors Recommendation, 2012 (No. 202) and the ILO Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204). Box 1.13 illustrates the two-track approach to the extension of social security coverage. Both policy tracks can facilitate transitions from the informal to the formal economy. The first policy track aims to encourage formalization directly and at fostering higher levels of formal employment, better economic performance and enlarged fiscal space. The second policy track focuses on the extension of coverage independently of employment status, which may not have immediate formalization effects but can foster transition to the formal economy in the long term by enhancing access to health, education and income security, with positive effects on human development and productivity (ILO 2017e; 2014i, chap. 6.6). Fostering transitions from the informal to the formal economy is not only essential for improving universal access to adequate and sustainable social protection, but also contributes to broadening the tax base and creating the fiscal space that is necessary for equitable and effective public policies (IMF 2017; Gaspar, Gupta, and Mulas-Granados 2017). In designing strategies for the extension of social protection coverage, it is important to ensure that effective incentives for formalization exist, and to avoid disincentives that may discourage the transition to the formal economy. Good coordination between the different elements in a social protection system is essential in order to ensure adequate coverage and maintain effective incentives for formalization. In addition, coordination with other policies, such as employment, macro-economic and fiscal policies, X Chapter 1: Introduction 19 as well as policies that support sustainable enterprises, are essential for fostering transitions from the informal to the formal economy for both economic units and workers, and ensure financially sustainable and equitable social protection systems and public budgets. Adequate benefits and a sufficient level of risk-sharing and redistribution can be achieved through a staircase approach, whereby higher levels of contribution and formalization correspond to better-quality social security benefits (higher benefits, more comprehensive benefits), while ensuring a basic level of social security for all (Goursat and Pellerano 2016). It is important to coordinate and integrate contributory and non-contributory schemes within a broader national social protection system. If a contributory social protection scheme provides inadequate, lowquality benefits that are only slightly higher than those provided by the non-contributory social protection scheme, this may create perverse incentives for workers to remain in, or join, the informal economy. When extending social insurance schemes to workers in the informal economy, it is therefore important to provide high-quality services and ensure that the priority needs of workers and employers in the informal economy are addressed so that they see the value of contributing to the social insurance scheme. Furthermore, if government subsidies are provided to support the social insurance participation of workers with limited contributory capacity, particular care should be taken that these do not subsidize informality per se, but maintain and strengthen incentives to move from the informal to the formal economy, as to ensure sustainable and equitable social protection systems (see section 6.4 below).