#InformalTalk: Q&A of Webinar 3, Upcoming Webinars 4 & 5!

Here are my replies to other questions raised during webinar 3

How can incentives achieve improved compliance in countries with low income for both the formal and informal workers?  Is it feasible in developing countries?  SM, Tanzania

Social protection can be provided through contributory schemes or through redistributive (non-contributory schemes: social assistance and cash or in-kind transfers). Contributory schemes can be statutory or voluntary. But in both cases, incentives are necessary because owners of small informal businesses may not see the direct interest of being insured, especially in the case of old age pension. This why schemes must be especially designed to fit with the needs of some categories of populations as well as to their means (lower contributions for less or lower benefits).

How do we reconcile affordability and improved coverage when the targeted population has no capacity to contribute and the Government has no fiscal space to fund social protection initiatives? Is this achievable in developing countries? SM, Tanzania
What are the best practices to encourage regular contribution for the informal sector to contribute to the social protection? EM Zimbabwe
What are the specific models and tools for extending social protection to clusters of informal economy in development? YA, Nigeria

Often cash or in-kind transfers are externally funded (at least partly). The dilemma for governments is to make the right balance between collecting contribution (or convincing the actors to pay voluntary contributions (where the schemes are not statutory) for these actors who have the means to do it. Redistributive schemes cannot and should not be universal because the impact on fiscal revenues would be excessive and this is why it is important that those who can contribute effectively do it.

If we refer here to informal sector only (that is micro-businesses of informal own-account workers and informal employers) and not to informal employment in the formal sector, there are two issues: 1) coverage of the own-account workers or the employers themselves, and 2) coverage of the employees or unpaid family workers. On this second aspect, a good practice in Latin American countries has been to apply a unique tax to informal sector businesses: the principle of this tax is to cover both tax and social contribution, to be de-linked from the number of hired workers, and set according to some objective criteria, such as the surface area of the shop or the consumption of electricity.  

Another good practice is observed in Togo. In this country, the payment of contributions collected through cooperatives is attached to the reimbursement of credit for equipment, then when the equipment is reimbursed, the contribution is tentatively attached to the purchase of the main inputs (fertilisers or seeds for farmers for instance): the idea is to make the social contribution a current and usual behaviour that become unquestionable.

In terms of SP implementation, any evidence to show which is more effective, In Cash or In Kind? ZM, Nigeria

There is no definitive response to this question. Cash transfers may be more adapted in some contexts and in-kind transfer in other contexts. In-kind transfers may take the form of food or of materials and equipment, which is quite different. Where the distribution of materials or equipment has not been well thought, it may happen that these materials are immediately sold by the beneficiaries in order to satisfy their immediate needs. An interesting evaluation can be found in Banerjee Abhijit, Duflo Esther, Goldberg Nathanael, Karlan Dean, Osei Robert, Parienté William, Shapiro Jeremy, Thuysbaert Bram, Udry Christopher (2015), ‘A multifaceted program causes lasting progress for the very poor: Evidence from six countries’ in Science 15 May 2015, Vol 348 Issue 6236, about the action of BRAC (the largest NGO in the world) in several countries.

See also DFID evaluations by sectors and by countries.

How scalable are the examples provided? What are the barriers to scaling please and how can they be overcome? VN, UK

Our compendium of good practices (RNSF) is based on evaluations of projects mainly implemented by Civil Society Organisations. Therefore scalability is an issue to be tackled seriously. Firstly Governments can take stock of these good practices to design global national or regional policies within the framework of the ILO Recommendation 204 on the transition from the informal to the formal economy.

Here the question of means arises. Governments may (surely in fact) lack the fiscal revenues that would be necessary to conduct such policies at national level. Some countries may opt for the backing of the social and solidarity economy (SSE) or for providing to SSE an enabling environment and above all a comprehensive framework for SSE that allows organising the multiple actions into harmonised and complementary orientations. In other words the administration, which is unable to be present and active at field level could rely on field projects implemented by CSOs, cooperatives or social businesses, provided that their actions enter within a global framework with clear objectives articulated in a global strategy towards transitioning to the formal economy.

(Historically, taxation of the informal economic units was the main goal for governments realizing the shortfall in revenues from the non-registration of such a huge number of activities). 80% of the Zimbabwean economy is in the informal sector which does not pay tax and the tax revenue of the country has depleted so much. The government this week introduced a 2% transaction tax that will enable it collect tax from the informal sector. This has triggered price increases and negative responses from the few registered companies that are operating. What could be done to address the above. GT, Zimbabwe

Taxation is a challenge because fiscal revenues are the means by which a government can conduct policies. But the payment of taxes is based on trust. Why informal businesses would pay taxes whereas they do not benefit of most public services? At the same time, do large formal enterprises, which complains about unfair competition from the informal sector, pay their dues to fiscal authorities and similarly does government make good use of its fiscal revenues? What I mean is that the design of policies for the transition from the informal to the formal economy (within the framework of ILO Recommendation 204 unanimously adopted in 2015) in which many developing countries are embarking, all the more so as the principles are enshrined into SDG 1 on poverty (social protection), 3 on health (universal health coverage), 8 on decent work (small enterprises), all this necessarily requires the overhaul of the social contract. The “invisible” should be recognised and it is at this condition that they will accept to contribute to their dues in terms of taxes and social contributions.

How can private sector support the implementation of social protection for developing informal sector development? YA, Nigeria

Where the state does not opt for a statutory system or where the state – opting for such a system – does not require being the sole actor to achieve the extension of coverage, there is room for private sector initiatives. But there are two categories of private sector: profit and non-profit organisations. Private insurance companies may provide health coverage against the payment of premiums. Governments may determine the global framework setting the basic rules that should follow such contracts. A more interesting scenario, already in place in Western Africa is the recourse to Mutual funds, which collect the contributions and provide benefits. Generally self-help groups, professional cooperatives and associations (supported or not by the public sector or CSOs) organise the collection of savings and contributions, gather them at local or professional level and then adhere to already existing mutual funds.

On all these issues, please consult our RNSF book of “Extending Coverage. Social Protection and the Informal Economy”: https://europa.eu/capacity4dev/iesf/wiki/8-rnsf-book-social-protection-…

For a start, here are my replies to some of the questions. Other questions will be addressed soon.

Considering the majority of workers in the informal economy are represented by women, especially domestic workers and rural women, I think that any strategy needs to include a gender analysis of what are the needs of women, looking at sectoral occupations (e.g. domestic workers; subsistence agricultural workers, etc SC, Italy

Globally women do not represent the majority of workers in the informal economy. It is only true in sub-Saharan Africa for the non-agricultural informal economy, and in South Eastern Asia and some other countries if we include agriculture. The fact is rather that the incidence of informal employment is often higher for women than for men, meaning that among employed women, the majority is informally employed and it may vary from country to country. But you are right for domestic workers, subsistence agricultural workers, and more generally for most sectors and occupations of the economy that provide lower income, in these sectors women are predominant. A gender lens is obviously required for designing adequate and efficient policies for the transition to the formal economy, especially in terms of social protection and for various reasons: first because as just above-mentioned they are more often working in the less rewarding jobs with higher gender pay gaps, in jobs that are not related to a specific workplace (rural areas, streets, owners’ home) and are therefore isolated; second they are more numerous in statuses such as unpaid family workers; third they are more affected than men by time poverty because they dedicate much more time than men to unpaid care work within the household and have consequently less time and less opportunities to engage into paid work; fourth in existing social protection systems based on full-time jobs without interruptions, women are less advantaged due to maternity and carework and their consecutive weaker capacity to contribute reducing allowances and pensions.

In fact women are more often targeted by social assistance schemes, which contributes to maintain them out of paid work.

What is the best social protection model to prevent young people from engaging in illegal migration? What are the best tools in particular for the youths with less education? FFB, Guinée

Social protection schemes do not have the primary objective of preventing the youth against engaging in illegal migration, even if a better coverage decreases the push factors. It is rather the absence of perspectives on the labour market that must be dealt with. Policies addressing the universalization of social protection are characterised by two main approaches: 1) design statutory or voluntarily contributing schemes related to employment in order to support individuals as well as their employers to pay the necessary contributions; 2) design non contributory social safety nets for the populations out of employment or whose employment does not fulfil their basic needs.

The unemployed youth are one of these categories of populations. And the uneducated youth are a particularly fragile of these categories. Vocational training should be a priority for engaging the young uneducated in ways and means conducing to jobs. Apprenticeship schemes through on-the-job training can be a solution if they involve the small microbusinesses of the informal sector and provide further support to the trained apprentices for creating their own jobs.

When you mention disability insurance and programme for disabled, are you speaking of a specific type of social protection? i.e support schemes to improve accessibility (physical, communications...) as an additional scheme to other potential form of SP, or a 'poverty' scheme e.g. universal credit in UK)?  And if a social protection system is in place for disabled people, how do we ensure that all persons with disabilities are reached by the scheme? SC, UK

Disabilities may make someone unable to continue doing the same type of work, or may make him/her permanently unemployable. Disability insurance or disability income insurance insures the beneficiary against the risk of a disability that could deprive him/her from his/her earned income. Whereas this type of insurance may be part of statutory or voluntarily contributing social protection schemes, programmes aiming at providing better accessibility for instance are generally tax-funded or depend on social assistance as far as targeting is at stake.

I am not a specialist in these matters, but I know that much progress has been done in the field of statistics on the disabled and incapacitated. Their more or less complete enumeration does not mean that the schemes can reach them easily, but it helps it can provide an indicator of coverage.