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A Raincoat For Self-Employed People

Context

The Covid-19 pandemic highlighted the critical need for a universal social protection floor, which has been discussed and even internationally accepted for more than a decade but has received little serious attention from policymakers in most countries.

Relevance

GS Paper-2: Welfare schemes for vulnerable sections of the population

Mains Question

Traditional schemes are not viable or comprehensive, so novel approaches to ensuring a universal social protection floor are required. Analyze critically. (150 Words)


Social security is required

  • Basic requirements:
    • The challenge is to ensure basic levels of food, health, income, and livelihood security not only during times of crisis, such as a pandemic, but also during the “normal” course of economies and societies.
  • Economic inequality: o Because of dramatically increased economic inequality and increased vulnerability of people to adverse events and processes, as well as the heightened fragility of material life, social security has become a major concern.
  • Growing informal sector: It has been exacerbated by the large (and growing) proportion of informal workers in almost all economies, which means that, even among those in some form of paid employment, there are few forms of legal protection or social security that they can automatically access in times of difficulty.
    • While the challenges of providing social protection for informal workers are obvious and varied, they are exacerbated in the case of “self-employed” workers.
    • There are no declared employers who could be held partially responsible for providing legal or social protection to such workers.

Legal issues

  • Outsourcing of both goods and services is common, and there is an increasing tendency to label small producers of goods and services as “independent contractors,” even when they are effectively dependent on a specific company.
  • While there is some kind of employment relationship, it is effectively concealed, at least for legal and policy reasons.
  • Even those who are tied to specific companies as suppliers have no legal recourse and are ultimately responsible for their own remuneration, safety and other working conditions, and social security.

Self employed Workers

  • Self-employment based on income factor: o Figure 1 depicts the proportion of self-employed workers to total (recognised) employment, broken down by per capita income group of countries.
    • Self-employed workers account for more than half of all recognised workers in low and lower-middle-income countries.
    • They account for nearly two-thirds of employment in low and middle-income countries.
    • The formal sector employs a very small proportion of such workers, though this proportion is much higher among all self-employed workers in upper-middle and high-income countries.
    • In some countries unpaid workers, especially women, even constitute the dominant share of people of working age, even though they are typically classified as “not in the labour force”.
  • Self-employment by region
    • The fact that lower-middle-income countries have such a high proportion of self-employment is due to their massive presence in two regions in particular: South Asia (SA) and the Middle East and North Africa (MENA).
    • According to Figure 2, nearly 9 out of every 10 employed people in South Asia and 3 out of every 4 in MENA are self-employed.
    • Even in other developing regions, self-employment accounts for a sizable proportion of total employment, with East Asia and the Pacific accounting for nearly a quarter.
    • In such a context, social protection through employment contracts would barely scratch the surface of ensuring protection.
  • Agriculture reigns supreme: It is commonly assumed that the majority of self-employed people work in agriculture or petty services, whereas industry (including manufacturing, construction, and utilities) is more likely to have other types of employment.
    • Figure 3: Agriculture has by far the highest proportion of self-employment among the three sectors across all developing regions.
    • Self-employment accounts for more than half or nearly half of service employment in South Asia and Sub-Saharan Africa.
  • Industry: o The industry also has significant shares of self-employment: nearly 48 percent in Sub-Saharan Africa, nearly 40 percent in South Asia, and nearly 40 percent in the MENA region.
    • In Latin America and the Caribbean, self-employment accounts for 23%, or nearly a quarter, of total industrial employment.

Difficulties in providing social security

  • There is the issue of classification: o The fact that many self-employed workers who are actually dependent on a specific company or enterprise are treated as independent for legal purposes.
    • Recent examples include Uber drivers and Amazon delivery personnel, whom these companies have attempted to treat as “independent contractors” with whom they deal in specific jurisdictions.
    • However, similar examples have proliferated in manufacturing, where large corporations outsource specific parts of the manufacturing process to home-based workers or micro-enterprises, in often extremely complex and global value chains.
    • Furthermore, the recent expansion of online-based platform work has resulted in an increase in the number of such disguised employment relationships.
    • Addressing these issues necessitates regulatory changes that recognise the impact of new technologies on the organisation of manufacturing processes.
  • Production risk: o Because self-employed workers bear all production risks, their incomes are more casual, volatile, and intermittent.
    • Their work is likely to be low productivity and low remuneration most of the time, especially in the informal sector.
    • All of this makes it even more difficult for them to contribute to social security schemes, which implicitly rely on both employer and employee contributions that are fixed in terms of amounts and schedules.
    • This strengthens the case for a universal social protection floor.

Conclusion

  • Access to essential health care, including maternity care; ensuring the basic needs of children, including access to nutrition, education, care, and any other necessary goods and services; basic income security for persons of active age who are unable to earn a sufficient income, particularly in cases of sickness, unemployment, maternity, and disability; and basic income security for older people (pensions).
  • This appears obvious, but few governments give it the importance and urgency it deserves. Only widespread public pressure could bring about a change.

February 2023
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