The Future of Social Protection

Executive summary

Most social protection systems were designed with the archetypical full-time dependent employee in mind. Work patterns deviating from this model – be it self-employment or online ‘gig work’ – can lead to coverage gaps. This is not a marginal issue. Across the OECD on average, 16% of all workers are self-employed, and a further 13% of all dependent employees are on temporary employment contracts. Temporary workers often struggle to accumulate minimum contribution periods, and the self-employed are often covered only by the most basic of benefits.

Rising numbers of non-standard workers also threaten to erode the contribution base and thus revenues of social protection systems. If only some categories of workers are covered by social protection – and liable to pay social contributions – while others are not, firms have an incentive to shift work onto those workers who enjoy the least protection.

New technologies and the new forms of work they create bring the incomplete social protection of non-standard workers to the forefront of the international policy debate. Non-standard work is not new to OECD economies, however, and there are lessons to be learned from strategies that countries already employ to provide social protection to such workers.

This volume presents seven case studies that shed light on different aspects of the social protection of non-standard workers (the self-employed, those at the border between self- and dependent employment, temporary workers, and workers on flexible or on-call contracts). The case studies analyse:

• the implications of a tax-financed social protection system on non-standard workers (Australia);

• voluntary social protection schemes for self-employed workers (Sweden);

• the effects of differing social protection coverage of standard and non-standard workers on the incidence of non-standard employment in the Netherlands, Italy and Austria;

• special schemes for non-standard workers – the French Régime Social des Indépendants (RSI) and programmes that provide social protection to special subgroups in the creative industries (the German artists’ insurance scheme and the intermittent du spectacle scheme in France).

The introductory chapter to this volume brings together key policy insights of these case studies, and discusses other recent policy developments across the OECD. It also looks at the special challenge of providing social protection to platform or gig-workers and offers policy options to increase the income security of on-demand and flexible hours workers.

Key insights

Social security contributions should be harmonised across forms of employment as much as possible

Including workers that sit on the border between dependent and independent forms of work in the standard social protection scheme closes coverage gaps and helps ensure that social protection systems cover those who are most at risk.

It can also curb the scale of non-standard employment, and thus limit the erosion of the contribution base of social protection systems, as shown by the policy reform experiences in Italy and Austria. Raising non-wage labour costs, of course, comes at the risk of decreasing employment, just like for standard workers. If certain forms of employment are subject to lower non-wage labour cost, this should be a deliberate policy choice.

Voluntary schemes do not seem to work well for non-standard workers

Any insurance depends on risk sharing across members. If insurance is voluntary, those at highest risk have the greatest incentive to join. Unless a voluntary scheme achieves a very high coverage rate, this adverse selection either leads to a downward spiral of rising premia and falling coverage, or to additional costs in the system. High coverage rates, in turn, may require public subsidies, as the willingness to pay voluntarily for social protection appears to be low, as evidenced by the Swedish example.

Platform work

Online labour platforms have been experiencing spectacular growth in recent years. They make it easier and cheaper to offer and find work online, and have the potential to disseminate the advantages of self-employment – flexibility in working time and place, and autonomy in the organisation of work. Platforms can also offer both employed and non-employed individuals an easy way to smooth temporary income shocks.

Some platforms, however, go beyond a mere “facilitator” or “marketplace” role in determining prices, working times, or details of service provision, undermining the flexibility and autonomy associated with genuine self-employment. Thus, gig workers may end up enjoying few of the advantages of self-employment, but suffer many of its drawbacks, including the risk of demand fluctuations, unpaid down- or waiting times, and patchy social protection coverage. Minimum wages do not typically apply to them. Some platforms intervene in gig-workers’ price setting, working time and work organisation to such an extent that they have been found to be the de facto employers by national courts. In cases of straightforward misclassification, labour law (when properly monitored and enforced) may be sufficient to ensure the adequate protection of workers.

There is no obvious difference in the need for social protection between self-employed workers who operate on traditional markets, and those who offer their services on platforms, but retain entrepreneurial control over their work. What does distinguish labour platforms from conventional markets is that all transactions are digital and hence completely traceable. This raises the potential for increasing social protection coverage and tax compliance by shifting activities from the informal to the formal economy.

Increasing income security for those working flexible hours

Independent contractors – whether they do work mediated by online platforms or not – as well as workers on on-call or flexible hours contracts lack the income security provided by regular employment relationships while enabling firms to cheaply adjust to demand fluctuations. One way to redress this imbalance is to introduce a wage premium for flexible work as a compensation for assuming part of the entrepreneurial risk. The idea of requiring employers to pay higher rates to those who assume part of the entrepreneurial risk has been gaining traction both in the context of platform work as well as flexible hours work contracts. In Australia, casual workers are already entitled to a wage premium. Minimum earnings floors may also be applied to independent contractors.