Institutional innovations in social protection

Can they fill the coverage gap?

Juan R. de Laiglesia

OECD Development Centre

International conference on Social Cohesion and Development

Paris, 20 January 2011

2

New social protection instruments and coverage gaps

• Nearly all countries in the world have statutory social security programmes, but

most have limited scope and coverage

• Alongside these are a number of social assistance instruments and these have

evolved dramatically in the past 20 years:

From general subsidies to the prices of food and energy (gas, fuel)…

to a series of new policy interventions: cash transfers (conditional and unconditional), workfare

• Poverty-focused social protection innovations are not sufficient because coverage

gaps also exist among the non-poor

• Need instruments that bridge social assistance and social insurance

3

Outline

1 Coverage gaps in social protection

2 Innovations and the extension in coverage

A look at pensions in Latin America

Conclusion

3

4

4

The coverage gap – work injury insurance

Source: World Social Security Report 2010/11, ILO.

0

20

40

60

80

100

No

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a

We

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CIS

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Latin

Am

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a &

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an

Mid

dle

Ea

st

No

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Afr

ica

Asi

a &

Pa

cific

Su

b-S

ah

ara

n A

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a

Legal employment injury coverage (mandatory)

0

20

40

60

80

100

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CIS

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Latin

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Effective coverage (pensioners)

Active contributors (working age population)

Estimates of legal coverage (working age population)

5

Challenges in coverage

Multiple challenges posed by informality

• Registration to verify entitlement

• Contribution to finance the system

• Verifiability of income

Responses:

• Provide systems for uncovered/informal workers (e.g. Mexico’s Seguro Popular)

• Rely on self-insurance for formal workers (e.g. Unemployment Insurance Savings Account)

• Provide universal benefits (means-tested or not)

6

Institutional innovations

• Innovations from the South:

• Conditional Cash Transfers

• Workfare / Employment guarantees

• Unemployment Insurance Savings Accounts

• Unbundling of social protection

Health, Old age, Income support, Workfare

• Rapid expansion of cash transfers to the poor:

• Means-tested (proxy vs direct)

• Conditional

• Social pensions

7

Is new better?

• Performance:

• Generally good (or potentially good)

• UISA in Chile: 22 % coverage vs 6.7% of unemployed before reform

• CCTs: poverty gap fall of 18% in Brazil (Satyro and Soares, 2009)

30% in Mexico (Skoufias, Davis and de la Vega 2001)

• but relative to narrow objectives (poverty vs inclusion)

• Cost effective (especially low administrative cost)

• Mechanics:

• Targeting/Self selection: Lower costs, political consensus

• De-linking from employment relationship and unbundling

• Individualisation of the social contract

8

Is lack of coverage an issue for poor, informal workers?

Zoom down on pension coverage:

How often do workers in the formal and informal sectors contribute to their

pension scheme?

Sample: Bolivia, Brazil, Chile and Mexico

Data: National household surveys data (ECH 01-02, PNAD 96-06, CASEN 94-06,

ENIGH 98-06)

Informality: Labour contract or carteira de trabalho (BRA)

Coverage: Total contributors BRA and CHL, affiliates BOL and MEX

Middle sectors: 50% and 150% of the household-adjusted median

income per head

9

Low coverage is evident also among middle sectors

Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over workers (14-64 years)

Contributory pension coverage rate by income level

0 10 20 30 40 50 60 70 80

Disadvantaged

Middle Sectors

Affluent

2006 CHL 2006 BRA 2006 MEX 2002 BOL

10

Middle income workers are not mostly formal

Note: Percentage of total middle sectors’ workers (0.5 – 1.5 median household adjusted income)

Middle sectors‘ workers by employment category

0.0

0.2

0.4

0.6

0.8

1.0

2002 BOL 2006 BRA 2006 CHL 2006 MEX

Pe

rce

nta

ge

Formal employees Self Employed (with tertiary education completed)

Non Agricultural Self-employed Non Agricultural Informal Employees

Agricultural Self-employed Agricultural informal employees

11

Informality reduces severely pension coverage

Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over middle-sectors’ workers (14-64 years)

Middle sectors’ workers pension coverage rate

0

10

20

30

40

50

60

70

80

90

100

Formal Informal

BOL 2002 BRA 2006 CHL 2006 MEX 2006

12

Informal workers are heterogeneous

Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over middle-sectors workers (14-64 years)

Pension coverage rate of the informal middle sectors

0

5

10

15

20

25

30

35

40

45

Self Employed (with tertiary education

completed)

Non Agricultural informal employees

Non Agricultural self-employed

Agricultural self-employed

Agricultural informal employees

BOL 2002 BRA 2006 CHL 2006 MEX 2006

13

Coverage is ‘regressive’ among informal workers

0

5

10

15

20

25

30

35

Disadvantaged Middle Sectors Affluent

BOL 2002 BRA 2006 CHL 2006 MEX 2006

Pension coverage rate of informal workers by income level

Note: Percentage of affiliates (Bolivia and Mexico) or contributors (Brazil and Chile), over workers (14-64 years)

14

Determinants of contributing to the pension system

Brazil (2006) Chile (2006)

I IV V I IV V

Income (log) [0.23***] [0.14***] [0.08***] [0.08***]

Income * formal [-0.15***] [-0.01*]

Income * independent [0.19***] [0.14***]

Income * independent (HE) [0.07***] [0.11***]

Income * informal salaried [0.12***] [0.06***]

Independents [-0.88***] [-0.99***] [-0.84***] [-0.99***]

Independents (HE) [-0.64***] [-0.69***] [-0.69***] [-0.75***]

Informal workers [-0.88***] [-0.99***] [-0.77***] [-0.92***]

Controls for

Educational attainment No Yes Yes No Yes Yes

Sector No Yes Yes No Yes Yes

Household composition Yes Yes Yes Yes Yes Yes

Pseudo R² 0.12 0.69 0.69 0.03 0.55 0.55

N 163660 163652 163652 96748 96520 96520

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A recap on independents in Brazil and Chile

• Work status, income and pension coverage

Key Results

• Household income (+), as in Packard et al. (2002) and Auerbach et al. (2007)

• Household income (++) among not formal workers

• Compulsory affiliation of independents raises overall coverage…

but does not break the link income-contributions

Other results

• Women less likely to contribute (by 5%)

16

How well do social pensions do?

0 20 40 60 80 100

Disadvantaged

Middle Sectors

Affluent

Disadvantaged

Middle Sectors

Affluent

Disadvantaged

Middle Sectors

Affluent

Disadvantaged

Middle Sectors

Affluent

Mex

ico

C

hile

B

razi

l B

oliv

ia

Contributory Non Contributory Contributory & Non Contributory

Note: Data for 2006 except Bolivia 2004. No data are available for non-contributory pensions in Brazil and Mexico.

Source: Based on National Household Surveys.

17

Policy recommendations: pensions (ex post and ex ante)

Minimum pensions: old affiliates, agricultural informal

Universality vs. Looser eligibility

ECLAC (2006), Levy (2008), Pages (2010), Dethier et al., (2010)

Affiliation: Independents with tertiary education

Compulsory for independent workers vs. Opt-out

Flexibility (contributions, withdrawals)

Hu and Steward (2009)

Public co-funding: Middle-sectors informal workers with savings

Matching defined contributions

Holzman et al. (2009)

18

Limitations of targeted benefits

• Targeted benefits

• Means tests and vulnerability

• Integration with contributory schemes in middle income countries and with other

social assistance schemes in low-income countries

• Universality

• Subsidised social insurance (Subsidised or Matched contributions)

Thank you