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Asia : a “new deal” for workers in the informal

Era Dabla-Norris and Changyong Rhee

April 30, 2020

In Asia as elsewhere, whether total or partial, containment enacted to slow the spread of COVID-19 devastating effects on the companies and the workers. Workers without social protection, who occupy part-time positions in temporary or sectors that elude completely any form of taxation or regulation are among the most fragile. These “informal workers” are particularly vulnerable to massive losses in income or the disappearance of their means of subsistence.

In many countries of the region, these workers represent a high proportion of the active population without the right to sick leave or unemployment insurance benefits. Their access to sickness benefits is precarious and their savings are very meagre, when they have them. Many self-employed workers and labourers live from day to day. When they are too long without working, the family income suffers because of it. It is virtually impossible to protect their income in any way whatsoever (increased unemployment insurance benefits, reducing their income tax, or extending their sick leave) or send transfers.

The speed of response is therefore crucial. To be effective, aid must arrive quickly to informal workers and their families in order to avoid sinking (further) into poverty and protect their livelihoods. Despite their limited capacity and budgetary constraints, the countries of the region are working to help the most vulnerable, but the extent of the impact of the current economy requires a lot more.

The omnipresence of the informal economy in the region

In the Asia-Pacific region, the informal economy represents close to 60 % of non-agricultural employment, a higher proportion than in Latin America and in eastern Europe. The rate varies between approximately 20 % in Japan and over 80 % in Myanmar and Cambodia. The status, income and the sector of activity of all of these workers can vary greatly : workers without any social protection or other insurance official in the formal or informal economy, self-employed workers (street vendors and members of their families) and daily.

Informal workers are two times more likely than others to belong to a poor household. Some of these households have access to transfer programs, but their coverage and the inadequacy of the benefits available to absorb the shock of the COVID-19 is still a problem.

Responses of the public authorities

The countries of the region seek to deploy the safety nets of emergency, where the emergence of an amalgam of new and old.

Expansion of social assistance programs that exist. The programs already in place to extend temporarily their coverage (e.g., in Vietnam) and improving their services (e.g., Bangladesh). Nepal and India have accelerated transfers in kind and cash to poor households and informal workers, while Indonesia has increased the subsidies for public services that are paid to poor households.
Creation of new transfers. Thailand has put in place a new program of cash transfers of usd 153 per month for 3 months for some 10 million farmers and 16 million workers not covered by the social security program, which is based on platforms of digital payment without cash (Promptpay). In Vietnam, the authorities have contributed the data of income tax returns and utility bills, to send a new transfer of cash to households of the informal economy and the self-employed who have had to temporarily cease their activities.
Launch of public works programmes. The Philippines have adopted various measures, such as the creation of urgent jobs for workers in the informal sector, to support the provision of certain health services which are fundamental to the regions under quarantine.
Preservation of livelihoods through the maintenance of jobs, aid to continuing operations paid to small businesses. In Malaysia, for example, special grants are distributed to micro-enterprises with less than 5 employees.

“New covenant” with a view to the post-pandemic

The pandemic of COVID-19 has highlighted the difficulty of protecting the informal workers and vulnerable households in Asia. However, these exceptional circumstances also offer the possibility of addressing the inequalities of long date in the access to health services and basic financial services and the digital economy, and to enhance the social protection of informal workers.

Already, the pandemic is dramatically changing the usual standards applicable to the services, education and social assistance, thanks to the Internet, to mobile devices and platforms, digital payment that will reach broader segments of the population. It is necessary now to put in place a “new covenant” for informal workers that will protect immediately against the economic impact of the pandemic and will be the basis of a future social safety net more robust. But how to get there ?

Building a solid foundation. To the extent that they will have international aid and domestic financing are necessary, the developing countries of Asia should put in place an effective protection of public health, the strengthening of relevant infrastructures and extend the coverage, and fill in the gaps of the health system and distribution of drinking water.
The extension of social protection and make it more inclusive. The authorities could use identity systems and other digital technologies, such as biometric Aadhar in India, to extend quickly and effectively the scope of their social protection programmes to the most at-risk individuals and to develop the capacity to adapt to the circumstances of the potential new crises. It is necessary to resist the temptation of putting in place universal systems of cash transfers that distribute blindly the money, and not lose sight of the fact that the objective is to distribute a sufficient aid to the most vulnerable people at a reasonable cost.
Invest in digital capacity and bandwidth. In all developing countries, the expansion of digital platforms to provide education services and financial help to facilitate access to these services and to make it more fair.

To solve the problem of the pervasiveness of the informal economy in Asia, it will also need a full range of measures to improve the business climate, eliminate red tape and regulatory and legal (particularly for start-up companies) and streamline the taxation. The exact nature of the measures needed will vary depending on the country, but they should all strive to provide the informal workers, basic social protection and to increase their productivity.

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Era Dabla-Norris is head of the Asia division I, the Asia and Pacific department of IMF and chief of mission for Viet Nam. Previously, she was head of division, department of public finance, where she worked on structural reforms and productivity, income inequality, the impact of the fiscal, debt, and demographics. Since his arrival at the IMF, she has worked on many countries-advanced, emerging and low income. She is also the author of numerous publications on a wide range of topics, and is a member of the World Economic Council. She holds a master of science degree from the School of economics of Delhi and a phd from the University of Texas.

Chang Yong Rhee is the director of the Asia and Pacific department of the IMF. Before joining the IMF, Mr. Rhee was chief economist at the asian development Bank (Adb). He was the chief spokesperson for the Adb in regards to the economic trends and development, and oversaw the department of economics and research. He has served as the secretary general of the presidential committee for the G20 summit held in the Republic of Korea. Prior to his appointment at the financial stability board (FSB), Mr. Rhee was a professor of economics at Seoul national University and assistant professor at the University of Rochester. He has also advised on a regular basis and enables the Korean government, including within the office of the President, the ministry of Finance and the Economy, the Bank of Korea, the depositary, the Korean securities and of the Institute of Korean development. Her research work focuses primarily on macroeconomics, financial economics and the Korean economy. He has published numerous articles in these areas. Mr. Rhee received his phd in economics at Harvard University and his ba in economics at Seoul national University.

EDITOR’S NOTE: This article is a translation. Apologies should the grammar and/or sentence structure is not be perfect.

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