Social protection for developing countries: Can social insurance be more relevant for those working in the informal economy?

Abstract

In this article, Nicola Smit and Letlhokwa George Mpedi critically evaluate the appropriateness of social protection, particularly social insurance, for informal economy workers. It addresses the question from a developing country perspective, focusing in particular on Southern Africa.

The authors start by analysing concepts (such as “informal economy”, “employee”, “social protection” and “social security”) pertinent to the theme of making social insurance appropriate for informal economy workers. They then provide an overview of the labour market and social protection challenges, followed by recommendations on how to make social insurance more relevant to those toiling in the informal economy. On the one hand the authors consider ways to extend social protection to informal economy workers and their families and, on the other hand, investigate to what extent it is possible to strengthen the linkages between the informal and formal economies. They emphasise that the labour law concept of “employee”, which serves as a gateway to social insurance, has to be interpreted more widely. Secondly, social insurance schemes have to be adapted so as to make them amenable to partial or voluntary participation of the informal economy workers. Thirdly, options for making social insurance benefits suitable for those working in the informal economy should be further investigated. Fourthly, the administrative capacity of social insurance schemes should be improved. Furthermore, the informal coping strategies of people should be reinforced and, where possible, formalised. Most importantly, trade union involvement in and solidarity with those eking out a living in the informal economy should be encouraged.