COVID-19 and a ‘new deal’ for Asia’s informal workers

Changyong Rhee and Era Dabla-Norris*

June 26, 2020

Full or partial lockdowns to curb the spread of COVID-19 are having crippling effects on businesses and workers across Asia, as elsewhere. Among the most vulnerable of the workers are the ones working in part-time and temporary jobs without social insurance, and in sectors of the economy that are neither taxed, nor regulated by any form of government. Known as informal workers, they are particularly vulnerable to dramatic collapses of income and loss of livelihoods.

Informal workers account for a large share of the workforce in many countries in the region but typically have no access to sick leave or unemployment benefits. Their access to health benefits is often precarious. And, for many of them, savings are either nonexistent or extremely limited. Many workers, especially the self-employed and daily wage earners, live hand-to-mouth. If they cannot work for extended periods of time, their family’s income is at risk. Protecting their earnings—whether by increasing unemployment benefits, reducing income taxes, or extending paid sick leave—and reaching them through transfers, is nearly impossible.

Time is everything. Effective policy responses must reach informal workers and their families quickly to prevent them from falling (deeper) into poverty and to protect their livelihoods. Even with their budgetary and capacity limitations, countries in the region are implementing measures to help the most vulnerable. But given the size of the economic shock, much more is needed.

Informal workers in the Asia-Pacific region account for nearly 60 percent of nonfarm employment, higher than in Latin America and Eastern Europe, and ranging from around 20 percent in Japan to over 80 percent in Myanmar and Cambodia. This includes workers with very different characteristics in terms of employment status, income, and sector of activities. It includes wage workers without social protection or other formal insurance arrangements in both informal and formal sector enterprises, and the self-employed, such as street vendors and their contributing family members, as well as daily labourers.  Informal workers are twice as likely as formal workers to belong to poor households. While some of these poor households are beneficiaries of transfer programs, coverage and adequacy of benefits to combat the COVID-19 shock remain an issue.

Informal workers make up big proportion of the workforce in poorer countries.

Image: IMF

As countries across the region cast wide emergency safety nets, a broad patchwork of old and new policy solutions is emerging.

  • Expanding existing social assistance programs. Temporary expansion of existing programs has meant expanding coverage to more people (e.g., Vietnam) and increasing benefit amounts (e.g., Bangladesh). Nepal and India have ramped up in-kind and cash transfers for poor households and informal sector laborers, while Indonesia has increased utility subsidies for poor households.
  • Introducing new transfers. Thailand introduced a cash transfer of US$153 for three months for up to 10 million farmers and 16 million workers not covered by the social security program using cash-less digital payment platforms (Promptpay). In Vietnam, information from tax and utility bills is used to provide a new cash transfer for informal households and the self-employed who had to temporarily shutter businesses.
  • Establishing public works programs. Measures such as emergency employment for informal sector workers are in place in the Philippines to support some of the most basic medical services in quarantined areas.
  • Preserving livelihoods through employment retention, by providing support to small businesses to help them survive. Malaysia, for instance, has introduced special grants for microenterprises hiring less than 5 workers.

The COVID-19 outbreak has exposed the challenges in protecting informal workers and vulnerable households in Asia. But these extraordinary circumstances also provide an opportunity to address longstanding inequalities—in access to health and basic services, finance, and the digital economy—and to enhance social protection for informal workers.

Already, the pandemic is upending conventional norms on education provision and social assistance, with internet, mobile, and digital payment platforms reaching broader swathes of populations than ever in the past. What informal workers need now is a “New Deal” that provides immediate social protection against the pandemic’s economic fallout while putting in place the building blocks for a stronger safety net for the future. How can this be done?

  • Getting the basics right. If international assistance and internal financing can be found, countries in developing Asia should use this to mount an effective public health response, shoring up public health infrastructures and expanding coverage, and correcting deficiencies in clean water, and sanitation.
  • Setting up more expansive and inclusive safety nets. Governments could use citizen identification systems and digital technologies, such as India’s biometric Aadhar system, so that social protection programs can reach the people most at risk more quickly and efficiently, with the ability to scale up in times of crisis. The temptation to introduce universal cash transfers by “giving money to everybody” should be tempered by the goal of ensuring adequate support for the most vulnerable at a reasonable fiscal cost.
  • Investing in digital capacity and bandwidth. Across the developing world, expanding the availability of digital platforms for education and financial services would help to ensure greater and more equitable access for all.

Addressing the pervasive informality in Asia will also require comprehensive measures to improve the business environment, remove onerous legal and regulatory obstacles (especially for startups), and rationalizing the tax system. Specific policies will depend on country circumstances but should aim to bring informal workers into basic social safety nets while enhancing their productivity.

Reposted with permission from