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June, 2001, Vol. 124, No. 6

Book reviews

Book reviews from past issues

Social protection of work  

World Labour Report 2000: Income Security and Social Protection in a Changing World. Washington, International Labor Office, 2000, 321 pp. $34.95.

This latest World Labour Report of the International Labor Office (ILO) presents a powerful argument for extending and increasing the social protection of a workforce that is more and more exposed to profound structural changes in labor markets and family structure, entailing a loss of families’ protective functions. Large parts of the workforce in more developed countries were subject to flexibilization and casualization of jobs; and, in the less developed ones, to the informalization of work (for example, lacking any, or any firm link to stable, tenured employment offering adequate wage and nonwage benefits). At the same time the extended family is contracting, the proportion of female-headed single-parent households is rising. Furthermore, the provision of social insurance is increasingly constrained by global economic integration and the greater cross-border mobility of capital, which make government’s pursuit of necessary fiscal policies more difficult.

In Decent Work, its most recent programmatic statement, ILO states that its primary goal is to promote opportunities for men and women to obtain "decent and productive work." This goal is the focus of four basic objectives— the promotion of worker rights, employment, social protection, and the "tripartite dialogue," which forms ILO’s basic negotiating arena between worker, employer, and government representatives. Yet, the core of its efforts has always lain the promotion of employment, without which decent living standards and social development "remain illusory."

The World Labour Report 2000, however, documents numerous hurdles that bar the way to reaching the objectives ILO stakes out.

Thus, while ILO argues that "employment-friendly economic policies" are a fundamental condition of social protection program viability, the persistence, and even the rising trend, in unemployment and under-employment growth weaken such viability. Increasing casual and short-term employment in many countries compel workers to accept it for lack of better jobs. Rules of unemployment benefits—where, in fact, such benefits are paid—more broadly define "suitable employment," refusing which may lead to denial of benefits. Under-employment manifests itself in the increasing informalization of work in many less developed countries. Income of "informal" workers is usually low and irregular, and generally runs well below that of formal employment workers, who have tenure and permanent attachment to their employer (including state agencies and enterprises). The informal sector in Argentina, for example, is estimated at 46 percent of total urban employment, 48 percent in Brazil, 27 percent in Mexico, and 44 percent in India. Formal-sector employment has been declining in a number of countries, partly due to the structural adjustment policies of international financial organizations.

"The family is under strain in many ways," writes ILO. An indication has been the steep rise in divorce rates over the past 30-40 years in industrial countries (for which it provides the data). Large proportions of household heads are now women in both developed and less developed economies, whose earnings capacities remain low. Poverty, often very sparsely defined, among female-headed households with children runs well above 20 percent in nearly all countries for which ILO publishes the data. Child poverty rates rose in many selected industrial countries throughout the 1980s and 1990s. "Huge numbers of children…growing up in poverty (has) serious implications…for their future income security in adult life." In some developing countries, the extended family, "traditionally the main source of income security," has become gravely at risk, due to rural outmigration and urbanization, making the extension of social protection more urgently necessary.

The ILO broadly defines social protection as old-age, survivor, and disability benefits, as well as unemployment compensation, financed by social insurance; tax-financed and means-tested social assistance; and universal benefits (such as health care and child support), also tax-financed but not means-tested. The affordability of social protection is a political rather than economic policy matter. It is dependent upon a society’s willingness to accept a measure of redistribution from taxpayers and other contributors to beneficiaries, as well as upon the public’s support of good governance and compliance enforcement across countries, ILO avers, and the relation between GDP and social protection outlays is inconclusive.

Increasing prosperity over the past half century has made the OECD more willing to enhance social protection. Poverty among the aged has nearly disappeared, and in most developed countries social protection averaged 18 percent in 1990 (pensions accounted for 40 percent at the time, health care for 25 percent). By contrast, prosperity in less developed countries has been very low relative to their GDP and restrictive in terms of coverage. These countries usually lack the necessary tax base, the ability to collect contributions, and the means of enforcing compliance. Social expenditures in many of these countries, moreover, have been reduced at the behest of international lending agencies in line with their structural adjustment recommendations.

But the inadequacy, if not absence, of public pensions in a larger number of less developed regions is indicated by the high labor force participation rates of persons 64 years and older (27 percent in 1995), versus 9 percent in the more developed ones. High rates among children 10-15 years old are likewise linked to the absence, or near absence, of schooling and public support of their parents. In the less and least developed regions, the rate was 13 percent and 32 percent in 1995, but zero in the more developed ones. The first-mentioned rates represent slight declines since 1980, possibly reflecting improved school attendance in urban areas.

Some economists have stressed the disincentive effects of social insurance on beneficiary willingness to work and save. The ILO rejects such contentions. Unemployment benefits, for example, have always been conditioned on job search and have been limited in duration. They also facilitate labor mobility and spur retraining efforts. Similarly, the social security provision has been held to reduce personal savings. But lessened saving, thanks to the assurance of social security benefits, is likely to improve consumption standards or allow potential recipients to pay for their children’s education—relieving them from having to support their parents later in life, while also increasing the quantity and quality of human capital.

The ILO is very much concerned about the constraints that globilization imposes on governments’ fiscal policies and the expenditures needed to sustain social protection. "National economies have become more and more vulnerable to the changing perceptions and interests of international investors," it writes, and "individual governments now face a much more limited range of options in macro-economic policy than prior to the 1980s when there were still significant controls on international capital mobility." The competition between countries reduces the fiscal autonomy of governments and their spending capacity. Moreover, business and public officials worry about the cost of social protection and its impact on competitiveness.

Global capital mobility also can substitute lower-cost for higher-cost labor across borders, resulting in a tax burden shift to the relatively immobile factor of labor. Taxes on capital have declined since the early 1980s, while labor taxes have continued to rise. Therefore, tax resistance is likely to stiffen, and insofar as social protection is financed from general revenue, such resistance will likely weaken it.

Nevertheless, ILO staunchly defends social security—it "remains the instrument best suited as the main source of retirement income for workers in the vast majority of countries." It tends to oppose (its opposition is not as thoroughly argued as would be desirable) the adoption of privately managed, mandatory retirement savings accounts, often proposed to help resolve the financing problems of social protection. Such accounts are also favored by international financial institutions. These proposed schemes in effect involve defined contributions. The return on the accounts is not predictable, hence neither are the pensions which draw on them. Administrative costs also are high—as much as 5-10 times as those of established social insurance systems.

The ILO is likewise averse to the growing emphasis on employer-based and other private provisions of pensions. Such "bifurcated restructuring of social protection is tending to cement divisions in society—between the poor and the non-poor—which decades of solidaristic social security have helped to break down." Social assistance, everywhere a means-tested program, and one which is increasingly relied on to support one-parent families and unemployed persons who have exhausted their benefits (where such an entitlement exists), also deepen the division between society’s poor and less needy members. The goal of universal access to free primary healthcare is also becoming more remote, due to "(successive) structural adjustment programs (having) led to severe cuts in public social budgets." The economic efficiency that those programs presumably seek is clearly in conflict with social equity. The balance said to be sought between one and the other is not on the political agenda.

In recent years, adherence to certain core labor standards has been widely demanded, their inclusion in trade and investment agreements pressed. The equally urgent matter of extended social insurance coverage and the amelioration of poverty by publicly financed social protection, unemployment elimination, and the creation of "Decent Work" has not been so widely addressed. The ILO Report reviewed here represents a major contribution to broadening the discussion and highlighting the employment and poverty problems that beset much of the globe. But to help remedy these problems, large-scale international aid is undoubtedly required, yet ILO has desisted from discussing this.

—Horst Brand
Economist,
formerly with the
Bureau of Labor Statistics