Research and advocacy of progressive and pragmatic policy ideas.
Informal workers lack social protection but how can we ensure participation in the various schemes? We argue why voluntary plans do not work and propose an alternative approach.
By Edwin Goh & Nelleita Omar13 February 2020
Part 2 of our gig worker study, published earlier this year, presented the unsurprising findings that gig workers lack social protection. The survey of over 400 e-hailing and delivery drivers uncovered that 76% of respondents do not have unemployment insurance, 59% do not have retirement savings, 59% do not have emergency savings, 57% do not have healthcare insurance and 37% were not insured for workplace injury (Figure 1). In totality, one in five gig workers do not have any savings or insurance.
Our gig worker findings form one corner of a larger jigsaw puzzle picture of informal workers in Malaysia. A 2019 World Bank study affirmed that most informal workers in Malaysia are left out of the formal social protection system.
Note: This article will use the terms self-employed workers, own-account workers, informal workers and independent workers interchangeably.
This is perhaps to be expected – Malaysia adopts an employment-based social protection strategy, where those with a formal job would be enrolled by their employers into social safety schemes such as the retirement savings scheme under EPF, workplace injury insurance under SOCSO and unemployment insurance or EIS also under SOCSO. Many employers also pay for or subsidise private healthcare insurance.
An employment-based approach to social protection coverage is adequate if the labour market is largely geared towards formal, full-time employment. However, Malaysian labour data shows that the share of informal employment or ‘own-account workers’ has increased from 17.4% in 2008 to 19.4% in 2018 (Figure 2).
According to Khazanah Research Institute (KRI), the rising trend of informal workers in Malaysia could be a sign of an underlying transformation of the labour market. If more and more of the Malaysian labour market comprises ‘own-account workers’ who depend on freelance or ‘gig’ work for their livelihood, an employment-based approach will become increasingly insufficient in ensuring social protection coverage. Already today, only 38% of Malaysian workers participate in retirement scheme EPF or are covered by a public pension scheme; the remaining 62% who are not covered are mostly self-employed.
In response to the increasing trend of labour market ‘informalisation’, governments across the world have started to study feasible regulatory changes towards protecting informal workers. In Malaysia, the government has introduced schemes such as the Self-Employed Employment Injury Scheme (SEEIS) and i-Saraan.
SEEIS is an employment or workplace injury insurance scheme similar to the one for full-time employees under SOCSO while i-Saraan is a voluntary retirement savings scheme. For i-Saraan, according to the EPF website, the government will contribute 15% or up to RM250 per person annually until 2022 (at the time of this writing, terms and conditions for this stated top-up was not stated).
i-Saraan is fully voluntary; one would have to actively sign up for the scheme and make monthly contributions from one’s business, freelancing or gig income. Meanwhile, the Self-Employment Social Security Act 2017 makes it mandatory for selected groups of self-employed workers to contribute to the SEEIS. The government has also recently extended the scope of coverage to four other informal sectors.
‘Mandatory’ here means that self-employed workers are required to join; they are not automatically enrolled into the scheme. This is a subtle but important point. Having a mandatory scheme without securing enrolment means that the onus is on the worker to not only enrol in the scheme but also to actively pay into the scheme each month. And given human nature, the majority will not do this – too much hassle for an unclear payoff.
Unless enforcement is very strict, takeup of such a scheme will be low. And so it is unsurprising that although SEEIS is ‘mandatory’, only 18% of an estimated 250,000 drivers who come under the scheme are registered. The enforcement required in achieving even this amount of takeup appears to be high, involving spot check visits, warnings and court action.
It is time that we take a serious look at automatic enrolment and automatic deductions. Implementing this approach, with an opt-out option, is a well-known behavioural strategy to ensure participation in social security plans across the world. A study by Clark and Young at Vanguard found that participation rates of those under an automatic enrolment saving and investment plan is nearly double of those under voluntary enrolment. And automatic enrolment-cum-deductions works particularly well for gig platforms which (a) already have a data infrastructure (b) pay out earnings to thousands of informal workers.
In our stakeholder engagement sessions, an e-hailing group speculated that not many drivers are aware of SEEIS or are confusing it with ‘e-hailing insurance’ (which is largely motor accident insurance with passenger coverage). We agree that clear and frequent communication is necessary but we argue here that a bigger issue is scheme design.
Our gig worker study shows that a significant majority of respondents are willing to let gig platforms deduct from their gig income for various types of social protection schemes. How do we reconcile this with the low takeup of schemes like i-Saraan and even the ‘mandatory’ SEEIS? It could be the case that workers, informal or otherwise, prefer regular automatic deductions of relatively painless amounts, rather than actively paying out a painful monthly lump sum from their take-home pay.
Can voluntary social protection schemes work? In other places, some informal worker groups are attempting to band together to protect themselves. US-based Freelancers Union, for example, has partnered with insurance companies to set up Trupo which allows freelancer members to purchase personal accident and dental insurance as a collective group, making insurance premiums cheaper. Similarly, the New York Taxi Workers Alliance in the United States takes advantage of their union size to get discounted rates on legal, financial and healthcare services for their members.
Closer to home, Malaysia e-Hailing Drivers Association (MeHDA) has leveraged its organisation size to get selected workshops to provide better rates for vehicle maintenance services. MeHDA is also currently negotiating with a car manufacturer to offer better car rental rates for e-hailing drivers. Not quite social protection, but perhaps these measures will extend to savings or insurance schemes for association members as gig working matures in Malaysia.
We may also see the introduction of more products and services to cater for informal workers’ social protection needs and to fit the fluid nature of informal work. Gigacover in Singapore, an insurtech startup underwritten by Etiqa Insurance, offers workplace injury and illness insurance to self-employed workers. In the United States, Thimble provides on-demand periodical employment injury and liability insurance to freelancers.
To be fair, some gig platforms are also trying to play their part. Leading up to the implementation of Assembly Bill 5 in California, Uber, Lyft and other gig platforms put together a USD100 million fund and promised worker protections including a ‘net earnings guarantee’ for driver-partners who record 20 hours or more in booked rides a week. Though not a gig platform, marketplace Etsy has been at the forefront in advocating better welfare for independent workers, partnering with BlackRock to help their sellers build emergency savings.
Meanwhile, in Malaysia, Grab has partnered with EPF to promote the voluntary retirement savings program i-Saraan by offering to top up an extra 5% (to a maximum of RM80 a year) on top of partner-drivers’ contributions into the scheme. According to industry observers we’ve spoken to however, the takeup for this initiative is extremely low.
Voluntary schemes, be it by organised worker groups or gig platforms, fill a missing niche. But since coverage still depends on the worker’s initiative and willpower to join up, it will arguably never reach meaningful levels. Not only do we need affordable schemes, we need an approach that works with and not against our human nature.
The voluntary nature of social protection schemes limits its effectiveness. Even programmes that are mandatory still requires workers to take the extra step of registering and actively paying into the scheme.
To enhance the effectiveness of our social protection system, we could model the French General Social Security Scheme. The scheme automatically enrols those aged 16 and above by providing them with a social security number, thereby minimise coverage gaps (those under the age of 16 come under their parent or guardian’s accounts). The protection scheme covers healthcare, workplace injury, retirement and family benefits.
What about deductions? Admittedly, this works best via ‘worker portals’ such as gig platforms. Small amounts of a pre-set percentage could be automatically deducted from daily or weekly earnings before it is paid out to the worker, reducing the risk of avoidance or procrastination.
The time to move the conversation is now. We argue that Malaysia is at a tipping point; informalisation of the labour market will continue to increase and so we need to determine effective policy approaches towards ensuring the social protection of informal workers. While we applaud voluntary and innovative private protection schemes, these should supplement, but not be the main basis, of informal worker social protection.
Automatic enrolment and, as far as possible, automatic deductions is the way to go.
Email us your views or suggestions at firstname.lastname@example.org.
Designing Portable Benefits: A resource guide for policymakers (The Aspen Institute)
Economic Security for the Gig Economy (Etsy)
Getting Organised: Low-paid self-employment and trade unions (Fabian Society)
Better Work in the Gig Economy: Enabling gig workers to live with financial security, dignity and dreams (doteveryone)