By Christopher Niesche

The dramatic shift to more casual work and short-term employment contracts mean that governments must urgently review and future-proof their social protection systems, the OECD Employment Outlook 2019 report has found.

According to the report, there is already evidence that the digital economy is making job losses and employment changes frequent for many workers, increasing their need for income support and re-employment support.

However, many nations’ long-standing social supports have been designed to meet the needs of full-time workers with secure employment.

Governments will need to rethink their social protection systems including unemployment benefits and income protection, return-to-work assistance, sickness and family leave provision, and age pensions, the report concludes.

“Effective social protection provides a buffer against the individual and social costs of these adjustments and can ensure that those losing their jobs have the time to find good job matches or undertake training if needed,” the report states.

“Effective social protection… can ensure that those losing their jobs have the time to find good job matches or undertake training if needed.”

Beyond the question of fairness, there is also a valid economic argument for strong social protection policies. If people are better supported, there is less pressure on governments to adopt policies that could stifle economic dynamism within their nations, such as creating barriers to trade or innovation.

How welfare rules need to change in the digital economy

The report finds that economies are ill-prepared for the faster pace of job reallocation that will accompany the adoption of new technologies. Additionally, legal safeguards and social protection provisions that were designed around traditional forms of employment may no longer apply to gig economy workers and workers with non-standard contracts, or not apply to the same extent.

“This not only creates inequitable, and possibly regressive, treatment of workers based on their employment status but also erodes the financial sustainability of social protection provisions,” the report states.

Some nations require workers to have had a minimum period of employment (before they lose a job) to access unemployment benefits. That sort of provision might work well for someone who has had long-term, full-time employment, but not for someone with an interrupted work history of part-time roles or being self-employed.

Other nations require workers who have jobs to contribute to unemployment insurance to cover them when they aren’t employed. But the self-employed, gig economy workers, on-call workers or those with zero-hours contracts don’t have access to such provisions or, if they do, they are voluntary. Additionally, those workers who have had to change jobs frequently because of the changing workforce requirements may also miss out.

Eleven of the 28 countries examined by the OECD do not offer any kind of unemployment protection for self-employed workers.

What are the employment challenges for Australia and New Zealand?

The OECD says there are “some gaps” in the sickness and work injury entitlements of the self-employed in Australia and New Zealand compared with full-time workers. For these self-employed and gig economy workers, it is projected this inequality will persist into retirement.

In terms of age pensions, New Zealanders in self-employment have similar benefits to employees, but in Australia there are some gaps, likely because superannuation contributions are voluntary for the self-employed but mandatory for employees.

For countries such as Australia and New Zealand, which provide unemployment benefits and the age pension regardless of a person’s employment history (although in some cases these benefits are means tested), there are still challenges.

“New types of atypical employment make it harder to reliably assess whether someone is working at all and how many hours they are putting into their job or jobs. As a result, tying social-protection entitlements and contributions to people’s employment status becomes more difficult,” says the report.

What are some options for mending the social safety net?

One possible policy response is to introduce a universal basic income, paid to everyone by the government. However, the OECD says this would require large tax rises as well as reductions in most current benefits, and often would not be an effective tool for reducing income poverty.

Another option is to strengthen needs-based support programs by transforming some insurance programs into means-tested assistance, or by expanding existing ‘safety net’ benefits for people with low incomes and no other resources.

Across all economies, workers who change jobs frequently because of accelerating technology adoption will require additional support.

“The readiness and ability of workers to move from jobs in declining sectors or firms to expanding ones is likely to become an increasingly crucial determinant of future employment trends,” states the report.

But it adds that employment-support packages can be difficult to access for those in alternative work arrangements, reducing their chances of benefiting from the career opportunities that dynamic labour markets offer.

Governments should conduct a thorough review of their social protection systems to examine whether they provide reliable coverage against evolving labour market and social risks, the report recommends.

New Zealand has instituted a welfare advisory group to address technical and broader issues related to labour market changes, including a growing availability of self-employment options and their implications for social protection policy.

Ways work is changing

• Since 2006, the average job tenure across OECD countries has decreased by five months.
• The biggest decline was among low-educated workers.
• Under-employment has increased in many countries over the past decade, thanks to the growth of the service sector, the growing employment share of low-skilled occupations and the spread of non-standard forms of employment with no guaranteed hours.
• Italy, Spain and Australia had the highest rates of underemployment, with 10% or more of employees without enough work in 2017.
• Young workers and those with a low or medium level of education suffer the highest rates of underemployment.

Figure 1. Risk of job automation is real but varies greatly across countries

Source: OECD Employment Outlook 2019. Click image to enlarge.

Figure 2. Social protection needs to be adapted to the future of work

Source: OECD Employment Outlook 2019. Click image to enlarge.

Figure 3. Populations are ageing fast in OECD countries

Source: OECD Employment Outlook 2019. Click image to enlarge.

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