Now is the future for social security

In a Europe of increasingly non-standard employment, social protection for all is more rather than less imperative.

Improving the social protection of atypical workers has been high on the European agenda in recent years. With the European Pillar of Social Rights of 2017, the European Union sought to break away from a decade of austerity and strict economic monitoring, where social considerations were often neglected in favour of budgetary concerns. And three years ago today, the Council of the EU Recommendation on access to social protection for workers and the self-employed strengthened the pillar by urging member states to set minimum standards on social protection and extend the coverage of social-security systems.

Since then, these systems have been confronted with immense challenges. But the Covid-19 crisis showed once more the merits of having a decent social-security system in place.

Income stability

Such a system guarantees income stability and support when individuals and households face adversity. This not only minimises hardship but strengthens confidence and career prospects. It also safeguards the economy as a whole from negative shocks. Social-insurance payments mean the costs of risk protection are reflected in market prices, moral hazard is avoided and social-assistance schemes are able to focus on their core tasks.

At the same time, the pandemic revealed the gaps in social security and the vulnerability of uncovered groups. This is due to an emerging trend in labour markets. The organisation of labour is becoming more flexible, due to ever-growing digitalisation in existing industries, globalisation and market pressures, as well as personal preferences. Flexible forms of work—freelance, platform, on-demand, casual, part-time and self-employed (bogus or real)—have increased and now account for about two in five of the EU workforce.

Flexible work forms create various challenges for the organisation and financing of work-related social-security schemes, traditionally designed with the standard worker in mind. More and more workers no longer have a nine-to-five job, nor do they always work for one employer. Their income may be irregular and more dependent on the number of assignments and negotiated rates than on the hours of work.

Many social-security systems stem from the first industrial revolution and thus need to adapt their strengths to a changing world. They need to be reshaped to encompass the new work forms. Applying existing schemes, originally designed for standard work situations, will not suffice. Solutions need to be more fundamental, while preserving the essentials of social security: guaranteeing decent income replacement if a social risk (such as unemployment or long-term illness) eventuates and ensuring that serious costs by which individuals or households may be hit (such as health and social care) are met.

Integrated and individualised

Looking at the new ways of working, social-security systems will need to become integrated, starting from the perspective of individuals’ working lives. More than ever these may involve shifts over time in occupational statuses (wage-earning, self-employment, payment by hours worked) or may combine them at any one point in time.

The element of income will become more important in the design of protection schemes than the length and composition of employment records. In the new paradigm, every earned euro must count for social security, for the financing and the accrual of insurance. This will decisively increase the effective coverage of social security while avoiding perverse incentives to create statuses lacking in social protection. The basic idea should be similar protection for all groups, adapted in application as much as necessary to meet their specific needs.

The implications are:—

• for the self-employed: social security should be as similar as possible to that for employees but with appropriate rules to deal with specifics, such as fluctuating income and greater personal freedom;
• for labour-market marginals, part-time and fixed-term workers: income and working-time thresholds will have to be addressed to improve access to social protection, guaranteeing comprehensive protection by targeting total income rather than only that derived from standard employment and basing social security on income aggregated over the life course;
• for platform workers: where platforms are central agents in online labour markets, the organisation of social security can be linked to these new actors, for instance by establishing personal digital accounts for workers where contributions from a range of platforms can be accumulated.

Rethinking systems

The Covid-19 crisis made it clear that we need to rethink our social-security systems in light of changing labour markets. It falls to EU member states to respond in line with their own needs and traditions, to the EU to inspire and set the regulatory framework within which they can develop their systems, and to social scientists to diagnose the challenges and elaborate policy proposals.

Far from being a relic of the past, now is the future for social security.

This article has stemmed from a working group at the European Institute of Social Security, which also includes Fenicia Aceto, Martina Axmin, Alberto Barrio, Charlotte Bruynseraede, Elisabeth Brameshuber, Eleni De Becker, Mijke Houwerzijl, Catherine Jacqueson, Sabrine Magoga-Sabatier, Thomas Pfalz, María Salas, Grega Strban, Anna Tsetoura, Johanna Vallistu, Eva van Ooij and Annamaria Westregård