Ideas & Debate

How digital economy is shaping social security

digital

Globally, the nature of work is shifting to the gig economy. FILE PHOTO | NMG

Summary

  • Globally, the nature of work is shifting to the gig economy.
  • To assess the impact of the digital economy on social security, it is useful to review some of the roles it plays in society.
  • While its short-term impact is most evident in governments’ sponsored social protection programmes such as cash transfers to individuals, its much less visible long-term impact is even more important.

Digital technologies now permeate all aspects of human activity. These technologies are creating entirely new economic sectors. For instance, digital platforms today instantly match supply and demand for products and services at a very low cost, creating new demands and new opportunities. Yet at the same time, they change the nature of work by breaking the traditional employer-employee relationship.

Globally, the nature of work is shifting to the gig economy. How can social security fulfil its role in this new environment? How can we best ensure that it supports inclusive growth, promotes social cohesion, stability and resilience?

To assess the impact of the digital economy on social security, it is useful to review some of the roles it plays in society. While its short-term impact is most evident in governments’ sponsored social protection programmes such as cash transfers to individuals, its much less visible long-term impact is even more important. Social security plays a macro-economic role of being an automatic stabiliser by providing income replacement in times of unemployment or inactivity, thus supporting the daily household consumption of goods and services, and, by extension, local and national economic activity and employment. This is perhaps best illustrated by the ongoing global outbreak of the coronavirus disease of 2019.

Though a recent phenomenon, digital platforms are a critical factor in the context of the emerging digital economy. By reducing transaction costs, digital platforms provide access to affordable services to an increasing customer base, thus facilitating demand and contributing to growth and competitiveness. They create new employment opportunities and enable the matching of labour demand and supply through real-time information. By promoting flexible work arrangements, they can also contribute to work-life balance.

Remarkably, in some contexts – such as in Kenya, digital platforms are supporting the transition from informal to formal economy. At the same time, digital platforms may undermine the labour and social protection of workers involved and pose the challenges of fragmentation of work into a series of tasks, raising concerns in terms of the coverage, adequacy and sustainability of social security systems.

To stay relevant, social security must keep up with social, economic and cultural changes especially those related to the emerging digital economy. Cultural changes raise the risk to the sustainability and adequacy of social security systems and hence the urgent need to mitigate that. In this regard, there are certain priority areas that require action.

For instance, the hybrid nature of platform-mediated labour exposes digital workers to the risk of misclassification. Consequently, there is a need to clarify their legal status to harmonise relevant legislations and to reduce opportunities to circumvent workers’ protection. Legal framework should be adapted so that all workers are entitled to full social protection regardless of their employment status and the financial models should be adapted to new forms of work.

To this end, a higher degree of cooperation between national and local administrations – including social security institutions, tax authorities and private stakeholders – is a key success factor.

In this regard, social security institutions need to ensure that their contribution assessment and collection model remain relevant. Clarity around the employment status is needed and should be regulated and implemented, taking into account the new forms of work and the erosion of the traditional payroll. Actuarial valuations of social security systems should carefully monitor the changing pattern of contribution to inform the development of new measures. This must be carried out in parallel with a strategic coverage extension plan to bridge emerging gaps and reach out to difficult-to-cover population groups.

Personal data and data analytics have become one of the most valued commodities. As repository of vast quantity of data, social security institutions have the duty to protect this information against cyber threats and breach of privacy. As a consequence, a balance has to be sought between protection of privacy and the provision of tailored services. With this in mind, it is therefore important that the sharing of personal information be governed by transparent rules, subject to explicit consent and generate tangible service quality benefits to the users.

Finally, in order to facilitate adaptability and mobility of the workforce between jobs/sectors and to avoid long-term unemployment, re-skilling and up-skilling programmes must be made available throughout the entire career. As for future generations of workers, investments in the education system is pivotal to equip youth with critical and analytical thinking, ethical judgment, empathy, curiosity, creativity and social skills that are essential to make the best of digital tools, including Artificial Intelligence (AI).

These attributes are for the most part developed early in life and built in primary and secondary school – when children develop cognitive and social skills, and adaptability. Human capital development should be considered a priority in any long-term strategy.