Unemployment and Income Security

Unemployment and Income Security by Guy Standing June, 2000, Geneva International Labour Organization Table of Contents 1. Introduction............................................................................................ 1 2. Unemployment and Income Security ........................................................... 3 3. Policy Frameworks for Unemployment ........................................................ 4 4. Unemployment Insurance Benefits .............................................................. 6 (i) The contributions issue...................................................................... 9 (ii) The incentive issue......................................................................... 10 (iii) The three crises of unemployment benefits........................................... 11 (iv) The Conditionality of Unemployment Benefit Schemes........................... 13 (v) Age test........................................................................................ 15 (vi) Employment record test................................................................... 15 (vii) Job departure test........................................................................... 17 (viii) Job-seeking test ............................................................................. 18 (ix) Available-for-work test.................................................................... 19 (x) Job refusal test .............................................................................. 20 (xi) Training refusal test........................................................................ 20 (xii) Unemployment duration test............................................................. 20 (xiii) The “Generosity of Benefits”............................................................ 24 5. Alternatives to Unemployment Benefits ......................................................26 (i) Unemployment Assistance................................................................ 27 (ii) Workfare...................................................................................... 28 (iii) Other Options................................................................................ 29 (iv) Work Insurance ............................................................................. 29 6. Concluding Points...................................................................................31 APPENDIX...............................................................................................33 Unemployment and Income Security by Guy Standing* 1. Introduction Social policy is notoriously struck by images. During the 20th century one image above all dominated thinking about labour market policy – the dole queue, a long line of men, hands in pockets, mostly with caps, queuing forlornly in the early morning rain for a meagre hand-out to enable them to survive in unemployment as they competed with each other for jobs that were not there. There were a few women, but they were not regarded as “the bread winner”; they were left in the shadows of economic and social policy. It was all those unemployed men who took the headlines and who worried governments, with their dirtiness and incipient violence. From the 1930s onwards – and significantly not before then – the world rushed to measure the number of unemployed. Doing so has not been easy. But if they were to be helped, the state had to know how many of them there were. As the traumas of the Great Depression faded, policymakers in industrialized countries turned their attention to making schemes of income support for the unemployed more rational and equitable, according to their way of seeing reality. Two basic questions dominated their thinking. Who should qualify? Who should pay? The first question seems to have an easy answer – the unemployed. Yet defining these is far from easy. What about the person who apparently chooses to become or remain unemployed? Or the person who has not been employed before or for a long time? Or the person who withdraws from the labour force because she sees no prospect of a decent job? The second question also seems easy to answer – the employer should pay, on the grounds that he can afford to do so and is ultimately responsible for making the employed redundant. Merely stating that answer highlights it inadequacy. The basic questions for a while seemed interesting but not too problematical. Assuming Full Employment, one could have a system in which modest “insurance contributions” could be levied on firms to pay for the small number of workers subject randomly to “frictional” involuntary unemployment that amounted to no more than Beveridge’s famous “temporary interruptions of earnings power”. But then reality ruined this comforting image. Two sets of factors ruined the image. Probably first chronologically, social protection policy became part of development policy. None of the orthodox assumptions looked remotely true in developing countries, in contexts of rural non- wage labour, casual informal activities in urban slums and relations of production that were quite unlike the model of big bureaucratic, stable firms and public organizations that until the last quarter of the 20th century seemed to be the coming norm. Clearly the main problems in developing countries were absolute poverty and chronic inequalities, in which impoverished “underemployment” was more pervasive than open unemployment. The official ‘discovery’ in the early 1970s of the “informal sector” – a euphemism that was to have a very long life – turned attention away from * Director, ILO Socio-Economic Security Programme. This paper is written in a personal capacity and no views should be attributed to the ILO. It is a draft and comments would be welcome. For assistance, thanks are due to Elena Varela-Mandl and Laci Zsoldos. 1 the Ricardian-Lewis model of surplus labour being absorbed gradually into the “formal sector” in which statutory protective regulations and social security could operate. The other set of developments concerned what has become subsumed in aspects of globalisation. Mass unemployment – and a lot of long-term unemployment lasting for a year or more – returned to industrialized countries, while more flexible and informal labour markets meant that full-time, regular and stable wage labour ceased to be the overwhelming norm. More importantly, policymakers could no longer comfort themselves with the image that stable full-time labour was the norm, or in the case of developing countries was becoming the norm. At the same time, a revolution in economics destroyed the comforting notion that the closed economy system underlying Keynesianism and the extension of welfare state capitalism meant that macro-economic policy could and would maintain Full Employment. Henceforth, unemployment was attributed largely to the behaviour and expectations of workers and employers. In a crude sense, the new orthodox economics regards unemployment as largely ‘voluntary’, due to behavioural and institutional rigidities. This has profoundly altered policy attitudes and the statistical measurement of unemployment. In this context, we have to ask what makes unemployment so special. As commonly defined, unemployment is a condition (being without work), a desire (for work), a need (income from work), and an activity (seeking work). If someone satisfies one of these criteria without the others, he is unlikely to be classified as unemployed in the standard sense of the term. Yet defining or measuring any of them is notoriously difficult. A woman in a village without any income-earning activity will spend her days doing something we would normally call work. I may do some gardening or read economics, so have work. But I may also be seeking a job, without wanting to have one, merely needing the income. It is easy to think of a range of combinations of the four criteria where one or more of them are not satisfied. Should only those who satisfy all four be called unemployed and become the focus of public policy? This leads to another awkward question that has come to prominence since the 1980s. Why focus on providing income security for the unemployed in particular? The standard answer stems from the model of social security, which emerged in industrial societies to suit industrial societies. This is seen as a system for providing income security to deal with the contingency risks of life – “sickness, maternity, employment injury, unemployment, invalidity, old age and death; the provision of medical care, and the provision of subsidies for families with children”. 1 In other words, unemployment is a contingency risk, for which insurance cover should be provided to give social security for those who labour. But is not the person in chronic (or even temporary) “under-employment” just as “deserving” of income security? Why should we give income support to someone with zero hours of work last week and not to someone who did two hours? Of course, these questions have been answered pragmatically to some extent over the years, and the answers have been incorporated in the design and refinement of poverty-ameliorating schemes and income supplements for the working poor. Yet they have not been answered fully or adequately. Perhaps the biggest question of all at the beginning of the 21st century is: 1 ILO, Into the Twenty-First Century: The Development of Social Security (Geneva, ILO, 1984), p.3. 2 Could and should the insurance approach to income security be sustained in the light of economic, labour market and

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