Thailand offers safety net to informal workers to boost economy

Taxi drivers, food vendors, and garbage recyclers are essential elements in cities like Bangkok. But these workers rarely appear on payrolls or qualify for state benefits. In most developing countries, they feed into a vast informal economy that generates more jobs than the formal economy.

Thailand is now taking steps to extend state protection to informal workers, setting an example for other countries grappling with rising social demands.

More than 2 million workers have been offered the chance to join a new social insurance program that provides sick pay, life insurance, and a pension. Taxi drivers can also apply for state bank loans to buy their vehicles. Eventually the benefits may be extended to 24 million Thais, or 60 percent of the total workforce, who lack formal employment.

Proponents say that providing a safety net for these workers is a way to share economic spoils and ease social tensions in a politically polarized nation, as Tens of thousands of antigovernment demonstrators rallied in Bangkok Sunday, following bloody clashes with security forces in April and May of 2010.

“People outside the formal economy get no access to social security. Now we’re giving it to them,” says Sungsidh Piriyarangsan, an economics professor and adviser on the plan.

A pro-poor political move?

Critics say the policy smacks of electioneering as Prime Minister Abhisit Vejjajiva prepares to call polls by year-end. His government faces a strong challenge from allies of former Prime Minister Thaksin Shinawatra, who wooed Thai workers with microcredit, subsidized health care, and other pro-poor policies. He was ousted by a military coup in 2006.

Among the groups targeted by Mr. Abhisit are motorbike taxi drivers, who ferry passengers through Bangkok’s notorious traffic snarls. The job is dangerous but can be lucrative in busy locations, with some drivers earning over $15 a day, significantly higher than unskilled factory jobs.

To join the new insurance program, workers must pay a minimum of just over $3 a month. Wichian Chunchuen, who has ridden a motorbike taxi for 26 years, says this is affordable for most drivers. But he complains that the government should also protect drivers from shadowy bosses that demand monthly bribes. Street vendors voice similar complaints.

“We pay ‘taxes’ every day and we don’t see the benefits,” says Mr. Wichian, referring to the shakedowns.

Experts say corrupt cops usually run these rackets and are rarely caught because workers have few avenues of complaint. Mr. Thaksin tried to stamp out the practice by registering drivers as part of a campaign against mafia organizations. The current government has said it plans to reregister drivers and their bikes, estimated to number around 200,000.

Formal vs. informal

Much of Bangkok’s informal workforce is drawn from the rural hinterland. Professor Sungsidh, who has written several books on the informal economy, says it is difficult to extend social insurance plans to rural workers because their income is seasonal. Some farmers migrate to cities between crops to earn extra income.

For decades, labor experts have debated the role of the informal economy and asked whether governments should promote formal employment and get tougher on unregulated jobs. Others argue that the informal economy generates opportunities for the poor and should be supported by donors, while governments try to lower barriers for entrepreneurs.

The UN has shifted toward a “staircase” approach that recognizes that there are many steps between informal and formal employment, says Celine Felix, a regional expert at the International Labor Organization in Bangkok. By providing social insurance, governments can provide a safety net for informal workers, even if it falls short of the benefits enjoyed by other workers.

Banding together

Informal workers can also help themselves by banding together. Under the Thai policy, taxi and motorbike drivers who apply for loans as groups receive preferential rates. Ms. Felix says that a group of taxi drivers in Senegal agreed to hand over their insurance contributions to the lunchtime cook at their garage so that they wouldn’t fritter away their earnings. The cook then collects their contributions and pays into the state system.

Last year, Mr. Wichian cofounded a motorbike taxi drivers’ association, a first in Bangkok. He says that many drivers are unsure about the benefits of paying into the new insurance program, which includes a government copayment. He complains that it is less comprehensive than welfare programs for government employees.

Nor is he convinced by Mr. Abhisit’s election year outreach to his members. “They start by ignoring us. Now suddenly they notice us. Is it politics that makes us visible?”