Why We Should Focus on the Self-Employed in the World of Platform Work
Text: Monika Queisser, Raphaela Hyee, Organization for Economic Co-operation and Development (OECD)
Which challenges for Europe’s traditional social security systems are currently emerging as a result of the new forms of self-employment?
The social security systems in place in Europe were mostly designed with the archetypal (male) full-time worker in mind. Those who do not fit that profile – because, for example, they are self-employed or offer services via an online platform – are often poorly covered.
This potentially affects many workers in Europe, where around 15 per cent of all people who work are self-employed. New technologies could further increase that figure as the internet makes it both easy and cheap to outsource work.
The new forms of work that are emerging as a result are bringing the gaps in social security provision for the self-employed to the forefront of international policy debates. Work on digital platforms – so-called gig jobs – has grown rapidly in recent years,1 and most of the gig workers involved are, at least formally, self-employed.
Self-employment: a social security challenge
Self-employed people do not necessarily fit the profile for contribution-funded social security schemes – they have no employer and would thus have to pay both employer and employee contributions, which is often difficult for those on low incomes, especially as self-employed workers are not covered by minimum wage policies and collective bargaining agreements. The income earned by self-employed workers often varies greatly, making it difficult to calculate contributions and entitlements. Plus, self-employed people can more easily hide their income or spread it out over time in a way that either minimises their contributions or maximises their entitlements.For some areas of social security, there is also a “moral hazard”. The concept and meaning of unemployment is not easy to define for the self-employed: how can and should employment offices check whether self-employed people are putting “reasonable” effort into seeking jobs? This is what makes unemployment the worst-insured risk for the self-employed – only in 11 out of 29 OECD countries surveyed are self-employed people insured against unemployment in the same way as employees.2
The self-employed also have more influence on their work environment than employees and can thus, in theory, influence the risk of occupational accidents. The self-employed are thus also poorly protected against the risk of accidents in the workplace – only in 11 out of 29 OECD countries surveyed are they covered in the same way as employees. Occupational accidents can therefore seriously endanger the livelihoods of the self-employed. By contrast, when it comes to disability insurance, self-employed people are treated in the same way as employees in 23 of the 29 countries surveyed.3
„The self-employed also have poorer access to pension insurance. In some countries there is no compulsory insurance provision at all, but there is the option to make voluntary pension contributions.“
The self-employed also have poorer access to pension insurance. In some countries there is no compulsory insurance provision at all, but there is the option to make voluntary pension contributions (as in Germany, aside from the various professional pension funds). In some countries, the self-employed pay lower contributions and have lower benefit entitlements as a result, while in Japan, the Netherlands and Switzerland, for example, they only have access to one pillar of a multi-pillar system.4
In contrast, family-related transfers such as child benefits are often universally available or means-tested and are thus also available to the self-employed – the “risk” of motherhood or parenthood is not related to the individual’s form of employment.
Self-employment: a challenge to social security systems
Gaps in social security coverage for the self-employed are not only a problem for the self-employed, they also threaten the financial sustainability of social insurance systems. When lower benefits are offset by lower contributions, employers have an incentive to shift work to cheaper forms of labour. And employees who either underestimate their risks or want to rely on (tax-funded) benefits provided by the basic pension scheme in cases of loss of income may prefer to pay lower contributions by switching sides and becoming self-employed.
This incentive can be illustrated by the difference in non-wage labour costs for the self-employed and for employees (income tax, social security contributions and other compulsory payments). In the Netherlands, for example, for a full-time employee earning the average wage, the non-wage labour costs amount to 51 per cent of their gross pay. This compares with only 22 per cent for a self-employed person. Most of this difference is due to the lower social security contributions for the self-employed. In the Netherlands they are excluded from unemployment insurance; all other benefits are either only partially covered or self-employed persons can only insure themselves voluntarily. In Sweden, on the other hand, the difference is only three percentage points: the self-employed have access to almost the full range of social security benefits.5
For employees, self-employment is particularly attractive when contributions are lower but benefits hardly differ. It is thus particularly important that contributions and benefits for self-employed and employed persons are aligned as fully as possible. If society wishes to offer more favourable conditions of access to social security for certain groups, such as cultural workers in some countries, this should be done in a transparent way by means of subsidies, without affecting system financing or distorting incentives.
„Gaps in social security coverage for the self-employed are not only a problem for the self-employed, they also threaten the financial sustainability of social insurance systems.“