Comparative study and global best practices on contribution subsidies

1. Project Background

Estidama++

Over 50 per cent of the workforce in Jordan is in the informal economy where there is increased risk of exploitation and a lack of social protection coverage. The exact number of informal workers in Jordan is difficult to measure, but based on previous labour force surveys, certain characteristics appear to increase the likelihood of workers being informal, marked by their lack of social security coverage. Workers in micro and small enterprises, non-nationals, and workers in particular sectors such as construction and agriculture, all have lower rates of social security coverage. A combination of factors such as legal exclusion, contribution cost, awareness and employer compliance, influence participation. Without some form of social protection, workers face higher financial risks and consequences to their well-being when contingencies, such as sickness, unemployment, and work injury, occur. The right to social protection is universal, and one in which Jordan has taken important steps to realize.

Through the Estidama++ Fund, the Jordanian Social Security Corporation (SSC) and the ILO seek to support participation in the social security system through the provision of a financial subsidy and information on social protection rights and benefits. Estidama++ provides a coverage reward (in the form of a quarterly incentive payment) to employees and contribution subsidy to employers to incentivize registration in the social security system and support continued compliance with contributions into the medium/long-term. As part of the wider extension of coverage and formalization agenda, the project also works to improve the enabling environment, through investment in capacity building, institutional coordination, social dialogue, and evidence generation to support the adoption of a national model for subsidized contributions. Donor government participation from the Kingdom of Netherlands, Kingdom of Norway and the Foreign Commonwealth and Development Office of the United Kingdom helps offset the risk incurred by the SSC in extending benefits to groups who may be unable to pay full contributions in the short-term. The SSC has mobilised operational and technical teams to oversee the programme operations and ensure integration into the SSC architecture (IT, Finance, Research, Media etc.), with technical guidance and oversight from the ILO. One key area of ILO led support is in monitoring, evaluation, accountability, research and learning.

The project is structured in phases to monitor uptake and test configurations of the Estidama++ package. The first phase of the project began in June 2022 and has a total duration of 18 months. Phase 2, which was launched in August 2023, adopts a more streamlined design and adaptations in terms of the duration of benefits, attractiveness, simplified language, and outreach messaging catering to different groups.

2. Assignment Background

Contribution Subsidy Mechanisms

Schemes to subsidize social security contributions for certain categories of workers are common around the world. Subsidies are sometimes explicitly funded from the public budget or implicitly built into the design of the system through solidarity among members (for instance, by allowing reduced levels of contribution for certain categories while maintaining the same, minimum, benefit entitlements for all members).

However, contribution subsidies must be carefully designed so as not to compromise the financial sustainability of the social security system, and meet requirements of economic, social and political sustainability. Any subsidy provided by the public budget will be feasible only if there is transparency in the source of revenues used to fund it, and only if the programme is accessed by those truly lacking contributory capacity. Identifying this group can be accomplished in different ways: by focusing on the income of the workers themselves or the household poverty status; or by addressing types of enterprises that typically have limited revenue, often on the basis of the number of employees, the sector, employer, asset ownership or other characteristics.[1] Setting a timeline for the duration of the subsidy while gradually phasing it out can help transition workers and employers into making full contributions.

Despite large agreement in the theoretical literature that contribution subsidies can be effective[2], there is relatively little empirical research that structures policy approaches to subsidization or implementation of differential contribution rates (whilst maintaining benefit levels) and examines its effectiveness. Such evidence is even more sparse in the context of developing economies that face high levels of informal employment compared to high-income countries.

Jordan Social Security system

Currently, the social security package in Jordan covers old-age, disability and death, work injury, maternity and unemployment. Monthly deductions total 21.75[3] per cent of the wage, with 7.5 per cent borne by the workers and 14.25 per cent by the employer. For a minimum wage salary, this deduction amounts to 56.55 Jordanian dinars (around 80 USD) each month[4]. For many workers and firms, their respective shares of this contribution value are a significant barrier to participation.

The fact that certain employees, employers or self-employed may not be able to afford to participate in the standard social security programmes does not mean that they are totally unable to make contributions. In Jordan, only a minority of employees lacking coverage live under the poverty line: most can probably afford some level of contributions, particularly with the support of a subsidy. The composition of workers lacking coverage is evenly spread across economic classes, and therefore many have the capacity to participate in contributory social protection programmes. However, they are, on average, poorer than their counterparts who are covered by social security. Some employers also have low incomes and would have financial difficulty if they paid contributions on behalf of their employees, and therefore financial consideration can be made for both workers and employers.

Figure 1. Share of uncovered workers and firms in each economic decile[5]

(attached in TOR)

In recent years, the Social Security Corporation has tried several approaches to promote employment and extend coverage to workers in the informal economy. This includes waiving employee contributions for agriculture workers employed in “holdings” [6] (only work injury and maternity leave employer contribution is required)[7], waiving contribution requirements for old-age insurance for workers in newly registered firms in the agriculture and IT sectors[8], and introducing a new modality of coverage for self-employed workers that permits a selection of full or partial coverage for old-age insurance[9]. For non-nationals, upfront social security payments have been introduced at the time of applying for a flexible work permit[10], ensuring that these workers are covered. During the COVID-19 pandemic, SSC announced several measures through a series of Defence Orders aimed at safeguarding the economy, retaining employment and securing wages. Tadamon 2[11] (Solidarity 2) extended support to previously unregistered firms and workers by providing an unemployment allowance of 150 JOD per month for three months. The previous 2020 Estidama programme provided a wage subsidy, targeted towards Jordanian workers in sectors most impacted by the COVID-19 pandemic (although many workers were excluded on nationality and labour formality criteria[12]). Whilst there were high numbers of workers and employers benefitting from these programmes, there is no clear evidence to what extent these measures led to a sustained increase in participation in social security for previously unregistered workers and firms. Particularly for the most vulnerable categories of workers, including migrant workers, agriculture workers and the self-employed, participation remains low.

Estidama++ Contribution Subsidy Design

The Estidama++ Fund differs from previous programme designs in that its subsidy directly targets the social security contribution. The phased structure allows for a feedback loop wherein the project’s monitoring and learning function can produce a continuous process of design changes that ultimately yield increased and more sustained uptake.

Figure 1. Estidama++ Contribution Subsidy Design

(attached in TOR)

The current phase adopts a shorter duration of benefits, running for 12 months rather than 18 months, accounting for a high prevalence of 12-month employment contracts in the private sector, and particularly for MSEs. The new phase will apply the contribution subsidy only for employers rather than both employers and workers, so as to simplify the process and reduce administrative barriers. Additionally, there will no longer be a phase-out of this contribution subsidy to facilitate comprehension of the monthly payments. The wage workers and self-employed package will be the same. The coverage reward will be paid to workers for four months instead of three months to compensate for the removal of a contribution subsidy from their package.

ILO Normative Framework on Social Protection

The ILO’s normative social security framework is enshrined in Social Security (Minimum Standards) Convention No 102, Equality of Treatment (Social Security) Convention No 118 and Social Protection Floors Recommendation No 202. The instruments reflect a rights-based approach to protection in which universal social protection systems for income security and health protection contribute to tackling vulnerability, inequality and promotion of social inclusion for all workers in all forms of employment. Estidama++ seeks to realise this vision of a rights-based approach through enabling greater participation in the social security system.

3. Purpose

The purpose of this assignment is to develop a typology of different contribution subsidy schemes, documenting the design features of existing mechanisms, including assessments of impact, and to inform design considerations for a future national subsidy model in Jordan.

The findings from this study will be used by the Social Security Corporation and other stakeholders in Jordan to inform decision-making in the fields of social insurance and extension of coverage. The final product should be accessible for a specialised, although, non-academic audience, with sufficient substance to enable informed decisions driven by the existing literature. Whilst the primary audience is the Social Security Corporation, additional potential users of this report in Jordan will include the workers’ and employers’ organizations, civil society, development partners and Government institutions. The paper should also serve a wider interest in the social protection community as a global knowledge product.

4. Activities

The External Collaborator will perform this assignment under the guidance of the ILO Social Protection Officer and the ILO National Social Protection Coordinator, with technical backstopping from the ILO Regional Social Protection Specialist and the SOCPRO PFACTS unit based in Geneva, and in close collaboration with the Social Security Corporation. Furthermore, this research study is a joint initiative with the International Social Security Association (ISSA), and as such, the EXCOLL will also collaborate with the ISSA technical team, particularly on the mapping exercise that leverages ISSA outreach channels. The EXCOLL will be responsible for:

• Developing a core set of case studies of contribution subsidy examples. The exercise will begin with an internal brainstorm and development of 6-8 core case studies, highlighting the design choices, enabling factors and impact of select contribution subsidy mechanisms. The case studies should serve to provide the SSC and other key stakeholders in Jordan with reference points in the contribution subsidy literature and evidence base. Case studies and recommendations should prioritise learnings from contexts with high rates of labour informality and more limited institutional capacity.
• Supporting a mapping exercise of contribution subsidy models. The mapping exercise will be led by ISSA and will leverage their country network to collect information on existing models of subsidy models. Given anticipated gaps in the literature, the mapping is intended to be expansive in surfacing less researched examples to facilitate structuring of possible typologies. The External Collaborator should lead the preparation of the survey template, in collaboration with the ILO and ISSA technical teams. Information collected should include a brief description of the challenge being addressed by the contribution subsidy, type of subsidy, value, target population, duration, financing, and complementary design frameworks or benefits (such as embedding within a monotax regime with benefits of simplified administration and reductions in taxes).
• Conducting a desk review of studies and assessments covering contribution subsidies. In parallel with the above mapping exercise, a desk review should be conducted on all research relevant to contribution subsidy mechanisms. The review will focus on assessing the impacts of contribution subsidy mechanisms on social security participation and entry into formal employment. The review should also document elements of design (worker or employer-targeted, target group, delivery mechanism, subsidy value, phase out period, financing modality), implementation (effectiveness, including of targeting and impact on participation) and administration (efficiency).
• Identifying a draft framework of contribution subsidy mechanism typologies and case studies. After the mapping exercise and desk review, conduct a technical meeting to discuss possible frameworks of categorising different contribution subsidy mechanisms and identify case studies illustrating the key design features.
• Preparing a report framing the typology of different contribution subsidy mechanisms, case studies, key findings, lessons learned and recommendations. The final product is intended to present the evidence base for the use of contribution subsidy mechanisms and benefits in achieving goals of extension of coverage. The report should cater for an audience that understands social insurance concepts, whilst remaining accessible and easy-to-read. The completed version will be submitted in English. The report should include a one-page infographic conceptualising the typology, to ensure that findings can be translated to a wider audience.
• Preparing a PowerPoint presentation summarising the main findings and recommendations. Findings will be presented to the SSC, and other main potential users for this report.

5. Deliverables

The deliverables of the assignment under the scope of these terms of reference are as follows:

• A short report presenting 6-8 case studies of contribution subsidy models. The report will be submitted in English and will be presented to key stakeholders before finalisation.
• A report detailing the typology, case studies, key findings, lessons, and recommendations. The report will be submitted in English and will be presented to key stakeholders before finalisation.
• A presentation distilling the main findings, lessons and recommendations. The ILO team will lead in the dissemination of the results. The consultant will be requested to support in-depth presentations, through an online medium.
• A one-page infographic, visually presenting the typology. The infographic will be submitted in English.

Qualifications and Experience Required

The External Collaborator is expected to have the following qualifications, experience, and competencies:

• Education: Advanced university degree in relevant subject, such as social protection, social policy, economics, etc.
• At least five years of relevant research experience in social protection.
• Minimum of three years’ experience and exposure to social security systems, contribution designs and sustainability considerations.
• Familiarity with the work of the ILO, with international labour standards and the social security standards and conventions.
• Ability to work proactively while keeping ILO officials engaged and informed.
• Excellent command of written English.

Timeframe and payment schedule

The duration of this assignment is 38 working days between 1 December 2023 and 31 July 2024 with the anticipated timelines for each intermediate step as identified below:

Phase: Preparatory work and scoping
Estimated Dates: Dec 2023
Activities:

• Participate in kick-off call.
• Define contribution subsidy mechanism criteria.

Estimated workdays for consultant: 3 days

Phase: Case studies
Estimated Dates: Dec 2023- Jan 2024
Activities:

• Conduct brainstorm with ILO and ISSA team to identify 6-8 case studies on different mechanism designs.
• Prepare report detailing key features of selected country examples.
• Present findings to key stakeholders.

Estimated workdays for consultant: 8 days

Phase: Support to ISSA mapping exercise

Estimated Dates: Jan 2024 – May 2024
Activities:

• Prepare survey tool for distribution through ISSA network.
• Provide technical backstop to survey response exercises (as needed, and in collaboration with ISSA).

Estimated workdays for consultant: 5 days

Phase: Desk review

Estimated Dates: Jan 2024 – Jun 2024
Activities:

• Conduct desk review of relevant studies.
• Conduct working session with ILO and ISSA team on outcomes of mapping exercise and desk review, recommended typology structure and case studies.
• Conduct additional research on selected case study examples.

Estimated workdays for consultant: 8 days

Phase: Report drafting

Estimated Dates: June 2024
Activities:

• Prepare report framing typology of different contribution subsidy mechanisms, key findings, lessons learned and recommendations.

Estimated workdays for consultant: 10 days

Phase: Final presentation

Estimated Dates: July 2024
Activities:

• Prepare PowerPoint presentation, summarising the main findings.
• Prepare one-page infographic, visually presenting the typology.
• Present findings to key stakeholders.

Estimated workdays for consultant: 4 days

Total Workdays = 38 days

Payments will be made in instalments according to the below schedule:

1. 30% of total payment upon successful submission of the case studies report by 31/01/2024;
2. 50% of total payment upon successful submission of the synthesis report, detailing key findings, lessons and recommendations by 30/06/2024;
3. 20% of total payment upon successful development and delivery of a PowerPoint presentation and one-page infographic, visually presenting the key findings, lessons, and recommendations by 31/07/2024.