The Role of Regulatory Interventions and Social Security Schemes to Make Work Pay in Combating Low Pay and Promoting Workers and Families Welfare

One of the significant challenges facing modern social security is the need to support low-paid workers and their family dependants and do so in ways which are responsive to labour market transformations. Low pay and in-work poverty are now a common phenomenon in many of the world’s labour markets. This has been exacerbated by labour market changes that have seen increases in poorly paid and insecure part-time and short-term employment, coupled with systemic under-employment – much of it with a gender dimension. As a result, wage subsidisation through social security programmes - notably in the form of ‘make work pay’ (MWP) schemes in their different forms - has become an increasingly important feature of national social security systems and what the Bachelet Report referred to as ‘social protection floors’ (Bachelet, 2011). MWPs have also been also an important way of advancing one of social security systems’ recognised functions, which is to help sustain aggregate demand and maintain consumer spending (Stiglitz, 2009; Barr, 2012). However, given the scale on which such transformations have become necessary to alleviate ‘dwindling’ and ‘inadequate’ wages in the bottom three deciles of the wage distribution, fiscal costs rise and MWP schemes are under increasing pressure (ILO, 2015).
As this paper will consider, MWP schemes operate in different ways in response to diverse labour market conditions. Typically, however, low pay strategies rely on a combination of regulatory interventions, including national or sectoral minimum wage-setting, in combination with social security schemes, tax-based support, and fiscal transfers. Despite their importance it is far from clear how sustainable such schemes will be in the longer term, particularly those funded out of taxation and borrowing – especially during periods of austerity and in the face of budgetary cutbacks. The paper considers this by reference to the role of the State as both a regulator of labour market conditions and as the most important purveyor of ‘welfare’ (Pissarides, 2014). It goes on to discuss the debates which have been surrounding the work of the ILO’s Global Commission on the Future of Work, particularly on gender inequalities, the impact of new technology and artificial intelligence on work and pay systems, and the role labour law and social security in facilitating work transitions.
The paper highlights some of the newer challenges currently facing a number of European programmes, including France’s Revenu de Solidarité Active and the UK’s Universal Credit, and develops themes in a paper at the XXI World Congress in Capetown (Puttick, 2014).