TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 1 EXECUTIVE SUMMARY This paper reviews Thailand’s social protection (SP) in the past two decades, the poverty rate ticked up in 2016 and labor market systems, to assess how they can be and again in 2018, due to a slowing economy, droughts and strengthened to address the key trends that will shape wage stagnation, and the economic impacts of COVID-19 will its society and economy in the coming decades. Thailand’s further erode hard-won poverty gains. Adapting to changing aging population, persistent high levels of workforce informality skill needs and increasing automation requires lifelong education and the changing nature of work are already putting pressure and training to meet rapidly evolving labor demands. on the current system, leaving most workers without protection from shocks or the ability to smooth consumption over their life The significant economic disruption caused by the COVID-19 cycle. For most of the growing elderly population, the small outbreak tested Thailand’s social protection system and offers Old Age Allowance is the only form of income support. Although lessons on how to strengthen it for the future. Thailand has made remarkable progress on poverty reduction Box 1 Social Protection and COVID-19 In 2020, the Government of Thailand initiated a rapid, comprehensive and effective social assistance response that is estimated to have reached more than 30 million individuals (approximately 81.5 percent of households). This included the mobilization of new emergency programs for informal workers and farmers, and through vertical expansion of existing social assistance schemes for the elderly, people with disabilities, children of poor families and for recipients of the State Welfare Card (SWC) program, Thailand’s primary social safety net program for the poor and near-poor. The total cost of transfers is estimated at B386 billion, or 38.6 percent of the government’s one trillion Baht emergency response and recovery package. This amounts to 2.29 percent of Gross Domestic Product (GDP) and is additional to regular social assistance expenditures. An additional 16.5 million mostly formal sector workers were also covered by social security schemes, and unemployment insurance provided through these helped to stabilize workers affected by the crisis. The number of people receiving unemployment insurance benefits began increasing in the second quarter of 2020 during the height of the outbreak in Thailand rising to 491,000 in October 2020, almost three times the number a year earlier, before beginning to fall in the final two months of the year. Additionally, between April and November of 2020, 1.5 million people claimed unemployment benefits via special temporary measures put in place by the government. However, the impact of unemployment insurance was limited by the high proportion of informal workers in Thailand, who do not receive unemployment benefits, hence the establishment of temporary assistance for this group. Like regular social assistance programs, emergency social assistance payments appeared to have been pro-poor and progressive – even though they were not explicitly poverty targeted. Lower income groups were more likely to receive emergency benefits than higher income groups. Informal workers were the main recipients of the program, as intended. However, in contrast with regular social assistance, emergency B5,000 payments for informal workers and farmers were generous. Median monthly wages in non-agricultural sectors range from B6,600 to B8,320 per month Top-up payments to regular programs increased their value significantly – in the case of the SWC, they increased from a basic B200 to B1,200 per month to spend on food and consumables between April and June 2020. TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 2 Delivery of rapidly mobilized social assistance programs in response to COVID-19 has led to innovations. These include online registration and the most comprehensive effort to date at cross-referencing social protection and other government databases to ensure broad coverage while avoiding duplication of COVID-specific payments. Even so, initial underestimates of how many people would need support due to COVID-19, delays in disbursement and public dissatisfaction due to data errors illustrate the need to improve beneficiary data management. While COVID-19 continues to impact Thailand’s economy, continued assistance to the poor and vulnerable, including informal workers, will be necessary. A new round of payments to informal workers, farmers and SWC-holders was announced in January during a ‘second-wave’ of infections and restrictions, along with reductions to mandatory social security contributions and other measures. Thailand should also consider ongoing top-ups for vulnerable groups like children, the elderly and PWD. Pension reforms are needed to ensure the adequacy of RECOMMENDATION 1: private sector pensions, and the sustainability of both STRENGTHEN SOCIAL SECURITY public and private sector schemes. Private sector benefits COVERAGE AND ADEQUACY, INCLUDING are less generous than those in the public sector and unless BY SUBSIDIZING COVERAGE FOR ceiling rules are revised, the benefits will amount to even INFORMAL SECTOR WORKERS. less over time, so that benefits from the SSF alone will not provide retirement security for private sector workers. The As in many countries, the COVID-19 crisis has exposed number of pensioners drawing from the SSF is expected to the lack of coverage of informal sector workers. Thailand’s increase to ten million by 2059. The actuarial estimates social assistance programs reach most categories of for the baseline scenario suggest that cashflow deficits vulnerable groups, including the poor, and the majority will emerge in 2041, and reserves will be exhausted by of people working in the formal private sector in Thailand 2054. are covered by mandatory social insurance schemes. By contrast, schemes for the informal sector are voluntary Proposed policy actions: and despite matching contributions and different contribution rates offered to workers, they remain under-subscribed. Of the estimated 21.2 million informal workers in Thailand, just 3.24 • Consider expanding minimum contingent coverage million (15 percent) made voluntary contributions to the Social against shocks for informal sector workers, including Security Fund (SSF) in 2019, and none of these are eligible for for unemployment, as well as providing retirement unemployment insurance under the terms of their coverage. income in old age. This may mean further expanding government subsidies. To address this gap, social security coverage should be de-linked from formal employment status, and social insurance • Improve the adequacy of existing pension schemes premiums subsidized for most of the population. This would by indexing retirement benefits to prices and indexing emulate the Thai approach to achieving universal health the wage ceiling on which SSF retirement benefits are coverage, which effectively covered the costs of accessing calculated to wage growth (as is the case in most OECD healthcare for the 70 percent of the population not covered countries). by schemes for civil servants and the private sector through the Universal Coverage Scheme (UCS). This approach retains • Improve the sustainability and fairness of existing the insurance principle and budgeting can be done on the pension schemes through parametric reforms including basis of transparent actuarial calculations. The subsidies gradually raising the retirement age, actuarially fair can also be differentiated according to the capacity of the adjustments for early or late retirement and raising individual to contribute. the contribution rate once the COVID-19 crisis subsides. TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 3 There is evidence that this broad sweep of social assistance RECOMMENDATION 2: ameliorates poverty, although the impact of individual programs IMPROVE THE GENEROSITY, DESIGN AND is less clear. Between 2015 and 2018, “public assistance income”, TARGETING OF SOCIAL ASSISTANCE primarily from social assistance programs including the SWC PROGRAMS. program and social pensions, served to offset the economic effects of the slowing economy, droughts and wage stagnation Thailand spreads its social assistance broadly but thinly, on households, even though poverty still increased overall An early through a combination of categorical and poverty targeted impact evaluation of the Child Support Grant (CSG) showed programs with relatively high thresholds for inclusion. However, promising results on human development indicators, especially low spending and benefit sizes limit the impact of regular social on households living close to the poverty line, leading to the assistance programs on poverty reduction. expansion of the program However, studies have also found little or no impact of the social pension for the elderly on consumption Regular social assistance coverage in Thailand is high. 71.9 expenditures and poverty, due to the low value of transfers. percent of all Thais – and 93.5 percent of the poorest quintile - benefit directly or indirectly from some form of social assistance. Proposed policy actions: However, social assistance expenditure remains relatively low compared to its peers. Thailand is one of the lowest spenders on social assistance compared with its peers, investing just 0.77 percent • Determine a maximum/minimum package of benefits that of GDP, compared with the East Asia and the Pacific average of households may receive, based on assessment of how multiple 1.1, and 1.6 percent for Upper Middle-Income Countries. benefits currently accrue to households, and where gaps, overlaps and opportunities for rationalization exist. This will The value of benefits in Thailand are mostly low. For example, be critical going forward so ensure that beneficiaries receive Thailand’s social pensions represent just seven percent of adequate support, and that the government is able to track household income overall, and 14 percent for the poorest quintile. what individual households receive. This may require raising This makes them among the least generous in the East Asia benefit levels, and therefore spending, for some programs. Pacific region. Monthly benefits from most of the major programs (Old Age Allowance: B600-1,000, PWD Allowance: • Convert the current set of SWC allowances to a basic cash B800, Child Support Grant B600) fall far below the national per payment, reducing the nominal value of the benefit while capita poverty line of B2,710 per month. Although the maximum increasing its utility for recipients. value of monthly State Welfare Card (SWC) allowances for food, transport and utilities (B2,145) is high compared to other social • Consider adjustments to the way programs are targeted. If assistance programs, allowances are not aligned with needs and reaching the poorest is a primary goal, attempting to narrow therefore not always claimed. In 2018, the maximum food/ targeting may conversely lead to greater exclusion without household consumables allowance of B300 represented just 14 other adjustments. Instead, Thailand could consider adjusting percent of household expenditure on food for the poorest 20 maximum thresholds for inclusion and greater affluence testing percent of the population, while allowances for transportation to reduce inclusion error, leveraging stronger data sharing and and utilities are significantly over valued. interoperability. Access to a ‘package’ of benefits from multiple programs may • Harmonize targeting and enrolment for poverty targeted increase adequacy but the system lacks the capacity to track programs (primarily the SWC and CSG) , to create what individuals and families receive. The poorest 40 percent efficiencies. of the population is more likely to benefit from two or more programs than the top 60 percent, and total income from • Extend benefits to the informal sector and other vulnerable several small programs may add up to a higher proportion of groups until the economy recovers. This would represent a poor household consumption. However, the different programs sound investment in poverty and inequality reduction, manage separate beneficiary databases and registries, creating improving productivity, and enhancing resilience. fragmentation. This makes it difficult to plan or monitor how benefits accrue to families, and whether they are adequate. TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 4 RECOMMENDATION 3: work changes. But weaknesses in matching training programs INVEST IN ACTIVE LABOR MARKET PROGRAMS to labor market demands and in providing effective employment TO TRANSITION TO DEMAND-DRIVEN SKILLS services present a challenge at the very time when changing skills TRAINING AND EMPLOYMENT SERVICES needs require them most. INFORMED BY A REAL-TIME LABOR MARKET INFORMATION SYSTEM. Proposed policy actions: Thailand has a range of active labor market policies and programs, • Invest immediately in upskilling and reskilling programs to however these need strengthening. Active labor market programs help workers displaced by the COVID-19 outbreak to find targeting specific, under-employed groups, including the poor, jobs. Training can be linked to wage subsidies that incentivize women, people with disabilities and the elderly are available, but firms to hire workers or to startup support to stimulate generally have low uptake. Employment incentives are aimed at livelihoods opportunities. This training can be targeted increasing the number of People with Disabilities (PWDs) and senior to vulnerable groups, including those receiving social citizens in employment, but the effectiveness of these incentives assistance, to encourage moves into wage employment and is uncertain. Although impact evaluations are scarce, recent more sustainable self-employment. This approach could build evidence indicates that training does not have a positive impact on the experience of providing training and other assistance to on earnings or employment. Employment services are available SWC holders. Support could be expanded to include financial to the general public and to other target groups such as elderly services, job search assistance, and access to markets. While workers to encourage continued workforce participation, however Thailand continues to impose transmission control restrictions the use of public employment services to find jobs has declined in to combat the COVID-19 outbreak that affect normal recent years. business activity, employment retention schemes that incentivize employers to retain workers can also be implemented. Short training courses offered to SWC holders appear to have But these should be time-limited and phased out as the recovery had more success with uptake and with improving outcomes from the COVID-19 pandemic takes hold. of beneficiaries. More than three million welfare card holders (around 22 percent) participated in government-provided career • Invest in a labor market information system that could training over two phases in 2018 and 2019. A follow up survey of serve as a backbone for delivering effective labor market the 2018 cohort revealed that 80 percent of those surveyed programs. An advanced labor market information system later reported receiving a higher income following completion not only supports basic employment services functions such of training. as job matching and career and skills guidance, but also serves as a platform to coordinate government support for In both the short and long term, social protection will need to be unemployment insurance, active labor market programs, complemented by labor market policies tailored to the needs of and other government programs, and to generate real-time, a knowledge-based economy. In the short term, upskilling and demand-driven labor market information and analysis. A reskilling workers displaced by the labor market disruptions high-performing labor market information system is a caused by the COVID-19 outbreak will be essential. Skills training necessary step in creating an outcome-based employment programs will need to be targeted to labor demand in sectors that services and training system that rewards the provision of are recovering more quickly as the economy recovers. Given the skills that are in demand and lead to good jobs. A system such weakness in labor demand, however, these training programs as this, that rewards service providers who deliver improvements may also need to focus on promoting livelihoods and self-employment to beneficiaries’ employment and wages, should be the skills, particularly in rural areas. ultimate goal of reforming active labor market policies. In the longer term, Thailand’s aging population and the changing • Evaluate the effectiveness of existing active labor market nature of work will see the workforce shrink potentially creating programs. Evaluations of active labor market programs in skills shortages. Adapting to increasing automation requires Thailand are scarce. Undertaking high-quality impact lifelong education and skills training to meet evolving labor evaluations could help determine where interventions needs, and an unemployment insurance system with wider should be scaled up, better targeted, or eliminated. coverage to protect workers who lose their jobs as the nature of TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 5 RECOMMENDATION 4: for improvement. In the context of increased data exchange ESTABLISH MORE COORDINATED AND across government, personal data protection protocols should COHERENT DATA GOVERNANCE AND also be strengthened. POLICY MAKING FOR SOCIAL PROTECTION ACROSS GOVERNMENT. Thailand’s social protection and labor system is fragmented, creating inefficiencies in program management, lack of Most foundational elements for social protection delivery – clarity over investment impact, and missed opportunities identification, financial inclusion, payment systems and mobile for synergies and referrals between programs. Multiple phone penetration – in Thailand are strong and well-established. agencies are responsible for planning, implementation and Near universal coverage of Thailand’s population registry beneficiary data management, without a policy framework and ubiquitous use of the 13-digit Personal ID (PID) number or strategy to show how multiple programs contribute to throughout administrative databases allows for ad-hoc cross high-level goals, or effective inter-agency coordination. referencing between data sources, primarily to exclude people who exceed income and assets tests or who are covered by Improving coherence and coordination in the system, including formal social insurance. Financial inclusion is also high, with in data governance, would give the Government of Thailand a an estimated 82% of the population having a bank or financial picture of the impact of overall expenditures, how benefits accrue account. to individuals and households, and where overlaps, gaps and opportunities lie for synergies and efficiencies between social However, there is a need to improve beneficiary data assistance, social insurance and labor market programs. management, and opportunities to link social assistance databases with other administrative databases to create a Proposed policy actions: virtual social registry. Between Thailand’s regular social assistance programs, its social security coverage and recent • Establish a virtual social registry to support outreach, enrolment of 15 million informal sector workers for emergency intake, registration and eligibility determination for all COVID-19 benefits, the large majority of the population is likely social assistance programs, and introduce on-demand now registered for some form of social protection. This is updating to strengthen the collection of socio-economic complemented by digitization of other registries, such data for programs targeting poverty. as civil servants, taxpayer, land, vehicle, education and health information systems. The challenge is to harness this • Establish data sharing protocols and mechanisms for data through greater interoperability, sharing and matching informed consent and put in place or strengthen privacy capabilities, which will enable real-time and comprehensive protections for personal data. decision-making. Furthermore, it will allow targeting to be automated, routine and more shock responsive. Poor • Improve coherence of the social protection and labor data quality in the Low-Income Earner’s Registry, which systems by developing a national social protection is used for poverty targeting in the SWC program, has strategy and establishing inter-agency coordination, called its credibility into question and indicates a need as well as leveraging the virtual social registry. TOWARDS SOCIAL PROTECTION 4.0 AN ASSESSMENT OF THAILAND’S SOCIAL PROTECTION AND LABOR MARKET SYSTEMS 6 Table 1 Proposed sequence of actions and reforms 0-6 Extend emergency payments through the SWC program into the first half of 2021. Open enrolments months for SWC to allow newly impoverished individuals to register for assistance. Trial online enrolments to supplement existing face-to-face options, building online registration undertaken during COVID-19 restrictions. Invest in upskilling and reskilling programs to help workers displaced by the COVID-19 outbreak to find jobs, linked to subsidies (vouchers) that finance training and act as wage subsidies. Implement time-limited employment retention measures to protect jobs in the short-term while transmission control measures remain in place. 6-18 Establish an inter-agency coordination mechanism for social protection and labor programs, under months the auspices of the Office of the Prime Minister or the Ministry of Finance. Undertake further analysis of how regular and emergency social protection benefits and services accrue to individuals and households. Review social assistance registries, eligibility criteria and overlaps. Evaluate the effectiveness of existing active labor market programs. If appropriate, expand active labor market schemes for SWC holders, building on lessons from the first two rounds in 2018 and 2019. Draft social protection and labor market strategy, considering options for: • determining a maximum/minimum package for social assistance benefits at household level and improving adequacy; • expanding minimum contingent coverage for informal workers, including through greater government subsidies; • indexing retirement benefits to prices and indexing the wage ceiling on which SSF retirement benefits are calculated to wage growth; • gradually raising the retirement age, setting actuarially fair adjustments for early or late retirement and raising the contribution rate once the COVID-19 crisis subsides; • transitioning to a results-oriented training and employment services system; • expanding linkages and referral pathways between social assistance, social insurance and active labor market schemes. Prepare a road map for data governance reforms, including establishment of a virtual social registry. Transition to an electronic cash payment for SWC, with a view to eliminating other allowances. Invest in a labor market information system that could serve as a backbone for delivering effective labor market programs. 18-36 Implement the road map for data reforms, including to: months (1.5-3 • harmonize targeting and registration for poverty targeted programs, and introduce on-demand years) updating to improve data quality and reduce exclusion error; • Establish a virtual social registry that links existing program and administrative datasets through Application Programming Interface. • Establish data sharing protocols and privacy protections. Implement social protection and labor market reforms, including to: • Roll out new schemes for informal workers; monitor and evaluate uptake and effectiveness; • Consolidate and improve the adequacy of social assistance schemes.