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Many of the workers on the front lines of the pandemic lack insurance and basic social protections. Photo: Olha Zaika

The “informal economy” is often seen as primarily daily-wage laborers, such as in the construction sector or housekeepers, but it also encompasses vast numbers of workers in short- term, usually contract jobs in the formal service sector such as hospitality, retail, and transport. It also includes those working in the new gig economy.

Their work is often characterized by uncertainty, instability and insecurity. As opposed to those in business or government employment, they bear the risks of their work and receive limited social benefits and entitlements.

The Asia-Pacific region accounts for around 60% of the non-farm global workforce, higher than in Latin America and Eastern Europe, ranging from about 20% in Japan to over 80% in Myanmar and Cambodia. They are twice as likely as formal workers to belong to low-income households and often live hand-to-mouth. If they cannot work for extended periods, their family’s income is at risk.

The informal economy is not a relic of the past or a sign of backwardness. It is also not a consequence of the failure of modernization strategies. Today’s informal economy is an essential feature of global production networks. It operates in an environment marked by complex formal and informal economic links, global economic cycles, and domestic economic concerns.

For many in the informal economy, savings are either nonexistent or extremely limited. Typically, they lack employment security, healthcare benefits, sick leave, pensions, and severance packages. Only some of these low-income households are beneficiaries of social transfer programs or other formal insurance arrangements. And here also coverage and adequacy of benefits remain an issue. In short, informal workers earn their living without a safety net.

Without these protections, informal economy workers, especially the poor, face a wide range of occupational, safety, and health risks. They are disproportionally affected by natural hazards and human-made disasters. When affected, the poor tend to lose a larger fraction of their wealth, given their lower ability to cope and recover from disaster impacts. 

Even those whose employment is technically on the books, such as Uber drivers, face a raft of disadvantages. Being classified as independent contractors, many struggle to win unemployment benefits because their employers fail to pay insurance premiums or report wage data to state agencies.

Today, many at-risk informal workers are classified as “essential” to keep the economy going during the pandemic even though they lack basic labor protections.

The private insurance sector should see this as an opportunity to contribute to societal development by designing and offering fit-for-purpose healthcare provision, pensions, and insurance solutions for the missing middle. 

The extension of social protection or insurance to workers in the informal economy often concerns households already relying on informal support and risk-sharing. Insurers should gain insights from the interactions between pre-existing informal risk-sharing networks, social protection schemes, and formal insurance markets while designing new solutions. The design elements must reinforce rather than undermine the positive aspects of informal support mechanisms in risk management. 

Often the potential to build on community-based insurance like cooperatives and mutuals is overlooked. A thorough understanding of these mechanisms can help create positive synergies to manage the idiosyncratic risks. For covariate risks, financing the extension of risk protection needs to be done via risk transfer. 

Microinsurance provides a credible option to balance equity and sustainability. Post-disaster, microinsurance products can cover the cost of health care, deaths, and burials, loss of livestock or crops, or business assets. They can also support the business or income-generating enterprises while the overall system recovers. 

However, limited access to a range of risk management mechanisms and data prevents insurers from offering access to affordable insurance. A case in point is the challenge of developing business interruption products post-pandemic due to a lack of legal documents, proof of inventory and income, and insurance providers’ misperceptions about the client group. 

Today, many at-risk informal workers are classified as “essential” to keep the economy going during the pandemic even though they lack basic labor protections.

The COVID-19 outbreak and accompanying disasters due to natural hazards have exposed the challenges in protecting informal workers and vulnerable households in Asia.

In the new normal:

Mutuals and community-based insurance need strengthening through regulatory and supervisory oversight as they play a critical role in insuring the missing middle. In doing so, the women’s position as the households’ risk manager can be reinforced further and recognized at the community level. 
Governments should consider linking social protection programs with insurance to provide a safety net response. The use of digital technologies to target social protection programs towards households most at risk and targeting the female heads of families would be necessary. 
Subsidies do not automatically lead to high take-up, although evidence suggests that they expand coverage in different contexts. The role of smart subsidies needs to be further explored. And the same goes for smart technology.
The viability of insurance is a direct function of an insurer’s solvency of following a large-scale catastrophe or sequential disaster events. Well capitalized and regulated insurers can diversify their portfolios via reinsurance and help in growing this nascent market.
The design elements of new insurance products need to address the informal sector’s risks and the gig economy workers. They must also consider access to existing risk-pooling arrangements to offer optimal protection.
There is little awareness or understanding of the merits of insurance for managing large-scale disasters. More awareness-building is needed to instill trust and to involve women as change agents. Home is the best school, and the mother is the best teacher. In this manner, one can instill the value of insurance in an entire generation. At the same time, stringent action should be taken against those who are mis selling. 

To address the future of work, a shift in thinking is needed about private partnerships and putting the elderly, women, and youth at the center of loss prevention and building resilience for the households. This will be the most effective way forward for developing future protection solutions.

covid, covid-19, coronavirus, novel coronavirus, corona virus, covid-19 response, communicable diseases, infectious diseases, emergency response, health response, outbreak, pandemic, covid-19 prevention, insurance, informal workers, informal labor, social protections, health insurance, vendors, day laborers, contract workersArup Kumar ChatterjeeArticle

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Unemployment benefits

New US jobless claims for the week that ended Saturday totaled 898,000, the Labor Department said Thursday. The reading came in above the consensus economist estimate of 825,000, and also marks an increase from the previous week’s revised figure.
Continuing claims, which track Americans receiving unemployment benefits, fell to 10 million for the week that ended October 3. That was lower than economist forecasts.
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The number of Americans filing for unemployment insurance rose last week, indicating discouraging progress around the US labor market’s ongoing rebound.

New US weekly jobless claims totaled an unadjusted 898,000 for the week that ended Saturday, the Labor Department announced Thursday morning. That reading came in above the median economist estimate of 825,000 compiled by Bloomberg, and also reflects an increase from the prior week’s revised total.

Continuing claims, which track the aggregate total of Americans receiving unemployment benefits, slid to 10 million for the week ended October 3. The reading came in slightly below the median economist estimate of 10.6 million.

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Read more: The investment chief at a $750 million firm explains why the bull market will forge on regardless of election outcome — and shares the 12 highest-conviction stock picks that make up her market-beating strategy

Roughly 65 million unemployment-insurance filings have been made since early February, trouncing the 37 million sum seen during the 18-month Great Recession. Thursday’s report comes in well below the highs seen earlier in the pandemic but still lands above the 665,000 filings made during the Great Recession’s worst week.

The millions of Americans still unable to find work are set to endure tougher economic conditions in the near term. Democrats and Republicans remain far apart in reaching a stimulus compromise, and Wall Street economists increasingly expect new fiscal relief to arrive after the November elections.

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While most polls point to a strong Biden victory in the presidential race, Senate election outcomes will “mean the difference between substantial fiscal expansion and fiscal gridlock,” Morgan Stanley said in a Wednesday note.

The lack of another expansion to unemployment benefits also leaves jobless Americans more prone to lingering debt through the pandemic. A recent study by researchers at the Federal Reserve Bank of New York found that Americans on unemployment insurance benefits used nearly half of the benefits to pay down debts. Roughly 24% of the payments were used for buying essential goods, and 23% were saved.

Read more: Morgan Stanley lays out its 5 favorite trades for investors looking to dominate a looming V-shaped recovery, even if a stimulus deal takes until 2021

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FILE PHOTO: Traders gather at the booth that trades Abbott Laboratories on the floor of the New York Stock Exchange, December 10, 2012.   REUTERS/Brendan McDermid
Traders gather at the booth that trades Abbott Laboratories on the floor of the New York Stock Exchange

Crossmark Global Investment’s chief market strategist Victoria Fernandez told CNBC’s “Trading Nation” Tuesday US lawmakers need to decide on a fiscal package, even if it is smaller in size, to save consumer spending.She said consumers have almost spent their consumer checks which is worrisome going into the holiday season. “Even if it is a smaller number, or a one-time check, it is going to give support to that consumer as we go into the last quarter of the year and that is where you need to start looking at your portfolio to balance that out a little bit,” she said. She said investors should look at a combination of growth and value stocks, as well as different segments of the financial services sector to weather uncertainty. Visit Business Insider’s homepage for more stories.

US lawmakers need to decide on a fiscal stimulus package, even if it is a smaller one, to prop up consumer spending, particularly going into the holiday shopping period, Victoria Fernandez, chief market strategist at Crossmark Global Investments told CNBC’s“Trading Nation” Tuesday 

“We really need that consumer to hang in there. For that to happen, we will need to see another round of stimulus, even if it is a smaller deal, or not the $600 we saw before,” she said. “Even if it is a smaller number, or a one-time check, it is going to give support to that consumer as we go into the last quarter of the year and that is where you need to start looking at your portfolio, to balance that out a little bit.”

With around 10 million Americans still out of work, many consumers will have long since spent their first round of stimulus checks and will likely be relying on savings at this point. 

“If you look at consumption right now it is holding up, but if you look at revolving credit as a percentage of the debt households have right now, it is very small and lower than average. Which means they are spending the cash that they saved,” Fernandez said. “They are spending that extra unemployment insurance they had, if that dries up, especially as we are going into the holiday season, we will have some concerns there.” 

Read more: Morgan Stanley lays out its 5 favorite trades for investors looking to dominate a looming V-shaped recovery, even if a stimulus deal takes until 2021

Fernandez is urging investors to look at a “barbell” strategy made up of growth and value stocks to weather the stalemate in Washington over a new set of measures to protect the economy and individual households.

“We think you need to build that barbell strategy and have some of those tech names that are in there, but also have some other names like Walmart and Amazon that would benefit from people choosing to do shopping a little bit differently,” she said.

She said investors should look beyond banks and explore other segments of the financial sectors such as credit card companies such as Visa and Mastercard. 

“Banks are not an area that this time which is the strongest bet. We do need some exposure to other areas, like credit cards, Fernandez said. “You can have exposure to finance without necessarily being in the banks, with the yield curve not as steep as we would like at this point.” 

The yield curve, or difference between yields on shorter-dated government bonds and longer-dated ones, which are used to price products like mortgages, has been fairly flat, as interest rates remain low, meaning banks eke out little profit from their lending activities.

Fernandez said though she expects a deal to be approved before the US election on November 3. 

“I do think before the election we will get a stimulus deal,” she said. “Both sides want to be able to be seen as supporting the consumer and supporting those industries that have been hardest hit.” 

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Democrats and Republicans have been gridlocked over a deal since July. Proposals by the Democrats are unlikely to make it through the Republican-controled Senate on the grounds that they are too generous, and measures put forward by President Donald Trump’s administration have been rejected by the opposition for being inadequate.

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Traders gather at the post that trades Pfizer's stock on the floor of the New York Stock Exchange October 29, 2015.   REUTERS/Brendan McDermid

Global stocks rose on Monday as investors held onto hopes for a prompt deal on a new round of US fiscal stimulus, boosted by the White House’s change in position over the weekend.US stock futures rose as much as 1%, even after House Speaker Nancy Pelosi rejected the Trump administration’s latest proposal on Sunday.In Asia, China stocks rose to a two-year peak, driven by a new central bank policy that makes it easier to sell the yuan.The FTSE 100 edged slightly lower ahead of Prime Minister Boris Johnson’s expected announcements on stricter COVID-19 restrictions across the country.Visit Business Insider’s homepage for more stories.

Global stocks rose on Monday as investors largely pinned hopes on a new US fiscal stimulus deal to get across the line. 

US stock futures rose as much as 1% even after House Speaker Nancy Pelosi rejected the Trump administration’s latest proposal, or a stripped-down version of the coronavirus relief bill, calling it “grossly inadequate” over the weekend. The dollar index, meanwhile, fell 0.5%.

President Donald Trump’s team proposed a $1.8 trillion stimulus package, which includes a $400 boost in weekly unemployment insurance, $1,200 stimulus checks for US adults, and $1,000 checks for every child. 

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The MSCI World Index rose 0.7% as global markets rotate into a risk-seeking position and investor hopes persist that a fiscal stimulus package is on the horizon. But House Democrats appear to be sticking to their original $2.2 trillion plan

“Even if the White House capitulates, getting that number through the Senate will be challenging,” said Jeffrey Halley, a senior market analyst at OANDA. “With markets now totally ignoring the possibility of a fiscal stimulus package not happening and piling into the ‘buy everything’ trade, the correction if negotiations fall apart could be something to behold.”

Nonetheless, the more positive mood carried over to the European region, where the Euro Stoxx 50 index of eurozone blue-chip shares rose 0.3% and Germany’s DAX rose 0.2%.

London’s FTSE 100 fell 0.2%, ahead of a slew of new  COVID-19 restrictions across the country from Conservative Prime Minister Boris Johnson following an explosion in new cases. Britain already has the highest death rate in Europe.

In Asia, China’s benchmark index jumped to a two-year peak, after the People’s Bank of China unveiled a new policy that makes it easier to short the yuan, which was down almost 1% against the dollar.

The central bank no longer requires lenders to hold reserves when buying foreign currency forward contracts. The yuan’s appreciation is likely to resume after these measures run their course, OANDA’S Halley said.

China’s Shanghai Composite index rose 2.6%, and Hong Kong’s Hang Seng rose 2.2%, while a stronger yen knocked 0.3% off Japan’s Nikkei.

Gold rose 0.2% to $1,929 an ounce, lifted by a weaker dollar. Gold’s firmness points to “positive technical developments that should signal further gains in the week ahead,” Halley said.

Read more: SPACs have generated a $39 billion frenzy in the US this year. The executive behind their first ETF explains how retail investors can use them to level the playing field with Wall Street titans like Warren Buffett.

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Employers added 1.8 million jobs in July and the unemployment rate fell to 10.2%, marking only partial progress toward recouping massive losses tied to the coronavirus pandemic. Jeff Sparshott and Greg Ip here to take you through the key numbers.

Maybe Not a V, but Not a U Either

July’s payroll growth, at 1.8 million, still leaves total payrolls 12.9 million lower than in February. And yet if job gains continued at July’s pace, that deficit will be erased by March, 2021. If payrolls reclaim their last peak in 13 months, that would be remarkably fast. It took more than six years after the last recession. So can they maintain that pace? In July, job gains were blunted by a resurgence of the virus in the South and West which put the brakes on economic reopening. With cases slowly trending down now, economic activity should pick up, though that hasn’t shown up yet in private data such as credit card spending. Spending could also take a hit from the recent expiration of enhanced unemployment insurance benefits; Congress is struggling with an extension. And it’s unlikely that the pandemic is going to completely disappear by next year, so neither will the damage to many industries such as tourism and retailing. —Greg Ip

KEY THEMES

Labor-Market Churn

The unemployment rate fell for mostly the right reasons. Some people dropped out of the labor force but not nearly as many as found a job. Measures across the board improved, including the share of workers who wanted full-time work but were stuck in a part-time job.

The number of workers on temporary layoff fell and the number of permanent job losses was little changed last month, suggesting that many workers are getting recalled to old jobs or are able to switch into new ones. “The rate of churn in the labor market remains incredibly high, but a notable positive detail in this month’s report was the downtick in the rate of new permanent layoffs,” economists at Morgan Stanley wrote.

One potentially worrisome sign: The number of long-term unemployed is on the rise. That suggests that some people are at risk of getting locked out of the labor market—and ultimately exhausting unemployment benefits.

Job losses and gains haven’t been evenly distributed. Initially Blacks were less hard-hit than some other racial groups in the early stages of the recession, but the drop in their unemployment rate in July was the smallest among racial groups. —Greg Ip

Some of that was due to growing labor force participation; the Black employment-to-population ratio rose more than for Hispanics and whites. —Greg Ip

Who’s Hiring?

Some of the industries hit hardest by March and April lockdown orders experienced some of the biggest gains last month. Bars and restaurants, retailers, healthcare, laundry services and gambling halls posted big gains from June to July, reflecting efforts to reopen the economy by relaxing social distancing requirements.

While positive, July’s gains only begin to retrace earlier losses. And it’s not clear that the Labor Department data fully captured rising Covid-19 caseloads toward the end of July, which caused state and local governments to halt or roll back reopening plans and consumers to show renewed caution.

Not everything may be as it seems with the monthly figures. Government jobs, mainly in public schools, rose by a seasonally adjusted 300,000 in July. That’s welcome relief for a sector that typically stabilizes the economy in downturns, but which has been hard hit by the pandemic. However, it may be a mirage. On an unadjusted basis public-school jobs continued to decline in July, but the decrease was smaller than seasonal factors expected—because so many jobs have already been cut. Bottom line: If large school districts holding class online this fall don’t rehire staff, job losses will resume in the public sector soon. —Eric Morath

Can We Fix It?

One final note: The Labor Department appears to have largely solved misclassification problems that had artificially suppressed the unemployment rate. In March, April and May the agency counted millions of workers as absent—something that usually applies to vacation or sick leave—when they probably should have been classified as unemployed. That subtracted as many as 5 percentage points from the headline rate. The issue now accounts for less than 1 percentage point, Labor said Friday.

TWEET OF THE DAY

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WHAT ECONOMISTS ARE SAYING

“This is not a V-shaped recovery. Adding 1.8 million jobs is not sufficient for any sort of speedy recovery after the astronomical job losses of early spring.” —Nick Bunker, Indeed

“The pace of job growth slowed in July, but the gains over the past three months represent an impressive rebound during the ongoing economic challenges brought forth by the pandemic.” —Mike Fratantoni, Mortgage Bankers Association

“Recovery in jobs to pre-pandemic levels will likely be slow and prolonged, one that will restrain the pace of recovery.” —Rubeela Farooqi, High Frequency Economics

“These numbers suggest that the surge in virus cases since late June has so far not prevented the continued re-opening of the economy at the national level.” —Brian Coulton, Fitch Ratings

“The slowdown we’re seeing is a reminder that a return to economic stability is ultimately hinged on addressing the public health crisis.” —Daniel Zhao, Glassdoor

“The economy is expanding, but the pace of improvement has slowed.” —Jim Baird, Plante Moran Financial Advisors

“The huge remaining level gap in employment—still 12.9m lower than in February before the Covid shock hit—will keep the Fed firmly focused on supporting the recovery.” —Krishna Guha, Evercore ISI

“The payroll count still reveals a slowing in the pace of the labor market recovery. In the absence of additional fiscal aid, the broad economy risks losing momentum as it shifts into the second phase of its rehabilitation.” —Kathy Bostjancic, Oxford Economics

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