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Wages are a major element of employment and workers’ incomes. However, wages can be too low to allow workers a socially acceptable living standard, while employment can be unsafe or result in damage to health in the long run. Also in the long term, workers face the risk of old-age insecurity. Over the life cycle, the decision to work or not and the intensity of employment can be affected by changing household conditions, such as maternity. Unemployment is another risk that most workers might face at one point or another in their lives. As a result, workers may be given benefits for reasons of unemployment, maternity, sickness, injury, disability, family, and old-age insurance.

Overall, international experience shows that employment-based benefits should not be examined in isolation, but should be part of a comprehensive, adequate, and fiscally sustainable social protection system that minimizes adverse work incentives. Clear objectives and their tradeoffs should be kept in mind, such as consumption smoothing, insurance, poverty alleviation, and redistribution.

Unemployment Benefits

Since the 2008 global financial and economic crisis, unemployment benefits have been put back on the agenda. They can be funded from payroll, government funds, or a combination of the two. In some countries only the employers pay. Setting strict but fair eligibility conditions is critical, and many schemes include an “employment test,” that is, ways to find out whether the worker without a job is willing to accept one. Typically the benefit level set as a percentage of what the worker was paid before becoming unemployed and declines over time; the payment duration can be limited.

Maternity Benefits

As female labor force participation has increased over time, so have various schemes for maternity leave and pay. Traditionally, employment-based maternity benefits have been solely employer-funded, thus creating disincentives for hiring women, especially in small and medium-size firms. More recently, there has been a general move towards paying maternity benefits out of social insurance, as Jordan did in 2011. Moreover, there is an international move toward introducing “paternity” schemes.

Pensions

Pensions are a major factor in reducing poverty in old age and their importance has increased over time as the population has aged and the share of elderly people has increased. However, pension systems are diverse and no single model fits all. For example, in the Arab world, Egypt, Libya, and Tunisia reached more than 50 percent mandatory coverage by the mid-2000s, compared to around 20 percent in Iraq and Morocco, and less than 10 percent in Yemen and the West Bank and Gaza.

Generally, both the public and private sectors can be involved with the statutory component (mandatory participation), but their shares varies. Private pensions are usually voluntary and are based on occupational pension plans or individual retirement savings plans.

Despite these differences, pension schemes are following some common trends. The mandatory pensionable age tends to increase as longevity increases. The replacement rate (ratio of pension to worker’s preretirement earnings) increasingly takes into account the worker’s lifetime contributions rather than final salary. And the private sector’s role in funding is also increasing.

Overall, there is agreement that pension systems should reduce poverty, inequality, exclusion, and insecurity. They should also reduce adverse labor market effects such as workers’ unwillingness to change jobs because pensions are not portable. This process requires integrating pension provisions for a variety of workers in different occupations and industries, including the self-employed or those working part-time. Pensions should also facilitate moving from the informal to the formal sector and their coverage should be extended to nonworkers.

Zafiris Tzannatos is a senior international consultant for strategy and policy based in Lebanon. He was previously Chair and Professor of the Economics Department at the American University of Beirut. He is a former ILO advisor and has served as Advisor to Managing Director of the World Bank, where he was also Manager for Social Protection in the MENA, as well as, Leader of the Global Child Labor Program that he initiated. His publications include 14 books and monographs, and more than 200 reports and papers in the areas of labor economics, education, gender, child labor and, more broadly, social policy and development strategy. He holds a Ph.D. in Economics.