Tackling Vulnerability in the Informal Economy

Description

A majority of workers in the world are informally employed and contribute to economic and social development through market and non-market activities that are not protected, regulated, well-recognised or valued. This study provides an in-depth diagnosis of informality and the vulnerability prevailing in the informal economy. It explores new ideas to improve the lives of workers in the informal economy based on the ILO indicators of informality and the new OECD Key Indicators of Informality based on Individuals and their Household (KIIbIH). The report contributes in four ways to the global debate on the transition from the informal to the formal economy: 1) by examining the multiple faces of informality in a large sample of countries representing diverse conditions, locations and stages of development; 2) by presenting new empirical evidence on the links between informality and the development process; 3) by assessing risks and vulnerabilities in the informal economy, such as poverty and occupational risks, which can be mitigated with social protection and appropriate risk management instruments; 4) by showing that the transition to formality is a complex issue that touches on a wide range of policy domains. Foreword Acknowledgements Abbreviations and acronyms Executive summary Key findings Key recommendations Assessment and recommendations Portraits of informality Informality affects most workers in the world Informality is the norm in developing and emerging countries Some demographics are more exposed to informality A majority of working households rely solely on informal employment Most children and older individuals live in completely informal households Informality in the development process Links between informality and development are complex Informality mirrors various development patterns Drivers of informality are diverse and vary across countries, periods, types of firms and segments of the informal economy The informal sector is less productive and absorbs more unskilled workers in most countries Negative connotations of low tax revenue from informality seem weakly justified empirically Informal economy workers contribute to skills acquisition and GDP growth Risks and vulnerabilities in the informal economy Informal economy workers face high risks of poverty There is no simple link between changes in income poverty and movements into and out of informality Informal economy workers face high occupational risks Inferior working conditions are reflected in a large informal-formal job satisfaction gap Absence of adequate risk management instruments makes informal economy workers and their families particularly vulnerable Risks and vulnerabilities are particularly high for women in the informal economy Protecting informal economy workers and their families Extending social protection to informal economy workers is key for inclusive development Extending social protection should be done through a gender lens Extending the coverage of social protection systems should take into account informal support mechanisms Equity and sustainability in financing the extension of social protection require careful assessment A number of policy options exist to address the equity and sustainability dimensions of financing Social insurance needs to adapt to the situation of workers in different types of employment and facilitate labour market transitions The household dimension is essential in identifying the right mix of interventions and developing an integrated policy package Extending social protection needs to be complemented with measures to tackle OSH in the informal economy Extending social protection should be complemented with measures to raise productivity and labour income and empower informal workers An integrated policy mix should seek to reduce the cost and time to register businesses and comply with regulations Policies should encourage formalisation of enterprises and their workers Productivity enhancement is important to foster enterprise and worker formalisation Notes Chapter 1. Portraits of informality Informality is a global phenomenon, but manifests itself in unique ways across countries and regions Informal employment is the reality for the majority of the world’s employed population Informality is the norm in the Global South Informality has a strong rural dimension Informality dominates in agriculture and industry Vulnerable groups are disparately exposed to informality Globally, informal employment is a greater source of employment for men, but there are large disparities across countries Youth and older workers are more exposed to informality Informal employment absorbs less-educated workers Informal jobs have distinguishing characteristics Own-account workers are most at risk of informality, but employees are most represented in informal employment in developed countries Workers in non-standard forms of employment are particularly exposed to informality Most employment in small enterprises is informal, but informal employment in large formal enterprises is significant The household dimension is key to better understanding vulnerability in the informal economy Informality takes different forms at the household level Children and older individuals disproportionately live in informal households Notes References Chapter 2. Informality in the development process The complex relationship between informality and development mirrors various development patterns Informality correlates with key development outcomes across countries but no longer within countries Type of growth matters in informality trends Drivers of informality are diverse and vary across countries, time periods and segments of the informal economy Labour surplus and global competition are major drivers of informality Legal and institutional factors affect informality, from regulatory inadequacies to excessive taxes to weak law enforcement The role of the informal economy in development is not well recognised or understood The informal sector in many countries is less productive and absorbs more unskilled workers The negative connotation of low tax revenues from the informal economy is weakly documented empirically Informal economy workers contribute substantially to GDP growth and basic skills provision Notes References Chapter 3. Risks and vulnerabilities in the informal economy Informal economy workers are exposed to many risks In-work poverty risks are particularly high among informal economy workers The higher the degree of informality of households, the higher the incidence of poverty and low income Informal economy workers face high occupational risks Inferior working conditions in the informal economy are reflected in a large informal-formal job satisfaction gap People dependent on the informal economy are particularly vulnerable Informal economy workers need strong representation to improve working conditions, earn better wages and upgrade skills Absence of adequate social protection arrangements makes informal economy workers and their families particularly vulnerable Notes References Chapter 4. Protecting informal economy workers and their dependents There has been some progress with the extension of social protection to informal economy workers Some countries have extended social protection to informal economy workers Informal economy workers also rely on non-contributory social protection schemes Expanding labour market programmes to informal workers is receiving renewed policy attention The role of informal social protection has to be better recognised With large deficits in state provision of social protection, informal support plays a critical role for informal workers and their households Informal and formal social protection systems can complement and reinforce each other There is growing attention on financing the extension of social protection to informal economy workers The funding gap to extend social protection to informal economy workers is particularly pronounced in most developing countries Financing the extension of social protection to the informal economy comes with substantial equity challenges Measuring informality at the individual and the household level is key to developing social protection extension strategies Taking the diversity of the informal economy into account The extension of social protection to informal workers needs to account for labour mobility The household dimension is essential to identify the right mix of interventions and develop an integrated policy package for the extension of social protection to informal workers The extension of social protection needs to be accompanied by other measures Reducing costs and complexities to register and comply with regulations Improving productivity, earnings and wages Formalisation, inclusiveness and global supply chains Avoiding disengagement: Artisanal and small-scale miners in high-risk areas Promoting inclusive business models for smallholder farmers Protecting homeworkers in garment and footwear supply chains Regulating due diligence Strengthening inspection and compliance Tackling Occupational Safety and Health (OSH) in the informal economy Empowering informal economy workers and employers Notes Chapter 5. Addressing the gender dimension of informality Informality exposes men and women differently More men work in the informal economy, but women are most exposed in a majority of countries Women are more often found in the lower parts of the informal employment hierarchy Female-headed households are less likely to be mixed There are important gender disparities in informal employment outcomes Several factors affect the gender pattern of informal employment outcomes Addressing gender-related risks and vulnerabilities in the informal economy is critical Social assistance can ensure basic protection for women but can reinforce traditional gender roles Social insurance programmes for informal workers need to address women’s needs and work patterns Extension of pension and maternity coverage has protected women in the informal economy Much remains to be done to extend social protection to women workers in the informal economy Notes Annex A. Definitions of informal economy, informal sector and informal employment Annex A. Definitions of informal economy, informal sector and informal employment Annex B. Additional tables - The Key Indicators of Informality based on Individuals and their Households (KIIbIH) Database