The topic of informality has been at the heart of the OECD Development Centre’s research and policy work since its creation. Two recent milestones include the 2019 report Tackling Vulnerability in the Informal Economy published jointly with the International Labour Organization (ILO), and the 2023 report Informality and Globalisation: In Search of a New Social Contract. Both reports were based on the OECD Key Indicators of Informality based on Individuals and their Household (KIIbIH) – the OECD Development Centre’s innovative and comparative data on informal employment. These reports have served as a tool to inform actors in various fora at national and international levels, including the Global Partnership for Universal Social Protection (USP2030) and the standard settings at the ILO.

Six years ahead of the 2030 deadline for the Sustainable Development Goals (SDGs), the prospects of ending poverty in all its forms everywhere (Goal 1), or ensuring inclusive and equitable quality education and promoting lifelong learning opportunities for all (Goal 4) remain daunting. Progress on the formalisation agenda (Goal 8.3) is also slow.

Informal workers make up nearly 60% of the workforce globally, and 90% in low-income countries. New evidence from the Key Indicators of Informality based on Individuals and their Household (KIIbIH) shows that, despite widespread heterogeneity, informality often displays a two-tier structure. The lower tier comprises workers with earnings below 50% of the median earnings of their country: they are the majority of the global informal workforce, at 54% on average, and up to 80% in some countries. A relatively small number of workers in the upper tier enjoy relatively higher earnings; they are also more skilled and more productive. Compared to both formal workers and upper-tier informal workers, those in the lower tier, as well as their household members, face a greater probability of falling into poverty, and encounter greater health-related and old-age hardships. They carry a double burden of low-paying work and informality.

This overview summarises the key findings and policy recommendations of the report.

This chapter demonstrates that informal workers and their family members often encounter a broader spectrum of risks compared with formal workers. These risks stem from weaker labour and social protection. Informal workers earn less than formal workers, even in comparable jobs. Moreover, in many countries, informal employment comprises a two-tier structure. The lower tier consists of workers earning modest incomes, while the upper tier consists of informal workers with higher earnings. The lower tier is often substantially larger than the upper tier, meaning that a compelling number of informal workers face a risk of individual but also household poverty.

Formalisation provides social security and labour law protection; but does it also improve earnings and lift workers out of low-paying work? This chapter analyses four issues. First, it inquires into how common transitions to formal employment are. Second, it analyses whether the chances of transitioning to formal jobs are the same for all types of informal workers. Third, it investigates whether formalisation is indeed accompanied by income improvements for workers, and conversely, whether transitions into informal employment are accompanied by income losses. Finally, it inquires into whether the potential benefits of formalisation accrue to all workers.

This chapter examines the skills supply of informal workers and the skills demand for workers in formal and informal jobs. It shows that not only informal workers often have substantially lower levels of schooling compared with formal workers but they also have more limited opportunities to upgrade their skills, whether through employer-provided training, public training programmes or other forms of learning. Moreover, skills recognition remains an important challenge for informal workers. However, formal economy employers generally demand higher-order skills. As a result, economies with a large share of informal employment face sizeable skills mismatches.

This chapter shows that the vulnerability challenge faced by informal workers is being passed on to their children. Four ways in which this is happening are identified: growing up in households with informally working parents; lower school attendance from primary levels onwards as compared to children of formally working parents; fewer financial resources and parental time devoted to their education; and longer, more uncertain school-to-work transitions. This chapter discusses policy options to help break the vicious intergenerational cycle of informal employment.

Using the OECD Key Indicators of Informality based on Individuals and their Household (KIIbIH) database, the OECD Global Revenue Statistics Database, and new evidence from Women in Informal Employment: Globalizing and Organizing (WIEGO) and the International Labour Organization (ILO) on global experiences in extending social insurance to informal workers, this chapter reviews the current de facto social protection coverage for informal workers across developing and emerging economies. It explores individual and household characteristics of informal workers to identify policy options for extending social protection to informal workers; and discusses possible methods of, and constraints to, financing the extension of social protection.