Tackling Vulnerability in the Informal Economy
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.
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Assessment and recommendations
People have different perceptions of the informal economy. Some focus on the survivalist aspects – and there are many – believing informal workers have no choice but to run unproductive small businesses or work in jobs characterised by lack of social benefits, poor working conditions and lower rates of remuneration and productivity. Others consider informality a drag on economic and social development associated with tax evasion, disrespect for the rule of law and unfair competition between formal and informal enterprises. Others recognise its potential to support the livelihoods of workers willing to trade formalisation for informal employment. The reality of informality is often less obvious than it seems. Two things are certain: informality is part of the daily lives of most workers in the world, and it often comes with risks and vulnerabilities that constitute a formidable policy challenge.
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