Formalizing the Informal Economy

What does formalization mean for the world’s majority of workers, who earn their livelihoods in the informal economy? And how can policymakers best approach this complex transition in a smart and sustainable way?

Formalization

Formalizing the informal economy was a growing topic of interest around the globe before the International Labour Conference (ILC) adopted a Recommendation Concerning the Transition from the Informal to the Formal Economy (R204) in 2015.

But what does formalization mean for the 61% of workers worldwide who make their livelihoods in the informal economy? And how can policymakers best approach this complex transition?

It starts with listening to informal workers themselves — as WIEGO has been doing for two decades.

WIEGO helped ensure informal workers’ voices were heard throughout the three-year process leading to the adoption of R204. Since then, we have continued to work with informal workers’ organizations and to inform policy debates in specific countries such as:

WIEGO has created this Summary of R204 for membership-based organizations (MBOs).

5 Things We’ve Learned about Formalization

1. Formalization is not one thing — and requires a two-way exchange. Issues include registration and taxation, legal recognition, common definitions/frameworks, infrastructure supports, social protection and other benefits, among a range of other issues. For example, formalization projects fail when governments ask informal workers/enterprises to register and pay taxes and tolls (as many already do) without giving informal actors the benefits that formal workers/enterprises enjoy.

2. Myths about the informal economy must be replaced with realities before smart, effective, sustainable policies can be developed. Among the realities: the informal economy does contribute to the overall economy, informal workers often do pay taxes, and informality is not synonymous with illegality.

3. Formalization means different things for different groups: While all informal workers share a set of demands — e.g. freedom from harassment and fear, the right to organize, legal standing, social protection and economic rights — each sector has specific needs.

- For street vendors, formalization involves secure access to public space, licenses to sell, and identity cards and infrastructure (e.g. sanitation) support.

- For waste pickers, access to waste, contracts and remuneration from municipalities and health issues are high priorities.

- For domestic workers, decent living and working conditions, a living wage, time off, and sick/maternity leave and pensions are important, as is a commitment that their workplaces (private homes) be subject to inspection.

- For home-based workers, secure transparent contracts that provide fair prices or piece-rates, basic infrastructure and no forced relocation are important.

4. The best path to formalizing is different for every country and even within different parts of a country. A local, consultative process is needed to get it right.

5. Policymakers cannot do it alone. They need informal workers at the table, sharing their knowledge and working on solutions to ensure the best policies are created. In fact, the R204 exhorts states to include informal workers’ representatives in dialogue and planning.

About R204 – Concerning the Transition from the Informal to the Formal Economy

The ILC adopted Recommendation 204 concerning the Transition from the Informal to the Formal Economy in June 2015. The WIEGO Network played an important role in ensuring informal workers’ voices were heard throughout the process leading to what ILO called the first international labour standard specifically for the informal economy.

In 2013, WIEGO and SEWA participated in the ILO’s tri-partite Experts Meeting. Early in 2014, WIEGO organized regional workshops — in Africa, Asia and Latin America — where informal workers gave input to develop a WIEGO Network Platform (also in French, Spanish and Russian). The platform sets out common core needs and demands for informal workers as well as their sector-specific needs.

The platform was shared at ILC 2014, where leaders of home-based workers, street vendors, domestic workers and waste pickers spoke about the struggles of life as informal workers and detailed the needs of their constituents. This informed the deliberations on creating an international standard for transitioning from the informal to the formal economy.

In 2015, a delegation of 32 informal workers’ representatives, supported by WIEGO, returned to the ILC in Geneva for the second part of the negotiations. Informal workers participated during discussions to ensure their voices were directly heard again.

“You are talking about us! We are real people and we are here!” ~Informal worker speaking at ILC 2015

R204 recognizes diverse categories of workers in the informal economy and provides guidelines for extending protections such as occupational health and safety and social protection to all workers. However, it fails to spell out the exact nature of governments’ role in implementing policies and laws and the need for informal workers to be fully integrated in decision-making.

WIEGO created a Summary of R204 for membership-based organizations (MBOs) that details the contents — including what is good and what is lacking — in the Recommendation.

Overall, we are pleased with the provisions contained in the Recommendation.... We think it marks an important step forward in the struggle by the informal workforce for recognition and for rights, protection, and opportunities, as well as shifting the discourse away from small entrepreneurs who evade taxes and regulations to vulnerable workers and economic units who need protection and incentives to formalize.~ Chris Bonner, WIEGO Senior Advisor, explains in this blog