“The informal economy demonstrates extraordinary resilience, sustaining essential systems through repeated shocks. But resilience cannot indefinitely depend on absorbing hardship,” she said.
“As ageing, automation and environmental degradation reshape our economies, we have a choice: allow these changes to deepen existing inequalities, or secure a better deal for the people who keep economies running.”
This was one of Laura Alfers, International Coordinator for WIEGO’s messages at the launch of a new OECD report that outlines policy instruments to protect workers in informal employment from global disruption.
The report is entitled Securing the Livelihoods of Informal Economy Workers in Times of Global Changes, and it shows how global challenges such as environmental degradation, weak pension systems and automation will disproportionately impact workers in informal employment.
It highlights that the informal economy is widespread and diverse, drawing on updated data from the ‘Key Indicators of Informality based on Individuals and their Households’, or the KIIbIH, from 58 countries.
Informally employed workers central to development goals
Dr Alfers says the 2 billion workers in the informal economy are central to meeting global development goals, such as reducing poverty and inequality, advancing gender equality and building sustainable economies.
But these workers also face income insecurity, limited social protection and restricted opportunities. These are structural inequalities which risk deepening as ageing, automation and environmental degradation reshape our economies and the world of work.
Alfers said appropriate policy responses must be underpinned by good data, so governments can understand who makes up the informal economy, and where they are situated in the economic structure.
Diversity in the informal economy requires diverse policy responses
The OECD report shows informality remains the norm in most low and middle income countries.
Almost 70% of workers are employed informally across the countries covered by KIIbIH – but there are also large regional disparities, as well as highly diverse profiles between workers. Inequality is high, with low-paid workers in informal employment coexisting with higher-paid workers who remain informal by choice.
Dr Alfers says this calls for tailored policies.
“These differences have policy implications,” she said.
“Simplifying registration may help some enterprises. Other workers need secure workplaces in public space, enforceable rights, public services or stronger bargaining relationships in value chains.”
She said even neutral policies, which may target enterprise growth as a whole, must be considered within their specific contexts to ensure they do not further entrench inequality.
Understanding the policy starting point
Dr Alfers emphasized that policy diagnosis is key to addressing what is actually driving informality.
“If we assume that informality is mainly an issue of tax avoidance, our answer lies in bringing more workers into the tax net,” she said.
“If we think informality is mainly caused by labour market rigidities, we make labour market regulation more flexible.”
A misdiagnosis can risk weakening critical protections, additional tax can reduce already insecure earnings for workers, and governments may spend considerable resources trying to extend tax for increasingly small returns.
Alfers says formalization should deliver tangible improvements in rights, earnings, protection and working conditions – otherwise workers may simply acquire new obligations.
“These questions become even more important as global changes reshape livelihoods. The ability to adapt to automation, environmental pressures or changing demographics depends greatly on a worker’s starting position,” she said.
“We need to understand that starting position before deciding what a policy should ask of people, and what it should provide.”
Three priorities for governments
Dr Alfers recommended three priorities for governments:
- Differentiate policy while guaranteeing basic rights and protection: use evidence on employment status, gender and household circumstances to identify who needs what support.
- Ensure policy coherence to protect incomes in the informal economy: employment and formalization measures need to connect with pensions, care, infrastructure, urban planning and technological and environmental policy.
- Institutionalize representation of workers in the informal economy in policy dialogue spaces: workers bring knowledge of how policies operate in practice: where costs fall, which services are missing and why an apparently straightforward requirement may be difficult to meet. This is both a matter of rights and a way to make policy itself more effective.
She said the KIIbIH, which brings together household data alongside strong labourforce analysis, is a tool that bridges one of the big gaps in knowledge about workers in the informal economy.
“If we are going to build effective, evidence-based policy that highlights diversity and integration, databases like this are critical to support them, and build them going forward.”