The world leaders who addressed economic growth at the G20 summit in Johannesburg, South Africa, need to overhaul how they view, measure and understand the world’s two billion workers in informal employment.
We recognize the major feat of having a G20 leaders’ declaration adopted at the November 22-23 meeting but are dismayed to see informal employment in a list of factors including inequality that “pose significant threats to global economic growth, development, social and economic stability.”
It would have been fitting to have instead included recognition of workers in informal employment and their critical economic contribution in the declaration, which reaffirms the G20’s “commitment to ensure that no one is left behind through multilateral cooperation, macro policy coordination, global partnerships for sustainable development and solidarity.”
Successive global shocks, including the COVID-19 pandemic, the climate-change crisis and the instability caused by trade disputes, demand that our global institutions manage growth inclusively. This means including informal enterprises, estimated to constitute around 80% of all enterprises globally.
There is growing consensus that reducing inequality means improving incomes in the informal economy, with one area of focus being boosting the so-called “low productivity” of informal enterprises. But some major missteps are being taken in the “fixing” of the productivity challenge – from a policy as well as measurement angle.
Governments Misunderstand, Exclude or Punish Informal Enterprises
Informal enterprises generate employment, produce and distribute essential goods at affordable prices in accessible locations, and provide services like recycling, vending, transport and care. They are resilient and adaptable, given the harsh environments in which they operate. Yet they are consistently viewed as non-productive.
National and local economic policies tend to exclude informal enterprises from measures to promote productivity, like trade and competitiveness initiatives, market investments, and tax incentives. Within cities, informal enterprises are the subject of punitive policies and practices rather than supportive ones: most street vendors face daily harassment, as well as evictions and confiscation of their goods, and waste pickers are barred from bidding for public contracts for waste collection. And many urban infrastructure projects disadvantage, undermine or displace informal enterprises. In India, despite record levels of economic growth, this overarching bias has led to a collapsing informal manufacturing sector, which employs over 400 million workers.
Policy approaches to improve productivity also fail to recognize the interconnections and interdependence between the formal and informal sectors. In reality, there is frequent exchange of labour and goods through backward and forward linkages and supply chains, especially in low and middle-income economies. Supporting formal enterprises while penalizing informal ones weakens both sectors and the economy overall.
The layers of structural barriers that negatively impact workers and their informal enterprises every day is the real productivity challenge. These are barriers that can be dismantled if policy positions informal enterprises as integral to an economic system where both large and small players can thrive, rather than a sector to be sidelined.
Flawed Measurements and Concepts Stand in the Way
The policy biases stem in part from common productivity concepts and measures that fail to capture the complex nature of informal enterprises. The common use of earnings data in productivity measures, for example, is based on an assumption that markets reward efficiency. However, this is problematic in contexts where earnings data are difficult to capture because workers juggle multiple activities, are paid in kind or piece-rate, and/or face highly seasonal income flows.
Also, standard enterprise surveys either do not count or underreport the single-person or family units that make up the majority of informal enterprises. Although the 2017-2025 World Bank Informal Sector Enterprise Surveys (ISES), covering about 41,000 enterprises across cities in 16 countries, shows that 50- 60% of surveyed informal enterprises were single- person or family units without hired workers, these data likely underestimate their prevalence. The ISES bases its sampling on lists of informal businesses within neighbourhood block areas, meaning less visible single- person or family units operating in their own homes are not likely to be captured. Data used in productivity calculations therefore tend to exclude very small, often women-led, informal enterprises, masking insights into the factors that shape the productivity of such enterprises.
The productivity of enterprises is often narrowed to an oversimplified and single factor – labour – and how much of it is needed to produce a certain quantity of goods or services. This common reliance on labour productivity is problematic because it does not take into account other important factors that shape productivity, including structural barriers and demand-side fluctuations. For example, street vendors’ sales are more likely to be influenced by local government officials frequently harassing them, or low customer demand, than the efficiency of their own labour.
An alternative measure of productivity is total- factor productivity, which takes into account factors that contribute to production beyond labour. These include physical assets such as land and equipment, financial assets and, in some contexts, less tangible assets such as human capital, like education, or social capital, including business networks and mentorship. But even total- factor productivity measures exclude demand-side constraints faced by informal enterprises. When COVID-19 hit, many home-based workers in Asia produced fewer goods not because they lacked land, equipment and financial assets, but because supply chains for raw materials and finished goods were broken as a consequence of decisions taken by more powerful economic actors.
A Better Measurement and Policy Agenda
To address economic growth, leaders must look beyond the boardroom and into the streets, markets and homes where the majority of the world’s workers and enterprises already keep economies running.
This requires a comprehensive, thorough set of measurements and concepts to accurately count informal enterprises, ascertain how productive they truly are, and understand the barriers they face and contributions they generate. New concepts and measures should be developed to better capture the negative forces on their operations, as well as their positive contributions to society and the economy – recycling waste, producing goods for export and supply chains, and providing care work.
This is a challenge that will take time and effort from the international community. In the meantime, there is already more than sufficient evidence from years of field studies of the multiple negative factors that impede the productivity of informal enterprises. Policy efforts to reduce these negatives, and to integrate informal enterprises appropriately into industrial policy and local economic development initiatives – so that both large and small can thrive – is needed now.