A New Social Contract for Informal Workers: Bridging Social Protection and Economic Inclusion

Hero Image
Street Vendor in India
Published Date
Marty Chen, Laura Alfers, Sophie Plagerson

Español  Français

Calls to renew the social contract have proliferated in recent years as the “standard” employer-employee relationship has ceased to be the norm, while traditional forms of informal employment persist and informalization of once formal jobs is on the rise. However, there is a mismatch globally between traditional social contract models based on assumptions of full (male and formal) employment and the world of work today in which informal workers, both self- and wage employed, constitute over 60 per cent of the global workforce. Can the call for a new social contract really help to achieve greater recognition and a more level playing field for informal workers?

In 2018, the ILO published the first-ever global estimates of informal employment which showed that 61 per cent of the global workforce—2 billion workers—are informally employed. That is, do not receive social protection or worker benefits through their work. The incidence of informal employment varies by country income groups: from 90 per cent of the total workforce in developing countries to 67 per cent in emerging economies to 18 per cent in developed countries. Yet traditional social contract models are premised on state-citizen and capital-labour relations that pertain to developed countries where the majority of workers are formal wage employed. As labour markets evolve well beyond the confines of recognized employer-employee relationships and established labour regulations, informal workers around the world are actively redefining the meaning of ‘workers’ as active economic agents.

Consider the iconic example of urban informal self-employed operators: street vendors. The standard labour market model of supply and demand does not work for them: as the demand for their labour is derived from the demand for the goods they sell. Also, labour regulations do not have much salience: as most of them are neither employees nor employers. What street vendors need most is the right to vend in public spaces near train and bus stations, schools and hospitals, parks, construction sites and other areas where there is a steady flow of pedestrians (potential customers). The regulations that matter most to street vendors are city rules and regulations: especially the master plans, city ordinances and zoning regulations that mandate who can do what and where.     

What the street vendor example suggests is that the state-labour relationship is particularly relevant for the urban informal self-employed, and that the relationship at the local level of the state is especially important. The role of capital is not absent: however it operates indirectly through the state-capital relationship, rather than through the employer-employee relationship, in determining conditions of work of the urban self-employed. Municipal governments often privatise public space by allowing real estate developers to use public land: thus reducing the amount of public space in good locations available for street vending. The same can be said for informal waste pickers who make a living from collecting, sorting and reclaiming recyclables from waste. How the city decides to manage solid waste determines whether and where waste pickers can collect waste: the raw material on which their livelihoods depend. When a city decides to privatise waste management and issues contracts to private garbage collection companies who are paid by the amount of waste they collect and haul to dumps, landfills or incinerators, the amount of waste which waste pickers can collect—or even sort through—is severely diminished. In sum, both state-labour and state-capital relationships are of central importance to self-employed informal workers while the capital-labour relationship is more central to those who are wage employed, both formal and informal.

The COVID-19 pandemic, and the restrictions associated with it, have undermined or destroyed the livelihoods of most informal workers and exposed the inequalities and disadvantages that they faced pre-COVID. Fault lines in the pre-existing systems of legal and social protection, and of economic development and urban planning have also been exposed and exacerbated. The response to the COVID-19 pandemic going forward must be based on a new social contract that respects the rights and freedoms of all and ensures equal prospects and opportunities for all, as the UN Secretary General called for in his Nelson Mandela lecture in July 2020.

Informal workers must be a central focus of the new social contract as there is a clear overlap between working informally and being poor: most informal workers are from poor households; and most workers in poor households are informally employed. The only group of informal workers who are non-poor, on average, are employers who own and operate informal enterprises: but they represent only 2 per cent of the global informal workforce. Among the informal workforce, women are less likely than men to be employers, more likely to be contributing family workers in family firms or on family farms and more likely to be working in private homes (as home-based workers in their own homes or as domestic workers in the homes of others). The global community cannot adequately reduce either poverty or inequality without addressing the inequities and constraints faced by the working poor, both women and men, within the informal economy.  

The content of a new social contract for informal workers can be classified under four Ps:

  • Protection: to provide informal workers with social protection against common core contingencies as well as contemporary collective risks, such as health pandemics and environmental disasters; and legal protection against adverse practices by the state and by the owners of capital
  • Promotion: to promote informal livelihoods by valuing them and integrating them into economic development plans at the national and local levels.
  • Provision: to provide informal workers with public services (health, education and housing) as well as basic infrastructure and transports services at homes and in workplaces.
  • Participation: to invite informal worker organisations to send representative leaders to relevant policy-making and rule-setting processes.

Finally, fundamental to the 4P approach to a new social contract for informal workers is the need to recognize informal workers as ‘workers’ – as legitimate economic agents – and to include them in relevant social dialogue platforms as well as policy-making and rule-setting processes.   


Sophie Plagerson is a Visiting Associate Professor, Centre for Social Development in Africa, University of Johannesburg

This blog first appeared on the OECD’s Development Matters blog

Photo credit: Marty Chen

Informal Economy Topic