What You Need to Know About the Informal Economy
- The informal economy includes workers, jobs, enterprises and economic activities that are not fully covered by formal laws, regulations or protections.
- Informal employment is a major part of the global labour market, with nearly 2 billion people earning their living in the informal economy.
- Informal work exists across countries, sectors and income levels, including in high-income countries and within formal enterprises.
- Workers in informal employment make essential economic and social contributions, from selling food and making goods to providing care and helping manage waste.
- Informal employment is not the same as illegal or illicit activity. The internationally agreed definition of the informal economy excludes illegal and illicit activities.
FAQs about the Informal Economy
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The informal economy is made up of all the economic activities, enterprises, jobs and workers that are not covered in law or in practice by formal arrangements. These include legal frameworks for enterprise operations or social and legal protections for workers.
Source: ILO (2023), Resolution concerning statistics on the informal economy
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These terms are related, but describe different aspects of the economy and labour market.
The informal sector refers to economic units that produce goods or services for the market but are not formally recognized.
Informal employment refers to activities for pay or profit that are not covered by formal arrangements, regardless of whether they take place in the informal sector or the formal sector.
Source: ILO (2023), Resolution concerning statistics on the informal economy
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Formal employment is covered in law and in practice by formal arrangements such as social protection, pensions, and labour law.
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Nearly 2 billion people earn a living in the informal economy, according to ILO estimates. This represents close to 60% of the world’s workers. Informal work is present in high and low income countries and across regions, industries and sectors; a significant proportion of urban informal employment falls into these four occupations: domestic workers, home-based workers, street vendors and market traders, and waste pickers.
Source: ILO (2023), Women and men in the informal economy: A statistical update
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Based on 2018 global estimates from the ILO, more than 740 million women are in informal employment around the world.
Source: ILO (2018), Women and men in the informal economy: A statistical picture, 3rd edition
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Yes. The ILO states almost 16% of employment in high-income countries is informal.
Source: ILO (2023), Women and men in the informal economy: A statistical update
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Yes, informality can exist even in the formal sector. Casual, temporary, and seasonal workers who lack social protection coverage or other employment benefits, or who fall short of full legal status, have informal employment status even when they work for formal enterprises.
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In low-income countries, informal employment accounts for close to 90% of all workers. In lower-middle-income and higher-middle-income countries, it accounts for 82% and 50% of all workers respectively.
Source: ILO (2023), Women and men in the informal economy: A statistical update and ILO (2018), Women and men in the informal economy: A statistical picture, 3rd edition
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This information is essential to design social and economic policies which respond to the realities of the labour market and which address sources of risk and decent-work deficits for these workers.
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Yes. Workers in informal employment sell the food we eat, make the clothes we wear, care for our homes and families, and keep cities healthy by helping to manage waste. The informal economy contributes to national and global economies. In Mexico, the informal economy contributes almost a quarter of the country’s GDP.
Source: INEGI (2023), Medicion de la economía informal (MEI), 2022 preliminar
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Yes. Many workers in the informal economy contribute to tax revenue. Research done in Accra, Ghana, found that two-thirds (66%) of surveyed self-employed informal-sector operators paid at least one type of tax, fee or payment related to their work.
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No. The internationally agreed concept of informal employment excludes illegal and illicit activities.
Source: ILO (2023), Resolution concerning statistics on the informal economy
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