During economic crises, the poor are seen as targets for social assistance or social safety nets. But the working poor, especially those engaged in the informal economy, are not recognized as legitimate targets for economic rescue or recovery efforts because it is widely believed that the informal economy provides a “cushion” to those who lose their jobs in the formal economy. It is assumed that informal workers must be doing all right.
But a two-year Inclusive Cities study indicates that informal enterprises and informal workers are affected in many of the same ways – and often to a greater degree – than formal enterprises and formal workers by economic crises.
What should be done to address the impact of economic crises on the informal economy?
Participants in the Inclusive Cities study of the impact of the 2008-2010 global economic recession on urban informal workers provided these recommendations:
Emergency Relief Measures: There is a growing consensus in the international community that emergency cash transfer programs and public works are needed to help the working poor, and the poor more generally, survive economic crises without further impoverishment. There is scope for targeting these emergency measures to specific groups of working poor who are in particular danger of losing their sources of livelihood.
Sector-Specific Rescue Plans: Specific bail-outs or rescue plans should be developed in consultation with different groups of working poor that would help them maintain existing employment opportunities during the crisis or secure new employment opportunities after the crisis. Home-based workers need basic infrastructure services at reasonable rates, as their homes are their workplaces. Construction workers need skills training. Street vendors need secure places to vend in good locations. Waste pickers need access to waste and space for sorting and storing waste.
“Do No Harm” Measures: During crises, the laws, rules, and regulations that prohibit or undermine livelihoods of the working poor and the policy biases that favour formal firms and workers over informal firms and workers should be suspended. Most notably, perhaps, urban regulations and planning that ban street vending or deny waste pickers access to waste should be suspended.
Longer-Term Window of Opportunity: The global financial and economic crisis has spurred a call for rethinking economic models and policies. This rethinking should include rethinking of the mainstream economic approach to the informal economy. The goal of “formalization” should be to increase earnings and reduce risks of the working poor in the informal economy, not simply registration and taxation of informal enterprises.
Formalization should have three “pillars”:
- appropriate regulation and fair taxation
- legal and social protection
- measures to increase earnings and productivity.