Informal employment and undeclared work is a significant labour market problem for some lower- and middle-income OECD countries, prompting concerns about worker protection, making it difficult for governments to deliver high quality public services and hindering productivity and growth. Strong economic growth does not, per se, appear to guarantee a reduction in informal employment. What policies can countries adopt to address informal employment? The answer differs from country to country. Depending on the situation in each of them, incentives for employing workers formally may be improved by a combination of reducing labour costs when they are excessive, increasing flexibility in countries with stringent employment protection legislation and improving the design of social protection schemes to increase the benefits of affiliation to workers. Better incentives should be complemented by enhanced tax, social security and labour enforcement efforts. Improved governance standards would also encourage voluntary compliance.