Tackling Vulnerability in the Informal Economy

image of Tackling Vulnerability in the Informal Economy

A majority of workers in the world are informally employed and contribute to economic and social development through market and non-market activities that are not protected, regulated, well-recognised or valued. This study provides an in-depth diagnosis of informality and the vulnerability prevailing in the informal economy. It explores new ideas to improve the lives of workers in the informal economy based on the ILO indicators of informality and the new OECD Key Indicators of Informality based on Individuals and their Household (KIIbIH).

The report contributes in four ways to the global debate on the transition from the informal to the formal economy: 1) by examining the multiple faces of informality in a large sample of countries representing diverse conditions, locations and stages of development; 2) by presenting new empirical evidence on the links between informality and the development process; 3) by assessing risks and vulnerabilities in the informal economy, such as poverty and occupational risks, which can be mitigated with social protection and appropriate risk management instruments; 4) by showing that the transition to formality is a complex issue that touches on a wide range of policy domains.


Protecting informal economy workers and their dependents

A majority of people in the Global South depend on informal employment for subsistence (Chapter 1). They contribute to the economy and society through market and non-market activities that are not well recognised or valued (Chapter 2), which leaves a majority of informal workers and their families outside the realm of public policy. Lack of access to appropriate risk management instruments, combined with large poverty and occupational risks, push many informal economy workers into income insecurity or make them vulnerable to income poverty (Chapter 3). This chapter examines lessons learnt from recent country experiences and information from new indicators of informality to identify policy solutions. Social protection systems, occupational safety and health (OSH), together with measures to raise productivity and wages and support the representation and voice of workers, can be directed to tackle the vulnerability of informal economy workers and their families, facilitate transition to formality and become a real pillar of inclusive development. The extension of social protection to informal economy workers should pay more attention to how formal and informal social protection can complement each other, to more equitable and sustainable financing, and to ensuring the portability of social protection rights and benefits across different types of employment, during life and work transitions. Tackling the vulnerability challenge requires an integrated approach that combines the extension of social protection with other measures to improve working conditions, raise productivity and wages, and support the representation and voice of informal workers. The chapter further illustrates why indicators of informality based on individuals and their households are needed and how they can help develop policy solutions to extend coverage and facilitate the transition from the informal to the formal economy.


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