Tackling Vulnerability in the Informal Economy

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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.


Risks and vulnerabilities in the informal economy

Risks and vulnerabilities are part of everyday life for many people in the world of work and their families, Often, these risks and vulnerabilities appear in proportion to the scale of informal employment and the breadth of public and private risk management systems. Despite representing the majority of the workforce and supporting a disproportionately large number of dependents (Chapter 1), the contribution of informal workers to society is not well recognised or understood, making their inclusion as beneficiaries of tax-financed government programmes difficult to argue in many places (Chapter 2). This chapter assesses the risks and vulnerabilities in the informal economy. It shows that informal workers face larger poverty and occupational risks that, combined with lack of access to appropriate risk management instruments, push many into income insecurity or make them vulnerable to poverty. Without effective policies to manage the risks – especially occupational safety and health (OSH) and social protection policies – informal economy workers will remain particularly vulnerable and continue to pass vulnerability on to others, particularly children and the elderly, who disproportionately live in informal households in developing countries.


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