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.


Informality in the development process

The informal economy is a dominant feature of developing economies and encompasses a diverse group of workers and enterprises (Chapter 1). This heterogeneity prompts various perceptions of and stereotypes about the informal economy and has fuelled debate about its role in the development process. To inform policy debate and decision makers, this chapter reviews links between informality and the development process and, more importantly, provides new evidence on the less-studied drivers of informality. It shows that the long-standing negative connotation of informality is not always grounded in evidence and often masks the subtler reality. Fighting stereotypes and promoting an accurate picture of the informal economy’s contribution to development is key to making the case for investing in the protection of workers.


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