Asia-Pacific labour market insights

E-formalization: A Korean success story

An ILO report Digital solutions and formalization: E-formalization case study on the Republic of Korea highlights the role digitalization has played in Korea’s formalization success story and provides a series of valuable experiences for other countries in the region.

Analysis | 25 March 2022
Using technology to drive formalization. © Shutterstock
At first sight, it might appear that the Republic of Korea, with its highly advanced economy has little in common with countries struggling with intractable levels of informality.
Within the span of a single lifetime, the Republic of Korea transformed from a poor, war-torn country to one of the most digitalized, advanced states in the world. Vision, investment, and commitment provided the foundations for a digital economy and e-government systems that have bolstered economic growth and supported inclusion.

This digital transformation offers valuable experiences to other countries in the Asia–Pacific region (and beyond) as they increasingly turn to digital solutions to overcome barriers to formalization and foster labour market inclusion.

In recent times, the COVID-19 pandemic has seen digitalization pushed high on national agendas. With overwhelming evidence that those in the informal economy around the world have suffered the most devastating impacts from the crisis, governments are striving to accelerate digitalization to reach those most in need of support and relief.

‘E-formalization’ is about what technology can bring to the table to entice or impel more informal enterprises and workers into the realm of formality, and in so doing, bringing the typically more vulnerable workers under the umbrella of public services and labour protections.

The Republic of Korea has been a global leader in e-formalization for nearly two decades.

The country has developed numerous digital processes which can be adapted by other countries looking to digitalization to bring about shifts towards the formal economy. Among them are measures that foster inclusion (e.g. public information portals), measures that promote efficiency (e.g. streamlined single windows for a variety of purposes), measures that expand democracy (e.g. interactive mechanisms in policy making), and measures that ensure transparency (including taxation and public procurement).

The report highlights a number of the factors behind Korea’s remarkable success in using technology to drive formalization. These include addressing the digital divide where a strategy of establishing high-speed internet services and providing computer education to every part of society has been integral to e-formalization efforts.

Other key factors include extensive capacity building of the public services sector which helped overcome resistance and inertia. Developing partnerships with the private sector, academia and civil society organizations were also important, as was leadership from the highest level – the Office of the President – to ensure continuity despite numerous changes of government.

E-formalization measures in the Republic of Korea have delivered numerous benefits. Digitalization has enabled citizens and businesses to significantly reduce the amount of time needed to engage with and visit government offices. Streamlining, simplification and integration of service portals have reduced costs and time for enterprises, big and small alike, to register and fulfil legal requirements on payroll and taxes.

Nevertheless, the report highlights that simplification and streamlining may not be sufficient on their own to encourage businesses to formalize. Evidence from around the world also suggests that the range of incentives to formalize and disincentives to remain informal also play a vital role.

One of the overriding lessons is the need for an integrated approach that avoids fragmentation of effort and activities within governments and partnering organizations."

Sara Elder, Senior Economist for the ILO Regional Office for Asia and the Pacific and a co-author of the report
“The many benefits of e-formalization are clear. The Korean experience provides a wealth of good experiences and lessons that all countries can learn from.”

For further information please contact:

Sara Elder
Senior Economist, ILO Regional Office for Asia and the Pacific
Email: elder@ilorg