Background Paper No. 1

The effectiveness of interventions to reduce informality in low- and middle income countries

Labor markets in developing countries are characterized by high levels of informality. In order to address this persistent challenge, a multitude of policies and programs have therefore been implemented in many countries with the aim to increase the formalization of firms or workers, or both. Given the policy relevance of labor market informality and the large spectrum of interventions aiming at increasing formality, the empirical evaluation of these interventions is of key interest to policy makers, to learn about the effectiveness of formalization initiatives. This paper reviews the evidence on the effects of formalization interventions in developing countries in a quantitative way.