Informal economy

The informal economy comprises more than half of the global labour force and more than 90% of Micro and Small Enterprises (MSEs) worldwide. Informality is an important characteristic of labour markets in the world with millions of economic units operating and hundreds of millions of workers pursuing their livelihoods in conditions of informality.

The expression “informal economy” encompasses a huge diversity of situations and phenomena. Indeed, the informal economy manifests itself in a variety of forms across and within economies. Formalization process and measures aiming to facilitate transitions to formality need to be tailored to specific circumstances that different countries and categories of economic units or workers face.

The 2002 ILC Resolution and Conclusions on Decent Work and Informal Economy was a milestone in the ILO’s integrated approach to informality. Recommendation concerning the transition from the informal to the formal economy (R204) adopted by the International Labour Conference in June 2015, constitutes a historic landmark for the world of work as it is the first international standard focusing exclusively on the informal economy in its entirety.

EMPINVEST, in collaboration with the ILO Regional Offices and other technical units, is promoting integrated policy framework that facilitates the transitions from the informal to the formal economy through providing technical assistance to the ILO tripartite constituents on the development of such integrated policy framework based on social dialogue, policy oriented research and capacity building activities on the issue of facilitating transition to formality.

Informality is an important characteristic of labour markets in the world with millions of economic units operating and hundreds of millions of workers pursuing their livelihoods in conditions of informality. It has shown resilience, including in countries that have recorded a high and steady growth; it has reappeared under new forms in the context of globalizing economies and increased in many countries as a result of the global financial crisis. Informality exists in both advanced economies and developing countries, although it is more prevalent in the latter and circumstances vary greatly across countries and regions.

The informal economy is a key challenge in today’s globalized economies for the rights of workers, sustainable enterprises, social protection and decent working conditions, the rule of law, public revenues and government’s scope of action. In that context, addressing informality by encouraging transition to formality is increasingly seen as an important dimension of inclusive development and growth strategies, and an important goal of employment policies.

Some countries are leading the way in this respect by making transition to formality a policy priority and showing promising results and good practices in curbing informality through the adoption and implementation of a mix of policy measures. Success stories show that the formalization of the informal economy requires integrated policy frameworks aiming at: (i) facilitating transition of workers and economic units from the informal to the formal economy while respecting workers’ fundamental rights and ensuring opportunities for income security, livelihoods and entrepreneurship; (ii) promoting the creation, preservation and sustainability of decent jobs in the formal economy and the coherence of macroeconomic, employment, social protection and other social policies; and (iii) preventing informalization of formal economy jobs.

The 2002 ILC Resolution and Conclusions on Decent Work and Informal Economy was a milestone in the ILO’s approach to informality. The 2014 International Labour Conference marked a new step forward by starting a two year general discussion with a view to the elaboration of a new ILO standard: a Recommendation on Transition from the informal to formal economy, that would provide further guidance in this important policy area.

The 2013 ILO Policy Resource Guide on The Informal Economy and Decent Work presents a state of the art synthesis of strategies in specific policy areas e.g employment, social protection, rights and regulatory frameworks, equality and non-discrimination, that take into account the diversity and heterogeneity of the informal economy across countries as well as within countries. It underscores the need for proactive public policies that encourage transition to formality through both incentive based and compliance based strategies.

The Informal Economy Unit, in collaboration with the ILO Regional Offices and other technical units, is promoting integrated policy framework that facilitates the transitions from the informal to the formal economy through providing technical assistance to the ILO tripartite constituents on the development of such integrated policy framework based on social dialogue, policy oriented research and capacity building activities on the issue of facilitating to formality.