With informality affecting 61 percent of the world’s employed population, it is crucial to secure the livelihoods of workers and families who rely on the informal economy, according to Tackling vulnerability in the informal economy.
The joint report by the Development Centre of the Organisation for Economic Co-operation and Development (OECD) and the International Labour Organisation (ILO) examines the diverse reality and multiple faces of informality, based on a large sample of countries representing various conditions, locations and stages of development.
It uses recent ILO individual-based indicators of informality, available for 119 developing and developed countries, and the new OECD Key Indicators of Informality based on Individuals and their Household (KIIbIH), available for 27 emerging and developing countries.
The report finds that informality occurs in all types of employment and globally affects more than 4 in 5 own-account workers, 1 in 2 employers, 2 in 5 employees and all contributing family workers. The agriculture and industry sectors are the most exposed: nearly 94 percent of agriculture workers and 57 percent of industry workers are informal.
Furthermore, informality represents 70 percent of all employment in developing and emerging economies, compared with about 18 percent in developed countries. Globally, 81 percent of all enterprises are informal. While globally, informal employment is a greater source of employment for men, in a small majority of countries (55 percent), the share of women is higher.
The level of informal employment also varies substantially over the lifecycle, with youth and older workers more exposed. Informal employment absorbs less-educated workers: globally, about 94 percent of workers with no education are in informal employment, compared with 52 percent of those with secondary education and 24 percent of those with tertiary education.
The report, which for the first time adds a household dimension to the profiling of informal workers, shows that working individuals within households may be informally or formally employed.
A majority of households are completely informal (all working members in informal employment) in most countries for which data are available. The share of completely informal households also varies greatly across countries and regions, from 3 percent in Chile to 92 percent in Burkina Faso.
A large number of children and older individuals are indirectly exposed to informality: on average among the 27 countries covered, around 60 percent of all children (under age 15) and older individuals (over age 60) in developing and emerging economies live in completely informal households. The figure is 80 percent or above in some African countries.
The report shows that contrary to common belief, informal workers and firms contribute somewhat to tax collection efforts both directly, through indirect taxes and presumptive taxes, and indirectly, through the links between formal and informal outputs.
Furthermore, the informal economy also contributes to economic growth in several direct and indirect ways that go unrecognised, including the systematic transfer of hidden subsidies to the formal economy. Recent estimates point to a large contribution by the informal sector to GDP: as high as 30 percent with agriculture and 17 percent without agriculture.
The goal of universal social protection can only be reached if it is effectively extended to workers in the informal economy. This requires expanding both social insurance, which relies on employment-related contributions and thus may not reach the poorest, and social assistance, which targets the poor but relies on scarce public finance.
Ensuring that both social insurance and social assistance are designed and implemented in a gender-responsive way is indispensable to promote gender equality and achieve universal social protection. po