Studies & Publications

Informality encompasses legal economic activities parallel to a nation's regulated economy. The absence of adequate documentation inherent to the informal sector contributes to the legal and economic disempowerment of workers, robbing them of the protections and benefits formalized institutions provide. The parallel economy informality creates tends to be larger in developing nations. In these countries, informal employment functions as a short-term survival strategy. With rapid population growth and urbanization, developing nations have yet to develop adequate social safety nets and regulatory structures to legally represent the majority of their populations. Thus, informal employment absorbs labor force expansion resulting from rapid growth in the absence of sufficient income-generating employment opportunities. Under these conditions, informal employment contributes substantially to job creation and income generation. Chronically high informality levels, however, are indicative of legal and political vulnerability, allowing institutional and regulatory inefficiencies to persist in the long run. Ultimately, informal employment undermines economic stability, providing a short-term solution for long-running, systemic problems. The broad scope of societal, economic, legal, and political issues associated with high informality renders favorable macroeconomic conditions alone insufficient to reduce informal employment in developing nations. This report examines the implications of informality in 15 developing nations, focusing on civil society, government, labor, and the private sector. Primary findings include: • The causes of informality are variable and not mutually exclusive; they tend to exist on a continuum. • The informal economy may contribute to short-term economic growth by bolstering income and production levels in developing nations. However, the long-term effects of informality are associated with underdevelopment and stagnation.

Informal workers work- often incredibly long hours under harsh conditions and for little pay. A large informal sector can improve a country's overall economy by boosting innovation, production, and income levels- but only for the short term. Leaving these workers on the periphery means that as much as two-thirds of the world's working population remains undeveloped and that we lose a potentially thriving addition to the mainstream economy. A sustainable global economy requires the integration of all workers. With four decades of both success and failure in integrating informal workers into mainstream markets, we have the knowledge to implement real and lasting change.

The Roadmap to Formalization presents a case study providing evidence that feasible policy can be obtained through a multi-stakeholder process. This process was led by the Global Fairness Initiative under the Promoting Informal Labor Rights program (PILAR), a two-year project funded by the US Department of State to improve government capacity to collect data on the informal sector while developing strategies that encourage formalization. PILAR’s broad-based coalition of non-governmental organizations, unions, private sector and government representatives, advocacy groups, and religious organizations has worked together to bring forward their most pressing needs, as well as solutions to break the formality ceiling. In Latin America, informality continues to represent on average over 50% of the economically active population, becoming the main vehicle for employment for the working poor, the majority of whom are women and girls. In Nicaragua alone, 7 out of 10 jobs are created in the informal economy, providing limited opportunity to millions of workers. To address the economic exclusion of informal workers and successfully incorporate them into national and international markets, the Roadmap presents a holistic approach to address informality within the Decent Work Agenda of the International Labor Organization (ILO). Most important, the Roadmap emphasizes the need to extend social safety nets to workers while expanding government’s taxation base for improved services.