Facilitating transition from
the informal to the formal economy
Concepts, challenges and on-going ILO’s standard setting process
Philippe Marcadent,
Chief
Inclusive Labour Markets, Labour Relations and
Working Conditions Branch - ILO
Structure of the presentation
I.
The informal economy: concepts, heterogeneity and
diversity of profiles across countries
II.
Drivers of informality and processes of formalization
III. The ILO and the informal economy:

Some key conclusions from the ILC 2002 General Discussion
on Decent Work and the Informal Economy

The Standard Setting Discussions on Formalization of the
informal economy – ILC 2014 & 2015
Some definitions
• Employment in the informal sector – All jobs in informal
sector enterprises - “ENTERPRISE-BASED DEFINITION”– 15th ICLS
1993
• Informal economy - All economic activities by workers and
economic units that are – in law or in practice – not covered
or insufficiently covered by formal arrangements - 90th ILC
2002
• Informal employment – “All informal jobs, whether carried
out in formal sector enterprises, informal sector enterprises,
or households - “JOB-BASED DEFINITION”– 17th ICLS 2003
Components & heterogeneity of informal employment
Diversity of profiles of the informal economy
across countries
In Low-Income Countries (relatively homogeneous profiles)
•
•
•
•
High preponderance of informal employment (IE): 70% - 95% of total employment
(including agriculture); low share of formal employment in the private sector < 510%;
Informal employment mainly in the informal sector;
Preponderance of informal employment in agriculture (rural) and petty trade
(urban) - two areas with very low productivity - high incidence of poverty -> Profile
of “survival activities”
High prevalence of self-employment: 81% of informal employment in sub-Saharan
Africa
In Middle-Income Countries (significant variations among countries)
•
•
•
Share of informal employment in total employment, between 30% and 60%;
Share of informal employment outside the informal sector relatively high between
10 and 35% in Latin America (urban), 10 and 25% in Asia.
Share of self-employment in total informal employment – between 50 and 70%
Diversity of profiles of the informal economy
across countries (2)
In High-Income Countries
•
Undeclared employees, employees who lack access to labour benefits and/or
social security (e.g. some atypical forms of work) represent an important
manifestation of informal employment.
High prevalence of informal employment in developing
countries:
•
•
Estimates of informal employment as a share of non-agricultural employment:
82% South Asia, 66% in sub-Saharan Africa, 65% in East & Southeast Asia
(excluding China), 51 % in Latin America, 45 % Middle East & North Africa.
Share of informal employment even higher if agriculture is included.
Dynamic of informal employment over time
Dynamics of informal employment in the formal and informal sectors of the economy
in Argentina
Links between informality and income
level per capita
Source: Statistical update on employment in the informal economy, ILO; 2012
Multiple drivers of informality
Broad range of factors - embrace but transcend the world of work, including
•
•
•
•
•
•
•
•
•
•
•
Inability of the economy to create enough formal jobs (e.g. low growth, job less growth)
Regulatory framework inadequate or lacking (e.g. exclusion from the legal coverage of groups of
workers, difficulty to comply because of excessive costs and/or complexity);
Weak enforcement systems (e.g. low capacity/coverage of labour/social security inspectorate);
Lack of transparency and accountability of public institutions/lack of trust in public institutions
(e.g. ineffective social security system);
Lack of adequate social benefits to secure income (e.g. survival activities);
Low productivity (e.g. inability to overcome costs of formalization);
Low educated and qualified workforce (e.g. low mobility from informal to formal jobs);
Discrimination (e.g. exclusion of workers from categories of jobs based on race, gender, age);
Attractiveness of informal activities (e.g. evasion of tax/contributions, work family balance);
Lack of voice and representation of workers (e.g domestic workers, home-based workers);
….
Transversal drivers: influence almost all forms of informality (e.g. inefficient
public institutions, inappropriate macroeconomic frameworks)
Specific drivers: specific to a particular type of economic unit (e.g. micro and
small enterprises), group of workers (e.g. domestic workers).
Why the formalization of the economy is a
desirable goal ?
•
For individuals (workers and/or employers)
– Improved access to rights at work, social security and decent working conditions;
– Better access to representation and national policy dialogue;
•
For enterprises
– Better access to credit and other productive factors, including through public programmes;
– Expended access to markets: participation in public procurements, access to imports and
exports through formal channels;
– Reduction of the influence of corruption, greater respect for commercial contracts, etc.
•
For society at large
– Broadening the tax base (increasing the scope of public action, reducing tax rates, etc.);
– Increased equity with regard to the contribution to public budget and to benefits of
redistributive policies;
– Increased efficiency and sustainability of preventive & compensative measures to address
risks;
– Fairer competition in national and international markets
– Greater social cohesion
….But in practice, perceptions might diverge from the above…
Multiple forms of formalization processes
• Formalization processes can take different forms:
– Existing economic units moving towards full formality or
becoming fully formal:
• e.g. extending the scope of the laws, registration/increased compliance
under commercial acts, with tax, labour and social security authorities).
– Existing jobs moving towards full formality or becoming fully
formal.
• e.g. extending coverage of labour regulation; extending coverage of
social security; establishment of a contract to reflect an existing
employment relationship; registration of unregistered employment
relations
– Transitions that result in jobs and economic units being
destroyed in the informal economy and others created in the
formal economy.
+ Prevention of informalization of formal employment
Broad range of policies 
formalization/informalization
• Policy that explicitly aim to tackle informality vs. others policies that
influence formalization without having formalization as an explicit
aim (e.g. growth strategies, education policies);
• Policies that affect transversal drivers of formalization (e.g.
strengthening governance of social security system);
• Policies that target specifics categories of economic units (e.g.
special multidimensional schemes for MSE), groups of workers (e.g.
bringing domestic work under the scope of labour law), type of
informality (e.g. undeclared work in formal enterprises);
• Heterogeneity of informal economy & multiple drivers  broad
range of policies influence formalization/informalization.
ILO’s position on the informal economy (ILC
2002)
• Decent work deficits are the most pronounced in the informal economy; > Make decent work a reality for all workers, women and men, regardless
of the nature of their job;
• Facilitate transition of workers and economic units from the informal
economy to the formal economy  Priority objective when addressing
the informal economy
• Adopt a holistic approach to formalization that encompasses the four
pillars of decent work: promotion of rights, employment, social protection
and social dialogue
• Eliminate the negative aspects of informality while ensuring that
livelihoods and entrepreneurship are not destroyed
• When promoting formalization, necessity to take into account the
specificities of each context and the enormous heterogeneity of the
informal economy
• Going beyond a dual vision formal - informal sector: interpenetration of
formal/informal; grey areas between formal and informal, etc.
Standard Setting on Formalization of the IE
(SSFI) – Background
ILC 2014:
• Outputs of the Commission:
– Report on the discussions in Committee plenary
– The Proposed Conclusions
After ILC 2014 and before ILC 2015:
• Report (1) (Brown Report) that includes the first Draft Recommendation –
communicated for observations to Member States (available);
• Report (2) (“Blue Report”) that provides an overview of replies received, an office
commentary and, eventually, a revised draft Recommendation;
ILC 2015:
• Second discussion by the Commission;
• (Possible) Submission of the proposed instrument to the ILC for adoption
Structure of the Proposed Recommendation as
included in the latest ILO’s report (“Brown Report”)
Only a draft at that stage !!
• Preamble
I. Objective and scope
II. Guiding principles
III. Legal and policy frameworks
IV. Employment policies
V. Rights and social protection
VI. Incentives, compliance and enforcement
VII. Freedom of association, social dialogue and role of employers’
and workers’ organizations
VIII. Data collection and monitoring
IX. Implementation and follow-up
Thank You