Global institutions urge developing economies to address informal job sector

LACAC — Major international organizations are highlighting the urgent need for developing countries to address the informal employment sector and focus on increasing the amount of formalized workers, particularly as the COVID-19 pandemic remains unpredictable worldwide.

The challenge is especially critical in Latin America and the Caribbean, which has long struggled with informality among its workforce. The Inter-American Development Bank (IDB) estimates nearly 60 percent of workers in Latin America and the Caribbean have an informal job, giving the region the second-highest average level of informality in the world.

World Bank Managing Director of Development Policy and Partnerships Mari Pangestu, commenting on the matter, said, “Policymakers have long had good reasons to worry about this sector: its participants are vulnerable even under normal conditions.

“Informal businesses rely heavily on family members and moneylenders for working capital, leaving them exposed to sudden income disruptions… When they lose their jobs or suffer severe income losses, they often have no recourse to social safety nets.”

The informal sector encompasses individuals who are not on a formal payroll, such as street vendors or those who perform “odd jobs” like washing cars or outdoor labour for cash. The sector was particularly hard hit by the COVID-19 pandemic and its accompanying mass lockdowns and social restrictions, and with a joint report by the United Nations’ Economic Commission for Latin America and the Caribbean (ECLAC) and International Labour Organization (ILO) predicting that regional job losses in the formal economy will push more workers into the informal economy, the need for “prompt and comprehensive action” is all the more pressing.

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    The ECLAC/ILO report detailed how an expansion of informal employment would create serious challenges especially for those workers, who are at the mercy of the pandemic’s worst effects and who operate “outside the line of sight of governments — in a zone where little help is available to them in an emergency such as the COVID-19 crisis”.

    Pangestu urged governments and labour organizations to take steps that would address this long-standing concern, noting, “Reductions in informality have tended to be greater for reforms that have been accompanied by business development and training programs, public awareness campaigns and stronger enforcement.”

    She added, “The key, however, is to recognize informality as a phenomenon that reflects broad-based underdevelopment — rather than a challenge that can be considered in isolation. For that reason, measures to address informality need to be equally broad-based.”

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    Links:
    ECLAC/ILO: Employment Situation in Latin America and the Caribbean — https://www.cepal.org/en/publications/type/eclac-ilo-report

    World Bank: The Long Shadow of Informality: Challenges and Policies — https://thedocs.worldbank.org/en/doc/37511318c092e6fd4ca3c60f0af0bea3-0350012021/related/Informal-economy-full-report.pdf

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