Most workers and many small enterprises struggle to escape the uncertainties of life and work in the informal economy to try to earn a decent living.
Although it would be wrong to say that informal economies are unregulated, the norms used by informal economic units are mainly set and applied by informal means. In some cases these norms are benign and incorporate widely accepted community values concerning fairness. However, some of the rules are determined by locally powerful individuals or groups to serve their own interests. Furthermore, although not all formal laws and regulations are ignored in the informal economy, their application is often arbitrary and uneven.
Informality is principally a governance issue. The absence of an appropriate framework for the governance of markets in general, and labour markets in particular, creates an environment of insecurity which prevents the accumulation of physical, financial, human and social capital. Without a strategy for the gradual extension of formal regulations to meet the needs of informal workers and enterprises in the developing world, the productive potential of the world’s working poor will remain untapped, acting as a brake on growth and a source of increasing social tension.
A new approach must be based on the reality that most people live and work in the informal economy not by choice but out of a need to survive.
Wage workers, own-account workers and small businesses in the informal economy face similar problems of insecurity and vulnerability. Unable to find other jobs or start businesses in the formal economy, they lack protection, rights and representation, and often remain trapped in poverty. Especially in circumstances of high unemployment, underemployment and poverty, where opportunities in the formal economy are scarce, the informal economy is the only source of income-generating work. Although many businesses operating in the informal economy display extraordinary creativity, dynamism and innovation and are producing to meet the needs of poor consumers for accessible and low-priced goods and services, they rarely have the means to cross the threshold into formal recognition and obtain the security it can provide for further investment and the creation of more and better jobs.
Crime and corruption are major problems facing workers and enterprises in the informal economy. The absence of effective mechanisms for the enforcement of basic laws to protect individuals from theft and violence is a barrier to the growth of productive employment. The fact that although most informal workers and businesses produce legal goods and services, they are unable to comply with procedural legal requirements (for example regarding registration of enterprises) compounds the problem of extending the rule of law to people who are most in need of its protection.
Reducing poverty through decent work requires the elimination of the negative aspects of informality, while at the same time ensuring that promoting the incorporation of workers and economic units into the mainstream economy does not destroy opportunities for livelihood and entrepreneurship.
Continued progress towards recognized and protected decent work will only be possible by identifying and addressing the underlying causes of informality.
At the core, a main barrier to entry into the economic and social mainstream is the inability of either informal workers or employers to assert the basic rights essential to the efficient and equitable functioning of labour markets.
Effective policies to deal with the problems of informality require the participation of organizations able to represent the concerns and ambitions of informal workers and businesses in national policy-making. Workers and employers in informal activities may wish to join existing trade unions and employers’ organizations, or they may want to form their own. Employers’
and workers’ organizations play a critical role in either strategy: extending membership and services to employers and workers in the informal economy, and encouraging and supporting the creation and development of new member-based, accessible, transparent, accountable and democratically managed representative organizations. In many countries, it is essential to reform legal and administrative frameworks that do not guarantee and protect freedom of association and make it difficult for workers and employers in the informal economy to organize.
The growth of the informal economy can often be traced to inappropriate, ineffective, misguided or badly implemented legal and institutional frameworks and the lack of proper and effective implementation of policies and laws. Breaking out of the trap of informality and poverty requires a policy environment that promotes a culture of responsible entrepreneurship and encourages micro, small and medium-sized enterprises, in particular, to start up and grow within a supportive legal system. Commercial policies that stimulate self-employment and small business expansion, an efficient, accountable public administration free from corruption and a strong educational system are of central importance to private sector investment, whether domestic or foreign. At the same time, labour market regulations need to balance the needs of small enterprises for flexibility and efficiency with workers’ needs for security and fair treatment.
There are no easy solutions to the international and national governance failures that have given rise to the massive growth of informal economies in the developing world. Governments therefore need to formulate and implement a comprehensive approach aimed at helping informal businesses and workers overcome the obstacles to benefiting from the security that legal recognition of their activities provides to enterprise development and the creation of decent work opportunities.
This will entail the identification of legal and administrative requirements that unnecessarily raise the threshold of entry to formality beyond the reach of many informal economic units. It will also need a major investment in training and education and other policies to overcome exclusion from productive and remunerative employment. Local authorities often have a key role to play in encouraging community mobilization around local development plans. In addition, for national action to integrate the informal economy to succeed, reforms in the governance systems for the global economy are also necessary, as described in Chapter 5.
The 2002 session of the International Labour Conference committed the ILO to developing a programme of work and technical assistance, drawing on the expertise of its tripartite constituency, to support member States’
efforts to use the range of tools available within the decent work approach to poverty reduction and development.
A major challenge is to achieve a balance between, on the one hand, the need to ensure that a strategy for improving governance of informal labour markets does not make the already difficult life of people in the informal economy harder and, on the other, the reform and progressive extension of regulatory frameworks that are used in the formal economy. To be effective, new governance systems must make sense to those for whom they are intended, otherwise they will not be used or may inadvertently raise new obstacles to the creation of more and better jobs.
Dialogue with representative organizations of various types is essential.
However, workers and small businesses in the informal economy face enormous difficulties in exercising the right to freedom of association, not least those caused by the constantly shifting nature of employment relationships and the short lifespan of many micro businesses. Governments, local authorities and established trade unions and employers’ organizations have a major role to play in promoting the development of representative organizations and involving them in mechanisms of social dialogue over the policies needed to bring work in the informal economy within the ambit of economywide regulatory frameworks to promote decent work. Supporting this effort is a major priority for the ILO in its discussions with constituents on decent work strategies for poverty reduction.
To learn more about this author, visit International Labour Organization's Website.
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