16/01/2023 – Helping the majority of the world’s active population to escape informality and low-paying jobs demands more efficient social protection and skill development policies, according to the report Breaking the vicious circles of informal employment and low-paying work released today.

Today, nearly 60% of the world’s employed population is working informally, and over 90% in low-income countries. Based on new evidence, the report finds that those typically fall in two distinct categories: a relatively small number of workers in the upper tier of informal employment enjoy relatively high earnings, but the majority – 54% on average, and up to 80% in some countries—are in the lower tier, with earnings below 50% of the median national earnings, fewer skills and much lower productivity levels.

Most workers in developing countries thus carry a double burden of informal employment and low-pay work. As a consequence, they face relatively higher risks of slipping into poverty, and of suffering health-related and old-age hardships, which they are poorly equipped to cope with.

According to the report, children from those households inherit the vulnerabilities of their parents due to lower school attendance; less financial resources and parental time devoted to education; and a lack of social networks to help them find good jobs. Young people in the lower tier of the informal sector are thus more likely to not be in education, employment or training (NEET) and face longer and more uncertain school-to-work transitions. Their first experiences of apprenticeship or work are more likely to be informal than formal, which perpetuates the status of poor, informally employed across generations.

To break the vicious intergenerational circle of informality and low paying developing economies, the report proposes several policy options:

• Tailored solutions for skill development, as well as recognising the skills of informal workers, can go a long way in closing the gap between formal job offers and the abundant informal workforce.
• Taking better account of the different needs of informal workers when investing in social protection can also enhance the benefits considerably.
•  Investing in accessible, equitable, quality education; in the prevention of school drop-outs; and in smoother school-to-work transitions is key to improving the skills of children in informal households.
• For the poorest workers , the best strategy is to ensure that they are adequately covered by labour laws; that they and their children are included in available non-contributory social protection schemes; and  their participation in contributory schemes is subsidised.
• For the better-off informal workers, wider incentives to participate in contributory schemes are needed, but also better compliance with tax and other relevant regulations.
  
  

For more information or to request a copy of the report, journalists are invited to contact Bochra Kriout (Bochra.Kriout@oecd.org; Tel: +33 (0)145 24 82 96) at the OECD Development Centre’s Press Office.