Policy Brief: The Informal Economy – How the ILO has planned to tackle this ‘hidden’ workplace

By Sarah Hake

The informal economy has been a contested topic at the ILO, and has recently been at the forefront of many initiatives which have the goal of achieving decent work for all men and women. The problems faced by workers within the informal economy often stem from their lack of rights. There is a strong gender inequality within this economy, which provides the ILO with an even more distinct battle in gaining decent work for women within this area. The ILO now plans to tackle the informal workplace though formalisation of this economy.

In 2002, the constituents of the ILO shared a consensus on the immediate need to address the informal economy and working together in order to promote decent work within this economy. The informal economy can be detrimental for those who work within it. The ILO (2013) recognised that informal economy workers are ‘often not recognised, registered or counted in national statistics… and may be outside the reach of social protection, labour legislation and protective measures at the workplace’. Because of this, the informal economy is typically associated with unsafe conditions, little rights for those who work within it, long working hours with very low pay (although not everyone in the informal economy is in poverty), and very strong gender segmentation, where women and youth are most likely to suffer marginalisation. The informal economy is also characterised by the difficulty in gaining a true statistical picture of its extent. This is because, as discussed earlier, there are many workers within the informal economy who can work undetected. There are many drivers for the informal economy; issues such as poverty, flexibility as a result of globalisation, changing production structures, economic restructuring and others are all important in the development and growth of the informal economy. Therefore, the informal economy is a substantial issue for the ILO in their work to find decent work for all, and has regularly been commented on as an issue that ‘is a very broad, challenging and long term task that goes beyond a single biennium’ (ILO 2017).

Decent work for all has been a key element behind the ILO’s work within both the formal and informal economy, and certainly the end goal of decent and productive work for both men and women is not limited to the formal economy. In the 2013 publication ‘The Informal Economy and Decent Work’, the ILO discuss informality and the four decent work pillars, which are employment, social protection, social dialogue and rights. These are aspects which must all be looked at in order to promote decent work for those in the informal economy and enable their transition from the informal to the formal economy.

In 2015, the ILO published Recommendation 204, which provided three objectives to member states in relation to the informal economy, and was the instrument from the ILO to specifically address the informal economy. These objectives are:

  • To facilitate the transition of workers and economic units from the informal to the formal economy, while respecting workers’ fundamental rights and ensuring opportunities for income security, livelihoods and entrepreneurship
  • Promote the creation, preservation and sustainability of enterprises and decent jobs in the formal economy and the coherence of macroeconomic, employment, social protection and other social policies
  • Prevent the informalisation of formal economy jobs

The specific nature of the Recommendation meant that it was labelled as ‘historic’ (ILO 2015), as it ‘points to the desired direction of many countries in making the transition to formality’. The guidance of the document gave many countries the knowledge of how to begin the transition from the informal to formal economy, and it can be seen that this certainly has helped conditions in various countries. For example, the ILO (2015) reported on the Self Employed Women’s Association in India. This organisation, aimed at providing services to women in India, has been successful in organising, incentivising and empowering women in the informal economy, and thus transitioning to a more formal economy. Services would include training, assistance in establishing cooperatives and others. The organisation has also inspired others in other countries, showing, not only its success, but the need for other initiatives like this in other societies. Moving forward from Recommendation 204, November 2015 saw the adoption of a strategy for the 2016-2021 period, aimed at formalising the informal economy, which was based on four interrelated components:

  • Promotional awareness raising and advocacy campaign
  • Capacity building for tripartite constituents
  • Knowledge development and dissemination
  • International cooperation and partnerships

In addition to this strategy, Outcome 6 builds on the work of Recommendation 204 and the work already done in this area by improving the legal and policy frameworks which facilitate the transition from the informal to the formal economy, strengthening the awareness of the constituents to facilitate this transition, and also focusing on gender equality and the needs of vulnerable groups throughout the transition.

The needs of vulnerable groups is a key element throughout Outcome 6, and gender equality is promoted at a global level, shown through the ILO publication ‘Formalising Domestic Work’, a female-dominated area of the informal economy. Gender equality within the informal economy is also a part of the Women at Work Centenary Initiative. Although there have been previous Recommendations on the domestic sector of the informal economy, such as Recommendation 189, there is now a clear movement to transitioning domestic workers out of the informal economy and into the formal economy. Other strategies include developing ways to promote financial inclusion for women, which can be seen in Zambia, for example. Here, as explained by the Outcome, commercial banks have adjusted their lending practices in the hopes of attracting more female entrepreneurs in the informal economy.

At the 329th Governing Body Meeting, Outcome 6 sat on the agenda for discussion, with the draft decision being that ‘The Governing Body requests the Director-General to take account of its guidance in further implementing the strategy for outcome 6 of the Programme and Budget for the biennium 2016-17 on formalisation of the informal economy’. Whilst the group of policy analysts were not able to hear discussion of this at the Governing Body meeting, and therefore cannot discuss individual comments on this aspect of the agenda, it is very much evident that formalisation of the informal economy is the key to moving workers out of an economy that can present those within it with a real deficit of decent work. These objectives are certainly a step forward for the ILO in promoting decent work for all, the challenge now comes down to ratification by all constituents, which can be extremely difficult. And, although all members must respect the four fundamental rights at work (whether they have ratified the appropriate conventions or not), one would believe that the only way for the informal economy to be improved is through a unity of adopting measures which target this economy, not just through a hope that the constituents will respect the rights laid down by the ILO.


Sarah Hake is a Postgraduate Taught student in Human Resource Management at Sheffield University Management School.

References and resources

‘The Informal Economy and Decent Work: A Policy Resource Guide supporting transitions to formality’, ILO, 2013: http://www.ilo.org/wcmsp5/groups/public/—ed_emp/—emp_policy/documents/publication/wcms_212689.pdf

‘R204 – Transition from the Informal to the Formal Economy Recommendation’, ILO, 2015: www.ilo.org/dyn/normlex/en/f?p=NORMLEXPUB:12100:0::NO::P12100_ILO_CODE:R204

‘ILO adopts historic labour standard to tackle the informal economy’, ILO, 2015: www.ilo.org/ilc/ILCSessions/104/media-centre/news/WCMS_375615/lang–en/index.htm

‘Ways out of informality: How a new ILO standard tackles the informal economy trap’, ILO, 2015:www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_377771/lang–en/index.htm

‘Outcome 6: Formalisation of the Informal Economy’, ILO, 2017: www.ilo.org/wcmsp5/groups/public/—ed_norm/—relconf/documents/meetingdocument/wcms_544713.pdf





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