How can you address labor market informality?

1 Define and measure informality

The first step to address informality is to define and measure it. There is no single definition or indicator of informality, as it varies across countries and sectors. However, some common criteria include the legal status of the enterprise, the employment relationship, the social security coverage, and the income level of the worker. You can use different sources of data, such as household surveys, labor force surveys, administrative records, and tax records, to estimate the size and characteristics of the informal sector and workers.

2 Understand the drivers and barriers of informality

The second step is to understand the drivers and barriers of informality. Informality can be a result of various factors, such as poverty, lack of education, weak institutions, high taxes, rigid regulations, corruption, discrimination, and cultural norms. Some workers may choose informality as a way to escape poverty, access flexible work arrangements, or pursue entrepreneurial opportunities. Others may be forced into informality due to the lack of formal jobs, social protection, or legal rights. You can use qualitative and quantitative methods, such as interviews, focus groups, case studies, and econometric models, to analyze the motivations and constraints of informal workers and employers.

3 Design and implement policies and programs to address informality

The third step in addressing informality is to design and implement policies and programs. While different types of informality may require different approaches, there are some general principles that can be applied. These include simplifying and reducing the costs and procedures of formalization for small and medium enterprises and self-employed workers, expanding and improving the quality and affordability of social protection, health care, education, and training for informal workers and their families, enforcing labor rights, minimum wages, occupational safety and health, and collective bargaining for informal workers, supporting the transition from informal to formal employment through financial incentives, technical assistance, business development services, and access to credit and markets. Additionally, it is important to strengthen the institutional capacity and coordination of relevant authorities like labor inspectors, tax collectors, social security agencies, and local governments. Lastly, raising awareness among social partners such as employers' organizations, workers' organizations, informal workers' associations, civil society organizations, and media is essential.

4 Monitor and evaluate the impact of policies and programs

The fourth step is to monitor and evaluate the impact of policies and programs. You can use indicators, such as the share of informal employment, the income and poverty levels of informal workers, the tax revenue and social security contributions of informal enterprises, and the satisfaction and perception of informal workers and employers. You can also use methods, such as surveys, interviews, focus groups, and randomized controlled trials, to assess the effectiveness, efficiency, relevance, and sustainability of policies and programs. You can use the results to improve the design and implementation of policies and programs, as well as to communicate and disseminate the lessons learned and best practices.

5 Adapt to the changing context and challenges of informality

The fifth step is to adapt to the changing context and challenges of informality. Informality is not a static or homogeneous phenomenon, but a dynamic and diverse one. It can be influenced by various factors, such as technological innovation, demographic transition, environmental degradation, migration, urbanization, and globalization. You can use foresight and scenario analysis, as well as stakeholder consultation and participation, to anticipate and respond to the emerging trends and opportunities of informality. You can also use innovation and experimentation , as well as learning and knowledge sharing, to develop and test new solutions and approaches to address informality.

6 Collaborate and cooperate with other actors and initiatives

The sixth step is to collaborate and cooperate with other actors and initiatives. Informality is a complex and multidimensional issue, that cannot be solved by a single actor or sector. It requires a holistic and integrated approach, that involves multiple levels and dimensions of governance, such as national, regional, local, and global, as well as economic, social, political, and cultural. You can use platforms and networks, such as coalitions, alliances, partnerships, and dialogues, to coordinate and align your actions and resources with other actors and initiatives, such as the International Labour Organization, the World Bank, the United Nations, the European Union, and the G20. You can also use tools and mechanisms, such as agreements, protocols, standards, and frameworks, to harmonize and synergize your policies and programs with other actors and initiatives.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?