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The Informal Sector

Sustainable Development Goal #8:
Decent Work and Economic Growth

SDG 8 and the Informal Sector


Hari Srinivas
Research Note Series E-117. July 2020.


The informal economic sector is directly and indirectly addressed in many of the Sustainable Development Goals (SDGs), particularly through SDG #8: "Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all"

Roughly half the world’s population still lives on the equivalent of about US$2 a day. And in too many places, having a job dosen’t guarantee the ability to escape from poverty. Substandard working conditions are often related to poverty, inequality and discrimination. These are the conditions within which the informal sector performs.

The informal sector ... essentially consists of micro and small enterprises that operate outside the formal/legal system of an economy. It is predominantly set up by the lower-income households in cities and towns; do not use a license to operate; pay no taxes for their activities and do not have any protection for their labourers.

The International Labour Organization (ILO) points out, "The expression “informal economy” encompasses a huge diversity of situations and phenomena. Indeed, the informal economy manifests itself in a variety of forms across and within economies."

The informal economy comprises more than half of the global labour force and more than 90 per cent of micro and small enterprises (MSEs) worldwide. Informality is an important characteristic of labour markets in the world with millions of economic units operating and hundreds of millions of workers pursuing their livelihoods in conditions of informality.

The SDGs ... also known as the Global Goals, were adopted by all United Nations Member States in 2015 as a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. The SDGs are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice.

Considering that most of the target population for meeting the SDG #8 are poor or work in the informal sector, it is logical that the two themes are intrinsically linked.

Work in the informal economy can be characterized as:

  • work places in unsuitable/vulnerable lands, or in squatter settlements/slums
  • unsafe and unhealthy working conditions
  • low levels of education, skills and productivity
  • incomes that are low or irregular
  • family-based enterprises with long working hours
  • limited access to information, markets, finance, training and technology.

We need to remember that conditions in the informal are less than ideal, since workers are usually not recognized, licensed, regulated or otherwise protected under labour legislation and social protection systems." - making them the ideal targets for SDG #8.

For example, Target 8.3 call for governments to “promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage formalization and growth of micro-, small- and medium-sized enterprises including through access to financial services”. While the indicator designated for this target is "Proportion of informal employment in non-agriculture employment, by sex", it is clear that broader informal economic activities, particularly in urban areas also need to be looked into and targeted.

Since the informal sector represents the developmental challenges of poverty, disadvantaged sections of the population, job creation, economic growth, et. al, ensuring that the sector is a priority for government programmes also concerns other SDGs as well - SDG 1 on poverty, SDG 5 on gender equality, SDG 10 on equality, SDG 16 on institutions, and SDG 17 on partnerships, among others.

The full list of 12 Targets under Goal 8 are:

TARGET 8.1: Sustainable Economic Growth
Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries.

Take into account the economic output that the informal sector generates (not counted at present) in promoting economic growth, including "formalizing" the informal sector without loosing its essential benefits [1]

TARGET 8.2: Diversify, Innovate and Upgrade for Economic Productivity
Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labour-intensive sectors.

Informal sector activities are intrinsically labour intensive - and efforts need to be directed to improve their efficiency and productivity, including the use to appropriate and environmentally sound technologies.

TARGET 8.3: Promote Policies to Support Job Creation and Growing Enterprises
Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services.

Efforts to promote policies to support job creation and enterprise development within the informal sector will take advantage of the inherent dynamics of the sector, and will also target other SDGs, such as poverty reduction.

TARGET 8.4: Improve Resource Efficiency in Consumption and Production
Improve progressively, through 2030, global resource efficiency in consumption and production and endeavour to decouple economic growth from environmental degradation, in accordance with the 10-Year Framework of Programmes on Sustainable Consumption and Production, with developed countries taking the lead.

Many informal sector activities, due to the restricted market conditions that they operate, not only use resources efficiently, but reuse and recycle materials extensively. This has to be acknowledge and made more efficient to enable the sector to contribute to the Target's achievement.

TARGET 8.5: Full Employment and Decent Work with Equal Pay
By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.

This target should obviously include workers in the informal sector, who operate within their own unique set of disadvantages and disincentives. Considering the large numbers of people involved, particularly in developing countries, "decent work" takes on an additional but necessary challenge for governments to assist the informal sector.

TARGET 8.6: Promote Youth Employment, Education and Training
By 2020, substantially reduce the proportion of youth not in employment, education or training.

Such NEET youth (not-in-employment-education-training) are in fact, in a majority of cases, underemployed in the informal sector, particularly in urban areas of developing countries, but which are not counted in tabulating national economic data). Enhancing their job status, skills and capacities to work in the informal sector should be an important policy objective.

TARGET 8.7: End Modern Slavery, Trafficking and Child Labour
Take immediate and effective measures to eradicate forced labour, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labour, including recruitment and use of child soldiers, and by 2025 end child labour in all its forms.

Some informal enterprises are indeed involved in such illegal labour practices, particularly in family-owned/run enterprises. Targeting such practices and countering it with positive and progressive policies that improve their economic, social and environmental conditions will be critical policy approach for local governments to achieve this target.

TARGET 8.8: Protect Labour Rights and Promote Safe Working Environments
Protect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment.

Considering the disadvantageous and exploitative conditions that informal enterprises operate in, including corruption, much of this Target's actions on protecting labour rights and related issues, need to be focussing on the conditions in the informal sector.

TARGET 8.9: Promote Beneficial and Sustainable Tourism
By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products.

Informal sector workers, particularly in large cities, are in a majority of cases, migrants from smaller towns and villages. They bring along with them their cultures and heritage assets with them when they migrate. These assets form ideal resources to be taken advantage of for the purposes of responsible, sustainable and pro-poor tourism development policies.

TARGET 8.10: Universal Access to Banking, Insurance and Financial Services
Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.

Due to a lack of access to formal financial institutions, informal enterprises invariably set up mutual-aid or other forms of informal finance systems that will be able to serve them/. With the recent advent of microcredit and microfinance systems that target the poor, these systems need to be understood better and integrated and formalized into the mainstream, so as to be better able to serve the informal sector.

TARGET 8.A: Increase Aid for Trade Support
Increase Aid for Trade support for developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-related Technical Assistance to Least Developed Countries.

More than 70-90 percent of economic activities in Least Developed Countries (LDCs) are in fact informal. This means that any action to increase aid for trade support has to logically take into consideration the position and contribution of the informal sector.

TARGET 8.B: Develop a Global Youth Employment Strategy
By 2020, develop and operationalize a global strategy for youth employment and implement the Global Jobs Pact of the International Labour Organization.

Inherently for LDCs, measures under this Target should take the informal sector into consideration to accelerate the economic recovery of the their economies.


[1] The "advantages" of the informal sector could be listed as (1) ease of entry and easy to set up, (2) requires very low initial investment or resources, (3) does not require high skills or qualifications, (4) does not require to obtain a license that may lead to delays or corruption.




References

ILO. Formalization of the informal economy: Area of Critical Importance (GB.325.POL.1.1). Geneva : ILO, 2015.

SDG Compass (2020), SDG 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Retrived from https://sdgcompass.org/sdgs/sdg-8/on 30 July 2020.

United Nations, SDG8: Progress of goal 8 in 2019. United Nations: SDG Knowledge Platform


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