The Informal Sector

	Hari Srinivas
	Policy Analysis Series E-210. November 2024

Abstract
The informal sector plays a crucial role in the global economy, yet its workers often lack the protections and benefits enjoyed by those in the formal sector. International conventions from organizations like the International Labour Organization (ILO) and other United Nations (UN) agencies provide frameworks for enhancing labor rights and social protection for informal workers.

This document explores how aligning local policies with these international standards can lead to more inclusive economic growth. Highlighting successful initiatives from countries such as India, Brazil, and South Africa, it demonstrates the benefits of extending social security, simplifying formalization processes, and providing targeted assistance to improve the livelihoods of informal sector.

Keywords:
Informal Sector, International Conventions, Labor Rights, Social Protection, Economic Inclusiveness, Policy Alignment, Formalization, Social Security

The International Labor Organization estimates that about two billion workers, or over 60 percent of the world's adult labor force, operate in the informal sector--at least part time. Source: ILO

The See GDRC documents on Defining the Informal Sector on the main Informal Sector Programme pagesInformal Sector constitutes a significant portion of the global economy, providing livelihoods for millions of people worldwide.

Despite its substantial contribution to economic activity, the informal sector often operates without the protections and benefits enjoyed by formal sector employees. International conventions, such as those established by the International Labour Organization (ILO) and other United Nations (UN) agencies, provide essential legal and policy frameworks for improving the conditions of informal workers. Aligning local policies with these international standards can lead to more inclusive and equitable economic growth.

Governments across the globe are increasingly recognizing the need to support and formalize the informal sector, without losing the essential "benefits" of informality ). This shift is driven by a commitment to upholding labor rights, enhancing social protection, and fostering economic inclusiveness - a trend that is termed as "formalizing the informal sector" where formal sector benefits are infuse into the informal sector.

By implementing policies that extend social security, simplify formalization processes, and provide targeted assistance and training, countries can significantly improve the livelihoods of informal workers. This document outlines the ways in which international conventions have influenced local policy initiatives and highlights successful examples from various countries.

What are "International Conventions"? International conventions and multilateral agreements are formal treaties and protocols established between multiple countries to address global issues and set standardized practices. These agreements are legally binding and are typically negotiated under the auspices of international organizations such as the United Nations (UN) or the International Labour Organization (ILO). They cover a wide range of topics including human rights, environmental protection, labor standards, and trade regulations. The primary goal of these conventions and agreements is to promote cooperation and ensure that participating countries adhere to agreed-upon norms and policies to tackle common challenges.

International Conventions Impacting the Informal Sector

International conventions impact the informal economic sector in various ways, particularly by setting standards and providing frameworks for labor rights, social protection, and economic inclusiveness. Some key conventions include:

International Labour Organization (ILO) Conventions:

• ILO Convention No. 87 (Freedom of Association and Protection of the Right to Organise Convention, 1948): Protects the rights of workers, including those in the informal economy, to form and join trade unions.
• ILO Convention No. 98 (Right to Organise and Collective Bargaining Convention, 1949): Ensures workers' rights to collective bargaining.
• ILO Convention No. 177 (Home Work Convention, 1996): Sets standards to protect homeworkers, a significant part of the informal economy.
• ILO Convention No. 189 (Domestic Workers Convention, 2011): Aims to improve the working conditions of domestic workers, who often work informally.

Articles related to the right to work, just and favorable conditions of work, and social protection indirectly impact informal workers by advocating for their inclusion in these rights.

Articles 6, 7, and 9 focus on the right to work, fair wages, safe working conditions, and social security, all of which are relevant to the informal sector.

• Goal 8 (Decent Work and Economic Growth: Promotes inclusive and sustainable economic growth, full and productive employment, and decent work for all, including those in the informal sector.
• Goal 1 (No Poverty) and Goal 10 (Reduced Inequalities): Address economic disparities and social protection measures, impacting informal workers.

World Bank and International Monetary Fund (IMF) Policies:

While not conventions, their policies and guidelines often influence national economic policies that affect the informal sector. They emphasize formalization and social protection measures.

These conventions and international frameworks help shape national policies and legislation, aiming to integrate informal workers into the formal economy and ensure their rights and protections are upheld.

Impact on local policies towards the informal sector The influence of international conventions on local policies towards the informal sector can be significant. There are essentially seven types of impacts of international conventions on the informal sector as illustrated in Figure 1.

Figure 1: Impacts of International Conventions and
Multilateral Agreements on the Informal Sector

Here's how they typically impact local policies:

1. Legislation and Regulation:

Countries often revise or introduce legislation to comply with international conventions. Aligning with international standards (for instance, adhering to ILO conventions) can lead to the enactment of laws that protect the rights of informal workers, ensure fair wages, and regulate working conditions. Local policies can also improve labour rights, by guaranteeing freedom of association and collective bargaining rights for informal workers, inspired by ILO Conventions No. 87 and No. 98.

2. Social Protection Programs:

Conventions that emphasize social protection (e.g., ILO Conventions and the UN Covenant on Economic, Social, and Cultural Rights) can lead to the development of inclusive social security schemes that cover informal workers. Policies can be designed to provide healthcare, maternity benefits, and pensions to workers in the informal sector, inspired by international health norms.

3. Formalization of the Informal Sector:

Local policies can offer incentives for informal businesses to formalize, such as tax breaks, simplified registration processes, and access to credit and training. Local governments can also invest in supportive infrastructure (e.g., markets, workspaces) to help informal businesses transition into the formal economy.

4. Economic Inclusion and Poverty Reduction:

Inspired by the SDGs, particularly Goals 1 and 10, local policies can target poverty reduction and economic inclusion programs for vulnerable groups - specifically for informal workers. Local policies can also promote job creation in the formal economy, aiming to absorb informal workers and provide them with secure, regulated employment.

5. Labor Inspections and Enforcement:

Local authorities can strengthen labor monitoring and inspection systems to ensure compliance with new regulations protecting informal workers. This can also include enforcement mechanisms, where policies can incorporate stronger enforcement mechanisms and penalties for violations of labor rights in the informal sector.

6. Capacity Building and Training:

Governments can implement training programs to improve the skills and capacities of informal workers, helping them transition to formal employment. Policies can also include awareness campaigns to inform informal workers of their rights and available social protections.

7. Data Collection and Research:

Inspired by international standards, local policies can mandate more comprehensive data collection on the informal sector to better understand its size, characteristics, and needs. Local policies can also promote research and analysis to inform evidence-based policymaking targeting the informal sector.

Examples of national/Local action towards the informal sector

Many countries have taken various steps to support the informal sector by aligning their local policies with international conventions and frameworks. Here are a few examples:

India
Social Security Code 2020: India consolidated several labor laws into four labor codes, including provisions for social security benefits for informal workers. The code aims to extend social security schemes like pensions, healthcare, and maternity benefits to gig workers and those in the informal sector.	E-Shram Portal: Launched in 2021, this national database registers unorganized workers to facilitate access to social security benefits and welfare schemes.
Brazil
Simplified Tax Regime (Simples Nacional): Introduced to encourage the formalization of small and micro-enterprises by simplifying tax procedures and reducing the tax burden.	Bolsa Família Program: A social welfare program providing financial aid to low-income families, including many informal workers, conditional on children's school attendance and vaccination.
South Africa
National Informal Business Upliftment Strategy (NIBUS): Aims to support informal businesses through capacity building, access to finance, and infrastructure development.	Expanded Public Works Programme (EPWP): Provides short-term work opportunities and training to improve the skills and employability of the unemployed, including those in the informal sector.
Mexico
Prospera Program: Similar to Brazil's Bolsa Família, this conditional cash transfer program aims to reduce poverty and promote education and health, benefiting many informal workers.	Formalization Policies: Efforts to streamline business registration processes and offer tax incentives to encourage informal businesses to register formally.
Kenya
National Hospital Insurance Fund (NHIF): Expanded to include informal workers, providing them with access to healthcare services.	Ajira Digital Programme: Targets youth employment by providing digital skills training to improve employability in both formal and informal sectors.
Philippines
Kasambahay Law (Domestic Workers Act): Provides labor protection, mandatory benefits, and social security coverage for domestic workers.	Integrated Livelihood and Emergency Employment Program (DILEEP): Supports informal workers by providing livelihood opportunities and emergency employment.
Ghana
National Health Insurance Scheme (NHIS): Extends health insurance coverage to informal sector workers.	Youth Employment Agency (YEA): Offers skills training and employment opportunities to youth, including those in the informal economy.
Thailand
Universal Health Coverage Scheme: Provides healthcare services to all citizens, including those working in the informal sector.	Informal Workers Protection Act: Offers social security benefits to informal workers, including access to healthcare, pensions, and accident insurance.

The above examples illustrate how countries are implementing policies inspired by international conventions to support the informal sector. By extending social protection, simplifying formalization processes, and providing targeted assistance and training, these initiatives aim to improve the livelihoods and working conditions of informal workers.

Way Forward ...

The integration of international conventions into local policies offers a pathway to sustainable development and social equity. By adopting these global standards, governments can ensure that informal workers are afforded the rights and protections necessary for their well-being and economic stability.

The examples from India, Brazil, South Africa, and other nations demonstrate the tangible benefits of such alignment, from enhanced social security coverage to improved access to healthcare and formal employment opportunities. As local and national policy makers continue to address the challenges of the informal sector, leveraging international conventions will be crucial in creating a more inclusive and resilient economy.

References

NOTE: This document is based on a policy analysis of the programme examples from India, Brazil, South Africa, and other nations listed above.

ILO (2002), "International Labour Standards and the Informal Sector: Developments and Dilemmas" Working Paper on the Informal Economy. Geneva: International Labour Organization [https://www.ilo.org/media/307496/download]

Srinivas, Hari, "Formalizing the Informal Sector: Lessons from Penang, Bandung and Bangkok". GDRC Reseaarch Output E-108. Kobe, Japan: Global Development Research Center. Retrieved from https://www.gdrc.org/informal/doc-7-formalizing.html on Sunday, 23 June 2024

Srinivas, Hari, "Labour Standards for the Informal Sector? Strategies to Protect Informal Workers". GDRC Reseaarch Output: Policy Analysis Series C-026. Kobe, Japan: Global Development Research Center. Retrieved from https://www.gdrc.org/informal/labour-standards.html on Sunday, 23 June 2024

Srinivas, Hari, "Empowering the Informal Economy: Strategies for Integration and Growth". GDRC Reseaarch Output - Policy Analysis Series C-047. Kobe, Japan: Global Development Research Center. Retrieved from https://www.gdrc.org/informal/empowering-is.html on Sunday, 23 June 2024

This work by GDRC is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License. You are free to share and adapt this piece of work for your own purposes, as long as it is appropriately cited. More info: http://creativecommons.org/licenses/by-sa/4.0/ on