Leaving no one behind in the labour market: looking again at informality

26 January 2018
Market vendors in the Seychelles

All governments have signed up to deliver full employment by 2030 with a commitment to fast-track progress for the poorest and most marginalised. When they did so, they would have been aware that this is what is known (somewhat euphemistically) as a ‘stretch goal’ because of the number of people around the world that are out of work. But improving working conditions in the informal economy may be part of the answer.

By standard definitions, around 212 million people will be unemployed by 2019. But last year a paper by ODI colleagues pointed out that the stretch may be greater even than initially thought: the actual number of people seeking jobs may be nearly ten times higher – closer to 2 billion, two-thirds of whom are women.

Added to this, sub-Saharan Africa faces the particular challenge of its youth bulge. The number of young people there, aged 15-25, is likely to increase by half again (to 281 million) by 2030.

Clearly providing decent work to this, significantly larger, number of people, at the same time as prioritising those at the bottom of the labour market, is a much bigger task than was evident when the full, decent, employment commitment was made. Add this to the International Monetary Fund’s estimation that in low-income countries in sub-Saharan Africa, the informal sector accounts for around 90% of the 400 million existing jobs, and the fact that informality is on the rise in some regions, it would appear highly unlikely that the number of jobs needed will outstrip the capacity of formal labour markets to supply them.

Formalisation and economic transformation – that is, moving people into more stable, better paid, more productive jobs, and moving those jobs into higher productivity sectors – rightly remains the gold standard for policy-makers. But, as we argue in a new paper, they would be well advised to avoid letting the best be the enemy of the better when it comes to jobs.

To wit, if bringing sufficient numbers of people into formal employment isn’t yet possible, there are some promising examples of governments, and others, bringing at least some of the benefits of formalisation into the informal economy, allowing workers to have higher and more secure incomes, as well as increasing their sense of agency over their work. There is evidence that these policies and programmes have improved the circumstances of some of the most vulnerable of these workers, the very people who are least likely to be included in any formalisation processes any time soon.

For example, an entrepreneurship programme developed as part of a randomised trial in Ethiopia provided business training and an unconditional cash transfer to a group of young, unskilled (mostly) women to stimulate self-employment in small informal enterprises, such as market trading. After one year, weekly earnings were one-third higher than previously (although still very small).

In India, a self-employed (ie informal) women’s organisation, the Mahila Housing Self-Employed Women’s Association (MHT), improves the infrastructure of people’s houses, with the aim of improving working (and living) conditions and therefore productivity. In Gujarat, slum electrification policies it negotiated on its members’ behalf meant that 85,000 households in Ahmedabad City benefitted from legal slum electrification in just three years, allowing them to work longer hours.

In Lima, Peru, wastepickers, all of whom are currently informally employed, wear an official uniform, and are included in the city’s waste management planning programme, meaning they have safer working conditions.

South Africa has a minimum wage for domestic workers – a sector generally characterised as hidden, and therefore prone to abusive relationships. An estimated 50 million of the world’s 67 million house cleaners, cooks, childminders etc. are employed informally, and in South Africa around 95% of such workers are poor black African women. Sixteen months after the minimum wage regulation was implemented, wages had increased by 20% and the probability of workers having a contract by 18% – and without any notable effects on employment levels.

And on the border between India and Bangladesh, the respective governments authorised four border ‘haats’, or informal markets, to help informal traders reach new markets. Impacts included increased wages, and improved relations with both the authorities and the local communities, as well as increased ability of the authorities to track informal cross-border trading activities. So successful has the initiative been that six more haats are planned.

Of course, facilitating the improvement of conditions, pay and benefits in the informal economy doesn’t absolve let governments from undertaking the necessary reforms to transform their economies, but instead of a singular focus on that – and conceptualising the informal economy as a temporary aberration – other governments may want to consider implementing similar programmes. If informal really is the new normal, better to embrace it and improve it, rather than dismiss it outright.