Say “informal employment” and chances are people envisage street hawkers peddling their wares in crowded big city streets, be that plastic toys in Ouagadougou, Burkina Faso, or garam chai in New Delhi, India.
Informal labor is most visible in developing countries where it provides up to three-quarters of all employment outside agriculture, the
International Labour Organization (ILO) found. Women often outnumber men – for example, in India’s manufacturing sector, where 94% of women working in the sector are employed informally. Regrettably, such work often goes hand in hand with low per capita income and high poverty rates, ILO found.
By its nature, informal employment is difficult to measure, and
assessing it is much debated. The International Labour Organization defined it as the share of workers employed in informal units or having informal jobs over the total number of workers. Informal units were defined as small, unregistered employers while informal jobs were understood to lack basic social or legal protection as well as employment benefits such as severance pay or sick leave.
Yet informal work also has long-term implications. In developing, but also in developed countries, social security schemes are designed around formal employment. Workers need to be registered and pay contributions, which determine their share of benefits. Informal workers obviously lack these characteristics and thus fall through the cracks of state and occupational pension schemes.
Family support often serves as the only safety net in developed countries. Yet as family size decreases and social structures change, old-age poverty becomes a real concern and the urgency of extending pension systems to the informal sector is increasing. Consequently, several countries have recently introduced policies to extend old-age protection to informal workers, setting up incentives to encourage voluntary participation in formal systems (Thailand) or implementing mandatory participation in existing schemes (Indonesia).
THE “CASUALIZED” WORKFORCE
Informal work may look different in developed countries but is increasingly becoming an issue. The rise of the on-demand economy is accelerating a trend toward a more rootless and “casualized” workforce. New technologies allow a fast and almost perfect match, without much formality, between jobs and independent contractors willing to perform them. This model applies to taxi services, where Uber is the most prominent example, and professional services as well.
A recent survey on freelancing suggests that in 2015, about one-third of the US workforce – approximately 54 million people – have engaged in some freelancing over the past 12 months.
Such “Uberization” of work requires workers in developed countries to be increasingly self-reliant, similar to street vendors in the developing world. A rethinking of existing structures of old-age provisioning is required in developed countries as well, at both governmental and company levels, as informal employment is one of the forces shaping the future of pensions worldwide.
Explore the global pension landscape with the interactive Global Pension Atlas