ILO urges member states to tackle informal economy

The International Labour Organization (ILO) has adopted a new international labor standard that aims to help millions of people move into formal employment.

The new standard provides guidance for ILO member states to encourage jobs and businesses within the formal economy, and prevent the informalization of formal-economy jobs.

The ILO estimates that over half the global workforce is currently engaged in the informal or unregulated economy, lacking many rights and opportunities offered by formal employment. The new recommendation recognizes that most people enter the informal economy due to a lack of any other options.

ILO Director-General Guy Ryder commented that: “Over the years we’ve seen a growing consensus between governments, workers, and employers that the right thing to do is to move people from an informal to a formal employment situation. We know it is not easy, we know that these are processes are complicated and take time, but … we now have an international framework of guidance to help member states bring this about.”

The ILO recommendation, which is the first international labor standard aimed at tackling the informal economy, was passed at the recent 104th International Labour Conference in Geneva.

Fabián Slonimczyk has written for IZA World of Labor about informality in emerging and transition economies. He argues that: “Informality can be the result of restrictions that exclude some workers from formal positions. But many studies suggest that labor markets are well integrated, implying that a large fraction of informal employment is voluntary. Poverty alleviation efforts should thus be focused on vulnerable groups and bad times (recessions).”

In July, IZA World of Labor will publish a new article by Angel Melguizo of the OECD Development Centre on informality and pension systems in emerging economies. In the article, Melguizo writes that: “a combination of traditional and innovative social, tax, and labor tools should be used to improve the incentives for businesses and workers to become formal.”

Read more at the ILO website.