The Diversity of Informal Employment: a survey of drivers, outcomes, and policies

Abstract

Informal employment is widespread across many developing countries and remains to be the source of livelihood for billions of workers and their families. Even though diverse forms of informal employment can be seen globally, the paper mainly focuses on developing countries due to high share and endurance of the informal sector. The aim of the paper is to provide a comprehensive overview of the drivers and outcomes of informal employment by distinguishing between wage labor and self-employment. Additionally, the paper reviews potential policies that could incentivize workers and informal firms to transition to the formal sector. Given that the impact of informal employment on workers’ well-being is closely tied to individual characteristics and job status, the paper also examines the various types of informal employment that exist across different working groups. This includes informal employment among women, youth, and vulnerable groups such as migrant workers. Finally, the paper briefly discusses potential policies aimed at formalizing informal enterprises and offering greater protections to informal employees. This includes measures such as improving access to social protection benefits, promoting skills development, and training for informal workers, and creating more flexible and adaptable regulatory frameworks that can better accommodate the needs of informal firms.