OECD warns that informal workers make up 60% of global workforce

Fighting the underground economy continues to be one of the most complicated problems facing countries across the world. It is difficult to solve because it stems from the particular circumstances in which the labor force operates and, therefore, from the socio-political enclave that leads people to withdraw from the system. The result is a symbiosis so deep-rooted that it requires a complex global transformation. According to a study by the Organization for Economic Cooperation and Development (OECD) published on Tuesday, six out of 10 workers today operate outside the law, most of them in developing and emerging economies. Worse still, according to the report, the children of informal workers “inherit their vulnerability” and are likely to follow in the same footsteps. Only strengthening social protections and implementing policies for skill development can end this vicious circle, according to the OECD.

In the 166-page document titled Breaking the Vicious Circles of Informal Employment and Low-Paying Work, the international organization — which brings together 38 countries, mostly industrialized nations — warns that informal workers make up 60% of the world’s workforce. This category includes workers within the underground economy, who are among the lowest paid and are more likely to fall into poverty, and to have difficulties related to health and old age. These difficulties affect both the workers and the members of their households.

The study warns that it is “extremely infrequent” for workers in this situation to transition to formal employment, and that even when this does occur, “such transitions do not necessarily result in income improvements for the poorest workers.”

The report argues that this is due to their low education level. Around 45% of informal workers have, at best, a primary level education, compared to 7% in formal employment. Their lack of education makes it more difficult for them to access higher paying jobs with higher incomes. “This hampers the adoption of new technologies and productivity, perpetuating informal employment and a vicious, intragenerational circle of informality,” the study states.

The OECD report also warns that informal work is “path-dependent,” pointing out that children of informal workers have a lower chance of entering the formal workplace. “This is because their school attendance, from primary level onwards, is lower than that of children with formally working parents; less financial resources and parental time are devoted to their education; and school-to-work transitions are longer and more uncertain for them,” the report explains.

The OECD report also offers recommendations on how countries can address the problem of informal employment, pointing to two main areas: social protection and skill development policies.

For the former, it calls on countries to extend social protection via non-contributory and contributory social protection schemes, and by mobilizing “additional revenues [...] through strengthened tax compliance and enforcement, in ways that do not increase the cost of formalization unreasonably.”

And for the latter, the OECD recommends creating “more specific opportunities [...] and public skills development programs tailored to their needs.” In other words, by recognizing the skills acquired through informal work.

The report concludes that policymakers must recognize that “certain workers will never be able to move out of low-paid, informal jobs,” and that, in these cases, the priority should be to alleviate the double burden through: “remuneration policies that address inequality; effective minimum wages; and measures to improve the bargaining power of low-paid informal workers.”

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