Transforming livelihoods in the informal sector

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    Project Manager :
    Dominik ETIENNE

    This project looks at what we know about the patterns and drivers of informality, and how policies can help transform the livelihoods of households working in the informal sector for the better.

    In classical accounts of economic development, economic growth is seen to be accompanied by a decline in the informal sector. Yet in most developing countries, the informal sector remains a persistent phenomenon, in spite of rapid economic growth in recent decades. Pervasive informality is particularly wide-spread in Sub-Saharan Africa and South Asia, and less so in East Asia and Latin America, whether informality is defined as lack of firm registration, lack of social security coverage or lack of an employment contract. With ‘premature deindustrialization’ and the growth of the informal service sector, it seems likely that the trajectory towards informalization in low and middle income countries may be intensified in the future. Much of the working poor reside in the informal sector, working in their own enterprises or employed as casual wage labour in poorly paid jobs for other enterprises in the informal sector. In addition, women are more likely to be in the informal sector, either working as unpaid workers in the enterprises headed by the males in their households, or in poorly paid casual jobs in the informal sector.

    Informal economic activity in Latin America, sub-Saharan Africa and South Asia takes many forms and plays different roles. For example, it can be a place of residual employment for many workers at times of economic stress and crisis. It can act as a staging ground for household enterprises in their initial stage of growth. It can also be a hotbed of entrepreneurial talent. The challenge for policy makers in developing countries is to find ways to encourage the movement of workers from the relatively unproductive informal sector to the more productive formal sector and at the same time, provide opportunities for more dynamic informal firms to grow and for the working poor to achieve decent and remunerative work. However, policy makers in these countries are constrained by the lack of available evidence on the causes of informality as well as the most effective mechanisms to reduce unproductive informality and strengthen decent work in the sector. A major objective of the project is to provide the evidence base for better policy making with respect to the informal sector, by understanding the causes and consequences of informality.