By Anders Gerdin, Swedish International Development Cooperation Agency (Sida), and Alexandre Kolev, Head of the Social Cohesion Unit, OECD Development Centre
This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.
The outbreak and spread of COVID-19 is having and will have a disproportionate impact on informal economy workers across the world, especially in developing countries, where they represent about 70% of the workforce. Many of these informal economy workers are poor and most lack labour, social and health protection. As they often simply cannot implement social distancing, they are particularly exposed and vulnerable to the pandemic. In turn, entire economic sectors, of which informal workers are a mainstay, could collapse. The food economy is a case in point. The combination of border closures and the likely shortages of informal workers due to confinement measures may put food security at risk. Urgent policy action is needed to protect these workers and recognise their value as essential service providers.
By and large, informal economy workers have to work “no matter what” to maintain a basic income. They work in poor occupational, safety and health conditions, with inadequate access to water and sanitation, and a dearth of mechanisms to manage risks. Even before the pandemic, access to healthcare, including where it is free, was mostly out of reach as the cost of abstaining a day’s income was far too high. Additionally, many migrant informal workers face these risks combined with those related to their undocumented migrant status. Amidst the pandemic, earning an income has become much more difficult as buyers have disappeared, and are avoiding public spaces. In other words, informal economy workers find themselves exposed to income and health risks with a low capacity to mitigate either, if any. The global economic crisis is already affecting developing countries; informal workers will suffer severe and increasing economic losses for the foreseeable future – with ripple effects on their households and communities.
Attempts to contain and mitigate the COVID-19 crisis through lockdowns in developing countries may not be particularly effective and relevant where informality is the norm, and social distancing and proper self-isolation may be unmanageable. These measures could threaten not just the livelihoods of informal workers but the very survival of communities. Confronted with growing duress, informal workers may have to trade off the infringement of confinement measures (with possible negative consequences on public health) for the survival of their households.
In this challenging context, ignoring the specific needs of informal economy workers could fuel resentment and social tension, worsen poverty, and put social cohesion and food security at risk. Specific policy measures must urgently be taken, recognising the value of the contribution of informal economy workers to society.
Four critical lines of action can protect informal workers from these risks, reduce their vulnerability and minimise negative externalities on local communities and the economy at large. First, governments should devise mechanisms to extend social protection to informal economy workers. The good news is that a number of countries have already been able to expand the fiscal space needed to scale up social protection programmes financed through government revenue, for instance tax financed pensions, disability benefits, child benefits, maternity benefits or employment guarantee schemes. Temporary cash transfer programmes to informal workers who have lost or are at risk of losing their income-generating activities due to the pandemic and related confinement measures could also be put in place, as India is doing now. Other countries have also succeeded in increasing the coverage of contributory social protection schemes to informal economy workers. Factors of success include combining the formalisation of enterprises with access to social protection; extending statutory coverage to previously uncovered workers; adapting benefits, contributions and administrative procedures to reflect the needs of informal workers; and subsidising contributions for those with very low incomes.
Second, governments should work with companies – which often employ informal workers – and local authorities to improve occupational safety and health all along the value-chain and in farmer markets, including better access to water and sanitation facilities. Specifically, and for the time being, immediate action should be taken to provide protective equipment such as masks and water points with soap to informal economy workers who earn a living in public, often crowded spaces.
Third, legislation is necessary to consider all informal economy workers – from production to manufacturing to distribution to selling – as essential service providers. In South Africa, for instance, essential staff excluded from being able to stay at home include those involved in food transportation and delivery.
Fourth, as countries look to extend social protection to informal economy workers, it is essential to take into account their household contexts and monitor informality at both the individual and household levels. The Key Indicators of Informality based on Individuals and their Households (KIIbIH), currently available for 40 developing countries, show that an average of 34% of informal workers live in poor households and could be a priori taken out of poverty through the extension of social assistance covering all eligible households. Another 39% live in food secure households and could potentially afford to enrol in contributory social protection schemes if these were available and suited to the diverse needs of informal workers. However, it is worth recalling that informal workers are far from untaxed and often face taxes and fees disproportionate to their income – statistics should thus be interpreted with caution.
In conclusion, mitigating the vulnerability and exposure to risks of informal economy workers is a matter of urgency to minimise the ripple effects of the pandemic in developing countries and the likely worsening of poverty and inequality. Sadly, the pandemic reminds us that while investing in universal social protection and universal health care can yield large and long-lasting benefits, the cost of inaction is – and will be – tremendous. But it is also bringing a pre-existing and more fundamental problem to the forefront. Governments, and their international partners must address the many root causes of informality, from structural to institutional to behavioural factors.