Informal Economy

COVID-19 in Latin America: Promoting entrepreneurship and reducing social vulnerabilities

Development Matters Covid-19, Employment, Human Development, Latin America and the Caribbean, Social Protection , , , , , , , , ,

By Jorge Arbache, Private Sector Vice-President, Development Bank of Latin America (CAF)

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.

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Vendor in Quito, Ecuador. Photo: teranbryan_ecu/Shutterstock

Statistics show that economic growth in Latin America is highly volatile, with periods of acceleration and collapse. This dynamic hides perverse implications. The combination of low growth persistence with high-growth volatility is associated with greater risk aversion, which in turn encourages financial speculation and firms to invest in lower risk, but also lower social return projects. Additionally, poverty and other social indicators are also very sensitive to the harmful combination of short growth spells and high volatility. Continue reading →

Fighting COVID-19 in Africa’s informal settlements

Development Matters Africa, Covid-19, Human Development, Infrastructure, Social Protection , , , , , , , ,

By Maimunah Mohd Sharif, Executive Director, United Nations Human Settlements Programme (UN‐Habitat)

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.

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Kibera informal settlement in Nairobi, Kenya. Photo: Boris Golovnev/Shutterstock

The COVID-19 pandemic has cost hundreds of thousands of lives in the world’s richest cities but poses an even greater threat to cities in the developing world. There are now more than 150,000 confirmed cases of coronavirus across Africa, in all 54 countries, with South Africa and Egypt the worst affected.

One of the most pressing concerns for Africa is that over half the population (excluding in North Africa) live in overcrowded informal settlements. In these areas where several people have to share one badly ventilated room, diseases such as COVID-19 spread fast and it is impossible to practice physical distancing whether in homes or outside. Continue reading →

The COVID-19 crisis: income support to informal workers is necessary and possible

Development Matters Covid-19, Employment, Social Protection , , ,

By Laura Alfers, Director, Social Protection Programme, WIEGO, Rachel Moussié, Deputy Director, Social Protection Programme, WIEGO and Jenna Harvey, Global Focal Cities Coordinator, WIEGO

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.

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Photo: Shutterstock

Income recovery in the informal economy will require broad and longer-term support

Juana Corman wakes at 2:00 a.m., as she has for decades, to travel across town to the distribution centre where she picks up stacks of newspapers to sell. Normally, she would sell from her dedicated kiosk to pedestrians on Lima’s busy streets, but under Peru’s mandatory stay-at-home order, her work has changed. Now, she sells the daily paper house-to-house – delivering critical information to a city on edge. In one respect, Juana Corman is more fortunate than many other informal workers in the city – as an essential worker she is able to continue working. However, selling door to door has meant a significant reduction in earnings at the same time as her costs have increased due to limited public transport and the need to purchase protective equipment. Continue reading →

Why protecting informal economy workers is so critical in time of COVID-19

Development Matters Covid-19, Employment, Social Protection , ,

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.

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Local market in Antipolo City, Philippines, during the coronavirus outbreak. Photo: Shutterstock

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. Continue reading →

What youth need: A greater focus on job quality

Development Matters Policy, SDGs, Youth , , , , , ,

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By Niall O’Higgins, Senior Research Specialist, Youth Employment Programme, International Labour Organisation (ILO)

Learn more about this timely topic on the upcoming
OECD Global Forum on Development
Register today to attend

women-africaFor young people, successful entry into the world of work – that is, successful transition from education to employment – means more than simply finding a job. Successful transition occurs only when young people find decent work. What is actually meant by this has been the subject of much debate for a number of years; but its essence is encapsulated in the ILO’s notion of freely chosen and productive employment.

While it can be hard to define precisely what ‘decent work’ looks like, it is fairly clear what it is not. It is not informal employment. It is not work that provides insufficient income to meet basic needs. It does not involve excessive working time or any form of compulsion. Typically, it does involve some degree of job security, protection from arbitrary dismissal, access to social protection, such as health insurance and pension schemes, and freedom of association.
Continue reading →

Policy pathways for addressing informality

Development Matters Policy , , , ,

By Juan R. de Laiglesia, Senior Economist, OECD Development Centre

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Vendor selling fresh vegetables in Galle, Sri Lanka

The prevailing international discourse on informality has shifted. The conceptual “discovery” of the informal sector by the ILO’s Kenya mission in 1972 noted not only its scale but also that it was “…economically efficient and profit-making…” Today, the view that informality is a drag on productivity growth and progress has gained ground in the international community and is consistent with the recommendation that the informal economy should be formalised.

One contention is that balanced development and policy action that lifts the financial, technological, institutional and human capital constraints to productivity will also enable higher productivity in informal firms and thereby formalisation. A growth-inducing productivity agenda is a necessity, but growth alone is not enough to reduce informality.
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Services, informality and productivity in Africa

Development Matters Africa, Policy , , , ,

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By Tabea Lakemann, Research Fellow, GIGA Institute of African Affairs and University of Göttingen, and Jann Lay, Acting Director, GIGA Institute of African Affairs, and Head of GIGA Research Programme Growth and Development

Learn more about this timely topic at the upcoming
17th International Economic Forum on Africa

Services, informality and productivity in AfricaEconomic development and a sustained, broad-based increase in living standards on the African1 continent are critically connected to the capacity of African economies to create decent jobs at a rate that keeps up with the rapid growth of the workforce. This, in turn, depends on the ability of African governments to develop innovative, tailor-made strategies towards private sector development taking full advantage of countries’ comparative advantages. Private sector development strategies require governments to recognise the significance of informality and to look beyond industrialisation — to the service sector — for private sector growth and job creation.

The potential of informal firms

On average, the informal economy is estimated to make up almost 40% of GPD in Africa.2 Informal firms are typically much smaller than formal ones, but even when controlling for size, they are on average less productive, less likely to access external finance and have less educated managers.3 At the same time, heterogeneity between informal firms is considerable. Some firms exhibit very high marginal returns to capital, and between 28% and 58% of informal entrepreneurs in West Africa are identified as “constrained gazelles” with low capital stocks, but some unrealised growth potential.4 Many informal firms thus have the likely potential to provide an improved livelihood to their self-employed owners and family members engaged in the business.
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Excessive informal sector: a drag on productivity

Development Matters Policy , , ,

By Aleksander Surdej, Poland’s Ambassador to the OECD

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Photos by Victor Jiang / Shutterstock

The informal economy remains a problem when we discuss the prospects of economic development. It is perceived as a hindrance to economic progress because the informal sector does not pay taxes, does not include its employees in social insurance schemes and does little to offer labour law protections. Increasingly, various researchers (La Porta1, Shleifer2, 2014) and international organisations, like the OECD, converge in seeing the informal economy as an obstacle to economic development due to its imminent low productivity. Indeed, informal businesses are concentrated in low productivity sectors. They are, on average, smaller and hence less productive. They generate lower value added. They pay lower wages to their employees and do not train them. And the owners of informal businesses manage their firms less efficiently than their better educated formal sector counterparts.

The informal sector is hence both a symptom of economic backwardness and a drag on economic development. But, can this apparent vicious circle be broken, or is it an economic policy donquichottean task?

Continue reading →