Dashboard on Informality

Labour informality affects people’s livelihoods not only at the individual level but also at the household level.

As a driver of low wages, as well as gaps in social insurance coverage and other forms of social protection, informality may have deep consequences on households’ welfare, especially if informal workers live in households with no formal workers. The household dimension of informal work is therefore critical as it can mitigate or exacerbate individual vulnerabilities; understanding its realities can help shape policies that can improve the well-being of people, including non-working individuals.

Social protection refers to the broad system of public policies designed to reduce poverty, help people manage life risks, and protect them from economic hardship, with social insurance and social assistance acting as its main pillars. Social insurance refers to contributory schemes, such as pensions, health insurance and unemployment benefits. These programmes protect people against life risks and are usually financed through worker and employer contributions. Social assistance refers to non-contributory support, such as cash transfers or food assistance. It is typically financed through general taxation and aims to support people living in poverty or vulnerability.

At the household level, informal workers who live with formal workers may benefit indirectly from their formal status, which often brings greater income stability and better social protection. For example, a formal worker’s health insurance may also cover other family members.