Dashboard on Informality

Jobs are the cornerstone of the development agenda, especially as young cohorts enter the labour market. Informal jobs provide livelihoods and contribute to the global economy, but they also come with risks. Compared with formal workers, informal workers are more likely to be in precarious forms of work, such as own-account work or unpaid family work, and often remain confined to low-skilled activities. They are also more likely to work fewer hours, part-time, and in micro and small enterprises.

Not all workers face the same risk of informality. Globally, the risk is highest among own-account workers and workers in non-standard forms of employment, including unpaid contributing family workers.

However, informality is not limited to the self-employed. Employees may also operate informally if their employer does not contribute to social security on their behalf, or if they do not have access to paid annual leave or sick leave. Employers can also be considered informal when they run an economic unit in the informal sector, such as an unincorporated private enterprise that is not registered with the relevant national authorities or does not keep formal accounts. 

The informal economy has a strong sectoral dimension. Globally, informal employment is most common in the primary sector, largely because informality remains widespread in agriculture.

Informal employment is also prevalent in specific parts of the secondary and tertiary sectors. These include construction, domestic work, accommodation and food services, wholesale and retail trade, and the repair of motor vehicles and motorcycles.

Skill acquisition and recognition remain major challenges for informal workers. They often have lower levels of schooling than formal workers, but also have fewer opportunities to upgrade their skills through employer-provided training, public training programmes or other forms of learning.

At the same time, formal employers often require more advanced or certified skills. Workers who lack specialised training, or who cannot formally prove the skills they have acquired on the job, may struggle to meet the requirements for formal employment.

As a result, economies with high levels of informal employment often face significant skills mismatches. Many workers lack access to the training and certification needed to move into formal jobs, while the skills they do have may remain under-recognised or underused.

Education mismatch shows whether workers’ level of education is aligned with the typical educational requirements of their occupation.

Comparing education mismatch among informal and formal workers helps assess whether informality is associated with weaker alignment between education and occupational opportunities. High levels of under-education may point to gaps in education systems, especially where workers do not have the level of educational attainment usually required for the jobs available. High levels of over-education may instead suggest that the labour market does not create enough jobs suited to workers’ education levels, or that the type of education provided does not fully match labour market needs.

Globally, informal employment is heavily concentrated in small and micro enterprises. These firms often operate below the size or tax thresholds that trigger registration requirements. Even when registration is required, the perceived costs of compliance may outweigh the expected benefits.

By contrast, larger firms are easier for tax and labour authorities to monitor. They also face stronger legal and reputational incentives to formalise their workforce.

How many hours someone works (and how regularly) often says as much about job quality as the job itself.

Informal jobs are often found at both ends of the working-time distribution. Many informal workers work outside standard working-hour arrangements – working either far fewer or far more hours.

Among informal workers, women tend to work fewer hours than men and are more likely to work part time. This may reflect the need for greater flexibility to balance paid work with care responsibilities, which still fall disproportionately on women’s shoulders.