Informality shapes the lives of billions of workers and their families across low‑ and middle-income countries. Often associated with income insecurity, limited social protection and restricted opportunities, it remains an obstacle to achieving the Sustainable Development Goals by 2030. Drawing on data from the Key Indicators of Informality based on Individuals and their Households (KIIbIH) covering 58 countries, this report highlights the diversity of situations within the informal economy and analyses how ageing, automation and environmental degradation are reshaping the livelihoods of informal workers. It identifies policies to advance inclusive and sustainable development.
Securing the Livelihoods of Informal Economy Workers in Times of Global Changes
Introduction
Key figures
55%
of the population live in fully informal households across KIIbIH countries*
16%
of informal workers are in high-paid jobs across KIIbIH countries*
81%
of the working poor are employed informally across KIIbIH countries*
* KIIbIH averages are calculated as simple unweighted averages of countries for which data are available.
The informal economy is widespread and diverse
Informality remains the norm in most low- and middle-income countries: 68% of workers are employed informally across the countries covered by KIIbIH. Yet the informal economy is far from homogeneous. Large regional disparities persist, and informal workers have highly diverse profiles. Within the informal economy, inequality is high. Often, low-paid or poor informal workers coexist with higher-paid workers who may remain informal by choice. This diversity calls for tailored policies rather than one-size-fits-all approaches.
Weak pension systems threaten old‑age livelihoods amid rapid population ageing
Countries with large informal economies are ageing rapidly, yet pension coverage remains limited, especially for women, rural populations and poorer households. Across countries covered by KIIbIH, only 52% of older people receive pension benefits: many informal workers are forced to work into old age. It is not only about income: As participation remains low even among high-paid informal workers. To protect the most vulnerable and provide adequate benefits, systems must combine non-contributory and contributory schemes adapted to the informal economy.
Informal workers are disproportionately exposed to traditional automation
Traditional automation puts informal workers at greater risk because many are in manual and low-skilled jobs. Across the countries covered by KIIbIH, 77% of informal workers perform routine or non-routine manual tasks, compared with 42% of formal workers. As a result, one in three informal workers holds a job at high risk of automation, nearly twice the rate for formal workers. Exposure is highest among younger and older workers, those with little education, rural and agricultural workers, unpaid family workers, and the working poor. AI-related risks remain lower for now.
Informal workers are particularly vulnerable to environmental risks
Informal workers depend more on nature for their livelihoods and often have a smaller carbon footprint. Across the countries covered by KIIbIH, 41% of informal jobs are directly or indirectly linked to the environment (mostly in agriculture), compared with 12% of formal jobs. More than 40% of informal workers face medium to high risks to floods and droughts, versus less than 2% of formal workers. Extreme heat also hits them disproportionately: in 2025, informal workers lost 2.4% of work hours, compared with 1.4% for formal workers.
What can governments do?
Public policies can foster private investment in decent job creation and support firms with strong employment potential. This requires a policy mix focused on three priorities: reducing barriers to firm growth, promoting productivity upgrading, and making formalisation more feasible and attractive for businesses and workers, particularly smaller firms.
Workers need skills and human capital to enter, remain in and succeed in better‑quality formal jobs. Effective skills policies can reduce vulnerability by helping informal workers adapt in their current jobs and move into more productive sectors and occupations that are less exposed to global challenges, including automation and environmental degradation.
Housing quality, infrastructure, basic services, care responsibilities, health constraints and digital connectivity shape workers’ ability, especially women’s, to cope with shocks and sustain livelihoods. Policy responses must extend beyond labour markets. Investments in local infrastructure and services are vital in low-income areas where informal workers are concentrated.
To finance more inclusive and sustainable policies that secure informal workers’ livelihoods, governments must mobilise adequate domestic resources and public revenue. Key measures include tax reform, more efficient public spending and innovative contribution collection mechanisms tailored to the realities of informal work and the needs of vulnerable workers.
