Securing the Livelihoods of Informal Economy Workers in Times of Global Changes

Executive summary

The many dimensions of informality

Informality remains the norm for billions of workers, affecting 68% (on average) across countries included in the Key Indicators of Informality based on Individuals and their Households (KIIbIH) database. In some countries, economic growth has even coincided with rising informal employment. While most informal workers are employed in the informal sector, some operate in the formal sector. The division between formal and informal economies is further blurred when considering the household perspective and the prevalence of multiple job holding. Some informal workers, for example, live in households with formal workers. Likewise, many workers, including formal ones, hold more than one job, with such additional jobs often being informal.

Informality is closely associated with precarious work, poverty and inequality. The formal-informal earnings gap is extremely large: in fact, many informal employees earn less than the minimum wage. Informality also often (though not always) overlaps with poverty, with most of the working poor employed in the informal economy. The informal economy is far from homogeneous. High- and low-paid informal workers coexist with a large middle group, and workers’ profiles differ substantially across the earnings distribution. Income inequality is highly pronounced within the informal economy itself and remains the primary factor of overall earnings inequality.

The dual challenge of ageing and informality

The entire world is ageing. But the pace of the demographic transition in developing countries is much faster than that previously experienced in developed countries, and it is unfolding in a context of high and persistent informality. Enrolment in contributory pension schemes remains low, translating into wide coverage gaps among older people, especially women, rural populations and poorer households. As a result, many older people continue to work informally or rely heavily on family support. For many informal workers, low and unstable earnings constrain their ability to contribute to pension schemes. At the same time, pension scheme contributions remain limited among high-paid informal workers, suggesting that barriers extend beyond income alone.

In this regard, pension systems in many countries continue to show institutional and structural gaps that hinder the adequate coverage of informal workers. Global evidence shows that effective pension systems combine contributory and non-contributory components in a coherent way to provide adequate benefits while protecting the livelihoods of the most vulnerable. Findings from the KIIbIH demonstrate that financing the expansion of pension systems in highly informal contexts is challenging but feasible. Universal social pensions could be financed through tax reforms – at a relatively low fiscal cost. In parallel, many countries have scope to collect more social security contributions to expand contributory schemes. The findings also underline that ageing deserves immediate policy attention, including in regions (such as Africa) that remain at an earlier stage of demographic transition, and where policy and fiscal space may be greater than in more rapidly ageing regions.

Automation and the employment prospects of informal workers

Technological change is reshaping the world of work and already impacts the lives of billions of workers globally. As traditional automation and artificial intelligence (AI) continue to advance, growing evidence from developed countries suggests that many jobs will disappear, others will be transformed, and new tasks and occupations will emerge. New evidence from KIIbIH data shows that informal workers face considerable risks from traditional automation, while the risks of AI-related automation are more concentrated among formal workers in more advanced economies. Exposure to traditional automation is uneven within the informal economy and disproportionately affects low-income workers. By contrast, although relatively few informal workers appear exposed to AI-related automation, those disproportionately at risk are women, young workers and highly educated workers in urban areas. These effects of automation on livelihoods are amplified at the household level, especially among workers living in informal households.

Informal workers and emerging environmental risks

Environmental degradation and climate-related risks (such as droughts, floods and extreme heat) pose an urgent and growing threat to economic activity and work worldwide. KIIBIH data show that these risks are particularly acute in developing countries, with severe consequences for workers in the informal economy whose livelihoods often depend heavily on the natural environment. Informal workers are not only more sensitive to droughts and floods, but their reduced adaptive capacity makes them more vulnerable. Likewise, heat stress has disproportionate effects on the productivity and earnings of informal workers. Across KIIbIH countries with available data, heat-related productivity losses already amounted to an average of 2.3% of GDP in 2025 and are significantly larger for informal workers. Under current labour market structures, these losses are projected to rise to 2.9% of GDP by 2055. These risks interact closely with poverty and household informality, compounding vulnerabilities across entire families.

Policy responses

Securing the livelihoods of informal workers in times of global changes calls for careful monitoring and evidence-based policy responses. The diverse, plural and segmented structure of the informal economy, as well as the way global changes affect informal workers, have deep and widespread policy implications. Policy responses must recognise the heterogeneity of the informal economy by addressing the specific needs and constraints of workers in diverse employment situations and household contexts. They must also be context-specific and embedded in coherent country-led development strategies. Fiscal space is a crucial factor in this regard. Yet, in many developing countries, such fiscal space remains constrained by narrow tax bases, debt pressures and external shocks. Against this backdrop, a strategy to secure the livelihoods of informal workers could be built around five mutually reinforcing pillars:

• Strengthen social protection systems to expand effective coverage for informal workers while ensuring adequate protection floors throughout the life cycle, combining contributory and non-contributory mechanisms and adapting their design to the contributory capacity of diverse groups.

• Support firms and productive transformation to create more and better jobs by lowering barriers to firm growth, encouraging productivity upgrading and making formalisation more feasible.

• Invest in education, training and skills development so that current and future workers can access more productive and secure employment, and adapt to changing labour market demands.

• Support the development of local infrastructure, basic service delivery and care services that shape workers’ capacity – notably women – to cope with shocks and sustain livelihoods.

• Mobilise sufficient domestic resources and public revenue to finance more inclusive and sustainable policy frameworks, including through tax reform, improved efficiency of public spending and innovative contribution collection mechanisms, all adapted to the realities of informal work.