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

1. Overview

Across the world, jobs and livelihoods are under growing pressure linked to demographic changes, automation and technological disruption, and environmental and climate risks. These challenges are particularly acute in low- and middle-income countries (LMICs), where most workers depend on the informal economy for their livelihoods. Typically, such countries are characterised by limited fiscal space, which considerably constrains government action. Yet with strong political commitment and evidence-based policy action, these challenges can be turned into opportunities to build more resilient livelihoods.

This report examines the situation of informal economy workers today, and explores how these major global trends may affect their livelihoods in the near future. It asks three key questions: i) how societies can better protect the livelihoods of informal workers; ii) how countries with high levels of informality can adapt to these emerging pressures; and iii) how the OECD’s Key Indicators of Informality based on Individuals and their Household (KIIbIH) can help close important knowledge gaps and support evidence-based policy responses.

Two moral and economic imperatives motivate the report. The first is to advance the formalisation and decent work agenda embedded in multiple 2030 Sustainable Development Goals (SDGs), and notably Goal 8. The second is to create the conditions for individuals, families and communities that rely on the informal economy to not only survive, but to thrive in times of global change.

Portraits of informality

While the informal economy is widespread, it is far from monolithic or homogenous. It varies substantially across regions and countries, but also across workers, households and jobs. Understanding this diversity is crucial for policymakers seeking to reduce vulnerability and strengthen resilience in the informal economy. In fact, “one-size-fits-all” approaches are unlikely to be effective and may even prove harmful. Updated portraits of informality that reflect the heterogeneity of informal workers, as well as the wider household contexts in which they live, can support more effective policymaking.

Informality remains the norm in developing countries

Informality remains widespread among both men and women in emerging markets and developing economies (EMDEs). Across countries covered by the KIIbIH, an average of 68% of workers aged more than 15 years are in informal employment, with similar levels for men and women. Rates vary sharply across countries and regions, from 89% in the KIIbIH sample of African countries, to 70% in Asian countries, 54% in Latin American and Caribbean countries, and 22% in European countries (Figure 1.1).

Figure 1.1. Labour informality dominates in developing countries but varies across them

Share of workers aged above 15 years in informal employment, latest year available

Note: Informality rate refers to the number of workers aged above 15 years employed informally, expressed as a share of all workers aged above 15 years. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard.

Source: (OECD, 2026[1]), “Key Indicators of Informality based on Individuals and their Households (KIIbIH)”, https://data-explorer.oecd.org.

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Informal workers face challenging labour conditions

Informal status is, first and foremost, associated with limited access to social protection. But informal workers also tend to face more precarious employment conditions than formal workers. On average, they are more likely to work fewer hours per week, to hold part-time jobs and to earn less, even after accounting for differences in hours worked. In some cases, these averages conceal a more complex reality. Informal workers are, for example, more likely to remain outside of standard hours arrangements – working either far fewer or far more hours. These precarious conditions tend to be even more pronounced for women.

Although most informal workers operate in the informal sector, some work in the formal sector

The majority of informal economy workers operate in the informal or household sectors. Across KIIbIH countries, on average, 74% of informal workers are employed in the informal sector and 17% work in the household sector, which include forms of work such as subsistence farming. Yet a non-negligible share, 10% on average, works in the formal sector. In some countries (e.g. Guatemala, the Maldives, Namibia, Paraguay, South Africa and Suriname), the share exceeds 25%. This confirms that informal employment status extends across both the formal and informal sectors – and that even when they work in the formal sector, many workers still lack adequate social protection or labour rights. The potential for formalisation may be greater for these workers as they operate at the frontier between formality and informality.

The household dimension further blurs the division between formal and informal workers

The household perspective and the reality of multiple job holding blurs the division between work in the formal and informal economies. Across KIIbIH countries, 55% of the population lives in households where all earners are informal workers, 15% in mixed households with at least one informal and one formal earner, 21% in households where all earners are formal workers, and 9% in households with no working member (Figure 1.2). Some informal workers live alongside formal workers and may benefit indirectly from their formal status, which often brings greater income stability and better social protection. This is notably the case, for example, when a formal worker’s health insurance also covers other family members. Multiple job holding can also help formal and informal workers make ends meet when their main job does not provide enough hours or income. On average, across KIIbIH countries, 13% of informal workers and 11% of formal workers hold more than one job, with these additional jobs being mostly informal.

Figure 1.2. Labour informality affects many households

Distribution of the population by level of household informality, latest year available

Note: “Informal” refers to a household where all workers are informal workers; “mixed” refers to a household where at least one worker is an informal worker and one worker is a formal worker; “formal” refers to a household where all workers are formal workers; and “no workers” refers to a household with no working members. The distribution covers the entire population. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard.

Source: (OECD, 2026[1]), “Key Indicators of Informality based on Individuals and their Households (KIIbIH)”, https://data-explorer.oecd.org.

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Poverty and inequality are profoundly intertwined with informality

Poor people disproportionately live in fully informal households, in which poverty rates are highest. Across KIIbIH countries, individuals living in informal households face a greater risk of poverty, with poverty rates in informal households and in households with no workers consistently higher than in mixed and formal households. Most working poor are also employed in the informal economy. Overall, while not all informal workers are poor, and not all working poor are informal workers, a substantial overlap exists between informality and poverty.

Earnings inequality is high in the informal economy and explains most of the overall earnings inequality

Earnings inequality is high across KIIbIH countries in both formal and informal economies, but is highest among informal workers. The Gini coefficient (a standard measure of inequality) reaches 0.50 among informal workers, compared with 0.44 for formal workers. This raises the question of the effect of informality on overall earnings inequality. Decomposition results show that most of the overall earnings inequality comes from disparities within the informal economy itself. Inequality among informal workers accounts for 55% of total earnings inequality, compared with 32% for inequality among formal workers. By contrast, differences in earnings between formal and informal workers remain limited, accounting for only 13% of total earnings inequality.

High- and low-paid workers coexist in the informal economy, together with a large middle group

The informal economy encompasses very diverse employment situations. At one end, a relatively prosperous segment of high-paid workers may operate informally by choice and may have the capacity to contribute to social insurance. At the other end, a large, poorer segment of low-paid workers remains informal because they have few alternatives and cannot afford to contribute. Between these two groups lies a large segment of middle-income workers who often fall outside the scope of social assistance schemes without necessarily having the means or possibility to enrol in social insurance schemes. Across KIIbIH countries, on average, 41% of informal workers belong to the lower tier of the earnings distribution, 43% to the middle tier and 16% to the upper tier (Figure 1.3). KIIbIH data show that these groups also differ markedly in their characteristics. On average, rural workers, own account workers, workers with lower levels of education and women are overrepresented in the lower tier of the informal economy.

Figure 1.3. High- and low-paid informal workers coexist with a large middle group

Distribution of informal workers aged above 15 years by earnings categories, latest year available

Note: Earnings categories classify individuals based on their monthly labour earnings into three categories, defined relative to median earnings: i) low-paid individuals (or lower tier) ranging from the bottom of the earnings distribution to 50% of median earnings; ii) medium-paid individuals (or middle tier) ranging from 50% to 150% of median earnings; and iii) high-paid individuals (or upper tier) including anyone above 150% of median earnings. Within regions, countries are ordered by decreasing shares of low-paid workers. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard.

Source: (OECD, 2026[1]), “Key Indicators of Informality based on Individuals and their Households (KIIbIH)”, https://data-explorer.oecd.org.

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Addressing the challenge of ageing with informality

Population ageing is advancing rapidly in developing countries, many of which are expected to “grow old before they become rich”. This trend is unfolding alongside the persistence of a large informal economy. To date, most pension systems in developing countries remain incomplete and largely ignore the needs of informal economy workers. For governments seeking to secure the livelihoods of the elderly, addressing the combined challenge of ageing and informality will be a major policy priority in the years ahead.

Rapid ageing and widespread informality put at risk the livelihoods of current and future elderly in developing countries

Most developing countries are expected to transition from an “ageing” society to an “aged” one in just 15 to 35 years. In sharp contrast, this transition took place in developed countries over periods between 40 and 120 years. Ageing is a global phenomenon. Africa is the exception, as it remains at an early stage of the demographic transition, with a substantial youth bulge. Its countries are projected to become ageing societies only by 2075.

Widespread informality in developing countries adds a layer of complexity and translates into large gaps in effective pension coverage among older people. Although coverage varies widely across KIIbIH countries with available data, on average only 51% of people above the legal retirement age receive a pension, whether contributory or non-contributory, and 17% rely exclusively on a non-contributory pension. To cope with these gaps, many older people continue to work informally beyond retirement age or rely on family support, often through multigenerational households.

The large informality footprint also threatens the livelihoods of future older persons. On average across KIIbIH countries, only 40% of employed individuals between age 15 and the legal retirement age currently contribute to any type of pension scheme. Even among contributors, the share who will eventually qualify for a pension may be lower because of low contribution density and failure to meet eligibility requirements.

A combination of institutional and structural gaps prevents adequate pension coverage

Pensions systems encompass contributory and/or non-contributory schemes. Contributory pension schemes require members to make regular payments in return for the promise of a lump sum or regular income in retirement. In nearly all KIIbIH countries, fewer than 10% of informal workers contribute to such a pension scheme. Low-paid work is a binding constraint that disproportionately affects informal workers and limits their capacity to contribute to pension schemes. Yet low enrolment is not confined to low-paid informal workers with limited contributory capacity. It also affects medium- and high-paid informal workers, as well as formal self-employed workers who could, in principle, afford to participate. Besides affordability issues faced by low-paid workers, other barriers also discourage enrolment in contributory pension schemes. These include irregular earnings, lack of information, mistrust in the system and the absence of suitable contributory options, especially for non-employees. By contrast, non-contributory pension schemes (commonly known as social pensions) are funded through general government revenues and are chiefly designed to alleviate poverty. Where such schemes exist, they often suffer from serious shortcomings. In many developing countries, benefit levels may be too low to ensure a decent standard of living in old age, and the absence of automatic indexation may erode their value over time.

Financing the expansion of pension systems is challenging, but major opportunities exist

Expanding pensions systems and securing the livelihoods of older people requires building coherent multi-pillar systems that combine contributory and non-contributory schemes. Financing such multi-pillar systems is difficult, but opportunities exist on both the revenue and spending sides.

On the revenue side, a broad range of tax reforms could help mobilise additional public resources to finance the expansion of non-contributory pensions. These include broadening the personal income tax base, introducing simplified and compulsory tax regimes, implementing new health and environmental taxes, reassessing inefficient corporate tax incentives, and eliminating harmful subsidies. In parallel, specific mechanisms – such as presumptive tax regimes1 – could help enrol large shares of informal workers with the capacity to contribute into contributory schemes.

On the spending side, KIIbIH estimates show that universal basic non-contributory pensions could be introduced at a relatively modest fiscal cost while generating substantial positive spillovers for other groups such as children or the working poor. In most KIIbIH countries, the cost of providing a universal basic pension set at 50% or 75% of the median per capita income2 remains between 0.5% and 4% of GDP, depending on the age of eligibility (Figure 1.4).

Figure 1.4. Establishing universal non-contributory pensions could be done at a relatively low fiscal cost

Estimated cost of implementing a universal social pension as a share of GDP across KIIbIH countries

Note: The figure presents cost estimates based on six different scenarios of an age-based universal benefit (or universal non-contributory pension), without any means-test or pensions-test. The two main varying parameters are: i) the access age (age at which an individual becomes eligible); and ii) the level of benefits. For each scenario, the figure presents the cost estimates based on benefits equal to 50%, 75% and 100% of the median per-capita welfare. Depending on the country, median per-capita welfare is computed as the household total income or total consumption divided by the number of household members. The access age varies as follows. In Scenario 1, the access age is set at the current legal age of retirement. The access age is set at: 60 years for Scenario 2; 65 years in Scenario 3; and 70 years in Scenario 4. The access age is set at ten years prior to the life expectancy at age 60 in Scenario 5 and at five years prior in Scenario 6. For each scenario and level of benefits simulated, the statistical distribution of the cost (as a share of GDP) is calculated for each KIIbIH country. The lower bar corresponds to the lowest cost estimate, the upper bar to the highest cost estimate and the intermediary bar to the median cost estimate. For each scenario and level of benefits simulated, the box covers cost estimates ranging between the first and the third quartiles.

Source: Authors’ simulations based on OECD (2026[1]), IMF (2025[2]) and United Nations (2021[3]).

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Automation and the employment prospects of informal workers

Technological change is reshaping the world of work and affecting the lives of billions of workers worldwide. Growing evidence from developed countries suggests that, as automation technologies advance – both traditional forms and those linked to artificial intelligence (AI) – many jobs will disappear, others will be transformed in their task composition, and new jobs and occupations will emerge. It remains to be seen how such trends will affect workers in developing countries where informal employment is the norm.

The employment effects of automation differ between the formal and informal economy

Robots are already displacing industrial workers in routine manual occupations (such as assembly line jobs) while newer technologies such as generative AI are increasingly transforming non-routine cognitive tasks (e.g. interpreters). AI-enabled robots may also affect some non-routine manual occupations. Overall, workers’ opportunities and challenges to adapt to these changes, use new technologies and upgrade their skills to match new forms of production differ markedly between the formal and informal economy.

In developing countries, the informal economy not only dominates employment but is also heavily concentrated in manual and low-skilled work. On average across KIIbIH countries with available data, 77% of informal workers perform routine or non-routine manual tasks in their job, compared with 42% of formal workers. Informal workers are also disproportionately concentrated in low- and lower-middle-skilled occupations. Across KIIbIH countries, 17% of informal workers are in low-skilled jobs and 71% in lower-middle-skilled jobs, compared with 9% and 49% of formal workers, respectively.

Informal workers face considerable risks of traditional automation while AI-related risks are more of an issue for formal workers in more advanced countries

Because formal and informal workers differ substantially in their occupations and skills, traditional automation poses a much greater risk to informal workers. Conversely, the risks associated with AI automation are more concentrated among formal workers and in more advanced countries. Across KIIbIH countries, one in three workers holds a job at high risk of traditional automation. Informal workers are almost twice as likely to be exposed as formal workers, with 35% in high-risk jobs compared with 19% of formal workers (Figure 1.5). By contrast, only a small share of workers (2%) is exposed to the risks associated with AI automation. In this case, exposure is also lower among informal workers (1%) than among formal workers (5%). These AI-related risks are more concentrated in Latin America and the Caribbean and in Europe, reflecting differences in the distribution of high-skilled and cognitive tasks across workers by formality status and place of residence.

Figure 1.5. The risk of traditional automation is higher for informal jobs

Percentage of informal, formal and all workers aged above 15 years in occupations at high risk of traditional automation, latest year available

Note: Occupations are considered to be at high risk of automation if they have a significant share of important skills and abilities (more than 25%) that are highly automatable, following (Lassébie and Quintini, 2022[4]). KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard.

Source: Authors’ own estimates based on OECD (2026[1]) and Lassébie and Quintini (2022[4]).

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The risk of traditional automation is unevenly distributed within the informal economy

A particularly important concern within the informal economy is that the risk of traditional automation tends to fall disproportionately on the most vulnerable groups. Exposure is highest among younger and older workers, workers with little or no education, rural and agricultural workers, employees and unpaid family workers, low- and middle-paid workers, and workers living in poor households.

Automation risks to livelihoods are amplified at the household level, especially in informal households

The household dimension of informality further magnifies the effects of traditional automation, as many dependent household members rely on workers whose jobs are exposed to these risks. Across KIIbIH countries with available data, 47% of people living in informal households are in a household in which at least one working member faces a high risk of traditional automation. In turn, 24% live in a household in which all working members face such risk. By contrast, in mixed households, in which formal and informal workers live together, these shares fall to 39% and 5%, respectively. In formal households, they stand at 18% and 9%, respectively. Importantly, informal workers who are at high risk of traditional automation are also more likely to be poor or near-poor than formal workers who face the same risks.

Informal workers and emerging environmental risks

Environmental degradation is a complex and multifaceted concept that resists simple definition. Broadly, it refers to the deterioration of the environment caused by human activity or natural processes, including resource depletion, ecosystem and habitat destruction, species extinction, and rising pollution. Technological innovations have helped reduce some of the environmental damage associated with industrialisation. However, the combined effects of multiple factors throughout the 20th and into the 21st century – particularly accelerated industrialisation, natural resource depletion, urban sprawl and mass consumption – have placed growing pressure on the natural environment and generated new environmental risks. These risks have become multidimensional threats to societies worldwide, and to informal workers in particular.

Informal economy workers rely heavily on the natural environment for their livelihoods

Through the nature of their tasks, informal workers contribute in many ways to environmental sustainability. They rely heavily on the natural environment for their livelihoods and often have a smaller carbon footprint than formal workers. On average across KIIbIH countries, 36% of workers’ main jobs have a direct or indirect link to the environment.3 This share rises to 41% among informal workers but falls to 12% among formal ones. To a large extent, this strong dependence of informal workers on the natural environment reflects the larger share of informal workers employed in agriculture and, more broadly, the higher prevalence of informal employment in sectors with stronger environmental linkages (Figure 1.6). Informal workers’ dependence on the natural environment is also reinforced at the household level, where access to resources, labour diversification and coping capacity depend heavily on household composition and living arrangements.

Figure 1.6. Sectors with stronger environmental links have higher shares of informal employment

Share of workers aged above 15 years in informal employment by sectoral link to the environment, latest year available

Note: KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard. Countries identified by (*) are surveys that cover only urban areas.

Source: (OECD, 2026[1]), “Key Indicators of Informality based on Individuals and their Households (KIIbIH)”, https://data-explorer.oecd.org.

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Informal workers are highly vulnerable to both droughts and floods

A combined measure of vulnerability based on exposure, sectoral sensitivity and adaptive capacity shows that informal workers are highly vulnerable to both droughts and floods. Across KIIbIH countries, more than 40% of informal workers face medium to high vulnerability to these hazards, compared with less than 2% of formal workers. This sharp difference mainly reflects the lower adaptive capacity of informal workers and their greater concentration in sectors exposed to environmental shocks. Should extreme weather events intensify, estimates suggest that the vulnerability of many informal workers could rapidly deteriorate further, putting their livelihoods at greater risk. Informal workers’ vulnerability to droughts and floods is also amplified at the household level. Ample evidence shows that women and girls are significantly more likely to suffer severe consequences, including death, in the aftermath of natural disasters.

Heat stress disproportionately affects the productivity and income of informal economy workers

Extreme heat poses a particularly serious threat to populations from developing countries. Not only are high temperatures concentrated in countries and areas with large informal economies, but informal workers are also overrepresented in physically demanding jobs across sectors (e.g. construction and agricultural activities) in which heat-related productivity losses are greatest. Across KIIbIH countries, 55% of informal workers are employed in sectors with heavy (44%) or moderate (11%) physical intensity. By contrast, only 25% of formal workers are employed in sectors with heavy (9%) or moderate (16%) physical intensity.

As a result, heat stress is causing large and disproportionate productivity losses among informal workers. In 2025, excessive heat reduced GDP by 2.2% across the countries included in the analysis, equivalent to USD 510 billion in terms of purchasing power parity (PPP). This corresponds to nearly 60 billion hours of work lost, or about 28.8 million full-time jobs. Heat-related productivity losses in 2025 were substantially larger for informal workers (2.4%) than for formal workers (1.4%) (Figure 1.7). Under current labour market structures, these losses are projected to rise to 2.8% of GDP by 2055, equivalent to an additional 8 million full-time jobs lost. Informal workers are expected to face the steepest increase, with productivity losses rising by 0.6 percentage points, compared with 0.4 percentage points for formal workers.

Figure 1.7. Productivity losses due to excessive heat are substantially larger for informal workers

Heat-related productivity losses of informal, formal and all workers aged above 15 years, 2025

Note: Productivity losses for 2025 refer to average heat-related productivity losses computed over the period 2010-39. KIIbIH and regional averages are calculated as simple unweighted averages of countries for which data are available. Regional classification of countries follows the geographical grouping of the United Nations’ M49 standard. Countries identified by (*) are surveys that cover only urban areas.

Source: Authors’ own estimates based on OECD (2026[1]), Copernicus Climate Change Service CDS (2026[5]) and Copernicus Climate Change Service CDS (2026[6]).

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Policy recommendations

Securing the livelihoods of informal workers in times of global changes calls for careful monitoring and evidence-based policy responses. Analysis of the KIIbIH data in this report shows that the diverse, plural and segmented structure of the informal economy, as well as the way global changes affect informal workers, have widespread and deep policy implications. To be effective, policy responses need to recognise the heterogeneity in the informal economy while also addressing the specific needs and constraints of workers with different characteristics and in diverse employment situations and household contexts. Such policies need to be both context-specific and integrated into a coherent development strategy. Importantly, informal workers often have the potential to be a central part of the solution – for instance, to address environmental degradation. Investing in them and ensuring that they are better equipped and protected is therefore in the interest of the broader society. A critical factor, however, is the fiscal space available to policymakers, which in many developing countries remains constrained by a narrow tax base, debt pressures and exposure to external shocks.

Against this backdrop, a strategy to secure the livelihoods of informal workers could be articulated around the following six mutually reinforcing pillars: i) strengthen social protection systems; ii) support firms and the private sector in creating more and better jobs; iii) invest in education, training and skills development; iv) tailor specific measures to vulnerable groups; v) support development of local infrastructure, basic service delivery and care services; and vi) further mobilise domestic resources.

Strengthen existing social protection systems to expand coverage for informal workers while ensuring adequate social protection floors throughout the different life stages

The unequal employment situations and uneven contributory capacities of workers in the informal economy call for differentiated strategies to extend social protection coverage. These strategies should rest on multiple pillars, combining contributory pathways with adequate non-contributory social protection floors.

For informal workers who belong to the upper and upper-middle tiers of the earnings’ distribution, and who are typically more responsive to conventional formalisation incentives, policy design should emphasise regulatory inclusion policies. This includes: ensuring effective coverage by the labour legislation and tax framework; encouraging voluntary contributions to social insurance systems; providing appropriate contribution subsidies; simplifying registration and payment procedures, notably for the self-employed who run micro-enterprises; and strengthening enforcement of regulations for both employers and self-employed workers.

For informal workers who belong to the lower and lower-middle tiers of the earnings’ distribution, policies should acknowledge that a substantial share of workers may remain in low-productivity and informal occupations over the long term. Rather than focusing only on hypothetical formalisation objectives, priorities should shift towards mitigating the immediate dual disadvantage of informality and low earnings. This notably includes enhancing collective bargaining capacities for low-paid informal workers and extending social protection via non-contributory benefits, such as social pensions and cash transfers.

It is equally important to ensure that, as investment in social protection expands, systems cover the full range of risks individuals face across the life course, from infancy to old age. This requires a clear understanding of tight fiscal constraints and of the effects that major global trends, including ageing, environmental degradation and automation, may have on jobs and livelihoods.

Support firms and the private sector in creating more and better-quality jobs

Public policies can play a strategic role in fostering private investments in decent job creation and supporting firms with the greatest employment potential. Achieving these objectives requires a policy mix that supports firms across three main axes: to grow, upgrade and formalise.

Growth-friendly policies should focus on removing the structural barriers that prevent firms, especially micro, small and medium-sized enterprises, from expanding and investing. From a policy point of view, it notably includes improving access to reliable infrastructure, addressing transport and logistics bottlenecks, strengthening firms’ access to markets, and expanding access to finance for firms with high growth potential.

In parallel, well-designed industrial, trade and investment policies can help firms upgrade and move into higher value-added activities with stronger employment potential. This is particularly important in sectors in which informal employment remains concentrated. In practice, these policies entail supporting technology adoption, strengthening managerial capabilities, facilitating compliance with product and quality standards, and helping firms integrate into local, regional, and global value chains. Accompanying the development of these value chains should also involve: promoting the use of written rather than oral contracts by national and foreign enterprises and local suppliers; regulating subcontracting arrangements to ensure the fair treatment of locally employed workers, including dependent contractors; and, in the case of transnational companies, raising awareness and uptake among firms about responsible business conduct best practices. The OECD Guidelines for Multinational Enterprises and the OECD Due Diligence Guidance for Responsible Business Conduct – together with the detailed OECD due diligence recommendations for specific sectors and supply chains, including minerals, agriculture, garments and footwear, extractives, and finance – outline important principles and provide implementation tools. Governments should consider, where possible, incorporating these frameworks into binding national regulations.

Regulatory and legal frameworks should also make formal job creation more feasible and more attractive for firms through a combination of administrative simplification, appropriate incentives and credible enforcement. Simplifying business registration, taxation and social security contribution procedures, for example through presumptive tax regimes, can facilitate formalisation, especially for small firms and self-employed workers. Creating clear incentives for formalisation is also essential. These may include reserving access to certain public procurement opportunities and SME support programmes for registered firms. They could also entail linking subsidised credit and credit guarantees to compliance with tax and labour obligations, and introducing temporary contribution subsidies or phased contribution schedules for newly formalised firms and self-employed workers.

Finally, policy efforts should focus on the quality of the jobs created. Supporting private sector development should go hand in hand with efforts to improve working conditions and to strengthen compliance with occupational safety and health and other labour standards. They should also expand access to social protection, promote safer and more stable employment relationships, and encourage social dialogue.

Invest in human capital through education, training and skills development

Creating more and better-quality jobs requires ensuring workers have the skills and human capital needed to move into, remain in and succeed in formal employment. This is especially important for informal workers with low levels of education, many of whom are concentrated in sectors that are highly exposed to global changes, including traditional automation and environmental degradation. Skills policies can reduce informal workers’ vulnerability in two complementary ways: i) by helping them adapt within their current jobs; and ii) by supporting transitions towards more productive sectors and occupations that are less exposed to these risks.

To be effective for informal workers, skills strategies must be designed around their specific needs and constraints, while also responding to rapid changes in the labour market. First, they should prioritise task-focused lifelong learning, vocational training and digital literacy, so that workers can respond to changing technologies, production processes and market demands. Second, stronger co-ordination is needed among policymakers, training providers and the private sector to ensure that training content aligns with labour-market needs. This also applies to formal education systems: in most countries, secondary and tertiary curricula should better equip young people with the skills most in demand in the labour market. Third, skills policies should strengthen the recognition and certification of prior learning and work experience across jobs and sectors, helping informal workers build on what they already know, make their skills more visible and reassure potential employers.

The design and delivery of training are equally important. Programmes should be tailored to the practical constraints faced by informal workers. This means making them short, modular, locally delivered, compatible with workers’ schedules and adapted to low literacy levels where needed. Participation costs should also be reduced through stipends, transport support, or links with cash-transfer and public employment programmes.

Skills policies should also address the gender-specific barriers that limit access to training and labour-market transitions. Gender gaps remain a major constraint to skills development, including in foundational skills, participation in technical and vocational education and training, and access to more productive activities. Informal female workers often face lower literacy levels, limited mobility, higher care responsibilities while also having weaker access to information, finance and employer networks. Training programmes should therefore include targeted outreach to women, flexible schedules, childcare support, and links with women’s organisations, co-operatives and local employers.

Address the specific disadvantages faced by groups of informal workers in situations of heightened vulnerability

The informal economy is not a monolithic block. For example, women in informal employment tend to earn less than men, work fewer hours and are more likely to hold part-time jobs; pension coverage is much lower among older women or in rural areas; informal workers in agriculture and construction are far more exposed to heat stress and the resulting income losses than workers in other sectors; digitalisation and AI may drive the expansion of platform jobs, which are often associated with weak legal protection and limited access to social insurance. All these examples show that many workers of the informal economy face overlapping vulnerabilities or specific challenges linked to their social, demographic, gender and economic characteristics.

Addressing the specific vulnerabilities that some groups of informal workers face calls for tailored policies. A one-size-fits-all approach to formalisation and the expansion of social protection is not sufficient and risks leaving many individuals and households behind. Effective responses depend on a solid understanding of local challenges, supported by disaggregated data – including by gender – and robust analysis. It also requires developing specific mechanisms for the most vulnerable segments of the informal economy. These can take many forms, ranging from targeted instruments, such as matching contributions to boost pension contributions among low earners who remain outside the scope of contributory pension systems, to broader and full-fledged programmes such as women’s entrepreneurship initiatives that help women start, formalise, sustain and grow their businesses.

Support the development of local infrastructure, basic service delivery and care services

Turning the current challenges linked to jobs and livelihoods of informal workers into opportunities calls for a broad policy approach that goes beyond labour market interventions. Housing quality, public infrastructure, access to basic services, care responsibilities, health constraints and digital connectivity all shape workers’ ability to sustain their livelihoods and to cope with potential shocks. Policy responses should therefore complement labour market and social protection measures with broader investments in local infrastructure and essential services, especially in low-income urban and rural areas in which informal workers are concentrated.

This broader perspective is particularly important in the context of major global trends such as ageing, automation and environmental degradation. In responding to these trends, non-labour policies can have a decisive influence on the livelihoods of informal workers and their families. For example, informal workers are often disproportionately exposed to heat stress, floods and droughts because they are concentrated in high-risk sectors and physically demanding jobs. But the risks are amplified because many also live in poor-quality housing, underserved neighbourhoods or informal settlements, and areas with limited access to water, sanitation, drainage, cooling and healthcare. Addressing these risks requires stronger co‑ordination across policies linked to labour, social, housing, infrastructure and urban planning, including upgrading low-income housing, expanding basic services, investing in greener and cooler neighbourhoods, implementing stronger local disaster risk management, and integrating informal settlements into climate adaptation strategies. In contexts of persistent informality, old-age insecurity is characterised not only by low pension coverage but also limited access to healthcare, long-term care and support services for dependent older persons. Strengthening income support in old age should therefore be accompanied by the expansion of affordable care services, support for community-based care and measures to reduce the unpaid care burdens that often fall on women within households. In the context of digitalisation and automation, adaptation also depends on whether workers can reliably connect to digital systems and services. Expanding access to electricity, internet connectivity, devices and digital public infrastructure can help informal workers use digital payments, reach customers and suppliers, access online training, and interact more easily with administrative and social protection systems.

Mobilise sufficient domestic resources

To finance more inclusive and sustainable policy frameworks that can secure the livelihoods of informal workers, governments need to mobilise more domestic resources. These efforts include fiscal reform, improved spending efficiency and innovative contribution collection mechanisms adapted to the realities of informal work. Fiscal reforms can aim to: eliminate deductions on personal income tax or lower excessively high exemption thresholds; reassess corporate tax incentives to ensure they effectively promote investment and formal employment; introduce new excise taxes – such as health taxes on tobacco, alcohol and sugar-sweetened beverages – and reduce fossil fuel subsidies; and consider introducing personalised value added tax (VAT)4 to broaden the revenue base.

Financing social protection is a particularly urgent issue. In 2025, the Fourth International Conference on Financing for Development (FfD4), held in Sevilla, stressed the crucial role of mobilising additional domestic public resources and ensuring their effective and efficient use to achieve the objective of increasing social protection coverage in developing countries by at least 2 percentage points per year (United Nations General Assembly, 2025[7]). As non-contributory social protection schemes are usually financed through taxes or other state revenues, their expansion would typically require an increase in the tax base. For the contributory pillars of social protection, raising social security contributions will be essential. This requires promoting the formalisation of workers and businesses – especially for self-employed workers, who are often excluded by design. Acknowledging that there is no single solution to achieve full formalisation, policymakers should also consider alternative and innovative ways to expand contribution collection. One promising option is the implementation of presumptive tax regimes (or monotax systems), which consolidate multiple tax obligations – including social security contributions – into a single payment. To be effective, presumptive tax regimes must be carefully designed, with eligibility criteria and tax structures calibrated to preserve incentives for formalisation, protect the integrity of the standard tax regime, and ensure equity across taxpayers. Additionally, policymakers can leverage the growing digitalisation of payments to create voluntary micro-contribution channels at points of sale. These innovative mechanisms may become particularly relevant as platform work and other forms of gig work expand.

References

[10] Barreix, A. et al. (2022), “Revisiting Personalized VAT: A Tool for Fiscal Consolidation with Equity”, IDB Discussion Papers, No. IDB-DP-939, Inter-American Development Bank, https://doi.org/10.18235/0004147.

[6] Copernicus Climate Change Service CDS (2026), “CMIP6 climate projections”, Copernicus Climate Change Service (C3S) Climate Data Store (CDS) (database), https://doi.org/10.24381/cds.c866074c (accessed on 1 April 2026).

[5] Copernicus Climate Change Service CDS (2026), “ERA5 hourly data on single levels from 1940 to present”, Copernicus Climate Change Service (C3S) Climate Data Store (CDS) (database), https://doi.org/10.24381/cds.adbb2d47 (accessed on 1 April 2026).

[2] IMF (2025), “WEO Data: April 2025 Edition”, World Economic Outlook Database (database), https://www.imf.org/en/Publications/WEO/weo-database/2025/april.

[4] Lassébie, J. and G. Quintini (2022), “What skills and abilities can automation technologies replicate and what does it mean for workers?: New evidence”, OECD Social, Employment and Migration Working Papers, No. 282, OECD Publishing, Paris, https://doi.org/10.1787/646aad77-en.

[8] Mas-Montserrat, M., C. Colin and B. Brys (2024), “The design of presumptive tax regimes in selected countries”, OECD Taxation Working Papers, No. 69, OECD Publishing, Paris, https://doi.org/10.1787/58b6103c-en.

[9] Mas-Montserrat, M. et al. (2023), “The design of presumptive tax regimes”, OECD Taxation Working Papers, No. 59, OECD Publishing, Paris, https://doi.org/10.1787/141239bb-en.

[1] OECD (2026), “Key Indicators of Informality based on Individuals and their Households (KIIbIH)”, OECD International Development Statistics (database), https://data-explorer.oecd.org (accessed on 1 July 2026).

[3] United Nations (2021), “Life expectancy E(x) - complete”, United Nations Data Portal, Population Division (database), https://population.un.org/dataportal/.

[7] United Nations General Assembly (2025), Sevilla Commitment (Res 79/323), UN Doc A/RES/79/323, United Nations, https://docs.un.org/en/A/RES/79/323.

Notes

← 1.  Presumptive tax regimes (PTR), also known as monotax systems, allow micro and small enterprises, as well as self-employed individuals, to pay a single, consolidated tax that covers multiple obligations – including social security contributions. This approach reduces administrative burdens for tax authorities and lowers compliance costs for taxpayers. The revenue generated is allocated by the administering authority among relevant institutions, such as tax administrations and social security funds. In recent years, these regimes have become increasingly popular, notably in Latin America and the Caribbean, with examples including the monotributo systems in Argentina and Uruguay. For more details, see Mas-Montserrat et al. (2023[9]) and Mas-Montserrat, Colin and Brys (2024[8]).

← 2.  Depending on data availability, median per-capita consumption was used to proxy income in certain countries.

← 3.  To measure the environmental link of workers to the environment, jobs are classified into three categories based on their codes in the fourth revision of the International Standard Industrial Classification of All Economic Activities (ISIC‑04). Sectors with a direct environmental link either rely directly on natural resources or play a key role in environmental management. They include all activities within agriculture, forestry and fishing (Sector A) and within mining and quarrying (Sector B). Sectors with an indirect environmental link are those in which most activities depend on the environment without directly exploiting natural resources. They include a subset of activities belonging to manufacture of food products (Sector C‑10); manufacture of beverages (Sector C‑11); manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (Sector C‑16); manufacture of paper and paper products (Sector C‑17); wholesale of agricultural raw materials and live animals (Sector G‑462); wholesale of food, beverages and tobacco (Sector G‑463); retail sale via stalls and markets of food, beverages and tobacco products (G‑4781); camping grounds, recreational vehicle parks and trailer parks (Sector I‑552); travel agency and tour operator activities (Sector N‑791); and botanical and zoological gardens and nature reserves activities (Sector R‑9103). All remaining sectors are classified as having no environmental link. Together, sectors with direct and indirect links are referred to as environmentally linked sectors. See Chapter 5 for more details on the methodology.

← 4.  A personalised VAT is a proposed mechanism designed to address the so-called “impossible trinity of consumption taxes” – a broad base, a single rate and targeted relief for those most in need. In practice, it combines three elements: i) universal application, implying a general tax base; ii) a single VAT rate, achieved by eliminating exemptions and reduced rates for specific goods; and iii) targeted transfers to the poorest population deciles, in the form of self-financed tax refunds, to offset the resulting increase in tax burden. See Barreix et al. (2022[10]) for further details.