Developing integrated, rights-based solutions

The ILO supports governments and social partners in developing integrated solutions to extend coverage through a combination of contributory and non-contributory mechanisms, including adaptations of existing tax-financed non-contributory programmes towards universalization and more adequate benefits and adaptations of existing social insurance schemes towards more adapted benefit packages, payment schedules and enhanced accessibility of benefits. In all cases, the ILO promotes a rights-based approach by promoting rights-based legal and institutional frameworks that are inspired by international social security standards.

Facilitating transitions to the formal economy

The extension of social security to workers in the informal economy is part of a broader approach that aims to facilitate the transition of enterprises and workers from the informal to the formal economy, contributing to decent work for all and sustainable enterprises. The ILO’s approach is guided in particular by Recommendation No. 202 and the Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204).

Creating synergies with other thematic areas

As this thematic area cuts across all social security branches and closely relates to different aspects of strengthening social protection systems, synergies with other thematic areas are essential, in particular with regard to expanding social health protection towards universal health coverage; unemployment protection; old-age pensions; social protection for migrants, refugees and host communities; gender equality; a just transition to a more environmentally sustainable economy and society; financial governance and sustainability; actuarial valuations; and a culture of social protection.

Developing tailored approaches for a more inclusive coverage

Recognizing that the needs and priorities of workers and enterprises in the informal economy are diverse, particular emphasis will be given to developing tailored approaches that are adapted to their specific situation and address relevant barriers related to legal frameworks, financing and administrative mechanisms, awareness, compliance, governance, participation and trust. This includes intensified efforts to develop mechanisms that are tailored to specific sectors and types of employment, combined with broad risk-sharing and sustainable financing, thereby avoiding fragmented approaches.

The ILO provides technical support to Member States throughout the process of formulating, developing, implementing and evaluating policies to extend coverage to those in the informal economy. Depending on the country situation, technical support can include the following elements:

• Diagnostic of the situation of workers and economic units in the informal economy to identify coverage gaps for different categories of workers, both men and women, and barriers to the situation of economic units in the informal sector. In Angola and Ethiopia, the ILO supports the development of a diagnostic of the situation of workers in the informal economy in view of formulating strategies for extension.
• Review of regulatory and policy frameworks and practices to identify and analyse barriers to coverage and pinpoint options for possible reform, taking into account priority needs and the diverse situations of those in the informal economy. In Nepal, the ILO supports the Government in improving social protection policy and its implementation, including quality service delivery, as well as the extension of coverage to workers in the informal economy.
• Priority-setting to identify and select policy options and agree on a sequence of actions and time frames for the extension of coverage to workers in the informal economy through social dialogue that includes representatives of workers and economic units in the informal economy. In Kenya and Uganda, the ILO supports the development of a strategy for the extension of social protection to workers in the informal economy.
• Development of integrated policy frameworks that ensure policy coherence and a well-functioning institutional set-up, complemented by a comprehensive legal framework that provides for the extension of coverage and encourages transitions from the informal to the formal economy. In Kyrgyzstan, the ILO supports the extension of legal coverage, including with unemployment and maternity protection, to informal workers, in line with relevant international social security standards.
• Implementation and monitoring of the policy: This includes adapted registration and delivery mechanisms that facilitate compliance, awareness-raising, the adaptation of labour and social security inspection mechanisms, a monitoring and evaluation system and impact assessment, while also providing the basis for a regular review (and if necessary adjustment) of the policy framework. In Cambodia, the ILO supports the improvement of business processes in social security institutions to improve business processes in order to increase the coverage and quality of service to workers in the formal and informal sectors. In Jordan, the ILO supports the extension of coverage to workers in construction and agriculture and to flexible, self-employed and migrant workers, as well as the development of social insurance communication and outreach mechanisms.

The extension of social protection coverage to workers in the informal economy entails benefits for workers, enterprises and societies at large.

Reducing vulnerability and poverty

Many workers in the informal economy are locked in a vicious cycle of vulnerability, poverty and social exclusion, which constitutes an enormous challenge not only to their individual welfare and enjoyment of human rights, but also to their countries’ economic and social development. By providing access to health care and a basic level of income security, the extension of social protection coverage to these workers helps reduce their vulnerability to socio-economic shocks and enhance their resilience to crises such as the COVID-19 pandemic, thus reducing their likelikhood to fall (back) into poverty.

The effects of social protection have an important intergenerational dimension that benefits children: social protection contributes to breaking the vicious cycle of poverty by promoting better access to nutrition, health, education and skills, preventing child labour and ensuring better life chances for the next generation.

Achieving decent work

Through enhanced access to health care and greater income security, the extension of social protection coverage also contributes to enhancing the productivity of workers in the informal economy. Productivity growth translates into better financial performance, which enables enterprises to retain and hire more workers; invest in machinery and equipment, research and innovation, and workers’ skills development; improve working conditions; and expand the production of goods and services. This is essential for enterprise development, employment and decent work creation, and enables the transition to the formal economy.

Inproving social protection financing

The extension of social insurance mechanisms to previously uncovered workers can help to achieve more sustainable and equitable financing for social protection by mobilizing additional financing sources from previously uncovered workers and sharing the burden of financing the social protection system through contributions and taxes in a more equitable way, while ensuring that contributions are aligned with contributory capacities, which helps to ensure the sustainability and adequacy of the social protection system in the long run.

The ILO policy resource package “Extending social security to workers in the informal economy: Lessons from international experience” serves as a reference for policy makers, workers’ and employers’ organizations and other stakeholders engaged in the design, implementation and monitoring of social protection strategies and schemes. It contains the following tools that can help in developing viable policy options to address the challenges of extending social protection to workers in the informal economy and facilitating transitions to formality:

• A good practices guidebook (available in English, French, Portuguese and Russian).

The Guidebook provides evidence on good practices, challenges and opportunities, and covers a broad range of relevant aspects and addresses some of the key elements that should inform national strategies to extend coverage to workers in the informal economy. It also addresses a broad range of aspects that help lift specific barriers to the extension of coverage, including raising awareness, ensuring good governance and building trust; extending legal coverage; simplifying administrative procedures; facilitating contribution collection and mechanisms; adapting inspection mechanisms and strengthening incentives.

• Issue briefs on lessons learnt for specific categories of workers and topics

Recognizing the heterogeneity of workers' realities in the informal economy, a series of issue briefs reflect specific challenges and good practices for selected sectors and categories of workers that in many countries represent a significant share of workers in the informal economy, and which are often considered as groups that are particularly difficult to cover: self-employed workers; workers in micro, small and medium enterprises; domestic workers; agricultural workers; construction workers; workers in the culture and creative sector; and digital platform workers.

• Training materials