Thematic areas

Flagship Thematic Area: Informal Economy

Extending social security to workers in the informal economy and protecting workers in all types of employment

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Baseline

  • A total of 2 billion workers - 61.2 per cent of the world's employed population - are in informal employment. Most of them are among the 4.1 billion people who do not have any access to social protection or are only inadequately protected. The lack of social protection for these workers, including their lack of access to health care and income security, renders them particularly vulnerable and at risk of falling (deeper) into poverty.

  • The COVID-19 pandemic has further exacerbated challenges for informal workers, who have often found themselves in a desperate situation, unable to access health care and often unable to work, earn a living and meet their basic needs. Many of the social protection measures implemented by countries in response to the crisis were only temporary, insufficient and unadapted to the needs of informal workers.

  • The urgent need to extend social protection to workers in the informal economy was reaffirmed by the International Labour Conference in June 2021, which established the objective of ensuring adequate and comprehensive social protection for workers in all types of employment, an indispensable step towards reaching universal social protection, promoting inclusive growth and decent work and leaving no one behind.

Approach and Technical Support

The ILO’s approach aims to guarantee adequate social protection for workers in all types of employment through the adoption of mechanisms that are in line with international social security standards. In addition to non-contributory schemes providing a basic level of protection, this thematic area places a strong emphasis on the adoption of inclusive social insurance schemes that guarantee adequate levels of protection to workers while ensuring broad risk-sharing and supporting labour market mobility.

Well-designed social insurance schemes provide an adequate level of protection that allows the prevention of impoverishment in the face of social risks – an important element of a forward-looking and preventive approach. By combining social insurance and tax financing, social protection systems are able to prevent poverty, address inequalities and promote inclusive growth in a sustainable and equitable way, while supporting just transitions to more environmentally sustainable economies and societies.

The ILO’s online policy resource platform “Extending Social Security to Workers in the Informal Economy” constitutes the central knowledge hub for viable policy solutions and practical guidance on extending social protection to workers in the informal economy and facilitating transitions to formality, including the ILO’s good practice guide and a number of briefs and other materials.

Building on earlier work and the close collaboration between ILO headquarters and field offices, the second phase of the Flagship Programme places particular emphasis on the following strategic areas:

  • Facilitating social security coverage for workers in micro and small enterprises, in collaboration with the ILO’s enterprise specialists, and contributing to the formalization of enterprises and employment, decent work and sustainable enterprises (see this brief);
  • Enhancing social protection coverage for agricultural workers and rural populations in collaboration with the FAO, as a key element of reaching universal social protection and promoting decent work in the rural economy (see this brief);
  • Improving social protection coverage for self-employed workers through tailored mechanisms that take account of their specific characteristics, allowing for adequate mechanisms to accommodate labour market mobility (see this brief);
  • Improving social protection coverage for domestic workers through policy responses taking account of the different situations of domestic workers, full-time and part-tine work and particularly vulnerable categories of workers (see this brief);
  • Facilitating social security coverage for digital platform workers within changing contexts and demands, including by strengthening and adapting social protection systems for the future of work (see this article);
  • Expanding the knowledge base and guidance on workers in other sectors and types of employment, such as construction workers, workers in the cultural and creative sectors and migrant workers;
  • Deepening the understanding of the impact of the extension of social security coverage on labour productivity and the structural transformation of the economy, particularly in the light of a just transition to a more environmentally sustainable economy and society; and
  • Harnessing synergies between the extension of social protection to those in the informal economy, formalization policies and the sustainable and equitable financing of social protection systems.

In doing so, this thematic area will also emphasize the benefits of formulating policy responses through a participatory and inclusive social dialogue that includes organizations of workers in the informal economy in order to develop policy responses that are adapted to the situation and needs of workers across different types of employment, sectors of the economy and work arrangements, with particular emphasis on the situation and needs of persons in vulnerable situations.

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:

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

Partnerships

IMG

Global Partnership for Universal Social Protection (USP2030):

Expanding coverage in a way that recognises the diversity of informal economy workers and provides them with solutions that are fair, efficient and sustainable, to accelerate progress towards universal social protection.

IMG

ILO - FAO Partnership on Decent Rural Employment:

Enhancing social protection coverage for agricultural workers and rural populations in collaboration with the Food and Agriculture Organization of the United Nations (FAO), as a key element of reaching universal social protection and promoting decent work in the rural economy.

IMG

ILO - WIEGO partnership

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All interventions

Indicators of results and impact

  1. Number of countries that have revised their policy and legal framework to extend social protection coverage to categories of workers not previously covered
  2. Number of countries that have revised their policy and legal frameworks to improve the adequacy of social protection for categories of workers with inadequate coverage
  3. Number of countries that increased the number of persons legally covered by their social protection system, by branch
  4. Number of countries that increased the number of persons effectively covered by their social protection system, by branch

Funding gaps

  • ICON
    US$ 500,000

    Supporting the implementation of the healthcare branch of the Simplified social security scheme for small contributors (RSPC) in Senegal

    Impact: Providing social health coverage to up to 3,5 million currently excluded workers

  • ICON
    US$ 1,000,000

    Extending social protection coverage to informal economy workers in the agricultural sector

    Impact: Providing legal and effective coverage to up to 3.5 million people in the informal economy

  • ICON
    US$ 170,000

    Extending coverage to young men and women in the informal economy in Ecuador, including the self-employed

    Impact: Providing coverage for 3 out of 4 self-employed workers who are not covered by the social security system

Support the ILO

Multimedia

    ILO Experts

    Christina Behrendt

    Alix Machiels

    Maya Stern Plaza

    informal economy workers rural workers self-employed women
    • informal economy workers
    • rural workers
    • self-employed
    • women
    • Informal economy

    26.08.2022