The number of people who are engaged in informal employment has been on a steady rise over the past decade, a phenomenon that is increasingly prevalent in developing and third world countries. A deeper delve into this issue reveals an intricate relationship between the level of informality in various regions of the world and the link to social inequality. That being said, it is interesting to note that regions with large informal economies also have a big percentage of the population living in poverty. This is not to say that all of those that are engaged in informal businesses are poor, but that poverty is a cardinal driver that accentuates informality.
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Given the diminishing opportunities of formal employment opportunities in these parts of the world, populations have been forced to look for alternative creative means to fend for themselves. This scenario has largely led to the growth of informality whereby businesses are haphazardly set up without prior planning or experience. Often, the jobs in this sector of an economy are of poor quality, meaning that they do not offer any social protection or terminal benefits. Business that are established this way often have internal operational systems that are a hindrance to their growth in the long-term. It is this sort of enterprises that have difficulty accessing potential financial investors due to the perceived high-risk nature of their operations.
The World Employment and Social Outlook 2018 is a report by the International Labour Organization (ILO) that focuses on the trends in job quality, paying particular attention to working poverty and vulnerable employment. A point that comes out strongly is the fact that in 2018 and 2019, unemployment in developing countries is expected to rise by half a million people per year. As alluded to earlier, the report points out the fact that the main challenges that developing countries continue to face include persistent poor-quality employment and working poverty. Two demographic groups that continue to be adversely affected by labour market inequalities are women and the youth.
According to the report, the outlook is particularly challenging for women as they are more likely to be in vulnerable employment and over-represented in informal non-agricultural employment. Further, this demographic group is often less eligible for social protection coverage due to their lower rates of labour force participation, higher levels of unemployment and greater likelihood of being in vulnerable forms of employment. These factors, coupled with the fact that women usually receive lower levels of remuneration, raise their risk of poverty. An interesting statistic that came across concerning youth aged 25 years and under is that their global unemployment rate of 13 percent is three times higher than the adult unemployment rate. The Northern Africa region recorded the highest rate with close to 30 percent of young people in the labour market being jobless.
Such numbers are a strong indicator as to why the informal economy continues to consistently grow. The downside to having a large informal economy is that those that are involved in micro businesses are excluded from the benefits that come with gainful employment. It would be prudent for policy and decision makers to look into and implement strategies that grow the capacity of informal businesses to enable them to become profitable entities. This will reduce the high levels of poverty by providing sustainable incomes to a vast majority of households.
Informal Economy Analyst