News Excerpt:

The Organisation for Economic Co-operation and Development (OECD) has released a report titled “Breaking the vicious circles of informal employment and low-paying work”.

Key Highlights of the report:

• Today, nearly 60% of the world’s employed population is working informally, and over 90% in low-income countries.
  • These informal workers face high poverty and occupational risks and the lack of adequate social protection arrangements leaves workers and their families in the informal economy especially vulnerable.
• In households where all family members are informally employed, children inherit their parents’ vulnerabilities in the workplace.
• On average, around 60% of all children aged under 15 years in developing and emerging economies live in completely informal households. 
  • The figure is 80% or higher in some African countries, the OECD found.
• The report identified four ways in which children inherit vulnerabilities when their parents work in informal settings:
  • More children live in fully informal households, meaning direct exposure to informal employment;
  • School attendance gaps between children from fully informal, mixed, and formal households widen as they progress to higher levels of education;
  • Their education receives less financial resources and parental time;
  • Transitioning from school to work takes longer and is more uncertain for them.
• An individual’s likelihood of landing a formal job is positively and significantly influenced not only by their own level of education but also by their parents’ education and employment. 
  • Children from fully informal households are more likely to work informally as adults, simply because they were raised in an informal household.

• Children’s school attendance is another indicator of parental informality. 

• • Children from fully informal households have significantly lower school attendance rates than those from mixed or fully formal households.
  • The difference is 15.7 percentage points between children from fully formal and fully informal households and 9 percentage points between fully formal and mixed households.
• Formal households spend more on education per child than informal households. 
  • The COVID-19 crisis exacerbated these existing inequalities by limiting access to parental assistance.

• The educational disadvantage of children from informal households translates into a clear disadvantage for young people. 

• • The share of ‘not in education, employment or training’ or NEET is higher for those from informal households than for those from mixed and fully formal households.
  • A NEET is an unemployed person who does not receive any education or vocational training.
  • In sub-Saharan Africa, informal arrangements are the most common.
    • They usually take the form of acquiring trade or craft skills in a micro or small business or workshop, where they can learn and work alongside an experienced practitioner.

• According to the International Labour Organization’s School-to-Work Transition Surveys, more than three-quarters of young people in developing and emerging economies begin their employment in informal settings. 
  • Young workers have the best chances of finding formal work in Europe and Central Asia, as well as, to a lesser extent, Latin America and the Caribbean (except for El Salvador and Peru). 
  • In contrast, in sub-Saharan African countries, up to 95 per cent of young workers are in informal employment.

Suggestions in the report:

• To break the vicious intergenerational circle of informality and low paying developing economies, the report proposes several policy options:

• • Tailored solutions for skill development, as well as recognising the skills of informal workers, can go a long way in closing the gap between formal job offers and the abundant informal workforce.
  • Taking better account of the different needs of informal workers when investing in social protection can also enhance the benefits considerably.
  • Investing in accessible, equitable, quality education; in the prevention of school drop-outs; and in smoother school-to-work transitions is key to improving the skills of children in informal households.
  • For the poorest workers, the best strategy is to ensure that they are adequately covered by labour laws; that they and their children are included in available non-contributory social protection schemes, and that their participation in contributory schemes is subsidised.
  • For the better-off informal workers, wider incentives to participate in contributory schemes are needed, but also better compliance with tax and other relevant regulations.
• The effective implementation and coordination of these policies requires collaboration between government agencies, educational institutions, employers and civil societies. 
• Helping the majority of the world’s active population to escape informality and low-paying jobs demands more efficient social protection and skill development policies.

Summary:

• Firstly, it disassembles the mechanics of the deleterious links between informal employment, low-paying work and low skills. It shows that informal employment is highly persistent and that the vulnerability of informal workers is passed on to their children in the absence of adequate education, skills and social protection policy.
• Secondly, the report underscores the double burden of informality and low-paying work that a large share of workers in developing and emerging economies carry, and as such calls for policy solutions that go beyond the formalisation agenda and embrace the goal of social justice.