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International Labour Organization: Standards for the Informal Economy Proposed

(July 1, 2015) On June 12, 2015, the International Labour Organization (ILO) announced its first standards for assisting laborers in the informal market; the document is in the form of a recommendation. (ILO Adopts Historic Labour Standard to Tackle the Informal Economy, ILO website (June 12, 2015).) The goals, as stated in the document, are to

  • facilitate the transition of workers and businesses from the informal to the formal economy, while respecting workers’ fundamental rights and ensuring opportunities for income security, livelihoods, and entrepreneurship;
  • promote the creation, preservation, and sustainability of enterprises and decent jobs in the formal economy and the coherence of macroeconomic, employment, social protection and other social policies; and
  • prevent the informalization of formal economy jobs. (Recommendation 204: Recommendation Concerning the Transition from the Informal to the Formal Economy, Adopted by the Conference at Its One Hundred and Fourth Session, Geneva, 12 June 2015 [Recommendation], § 1, ILO website.)

Nature of the Informal Economy

The ILO defines the informal economy as:

[a]ll economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements. Activities are not included in the law, which means that they are operating outside the formal reach of the law; or they are not covered in practice, which means that – although they are operating within the formal reach of the law, the law is not applied or not enforced; or the law discourages compliance because it is inappropriate, burdensome, or imposes excessive costs. (ILO Adopts Historic Labour Standard to Tackle the Informal Economy, supra.)

More than half of the workers in the world are thought to be involved in the informal economy and therefore to be denied workplace rights, social protection, and other benefits of the formal economy. Women, youths, ethnic minorities, migrants, older people, and the disabled are thought to be disproportionally represented in the informal economy. (Id.) These workers are presumed to be forced into the informal economy due to a lack of better opportunities. The Recommendation contains a strategy and practical guidance on steps that could be taken to facilitate the movement of people from informal to formal status. (Id.)

According to the Director-General of the ILO, Guy Ryder, there has been a growing consensus of governments, workers, and employers that people need to be brought into formal employment. He added, “[w]e know it is not easy, we know that these processes are complicated and take time, but the great value of this Recommendation is that we now have an international framework of guidance to help member States bring this about.” (Id.)

The standards resulted from the work of the ILO Committee on the Transition from the Informal to the Formal Economy. After several changes in its structure, as of June 8, 2015, the Committee comprised 167 members, 116 representing governments, 8 representing employers, and 43 representing workers. (Reports of the Committee on the Transition from the Informal to the Formal Economy: Summary of Proceedings, International Labour Conference, Provisional Record 10-2, ILO website (June 2015).)

Provisions of the Recommendation

The Recommendation suggests that in each country the “competent authority should identify the nature and extent of the informal economy as described in this Recommendation, and its relationship to the formal economy.” (Recommendation, § 6.) Further, the Recommendation suggests that ILO Members review factors that cause people to be in the informal economy, as well as the laws that exist to ensure that all workers are protected. (Recommendation, §§ 8-9.) It goes on to advocate that countries develop plans to facilitate the movement of workers into the formal economy, taking into consideration a number of factors, including:

  • the diverse characteristics and needs of the workers and businesses involved;
  • national circumstances, including legislation and practice;
  • the fact that multiple strategies can be used;
  • the need for “coherence and coordination” across a broad range of policy areas;
  • effective promotion of the human rights of everyone in the informal economy;
  • the need to promote gender equality;
  • the need to pay particular attention to vulnerable populations, such as the elderly, the disabled, and tribal peoples;
  • meeting current international labor standards and creating decent work possibilities for all;
  • preservation of the potential for entrepreneurship;
  • balancing incentives with penalties; and
  • preventing tax evasion through avoiding or departing from the formal economy. (Id. § 7.)

In addition to considering these factors when creating policies, ILO members should insure that workers have access to education; financial and business services; markets, infrastructure, and technology; safe work places; and effective health policies. Workers should also have income security and access to social protection programs such as social security and an economic environment that is conducive to migration to the formal workforce. (Id. § 11.)

Among the measures suggested are some designed to make it easier for small businesses themselves to join the formal economy, including lowering application costs and streamlining procedures for businesses to register; reducing expenses connected with attaining compliance with national laws, through such steps as simplifying tax regimes; providing training and advice to companies seeking to compete for public procurement business; making financial services such as credit and insurance services available; and improving access to training in entrepreneurship. (Id. § 25.)

A separate section of the Recommendation addresses basic worker rights, including the right to bargain collectively and the elimination of forced labor, child labor, and workplace discrimination. (Id. § 16.)