The Pandemic & Informality: What Needs to Be Done Now!
With over 35 million unemployed, over 138,000 dead from COVID-19 and over 3.5 million confirmed infections in the United States, it is difficult to think about anything other than the leadership and policy change that needs to happen in America. As bad as it is here — and it is getting worse — every aspect of what is bad in the U.S. is even worse for workers in the Global South — especially workers in the informal economy.
More than 4 out of 5 people in the 3.3 billion global labor force are either out of work or are confronting full or partial workplace closures. The International Labour Organization (ILO) has determined that 1.6 billion of the global workforce are in the informal economy and are in immediate danger of losing their entire livelihood because of the pandemic.1
Informal workers — like other critical workers — have little option but to continue to provide their products and services. 93 percent of informal workers live in developing countries where health care systems are vulnerable in a way that is unimaginable in the developed world. While the developed world confronts shortages of ventilators and ICU beds, throughout the developing world there are already too few ICUs and ventilators, and the working poor are last in line for critical care. Further, the livelihoods and living conditions of informal workers do not accommodate “social distancing,” and personal protective equipment, diagnostic tests or other public health infrastructure to thwart the spread of the pandemic is basically nonexistent.
In formal economies where a majority of workers are wage earners or are salaried, financial support that provides immediate financial benefit to the workers through the tax, payroll and unemployment systems, as well as direct and indirect financial loans for businesses to maintain payrolls, and the expansion of medical insurance and relief from mortgage payments, utilities and rent makes sense.
But none of these programs will combat the imminent harm confronting workers in the informal economy where most are self-employed working on the street, in their “home” or on the farm. Informal workers must rely on their countries to provide social protection systems and safety nets that provide economic relief during the pandemic — and, most developing countries with high percentages of informal workers have fallen entirely short of meeting even the minimum needs.
ILO Director General Guy Ryder recently explained:
“The pandemic has laid bare just how precarious, just how fragile, just how unequal our world of work is. It is commonly said that this pandemic does not discriminate, and in medical terms that is right. We can all be struck by the pandemic. But in terms of the economic and social effects, this pandemic discriminates massively and above all it discriminates against those who are at the bottom end of the world of work, those who don’t have protection, those who don’t have resources and the basics of what we would call the essentials of a normal life.”2
Much has been written about what needs to be done by governments in countries with large informal economies and workers living below the poverty line, for example cash transfers and food transfers, both targeted and not targeted.3 As the experts determine the answers to these legitimate but irrelevant questions, the world is failing to manage COVID-19 as it invisibly spreads and kills. The international financial institutions — specifically the World Bank –while providing resources and support for formal businesses and small enterprises, has historically failed to reach where most workers in the developing world are — in the informal economy.
During global crises the World Bank has historically not only provided financial support through loans and other mechanisms, but also encouraged policy change so countries are better prepared for future crises. While the World Bank is currently providing financial support for formal businesses and workers, it must establish a fund to support the policies and initiatives necessary to protect informal workers and secure the future of their vital work.
The World Bank must urgently encourage developing countries to establish a direct transfers system so that informal workers can immediately receive essential financial support. It is their only option economically and morally. Now more than ever the World Bank has to encourage much needed policy change to ensure the future protection of informal workers.
Equally important is for the World Bank to encourage countries to adopt accessible formalization schemes — like a “one stop” system so governments can effectively transfer payments and essential public services to informal workers for times just like this. The Global Fairness Initiative (GFI) has worked for decades with informal workers, governments and all relevant stakeholders to establish accessible mechanisms so that informal workers can join and reap benefits from the formal economy.
Registration systems for informal workers and enterprises are not alone sufficient. Outreach and education are essential for workers to recognize the benefits and feel secure in registering with the government. Workers, generally — and informal workers, specifically — are reluctant to expose themselves to government especially when their government has actively marginalized them and shown hostility toward them.
Further, Governments must delay the taxes and fees of formalization for these new members of the economy and focus on the public benefits first and revenue later — especially as the pandemic spreads. And, formal private enterprises must be engaged so that they — as the private sector — understand the value of incorporating informal workers and their enterprises. Failure to engage and educate will result in misunderstanding and barriers to policy change. Getting the process right is as important as getting the policy right.
The World Bank could have an essential role if it were to focus its resources on encouraging countries to adopt policy changes that would smoothly integrate informal workers into the formal economy — but they must act now. The World Bank’s leadership is needed to drive policy change more rapidly and have an impact on transfer payments to informal workers that are urgently needed to address the economic devastation.
COVID-19 has thrown into relief the impact inequity crises have on informal workers and communities that have historically been relegated to the social and economic margins of society. Work in the informal economy is a matter of survival for nearly 2 billion individuals, and it has become clear during this crisis that informal jobs are critical to our survival. Agricultural workers are keeping the food supply chain viable, gig workers are getting food and supplies to our doorsteps, and workers in the domestic and care economy are looking after our homes and loved ones.
Informal jobs serve mainstream economies, but fall outside mainstream protections. These jobs provide services and products societies rely on, particularly in times of crisis. Countries must act quickly to change the grave inequities by investing in formalization schemes that include “one stops” registration, delayed tax payments and simplified taxation regimes.
The World Bank, the International Monetary Fund and the international development community should support efforts to mainstream the inclusion of informality into their country programs. Many organizations, including Global Fairness Initiative, have demonstrated the benefits to workers and countries and GFI’s new “Mainstreaming Informality” report offers insights into how formalization has a positive economic impact on both. There should be no question that informality must be mainstreamed.
The only question is what is the best way to rapidly bring informal workers into the formal economy? At this moment, where so many workers have lost so much including their lives — it is urgent that the inequality between formality and informality be upended.
1 “Amid pandemic, the world’s working poor hustle to survive” by Aya Batrawy and Emily Schmall, May 8, 2020, Associated Press/ PBS NewsHour. 2 “Half of world’s workers ‘at immediate risk of losing livelihood due to coronavirus’” by Phillip Inman, April, 29. 2020, Guardian. 3 For example, “What can low-income countries do to provide relief for the poor and the vulnerable during the COVID-19 pandemic?” by Berk Ozler, March 19, 2020, World Bank Blogs; “As Coronavirus restrictions decimate Guatemala’s economy, white flags are flying in desperation” by Stephanie Capper, June 3, 2020, Australian Broadcasting Corporation; “India: Fighting Coronavirus in an Informal Economy” by Alyssa Ayres, April 24, 2020, In Brief, Council on Foreign Relation