By Denis Pennel, Managing Director, World Employment Confederation
Informal work continues to present a significant labour market challenge across the globe. According to the ILO, 60% of the global workforce is engaged in the informal economy and the Covid-19 crisis has had a devastating impact on those workers. The ILO estimates that lockdown, and other containment measures adopted to slow down the spread of the virus, hit 1.6 billion informal workers particularly hard – with women over-represented in the most hard-hit sectors.
For those individuals, not working meant no income and a major hit to their livelihood and that of their families. People working in informality are effectively outside of the system. They have no job security, no social protection and often no career progression. But nonetheless, their work counts, and it should be performed in legal and decent conditions.
Informal work is also a risk for companies. Not complying with tax or labour regulations places the company at risk of legal challenges and a bad reputation. Governments too lose out from informality. Informal work obstructs revenues from national insurance and taxes. It undermines the sustainability of social protection systems and weakens the power of collective bargaining.
As the private employment services sector, we believe that the most effective way to stamp out informal work is to turn it into formal work. Creating an environment that is conducive to both workers and employers serves to reduce both supply and demand for informal work. Agency work can transform informal work into jobs that support businesses to access flexible labour while also taking workers out of the black economy and into formal employment – with all the attendant rights, benefits and access to training that this brings.
In India, the private employment services sector is making a clear case about the importance of lifting Indian people out of informal work to “helping India rise” and recover from the Covid-19 crisis. About 85% of India’s workforce is employed informally. The Indian Staffing Federation has been calling on its government to adopt labour market reforms that will enable the staffing sector to transition more people from the informal to the formal economy. The recent adoption of a new Labour Code on Occupational Safety and Health will be instrumental in reducing informality in the country.
Statistics show a strong correlation between labour market efficiency and the size of the informal economy, and those countries with efficient, appropriately regulated labour markets enjoy the lowest levels of informality. A key element is the presence of balanced regulation which allows private employment agencies to play their role in supporting companies manage fluctuations in demand and smoothly transitioning workers within sectors and jobs to ensure that they are constantly in work.
There is hard evidence to show that those countries with less restrictive agency work regulation also enjoy lower levels of informal work. Conversely, those markets which impose more restrictive regulation on agency work have a larger black economy. In general, in countries with a large informal economy, agency work is often a gateway to a first job – a first formal job. In Chile, the sector’s national federation Agest estimates that 3 out of 4 agency workers have found their first job, or their first formal job, through agency work.
The benefits associated with an employment contract can make a critical difference to people’s livelihoods, especially in times of crisis. As the World Employment Confederation Social Impact Report 2020 demonstrated, agency workers are every bit as well protected as those working under other forms of employment contract. It is a quality, decent form of work that balances flexibility with security.
Tackling informal work requires vigilance alongside balanced policies and regulation. Over-burdensome regulation can drive businesses into the informal economy in the same way as inefficient regulation can. Appropriate levels of regulation and proper enforcement, which encourage open and inclusive labour markets, will result in a natural reduction in informal work – boosting not only labour market participation but also financial contributions to governments which will ultimately find their way back into society to support growth and jobs.