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The role of informal economies in sustainable and inclusive economic growth

The 8th sustainable development goal (SDG) set out by the United Nations aims to achieve full and productive employment, decent work for all women and men, including young people and persons with disabilities, and equal pay for work of equal value. Policymakers often implement policies to promote economic growth, assuming subsequent growth in employment opportunities and inclusive development. Economic policies are often implemented based on Okun’s law, which argues that higher economic growth leads to lower unemployment. However, economic growth does not necessarily translate into more and better jobs, equality, or sustainability.

Economic growth must translate into productive and inclusive job opportunities to achieve sustainable development. A decline in the employment content of change has been noted. Jobless growth has become a widely used term to describe an economy growing without growth in the number of jobs. The constant drive to increase productivity requires manufacturers to reduce input costs steadily. Thus, business owners will employ as few employees as possible to cut costs. Many women and men, especially in developing countries, work arduous and long hours without being able to lift themselves out of poverty. A country’s economic growth does not translate into the development of decent work opportunities.

Economic growth and policy reduction policies should be integrated to maximize the benefits for vulnerable groups. The current global state of affairs, amidst the COVID-19 pandemic and highly challenging economic conditions, has had a particularly detrimental effect upon those furthest from the labor market, often including vulnerable and disadvantaged groups such as young people; people with a disability; minorities; migrants; aboriginals; and early school leavers, require countries to do more with fewer resources. Women and young people are particularly susceptible to the subsequent effects.

The informal economy is an essential characteristic of labor markets, especially in developing countries. Women, low-skilled workers, and young people often depend on informal economies for economic opportunities. Work in the informal economy is often characterized by small or undefined workplaces, unsafe and unhealthy working conditions, low levels of skills and productivity, low or irregular incomes, long working hours, and lack of access to information, markets, finance, training, and technology. The root causes of informality include elements related to the economic context, the legal, regulatory, and policy frameworks, and to some micro-level determinants such as low level of education, discrimination, poverty, and, as mentioned above, lack of access to economic resources, to property, to financial and other business services and markets. However, a country’s productivity often depends on informal economies and women’s unpaid labor.

Policies aimed to promote economic growth and decent and decent work for all should implement a comprehensive and integrated strategy that recognizes the value of informal economies to boost the position of women, young people, and other vulnerable groups. Policy interventions should be centered around the experiences of the most vulnerable groups and those at a distance from traditional labor markets to bring about effective change. Regionally, countries should develop, implement and monitor coordinated and context-specific policies and programs that promote quality job creation through economic diversification and investment strategies, skills development for present and future needs in the labor markets, labor market activation, and labor market activation intermediation that integrate the most vulnerable groups. These include policies and programs facilitating the transition to formality and creating employment and income opportunities in the rural economy.


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