Informal Economy
About 2 billion people work in the informal economy — roughly 58% of total employment worldwide. The share ranges from 18% in advanced economies to 86% in low-income countries. Informal workers typically lack social protection, written contracts, paid leave, and pension coverage. The economic activity they generate is real; the statistical measurement is patchy.
Key insights
Informality is not just about street vending
The ILO definition covers: own-account workers without registered businesses, employees without written contracts or social security, contributing family workers, and members of informal producers' cooperatives. Urban street vendors are visible but represent a small share. Agricultural labour, small workshops, domestic workers, gig-platform workers and undocumented migrants make up most of the global informal workforce.
Informality declines with income, slowly
Sub-Saharan Africa: 86% informal employment. South Asia: 84%. East Asia/Pacific: 60%. Latin America: 53%. Eastern Europe/Central Asia: 38%. Europe/North America: 18%. The relationship with GDP per capita is robust but the slope is gradual — countries that move from low- to middle-income typically reduce informality by 1–2pp per year, not faster.
Tax and social protection bases shrink with informality
High informality limits the tax base — most informal workers earn too little to pay income tax even when liable, and consume more from informal sellers who don't remit VAT. It also limits the social protection base — pension coverage in sub-Saharan Africa is under 10% of the labour force, partly because the formal-sector schemes simply don't reach informal workers. Closing the formal-informal gap is the binding constraint on universal social protection in most low-income countries.
Informal employment by region (latest)
% of total employment in informal arrangements
Key Finding: Sub-Saharan Africa and South Asia have informality rates 4–5× European levels.
Informal employment — selected countries (latest)
% of total employment
Key Finding: Even within the same region, informality varies 2–3× — driven by social protection coverage and enforcement capacity.
Methodology & caveats
ILO definitional layers
The 17th International Conference of Labour Statisticians defined: informal sector (production-side, unregistered enterprises) and informal employment (job-side, lack of social protection / written contract). The two overlap but are not identical — a worker can be informally employed in a formal-sector enterprise. ILO 2018 statistics now use 'informal employment' as the headline measure because it captures both dimensions.
Measurement is hard
Labour-force surveys typically miss the smallest informal activity (people not reporting work because it's intermittent or shameful). Adjustments rely on enterprise censuses, household surveys, and tax-collection ratios. Estimates of the 'shadow economy' as a share of GDP (Schneider et al. multi-indicator method) typically run 10–40% of GDP — measures of what's missing from official statistics, not directly the same as informal employment.
Why informality persists
Several reinforcing reasons: tax and regulatory compliance costs are higher than the marginal benefit of formality for small operators; social protection schemes are designed for stable formal employment; consumers prefer informal sellers' lower prices; enforcement is patchy. Costa Rica, Uruguay and several Andean countries have run multi-decade formalization programmes with measurable but modest results — informality is sticky.