The informal sector has borne the brunt of the quarantine measures adopted to slow the spread of COVID-19, and has suffered disproportionately from the resultant economic downturn. As early as April 2020, the ILO estimated that 1.6 billion informal sector workers would be affected: it expected such workers globally to suffer a 62 per cent decline in income in the first few months of the crisis alone, with workers in lower-income countries projected to earn 88 per cent less and those in upper-middle-income countries 55 per cent less. Data since then have been scarce, in part because of the difficulty of surveying workers in the informal sector. Nevertheless, a World Bank panel study of informal sector workers in Bangladesh, India and Pakistan in mid-2020 suggested that ‘informal wage workers were inherently more vulnerable than formal employees to the early COVID-19 employment shock’.
Lack of health insurance is particularly critical since many informal sector workers in the service industries are at greater risk of contracting COVID-19. Some countries, such as Ireland, Mexico, the Philippines, Thailand, the UK and Vietnam, have extended health benefits to at-risk workers or implemented measures to help cover their healthcare costs.
By September 2020, 212 countries and territories had introduced a total of 1,179 economic stimulus and social protection measures, worth a combined $179.8 billion in the 119 countries for which data were available. Many of these measures (just over 50 per cent) consisted of social assistance of some kind, with cash transfers the most common tool (including for small-business owners and wage labourers) along with wage subsidies. A handful of other countries, such as Argentina, Cabo Verde, Ecuador, Egypt, Mauritius, Morocco, the Philippines and Rwanda, are also providing general cash assistance packages. But many general programmes have failed to reach informal sector workers, who are often ‘off the grid’. In India, one estimate is that between 62 per cent and 85 per cent of urban workers would not be able to access funds from their country’s relief package, because they are not enrolled in social security and insurance schemes.
More generally, the pandemic has exposed how unprepared governments are to assist informal sector workers. Many governments lack reliable information on the activities of the informal sector, or even data on how many people it encompasses. As a result, financial assistance programmes often fail to reach a majority of the population. In the same vein, government efforts to provide cash transfers or tax breaks to businesses, with the aim of incentivizing the retention of workers, miss off-the-books employees. In the US, for example, there have been serious concerns about whether assistance has reached undocumented immigrants working in the shadow or informal economies. In Nigeria, the government’s conditional cash transfer programme is ‘likely to reach only a fraction of the Nigerians who will need economic assistance’, according to Human Rights Watch.
Even at their best, such programmes are palliatives; at their worst, they miss the sectors structurally most affected and at risk from both COVID-19 itself and the associated economic crisis. Moreover, when economies recover, many informal sector workers will be among the last to benefit. Firms are likely to be slow to hire unregulated workers, and sectors employing them will be slower to recover. For this reason, economists fear long-term scarring of labour markets, especially for new entrants to the workforce.
Addressing the long-term vulnerability of the informal sector will require resolving deep-seated structural flaws in many economies, including gaps in social safety net coverage. Even before the pandemic, the World Bank in 2019 was calling for a global ‘New Deal’ to address the inadequacies of government social insurance programmes.
