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After COVID-19: what is the future for those working in the informal sector?

1st October 2021

Authors: Ronald McQuaid (University of Stirling, UK), Sigrid Rand (Goethe University Frankfurt, Germany), Aleksandra Webb (University of West of Scotland, UK)

The COVID-19 pandemic and sustained climate change have significant effects on employment across the globe, especially those working in, or forced into, the informal sector. Such informal workers make up around a fifth of employment in higher income countries and over 60% globally.

They have been particularly hard-hit by the economic and policy impacts of COVID-19 due to at least two factors. First, lockdowns and other policy responses particularly affected sectors employing many informal workers (such as: bars and restaurants; arts, entertainment and other leisure providers; transport; and accommodation) and particular groups such as mothers with young children.

Second, informal workers are often unable to receive governmental financial support due to their lack of formal employment record.

Similar issues to those faced by informal workers are often experienced formal workers in the formal economy, who fully following tax and legal regulations; including much of the ‘gig-economy’ (those working on the basis of short-terms jobs, often being self-employed).

The pandemic is currently changing the balance of benefits versus costs of informal, compared to formal, employment for individual workers, governments and employers in various ways, the outcomes of which are still being decided. Some of these issues are explored in our paper (Webb et al.).

So who are these informal workers?

There is a wide range of different terms used for activities that are perceived to be part of the ‘informal economy’, including: ‘‘atypical’, ‘cash-in-hand’, ‘hidden’, ‘irregular’, ‘undeclared’, and ‘unregulated’. Definitions often imply ‘shadow economy’ activities (that avoid taxes) or take place in non-formalised space. All these labels essentially reflect a dichotomy of ‘open’ and ‘hidden’ spaces or activities.

It is important to distinguish informal economic activities that are ‘legitimate’ informal activities, i.e. those that would be legal in the formal economy if appropriate regulations were followed and taxes paid etc.; and those that would be ‘illegal’ and ‘illegitimate’ in the formal economy, such as criminal activities (e.g., forced labour, drugs dealing).

Some impacts of COVID-19 on employers

The reengineering of the post-COVID-19 pandemic economy is ongoing, but may lead some employers to reconsider employment practices that tend to reduce workers’ conditions and health and safety protection, in order to gain a competitive advantage.

There is a danger that employer aversion to taking on permanent staff may be aggravated by the fear of future economic disruptions. It is possible that various forms of formalised employment may become more casualised and no longer provide significantly better work conditions than informal jobs.

Meanwhile higher online purchasing or food delivery trends, accelerated by the pandemic, may increase informal sub-contracting of work.

Contrary to this, long-term demographic and other pressures may lead some employers to offer formal employment contracts with better terms in order to attract certain types of workers (such as high skilled or HGV drivers).

The crisis may spark a period of reinvention and adaptation, leading them to thrive as they take advantage of opportunities generated by the changes in supply chains and consumer demand, activities and habits. So future developments are not determined and may be influenced by current and future policies.

Informal workers will want more security

For individuals, avoiding or evading taxes or the benefits of individuals having flexibility in their choice of working times may be less attractive to informal workers if it means income, psychological, health and other insecurity and less government employment support. COVID-19 has exacerbated this.

Hence, many informal workers are likely to seek greater job and health security and a more effective unemployment safety net in the formal sector.

These changes in the balance of an individual’s costs and benefits are likely to remain for some time due to the uncertainty of the full effects of the pandemic on the economy and perceived changing risks of future pandemics, or impacts of climate change or major economic disruption.

The accelerated rise in home working, with remote based operations likely to remain over coming years, will potentially alter the balance between formal and informal employment, and even people combining formal and informal work. Social and childcare demands, often delivered informally, may also rise in response to greater home working.

The rise or fall of informal working?

The balance between informal and formal work is changing.

It is possible that past and future shocks to the economy due to short- or long-term financial crises, health, demographic and environmental pressures may add to pressure from workers for better and more secure jobs as well as to changes the welfare and income support systems.

On the other hand, some employers may respond by seeking greater use of informal and casualised workers.

Undoubtedly major health-economic and other changes will have far-reaching effects on informal employment for different groups in society and communities.

The shifting balance between formal and informal employment may lead to a greater polarisation between the two. But the future balance between more formal and informal work is unclear.

Protecting the working conditions and benefits of those working informally, and bringing them into the formal labour market will be important.

The future balance of informal or formal employment remain uncertain, but there are strong calls from various bodies for concerted, thought-through actions to create more resilient, sustainable recoveries that respond to worker’s holistic needs, rights and aspirations.

Article title: Employment in the informal economy: implications of the COVID-19 pandemic

Journal: International Journal of Sociology and Social Policy

Authors: Aleksandra Webb, Ronald McQuaid, Sigrid Rand