Poverty & Growth Linkages
The relationship between informality, poverty, and growth are complex and not well understood. This section of the website explores what is known about these relationships.
Links with Poverty
Not all informal workers are poor, nor are all working poor engaged in the informal economy. However, there is significant overlap between working in the informal economy and being poor. This is because the quantity and quality of employment available to women, men, and households significantly affect whether they are poor. This sub-section details what is known about the relationship between working in the informal economy and being poor. It does so by summarizing findings of several recent studies that used different measurement approaches. The statistical evidence from various analyses of national data suggest a hierarchy of earnings and poverty risk across the various segments of the labour force, both formal and informal, and within the informal economy by employment status. It also reveals a gender gap: average earnings are lower and the risk of poverty is higher among women workers, compared to men workers, in the informal economy. To learn more about this, see Links with Poverty.
Links with Growth
Although the informal economy is often associated with low productivity, it makes a contribution to economic growth—one that is increasingly significant for high-income, as well as low-income, countries. In many contexts, informal enterprises and workers are less productive than formal ones. But if we want to improve individual earnings, household incomes, and overall growth, there is a need to explore what “productivity” and “productive growth” mean in the informal economy, and to rethink the definitions and measures of productivity. This sub-section explores the two-way linkages between informality and growth: the impact of the informal economy on economic growth, and the impact of economic growth on the informal economy. How much and in what ways does the informal economy contribute to economic growth? Or does the informal economy account for low productivity and low growth? Does the size of the informal economy shrink during economic growth and expand during economic slumps or downturns? Is it, in other words, counter-cyclical or pro-cyclical? To explore this topic in detail, see Links with Growth.
Links with Crises
The informal economy is thought to provide a “cushion” during crises to those who lose jobs in the informal economy. But little attention is paid to how firm a cushion it provides to new entrants and what happens during crises to those who were already engaged in the informal economy. This sub-section summarizes findings from two rounds of a study – in mid-2009 and mid-2010 – on the impact of the global recession on three categories of urban informal workers in 10 countries: home-based producers, street vendors, and waste pickers. To learn more, see Links with Crises.
