More than half of the world’s workforce lacks job security or benefits, and the number is growing during the downturn.
The increased number of workers in the informal sector will have “severe consequences for poverty” in poor countries, the OECD has warned.
The OECD (Organisation for Economic Co-operation and Development), which represents rich countries, says there are now 1.8 billion informal workers.
The number could grow to two-thirds of the workforce by 2020, it warns.
Informal economic activity is highest in some of the poorest regions of the world.
In sub-Saharan Africa, three-quarters of jobs in the non-agricultural sector come without security, legal rights or any benefits.
In South Asia, the number is two-thirds, while half of those in Latin America work without security. If agricultural labourers were included, the numbers would be even higher, according to the report.
“The financial crisis is throwing many people out of work, and in developing countries with no unemployment protection, they are forced to take informal jobs with low pay, no protection, and high risk exposure,” the OECD says.
Dual labour markets
It warns that the number of informal jobs could increase as migrants who have to return home as the economic crisis deepens are forced into that sector. The OECD says that 700 million informal workers live on less than $1.25 a day, the world poverty line, and 1.2 billion earn less than $2 a day.
The report says that even with robust growth rates, countries such as India, China and Brazil have a growing number of low-quality jobs in the informal sector.
“Though India grew by 5% per year in the last decade, people there feel that better jobs are not being created,” says the OECD’s Johannes Jutting, “since nine out of 10 employees, around 370 million people, do not have formal access to social security.”
The OECD says that the growing informal sector “generates segmentation in the labour market which obstructs growth and creates inequalities”.
And it says that as a result, the tax and benefit system in many poor countries does not function to redistribute wealth.
Women, young people, and the elderly, who are disproportionately represented in the informal sector, are likely to be hardest-hit by the disparities.
The recent G20 summit of world leaders pledged to make job growth a key priority and also aimed to direct more resources to poor countries.
But the OECD says that “immediate and unconventional action” is needed to boost the job prospects of those in the informal sector, including greater provision of micro-credit, additional public works programmes, and cash transfer programmes to improve the skills and infrastructure available to those working in the sector.
It argues that the larger emerging market countries themselves should look again at their polices, particularly labour regulations, to address the problem.