Informal employment is work that is not covered, in law or in practice, by labour legislation, income tax, social protection or the usual employment benefits such as paid leave and sick pay. The International Labour Organization (ILO) uses the term for every job of this kind, whether it is held by a street vendor, a farm labourer, a domestic worker paid in cash or an unregistered employee of a registered company.
The idea is related to, but narrower than, the informal economy, which also covers informal enterprises and the goods and services they produce. It is also different from the shadow economy: most informal jobs are legal activities that simply sit outside registration, tax and social security systems, rather than hidden crime. International statistical standards for measuring it are set by the International Conference of Labour Statisticians (ICLS).
Informal employment in plain terms
Think of two people who both work full days in the same market. One has a contract, a payslip, a pension account and a doctor's note that guarantees paid days off when she is ill. The other is paid in cash at the end of each day, has no written agreement, and earns nothing on the days he cannot come in. Both are working. Only the first is visible to the tax office and the state's safety net.
Informal employment is the second kind of job. It is not defined by how hard someone works, or even by how much they earn, but by whether the protections that normally come with a job are actually there. Many informal workers would happily join the formal system; often the cost, paperwork or simple lack of formal jobs keeps them out.
How it is defined and measured
The 15th ICLS in 1993 adopted a definition of the informal sector based on enterprises, and the 17th ICLS in 2003 added guidelines on informal employment based on jobs. In October 2023 the 21st ICLS adopted a new resolution on statistics of the informal economy that replaced both, widened the framework to cover informal productive activities, and aligned it with the latest classification of status in employment. Under these standards:
- Employees hold informal jobs when their employment relationship is not, in practice, subject to labour law, social insurance contributions or entitlement to benefits such as paid annual leave.
- Employers and own-account workers are informal when the business they run is itself informal, typically unregistered and without full accounts.
- Contributing family workers, who help in a relative's business without regular pay, are counted as informal in almost all cases.
Informal jobs can therefore exist inside formal firms, for example when an employer does not declare part of its staff, and inside households that hire cleaners, drivers or carers without registering them.
The informality rate
The headline indicator is the share of all employed people whose main job is informal:
Suppose a labour force survey finds 12.6 million employed people, of whom 8.1 million hold informal main jobs. The informality rate is .
Scale around the world
The ILO estimated that more than 2 billion workers, about 58 percent of the global workforce, were in informal employment in 2024. The share varies widely by region and income level. In Africa roughly 85 percent of workers are employed informally, and in low-income countries the average is close to 90 percent, while in most high-income economies informal jobs are a small minority. Women, young people, older workers, migrant workers and people with little formal education are over-represented in informal work.
Much informal work happens in micro and small enterprises and in agriculture. Some platform work is informal too, when workers fall outside contribution-based protection.
Financial consequences
- Lack of a safety net. Informal workers usually have no unemployment insurance, employer pension or social security coverage, so illness, old age or a bad harvest can cut income to nothing.
- Limited access to credit. Without payslips or tax returns, lenders struggle to judge income, and many informal workers have no credit score at all. They often rely on family loans, savings groups or moneylenders.
- Cash-based lives. Wages paid in cash leave little record, which makes saving, insurance and borrowing harder. Mobile money has created a digital trail for millions of such workers, especially in East Africa.
- Narrow tax bases. Governments in economies with high informality collect less in taxes and social contributions, which limits public spending on the services informal workers rely on.
Because of these links, informal employment is central to policy on financial inclusion, and access to a digital identity is often the first step toward a bank account or a registered business.
Policy responses and debate
ILO Recommendation No. 204, adopted in 2015, sets out guidance for the transition from the informal to the formal economy. Common tools include simpler business registration, lower-cost tax regimes for small firms, extending social insurance to the self-employed, and better labour inspection. Together these measures are often described as formalization.
Economists disagree about causes. One view sees informality as exclusion: people would prefer formal jobs that do not exist in sufficient numbers. Another sees it partly as choice: workers and small firms weigh the costs of taxes and regulation against the benefits of formal status and decide to stay outside. Most researchers accept that both forces operate. Informal employment also matters for measuring gross domestic product, since much of the output it produces is part of the unobserved economy that statisticians must estimate.