Globally, around 2 billion workers are engaged in the informal economy, depriving governments of vital taxes. Countries with higher levels of informality in jobs are likely to have lower labour productivity, slower physical and human capital accumulation, less access to finance, and smaller fiscal resources. A blanket transformation of these workers under the umbrella of formality may help; however, difficulty in tracking, minimised documentation and administrative hassles are acting as bottlenecks.

In Nepal, 4.411 million workers are engaged in the informal sector, accounting for almost 62.2 percent of the participation in the labour market, according to the Labour Survey 2017-18. The informal sector provides employment opportunities to vulnerable labour groups like women, unskilled labourers and labourers with little or no education who have lost hope of finding jobs in the formal sector. It also bridges the gap in the unemployment level in the event of a structural change in the economy as well as cyclical impact on the labour market.

Informal work deprives workers of their fundamental rights with an absence of social security and an economic safety net. The limited opportunities seen in decent livelihood options are the key cause of deepening poverty, high unemployment rate, illiteracy and disproportionate distribution of development benefits adding to informal workforces. Some of the most prominent sectors are home-based, agricultural and poultry, health, commerce and trade, craft, construction, transport, micro-enterprises, hotels and restaurants.

Talking particularly about home-based workers, their number exceeds 260 million across the world, representing 8 percent of the global workforce, according to the International Labour Organisation (ILO). They are sub-contracted workers whose contributions remain significant despite being invisible and unrecognised. Also, most of them do not enjoy adequate economic opportunities, legal rights, and social protection. A need for a strong, united and representative voice on global platforms is anticipated.

The fact that privately incorporated and public enterprises employ informal workers does not mean that the contribution of these workers is not taken into account in the output of the firms. However, it impacts the value-added: Supply and use of furniture, and farm/forestry products by which national accountants attempt to balance production and its uses, as well as the reconciliation of the three GDP estimates on the production side, expenditure side, and income side.

Article 34 of the Constitution of Nepal talks about labour rights where labourers are entitled to remuneration along with appropriate facilities and contributory social security. Also, the Social Security Regulations 2018 has made the enrolment of employers and employees in the Social Security Fund mandatory. This, however, applies to formal workers, so the informal ones are left out. The only way out of this situation is to bring informal workers under the umbrella of formality. In this regard, the National Employment Policy 2015 has been formulated to improve the quality of employment by gradually transforming informal employment into formal employment.

The 15th Plan 2019-24 has mentioned that the informal economy will be made formal and productive during the plan period to curb the informal economy. Also, ILO Recommendation No 204 prioritises the importance of measuring and monitoring the informal economy. Nepal’s data needs to be collected regularly in line with international standards on both informal and formal employment, which enhances the possibility of monitoring and evaluating the country's progress towards formalisation.

Platform economy

With innovations in technology, the platform economy, which particularly supports digital concepts, is emerging worldwide. Nepal has not remained an exception. Some start-ups have already launched themselves in the job arena. Being a new and diverse concept in the country, it has been given various names. Some have called it a creative economy and others have called it a sharing economy. It has been named gig economy, and how the workers are compensated is still outside the scanner of government rules and regulations. It is not difficult to conclude that though registered legally, the outcome that the platform economy provides is more inclined towards informal jobs than formal ones.

These registered start-up companies are providing jobs to many; however, the majority of them are freelancers, which means they fall under the category of informal workers. In this case, these companies do not take any responsibility or liability regarding them. Though these workers are getting significant commissions, they are not getting other benefits from the companies.

Way forward

The problem of informality at work hinges on policy reform. If the state moves to expand social insurance coverage to the poor in the unorganised segment, it will be a huge gain for the rights of workers in the segment. It will make them understand their rights and motivate them to act accordingly, as per the study published in the ILO’s Working Paper No 254.

Regular inspection and, if needed, interception can be done to safeguard the rights of workers to bring them into the formal channel. A toll-free number to listen to queries and problems of informal workers can be installed which will help to track and bring them into the formal channel. To broaden the base of the informal sector and promote more inclusive growth, the following policy measures may be considered, which might contribute meaningfully to the various sustainable development goals.

The informal sector has provided alternative employment when formal sector jobs are difficult to find. Not to forget, the informal sector plays a crucial role in absorbing a significant percent of the economically active population and also contributes to the national GDP. To broaden the base of the informal sector and promote more inclusive growth, policy measures like social awareness and training, skill camps registration, establishment of business development centres, administrative and procedural reforms, tax-related incentives, review of laws and regulations, easier inspection and compliance, monetary incentive, sectoral approach, and extension of social protection should be brought forward.

Published on: 8 August 2023 | The Kathmandu Post