The informal economy is enormous, persistently underestimated, and structurally excluded from most workforce-policy conversations in the U.S. The International Labour Organization estimates that roughly 60% of the world's employed population works in the informal economy — over 2 billion workers globally. In the U.S., the boundaries are fuzzier, but BLS estimates suggest roughly 16% of workers participate in some form of contingent or alternative work arrangement, and a substantially larger share of immigrant labor in construction, agriculture, domestic work, and food service operates partially or fully outside formal employment records. When formal employers try to integrate workers from this segment, they typically fail in predictable ways. Understanding why is the first honest step.
The argument here: integrating informal-economy workers into formal workspaces is not primarily an onboarding-design problem. It is a credential-recognition problem, a structural-bias problem, and a wage-and-benefits problem. The companies that do it well are the ones that change their HR systems and their compensation policies, not the ones that add an extra mentorship session to week one.
What the informal economy actually looks like
The ILO's Women and Men in the Informal Economy: A Statistical Picture (third edition, 2018; subsequent updates 2022, 2024) defines informal employment broadly: workers in unregistered enterprises, workers in formal enterprises without legal protection, and contributing family workers without contractual employment. The economic significance is large — informal-sector workers produce roughly 30% of global GDP, per ILO and OECD estimates — but the workers themselves are excluded from most labor protections.
In the U.S. specifically, Lawrence Katz and Alan Krueger's ILR Review paper "The Rise and Nature of Alternative Work Arrangements in the United States, 1995–2015," and subsequent JPMorgan Chase Institute data, documented the rising share of workers in "alternative" arrangements (independent contractors, on-call workers, gig platforms). The 2024 Castellanos v. State of California decision and the 2024 EU Platform Work Directive both reflect the broader policy effort to address employment classification at the margins between formal and informal work.
Workers transitioning from informal to formal employment typically bring three things that formal HR systems are bad at recognizing: significant practical skill without paper credentials, multi-employer work histories that ATS software penalizes, and reference networks outside the typical white-collar weak-tie graph.
Why standard onboarding fails for informal-to-formal transitions
Credential recognition is the binding constraint
Joseph Fuller's research at Harvard Business School, including The Emerging Degree Reset (2022, with the Burning Glass Institute), documented that around 1.4 million U.S. jobs could be opened to non-degreed workers if employers dropped unnecessary B.A. requirements. The structural fix is at the job-posting and ATS-keyword stage, not at onboarding. An onboarding program that does excellent work on cultural integration but starts after a credential-screened hiring funnel has filtered out the relevant talent will have a small candidate pool to work with.
Compensation often does not match the practical skill being acquired
Workers transitioning from informal employment frequently bring substantial domain expertise — a 15-year construction worker, a long-time domestic worker, a multi-year informal-sector trader. Compensation systems built around credentials and tenure systematically undervalue this experience. The fix is wage-setting that compensates for demonstrated skill, not just for paper credentials. Wage-setting research from the Economic Policy Institute and the W.E. Upjohn Institute provides the framework.
Reference networks do not transfer
Informal-economy workers usually have strong reference networks inside their original community but limited connection to the formal-sector weak-tie graph that drives most modern hiring. The Aral et al. 2022 Science paper on weak ties and job mobility confirms that this graph is the main hiring channel for white-collar work. Successful formal-sector integration involves deliberately building the formal-sector weak-tie graph — through sponsorship, structured exposure to multiple departments, and named introductions, not just generic networking events.
What programs that work actually do
Skills-based hiring with documented assessment
The Bipartisan Policy Center and the Burning Glass Institute have both published frameworks for moving from credential-based to skills-based hiring. The core mechanic is replacing degree requirements with skills assessments that workers can demonstrate regardless of educational background. Multiple state governments (Maryland, Utah, Pennsylvania, California) have implemented skills-based hiring for state jobs, with documented hiring outcomes that include substantial numbers of workers without college degrees.
Recognition of Prior Learning (RPL) programs
RPL programs convert workplace experience into formal credit toward credentials. The Council for Adult and Experiential Learning has documented that workers who use RPL pathways are 2.5 times more likely to earn a credential than comparable workers without — a substantial effect from a relatively low-cost intervention. The infrastructure exists; it is just under-utilized.
Apprenticeship pathways for adult learners
Registered Apprenticeships, expanded substantially under the 2021 Bipartisan Infrastructure Law and the 2022 CHIPS and Science Act, increasingly accept adult learners and career-changers from non-traditional backgrounds. Apprenticeship completers earn an average starting wage of roughly $77,000 — substantially above the median for the credential level — and the structure (paid from day one, employer-sponsored, named credential at completion) avoids the cost barriers that prevent informal-sector workers from accessing traditional educational pathways. See NWLB's Apprenticeship 2.0 → framework for the broader case.
Wraparound services as a default, not a perk
MDRC's randomized evaluation of Project QUEST documented that the durability of wage gains (11+ years) depended substantially on wraparound services — childcare assistance, transportation support, navigation services. Onboarding programs for informal-to-formal transitions that skip these services will produce weak retention. The integration is logistical, not just cultural.
The classification question
One reason the informal-formal boundary stays porous is that classification disputes are legally contested. The U.S. Department of Labor's January 2024 independent-contractor rule, the Castellanos v. State of California decision (2024) on AB 5 and Proposition 22, the EU's Platform Work Directive (2024), and the UK Supreme Court's Uber BV v. Aslam (2021) ruling have all reshaped where the line falls. NWLB's analysis of how this is settling in different jurisdictions is in The Gig Economy Settlement →. The relevant point for onboarding is that workers crossing from informal to formal employment are often crossing in the middle of an active legal dispute about what "formal" even means.
Integrating informal-economy workers into formal workspaces is not an onboarding-design problem. It is a credential-recognition, compensation, and wraparound-services problem. The HR system has to change, not just the welcome packet.
"Redefining onboarding" for informal-economy workers reads as a soft-skills intervention. The serious version of this work is structural: dropping unnecessary degree requirements, instituting skills-based hiring, expanding Recognition of Prior Learning programs, opening apprenticeship pathways to adult learners, and funding wraparound services as default infrastructure rather than as boutique programs. None of those are mysterious. They are the changes employers and policymakers can make if they want the informal-formal transition to be a routine part of how the labor market works, rather than a heroic outcome that depends on individual workers absorbing all the friction themselves.
Updated May 21, 2026. This piece was substantively rewritten as part of NWLB's 2026 editorial refresh.
