Two billion workers — 61% of the global labor force — work informally, according to the International Labour Organization's 2018 measurement work, the most rigorous global figure we have. That number has held roughly stable through 2024 ILO updates, despite predictions through the 1990s and 2000s that economic development would steadily formalize labor markets. The economist Ravi Kanbur and the WIEGO Network's research, including the body of work led by Marty Chen at Harvard's Radcliffe Institute, has demonstrated that informality is not a transitional state on the way to formal employment but a durable structural feature of most labor markets — including a growing share of advanced-economy labor markets, where platform work, contracting, and non-standard arrangements have been re-informalizing the workforce.
The argument here is narrow: framing the informal economy as a problem to be eliminated through formalization has produced policy approaches that mostly fail. Framing it as a workforce category that needs portable benefits, legal recognition, digital identity, and bargaining infrastructure produces policy approaches that work. The shift in framing — from "formalize" to "include" — is what distinguishes the SEWA-style organizing tradition that has worked from the World-Bank-style formalization push that has mostly not.
What the data actually looks like
The ILO's Women and Men in the Informal Economy: A Statistical Picture (third edition, 2018) remains the foundational data source. Three findings are durable.
The regional distribution is sharply uneven. Sub-Saharan Africa has the highest informality rate at roughly 85% of total employment; South Asia is at 68%; East and Southeast Asia at 59%; Latin America and the Caribbean at 53%; the Arab States at 68%. Europe and North America are at roughly 18%, but trending upward as platform and contract work expand.
Informal work is feminized. The gender breakdown shows that women's informal-employment rates exceed men's in most regions when one accounts for unpaid family work and home-based production. The female-dominated informal occupations — domestic work, street vending, home-based production, waste picking, care work — are also among the most legally precarious and lowest-paid.
The wage and benefits gap is real but not as extreme as commonly assumed. Controlled-for-skill wage differentials between formal and informal workers in middle-income countries are typically in the 10–25% range. The bigger gap is in social-insurance coverage, paid leave, and protection against income volatility — not headline wages.
For the developed-economy story, the U.S. Bureau of Labor Statistics and JPMorgan Chase Institute data on independent and gig work, the Upwork Freelance Forward surveys, and the McKinsey Global Institute's Independent Work reports converge on a picture of roughly 30–40% of the U.S. workforce performing some independent or contingent work in a given year, with a smaller fraction (roughly 10–15%) for whom it is the primary income source.
The "formalize to fix" approach and why it has mostly stalled
The World Bank's recurring policy framework for informality, articulated through the Bank's Doing Business indicators (discontinued in 2021 after methodological controversies) and successor frameworks, has historically emphasized reducing the regulatory and tax friction for formal-business registration. The thesis was that informality reflects the cost of being formal, and that lowering the cost would induce informal workers and firms to formalize.
The empirical record is mixed at best. Reforms that streamlined business registration in countries like Mexico, Peru, and Indonesia produced modest increases in formal-firm registration but did not meaningfully shift the informal-employment share. The economist Santiago Levy's work on Mexico, published in Good Intentions, Bad Outcomes (2008) and subsequent papers, argued that the structural mismatch between formal-economy productivity and informal-economy wage levels was the binding constraint, not the registration friction.
The honest reading is that formalization-friction reforms help at the margin for firms that are already close to the formal-informal threshold, but they do not address the bulk of informal employment, which is structurally embedded in the local economy at productivity levels that cannot support formal-sector wage and benefit costs.
What actually works: the SEWA-to-Convention-189 model
The Self-Employed Women's Association in India, founded by Ela Bhatt in 1972 with roughly 2.5 million members today, has demonstrated the most replicable model for informal-worker empowerment. The SEWA approach combines union-style collective representation, a cooperative bank (SEWA Bank, founded 1974), cooperative health insurance, and political advocacy. What is essential to the model is that it builds parallel benefit infrastructure for informal workers rather than waiting for state recognition.
The international-policy fruit of decades of similar organizing was ILO Convention 189 on Decent Work for Domestic Workers, adopted in 2011 and ratified by 36 countries as of 2024. The U.S. has not ratified the convention, but state-level Domestic Workers Bills of Rights in California, Massachusetts, New York, and several other states reflect its principles. The National Domestic Workers Alliance, founded in 2007 with roughly 350,000 members, has been the central U.S. organizing vehicle.
For waste pickers, Brazil's 2010 National Solid Waste Policy formally recognized catadores and integrated them into municipal recycling systems. Colombia's Constitutional Court ruled in 2011 that Bogotá had to compensate and integrate the city's waste-picker cooperative into municipal recycling operations. The KKPKP cooperative in Pune, India, has operated successfully since 1993.
The pattern is consistent. Informal workers, when organized, can secure recognition, parallel benefit infrastructure, and incremental policy gains. The legal-recognition-with-benefit-portability frame has produced better outcomes than the formalize-or-eliminate frame.
Digital identity and finance as enablers
One of the most consequential developments of the past decade has been the digital-identity-and-finance infrastructure that lets informal workers access banking, credit, and benefits without first formalizing employment.
India's Aadhaar-linked digital-identity infrastructure underpins the PM-SVANidhi program, which has provided digital identity and small working-capital loans to over 5 million street vendors since 2020. Kenya's M-PESA mobile-money infrastructure has reshaped financial inclusion for informal workers across East Africa. Brazil's PIX instant-payments system, launched 2020, has been adopted by informal vendors at scale.
The lesson from these cases is that financial inclusion infrastructure changes what informal workers can access, even before formal-employment classification changes. The U.S. analog is FedNow (launched 2023) and the broader fintech infrastructure that has expanded mobile banking to lower-income workers. The infrastructure precedes the benefits; the benefits do not have to wait for formal employment to attach.
The U.S. policy frontier
For the U.S., the informal-economy frontier is largely about portable benefits for non-traditional workers. Washington State's 2023 portable-benefits law for gig workers, brokered between platforms and the SEIU, is the most replicable U.S. template. The Affordable Care Act, by decoupling health insurance from employment for a large share of the workforce, was the largest single portable-benefits reform in U.S. history even though it is rarely framed that way.
The EU's Platform Work Directive, adopted 2024 with 2026 transposition due, takes a different approach by establishing a rebuttable presumption of employment for platform workers. The two models will be the natural experiments to watch.
For the broader treatment of how the U.S. is settling its platform-work classification question, see our flagship The Gig Economy Settlement →.
"Formalize the informal economy" sounds like progress and produces almost no progress. "Build portable benefits, digital identity, and legal recognition for the workers already doing the work" sounds smaller and produces actual gains. The frame is the policy.
The two-billion-worker question — how the global economy serves the majority of its workforce that operates outside the standard employment relationship — is the most consequential workforce-policy question of the 21st century, and the most undertreated. The frame of "shadow economy" or "informal sector" makes it sound peripheral. It is not peripheral; it is the median condition of work globally and an expanding share of work in rich countries. The policy interventions that have produced results — portable benefits, digital-identity infrastructure, legal recognition of worker organizations, ILO-style sectoral conventions — are not exotic. They are well-documented and replicable. The shift required is rhetorical and political: from talking about the informal economy as a problem to be solved by elimination, to organizing the policy stack around the workers who already inhabit it.
Updated May 21, 2026. This piece was substantively rewritten as part of NWLB's 2026 editorial refresh.
