Credit: Pouteau / Crozet
The General Conference of the International Labour Organization adopted Recommendation 204, which aims to promote the transition from informal to formal economies worldwide, on June 12, 2015 at the 104th Session of the International Labour Conference. See International Labour Conference, Recommendation 204, Concerning the Transition from the Informal to the Formal Economy, 104th Session, Geneva, 12 June 2015. The recommendation passed with 484 favorable votes, one opposing vote from a Malaysian delegate, and five abstentions. While the recommendation is not binding, its passage is considered historic, given that it is “the first ever international labor standard specifically aimed at tackling the informal economy.” It is hoped that as States implement this recommendation, hundreds of millions of workers and economic units will become formalized. The recommendation is also seen as an important step towards increasingly inclusive development, poverty eradication, and the reduction of inequality. [ILO Press Release: Labour Standard]
Background to Recommendation 204
The introductory section of Recommendation 204 explains that the reason for this recommendation is that an informal economy, defined as “economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements” is harmful to workers, violates certain basic employment principles, and is detrimental to national and international economies. See Recommendation 204, Concerning the Transition from the Informal to the Formal Economy, 104th Session, Geneva, 12 June 2015, at 4.
It is estimated that globally, more than half of those in the workforce participate in the informal economy, which tends to be characterized by the absence of employment rights, the lack of social protections, and poor working conditions. [ILO Press Release: Labour Standard] Statistics indicate that in developing countries, 45-90 percent of workers are employed in the informal economy, and up to 90 percent of small and medium enterprises (those with a maximum of 250 employees) are informal. Additionally, women, youth, ethnic minorities, older people, and those with disabilities are disproportionately represented in the informal sector. [ILO Press Release: Labour Standard]
The recommendation provides strategies for States to put into place in order to achieve the goals of: transitioning from the informal to the formal economy, promoting employment in the formal economy, and preventing formal economy jobs from being informalized. See Recommendation 204, Concerning the Transition from the Informal to the Formal Economy, 104th Session, Geneva, 12 June 2015, at 4.
Summary of Recommendation 204
The recommendation enumerates 12 guiding principles that should be considered in the process of transitioning to formalization. These principles include, among others: accounting for differences among workers in the informal economy and addressing this diversity; considering differences among legislation, policies, and practices in different States; promoting and protecting the rights of informal economy workers; ensuring gender equality and non-discrimination; and paying special attention to especially vulnerable populations such as women, youth, migrants, older people, indigenous persons, persons living with HIV or AIDS, people with disabilities, and domestic workers. Id. at 6, 8.
In part three, on “legal and policy frameworks,” the recommendation urges States to create an “integrated policy framework” to guide their transition to a formal economy. Such a framework should address, among other things: strategies that promote sustainable development, poverty eradication, and growth; equality, non-discrimination, and non-violence in the workplace; the promotion of enterprises of all sizes; opportunities for education and other forms of learning and skills development; policies that address occupational safety and health; labor inspections; minimum wage policies; and access to justice. Id. at 8, 10.
The ILO makes recommendations regarding employment policies in part four, where it urges Member States to create quality jobs in the formal economy. States should implement comprehensive employment policy frameworks that: aid low-income households in finding and securing jobs that ensure a minimum wage and offer other social protection measures; protect migrant workers’ rights; provide educational opportunities for workers that will allow them to learn skills appropriate to evolving trends, including new technologies; and facilitate the transition from school to work for young people, especially disadvantaged youth. Id. at 12, 14.
In part five on “Rights and Social Protection,” the recommendation states that Member States should respect and promote the following fundamental principles and rights of those in the informal economy: freedom of association and the right to collective bargaining, the elimination of forced or compulsory labor, the abolition of child labor, and the elimination of employment discrimination. The recommendation then goes on to urge Member States to address unsafe and unhealthy working conditions and to promote occupational safety and health protection with respect to workers in the informal economy. Additionally, the recommendation discusses steps that States should take in transitioning towards a formal economy, such as extending legal protections, including social security, maternity protection, minimum wage, and affordable and quality childcare to workers in the informal economy. Id. at 14.
Part six on “Incentives, Compliance, and Enforcement” addresses the importance of putting into place measures that address tax evasion and other illegal practices as well as measures to promote anti-corruption and good governance. Also in this section, the ILO discusses six steps that can be taken in order for small economic units to become more formalized. These steps include reducing compliance costs by introducing simplified tax regimes, reforming procedures so that registering these units is simplified, facilitating access to financial services, and providing training and skills development services. Id. at 16, 18.
In part seven, Recommendation 204 urges States to: ensure that informal sector workers are guaranteed freedom of association and the right to collective bargaining, allow informal sector workers to join employers’ and workers’ organizations, and involve employer and worker organizations in the process of creating policies and programs for the transition to a formal economy. Id. at 18.
Part eight asks Member States to collect disaggregated data to track and evaluate progress in the transition from an informal to a formal economy. Id. at 18, 20.
Finally, the recommendation concludes with a section on implementation. In this section, the ILO charges Member States with the task of taking steps to ensure that the provisions of the recommendation will be given effect. These steps include implementing national laws and regulations, coordinating between various government bodies and others, and capacity building within institutions. Additionally, the recommendation emphasizes that States should regularly review, in consultation with workers’ organizations, the effectiveness of the policies and measures it is using to transition towards a formal economy. Finally, the recommendations encourage States to look to relevant ILO and United Nations documents. Id. at 20.
Examples of State Practices to Formalize Economies
The ILO has discussed examples of programs that various States have instituted to transition from an informal to a formal economy. For example, Brazil’s anti-poverty policies have created jobs in the formal economy at a rate that is three times the job creation rate in the informal economy and have reached groups that are considered harder to reach, such as small enterprises. South Africa has used employment programs to transition towards increased formality. In the Philippines, the ILO has led initiatives that have not only aided typhoon victims, but have also achieved a minimum wage, social protection, and safety and health, all of which are steps towards formality. [ILO Press Release: Ways out of Informality]
Additional Information
For more information on the International Labour Organization (ILO), please visit the IJRC Online Resource Hub. To learn more about how international labor standards are developed, visit the ILO’s website.