Social Protection and Labor Market Policies for the Informally Employed: A Review of Evidence from Low- and Middle-Income Countries

This paper provides conceptual definitions and distinctions between formalization, worker protection and productivity enhancement, and examines the impact of social protection and labor market policies in achieving these inter-related yet distinct policy goals. Focusing on empirical evidence from low- and middle-income countries collated from over 200 reviewed studies, reports, and documents, the authors find that workforce formalization is best achieved through macroeconomic and firm-level policies and through the extension of social insurance programs to the informally employed. Other social protection and labor market programs may only contribute marginally and indirectly to formalization. Workers’ protection is best enhanced through social insurance, social assistance, economic inclusion, and health benefits programs, and not as much through voluntary savings schemes, microinsurance, or wage subsidies on their own. Finally, the authors find that workers’ productivity can be enhanced through social assistance and economic inclusion programs, and the provision of childcare services. Contrary to expectations, labor market programs such as short-term job search assistance, vocational training, and job search assistance do not appear have a sustained impact on labor productivity among the informally employed. The authors outline guidelines and considerations for adopting the right mix of policies for pursuing formalization, protection, and productivity objectives, depending on the characteristics of workers and the economy, and argue for the prioritization of enhancing worker protection and productivity over pursuing formalization for its own sake.