Employment in the Informal Economy: Implications of the Covid-19 Pandemic

Abstract

In March 2020, the spreading of the Coronavirus (Covid-19) pandemic led the World Health Organization (WHO) to declare a global public health emergency. The policy responses taken by the governments, including lockdown measures, and the resulting economic downturn particularly affected certain sectors, which employ large numbers of employees and self-employed in both formal and informal economies. Although the Covid-19 pandemic appears to disproportionately affect those in informal employment, they often receive less government support than the formally employed. This paper considers the informal economy and employment and reflects on some effects of the pandemic on these workers. First, this paper presents current definitional understandings of the informal economy phenomenon. Second, it discusses some key conceptual approaches to explaining participation in the informal economy, including the rationalities guiding the decisions of individual workers, organisations and businesses. Third, it considers the concept of ‘tax morale’ to help understand the level of engagement with the informal economy, and its potential to inform the design of interventions to tackle the informal economic activities and support individual and organisational actors in the transitions from informal to formal employment. Implications of Covid-19 for employment in the informal economy are discussed at the end of each section, and the paper finishes by further highlighting some further directions for enriching the debate on the informal economy, particularly during a time of crisis.