Informal Workers

Historically, around the world, the “employment relationship” has represented the cornerstone—the central legal concept—around which labour law and collective bargaining agreements have sought to recognize and protect the rights of workers. Whatever its precise definition in different national contexts, it has represented “a universal notion which creates a link between a person, called the ‘employee’ (frequently referred to as ‘the worker’) with another person, called the ‘employer’ to whom she or he provides labour or services under certain conditions in return for remuneration” (ILO 2003a: 2). 

The concept of employment relationship has always excluded those workers who are self-employed. Increasingly, some categories of wage workers have found themselves to be, in effect, without legal recognition or protection because their employment relationship is either:

 • disguised: The employment relationship is deliberately disguised by giving it the appearance of a relationship of a different legal nature. For example, the lead firm in a subcontracting chain may claim that it has a “sales-purchase”—or commercial—relationship with those who produce goods for it, rather than a subcontracted employment relationship.

 • ambiguous: The employment relationship is objectively ambiguous so there is doubt about whether or not an employment relationship really exists. This is the case, for instance, with street vendors who depend on a single supplier for goods or sell goods on commission for a distributor. 

• not clearly defined: The employment relationship clearly exists but it is not clear who the employer is, what rights the worker has, and who is responsible for securing these rights. For example, in value chain production, it is not clear who the real employer is: the lead firm, the supply firm, or the subcontractor. Similarly, in the case of temporary work, it is not clear who the real employer is: the agency that supplies temporary workers or the firms that hire them on a temporary basis (Ibid.).

Under each of these employment relationships, workers tend not to be protected under labour law or covered by collective bargaining agreements: in brief, they are informally employed. It is important to note that, in many such cases, the employer seeks to disguise the employment relationship or avoid definition of who is responsible; and that the employer in question may well represent a formal firm, not an informal enterprise. Beginning in the 1980s, as noted earlier, formal firms in developed countries began to favour flexible labour relationships. 

This form of labour market segmentation took place in the interest of flexible specialized production, not in response to rising wage rates or labour costs (Piore and Sabel 1984). Also increasingly since the 1980s, many formal firms in developed countries have decided to subcontract production out to unprotected workers in developing or transition countries, where labour costs are already low and where there is no real threat of rising wages due to legislation or unionized labour.

In producing countries, there is often further segmentation between the core semi-permanent workforce and a peripheral temporary workforce, which is mobilized during peak seasons and demobilized during slack seasons (what has been called a “permanent temporary workforce”). In summary, to be more flexible and specialized, to be more competitive, or simply to reduce labour costs, many formal firms hire workers under informal employment relationships. In most such cases, it is the formal firm, not the informal worker, that chooses or “volunteers” to operate informally and enjoys the “benefits” of informality. 

http://wiego.org/sites/wiego.org/files/publications/files/Chen_WIEGO_WP1.pdf