Article: Transitioning towards formality: How do we break down informal work arrangements?

Employee Relations

Transitioning towards formality: How do we break down informal work arrangements?

As we debate and deliberate the new forms of working across the business landscape, we cannot overlook the need to strengthen formal working arrangements and advocate the rights of the informal workforce.
Transitioning towards formality: How do we break down informal work arrangements?

After multiple disruptions across the business landscape, especially during and post-pandemic, the ILO Recommendation 204 on ‘Transition from the Informal to the Formal Economy 2015 (No. 204)’ continues to be critically relevant. It drives its purpose through a three-fold objective which emphasises facilitating the complete transition of workers from the informal to the formal sector, promoting the creation, preservation and sustainability of formal sector jobs, and preventing the informalisation of formal sector jobs. So does the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration)

At the United Nations Responsible Business and Human Rights Forum, APAC held this September in Bangkok, representatives from the government, businesses, trade unions, civil society and international organisations came together to share lessons learnt and strategies that can help address the challenges of vulnerable populations and businesses in the informal economy.  

Reports pointed out by the panellists at the session on ‘Combatting Informality and Spurring Formal Employment to Achieve Decent Work and Social Justice’ showed the concerning situation wherein more than 68% of the workforce is employed in the informal sector across the APAC region. In certain countries, such as India, the rough estimate goes up to 90%, while in Bangladesh, it s 85.1%. What makes these numbers concerning is how vulnerable these populations continue to be, absent from policies that protect their socioeconomic rights and offer them reliance during times of distress like the pandemic. It becomes urgent then for social dialogues comprising representatives of various stakeholders plus businesses and workers in the informal sector to come together and chart an alternate, equity drive, inclusive, rights respective future of work. 

Key challenges that need to be addressed for sustained transition to formalisation

One of the primary challenges in designing policies and interventions for the informal workforce is the limited understanding of their lived experiences. Several intersectional identities from lens beyond informality, such as gender, caste, religion, region, migrant status and more, come in when we have to understand why and how they became part of the informal workforce. And this larger intersectionality has to be front and centre in leading these transitions across the APAC. 

Secondly, although this primarily concerns MNCs, the supply chain traceability when it comes to the informal workforce is quite complex; there are so many mediators in between at different levels in the organisational system that pose a definite challenge, and we have to acknowledge the impact of the gaps these create. Finally, the compliance narrative backed by auditing tools and technologies doesn’t recognise or address the impact on human rights and access to social justice in the informal workforce. It’s troubling that businesses are often more concerned about crossing off the tick boxes in the compliance checklist rather than realising the more human purpose of this transition to formalisation. 

Employment formalisation v/s enterprise formalisation

When leading projects for transition to formalisation in the APAC countries, it was found that employment formalisation and enterprise formalisation each had their unique context that was critical to breaking down the overall informal work arrangements. What’s common between the two is the need to address gaps in policies and governmental frameworks at every level, from the province and state to the nation. Also common is empowering both employees and employers in the informal sector to recognise the need for and the benefits that can yield from formal work arrangements.

However, when it comes to employment formalisation, opportunities for social dialogues with stakeholders as well as empowering their agency and creating opportunities for advocacy and participation in trade unions need to happen. For enterprises, the cost of formalisation needs to be accounted for, and the role of government developmental assistance in this transition. The employer’s perspective is equally critical, and accessibility must be created to navigate complex formal processes from business registration to license application. 

The SME & MSME factor in the world of informality

When addressing the unique challenges of enterprise formalisation, it often concerns emerging SMEs and MSMEs. Coming back to the compliance narrative, for SMEs and MSMEs, it gets challenging because it hampers their costs, time, and sustainability in the business landscape. Moreover, it shifts their gaze from the purpose and mission behind actually shifting to the formal economy; it becomes imperative to constantly expose them to the values and benefits of formal working arrangements. 

Moreover, another challenge that adds to the complexity and costs of formalisation for these emerging enterprises is the power dynamics between them and the buyers at the upper rungs of the supply chain. Finally, what’s been seen is that SMEs and MSMEs are the takers rather than the markers of solutions for protecting the rights of the informal workforce. This lack of agency is often part of the complex transition to formalisation, which is why this process must be relooked at repeatedly to ensure that the outcomes are rights respective, equitable and inclusive.

Emerging informal spaces: Climate change and the gig economy

With 1.2 billion jobs dependent on the ecosystem, the future of work also needs to account for the unpredictability of the natural environment. The informal workforce bound to be affected by climate change and its associated policies include those working in agriculture, fisheries and other ecosystem-dependent jobs; those leading sustainable practices such as waste management and building green infrastructure; and those in jobs and services that contribute to pollution at present. One must look into the workforce and the impact on the communities they serve, how to address the exploitative work conditions, the informal workers' agency, and the need to build agile, adaptable working practices. 

Coming to the gig economy, which emerged due to the hyperconnected world, two sections of the workforce are informalised to some extent. One is the web-based workers who carry out their responsibilities only over the digital medium, while the other section includes the platform workers who have to carry out their services in person. Both these parties often face challenges of low pay and no representation, and these emerging informal workers also need to be paid heed to by policymakers. 

The way forward in leading the transition from informal to formal working arrangements

Having outlined the context and the challenges to realising the mission of ILO Recommendation 204 and the MNE declaration, the following are the critical steps that panellists recommended, having learned from their experiences in the field working with different stakeholders and different informal workers and enterprises across the APAC region:

  • An integrative, social dialogue-driven approach recognising the needs and concerns of all stakeholders from the government, businesses, trade unions, civil society and international organisations and most importantly informal workers and enterprises. 
  • Addressing policy gaps in governmental frameworks that concern formalisation by ensuring all clauses and processes are clarified, and there is a clear division and understanding of responsibilities at the state and local levels of enforcement.
  • Empowering the agency and opportunities for advocacy by the informal workforce by increasing accessibility to trade union participation and leading workshops that generate awareness on what entails formal work arrangements.
  • Investing in upskilling and reskilling initiatives aligned to the industry demand by partnering with businesses so that the informal workforce can easily pick up jobs in the formal sector and increase productivity.
  • Leading capacity-building workshops for enterprises in the informal sector so they can easily transition to the formal sector and navigate complex government processes. In addition, developmental assistance needs to be offered to reduce and manage the costs of formalisation. 
  • Facilitating formal job creation by providing consistent support to existing and emerging businesses to preserve and create employment opportunities. 

However, these are only the beginner steps to this transition towards the formal economy as the process comes with its own complexity, shifting shapes across regions and communities. However, recognising the broad trends, the core values and some of the successful strategies can play a fundamental role in reimagining your approach to breaking down informal work arrangements and becoming a meaningful player in the fight for the rights and social justice of the informal workforce. 

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Topics: Employee Relations, Employment Landscape, #FutureOfWork, #HRCommunity

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