The long shadow of informality challenges and policies edited by Franziska Ohnsorge and Shu Yu published by World Bank (2021).
“Informal activity is widespread in emerging market and developing economies (EMDEs). In the average EMDE, informal economic activity accounts for about one-third of output and more than two-thirds of employment (chapter 2). The phenomenon extends across all EMDE regions.
Widespread informality has long been associated with a whole host of development challenges (chapter 4). Most prominently, more widespread informality has been associated with significantly poorer governance and greater lags in achieving every dimension of the Sustainable Development Goals. Countries with larger informal sectors tend to have less access to finance for the private sector, lower labor productivity, slower physical and human capital accumulation, and smaller fiscal resources. Informality is associated with higher income inequality and poverty and less progress toward the Sustainable Development Goals.
Informal firms are, on average, less productive than formal ones because they tend to employ more low-skilled workers; have more restricted access to funding, services and markets; and lack economies of scale. Informal workers tend to be paid less than formal workers, in part because they are lower-skilled. Female and young workers make up a disproportionate share of workers in the informal sector…”
