The International Labour Organization (ILO) defines informal employment as work “in small or unregistered businesses and undeclared jobs within registered firms,” under a definition adopted by the 17th International Conference of Labour Statisticians in 2013.

While such jobs often provide quick income and greater flexibility, they are usually unstable, poorly paid, and lack basic protections such as health insurance or pensions.

The ILO notes that informal employment is not limited to unregistered businesses. It can also occur within formal companies when working conditions fall short of labor laws. The agency warns that the spread of informal work distorts labor markets and economic activity, allowing large portions of the economy to escape regulation and taxation, making economic planning and worker protection harder.

Implications for the Labor Market

Informal work makes up a large share of the labor market and has a major impact on the economy. Employment in this sector is often precarious and unregulated, limiting income security and social protection. The U.N. agency says this segment poses challenges for growth, stability, and tax collection, noting that much of its activity remains “invisible.”

To address the problem, the ILO urges governments to gradually expand minimum wage coverage to informal workers as part of a wider formalization effort. The agency says the move would strengthen income security, improve access to social protection, and foster more stable, inclusive growth.

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