The long shadow of informality: challenges and policies

A strikingly large percentage of workers and firms operate outside the line of sight of governments in emerging market and developing economies (EMDEs)—a challenge that is likely to hold back the recovery in these economies unless governments adopt a comprehensive set of policies to address the drawbacks of the informal sector, a new World Bank Group study has found. The study, The Long Shadow of Informality: Challenges and Policies, is the first comprehensive Bank analysis examining the extent of informality and its implications for an economic recovery that supports green, resilient and inclusive development in the long-term. It finds that the informal sector accounts for more than 70 percent of total employment—and nearly one-third of GDP—in EMDEs. That scale diminishes these countries’ ability to mobilize the fiscal resources needed to bolster the economy in a crisis, to conduct effective macroeconomic policies, and to build human capital for long-term development.

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