OIT - Innovative approaches to formalization in Asia and the Pacific

X Innovative approaches to formalization in Asia and the Pacific Background report to ILO Asia and the Pacific Tripartite Regional Knowledge Sharing ForumX Innovative approaches to formalization in Asia and the Pacific Background report to ILO Asia and the Pacific Tripartite Regional Knowledge Sharing Forum© International Labour Organization 2025. First published 2025. Attribution 4.0 International (CC BY 4.0) This work is licensed under the Creative Commons Attribution 4.0 International. To view a copy of this licence, please visit https://creativecommons.org/licences/by/4.0/. The user is allowed to reuse, share (copy and redistribute), adapt (remix, transform and build upon the original work) as detailed in the licence. The user must clearly credit the ILO as the source of the material and indicate if changes were made to the original content. Use of the emblem, name and logo of the ILO is not permitted in connection with translations, adaptations or other derivative works. Attribution – The user must indicate if changes were made and must cite the work as follows: Innovative approaches to formalization in Asia and the Pacific: Background report to ILO Asia and the Pacific Tripartite Regional Knowledge Sharing Forum, Geneva: International Labour Office, 2025. © ILO Translations – In case of a translation of this work, the following disclaimer must be added along with the attribution: This is a translation of a copyrighted work of the International Labour Organization (ILO). This translation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO translation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the translation. Adaptations – In case of an adaptation of this work, the following disclaimer must be added along with the attribution: This is an adaptation of a copyrighted work of the International Labour Organization (ILO). This adaptation has not been prepared, reviewed or endorsed by the ILO and should not be considered an official ILO adaptation. The ILO disclaims all responsibility for its content and accuracy. Responsibility rests solely with the author(s) of the

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Cover photo: ©ILOAcknowledgements The ILO established the Priority Action Programs on Transition to Formality (AP/F) to address key policy challenges and opportunities in promoting social justice and decent work through addressing

ILO, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval.

Cover photo: ©ILOAcknowledgements The ILO established the Priority Action Programs on Transition to Formality (AP/F) to address key policy challenges and opportunities in promoting social justice and decent work through addressing informality and supporting transition from the informal to the formal economy. The AP/F leads crossoffice collaboration efforts focusing on integrated strategies at national and sectoral levels and the development of strategic partnerships within the multilateral systems. Guided by Recommendation No. 204, the AP/F enhances the coherence and effectiveness of formalization policies by: (a) building a shared, evidence-based understanding of informality’s root causes, with emphasis on gender equality and social justice; (b) strengthening constituents’ capacity to implement inclusive, gender-responsive, and integrated formalization strategies, leveraging opportunities from the Social and Solidarity Economy; and (c) fostering multilateral collaboration on transition-to-formality initiatives. The AP/F plays a crucial role to strengthen capacities of ILO constituents to design, implement and coordinate context specific integrated formalization strategies. It aims at increasing the effectiveness and impact of ILO technical support for enabling transition to formality and preventing informalization.

As part of the AP/F activities, this report has been prepared by the Regional Economic and Social Analysis Unit (RESA) of the ILO Regional Office for Asia and the Pacific. In particular, the report has been drafted by Steven Tobin (RESA) with significant contributions from Florence Bonnet (ILO) and Andre Bongestabs (ILO). Research assistance was provided by Gabrielle Dark. The report has also benefited from comments and suggestions from ILO specialists throughout Asia and the Pacific, including Bharti Birla, Phu Huynh, Hideki Kagohashi, Thomas Kring, Rabia Razzaque, Anoop Satpathy and Saurabh Shah. The conclusions benefited from the valuable exchanges among governments, social partners, experts and members from civil society from across the region that participated in the Regional Knowledge Sharing Forum that took place between 26 and 28 November 2024. The final report was prepared under the guidance

benefited from the valuable exchanges among governments, social partners, experts and members from civil society from across the region that participated in the Regional Knowledge Sharing Forum that took place between 26 and 28 November 2024. The final report was prepared under the guidance of Ken Shawa (Head of RESA) and Frédéric Laypere (Director of the ILO Priority Action Programme on Transition to Formality). Acknowledgements iiiiii Innovative approaches to formalization in Asia and the PacificPreface Asia and the Pacific is home to around 1.3 billion informal workers, representing approximately 66 per cent of total employment in the region. Informality is also a defining feature of the region’s enterprises, with more than eight in ten being informal. There has been notable progress in the region towards formalization over the past two decades, during which time the share of informality in total employment fell 7 percentage points. Since the onset of COVID-19, however, progress has stalled and the marginal improvements of recent years have not been enough to keep pace with the growth in the region’s labour force. As a result, the number of informal workers in the region is growing and the elevated incidence of informality, at 8 percentage points higher than the global average, is compromising our collective efforts to promote decent work and inclusive growth Between 26 and 28 November 2024, the ILO Regional Office for Asia and the Pacific hosted a Tripartite Regional Knowledge Forum in Bangkok, Thailand. The Forum brought together governments, social partners, experts and members from civil society from across the region to discuss lessons learned, share best practices and identify innovative approaches that can help to accelerate the transition to formality in line with Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204). The gains in formal employment leading up to the pandemic were a result of concerted efforts by ILO constituents. Indeed, the Forum was an opportunity to showcase the level of engagement and innovation taking place across Asia and the Pacific to tackle informality, ranging from state-of-the-art use of technology to facilitate formalization, to community-based approaches to protect workers in the

ILO constituents. Indeed, the Forum was an opportunity to showcase the level of engagement and innovation taking place across Asia and the Pacific to tackle informality, ranging from state-of-the-art use of technology to facilitate formalization, to community-based approaches to protect workers in the informal economy, and specific approaches to formalize vulnerable groups of workers, such as migrant workers and domestic workers. This report captures many of these innovations and the rich exchanges that took place during the Forum. It will be crucial for the region to build upon these innovative approaches and make sustainable progress to formalization and promote decent work in the region. To do this, constituents will need to consider the foundational elements needed to promote a sustainable transition taking into account emerging issues as well as the respective priorities of the region as discussed during the forum. The contributions of ILO Constituents in the region to this report and the Forum have also been invaluable to the preparation of the global discussion on innovative strategies to combat informality that will take place during the 113th Session of the International Labour Conference (ILC) in 2025. The discussion at the ILC will be an opportunity to exchange best practices with other regions and for us to collectively develop a roadmap and action plan to accelerate the transition to formal employment. Kaori Nakamura-Osaka Assistant Director General and Regional Director for Asia and the Pacific International Labour Organization Frédéric Laypere Director of the ILO Priority Action Programme on Transition to Formality International Labour Organization iviv Innovative approaches to formalization in Asia and the Pacific PrefaceTable of contents X Acknowledgements iii X Preface iv X Table of contents v X Abbreviations and acronyms viii X Executive summary ix X 1. Introduction 1 X 2. Background, drivers and recent literature in the region 3

2.1. Defining informal economy 4 2.2. Drivers of informality 5 2.2.1. Macro-level drivers 5 2.2.2. Legal and regulatory frameworks 6 2.2.3. Micro-level drivers 6 2.2.4. Transversal drivers 6 2.3. Emerging themes in recent literature 7 2.3.1. Increased emphasis on digitalization 7 2.3.2. Inter-connected nature of social protection and informality 7 2.3.3. Role of structural transformation 8 2.3.4. Concerns about making the most of the demographic dividend 8 2.3.5. Persistent gender disparities 8 X 3. Trends in informality 9 3.1. Significant progress in recent years, but the share of informality in Asia and the Pacific remains among the highest in the world 10 3.2. Considerable subregional variation in informality and its composition 11 X 4. Innovative and integrated approaches to support the transition to the formal economy 14 4.1. Political commitment and good governance built on evidence 15 4.1.1. Institutional coordination 16 4.1.2. Organization and representation of workers and economic units in the informal economy 16 4.1.3. Statistics, diagnostics and monitoring 17 4.2. Structural transformation, sectoral policies and productivity 21 4.2.1. Fostering productivity to facilitate the transition 21 4.2.2. Supporting decent work through sector-based initiatives and value chains and supply chains 24 4.2.3. Leveraging digital technologies 25 vv Innovative approaches to formalization in Asia and the PacificTable of contents4.2.4. Simplification and incentives for formalization 27 4.3. Improving working and living conditions among the most vulnerable 30 4.3.1. Prioritizing the most vulnerable 31 4.3.2. OSH and labour inspection 33 4.3.3. Addressing new forms of work 34 4.3.4. Improving working conditions and reducing decent work deficits in the informal economy 35

4.3.1. Prioritizing the most vulnerable 31 4.3.2. OSH and labour inspection 33 4.3.3. Addressing new forms of work 34 4.3.4. Improving working conditions and reducing decent work deficits in the informal economy 35 4.4. Integrated and coherent approaches 37 X 5. Recommendations and gaps 44 5.1. Governance structures 45 5.2. Evidence-based approach 46 5.3. New technologies 47 5.4. Integrated approach 47 5.5. Institutionalization 48 X 6. Emerging issues and priorities 49 6.1. Prerequisites 50 6.2. Emerging issues 51 6.3. Priorities of constituents 51 6.3.1. Governments 51 6.3.2. Employers’ organizations 52 6.3.3. Workers’ organizations 53 X 7. Conclusions and the way forward 54 X References 55

X Annex I. Glossary: Informal economy 57 vivi Innovative approaches to formalization in Asia and the Pacific Table of contents Table of contentsX Figures Figure 1 Trends in the share of informal employment in total employment by global region, 2004–24

10 Figure 2 Trends in the share of informal employment in total employment in subregions of Asia and the Pacific, 2004–24 11 Figure 3 Share of informal employment in total employment in selected countries 12 X Boxes Box 1 Defining the informal economy 4 Box 2 Composition of the informal economy and exposure to informality in Asia and the Pacific 13 Box 3 Leveraging prevailing methods to capture data on informality of jobs and enterprises 18 Box 4 Cambodia – National Strategy for Informal Economy Development 2023–2028 38 Box 5 China – Improving working conditions within the platform economy 39 Box 6 India, Nepal and Sri Lanka – Towards Fair and Sustainable Global Supply Chains: Promoting decent work for invisible workers in South Asia 40 Box 7 Nepal’s National Action Plan on Formalization 41

Box 5 China – Improving working conditions within the platform economy 39 Box 6 India, Nepal and Sri Lanka – Towards Fair and Sustainable Global Supply Chains: Promoting decent work for invisible workers in South Asia 40 Box 7 Nepal’s National Action Plan on Formalization 41 Box 8 Pakistan – Improving labour rights for domestic workers 42 Box 9 Viet Nam – National Advisory Task Force 43 viivii Innovative approaches to formalization in Asia and the PacificTable of contentsAbbreviations and acronyms GST Goods and Services Tax HR human resources ICLS International Conference of Labour Statisticians ILC International Labour Conference LFS Labour Force Survey MSMEs micro-, smalland medium-sized enterprises MSEs microand small-sized enterprises NSIED National Strategy for Informal Economy Development 2023–2028 (Cambodia) OSH occupational safety and health SDG Sustainable Development Goal SEWA Self-Employed Women's Association (India) SMEs smalland medium-sized enterprises viiiviii Innovative approaches to formalization in Asia and the PacificAbbreviations and acronyms Executive summaryExecutive summary The informal economy presents significant challenges to workers’ rights, social protection, decent working conditions and inclusive economic growth. Globally, over two billion people work informally, with the Asia and Pacific region accounting for nearly two-thirds of this total. The persistence of informality undermines sustainable enterprises, hinders access to labour rights and social protection, erodes public revenues and exacerbates inequality and poverty. The ILO’s Recommendation No. 204, adopted in 2015, provides guidelines for transitioning from the informal to the formal economy. Throughout the region, countries have successfully identified various – and often innovative – entry points to address informality ranging from improving representation of workers, fostering productivity, supporting decent work through sector-based initiatives and improving working and living conditions among the most vulnerable. As a result, the region has seen some progress in recent years with the incidence of informality falling 7 percentage points over the past two decades to 66 per cent in 2024. However, this decline has been offset by the overall growth in the total number of

working and living conditions among the most vulnerable. As a result, the region has seen some progress in recent years with the incidence of informality falling 7 percentage points over the past two decades to 66 per cent in 2024. However, this decline has been offset by the overall growth in the total number of workers, leading to an increase in the absolute number of informal workers at the regional level—driven primarily by lower-middle-income countries in the region. In addition, the rate of progress has slowed considerably since the onset of the pandemic and the incidence of informality in the region remains second only to Africa (83 per cent) and nearly 8 percentage points higher than the global average (58 per cent). Part of the challenge in the region is the notable absence of dedicated and integrated approaches that acknowledge the complex interrelations and synergies required to effectively and persistently tackle informality. An integrated and coherent approach is one that is wide-ranging and broadly encompasses three pillars of action. First, political commitment and good governance that is built on a foundation of evidence is paramount. Establishing effective governance and coordination mechanisms are essential for facilitating the transition to a formal economy. Tripartism, involving collaboration between governments, employers and workers, is fundamental to ensuring good governance and the institutionalization of policies and programmes to ensure a sustainable transition to the formal economy. This is complemented and underpinned by robust data and comprehensive statistics. Indeed, a strong evidence base is crucial for crafting policies that effectively support the transition to the formal economy. Currently, however, such tripartite structures engaged in the governance and coordination of formalization efforts are largely lacking across the region, with only a few notable exceptions. Moreover, a significant number of countries still lack regular household surveys or have yet to incorporate the concept of informality into their methodologies. A significant gap also prevails with the limited number of establishment surveys in the region that gather detailed information about informal sector economic units. © ILO/Pichit Phromkade ixix Innovative approaches to formalization in Asia and the PacificExecutive summarySecond, focusing efforts on driving productivity growth and economic development will help to foster

their methodologies. A significant gap also prevails with the limited number of establishment surveys in the region that gather detailed information about informal sector economic units. © ILO/Pichit Phromkade ixix Innovative approaches to formalization in Asia and the PacificExecutive summarySecond, focusing efforts on driving productivity growth and economic development will help to foster formality and improve labour market outcomes. Increased productivity strengthens the capacity of workers and enterprises to integrate into the formal economy, where they can benefit from better access to services, more stable jobs, higher incomes and access to social protections. However, across the region, large segments of the workforce are trapped in low-productivity sectors. Greater access to supply chains and simplifying regulatory processes to encourage economic units to formalize, complemented by investments in training and education, among others, are needed. In this regard, digital technologies and e-formalization offer valuable tools for moving businesses and workers into the formal economy yet remain under-utilized in the region. By utilizing digital platforms, governments and enterprises can enhance accessibility, simplify administrative processes and promote inclusive economic participation. Finally, efforts to reduce informality are most effective when they focus on increasing incomes and improving working conditions, which strongly influence workers’ capacity to move between the informal and formal economies. A comprehensive approach to formalization must consider the diverse needs and conditions of both informal and formal workers and economic units. And while men constitute a larger share of informality in the region, women are noticeably over-represented among more vulnerable segments of informality, such as domestic workers and home-based workers. In the region, more efforts are needed to improve working conditions that tackle the structural barriers to formalization, such as unsafe work environments and lack of social protection. Ultimately, focusing on quality employment and reducing decent work deficits will be vital to the formalization process, long-term economic stability, equity and inclusive growth. Taken together, an integrated and coherent approach to formalization must adopt a holistic perspective that considers each of these 3 pillars and encompasses various dimensions of informality. To ensure the sustainability of formalization efforts, both financial and human resources need to be dedicated to establishing and maintaining effective implementation mechanisms. This Tripartite Regional Knowledge

Taken together, an integrated and coherent approach to formalization must adopt a holistic perspective that considers each of these 3 pillars and encompasses various dimensions of informality. To ensure the sustainability of formalization efforts, both financial and human resources need to be dedicated to establishing and maintaining effective implementation mechanisms. This Tripartite Regional Knowledge Sharing Forum is an important opportunity to gain insights, share best practices and identify gaps in our approaches. The exchanges will be particularly salient and be invaluable to the discussion on innovative strategies to combat informality planned during the 113th Session of the International Labour Conference in 2025. xx Innovative approaches to formalization in Asia and the Pacific Executive summary 1. Introduction1 Introduction © ILO/Jittima Srisuknam 11 Innovative approaches to formalization in Asia and the Pacific1. IntroductionThe informal economy poses significant challenges to workers’ rights, social protection, decent working conditions and inclusive economic growth and development. Furthermore, the persistence of informality undermines the viability of sustainable enterprises, erodes public revenues and weakens government policies, thereby exacerbating inequality and perpetuating poverty. Globally, over 2 billion people work informally, representing about 58 per cent of global employment. In Asia and the Pacific, as of 2024, approximately 66 per cent of total employment is informal, affecting approximately 1.3 billion workers (or 65 per cent of all workers in informal employment worldwide). Moreover, more than eight in ten enterprises in the region are informal. The ILO’s Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204), adopted in 2015, provides guidelines for transitioning from the informal to the formal economy. The Recommendation focuses on creating decent jobs in the formal economy, transitioning workers and enterprises from the informal to the formal economy, and preventing the informalization of formal jobs. The process of formalization aims to achieve objectives like access to decent work, poverty reduction and greater equality. It enhances enterprise sustainability, labour rights and social protection, and benefits society by increasing public revenues and strengthening the rule of law. Formalization is also a critical

The process of formalization aims to achieve objectives like access to decent work, poverty reduction and greater equality. It enhances enterprise sustainability, labour rights and social protection, and benefits society by increasing public revenues and strengthening the rule of law. Formalization is also a critical factor in advancing the achievement of several Sustainable Development Goals (SDGs), including SDG 1 (No Poverty), SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities) and SDG 17 (Partnerships for the Goals). Promoting the transition towards formality is also a central element of the UN Secretary-General’s Global Accelerator 1 initiative, which was launched in 2021 “to promote a job-rich recovery, as well as just ecological, technological and societal transitions to more sustainable and inclusive economies”. During its 346th Session regarding the ILO’s Programme and Budget for 2024–25, the ILO Governing Body established four action programmes that focus on critical cross-cutting policy areas essential for achieving social justice through decent work. One of those four themes is the transition from the informal to the formal economy. Following which, during its 347th Session, the Governing Body resolved to include on the agenda of the general discussions in the 113th Session (2025) of the International Labour Conference (ILC) a discussion item on innovative approaches to tackling informality and promoting transitions towards formality to promote decent work. In the lead up to the ILC discussion, the ILO is organizing Tripartite Regional Knowledge Sharing Forums that bring together tripartite representatives from ILO Member States and relevant multilateral agencies in each region. To identify innovative approaches and systematize the diversity of experiences and priorities of ILO constituents, the Action Programme on Formalization (AP/F) has agreed with all ILO Regional Offices to conduct regional initiatives to document best practices and innovative approaches and to engage constituents in discussions around priorities and needs. To that end, the Tripartite Regional Knowledge Sharing Forum on Innovative Approaches to Formalization for Asia and the Pacific forms an integral part

to conduct regional initiatives to document best practices and innovative approaches and to engage constituents in discussions around priorities and needs. To that end, the Tripartite Regional Knowledge Sharing Forum on Innovative Approaches to Formalization for Asia and the Pacific forms an integral part of the series of regional dialogues aimed at reviewing progress, identifying challenges and exchanging innovative strategies to advance formalization. These Regional Forums will collectively contribute to a comprehensive global ILO report that evaluates effective and inclusive practices in facilitating the transition to formality. This global report will serve as a foundation for discussions at the ILC in 2025, where ILO constituents will review and assess innovative approaches with the potential to accelerate and scale up the implementation of Recommendation No. 204. The discussion at the ILC will hold particular significance, as it marks the tenth anniversary of the adoption of Recommendation No. 204. The Regional Knowledge Sharing Forum for Asia and the Pacific plays a crucial role in this broader process, contributing valuable insights and fostering collaboration in the pursuit of sustainable formalization strategies. 1 See https://www.unglobalaccelerator.org/about for more information.

1. Introduction

2. Background, drivers and recent literature in the region22

Innovative approaches to formalization in Asia and the Pacific2 Background, drivers and recent literature in the region © ILO

2. Background, drivers and recent literature in the region 33

Innovative approaches to formalization in Asia and the PacificThe informal economy in Asia and the Pacific continues to represent a significant portion of the region’s economic landscape. Despite the region’s rapid economic growth in recent decades, a substantial proportion of its workforce (two thirds) and businesses (more than eight in ten) operate in the informal economy, characterized by low productivity, micro and small enterprises, and a lack of social protection, job security and basic labour rights. And while issues related to informality are pervasive across the region, as will be evidenced throughout the various sections of this paper, the Asia and the Pacific region is characterized by considerable heterogeneity in terms of levels of informality and in the trends, prevalent forms and relative importance of the various drivers of informality across various subregions.

region, as will be evidenced throughout the various sections of this paper, the Asia and the Pacific region is characterized by considerable heterogeneity in terms of levels of informality and in the trends, prevalent forms and relative importance of the various drivers of informality across various subregions. X 2.1. Defining informal economy Defining informality and its measurement is a complex task given its various forms, affecting workers, enterprises and production. Yet it is important that policymakers and relevant stakeholders start from the same foundational understanding of what constitutes the informal economy and its two core components: the informal sector and informal jobs. Indeed, the establishment of standards fo