The Informal Economy: A New International Statistical Framework. (2026/11)

Michael Frosch, International Labour Organisation

The concept of informal economy is widely used. It appears in studies of poverty, productivity, social protection, labour market segmentation, entrepreneurship and economic development. Yet despite its importance, researchers often encounter a surprisingly basic challenge: people do not always mean the same thing when they talk about informality.

Discussions of informality are often complicated by the existence of several related concepts, including the informal economy, the non-observed economy, the shadow economy and undeclared work just to mention a few. These concepts are sometimes used interchangeably which can create the impression that informality itself lacks a clear definition. In reality, the concept of the informal economy is now underpinned by internationally agreed statistical definitions and operational criteria. These build on earlier statistical standards while reflecting more than two decades of methodological developments and country experience in measuring informality.

This is why the adoption of the Resolution concerning statistics on the informal economy at the 21st International Conference of Labour Statisticians (ICLS) in 2023 represents an important milestone. The resolution establishes the first comprehensive international statistical framework for the informal economy and provides a globally agreed foundation for its measurement.

Why Informality Matters

Before discussing the framework itself, it is worth recalling why informality matters. Informality is not confined to a particular type of worker, enterprise or country. It exists across sectors, occupations and employment statuses, and is present in low-, middle- and high-income economies alike.

Consider three workers. A waiter employed in a registered restaurant whose employer does not contribute to social insurance and who has no access to paid sick leave or annual leave. A street food vendor operating an unregistered business. A daughter helping regularly in the family farm without a formally recognized work relationship. Their situations are very different, yet all three may be considered informal according to the statistical framework. What unites them is that their productive activities are not effectively covered by formal arrangements. In different ways, they fall outside the systems that regulate economic activities and provide protection and support to workers and enterprises.

The consequences of this extend beyond workers themselves. For workers, informality often implies reduced access to social protection, employment benefits, labour rights and income security. For enterprises, it may limit access to finance, markets and opportunities for growth. For governments, informality reduces the reach of regulations and public policies while constraining the collection of taxes. Informality is therefore not only a labour market issue. It is also an enterprise development issue and a governance issue.

The scale of the phenomenon reinforces its importance. According to recent ILO estimates, around two billion workers, 58 per cent of the world's employed population, are in informal employment. Understanding and measuring informality is therefore essential for both research and policymaking.

From Informal Sector to Informal Economy

The evolution of international statistical standards reflects the evolution of our understanding of informality itself. The first international statistical standard, adopted in 1993, focused on the informal sector. The emphasis was on identifying informal enterprises. A decade later, the concept of informal employment expanded the analytical lens, recognizing that workers could experience informality even when employed in the formal sector or by households. Both concepts represented important advances. However, they captured different perspective of a broader phenomenon and were often implemented slightly differently across countries.

The 21 ICLS resolution brings these perspectives together within a single framework centred on the informal economy. Rather than treating enterprises and jobs separately, it links them within a coherent statistical structure. This may seem like a technical refinement, but it has important implications. It provides researchers, statisticians and policymakers with a common framework for analysing workers, enterprises and productive activities, improving both coherence and comparability.

A Global Consensus

One of the less visible aspects of international labour statistics is the process through which standards are developed. The 21st ICLS resolution did not emerge from a single institution or research project. It was the outcome of a multi-year process involving national statistical offices, workers' organizations, employers' organizations, international agencies and regional consultations across all regions of the world.

Reaching agreement was not simply a technical exercise. Informality takes different forms across countries and regions and reflects different perspectives. Developing a framework that could be relevant across these different realities required balancing conceptual clarity with practical applicability. The significance of the resulting standard therefore lies not only in the definitions themselves but also in the broad international consensus behind them. This consensus is particularly important for international comparability, as statistical standards only achieve their purpose when they are accepted and implemented across countries.

What Is Informality?

Perhaps the most important contribution of the new standard is that it provides a clear answer to a question that often generates confusion: what exactly makes an activity informal?

The resolution defines informal productive activities as activities carried out by persons or economic units that are, in law or in practice, not covered by formal arrangements. This definition points towards the relationship between economic actors and the institutions that regulate and protect economic life.

Formal arrangements include labour legislation, social security systems, taxation procedures, commercial regulations and other institutional mechanisms that provide recognition, rights, obligations and protection.

Importantly, the framework recognizes two generic routes into informality. The first occurs when legal coverage is absent. Certain workers, activities or enterprises may simply fall outside the scope of existing regulations. The second occurs when coverage exists but is ineffective in practice. Workers may be legally entitled to social protection and employment benefits but might not have an effective access to them. Enterprises may be required to register and pay taxes but remain outside formal systems.

The definitions, introduced in the 21st ICLS resolution also clarifies the relationship between the informal economy and related concepts such as the non-observed economy, illegal economy and undeclared work. While overlaps exist, these concepts serve different analytical purposes and should not be treated as interchangeable.

A Comprehensive Statistical Framework

The new resolution provides a comprehensive framework covering both economic units and persons. The informal economy is defined as all informal productive activities carried out by persons or economic units, whether or not these activities are undertaken for pay or profit..

A key innovation is that it integrates the latest labour statistical standards on work and work relationships, creating a coherent structure linking workers, jobs, enterprises and productive activities. The framework also introduces clearer definitions of the formal sector, informal sector and household own-use production and community sector, together with strengthened operational definitions of informal employment.

The result is a framework that provides stronger conceptual foundations while also improving the practical measurement of informality.

Why Better Definitions Lead to Better Evidence

Conceptual clarity matters because measurement shapes understanding. The nature and structure of informality differ across countries and regions. In some countries, informality is primarily associated with own-account workers operating small scale business activities. In others, a significant share of informality takes the form of employees whose jobs are not formally recognized or protected.

Without comparable definitions and measurement approaches, it becomes difficult to distinguish genuine differences between countries from differences created by statistical methodology. The new framework addresses this challenge through clearer operational definitions and stronger guidance on measurement. It also introduces an indicator framework that enables countries to move beyond a single headline measure and examine the structure and composition of informality.

For researchers, this creates opportunities for more meaningful comparative analysis. For policymakers, it provides a stronger evidence base for designing interventions targeted at specific groups of workers and enterprises in the informal economy.

From Standards to Implementation

The adoption of a statistical standard is only the first step. Its value ultimately depends on implementation. Many countries are already adapting labour force surveys and other statistical instruments to align with the new framework. The ILO has developed model questionnaires, methodological guidance and implementation tools to support this process.

The integration of the framework into the 2025 System of National Accounts is another important milestone. It reflects an alignment between labour statistics and macroeconomic statistics and reinforces the status of the informal economy as a statistical concept in its own right.

Challenges nevertheless remain. Data gaps persist in some regions, and countries differ in their statistical capacity. Continued efforts will therefore be needed to improve harmonization and expand the availability of comparable data.

Looking Ahead

The adoption of the 21st ICLS resolution does not mean that debates about informality will disappear. Informality remains a complex and evolving phenomenon that reflects diverse economic realities around the world. What has changed is that there is now a shared statistical language within official statistics for describing it.

For the first time, labour statisticians, national accountants, researchers and policymakers have a common framework that integrates informal enterprises, informal employment and other forms of informal productive activity into a coherent whole.

That achievement may appear technical, but its implications are far-reaching. Better concepts lead to better measurement. Better measurement leads to better evidence. And better evidence ultimately improves our ability to understand one of the most important features of labour markets worldwide.

In that sense, the 21st ICLS resolution is more than a new statistical standard. It is the foundation for a more coherent and comparable understanding of informality worldwide.