This chapter shows that the vulnerability challenge faced by informal workers is being passed on to their children. Four ways in which this is happening are identified: growing up in households with informally working parents; lower school attendance from primary levels onwards as compared to children of formally working parents; fewer financial resources and parental time devoted to their education; and longer, more uncertain school-to-work transitions. This chapter discusses policy options to help break the vicious intergenerational cycle of informal employment.
Breaking the Vicious Circles of Informal Employment and Low-Paying Work
5. Investing in the children of informal workers
Abstract
Of major concern is the fact that the vulnerability challenge faced by informal workers is being passed on to their children. This chapter identifies four ways in which this happens.
In many countries, more children live in fully informal households than in mixed or fully formal households
A large majority of children are directly exposed to informal employment, and this is one of the ways in which the vulnerability challenge of informal workers is being passed on to their children. On average, around 60% of all children aged under 15 years in developing and emerging economies live in completely informal households (i.e. in households where all family members are working informally, as opposed to households where at least one, or all, family members are working formally). The figure is 80% or higher in some African countries (Figure 5.1). As shown in Chapter 4, informal employment often goes hand in hand with a low level of education, and with poorer networks and connections to the world of formal work. Because an individual’s probability of being employed in a formal job is positively and significantly affected not only by the individual’s own level of education but also by their parents’ education and their parents’ employment (de Mel, Elder and Vansteenkiste, 2013[1]; Erin and Nilsson, 2014[2]), children from fully informal households are more likely, simply by virtue of being raised in an informal household, to also work informally when they grow up.
Figure 5.1. Distribution of children across different types of households
Note: This figure includes all sampled households with at least one working adult. Mixed households have at least two workers, at least one of whom is working formally and one of whom is working informally. LAC – Latin America and the Caribbean. ECA – Europe and Central Asia.
Source: Estimates based on (OECD, 2021[3]), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database), https://www.oecd.org/dev/Key-Indicators-Informality-Individuals-Household-KIIbIH.htm.
School attendance is substantially lower among children from fully informal households compared with those from mixed or fully formal households
Informal workers are disproportionately poor and living in rural areas. These factors have compound effects on the choice to put and to keep children in school, which are related to school access; the possibility of providing children with sufficient school materials, books, clothing and food; the quality of schools; and the choice that parents make between children’s work and schooling. Yet, school attendance is an important factor that affects the skills of future workers, and with them, their chances of working informally.
Figure 5.2 shows school attendance in primary and lower secondary education (Panel A), in upper secondary and post-secondary non-tertiary education (Panel B), and in tertiary education (Panel C) for children from three types of households: with all informally working household members (informal), with at least one formally working household member (mixed) or with all formally working household members (formal). The figure does not consider pre-primary education, because it features a particularly low enrolment in developing and emerging economies, often linked to the lack of supply of facilities rather than demand, especially in rural areas (UNESCO, 2022[4]).
Figure 5.2. School attendance is higher for children living in formal households
School attendance rate, by level of education and household type
Note: Data refer to young people aged 6‑24 years. Panel A: ISCED levels 1 and 2; Panel B: ISCED levels 3 and 4; Panel C: ISCED levels 5, 6 and 7. Lao PDR – Lao People’s Democratic Republic.
Source: (OECD, 2021[3]), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database), https://www.oecd.org/dev/Key-Indicators-Informality-Individuals-Household-KIIbIH.htm.
There are few differences in primary and lower secondary school attendance for children of formal and informal workers
Primary and lower secondary education are the most homogenous and best-defined components of education systems compared with subsequent levels of education. In primary education, curricula are relatively standardised, aiming to build basic reading, comprehension and mathematics skills. Panel A of Figure 5.2 shows that, in the majority of developing and emerging economies with available data, there is little or no difference in primary and lower secondary school attendance for children from different types of households. This confirms the progress towards universal schooling in many countries since the mid 1990-s. However, on average, across countries, the gap in school attendance in primary and lower secondary education is six percentage points between children from formal and informal households, and one percentage point between children from formal and mixed households. Children from formal households are always at an advantage in terms of attendance rates. In a handful of countries where differences exist, they can be quite striking: for example, in countries such as Madagascar and Niger, there is about a 30‑percentage‑point difference in attendance rates between children from fully informal and fully formal households.
The attendance gap between children of formal and informal workers widens at the level of upper secondary and post-secondary non-tertiary education
The situation is quite different for children in upper secondary and post-secondary non-tertiary education. Three observations can be made from Panel B of Figure 5.2. First, education enrolment is substantially lower among children at this level of schooling compared with attendance in primary and lower secondary school regardless of children’s family background. This confirms data from other sources, suggesting that before the COVID‑19 crisis, 132 million children globally were missing from upper secondary education (UNESCO, 2022[4]). Second, there are substantially more countries – in fact, almost all countries with available data – where there is a significant difference in school attendance between children from formal, mixed and informal households, to the advantage of children from formal households. Children from informal households account for a larger share of those missing from school. Third, the average attendance gap for children from informal, mixed and formal households is wider in upper secondary and post-secondary non-tertiary education than it is in primary and lower secondary education. The gap is 15.7 percentage points between children from fully formal and fully informal households, and 9.0 percentage points between children from fully formal and mixed households.
Attrition from the school system, or school dropout, has many causes. These causes include difficult access to schools, especially in remote rural areas; unappealing quality of schooling and low relevance of education; grade repetition (UNICEF, 2019[5]); and child marriage and pregnancy (which can be both a cause and a consequence of early school dropout). They also include the need for family income that incentivises households to withdraw their children from school and encourages child labour – which is usually informal, especially for children who have not reached the authorised working age. Access to school, the rate of school dropouts, and the reasons for dropout also remain unequal for boys and girls. Out-of-school girls are at a higher risk of child marriage, while boys are at a higher risk of child labour (UNICEF, 2015[6]). In some parts of the world, persistently high dropout rates can be explained by ongoing security issues, lack of appropriate programmes and facilities, and low levels of family support (EFT, 2021[7]).
The numbers in Figure 5.2, Panel B also include pupils in formal technical and vocational education and training (TVET) programmes, delivered as a dedicated track at secondary and post-secondary levels. Globally, the share of young people who participate in TVET is low. Enrolments in TVET vary significantly, with the lowest rates found in sub-Saharan Africa (around 1% among those aged 15‑24 years had ever benefitted from it) and the highest rates found in Central Asia, in Central and Eastern Europe, and in East Asia and the Pacific (up to 15%) (UNESCO, 2021[8]; UNICEF, 2019[5]). In developed countries, TVET at upper secondary level is intended to ensure the transfer and acquisition of knowledge and skills needed to carry out the tasks associated with a particular occupation. It may also include vocational guidance; however, this component is not commonly found in developing and emerging economies and is generally left to parents. This omission can particularly affect students from informal households.
Attendance gaps continue to widen at the level of tertiary education
Finally, education inequalities between children from different types of household further widen in tertiary education (Figure 5.2, Panel C). First, attendance rates are substantially lower in all countries for which data were available when compared with those in the earlier stages of education. Second, the attendance gap continues to widen and stands at 17 percentage points between children from fully formal and fully informal households. The most striking difference is observed in Burkina Faso, where the gap is more than 70 percentage points. On average, the attendance gap is eight percentage points between children from fully formal and mixed households. At the same time, the change in the attendance gap between Panel A and Panel B is substantially more pronounced than the change in the attendance gap between Panel B and Panel C, suggesting that inequality in attendance between children from formal and informal households starts early on, and especially manifests itself as children proceed to upper secondary and post-secondary non-tertiary education.
The COVID‑19 crisis exacerbated school attendance inequalities
While substantial progress to improve school enrolment and attendance was made in the majority of countries since the mid 1990-s, the COVID‑19 crisis put these developments at risk. The effects of the crisis have mostly hit those who can least afford them; it had a compound effect on the lower enrolment rates of children and students from underprivileged backgrounds, and on school dropouts.
Social distancing measures associated with the COVID‑19 pandemic led to school and university closures in 192 countries. At the peak of the pandemic, the United Nations Educational, Scientific and Cultural Organization (UNESCO) reported that nearly 1.6 billion learners, or 94% of the world’s student population, were affected by educational institution closures (UN, 2020[9]). School closures over the period 2020‑21; the lack of electricity, broadband Internet and computers in rural areas; and the unequal preparedness of teachers have particularly compromised education for children from vulnerable backgrounds (including children of informal workers) and for girls (UN, 2020[9]). Globally, at least 463 million children could not be reached by digital and broadcast remote learning programmes during school closures. Seventy-five percent of these students came from rural areas and poor households (mostly informal), and were students with disabilities who were disproportionately excluded from remote learning modalities. Children and students from disadvantaged backgrounds often remained without any teaching support when their schools shut down; for many, especially for girls, temporary school closures led to permanent school dropout (De Giusti, 2020[10]). By September 2021, a total of 260 million children and young people were out of the education system – 3 million more than in 2019 (UNESCO, 2022[4]). A further 24 million learners were at risk of dropping out of education; most of these were from disadvantaged backgrounds.
Many TVET programmes have faced particular challenges due to their work-based learning component and the inability to deliver practical education when businesses were closed (OECD, 2021[11]). Education and training institutions as well as their students and trainees increasingly adopted a wide range of education technologies to mitigate the impact of the closures of learning institutions. The findings of a global interagency survey of the effects of the COVID‑19 crisis on TVET provision show that the crisis triggered a rapid uptake of distance learning approaches in TVET (ILO, 2021[12]). The majority of TVET respondents in 46 out of 92 countries reported the provision of courses that were entirely based on remote learning during the crisis, whereas, prior to the COVID‑19 pandemic, only 13 out of those 92 surveyed countries featured a majority of TVET respondents who provided online distance learning regularly or often (ILO, 2021[13]). Again, the availability of remote learning, and the possibility to participate in it, varied greatly across sectors of activity, occupations and place of residence (rural or urban), with the most vulnerable learners being excluded from these possibilities.
In addition to the impact on school attendance, a global study of 157 countries conducted three months after the onset of the pandemic simulated the likely effects of the crisis response on a series of education outcomes (Azevedo et al., 2020[14]). Results were reported for three scenarios (optimistic, intermediate and pessimistic) assuming three, five and seven months of school closures. Bearing in mind that before the crisis 53% of children in low- and middle-income countries were living in “learning poverty” (unable to read and understand a simple text by the age of ten years), the results of closures for five months under the intermediate scenario suggested: (i) the loss of Learning-Adjusted Years of Schooling (LAYS) could be as high as 0.6 years compared with the global average of LAYS of 7.9 years; (ii) the reduction in Programme for International Student Assessment (PISA) test scores could be 16 points below the average of 440 in 2019; (iii) the share of lower secondary school age children who are below the minimum level of proficiency could increase by as much as 25% (from 40% to 50%); and (iv) nearly 7 million students from primary up to secondary education could drop out due to the income shock of the pandemic. In the longer term, this can lead to substantial productivity losses of future workers (de la Maisonneuve, Égert and Turner, 2022[15]). The distributional effects of these losses are expected to disproportionately affect the most vulnerable learners, such as low-paid informal workers in rural areas, and more so in low-income countries.
Formal households also spend more on education per child compared with informal households, thus exacerbating inequalities
Significant underinvestment in education is another way in which the cycle of informal employment perpetuates from one generation to another.
Even if education is now meant to be free in many developing and emerging economies, going to school is not. Computations based on the KIIbIH data show that, on average, households spend between 4% and 5% of their total expenditure on education (education expenditures include, among others, registration fees, expenditures on educational materials such as books and stationery, transportation, uniforms, and food). However, the average monthly spending per child of school age varies by household type (Figure 5.3). In the vast majority of countries with available data, fully formal households spend relatively more on schooling per child in absolute terms than mixed and informal households do. This reflects the fact that working parents in formal households have higher earnings and may be able to afford to spend more. This, in turn, ensures that children stay in school longer and possibly get better-quality schooling. At the same time, this confirms that earnings inequalities across parents and household types translate into education inequalities early in their children's lives.
Figure 5.3. Education expenditures, by household type
Average monthly out-of-pocket expenditures per child of school age, by household type, in international dollars
Note: Education expenditures include all actual out-of-pocket expenditures of households on items such as school fees, books, other educational materials, transport costs, and meals. The availability of each item may differ from country to country, affecting cross-country data comparability. “Children of school age” refers to children aged 6‑18 years. An international dollar is defined as the currency unit that has the same purchasing power over gross national product (GNP) as the US dollar in the United States.
Source: Estimates based on (OECD, 2021[3]), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database), https://www.oecd.org/dev/Key-Indicators-Informality-Individuals-Household-KIIbIH.htm. Stat.
The COVID‑19 crisis further exacerbated these existing inequalities through unequal access to parental help. At the higher end of the socio-economic spectrum, during school closures, children of formally working parents with higher education benefitted from their educated parents who teleworked, had access to more resources and knowledge, and tended to be more active in child rearing. In some cases, they also benefitted from enhanced learning through private tutors. Compared with their less privileged counterparts, such children have managed to compensate, or even overcompensate, for the negative effects of school closures (Bayrakdar and Guveli, 2020[16]; Andrew et al., 2020[17]).
It is too premature to say how future public spending on education and training in particular will be affected by the diversion of funds to health services and social protection following the COVID‑19 crisis and, more recently, the economic effects of geopolitical uncertainties and disruptions. The looming inflation and the fiscal austerity efforts to contain it have already reduced the rate of economic growth and will increase unemployment (and reduce household incomes) before they have an opportunity to recover to their pre-pandemic levels. This reduces households’ ability to finance investments in the human capital of their members, particularly in developing and emerging economies and in the poorest families.
Young people from informal households are more likely to be NEET and face longer and more uncertain school-to-work transitions
Later on in the life cycle, the educational disadvantage of children from informal households translates into a clear disadvantage for young people. Among young people, the share of NEET (not in education, employment or training) is higher for those from informal households than for those from mixed and fully formal households (Figure 5.4). Across developing and emerging economies with available data, there is a 7.9‑percentage‑point gap in the NEET rate between young people from fully informal and fully formal households. On average, young people from mixed households are similar to young people from formal households in this regard. This may be related to the underlying characteristics of young people in informal households (less schooling), as well as to the fact that informally working parents may have more limited networks to help their children find work.
Figure 5.4. NEET rates are higher for young people living in informal households
Young people aged 15‑24 years neither in employment nor in education and training, as a percentage of young people aged 15‑24 years living in each household type
Note: Includes all sampled households with at least one worker; mixed households have at least two workers. Household type averages are unweighted averages across sample countries. Lao PDR – Lao People’s Democratic Republic.
Source: Estimates based on (OECD, 2021[3]), Key Indicators of Informality based on Individuals and their Household (KIIbIH) (database), https://www.oecd.org/dev/Key-Indicators-Informality-Individuals-Household-KIIbIH.htm.
One of the pathways towards a working life could be through internships and apprenticeships. These two forms of skills acquisition are still less common in low-income countries compared with richer countries. According to the International Labour Organization (ILO) School-to-Work Transition Surveys in 33 developing and emerging economies, only one in five respondents below the age of 35 years had participated in at least one internship or apprenticeship. And where self-reported estimates exist, the incidence of internships or apprenticeships was found to be higher among well-off households than among poor households. Those with secondary education were twice as likely to be offered apprenticeships than those with primary education only, and the percentage of such beneficiaries is much higher for those working in the formal economy (Bonomelli Carrasco, 2021[18]). A critical factor underlying these differences is that apprentices from better-off households are in a much better position to get ahead of their peers through social networking, often through their educated and formally working parents (de Mel, Elder and Vansteenkiste, 2013[1]; Erin and Nilsson, 2014[2]).
Given the high level of informal employment in developing and emerging economies, most apprenticeships and internships also tend to be informal. Informal arrangements are most prevalent in sub-Saharan Africa (UNICEF, 2019[5]). They usually take the form of skills acquisition for trade or crafts in a micro or small enterprise or workshop, learning and working side by side with an experienced practitioner. Often, however, such apprenticeships are not effective in providing the necessary skills (Werquin, 2021[19]), and when they are, these skills are not formally recognised, as discussed in Chapter 4.
Finally, evidence from other studies, such as the ILO School-to-Work Transition Surveys, also shows that when young people in developing and emerging economies transition to work, more than three-quarters of their first jobs are informal (Erin and Nilsson, 2014[2]). Young workers have the greatest chances of working formally in Europe and Central Asia and, to a certain degree, LAC (with the exception of El Salvador and Peru). In contrast, in sub-Saharan African countries, up to 95% of young workers are in informal employment. The probability of working informally decreases with age and with the level of education. In 20 countries where ILO School-to-Work Transition Surveys were conducted, young people with tertiary education have at least a 51% chance of finding formal employment, compared with 14% for young people with less than primary education.
Policy discussion
Taken together, the analysis of this chapter confirms that informal employment continues to be “past dependent” (Erin and Nilsson, 2014[2]). Early childhood education inequalities, coupled with those of the previous generation, as well as early-life work experience of informal employment, strongly determine informal employment in adulthood. Given this, investing in children and young people from informal households, especially the poorest ones, and investing in quality education early on is a critical way to break the cycle of informal employment.
Chapter 4 already provided several policy recommendations to continue raising the general level (in terms of quality and quantity) of schooling in order to strengthen foundational skills as a basis for the future learning of all workers. To complement them, several additional actions should be considered.
Investing in accessible quality education, in order to equip future workers with solid foundational skills
As this chapter showed, inequality of opportunities starts very early in children’s lives and widens at subsequent levels of education. Inequality in school attendance between children from formal and informal households is already visible at the level of upper secondary and post-secondary non-tertiary education, and in some countries even at the primary education level. Having poor or inadequate foundational skills will preclude children from the most disadvantaged backgrounds from developing higher-order technical and soft skills through any type of further learning.
Poor performance of education systems will continue to be a major push factor leading to informal employment for labour market entrants. Closing rural-urban gaps in education quality, rendering education more relevant to labour market needs, improving physical access to educational establishments through better transportation, providing better teacher training, and emphasising the development of soft skills valued by employers – such as communication, problem-solving and teamwork – alongside technical skills are all important ways to keep children in the education system.
The impact of the COVID‑19 crisis calls for urgent measures to recover the loss in school-based learning for future labour market entrants, and especially for children from disadvantaged backgrounds, including informal households. The short-term emphasis should be on addressing the widening gaps in education created by school closures; to restore the amount of lost learning; to prevent students from dropping out of school; and to ensure that the historically increasing trend in enrolment continues.
In this light, it is important to immediately prioritise public spending on education in order to keep education enrolment rates at pre-COVID‑19 pandemic levels. The worsening macroeconomic conditions, aggravated by uneven post-crisis recovery and the global impacts of multiple ongoing wars and military conflicts, will undoubtedly limit the range of possible policy responses in the education field. Already in 2020, forecasts assumed that the global share of public budgets allocated to education would decrease by at least 10% (World Bank, 2020[20]). In addition, declining household incomes may result in enrolment transitions from private to public schools, which will exacerbate the pressure on government budgets dedicated to education. Yet, the cost of inaction will be much higher. It is estimated that failure to achieve the Sustainable Development Goal (SDG) on education would result in a discounted loss in global gross domestic product (GDP) during the rest of the 21st century equivalent to an annual loss in current global GDP of 11%, with most of the losses incurring in developing and emerging economies (Hanushek and Woessmann, 2022[21]).
Devoting sufficient resources to education and providing equitable education opportunities
This chapter has also shown that formal and informal households provide unequal resources to support their children’s schooling. In this light, the role of governments should be to better support children from all backgrounds, and especially from poorer informal households. In the longer term, supporting universal education for all will remain relevant. Continuous efforts should also be dedicated to traditional approaches to reducing the direct and indirect costs of schooling, especially for children from vulnerable households, including informal households. The role of cash transfer programmes, fee waivers, scholarships, school meals and the free provision of educational materials remains incontestable. These tools have proven to be potent interventions for increasing access to education, reducing the dropout rate of poor students and promoting equitable development.
To support enrolment in tertiary education, it is also necessary to consider providing scholarships, grants or low-interest loans to students in order to reduce financial barriers to acquiring necessary skills.
The COVID‑19 crisis also revealed the importance of closing the digital gap in learning between children from informal (often rural and poor) households. This will require long-term efforts to reduce the costs of participating in the digital world; increasing access to mobile Internet technology and adequate infrastructure; supporting the uptake of digital learning; investing in physical and digital infrastructure, particularly in rural areas; and investing in digital skills development (ILO, 2021[12]).
Preventing school dropouts
Poor quality of compulsory schooling and high dropout rates both disproportionately affect those students who are already disadvantaged – typically those living in rural areas, from poor and informal households, and with few options for employment outside of (often informal) family businesses. By leaving school early, children lose skills and competencies that could later allow them to enter more advanced training and more skill demanding, higher-paying jobs. As a result, these future workers often become trapped in the intergenerational cycle of informal work that is low-skill and low-productive (OECD/CAF/ECLAC, 2016[22]). Both phenomena also contribute to skills shortages and become major barriers to public and private sector strategies for industrialisation, adoption of new technologies and boosting productivity (OECD, 2023[23]).
In many countries, decisions to keep children and adolescents in school are often made within the family, based on the calculated probability that staying in school will actually lead to a job relative to the need to have children participate in providing income for the family. Thus, again, improving school quality and aligning school programmes with labour market needs is necessary in order to prevent dropouts (OECD, 2023[23]).
To be effective, such policies also need to be complemented with social policies. One such policy is eradicating child labour. This policy can have many components that would tackle child labour from both the demand and the supply side (Thévenon and Edmonds, 2019[24]). With regard to the findings of this report specifically, this would include making school an affordable alternative to child labour, as well as expanding social protection floors so as to protect families from fluctuations in their economic situation that can increase recourse to child labour (ibid.).
Other social policies would include the prevention of early dropouts because of arranged marriage and early pregnancy. This would encompass, among other policies, promoting gender equality in education and the workforce and the reduction of stereotypes around the roles of men and women in society (OECD, 2023[25]).
Smoothing school-to-work transitions for young people, especially from informal households
Young people from informal households have a particularly difficult time transitioning to their first job, and especially to a formal job. One of the pathways is through apprenticeships, but these are often informal. In addition, in developing and emerging economies, the first job is also frequently informal, taking place in an informal family business.
In this regard, several policy options are possible, with a view to helping transitions to the labour market, and especially to formal jobs.
Leverage formal vocational education and training (VET) programmes
In many developing and emerging economies, formal TVET systems are not explored to their maximum potential. Often, they lack resources, deliver low-quality training that is poorly adapted to labour market needs and offer insufficient choice as to fields of study. In turn, they are characterised by high dropout rates and suffer from low status and poor reputations, which may penalise graduates (OECD, 2015[26]; OECD, 2023[23]). Improving TVET and leveraging its potential with a view to improving labour market transitions to formal jobs should be on the policy agenda. This means establishing new vocational schools dedicated to specific fields, providing more laboratories for practical work and collaborating with local industries to design VET curricula that align with current labour market needs.
Develop formal apprenticeship programmes
Similarly, countries should strive to promote formal apprenticeship programmes that allow students to gain hands-on experience while learning on the job. To help the transition to formal jobs, governments should provide incentives for employers to hire apprentices.
Recognise the role of informal apprenticeship programmes and of skills acquired through them
Informal apprenticeships continue to play an important role in smoothing labour market transitions, and this role should be recognised. Yet, there is a need to inject more quality skills into these systems. There is also a need to establish mechanisms of skills recognition, and ensure that employers recognise certifications delivered outside of standard education systems.
Strengthen career guidance, counselling and networking
Children of informal workers are often penalised because they do not have sufficient networking opportunities to apply for, or even learn about, formal jobs. Establishing career guidance and counselling services in schools and in communities, that are available to all children, can help students make informed decisions about their education and career paths. Such services should also be leveraged to promote networking and simply ensure that potential formal employers and would-be workers meet.
Create or reinforce existing employment programmes for young people
Just like their parents, young informal workers can have very heterogeneous backgrounds and situations. To help them move to formal jobs, targeted programmes and incentives that offer training, subsidies or job placement services can be established, especially if these young people are not eligible for standard support measures because of their own informal status or the informal work status of their parents. For informal enterprises, access to such programmes may be conceived in a way that encourages enterprise formalisation, and is part of the overall formalisation strategy. The effective implementation and co‑ordination of these policies requires collaboration between government agencies, educational institutions, employers and civil society organisations. It is crucial to adapt these policies to the specific context and needs of each country so as to ensure successful school-to-work transitions for young people.
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