In normal times, the informal economy can act as a buffer against downturns since the demand and supply for the informal sectors are usually relatively unaffected by cyclical downturns. Informal firms tend to have low productivity and informal workers tend to be poorly paid, but the informal sector is often resilient precisely because it is less exposed to financial bubbles and other shocks to the formal economy. However, the current crisis is different, since lockdowns and border closures are particularly harmful to many sectors where informality is prevalent and teleworking is not an option: proximity services, cross-border trade and transport. Since informal workers typically have very low savings, they are less able to cushion the income losses imposed by confinement policies. In many cases, their living conditions (especially those of migrant workers) may make meaningful social distancing impossible anyway, raising the risk of infection. At the same time, informal labour often plays a large role in some essential sectors, like waste disposal, agriculture and freight. Paradoxically, this means that some informal workers may be exempt from confinement measures, which enables them to generate income but also increases their risk of infection. This makes challenges with access to healthcare particularly important.
Providing state support to households and firms that operate in the informal economy can be particularly difficult. While direct cash transfers to the entire workforce may help mitigate the social impact, they would constitute an unrealistically expensive measure for most EaP countries. However, extending some income support where possible should be a priority, as should the extension of access to healthcare services. For those who continue to work on the provision of masks, other measures to ensure health and safety is critical not only to the health of the workers themselves but also to those around them. Finally, there are some forms of tax relief that could help the informal sector: while informal workers and firms may not pay direct taxes or social charges, they often do pay utility fees, market taxes and fees, and taxes affecting the movement of remittances. This is something governments may want to bear in mind when considering the design of tax measures to support SMEs.
Quite apart from informality, some other employment patterns also point to an unusually high number of vulnerable workers in some EaP countries. Around half of those in Azerbaijan and Georgia are own-account workers (self-employed individuals without hired workers) (Figure 16). Many of them rely on seasonal work related to tourism, are severely affected by the containment measures, and have only limited access to traditional forms of income support. The situation in Armenia, Georgia and Ukraine is further exacerbated by high unemployment rates, which put pressure on local social security systems, especially when employment abroad or in the informal sector is no longer a viable option for the majority. In addition, low saving rates, particularly in Armenia, Georgia and Moldova, further undermine the ability of households and individuals to absorb the economic shock related to the pandemic (Figure 17).
Finally, the global economic recession will exacerbate the social situation of migrant workers in or from EaP countries. In total, roughly 16% of the populations of the EaP countries live abroad. Armenia (33% of population) and Moldova (28%) have the region’s largest emigrant populations, according to UN data.10 Many migrant workers are stranded in foreign countries without work and thus unable to support their families back home. In some cases they may find themselves obliged to return home, while in others they might be unable to leave their host countries. Border closures are particularly harmful to seasonal workers who usually travel abroad during spring to pursue employment related to the agricultural and tourism sectors of the destination countries. Returning migrants may also carry the risk of transmitting the virus from place to place.