ABSTRACT
This chapter explores the question of whether shifts in informality happen incrementally or through broader structural transformations of the economy. The process of economic development is associated with a transformation of the structure of paid employment – with greater sectoral diversity, improvements in employment income linked to higher average productivity, and changes in status in employment as wage work replaces forms of self-employment. The emergence of formal employment is therefore an outcome of a process of structural change. This suggests that the nature of informalisation is conditional on the economic structure – high-income countries may experience a rollback of social protections for wage employees while in low-income countries informality is associated with self-employment in informal enterprises. The standard formalisation debate is flawed because it considers the path to formality to be an incremental one, based on micro-level changes to individual enterprises or jobs, rather than a challenge of structural change across the entire economy.
