How informal economy and social protection debates will shape the futures of two billion workers in the Global South

The informal economy and social protection are at the center of a global struggle over dignity, security, and development. This article examines why two billion people still work without contracts or safety nets, how governments are trying to extend pensions, health care, and income support to informal and gig workers, and what supporters and critics say about these new welfare experiments.

The informal economy and social protection sound like technical phrases, but for nearly half of humanity they are the difference between a bad month and a catastrophe. In Lagos, a street vendor sells fruit on a roadside, one traffic accident away from losing everything. In Dhaka, a garment worker’s contract is verbal, her working hours undefined. In São Paulo, a motorcycle courier zigzags through traffic delivering food for an app that calls him a “partner,” not an employee.

They all belong to a vast economic majority that is mostly absent from official payrolls and safety nets. According to the International Labour Organization, 2 billion workers—about 61% of the world’s employed population—work in informal jobs, with little or no legal protection. Most are also among the 4.1 billion people who lack access to at least one basic social protection benefit, from pensions to sickness pay.

As governments from India to Brazil and Kenya scramble to reform labor laws and welfare systems, a fundamental question hangs over the 21st-century economy: can we build social protection for workers whose work is almost designed to be invisible?

The world’s majority economy—and its blind spot

The “informal economy” is not a marginal sector. It is the economy for most people.

In low- and middle-income countries, informality is the default: street vendors, domestic workers, small farmers, construction day laborers, market traders, minibus drivers, waste pickers, home-based seamstresses, and, increasingly, gig workers on digital platforms. The World Economic Forum notes that around two billion workers are in informal employment and that roughly four in five businesses worldwide are not formally registered.

Informal work is defined less by what people do than by the conditions under which they do it:

• no written contract
• no guaranteed minimum wage
• no contributions to pensions or unemployment insurance
• no paid sick leave or maternity protections
• often no enforcement of safety standards

For some, informality is a choice—traders who prefer flexibility, micro-entrepreneurs who resent bureaucracy. But for hundreds of millions, especially in the Global South, it is a constraint, not a preference: the only employment available in economies that produce too few formal jobs.

The pandemic made this starkly visible. Lockdowns and economic shocks hit informal workers first and hardest. Many could not work from home; few had savings or formal insurance. The World Bank estimates that emergency social-protection responses in developing countries reached 1.7 billion people during COVID-19, a historic expansion. Yet even after that surge, about 2 billion people in low- and middle-income countries remain uncovered or inadequately covered by social protection systems.

That gap is not a side issue. It is the central fault line between economic growth statistics and lived reality.

Informal economy and social protection: an impossible pairing?

Traditionally, social protection systems were built around a simple model: a formal employee pays contributions from their salary; the employer pays a share; the state tops up. This model works—up to a point—for factory workers, teachers, nurses, and civil servants.

It does not work for:

• the woman selling fried snacks outside the factory
• the migrant man carrying bricks at a construction site for cash
• the app-based courier who is technically “self-employed” and paid per delivery

As a result, informal workers are both the backbone of many economies and the group least likely to be covered by pensions, unemployment schemes, or health insurance. An ILO review notes that while some countries have extended specific benefits to parts of the informal workforce, coverage remains patchy and often excludes the poorest and most precarious.

Globally:

• Less than half the population is covered by at least one social protection benefit.
• In many African and low-income countries, over 80% of people have no coverage at all.

The “informal economy and social protection” problem is therefore structural: systems designed for factory workers now face a world of hustlers, gig workers, and micro-entrepreneurs.

Enter the gig worker

If the street vendor is the emblem of old informality, the platform worker is the icon of its digital upgrade.

From ride-hailing in Nairobi and Jakarta to food delivery in Bogotá and Beijing, app-based work looks new but shares old traits: piece-rate pay, unpredictable hours, minimal bargaining power, and, in most cases, no employer-funded safety net.

China’s fast-growing platform economy, for example, now counts millions of delivery drivers, cleaners, and ride-hailing drivers who often work 90-hour weeks with minimal protection. A recent report described this workforce as “invisible” despite powering booming digital services; injuries, debt, and absence of social insurance are common.

Governments are starting to respond:

• In India, a sweeping overhaul of labor laws consolidated 29 old statutes into four new codes covering wages, social security, and safety. The reform legally recognizes gig and platform workers as a distinct category entitled to certain social-security benefits, even as it makes hiring and firing easier in some sectors.
• The Indian state of Telangana is moving ahead with a dedicated Gig and Platform Workers (Registration, Social Security & Welfare) law, aiming to create a register of workers and extend benefits like insurance and welfare funds.
• Gig-worker federations are pressing national governments to implement social-security provisions already on the books, including health insurance and pensions.

Similar debates are underway in Latin America, Europe, and parts of Africa. International organizations like the International Social Security Association warn that platform workers must be integrated into labor and social-protection systems—with clear rules on pay, working time, occupational safety, and contributions.

Supporters say these reforms are overdue. Critics worry they are partial and may even normalize a third tier of workers: neither fully self-employed nor fully protected.

Supporters: “Social protection is smart economics, not charity”

Those pushing to extend social protection to informal workers and gig workers argue from both justice and self-interest.

The World Bank’s State of Social Protection 2025 report points out that:

• Social protection and labor programs now reach 4.7 billion people in low- and middle-income countries—an unprecedented expansion.
• For every dollar transferred to poor households, there is an estimated $2.50 multiplier effect in the local economy.
• Yet 2 billion people in those countries remain uncovered or inadequately covered, with the biggest gaps in low-income countries.

From this perspective, expanding social protection to workers in the informal economy is not a luxury; it’s a development strategy:

1. Stabilizing demand
   When street vendors, domestic workers, and gig drivers have some form of income support in crises—cash transfers, subsidized health insurance, public works—they continue to spend, preventing local economies from collapsing.
2. Encouraging risk-taking and mobility
   The World Bank’s “social risk management” framework argues that reliable safety nets allow poor households to take productive risks: investing in better seeds, starting microbusinesses, or moving to higher-paying jobs without fearing total ruin if something goes wrong.
3. Reducing poverty and inequality
   UNICEF and global alliances highlight that without child and family benefits, 1.77 billion children lack basic income security, perpetuating intergenerational poverty. Well-targeted cash transfers and social pensions have been shown to reduce extreme poverty, improve nutrition, and keep children in school.
4. Resilience to climate and economic shocks
   With climate change increasing floods, droughts, and heatwaves, informal workers are on the frontline. Social protection floors—basic guarantees of income and services—are seen as a key part of climate adaptation strategies.

Supporters also note success stories: Pakistan’s Benazir Income Support Programme and the later Ehsaas initiative used digital payments to reach millions of low-income, often informal-sector households, especially during COVID-19 lockdowns, and have been praised as global models.

Their core message: expanding social protection to informal workers is not about handing out favors—it is about building resilient, inclusive economies.

Critics: “Who pays—and does welfare entrench informality?”

Critics are not necessarily opposed to helping the poor. Their question is: how, and at what cost?

Several concerns recur:

1. Fiscal sustainability
   Extending social protection to workers who don’t pay regular contributions raises a basic arithmetic problem. In poorer countries with narrow tax bases and high debt, how do you finance pensions, health coverage or income support for millions of informal workers without over-burdening small formal sectors or cutting other essential services?
2. Risk of entrenching informality
   Some economists worry that if informal workers can access benefits financed by general taxation—while formal workers and firms bear payroll taxes—governments might unintentionally reward staying informal. Firms may have less incentive to formalize if they can rely on a dual system: uncovered employees supplemented by state handouts.
3. Administrative complexity and leakage
   Reaching informal workers requires strong identification systems, mobile-money infrastructure, and careful targeting or universal programs. In countries with weak institutions, there is a real risk of corruption, ghost beneficiaries, and uneven coverage.
4. Platform-worker grey zone
   In the case of gig workers, platforms argue that classifying drivers or couriers as employees—responsible for full social contributions—could kill the business model or force higher prices. Some unions fear the opposite: that special “platform worker” categories will lock in weaker rights than those enjoyed by traditional employees.

Behind these technical concerns lies a political question: should the Global South try to replicate European-style welfare states built on formal employment, or design new models suited to economies where informality is the norm?

Latin America’s warning: jobs recovered, quality didn’t

Latin America offers a glimpse of what happens when headline employment improves but informality remains entrenched.

The ILO reports that in 2024, unemployment in Latin America and the Caribbean fell to 6.1%, down from 6.5% in 2023. Employment rates rose. But almost half the region’s workforce is still in informal employment, with precarious conditions and income instability. Inequality remains high, and women continue to earn about 20% less than men.

On paper, the jobs crisis eased. On the ground, millions still cycle through low-paid, unstable work, with limited access to pensions or unemployment insurance.

For critics of purely growth-oriented strategies, this is a warning: without deliberate policies to formalize work and extend social protection, growth alone will not fix deep labor-market inequalities.

What does a realistic solution look like?

Between the optimism of social-protection advocates and the caution of fiscal conservatives, a set of more nuanced approaches is emerging.

1. Building social protection floors

Rather than promising European-style benefits overnight, many experts back the idea of a “social protection floor”: a basic set of guarantees—access to essential health care, child benefits, minimum income in old age—that everyone should enjoy.

These floors can be financed through a mix of:

• general taxation (including wealth and consumption taxes)
• modest contributions from workers and micro-enterprises where feasible
• international support in the poorest countries

They do not eliminate the need for higher-tier contributory schemes, but they ensure that informal workers and their families are not left with nothing.

2. Designing for informal workers from the start

Instead of trying to fit informal workers into formal schemes, some countries are designing products specifically for them:

• flexible contributions via mobile phones
• micro-pensions that allow irregular deposits
• subsidized health insurance with community enrollment

ILO case studies show that when schemes respect irregular incomes and unstable careers, participation rises.

3. Linking social protection to pathways out of informality

“Social protection and the way forward to eliminate hunger and poverty,” a joint paper by global partners, argues that safety nets should be tied to economic inclusion: training, asset transfers, access to finance, and support to move into higher-productivity work.

In this view, cash transfers and insurance are springboards, not permanent parking lots.

4. Regulating platforms without killing flexibility

For platform work, international bodies like ISSA and ILO suggest a mix of:

• minimum standards on pay and safety
• obligations for platforms to contribute to social-security funds for each worker
• clear criteria for when a platform worker is effectively an employee

Experiments in Europe, India, and parts of Latin America show that the line between flexibility and exploitation is political, not technological.

Supporters vs. critics: two different fears

Ultimately, the debate over informal economy and social protection is a clash of fears:

• Supporters fear a world where billions remain one illness, one flood, one lockdown away from ruin—a world of perpetual precarity feeding anger, migration, and instability.
• Critics fear a world where states promise more than they can fund, distort incentives, and trap economies in low productivity and high debt.

Yet both agree on one basic reality: informality is not going away soon. In many African, Asian, and Latin American countries, demographic trends mean that even with strong growth, most new jobs will be informal or semi-formal for years to come.

The real choice is not between an informal economy with or without social protection. It is between a regulated, gradually formalizing informal economy with basic safety nets, and an unregulated one where shocks keep erasing progress.

A quiet revolution, if we choose it

Imagine a different morning for our three workers.

The Lagos street vendor pays a tiny amount into a digital micro-pension every time she buys stock, matched by a modest state subsidy. The Dhaka garment worker, even on a verbal contract, is automatically included in a national health-insurance scheme financed partly by export levies. The São Paulo courier, while still a contractor, has accident insurance and contributes to a portable social-security account funded jointly by him and the platform.

None of them has a perfect job. All of them have a margin of safety they currently lack.

That vision is not utopian. Pieces of it are already being tried—from Pakistan’s Ehsaas program to India’s experiments with gig-worker registration, from Latin American conditional cash transfers to African social-pension schemes. The question is whether the world will scale these experiments fast enough, and fairly enough, to match the scale of informality itself.

If the 20th century’s welfare state was built for the factory worker, the 21st century’s social protection must be built for the street trader, the gig courier, the home-based seamstress, the migrant laborer. Failing to do so will not just leave billions vulnerable; it will undermine the very stability and growth that orthodox economists claim to protect.

In the end, the fight over the informal economy and social protection is not about accounting. It is about deciding whether we are willing to let most of the world’s workers remain invisible—until their crises become our own.