As labor markets change quickly, one fact stands out: most of the world’s workers are outside the formal economy. This issue was the main focus at the Global Labor Market Conference, held in Riyadh on January 26 and 27, where experts discussed why informality continues and why it matters for growth, inclusion, and stability.

“About 60 percent of the adult workforce globally works in the informal sector,” said Alasdar Ross, Countries Editor at The Economist. He explained that informality is not a minor issue, but the main way people are employed worldwide.

Professor Joseph Akinkugbe Adelgan, Deputy Director and CEO of Partners in Population and Development, described informality as economic activity that happens outside formal rules and institutions. This includes not only labor, but also firms and production systems.

“Informality is not only a question of labor,” Adelgan said. “It involves production activities and firms that operate outside state regulation. It has consequences, but it also exists for specific structural and demographic reasons.”

He explained that these reasons are linked to global population trends. With almost 1.8 billion young people worldwide, informal work is often the main way young people start working, especially in areas with rapidly growing populations.

A SURVIVAL MECHANISM FOR DISPLACED POPULATIONS

For refugees, informality is often not a choice. Dr. Khaled Khalifa, Senior Advisor and Representative to the GCC for the UNHCR, described informal work as something people are forced to do to survive.

“From where I sit, informality is a survival mechanism,” Dr. Khalifa said. “Refugees are often legally excluded from formal labor markets, so informal work becomes the only way to live,” he said.

He added that over 70 percent of forcibly displaced people live in low-income countries, many of which already have large informal economies. Even so, refugees often have valuable skills.

“We’re talking about doctors, engineers, and teachers,” Khalifa said. “People with something to offer, but without legal pathways to contribute formally.”

For Denis Pennel, CEO of Work that Works, informality should not be viewed as an exception to the system, but as its prevailing condition.

“To be provocative, informal work is actually the standard employment relationship globally,” Pennel said. “Most workers have no contracts, no social protection, no access to training, and no collective representation.”

He argued that the leading causes are structural, such as low productivity sectors, regulatory barriers, weak labor market institutions, and mismatches between skills and job needs.

“If it’s too complex or expensive to hire, fire, or set up a business, people remain informal,” Pennel said. “And if labor market intermediaries don’t function, workers simply can’t enter the formal economy,” he added.

A REGIONAL CHALLENGE WITH GLOBAL IMPACT

Adelgan explained that there are significant differences between regions. In Africa, almost 86 percent of workers are in informal jobs. In Asia and the Pacific, it is over 68 percent, while in Europe and Central Asia, it is just over 21 percent.

Worldwide, informal work makes up almost 30 percent of GDP. This economic activity is mostly untaxed and unprotected.

“If we don’t measure informality properly, we can’t design effective policy,” Adelgan said. “And without the right policies, countries miss the opportunity to unlock their demographic dividend.”

THE COST OF KEEPING WORK INFORMAL

The panel pointed out three main costs of informality: employers lose productivity, workers are more vulnerable, and governments lose revenue.

For workers, the risks are immediate. “They have no health insurance, no pension, and no rights,” Dr. Khalifa said. “Informality limits their growth and depresses wages—yet it is rarely a choice.”

For governments, informality erodes tax bases and weakens institutions. “When people operate outside legal frameworks, states lose revenue and competitiveness,” Adelgan said. “More importantly, they lose the chance to benefit from demographic transition” (Adelgan).

As work becomes more fragmented, through gig platforms, migration, and non-standard contracts, panelists agreed that strategies to formalize work need to change.

“The diversification of work arrangements can actually be part of the solution,” Pennel said. “More flexible forms of formal work can help integrate informal workers into the system.”

Khalifa urged policymakers to rethink formalization not just as a moral obligation, but as an economic one. “Formalizing informality is a business model,” he said. “And it’s one that has already proven to work.”

The main message was clear: informality is not a minor issue, but the main reality in today’s labor market. Solving it will need data-driven policies, solutions tailored to each region, and teamwork among governments, businesses, and global organizations. Experts agreed that most labor market policies still focus on the 40 percent. The real challenge and opportunity are with the other 60 percent.