The Unassuming Economist

Source: VoxEU CEPR

The informal sector, which accounts for nearly one-third of the GDP and employment in emerging and developing economies (EMDEs), has not only been the worst affected by the Covid-19 pandemic but is now also threatening to dampen economic recovery. Three features of the informal sector have compounded the damage of Covid-19 on activity: (i) their predominant presence in the service sector, (ii) limited savings and access to social safety nets, and (iii) the lack of effective policy support (Ohnsorge and Yu 2021).

This column assesses the impact of the pandemic on job losses in the informal sector of both manufacturing and service sectors of EMDEs and the impact of support policies rolled out by governments. Thus, recommendations call for facilitating access to finance for small firms, adopting cash transfer programs in the short run for countries with larger poor populations (Furceri, Loungani, Ostry, and Pizzuto, 2020), and using technology to reach the poor and informal workers.