By: Staff Writer
September 8, 2026
The World Bank Group said in a recently released report said that the informal sector in Latin America and the Caribbean (LAC) has stubbornly been at, or above, 55 percent for over two decades despite state intervention programmes.
The report, Rationalizing Informality, said understanding the link between informality and job quality and social progress, the sector’s persistence over time, and appropriate policy responses requires understanding the rationale of the sector. Notably, how workers and firms make decisions under constraints of limited skills, business climate, often poorly designed benefits systems and labour market regulation, and unevenly enforced tax and regulatory structures.
Standing idly by is not an option, especially when the region faces the demographic challenge of integrating millions of young people into the labour market. The region has the opportunity to transform its labour markets if it successfully aligns talent development, the building of a business-enabling environment, and social protection around a common goal.
The bank also notes that labour informality is far from being a homogeneous block of people. Workers make decisions based on their capabilities, preferences, and circumstances. Understanding this diversity is essential for designing policies that expand available opportunities and allow more people to access productive, quality jobs.
For example, informal wage workers (who are often young people in transition stages or facing specific barriers to access) are not the same as own-account workers. The latter frequently choose self-employment deliberately and over the long term, actively valuing “amenities” such as schedule flexibility, autonomy, and labour independence.
Evidence shows, however, that most informal activity thrives in micro-businesses and family enterprises geared toward maintaining a local, close-knit scale rather than a trajectory of high corporate growth.
The central challenge lies in the need to strengthen the business fabric so that more firms with productive potential can expand, create more jobs, and invest to generate sustainable value.
The sustainable creation of quality jobs depends on a dynamic private sector capable of investing, innovating, growing, and generating opportunities at scale.
The bank is encouraging investments in educational systems that produce the skills demanded by employers and an improvement in information flows so workers can better assess the labour market and employers can post more accurate information on the hiring process and skills requirements.
Also, because most microfirms have low growth potential, productivity interventions should focus on the smaller group of firms capable of expanding in order to capture more individuals in the informal sector and formalize then,