Informal employment remains a salientand persistent feature of the Sri Lanka labor market, witharound 70 percent of the work force informally employed.There are generally three reasons to be concerned about highinformality: poverty, productivity and public finance. Thisreport focuses on the poverty and vulnerability aspect ofinformal employment, by showing that informal jobs are moreprecarious in nature than formal jobs and are associatedwith inferior working conditions and lower earnings. Thethree key messages of the report are as follows. First, Thequality of informal jobs is much lower than that of formaljobs. Informal workers have more precarious employmentarrangements and inferior working conditions. Their lowearnings levels elevate the risk of poverty. Second,Stringent labor laws, along with the high cost of complianceand complexity of labor regulations, have encouragedinformality. But formalization does not necessarily easeother constraints such as access to credit, reducing theincentive to formalize. Third, Reducing informality shouldnot be in itself a policy goal. Reforms should focus onregulatory reforms that aim to reduce the cost and increasethe benefits of formality, as well as on measures thatenhance productivity.
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