Digitising the informal sector across underserved markets
Including informal workers by means of technology: who, where, and how.
Briter’s Cross-Regional Innovation Series is founded upon the intention to highlight thematic areas that present similarities and patterns across so-called underserved markets. Chapter 1 investigates the role of digital platforms for blue-collar and informal workers in the context of high youth unemployment and low formality rates in the job market across these geographies.
Data from the International Labour Organisation indicate that the vast majority of the two billion people in the informal economy reside in ‘developing countries’ and account for almost two-thirds of the employed population globally. Broadly speaking, ‘informality’ refers to a social status in which certain segments of the population live and operate off the government radar, typically entails exemption from taxation and the gamut of social security schemes beginning with regulatory frameworks imposing compliance to decent and safe working conditions, all the way to benefits such as pensions, insurance, and access to finance. It is important to notice that, while informality remains a distinctive characteristic of the composition of lower-income countries’ labour market and, although, in many aspects, informal workers operate in sectors that are often subject to demand imbalances and are likely to suffer from income swings, informality isn’t necessarily synonymous with poverty.
Formal employment, youth, and digitalisation
A 2019 study by the ILO established an inverted-U structure in the demographics of informal and formal work. These findings observe two major trends:
The greater likelihood of youngsters to enter employment as informal workers when compared with adults and
The proportional relation between countries’ income and levels of formal employment.
Age formality profiles for overall and non-agricultural employment — globally and by country income groups: 2016
⚒️ Enter digital gig economy platforms
There are several ways digital platforms have proven effective when it comes to including otherwise invisible population segments. These range from e-wallets for the unbanked to smart transport systems and marketplaces for the workforce. This article focuses on the latter platforms and their ability to bridge worlds that could otherwise fail to communicate. Our latest mapping identified over 100 such platforms across Latin America, Africa, Middle East, and South/east Asia and the figure excludes delivery and ride-hailing services. While digital marketplaces for labour and workforce have been proliferating worldwide since the early 2010s, initially thanks to apps such as Uber and AirBnb and then branching out to other realms through a process now widely as ‘uberisation’ of XYZ — e.g. TaskRabbit — the model used by digital platforms connecting workers to customers found fertile ground across emerging markets and prove efficient at tapping into wide swathes of the population operating outside of the formal economy. From Brazil’s Emprego Ligado to India’s Apna, Workmate in Southeast Asia, on through Lynk, Sweepsouth, Wesabi, and Fundis across Africa, these platforms function as a node between skills and needs, providing a digital infrastructure for safety, quality assurance, and accountability, an avenue to reach a hitherto inaccessible customer pool and ultimately increase workers’ income.
Funding landscape
While sister platforms such as ride-hailing, on-demand delivery services, and superapps have been attracting billions in funding across the board, when it comes to venture capital’s appetite for gig and blue-collar workers’ platforms outside of those realms, volumes have been significantly more contained. Aside from a handful of companies raising growth funding, especially across Africa, where the only names who fit this category are Kenya’s Lynk and South Africa’s SweepSouth, the landscape remains largely untapped.
Funding landscape across underserved markets — Q4 2020
Social and human capital as incentives
From bodas to plumbers, not only have digital marketplaces for the workforce inserted hitherto independent workers into formal accountable, traceable, and reliable systems, but they have shown the ability to leverage their brands to build communities of peer workers and recognisable, shared values and cultures, brandishing remarkable campaigns on topics such as road safety, quality assurance and trustworthiness. The creation of social capital remains however poorly measured because of the high cost of capturing positive impact at scale.
On the other hand, in the attempt to meet and improve quality standards, digital platforms have been devising incentives for workers by adding to their onboarding packages a number of elements such as training, uniforms, and equipment. As Lynk CEO Adam Grunewald explains, ‘blue-collar workers in the informal sector are faced with consistent shocks ranging from unreliable value chains to changing market conditions and extortion from public officials. Dedicated upskilling activities are critical to build resilience and confidence for blue collar workers. While the historic jua-kali “hustler” persona has received praise in previous decades, recent events have made clear that up-skilling and formalisation are critical to support vocational workers in the long run and to help individuals grow in a career over time’.
In sum, digital platforms have shown an ability to create an avenue to decent employment by way of:
Providing routes to more and higher-paying customers, often middle-income households with a higher degree of digital literacy, education, and disposable income and who leverage platforms to access domestic and blue-collar services;
Using social capital creation as an incentive for workers to strive for quality and reliability; this includes training and culture sharing;
Invested in human capital by including training, upskilling, and equipment provision;
Succeeding at creating digital identity proxy data by producing records for performances, skills, and financial history for otherwise unaccountable workers;
Measuring jobs by producing primary data on duration, obstacles, costs, and frequency, hence allowing to calculate productivity.
However, while establishing correlations between digital platforms for the workforce, mobile penetration, and informal employment, a couple of elements should be factored in:
The size and demographics of the informal population;
The morphology and traits of employment across these markets;
In this regard, since gathering momentum, apps have indeed been offering an avenue to formality, more highly-remunerated jobs. Traction, however, does not equal representing a panacea for endemic issues such as socio-economic precariousness, large-scale income boost, and workers’ human and labour rights. Academics and researchers such Oxford Professor Mark Graham and Digital Frontier Institute’s Chairman David Porteous have been questioning the often undisputed idea of pathways to formality as a linear journey needing acceleration. Graham investigates the counterintuitive scenario whereby gig economy platforms could run to perpetuate, instead of diminishing, the digital divide and workers’ conditions for those at the bottom of the pyramid if not promptly regulated. Porteous reflects upon the structure of income sources across Africa and points out that gigs — that is, side jobs used to increase marginal income — in these contexts are the normality and that the attention should be shifted towards maximising the productivity of widely low-yields work.
Finally, external agent factors such as the lack of education, inadequate infrastructure, poor logistics and socio-cultural glass ceilings persist in vast parts of the world, limiting entrepreneurs’ bandwidth to provide for the left-out. In particular, schools and universities still play a defining role in facilitating access and routes to employment as youngsters might find family-owned businesses to be lower-hanging fruits in their job search during and after their academic journey.
While M&E efforts to capture the socio-economic impact of digital platforms and marketplace for informal workers at large scale are underway, the emergence of these actors remains perhaps too recent for conclusive results. Though far from representing the ultimate expedient to improve livelihoods across lower-income markets, platforms have shown the ability to provide valuable insights about the composition of, and challenges faced by the informal labour market.
Mapping by Lisa With, Head of Research; Introduction by Dario Giuliani, Director