New report identifies drivers of informality in Iraq’s labour market

The report was developed in partnership between the Government, ILO, UNDP, IOM, UN Women, the European Union, the Fafo Institute for Labour and Social Research and the Cash and Livelihoods Consortium for Iraq.

Press release | 27 November 2021
Baghdad, Iraq – November 27, 2021 A new diagnostic report examining the drivers of informality in Iraq’s labour market highlights the multiple and wide-ranging factors contributing to informality and the burdens imposed on the formalisation of enterprises and workers in the country.

Iraq’s private sector, which accounts to roughly 40 per cent to 50 per cent of employment, is mainly informal. Compared to the public sector, employment in the private sector has lower average wages, job security, benefits, and often lacks formal contracts.

Some of the barriers identified in the report include gaps in the legal framework for employment and enterprises, in terms of labour and social security coverage and protection, barriers related to the structure of the labour market and macro-economic conditions, limited awareness among workers and enterprises of their rights and obligations, and the lack of incentives by workers and employers to formalise. The report also highlights a gap in up-to-date and representative data on the labour market that can feed into decision-making processes.

The report was launched in Baghdad on Saturday (November 27), during an event which brought together key stakeholders, including representatives from the Government and social partners, UN and development partners, and civil society organisations. 

“The formalisation process is a long road, which requires all of society’s efforts. With all the resources, both financial and human resources in Iraq, we are confident that this will be a successful road,” said Ms. Irena Vojáčková-Sollorano, UN Deputy Special Representative and Resident Coordinator and Humanitarian Coordinator for Iraq, during the event.

Findings from a second assessment examining more specifically the state of small-scale enterprises and vulnerable workers eight months into the COVID-19 pandemic were also presented, further highlighting the significant vulnerabilities resulting from high levels of informality in Iraq. It found that the vast majority of surveyed enterprises were economically and operationally affected by the pandemic and relevant containment measures, with many closing down and others being forced to adapt. This also had a direct effect on workers themselves: indeed a significant share of surveyed workers had faced temporary or permanent unemployment, a fall in their income, and a reduction in working hours. The high level of informality entails that most of these affected enterprises and workers were not able to access government support to weather the economic impact of COVID, including due to the lack of social security coverage.

Both reports were developed in partnership between the Government, the International Labour Organization (ILO), and in collaboration with the United Nations Development Programme (UNDP), the International Organization for Migration (IOM), UN Women, the European Union (EU), the Fafo Institute for Labour and Social Research (Fafo) and the Cash and Livelihoods Consortium for Iraq (CLCI), which is comprised of the Danish Refugee Council (DRC), the International Rescue Committee (IRC), Mercy Corps, the Norwegian Refugee Council (NRC) and Oxfam.

They are part of efforts to promote a transition from the informal to the formal economy in Iraq.

“The evolving impact of the COVID-19 crisis on Iraq’s labour market has highlighted the critical need to adequately address the underlying challenges faced by informal enterprises and workers in the economy,” said the partners in a joint statement. “Through this collaboration, we seek to address the root causes of these challenges and find practical solutions that would pave the way for a transition to greater formality, which will ultimately lead to better working and living conditions for workers and their families.”

For workers, this means providing them with adequate labour and social protection, which would involve extending legal coverage to those excluded or insufficiently covered and providing them with an adequate level of legal protection. For employers, it includes the extension of the scope of labour and social security regulation as well as laws relating to economic units, the registration of enterprises, and their compliance with legal requirements.

The report also presents a National Framework, in line with ILO’s Transition from the Informal to the Formal Economy Recommendation, 2015 (No. 204).

“This report highlights the need for a National Framework for the transition to the formal economy, which provides a road map for a national strategy that would guide the Government and its partners to promote decent work and strength the formal economy,” said Mr. Raed Jabbar Bahedh, Director General of the Department of Labour and Vocational Training at the Ministry of Labour and Social Affairs. 

The informality diagnostic report lays out a set of recommendations to address barriers to formalization and promote the transition to formality. They focus on four key aspects, namely mainstreaming data collection on informality; strengthening governance and coordination between government ministries, agencies and programmes to promote an integrated approach to formalization; reducing barriers to formalization; and strengthening incentives to formalize, such as through providing better access to services that promote decent jobs and business development.