The Hidden Sector

Just Transitions to the Formal Economy
Across the Arab region, many workers—especially youth, older persons, and women—remain trapped in informality due to burdensome bureaucracy, corruption, and weak labour safeguards. This cycle of skills mismatches and exclusion fuels economic insecurity and undermines social trust.
The informal economy remains one of the most entrenched challenges in the Arab region, where nearly 72 per cent of workers operate outside the scope of labour regulations, social protection systems, and financial inclusion mechanisms. Affecting an estimated 44.9 million individuals, informality disproportionately impacts youth, women, and older persons. Over 90 per cent of young people and older workers are informally employed, reflecting systemic failures in both labour market entry and retirement security. Women are overrepresented in the most precarious categories such as unpaid family work and low-wage domestic employment, with up to 47 per cent of women in Yemen and Egypt working without pay or independence. These dynamics not only undermine individual well-being and productivity but also erode social trust, as many workers choose informality in response to burdensome bureaucracy, corruption, and weak social contracts. The report provides a comprehensive analysis of the drivers, characteristics, and statistical trends of informality across the Arab region, drawing on labour force surveys, ILOSTAT data, and ESCWA calculations. It highlights how the education paradox—where 40.7 per cent of university graduates remain in informal employment, more than double the global average—exposes deep skills mismatches and barriers to formal employment. Country-level disparities also reveal uneven progress: while Tunisia has reduced informality to 36.9 per cent, countries such as Sudan, Mauritania, and Somalia record rates above 80 per cent. The analysis underscores the intersection of informality with structural unemployment, climate shocks, conflicts, and demographic pressures, showing how these reinforce cycles of exclusion and vulnerability.

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