THE employment landscape of Bangladesh is highly concentrated towards the informal sector, accounting for 84.07 per cent of total employment, according to the Labour Force Survey (2023). The survey figured that informality is prevalent at a higher rate among women, with 95.7 per cent engaged in informal jobs and only 4.3 per cent in formal roles. Again, an overwhelming 97.24 per cent of working women are in the informal sector, while this statistic stands at 88.50 per cent in urban regions. This trend reflects the dominance of farming activities, small-scale businesses, and unregulated labour markets. Males fare slightly better, with 22.06 per cent of employed men holding formal jobs, though the majority, 77.94 per cent, still remain within the informal sector.
Even the youth clusters are not excluded from this trap. Among those aged 15-29, 38.3 per cent are working informally, with the rate notably higher among females living in rural areas (55.42 per cent). The rate is also comparatively higher (92.11 per cent of total employment) than other age categories, reflecting the unique challenges faced by the younger generation in securing decent jobs. The survey also revealed a clear education-employment divide 鈥� individuals with only primary or informal education tend to experience higher unemployment rates, whereas those with higher education (e.g., university degrees) are more likely to ensure employment. The informal sectors often lack job security, career progression, and social benefits, leaving workers vulnerable to economic instability.
Expecting some margin of informality is not an uncommon case for a developing country like Bangladesh, which still requires systematic governance procedures. Broadly speaking, informal employment is associated with higher costs of formality in businesses which come in the form of complicated registration processes, tax charges, compliance with standards and licensing, and other legal and administrative costs. In addition, individuals may rely on informal activities as a form of safety net due to limited options 鈥� many lack the education and necessary skills required to become formal or are too impoverished to access public and financial services. Institutional inefficiencies, rigid banking policies, limited inspections, and bureaucratic hurdles remain the key indicators of this growing unease.
At first glance, the rise of micro, small and medium businesses in the informal segment seems like a success story in the making. The circle is heterogeneous 鈥� often comprised of street vendors, housemaids, wage labourers, domestic workers, and small-scale farmers 鈥� and is a testament to the resilience and entrepreneurial spirit of millions. They offer employment, income, and a sense of self-reliance in environments where formal jobs are not available. But behind this seemingly positive narrative lies a more complicated and often troubling reality, fraught with risks and vulnerabilities.
While these roles provide work and immediate financial relief, overreliance on this segment may lead to a depressed and weak labour force due to its survivalist pattern. Workers in this space often are those with little or no education with limited growth opportunities, resulting in a persistently low socio-economic profile.
In an economy with a slower pace of GDP growth, the consequences of this widespread informality are much more concerning. First, this socio-economic deterioration will limit the expansion of formal job spots. Moreover, informal enterprises often operate outside the tax system, contributing to a low tax-GDP ratio and further reducing government revenue. These are small-scale, mostly labour-intensive firms with low productivity and face structural constraints in accessing financial services. Informal workers lack formal contracts (unlicensed) and social assistance, which eventually makes them more prone to poverty than their formal counterparts. Without the necessary skills, education, and training, they remain trapped in low-paying and unstable jobs, widening the income gap with their peers in the formal sector. Women, in particular, are disproportionately concentrated in informal sectors where options are not only precarious but also chronically insecure. Informality has further exacerbated inequality and stagnant industrial competitiveness in sectors beyond the apparel industry.
Overall, the nature of the informal economy has negative implications for businesses, workers, and the community. These entities function outside government schemes and are unable to practise fundamental labour rights. Besides, traditional systems struggle to adopt the marginalised and disadvantaged groups into formal operations, who are mostly represented in informal channels. Compounding this issue, the inability of the formal sectors to generate sufficient jobs will have a serious negative impact on the growing number of educated new entrants.
This persistence of informal labour is detrimental to sustainable development and inclusive economic growth. The authorities should minimise the cost of formality and increase its benefit to make the transition easier for these parasite firms into the formal framework. The tax structure should discourage providing increasing incentives and be simpler with no or minimal exceptions with lower rates. Enhancing financial inclusion with greater access to capital can mitigate this critical phenomenon. Moreover, strengthening both access to and the standard of formal education across all levels remains imperative. Most importantly, priority should be focused on increasing enforcement of laws and regulations to monitor activities.
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Afsara Tasnim is a research associate at Research and Policy Integration for Development (RAPID).
