Formalize from the Worker Up: A Ten-Year Path Out of 85% Informal Employment

Diagnosis

Informal employment is not a margin of the Bangladeshi labour market, it is the labour market. Per BBS QLFS, the curated note records that about 85% of total employment is informal. That single figure reframes almost every other labour policy: when the overwhelming majority of workers sit outside written contracts, social insurance, occupational safety enforcement, and the income-tax net, the formal apparatus of the state reaches only a thin slice of the workforce. Wage floors, severance rules, pension schemes, and skills certification all govern a minority while the majority is left to absorb shocks alone.

This matters now for three reasons. First, an 85% informal share means productivity gains, social protection, and revenue mobilization are all structurally capped, because the firms and workers who would carry them are invisible to the system. Second, informality is self-reinforcing: informal firms stay small to stay invisible, which suppresses the formal job creation that would pull workers across the line. Third, the cost of inaction compounds, because every cohort that enters informal work without a benefits record or contribution history ages toward an unprotected old age. The problem is structural and belongs to the regime layer, not to a one-off programme.

Recommended actions

1. Build a single worker registry keyed to national ID. Owner: Ministry of Labour and Employment (MoLE). Mechanism: a MoLE circular establishing a unified worker registration platform that lets any worker, employed or self-employed, register online or at a union-level office and obtain a portable worker ID. Observable signal it is working: month-over-month growth in registered workers who were previously outside any formal labour record.
2. Attach contribution-based benefits to the registry, not to the employer. Owner: MoLE. Mechanism: a voluntary, low-minimum contributory benefit account (health and old-age) tied to the worker ID, with contributions that follow the worker across jobs and gigs. Observable signal: rising count of active contributing accounts and repeat (not one-time) contributions.
3. Create a graduated compliance ladder for micro and small enterprises. Owner: MoLE, coordinating with the relevant business-registration authority. Mechanism: a tiered registration regime where the smallest firms face simplified, low-cost formalization (single-window registration, deferred obligations for an initial period) that ratchets up only as the firm grows. Observable signal: increase in newly registered small firms that retain registration past their first year.
4. Formalize the overseas-labour pipeline as a model channel. Owner: Ministry of Expatriates' Welfare and Overseas Employment, with the Bureau of Manpower, Employment and Training (BMET). Mechanism: bind BMET pre-departure registration and skills certification to the same worker ID, so every migrant worker carries a formal record before and after migration. Observable signal: share of outbound workers processed through BMET with a linked worker-ID record.
5. Make formality pay at the point of work. Owner: MoLE. Mechanism: route eligibility for skills certification, training stipends, and dispute resolution exclusively through the worker ID, so registration unlocks tangible services rather than only imposing obligations. Observable signal: workers citing benefit access as their reason for registering, measured in registration intake surveys.

Sequencing (first 12 months)

Start with action 1, the worker registry, because nothing else functions without it: the benefits account, the compliance ladder, and the migrant pipeline all reference the same worker ID. In parallel, MoLE should stand up the benefits account design (action 2) so that the registry launches with a reason to join, not just a duty to comply. The BMET integration (action 4) comes next because that pipeline is already partly formal and offers the fastest proof of concept. The micro-enterprise compliance ladder (action 3) should be designed in year one and phased in after the registry has demonstrated uptake, to avoid asking firms to register into an empty system.

Risks and constraints

The binding constraint is administrative reach, not law: a registry is only as good as the field offices and ID linkage behind it, and MoLE's enforcement capacity is thin relative to an 85% informal base. The political constraint is that aggressive formalization can read as a tax grab, triggering resistance from informal firms and workers who fear exposure; the benefits-first sequencing is the mitigation. Fiscally, contributory benefits require credible state co-funding to attract low-income workers, and that line must survive budget cycles. Coordination risk across MoLE, BMET, and the expatriates' welfare ministry is real and must be owned at cabinet level.

Bottom line

With about 85% of employment informal per BBS QLFS, Bangladesh cannot reform the labour market it sees; it must first make the workforce it does not see legible, worker by worker. MoLE should lead with an ID-keyed worker registry that delivers benefits before it demands compliance, then extend that spine through BMET and a graduated micro-enterprise ladder.