Informal Economy:Informal Economy:Challenges and Opportunities Challenges and Opportunities

for Trade Unionsfor Trade Unions

2

Points for DiscussionPoints for Discussion

1. Is “Informal Economy” an issue for us? 2. Defining “Informal Economy”3. Analyzing current situations in the world4. Identifying causes of informalization5. Addressing the issue of “Informal

Economy”6. Developing trade union policies and

strategies on “Informal Economy”

3

1. Is “Informal Economy”1. Is “Informal Economy”an issue for us (trade unionists) ?an issue for us (trade unionists) ?

4

ILO’s Decent Work CommitmentILO’s Decent Work Commitment

The commitment and goal of the ILO is to promote “Decent Work” along the entire continuum from the informal to the formal end of the economy in development-oriented, poverty reduction-focused and gender-equitable ways.

All those who work have rights at work, All those who work have rights at work, irrespective of where they work and how irrespective of where they work and how they work!they work!

5

Who Enjoys Decent Work?Who Enjoys Decent Work?

100%0%

Socially Excluded, VulnerableSocially Excluded, VulnerableWorkers and FamiliesWorkers and Families

= Priority Target of our Activities= Priority Target of our Activities

This Group enjoys a good level of Decent Work

This Group has some limitations in Decent Work

This Group has major limitations on Decent Work

6

2. Defining Informal Economy2. Defining Informal Economy

7

Historical OverviewHistorical OverviewFirst appearance of the concept - “informal informal

sectorsector” - in 1972 when ILO issued a report on Kenya.

During the 70s and 80s, the common interpretation was: “informal sector” would be a transitory phenomenon, and economic progress would help the informal workers move into the formal sector.

“Dilemma” in early 90s – whether the international community should promote the informal sector as a provider of employment and incomes or seek to extend regulation and social protection to it. (+)

8

Development in 1990sDevelopment in 1990s Further informalization and flexibilization of

work and workers as the process of globalization and information technology accelerated;

The early perception proved to be wrong: the size of the informal sector has expanded although the volume of world trades and investments expanded significantly;

It became clear that informal sector is not a temporary or residual phenomenon, and that large scale, determined actions must be taken to address the issue. (+)

9

So, What Happened?So, What Happened?

1970s-1980s 1990s-2000s

Formal SectorMajority of EconomicSectors were Formal

Certain particular activities were considered to be in informal sector

Formal EmploymentBecame smaller

and smaller

Informal employment expanded and emerged in all kinds of economic

activities

10

From “informal sector” toFrom “informal sector” to“informal economy”“informal economy”

The term, “Informal sector”, has been found to be an inadequate as well as misleading term;

Use of “informal economy” to reflect these dynamic, heterogeneous and complex aspects of a phenomenon which is not a “sector”. (+)

11

Defining “Informal Economy”Defining “Informal Economy”1. All currently unregistered economic activities which

contribute to the officially calculated (or observed) Gross National Product

2. Those activities which are not recorded in the national income accounts

3. Income-generation activities which take place outside of the formal regulatory framework

5. Units in small unregistered enterprises, both employers and employees, as well as self-employed persons who work in their own or family businesses

4. Units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned

12

Formal Definition ofFormal Definition of“Informal Economy”“Informal Economy”

All economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements.

(Conclusions concerning decent work and the informal sector:at the 90th International Labour Conference, 2002)

13

Description ofDescription ofInformal WorkersInformal Workers

Little capital and few fixed assets Excluded from the protections provided by collective

bargaining and labour laws Self-employed, employed casually without a contract,

members of family business, or homeworkers employed on a piece-work basis

Mostly women or young workers

Unrecognized, unprotected workers in an unregulated or unregistered economy who are trying to sell their labour or products for survival (to an unidentifiable employer)

14

Major Segment of Major Segment of “Informal Economy”“Informal Economy”

Status of EmploymentOwner / Operator

Self-employed /Own-account

Wage worker

Type of enterpriseMicro-enterprise

Own account unit / Family business

Micro-enterprise / Sub-contracting chain / No fixed unit

15

① Labour market security

② Employment security

③ Job security

④ Work security

⑤ Skill reproduction security

⑥ Income security

⑦ Representation security

7 Essential Securities Denied to 7 Essential Securities Denied to Informal WorkersInformal Workers

16

Type

Of

Workers

Labour market security

Employ-ment security

Job security

Work security

Skill repro-duction security

Income security

Repre-sentation security

Methods for Empirical StudiesMethods for Empirical Studies

17

Negativity Impact ofNegativity Impact ofInformal EconomyInformal Economy

Unfair competition for formal enterprises No tax income for the states No social security contributions for the

states No decent wages for workers (less savings

and spending) More occupational injuries/diseases Damage to the environment

18

Comparison between the Comparison between the informal and formal economyinformal and formal economy

InformalInformal Ease of entry Reliance on indigenous

resources Family ownership Small scale of operation Labour-intensive Adapted technology Skills acquired outside

formal school system Unregulated, competitive

markets

FormalFormal Difficult entry Reliance on overseas

resources Corporate ownership Large scale Capital intensive Imported technology Formally acquired skills,

often expatriate Protected markets (tariffs,

quotas, trade licenses)

19

3. Current Situation of “Informal 3. Current Situation of “Informal Economy” around the WorldEconomy” around the World

20

Globalization and flexibility of labour markets

80% of world population - insufficient coverage of social protection

50% of world population – no social protection

Majority of those in developing countries Majority of those in informal economy Particularly women and young people

Trends of Informal EconomyTrends of Informal Economy

21

Informal Economy in South Asia and Pacifique

Source: “Size and Measurement of the Informal Economy in 110 Countries around the world”, F.Schneider , July 2002.

Informal Economy in % GNP 1999/2000

52.6

44.6 43.438.4 36.8 35.6

31.1

23.119.4 18.4

15.613.1

26

0

10

20

30

40

50

60

22

23

24

Size of Informal Economy 1Size of Informal Economy 1

Low-Income Countries

Middle-Income

Countries

High-Income Countries

Share of Formal Wage Employment in Total Employment

17% 58% 84%

Source: World Development Report 1995. Washington D.C. World Bank

25

Size of Informal Economy 2Size of Informal Economy 2Latin-America

/ CaribbeanAfrica Asia

Non-Agricultural Employment

57% 78% 45-85%

Urban Employment

40% 61% 40-60%

New Jobs 83% 93% N/A

Source: Charmes, Jacques. 2000. Informal Sector, Poverty, and Gender: A review of Empirical Evidence. Paper comissioned for World Development Report 2000/2001

26

4. Identifying Causes of4. Identifying Causes ofInformalization of workersInformalization of workers

27

Causes of InformalizationCauses of Informalization

Demand-side causes (pull-effect)

Supply-side causes (push-effect)

Structural causes (promotional-effect)

28

Demand-side Causes (pull-effects)Demand-side Causes (pull-effects) Pressure on reducing production costs due to over-

competition and profit-oriented business minds (needs for cheap labour)

Needs of urban poor for cheap goods and services High tax and social protection burdens Bribery and cumbersome procedures for

formalization Less incentives for OSHE investment Avoidance of trade unions Illegal activities (needs to be hidden)

29

Supply-side Causes (push-effects)Supply-side Causes (push-effects) Unemployment and poverty Difficulty (or impossibility) to find employment

with formal employer Shrink of employment and wages in public

service sectors Fall of the prices of agricultural products Population growth / migration Lack of education, skill and/or training chances Miss-match between demand and supply HIV/AIDS

30

Structural CausesStructural Causes Lack of political will (no national policies) Lack of sustainable economic development or

systems for fair redistribution of wealth Lack of legislation or defects in labour and social

laws (no standards) Lack of legal systems, effective enforcement of

law, or effective labour inspections (no justice) Lack of comprehensive social protection schemes Lack of primary/secondary education and

vocational training/re-training (no opportunities)

31

Specific Reasons for Low Social Specific Reasons for Low Social Protection CoverageProtection Coverage

Conventional social security systems rely on the employer/employee relationship as a basis for coverage

Low and irregular income of informal economy workers reduce their capacity to make contribution

Ignorance of social security rights and obligationsLegislative requirements, particularly those

concerning employment status, exclude some informal sector workers from participation

Bureaucracy (insufficiency or inability)Geographic accessibility of social protection

institutions

32

Economic RestructuringEconomic Restructuringand Crisisand Crisis

1. Structural Adjustment Programme (SAP)

2. Neo-liberal economic policies

i. Unemployment and underemployment

ii. Much less employment in formal (particularly public) sector

iii. Lower wages insufficient to support a family

33

Gender IssuesGender Issues

More and more women enter into labour force but into informal economy, because:

Little education and skill Less access to resources / training

opportunities Direct and indirect discrimination Family responsibilities

34

Effect of GlobalizationEffect of Globalization Expansion of trade and investment FDI and international capital flow Diffusion of technology Competition for investment Emergence of multinational companies Global production chains Labour migration

35

End of Cold WarEnd of Cold War

End of the old East-West line power politics

Beginning of new paradigm with hot war over economic initiatives

Domestic wars, ethnic wars (cleansing) Terrorism organizations Mafia organizations Increasing number of refugees

36

5. Addressing the issue of 5. Addressing the issue of “Informal Economy”“Informal Economy”

37

Three KeyThree KeyDevelopment ObjectivesDevelopment Objectives

Better governance

Better social dialogue (tripartism)

Better international framework

38

Action List forAction List forImmediate ObjectivesImmediate Objectives

i. Enhancing rights and principles at work

ii. Improving social protection

iii. Strengthening representation of workers

iv. Achieving sustainable economy and creating decent employment

v. Improving legal and institutional framework

vi. Eradicating poverty

vii. Achieving better demographic planning

39

i) Enhancing Rights and i) Enhancing Rights and Principles at WorkPrinciples at Work

International Labour Standards and ILO Declaration on F.P.R.W.

ILO MNE Declaration / OECD guidelines /UN Global Compact

National and local legislation/regulations/institutions

Private voluntary initiatives (PVI)– Code of conduct– Framework Agreements– Social labeling

40

ii) Improving ii) Improving SocialSocial Protection Protection

Extending and adapting statutory social insurance

Encouraging micro-insurance and area-based schemes

Promoting cost-effective tax-based social benefits

Establishing and promoting cooperatives Improving occupational health and safety HIV/AIDS

41

iii) Strengthening Representation iii) Strengthening Representation and Voices of Workersand Voices of Workers

Right to organize and bargain collectively

Promotion of workers’ and employer’s organization

Enhancement of tripartism and social dialogue at national and local level

Promotion of cooperatives

42

iv) Creating Decent Employmentiv) Creating Decent Employment

Creating quality jobs Enhancing employability Investing in knowledge and skills

– Education– Training and skill development

Developing enterprises– Micro-enterprises

43

v) Improving Legal andv) Improving Legal andInstitutional FrameworkInstitutional Framework

Commercial and business regulations governing the establishment and operation of enterprises;

The laws pertaining to property rights, which could affect the ability to transform assets into productive capital

Labour legislation governing employment relationships and the rights and protection of workers

1. Full coverage and application of labour legislation and administration (protection/minimum standards/ benefits) in the informal economy;

2. Simplified, transparent, incorruptible, consistent and affordable legal systems (for greater compliance)

44

vi) Eradicating Povertyvi) Eradicating Poverty

1. Comprehensive national policies, strategies and programmes for poverty reduction

2. Alliance with international community on poverty eradication initiatives (e.g. PRSP)

3. Efforts for abolishment of child labour

45

vii) Achieving Bettervii) Achieving BetterDemographic ControlDemographic Control

Strong initiatives for social policy on: Population growth Surplus labour Rural-urban migration

46

6. Developing trade union policies 6. Developing trade union policies and strategies onand strategies on

“Informal Economy”“Informal Economy”

47

Development and Implementation Development and Implementation of External Policiesof External Policies

1. Labour Standards and labour legislation2. Promoting good governance and sound labour

administration3. Tax policy and local government regulations4. Social protection (social safety nets)5. Macroeconomic policy and SAP6. Employment-intensive infrastructure projects7. Promotion of small and medium-sized enterprises8. Human capital development9. Access to credit

48

Development and Implementation Development and Implementation of Internal Policiesof Internal Policies

Establishing priorities and strategies for organizing; Setting up structures and developing special services; Formalization of access and membership; Building broader alliances and community-based

unions; Participation in ILO/ILS mechanism; International trade union networking, code of

conducts and framework agreements; The gender dimension; Mobilizing young people; and Awareness-raising and the media.

49

Online Resources onOnline Resources onInformal EconomyInformal Economy

ILO Informal Economy Website

http://www.ilo.org/public/english/employment/infeco/publ.htm#espanol

“The biggest space in the world is

the space for improvement”