Quality of informal work: impacts of the crisis

Krastyo Petkov UNWE, Sofia, Bulgaria

Kr.petkov@unwe.eu

Content

Tree parts:1. Theoretical and methodological frame;2. Statistics: data from the field of informal work and employment;3. Points for discussion Conclusions: improving or …changing the status of informal workers

Preliminary remarks

1. Presentation -based on extended field/action research mainly in the CEE region (2003-2012);

2. Presentation – based on the assumption, that informal work/employment is dominating in the emerging economies (and in the global economy as a whole);

3. The global crisis consolidates this trend and it’s impacts on the labour markets in the developed countries

Part One

Theoretical and methodological frame:

Concepts - describing informal work/employment and

Quality of Work Life (QWL)

Changing attitudes and interpretationsof informal work

Why informal work is growing? Tree factors:1. Globalization and IT developments:

> work/labour decline (wrong prediction);> transnational and internal irregular migration (underestimated)

2. Transition:> transitional recessions in CEE; high unemployment;> deindustrialization/service growth;> deregulation of LM;

3. Economic and financial crisis: Survival strategies; Competitive advantage;

RECENT CONCEPTS

• The ILO NEW DEFINITION- IE INCLUDES: “first: employment in the informal sector as defined

by ICLS; second: other forms of informal employment /outside the informal sector/”

CONCEPT CHANGE Shift from enterprise-based to employment lased

definition; The core issue-unregistered employment;

What is the informal economy/work?WIEGO definition

The informal economy includes all economic activities, enterprises, andworkers that are not regulated or protected by the state. Many people thinkthe informal economy includes only the self-employed in small unregisteredenterprises. But WIEGO, together with the International Labour Organization(ILO), has successfully advocated for an expanded definition of the informaleconomy that also includes wage workers in unprotected jobs.Under this expanded definition, the informal economy includes:• self-employed in small unregistered or unincorporated enterprises including:

°° employers who hire others°° own account operators who do not hire others°° unpaid but contributing family workers

• wage workers without worker benefits or social protection including:°° unprotected employees of informal enterprises°° unprotected employees of formal firms°° unprotected domestic workers°° casual or day labourers°° sub-contracted workers (called home-workers if they work from their home)

Tree segments of Informal work

Part Two

Statistics: data from the field of informal work

and employment;

Informal economy/work trajectory in the CEE

• Tree stages before crisis:

Informal economy/work in the EU• 2011

Informal economy/work in the EU

GE-GDP ratio (in %)

Home based workers in the BalkansCartographic data-2011-2012

АСОЦИАЦИЯ НА НАДОМНИТЕ РАБОТНИЦИ, БЪЛГАРИЯ /WIEGO project/

State Sex Age Type of homeworkers

Handling Working conditions

Time Pay Other forms of employment

Volunteer

М D 20-30

30-55

55-70 self entity Place of work and working conditions

Average per month

Individually or%

Employment contract

Civil contract

Contract

Pension

Syndicates

Other

Total 30,8%

69,2%

14,2%

53%

32,8% TailoringCarpentry and wood carving;Souvenirs;Designing;Embroidery;Knitting by hand and machine;Auto Services;Agriculture;Private lessons;Cosmetics;HairdressingManicure and pedicure;Jewelry;Pottery;Iconography;Macramé;Pottery;Translators, computer specialists;Martenitsi

67,2% 32,8% Home and in the vicinityUse hazardous substances like paints, chemicals, adhesives, fertilizers, dust, insufficient lighting and more.

200 90% 6,6%

- 13% 11,6%

5,6%

16,2%

Job security-dominating component of QWL during crisis period (data from ESS-2011)

Changed hierarchy of the components of the QWL during crisis

Part Tree

How the global crisis affectedInformal economy/work?

Towards a new paradigm!?

• Informal Employment and the Economic Crisis

Effects on informal employment• Economic crises typically lead to a slowdown in economic activity and critically

affect poverty levels and income distribution. As a consequence, the current crisis can be expected to increase unemployment and reduce international labour mobility. Well-established patterns of migration may disappear as workers are forced to return to their countries of origin, and new migrants are discouraged or hindered from pursuing their migration projects.

• What will be the impact of the crisis on informal employment, including jobs or activities in the production and sales of legal goods and services that are not regulated or protected by the state?

• Already today, most of the world’s workers are employed informally. According to the latest data available, over 55 percent of non-agricultural employment can be considered informal. Moreover, in sub-Saharan Africa or South Asia, proportions are even higher and sometimes close to 80 percent. For example, 83 percent in the case of India and even 90 percent in the case of Chad. There are good reasons to believe that these already high figures of informality will increase even further.

What are the drivers of informality?

• Labour market theory suggests an increase in informal activities as a result of economic turmoil:> since informal employment can act as a buffer when people are laid off in the formal sector and need to find new job opportunities;> an economy going into recession might experience a shift from the tradable to the non-tradable sectors, which again would strengthen informality.

• Empirical evidence supports the predicted shift towards more informal employment.

Changing mechanism of job search:growing informalization

• The majority of today's recent graduates and the newly unemployed who find jobs will do so on the "informal job market" -- without using a job search engine or submitting a formal application.

• 80% of hiring happens on the informal job market, where formal credentials are much less important than who you know and job requirements are flexible. This includes outside referrals (somebody who knows somebody) and promotions within a company.

Informal employment (IE) and the exit from the crisis

Is “going informal” a solution to overcoming the crisis?Despite the fact that IE can act as a shock absorber in times of economic crisis, "going informal" should not be considered an option to overcoming this recession. While IE can offer temporary job prospects, the potential increase of informal employment is overall not good news for developing countries. Informality is closely linked with jobs of bad quality, high risks and insufficient social protection. Growing IE might substantially increase poverty levels, making it impossible for many countries to achieve the Millennium Development Goals by 2015 (the same refers to “Europe 2020; Lisabon Strategy is already out of date!)

• What should be done? Two points can be highlighted:First, neither “striving for growth” alone nor a formalisation campaign will do the trick. What is required instead is an urgent improvement of social protection and empowerment for those in the informal sector, e.g. by extending existing formal mechanisms to the informal sector or supporting informal mechanisms. Examples include the scaling up of conditional cash transfer programmes, fostering public works and giving a boost to (micro)-insurance schemes that protect against basic risks like health shocks.Second, there is also an urgent need to value informal employment more highly, e.g. by providing better infrastructure and access to resources to informal businesses in order to increase their productivity. As regards to business establishment, this policy implies legal means to separate business assets and providing them with protection comparable to that received by corporate property.

Part Four

Points for discussion and Conclusions

Policy approaches towards undeclared work

Approach Method MeasuresDeterrence Improve detection Data matching and sharing

Joining-up strategy

Joining-up operationsPenalties Increase penalties for evasion

Enabling compliance

Preventative Simplification of compliance

Direct & indirect tax incentives

Smooth transition into self-employment

Introducing new categories of work

Micro-enterprise developmentCurative Purchaser incentives

- service vouchers

- targeted direct taxes

- targeted indirect taxes

Supplier incentives

- society-wide amnesties

- voluntary disclosure

- business advisory & support servicesFostering commitment Promoting benefits of declared work

Education

Peer-to-peer surveillance

Tax fairness

Procedural justice

Redistributive justice

Why are we concerned about informal workers?

• 1. Most of the world’s poor – especially in developing countries – areworking. But the working poor are not able to work their way out ofpoverty.

• 2. This is because the vast majority of the working poor earn their livingin the informal economy where:

°° average earnings are low°° costs and risks are high

• 3. The root causes of low incomes and high risks in the informaleconomy include:

°° lack of productive resources and economic opportunities°° lack of economic rights – as workers and producers°° lack of social protection°° lack of organization and representation

• 4. The key pathway to poverty reduction is:°° to create more “decent work” opportunities°° to increase the benefits and reduce the costs of working informally°° to increase the assets, economic rights, social protection, and voiceof informal workers

What do informal workers want and demand?

• While specific groups of informal workers have specific needs and demands, all informal workers – especially the working poor – want and demand the following:

• Economic opportunities: for them to earn incomes and increase their assets, productivity, and

competitiveness• Economic rights: including labour, commercial, and property rights• Social protection: through existing or new schemes• Organization: in their own membership-based

organizations• Representation: in relevant policymaking,

collective bargaining, and negotiating processes

Some recommendations

• A three-pronged strategy can then be adapted to the specific situation in a country:1. For the world’s poor, working informally is often the only way to participate in the labour

market. Policies should thus try to unlock these people from their low-productivity activities, enable them to be more productive and provide them with opportunities to climb the social ladder. Specific recommendations include active labour-market policies, such as training and skill-development programmes, that re-open the doors to the formal sector.

2. If informal employment is a deliberate choice to avoid taxes or administrative burdens, governments should aim to establish efficient formal structures that encourage people to join or rejoin the formal market. Countries should aim to introduce formal structures that can offer the same, or higher, levels of the flexibility and efficiency that informal channels may provide. In this way, informal workers, who frequently have strong innovation and growth potential, can more effectively contribute to a country’s overall competitiveness.

3. In many low-income countries, informal employment is mainly a consequence of insufficient job creation in the formal economy. While employment levels in the world have largely followed the growth in working-age populations, there is a need for a general push for more employment opportunities within the formal sector. Governments should support small businesses in complying with formal requirements and encourage large companies to create formal employment opportunities.

Points for discussion

• Sociology needs a new paradigm: informal is normal, not bad!

• Informal work/employment is growing not only due to the crisis; the future of work is more and more determined by informalisation;

• Informal employment creates new work culture and carrier options; in the new generation some people begin their carrier in the informal employment, and may be will end in the same sector!