Washington

Washington

29 April 2009

Is Informal Normal?Towards More and Better

Jobs in Developing Countries

Johannes Jütting and Juan R. de Laiglesia

OECD Development Centre


Overview

• Informal employment is: – pervasive,– persistent even in countries with adequate growth, and– hardly a hidden phenomenon.

• Informal employment is linked to poverty on averagebut it encompasses very heterogeneous realities

differentiated approaches

• The crisis makes policies to deal with informal employment all the more urgent and relevant

2


1 Overview

Welfare implications of job quality3

2 Informal Employment: Size and Trends

3

Is Informal Normal? Towards more and better jobs in developing countries

4 Dealing with Informal Employment


1 Overview



4




What’s new on informal employment? Motivation

5

Old Agenda New Agenda

• Informal employment to gradually disappear with development

• Being informal = Being poor

• Informal employment = immobility

Policy agenda:• Policies to “formalise” the informal

• Growth is not sufficient

• Informal employment is heterogeneous

• People move between employment states

Policy agenda:• Multi-tiered approach to policy


DefinitionInformal employment refers to jobs or activities in the production and sales of legal goods and services which are not regulated or protected by the state

Statistical implementation (ILO), based on social protection :• Informal employment = employment in the informal sector +

informal employment in the formal sector– Informal sector: self-employed (employers, own account workers, family

helpers) + wage employees + employers in micro-enterprises (less than five workers)

– Formal sector: Wage employees and paid domestic workers without social protection

6


1 Overview



7




Informal employment is pervasive in the developing world

8Source: OECD, 2009

Share of informal employment in total non-agricultural employment (%)

0 20 40 60 80 100Share of informal employment in total non-agricultural employment

Transition countries

Northern Africa

Western Asia

Latin America

Southern and Eastern Asia

Sub-Saharan Africa

OECD Development Centre 9

Cross-country patterns suggest that the share of informal employment should decline with economic growth…

ARG

BEN

BFA

BOL

BRA

CHLCOL

CRIDOM

DZA

ECU

EGY

GIN

GTMHND

HTI

IDN

IND

IRN

KEN

KGZ

LBN

MAR

MDA

MEX

MLI

MOZ

PAK

PAN

PER

PHL

PRY

ROM

RUS

SLV

SYR

TCD

THA

TUNTUR

VENYEM ZAF

ZMB

020

4060

8010

0

Sha

re o

f in

form

al e

mpl

oym

ent

in

tot

al n

on-a

gric

ultu

ral e

mpl

oym

ent

500 1000 2000 4000 8000

PWT: Real GDP per capita (Constant Prices: Chain series, 2000)


…yet in many countries, informal employment has persisted

10

85-89

95-99

2000-

80-84

90-94

95-99

85-8990-94

95-99

80-84

95-99

2000-

40

50

60

70

80

90

Sh

are

of

info

rma

l em

plo

yme

nt

1000 2000 3000 4000 5000GDP per capita, PPP (constant 2005 international USD)

EgyptGuineaIndiaMorocco


1 Overview



11




Why is persistent informality worrying?Informal work is very diverse but, on average:

• The share of informal workers is strongly correlated with poverty rates (700 million informal poor workers)

• Substantially lower earnings for informal employees: – 1.1 of minimum wage in Morocco, India.– Less than half of average wage in Mexico, Brazil.

• Multiple social costs of informality: – Shortfall in pension, health and labour safety coverage, fiscal receipts– High vulnerability to idiosyncratic and aggregate shocks… the crisis!

12


Poverty and the prevalence of informal work

13Source: Is Informal Normal? and World Bank Group (2007).

ARG

BEN

BFA

BOLBRA

CHL COLCRI DOM

DZA

ECU

EGY

GTMHND

HTI

IDN IND

IRN

KENMAR

MEX

MLI

MOZ

NERPAK

PAN

PERPHL

PRY

ROM

RUS

SLVTHA

TUN TUR

VEN YEMZAFZMB

0

20

40

60

80

100

0 10 20 30 40 50 60 70 80 90 100

Shar

e o

f Inf

orm

al E

mpl

oym

ent

in

Tota

l Non

-Agr

icul

tura

l Em

ploy

men

t

Share of Population Living Below 2 USD (PPP) a Day


Informal workers have significantly lower earnings

14

Source: Is Informal Normal?, OECD Development Centre 2009Notes: *Relative to average wages; definitions and years vary, see table 2.5 for details


Informal employment and the crisis

• Recent crises suggest: Informal Employment ↑• Models of cyclical behaviour of Informal Employment:

dualist, entrepreneurship for non-tradable sectors: IE ↑• Return migrants: Informal Employment ↑

– 20 million people in China return to rural areas, 95 % unskilled– Reduced remittances

15


GDP Growth and Informal Employment in Argentina (Argentine Economic Crisis)

Source: ILO, World Bank, OECD16


The gender dimension of informal employment

• Economic research and policy focused on Labour Force Participation

• Neglect of quality of jobs• Working women are not overall more likely to be

informal……but they are overrepresented in worse forms of informal employment and earn substantially less

17


Gender (earnings) gaps in informal employment

Notes: (1) Years and coverage: Morocco (2002), Tunisia (1997 and 2002), Ethiopia (1996), Kenya (1999), Brazil (1997), Colombia (1996), Mexico (1994), Haiti (2004), Lebanon (2004), Turkey (2000). (2) Data for Ethiopia, Brazil, Colombia, Mexico and Turkey are for urban areas only.Source: Various sources, see OECD Development Centre (2009), Chapter 2 for details.

18


Composition of non-agricultural employment

Source: OECD Development Centre, 200919


Job mobility and informality

• High mobility (at least in middle income countries) including between formal and informal in both directions

• Somewhat surprising labour dynamics: moves from formal to informal not only queuing for the formal jobs.

• But: mobility depends on the same factors that make better jobs accessible (e.g. educational level and gender)

20


Who gains from mobility? (Mexico)Wage employment

67% of the labour forceFormal

Informal

17% 18%

Not Working

21

Self-employed

19 %

13 %

18 %

13 %


Who gains from mobility? Education (Mexico)Wage employment

67% of the labour forceFormal

Informal

More than 6: 15%6 and less: 26%


Not Working



22

Self-employed

19 %

13 %


From monolithic informal employment…

InformalFormal

Not Working

23


…to two-tiered informal employment

Informal Upper-Tier

Informal Lower-Tier

Formal

Not Working

24


1 Overview



25




A policy framework

• Beyond “business as usual” (growth concerns and poverty alleviation)

• 3 core objectivesi. Increase the number of good, formal jobsii. Protect and promote workers in the lower tier of informal

employmentiii. Provide incentives for more jobs to become formal

26


What can we do about it?• Improving the quality also of informal jobs

• Three common ingredients– More and better jobs – Incentives for choosing formality – Protecting and promoting informal workers

27


Providing incentives for the upper-tier

• Business climate reforms to lower the cost of formality– regulatory costs, tax administration reform, public goods

plus• Enforcement of labour, tax and social security regulations, including

strengthening labour inspections• Improving the benefits of formality

Better governance, public service, linking contributions and benefits

28


More and better jobs

• Macro-economic policies: – Crucial importance for employment outcomes– Objective setting: Employment creation versus inflation targeting; is there a

trade-off and what to do about it?• Structural and sector policy

– Employment elasticity of growth and driving sectors– Recognise gender differences across and within sectors– More policy coherence: social protection and business promotion agenda

• Labour market reform: better regulation and inclusive institutions– Engaging informal workers and their representation

29


Promoting and protecting informal workers

• Inclusive education and training – adapted to informal workers and recognising experience in informal work

• Social protection– Cash transfers are useful poverty alleviation tools– Social protection/assistance for workers (universal coverage programmes)– Public works/work guarantee programmes– Unemployment insurance

30


Discussion

• How do these findings relate to structural change of an economy? (sectors, productivity,…)

• How do we protect informal workers while not providing disincentives for formalization?

• How to promote employment intensive growth that leads to more and better jobs?

31

Thank you


Earnings in informal work: low and heterogeneous

33

Source: Is Informal Normal?, OECD Development Centre 2009Notes: *Relative to average wages; definitions and years vary, see table 2.5 for details


Women in informal employment

34


The case of India

35

Washington

Documents

Transcript of Washington