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1 HSRC photo library chaptersix THE INFORMAL ECONOMY Richard Devey, Caroline Skinner and Imraan Valodia In this chapter Introduction 143 Defining the Informal Economy 144 Under Apartheid 145 Informal Economy Employment, Demographic Patterns 147 The Value of Education and Training 154 Time Use, Education and Training 157 The Demand for Training 158 The Supply of Training 159 Conclusion 161 Access the data for this chapter at hsrc ac za 142 HRD REVIEW l 2003

2 abstract This chapter argues for the use of the term informal economy rather than informal sector and outlines how apartheid contributed to shaping the informal economy in its present form In critically investigating the growth in informal employment during the period 1997 to 2001, the authors examine demographic trends in informal employment, the income generated by informal economy workers, and the returns to education The current government stance on training those working in the informal economy is argued to be inadequate In view of the complex policy implications, the authors recommend a sectoral approach to policy-making that links the informal economy to the formal economy They conclude that, owing to the transitory nature of informal economy employment, the informal economy should not be seen as a panacea for the unemployment problems in South Africa INTRODUCTION This chapter provides one component of a context for understanding human resources development (HRD) issues in South Africa, by reporting on broad trends in employment and work in the informal economy More specifically, the chapter examines developments in the labour market for the informal economy in South Africa This includes an analysis of the types of workers in informal economy jobs, the types of occupations found in the informal economy, income levels, access to training and HRD, and some household and poverty issues The analysis also raises specific HRD issues in relation to the informal economy, such as economic returns to education The chapter begins with a reflection on the term informal economy and whether this is a useful concept for analysis, before moving on to a brief discussion of informal economy issues in the apartheid era The next section draws on the October Household Survey, the Labour Force Survey and the Time Use Survey to explore trends in informal economy employment, focusing on issues related to HRD A set of smaller informal economy studies is then examined, with a view to exploring issues of supply and demand for training by those working in the informal economy Finally, the conclusions are presented At the outset, it is important to clarify the parameters of the chapter As will be outlined, the informal sector or the preferred term, the 2003 l HRD REVIEW 143

3 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY informal economy is made up of a heterogeneous set of activities, ranging from selling vegetables at the street corner to repairing motor vehicles in unregistered premises In a short chapter of this nature, only broad trends can be highlighted It is not possible to do justice to the diverse set of activities that could be considered to make up the informal economy Further, two important sets of activities that are often considered to be part of the informal economy domestic work and subsistence agriculture are not explored These activities are so widespread and so specific that they should be analysed in their own right Finally, the chapter focuses specifically on the informal economy and does not include any analysis of small, medium and micro enterprises operating in the formal economy DEFINING THE INFORMAL ECONOMY Contributions to the literature on the definition of the informal sector differ markedly regarding the criteria used and their relative weighting Nevertheless, one criterion common to all definitions is that informal economic activities are small in scale and elude government regulatory requirements such as registration, tax and social security obligations and health and safety regulations As the international network of researchers and activists Women in Informal Employment: Globalising and Organising (WIEGO 2001: 1) points out, the defining characteristic of the informal economy is the precarious nature of the work Workers in informal enterprises and informal jobs are generally not covered by social security or protected by labour legislation The literature contains considerable debate on the conceptualisation of the informal sector Locating this analysis in the debate requires that two of the oft-repeated problems with the notion informal sector be considered First, the term informal sector disguises a significant degree of heterogeneity Informal activities encompass different types of economic activity (trading, collecting, providing a service and manufacturing), different employment relations (the selfemployed, paid and unpaid workers and disguised waged workers), and activities with varied degrees of economic potential (ranging from survivalist activities to successful small enterprises) A second, and related, problem is the distinction between the formal and informal sectors, as if there were a clear line dividing the two Close analysis demonstrates that they are integrally linked With the exception of illegal activities, there are few examples of informal operators who are not linked either through supply or customer networks to the formal economy As Peattie (1987: 858) points out, if we think about the world in terms of a formal and informal sector we will be glossing over the linkages which are critical for a working policy and which constitute the most difficult elements politically in policy development Implied in the notion informal is that there is a formal component, a norm, against which these other activities can be compared As with any norm, this will be time and context specific With respect to the labour market, Eapen (2001: 2390) demonstrates how authors in the past defined informality in terms of the absence of characteristics 144 HRD REVIEW l 2003

4 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY that belong to formal activities, such as security or regularity of work, better earnings, existence of non-wage and long-term benefits, protective legislation, and union protection In a situation in which a number of activities within the formal sector are becoming more informal and private, and small-scale processing and manufacturing enterprises are growing, the line distinguishing formal from informal becomes blurred For this reason it is more appropriate to consider formality and informality as opposite poles of a continuum with many intermediate and mixed cases (Bromley 1995: 146) Using the term informal economy rather than informal sector partially addresses such concerns The term economy implies a greater range of activities than sector and provides the opportunity to consider a continuum of activities which embody varying degrees of formality and informality The informal economy can then be defined as comprising all of those in informal employment without secure employment contracts, work-related benefits and social protection, both inside and outside informal enterprises If both formal and informal activities are seen as part of the economy, we are better able to see the linkages between the two UNDER APARTHEID Although the notion of the informal economy is a relatively new concept that has only recently been seriously studied in South Africa, informal and flexible forms of labour are a historical feature of the South African labour market A key characteristic of the apartheid system and the racial pattern of South Africa s industrialisation was the flexible system of contract and migrant labour (see, among others, Hindson 1987; Legassick 1974; Wolpe 1972) Related to the flexibility were high levels of unrecorded informal economy activities, particularly in African areas Indeed, several micro-level studies conducted in the early 1980s suggest that extremely high levels of informal economy activity were taking place (see, for example, Cross and Preston-Whyte (1983); Webster (1984) on informal activity in Soweto; Wellings and Sutcliffe (1984) on informal activity in Durban) While the apartheid system forced many black South Africans to earn their livelihoods in the informal economy by restricting their access to the formal economy, the apartheid state also actively constrained millions of South Africans in their attempts to make a productive living through informal economy activities Standing, Sender and Weeks (1996: 86-87) list the apartheid legislation that restricted the economic activities of African, coloured and Indian South Africans The Black Urban Areas Consolidation Act (Act 25 of 1945) and the Group Areas Act (Act 36 of 1966) restricted the right of these black entrepreneurs to establish and operate businesses Apartheid legislation limited the range of goods that could be sold, blocked the formation of companies by blacks, and set up an array of bureaucratic processes that discouraged the registration of smallscale economic activity The impact of repressive legislation on the development of black informal economy activities cannot be underestimated For example, Davies (1987) conducted extensive surveys to investigate the major obstacles confronting black entrepreneurs in Port l HRD REVIEW

5 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY Elizabeth He found that bureaucratic and political controls were without doubt, the single most important factor that has limited black entrepreneurial growth and development (Davies 1987: 40) The findings were reiterated in similar studies of black micro-enterprises undertaken in Soweto, Port Elizabeth and Durban during the 1980s (Rogerson 1996: 20) The restrictive environment in which these businesses had to operate forced them to be largely survivalist in nature Although the legislation was relaxed in the late 1980s and early 1990s, apartheid history has impacted on the nature of informal activity taking place today Within the retail sector, Lund (1998) points out how many commentators have noted the lack of diversity in South African trading compared with other African countries Particularly striking in a comparative African context is the extent to which informal manufacturing activities in South Africa are underdeveloped In their study of home-based work conducted in the early 1990s, Manning and Mashigo (1994: 31) note that where manufacturing did occur, discrimination against blacks resulted in African-owned microenterprises being located in those segments of the manufacturing sectors that were lowest in value, poorest in quality and least lucrative INFORMAL ECONOMY EMPLOYMENT, This section provides some overall employment trends in the informal economy and contrasts them with trends in formal economy employment Table 1 shows employment data for the national economy over the period 1997 to 2001 using various October Household Surveys (OHS) and the more recent Labour Force Surveys (LFS) The table shows that employment in the formal, non-agriculture segment of the economy has remained relatively stable over the period With respect to informal employment, the data show a tremendous growth in employment, with the number of workers employed in the informal economy almost doubling over the period 1997 to September 2001 Is it really possible that informal employment grew so rapidly, from to , over a period of four years? A few issues are pertinent First, the OHS and the LFS are not directly comparable because they ask questions in different ways Further, as Budlender, Buwembo, Chobokoane and Shabalala (2001: 8) note, with respect to registering informal activities, not only is the LFS an improvement on the OHS, but improvements were made to the data-gathering process For example, fieldworkers were trained prompting improved data collection and the awareness of coders was increased Statistics South Africa (Stats SA 2002: v) notes that in the February 2001 LFS, more probing questions were asked about self-employment and small businesses in a follow-on survey, which may have led to a larger number of respondents than usual classifying themselves as employed In September 2001 a new sample was drawn, and once again respondents may have classified themselves as not economically active rather than employed in the informal sector In fact, even within each survey type, Stats SA has improved the data collection, 146 HRD REVIEW l 2003

6 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY so that part of the upward trend evident in the data is in fact a reflection of an improvement in the capturing of data about informal work rather than a growth in the phenomenon of informal work So, although there has been some increase in informal employment, the extent of this is uncertain and the data in Table 1 should therefore be treated with caution Despite these factors, it is possible to make a reasonably reliable guesstimate of informal workers as a proportion of the total workforce Based on the data in Table 1 it can be estimated that, including subsistence agriculture and domestic work, between 25 and 30 per cent of those working in South Africa are engaged in the informal economy Since it is not possible to determine whether there has been an actual increase of informal work or whether the higher figures are attributable to improved data-collection processes, it is inappropriate to present time-series data showing trends in the nature of informal employment Instead, this chapter relies on one survey, the LFS September 2001, to present a snapshot based on this survey The analysis is based only on nonagricultural and non-domestic informal economy employment This exclusive focus is justified by the fact that subsistence agriculture and domestic work, though technically informal, have special characteristics unique to the occupations and therefore deserve substantial analysis which is beyond the scope of this chapter TABLE 1 Formal and informal economy labour market trends, OHS 1997 OHS 1998 OHS 1999 LFS Feb LFS Sep LFS Feb LFS Sep Formal Commercial agriculture Subsistence agriculture Informal Domestic work Unspecified Total employed Unemployed Not economically active Total not employed Total population, age Sources: Stats SA October Household Surveys and Labour Force Surveys as specified DEMOGRAPHIC PATTERNS Table 2 shows employment in the formal and informal economy and domestic work, by race The table shows that just over one-quarter of African workers are engaged in informal economy activities For other groups, a significantly smaller proportion of workers are engaged in informal economy activities with, for example, just 6 5 per cent of white workers participating in the informal economy l HRD REVIEW

7 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY TABLE 2 Proportion of formal and informal employment by race, 2001 Race Formal employment Informal employment Domestic workers Total percentage percentage percentage percentage African Coloured Indian White Total Note: Totals in this table and some that follow do not always add up to 100 due to rounding off TABLE 3 Proportion of workers in each race group by sector, 2001 Race Formal sector percentage Informal sector percentage African Coloured Indian White Total TABLE 4 Proportion of workers in each sector by gender, 2001 Gender Formal sector percentage Informal sector percentage Male Female Total TABLE 5 Number and percentage of informal workers by economic sector, 2001 Economic sector Number Percentage Wholesale/retail Construction Manufacturing Community, social, personal services Private households Transport, storage, communication Financial Mining and quarrying Electricity, gas, water Total As a proportion of workers in each sector, Table 3 shows that 84 5 per cent of all workers in informal employment are African Table 4 shows employment by gender within the formal and informal economy Although there are more men than women in both the informal economy and the formal economy, the gender difference is not as large in the informal economy as it is in the formal economy Table 5 shows employment in the informal economy by economic sector The data show that informal employment is concentrated in the retail and wholesale trade, with just over half of all informal workers located in this sector Further, there are significant numbers of people working in construction, manufacturing and services Although over ten per cent of those working in the informal economy are involved in manufacturing, this is a low proportion in comparison with other developing countries This indicates that there is relatively little value-adding occurring in the South African informal economy It should be noted that these categories disguise a lot of diversity In retail and wholesale, 148 HRD REVIEW l 2003

8 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY for example, trading is taking place in different goods (food, alcohol, car parts, secondhand goods) and different places (in stores, spaza shops and on the streets) From this emerges a critical human resources issue in the informal economy, that although there may be certain cross-cutting HRD requirements in the informal economy as a whole, there is also a range of training needs that will be sector-specific This will be explored later in the chapter Table 6 shows employment in the formal and informal economies by occupation It is clear that while employment in the formal economy has a high proportion of workers in high-skilled management, professional and technical jobs and semi-skilled work such as clerks and shop workers, employment in the informal economy is dominated by semiskilled work such as shop and craft-related work, and unskilled work described as elementary occupations TABLE 6 Number and percentage formal and informal workers by occupation, 2001 Occupation Number of formal Number of informal Percentage of Percentage of economy workers economy workers formal economy informal workers economy workers Management Professionals Technical Clerks Service and shop workers Skilled agriculture Craft-related occupations Plant and mechanical operators Elementary occupations Total Table 7 shows the distribution, by race, of these occupations in the informal economy A clear racial pattern is evident Although there are large numbers of African workers in skilled and semi-skilled occupations in the informal economy, a large proportion of white workers and Indian workers are managers, professionals and in technical occupations These TABLE 7 Proportion of occupations in the informal economy by race, 2001 Occupation African Coloured Indian White Total percentage percentage percentage percentage percentage Management Professionals Technical Clerks Service and shop workers Skilled agriculture Craft-related occupations Operators Elementary occupations Total l HRD REVIEW

9 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY skilled occupations comprise a very small proportion of the total number of jobs in the informal economy These occupations are mainly managers of informal enterprises and include people such as nurses working from home, or technicians such as plumbers who do not work in formal enterprises A large proportion of African workers are concentrated in unskilled, elementary occupations Table 8 shows occupations in the informal economy by gender There is evidence of some occupational segmentation by gender, with men dominating the skilled management occupations Women do, however, occupy a significant proportion of professional and technical occupations Women dominate the service occupations, while men dominate craft and operator occupations Women are over-represented in the unskilled elementary occupations TABLE 8 Proportion of occupations in the informal economy by gender, 2001 Occupation Male percentage Female percentage Total percentage Management Professionals Technical Clerks Service and shop workers Skilled agriculture Craft-related occupations Operators Elementary occupations Total Table 9 shows the income of workers in the formal and the informal economy respectively Figures 1 and 2 display these data in histograms A stark contrasting pattern of income is evident FIGURE 1 Histogram of formal workers by income level, Number of cases No income R1- R200 R201- R500 R501- R1 000 R R1 500 R R2 500 R R4 500 R R R Income level Source: Note: Stats SA (2001b) Data weighted (the sample has been weighted to arrive at an estimate of the total population) 150 HRD REVIEW l 2003

10 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY FIGURE 2 Histogram of informal workers by income level, Number of cases No income R1- R200 R201- R500 R501- R1 000 R R1 500 R R2 500 R R4 500 R R R Income level Source: Note: Stats SA (2001b) Data weighted (the sample has been weighted to arrive at an estimate of the total population) It is clear from Table 9 that, whereas most workers (76 per cent) in the formal economy report an income above R1 000 per month, over 70 per cent of workers in the informal economy report a monthly income below R1 000 It is noteworthy that about 50 per cent of those working in the informal economy report an income below R500 a month This indicates the extent to which informal activities are of a survivalist nature TABLE 9 Number and percentage of workers in the formal and informal economy by income category, 2001 Income categories Formal economy: Informal economy: Formal economy: Informal economy: Number Number Percentage Percentage Not provided None R R R R R R R R Total Figure 3 shows income patterns in the informal economy by race Again, a contrasting pattern is evident, with most African workers reporting low levels of income and most white workers being over-represented in the high-income levels l HRD REVIEW

11 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY FIGURE 3 Proportion of African and white workers in the informal economy by income level, Percentage No income R1- R201- R R R R R R R200 R500 R1 000 R1 500 R2 500 R4 500 R Income level African White Source: Stats SA (2001b) A similar, though less pronounced, pattern emerges when examining incomes in the informal economy by gender Figures 4 and 5 show that a larger proportion of women report low incomes and a larger proportion of men report higher incomes in the informal economy FIGURE 4 Histogram of male informal workers by income level, Number of cases R200 R500 No income R1- R201- R501- R1 000 R R1 500 R R2 500 R R4 500 R R R Income level Source: Stats SA (2001b) FIGURE 5 Histogram of female informal workers by income level, Number of cases R200 R500 No income R1- R201- R501- R1 000 R R1 500 R R2 500 R R4 500 R R R Source: Note: Stats SA (2001b) Data weighted (the sample has been weighted to arrive at an estimate of the total population) Income level 152 HRD REVIEW l 2003

12 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY Table 10 divides the households in South Africa by the types of workers in each household It is clear that a significant number of households (24 2 per cent) do not contain a person classified as a formal or informal worker, a domestic worker or an unemployed worker These would largely be households composed of agricultural workers (both commercial and subsistence), or a person not classified as economically active (such as pensioners) A significant proportion of South African households are composed solely of unemployed workers (12 2 per cent) Just over 8 per cent of households are composed of informal economy workers only Fewer than 3 per cent of households are composed of an informal worker and an unemployed worker and 0 5 per cent of households are composed of an informal worker and a domestic worker Surprisingly, only 2 3 per cent of households are composed of workers in both the formal and the informal economy Taken together with the income data presented earlier, Table 10 suggests that most households with informal economy workers have very low incomes Where a household does have an informal economy worker, that worker is in most cases the primary income earner and, given the low incomes of informal economy workers, this suggests that these households tend to have very low incomes In other words, at the household level, informal economy work does not, in most households, supplement income earned in the formal economy This section has demonstrated that informal employment is increasing as a proportion of total employment in South Africa, although it is difficult to accurately determine the rate of growth in informal employment Despite the growth, the level of informal employment remains small in comparison with other developing countries There are three main features of informal economy employment in its present form: l In contrast with the formal economy, most work in the informal economy tends to be unskilled Most informal economy workers are involved in trade and elementary occupations with relatively few workers involved in value-adding activities l TABLE 10 Households in South Africa by types of workers, 2001 Types of workers in household Number Percentage Unemployed Domestic Informal Formal worker worker worker Total valid None of the above Total Some clear demographic patterns are evident when examining informal employment This segment of the economy is over-represented by African workers and there are l HRD REVIEW

13 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY also, proportionately, more women in informal work than formal work In the informal economy, African workers and women workers tend to occupy the lessskilled and lower-income opportunities l Finally it is important to note the extremely low reported incomes Although there is a great deal of heterogeneity in the informal economy, these figures suggest that jobs in the informal economy tend to be survivalist jobs THE VALUE OF EDUCATION AND TRAINING TABLE 11 Proportion of formal and informal workers by education level, 2001 Education level Formal economy Informal economy percentage percentage percentage No education Primary Secondary (excluding Grade 12) Matric Post-matric Total This section examines a range of education and training indicators in the informal economy Table 11 shows the level of education reported by workers in formal and informal work Whereas 55 6 per cent of workers in the formal economy have at least a matric, over 80 3 per cent of informal economy workers do not have a matric, and over 10 1 per cent report no education at all An important policy question is whether or not higher levels of education benefit workers in the informal economy It may be argued that, given the elementary nature of work in the informal economy, higher levels of education may have no discernible impact on workers in the informal economy One way in which this can be assessed is to determine whether higher levels of education lead to higher levels of income for workers in the informal economy Table 12 shows education levels and incomes in the informal economy The table seems to indicate that workers incomes tend to rise as their level of education improves, although it is important to note that sometimes this relationship is not very strong For example, although having a matriculation qualification is likely to increase income, as many as 37 8 per cent of people with a matriculation qualification report an income below R500 per month 154 HRD REVIEW l 2003

14 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY TABLE 12 Informal workers: Proportion by income level and education level, 2001 Income level Percentage of informal economy workers with: No education Primary Secondary Matric Post-matric Total None R R R R R R R R Total Another way to examine the same data is to look at the different income bands and to see how workers in each income band are distributed in terms of the different education levels This is shown in Table 13 It is clear that at very low-income levels (below R500 per month), although it helps to have some education, there are no significant differences in how workers are distributed in the different education categories At income levels above R500 per month, having more education helps, although the differences are not significant Having a post-matric qualification clearly helps to get a higher level of income (73 per cent of those earning above R per month have a post-matric qualification) TABLE 13 Informal workers: Percentage by education level and income level, 2001 Education level None R1 - R201- R501- R R R R R Total R200 R500 R1 000 R1 500 R2 500 R4 500 R None Primary Secondary Matric Post-matric Total In order to explore the returns to education in the informal economy more accurately, a regression model was constructed where the level of income earned was a function of the following variables: gender, race, whether urban or rural-based, and education levels More specifically, the model estimated the returns to primary, secondary, matric and post-matric education The race, gender and urban/rural variables are constructed as dummy variables The regression results are shown in Table l HRD REVIEW

15 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY TABLE 14 Regression results: Returns to education in the informal economy, 2001 Variable Beta t-statistic Urban Gender Race Post-matric Matric Secondary Primary Source: Calculations by authors The regression analysis shows that the returns to education were not significant for primary education There are significant returns to education for secondary and higher education, with higher education showing the best returns Gender, race and location are all significant predictors of income in the informal economy The returns to education in the informal economy can also be examined by exploring whether education helps informal economy workers to access skilled employment Table 15 looks at the various occupations in the informal economy and how workers in each of the occupations are distributed in terms of education The data show that for professional occupations, education is critical High levels of education are apparently not critical for management occupations At the unskilled level, significant proportions of workers with reasonable education remain in unskilled elementary occupations TABLE 15 Occupations in the informal economy by education, 2001 Percentage of informal economy workers with: Occupations No education Primary Secondary Matric Post-matric Management Professionals Technical Clerks Service and shop workers Skilled agriculture Craft-related occupations Operators Elementary occupations Total TABLE 16 Ability to write and read in the formal and informal economy, 2001 Formal economy Informal economy percentage percentage Ability to write Yes No Total Ability to read Yes No Total Table 16 compares workers basic literacy in the formal and informal economy by examining their ability to write and read Whereas almost all workers in the formal economy have the ability to write and read, respectively 10 9 per cent and 10 6 per cent of informal workers do not have these basic writing and reading skills In summary, based on the national surveys, the link between employment in the informal economy and education, an important component of human resources 156 HRD REVIEW l 2003

16 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY development, is quite complex and the policy implications are not always clear A significant minority of workers in the informal economy do not have basic literacy skills This suggests that basic education may be an important policy intervention On human rights grounds it is difficult to argue against resources being applied to basic literacy It is, however, important to note that while education clearly helps workers to raise their incomes and gain entry into more skilled occupations, in many instances, especially at the primary level, education does not seem to be a significant indicator of higher income and more skilled occupations in the informal economy TIME USE, EDUCATION AND TRAINING Table 17 uses the South African Time Use Survey (Stats SA 2000c) to examine whether there are any significant differences in the way that formal and informal economy workers use their time Respondents were asked to record a diary made up of 48 thirty-minute periods, thus making up a full twenty-four-hour day of their activities These time periods were then added up by activity for each person, and averaged It is clear that informal economy workers spend significantly less time in employment, in comparison with their formal counterparts Informal economy workers spend a lot more time performing service functions and spend a larger proportion of their day performing household and childcare tasks Although the activity of learning occurs in low proportion to other activities, it is interesting to note that informal economy workers seem to spend more time, on average, in learning activities than formal workers do Table 18 shows time use for workers in the informal economy by gender The table shows that there are significant differences in the time use patterns of men and women in the informal economy Men tend to spend more time in employment and cultural and learning activities, while women tend to spend more of their time in primary production, household maintenance and childcare Further analysis within each of the TABLE 17 Mean time use for formal and informal workers, 2000 Activity Formal economy Informal economy Total Personal Employment Primary production Service for income Household maintenance Childcare Community activities Learning activities Cultural Mass media Source: Stats SA (2000c) activities reported shows that there are significant differences in how women and men use their time For example, within the primary production activity, women tend to spend time collecting fuel, water, wood and dung (57 5 per cent of activities reported within primary production), while men spend more time than women on subsistence farming In the service l HRD REVIEW

17 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY TABLE 18 Informal workers: Mean time use by gender, 2000 Activity Male Female Total Total Personal Employment Primary production Service for income Household maintenance Childcare Community Learning Cultural Mass media Source: Stats SA (2000c) for-income activity, women spend up to 47 per cent of their time in street trading and related activities, while men tend to spend a significant amount of time on building and related artisan-type activities THE DEMAND FOR TRAINING Training has been identified as a critical need in a series of smaller scale studies In 2000, the International Labour Organisation (ILO) sponsored an action-oriented study of home-based work (see Cross, Mbhele, Masondo, Zulu and Mngadi (2001)) The study found that home-based workers frequently requested training In a survey of street trading in the Durban metropolitan area conducted in 1997 (Durban Metropolitan Council 1998), 15 per cent of women and 12 per cent of men identified inadequate technical, managerial and commercial skills as one of the main obstacles to successful business In-depth interviews with both home-based workers and street traders (see Cross et al 2001; Skinner 2000) demonstrate, for example, that informal operators frequently do not separate personal from business expenditure and therefore cannot calculate their profits In her review and synthesis of research conducted on street trading issues, Lund (1998: 21) concludes: although basic literacy was relatively widespread, street traders thought that reading and writing another language and especially English would be very important in enabling them to be more successful in their businesses The founder and general secretary of the Self-Employed Women s Union has argued In our experience our members are often education hungry In many cases however they have not been in a classroom context for some time They may be quickly alienated if training does not draw on their experience, build their confidence levels, is not correctly pitched, or relevant If training service providers find that traders are not attending their courses, then they must not blame the traders but must look seriously at the design of their training intervention (Quoted in Skinner 2000: 22) This suggests that the challenge is to provide training that is relevant and delivered in an appropriate way 158 HRD REVIEW l 2003

18 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY THE SUPPLY OF TRAINING According to surveys in which informal operators were asked whether or not they had received training, the overwhelming majority responded that no training had been received For example, in the World Bank survey of informal enterprises in Johannesburg (2001: 46), of almost 500 people interviewed, 81 per cent responded that they had never received training The Department of Labour is the primary source of government funding for training The Skills Development Act of 1998 established a system of sector education and training authorities (SETAs) They are funded through the skills levy which, as of April 2000, must be paid by all employers except public service employers or employers whose annual wage bill is less than R Sector education and training authorities are responsible for designing and implementing sectoral skills development strategies and disbursing levies in their sector During the initial stages of designing the skills development system, there was some debate about whether a separate SETA should be established to cater for the needs of the informal economy or whether informal economy interests should be incorporated into the existing SETAs The Department of Labour opted for the latter, given that informalisation of work characterises many different sectors Instead, much emphasis is placed on the importance of including small business representatives in SETA structures, an approach which assumes a degree of organisation among small businesses This may be true for small and medium businesses, but is not the case with micro and survivalist businesses Research on street trader organisations, for example, suggests that few, if any, street traders engage in these sorts of processes (Lund & Skinner 1999) There are indications that this system is inadequate For example, according to the February 2000 Labour Force Survey, it is estimated that over 50 per cent of those working in the clothing industry are working in the informal economy The head of the Clothing and Textile Sector Education and Training Authority stated, in an interview conducted on 17 July 2002, that the clothing industry had not trained any informal enterprises, nor did they intend to He argued that they had to prioritise the needs of formal economy enterprises which are paying skills levies Twenty per cent of the skills levy goes to the National Skills Fund This is another route through which trainers supporting those working in the informal economy can access funding The Department of Labour s approach is to rely on incentives to attract training providers to offer training in the informal economy However, a survey conducted with training service providers in the Durban area (Skinner 2000) demonstrated that trainers, including not-for-profit trainers, are reluctant to service those working in the informal economy The following reasons were given: l it is not profitable to train informal economy workers because government funding is difficult to secure and trainees are not in a position to cover their own costs; l informal economy workers are often regarded as untrainable due to low levels of education; l trainers cannot use traditional training methods; l HRD REVIEW

19 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY l l trainees are very mobile and therefore difficult to access; and trainers and fieldworkers are frightened to go into the areas where people need to be trained Skinner s study (2000: 7) concluded that if the private sector is relied on, those groups who do not have a history of being serviced, are difficult to service and/or are not lucrative to service, are likely to be neglected Training delivery Research on human resources development in the informal economy argues that the training requirements of informal operators, as well as the mechanisms for delivery, are very different from those in the formal economy (see for example King 1989, and McKean 1994 for international experience of training in the informal economy) The findings can be summarised as follows: Timing and structure: For those who are self-employed, time away from their business is money lost Very few, if any, informal operators would be in a position to take a number of consecutive days off to attend training Training should be part time Ideally trainers or advisors should also be available to visit informal operators at their site of work Training methods: The data indicate that there are varying educational backgrounds among those working in the informal economy Older people are likely to have little formal schooling, and women tend to be less educated than men This poses a challenge to service providers with respect to programme design Courses should be conducted in the learners mother tongue and, in view of the low levels of literacy discussed earlier, should not be text-based only Training context: Due to apartheid spatial planning, travelling (for example, to the city centre) can be extremely expensive As far as possible, training should take place close to where informal operators work Further, qualitative interviews indicate that childcare is a concern, particularly for women Consideration must be given to the provision of childcare facilities Training content: Qualitative interviews (Cross et al 2001; Skinner 2000) indicate that a standard set of business skills is unlikely to be as useful as a diverse range of skills For example, there is a strong need for training in business English since interviewees recognise that the world of business generally uses the medium of English Business skills, particularly financial management skills and skills such as market analysis, buying, costing and customer care would benefit informal operators Further, there are a number of life skills such as assertiveness training, negotiation skills and conflict resolution skills that would benefit informal workers, particularly women s business activities Finally, since the late 1980s, a number of researchers in the field of informal economy studies have reinforced the importance of a subsector or industry approach to the informal economy (see for example Carr and Chen (2001); Chen, Jhabvala and Lund (2001)) The research also indicates that training interventions need to take industry-specific dynamics into account In her study on street trading, Skinner (2000: 27) identifies two further issues First, she argues that training interventions should provide information about the institutional environment within which informal enterprises operate, since this is often a 160 HRD REVIEW l 2003

20 CONTEXT CHAPTER SIX THE INFORMAL ECONOMY stumbling block to business growth Second, she argues that collective action on a small scale (such as buying collectively and therefore being able to secure discounts or cut out a middle man), or on a large scale (through organisational interventions), are the interventions that often make the most difference to those working in the informal economy Although it is the role of activists rather than trainers to organise informal economy workers, trainers have a role to play in disseminating information about both local and international campaigns CONCLUSION The informal economy in South Africa is clearly an important component of the labour market, with between 25 and 30 per cent of those working in South Africa engaged in informal economy activities While national survey data show tremendous growth in informal employment, these data need to be treated with caution Nevertheless, there has been some growth in informal employment and with the lack of employment opportunities in the formal economy, further growth in informal employment can be expected Any human resources development strategy for South Africa has to take account of developments in the informal economy The review of the national survey data shows certain race and gender patterns in the informal economy The informal economy is dominated by blacks, and black women tend to be over-represented in this part of the economy Within the informal economy, whites and men tend to occupy the more skilled occupations, while women tend to be involved in the more elementary occupations The data demonstrate that income levels are very low and, again, that race and gender are important determinants of income Importantly, it is shown that most informal economy workers tend to be the primary income earner in their households The analysis of national survey data shows that education levels in the informal economy are low In general, informal economy workers are less skilled and have lower levels of education than their formal counterparts Up to ten per cent of informal economy workers are not literate It has been argued elsewhere that current government interventions to support the informal economy are inadequate (Lund 1998; Skinner 2000; Valodia 2001) For example, the 1995 White Paper on Small Business Development distinguishes between four types of small businesses It goes on to outline concrete proposals for small, medium and micro enterprises, but is relatively silent on proposals for survivalists Skinner (2000) suggests that the Local Business Service Centres established under the Act reflect a similar bias In discussing the current policy environment, Lund (1998: 11) concludes that what is seen by policy-makers as a micro enterprise isn t micro enough The policy conclusions that flow from our analysis are complex and often contradictory There is clearly a case for more literacy and basic life skills training These interventions would assist informal economy workers in both their enterprises and in other aspects of their lives Some considerations for these interventions are outlined Our analysis shows that there are returns to higher levels of education Any interventions in this regard are, however, difficult to justify, given the costs associated with higher levels of education and the fact that these interventions are likely to benefit l HRD REVIEW

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