The Urban Informal Sector of Pakistan: Some Stylized Facts

Transcription

1 RESEARCH REPORT NO The Urban nformal Secor of Paksan: Some Sylzed Facs A. R. Ken1al Chef Economs. Plal/nng COlllmsso1l, slamabad and Zafar Mahmood ClefofResearch, Paksan nsue (fde l'elofjljl'necol/olllcs. slajllabad

2 The PDE Research Repor Seres offers an up-o-dae exp9son of varous economc, demographc, and anhropologcal aspecs of he developmen process n developng counres generally and n Paksan parcularly. s wde dssemnaon s amed a provdng a frm foundaon for useful polcy-makng n addon o encouragng academc neracon. The major areas of research addressed by he Seres are macroeconomcs and secoral ssues, nernaonal rade, labour marke ssues, demographc paerns, anhropologcal approaches, growh, and dsrbuon. Manuscrps submed for publcaon n he Seres are revewed by he PDE Research Repor Commee and publshed from me o me. PDE Research Repor Comluee Zafar Mahmood Naushn Mahmood Zafar qbal!s BN lj () All rghs reserved.no par of hs publcaon may be reproduced, sored n a rereval sysem or ransmed n any form or by anymeans--e1ecronc, mechancal, phoocopyng, recordng or oherwse-whou pror permsson of he auhor and or he Paksan nsue of Developmen Economcs, P. O. Box 1091, slamabad. ) Paksan nsue of Developmen Economcs, 1998

3 CONTENTS 1. nroducon. Daa. Characerscs of he Self-employed (a) Age of he Self-employed (b) Educaon and Tranng of he Selfemployed. 5 (c) Famly Background of he Self-employed 6 (d) Experence of he Self-elnployed 6 (e) Supplemenary Sources of ncon1e for he Self-employed V. Characerscs of he nformal Secor (a) Sngle and Jon Ownershp (b) Ownershp of Premses (c) Age of he Frm V. Subconracng n he nformal Secor V. Labour Force n he nformal Secor (a) Labour Force by Employmen Saus (b) Skll Formaon n he nformal Secor (c) Gender Dsrbuon (d) Job Preference of he Self-en1ployed (e) Hours of Work n he nforn1al Secor () Page

4 V., Wages and Frnge Benefs n he nformal Secor V. Effcency of nformal Secor Enerpres (a) Capal-nensy (b) Producvy of Labour Page (c) Poenal for mprovng Producvy n he nformal Secor 18 X. nvesmen Requremens and Sources of' Funds n he nformal Secor 19 X. Concludng Relnarks and Polcy Suggesons 20 References 22 Absrac 24 Ls of Tables 17 Table 1. Table 2. Table 3. Table 4. Percenage Dsrbuon of Selfemployed n Dfferen Age Groups 4 Percenage Dsrbuon of Frms by Number of Years he Frms has been n Exsence by ndusry 8 Dsrbuon of Workers n he nformal Secor Capal- and Labour-Producvy and Capal-Labour Rao 16 (v)

5 . NTRODUCTON. Despe rapd growh of GDP n Paksan, employmen opporunes have been que nadequae. o absorb he rapdly ncreasng work force. Ths suaon emerged because of he way ndusralzaon was promoed n Paksan; rade, nvesmen and publc secor polces promoed he capal-nensve large-scale ndusres, whle hey dscrmnaed agans he nformal secor. The nformal secor undoubedly generaes hgher employmen han he formal secor for any gven nvesmen and have relavely hgh capal producvy bu he producvy of labour n he nformal secor s, presun1ably, relavely low and workers have no proecon agans exploaon by he employers who despe long hours earn meager wages. Therefore, he prma face case for polcy nervenons n favour of he nformal secor n1us res on he fac ha he labour-nensve nformal secor generaes more employmen. A he same me publc polcy should also help' o enhance he producvy of labour n he nformal secor so ha no compromse s made on he growh objecve and on proecon of workers agans exploaon. nformal secor enerprses, n general, are 1110r effcen han he formal secor enerprses due o her effcency n he resource use. However, some nformal secor acves are neffcen and hey survve merely by evadng axes and volang sae regulaons ncludng labour laws. Such acves need no be encouraged and as such nsead of provdng subsdes n he form of ax exempons, emphass should be placed on he ren10val of consrans on he nformal secor and o operae schelnes whch upgrade her sklls, mprove her echnology help hen1 n l11arkeng,ec.

6 2 A number of sudes have been carred ou on he nformal secor n Paksan. These ncjude, among ohers, Afab (1990), Ahlnad and Arshad (1990), Burk (1989), Chaudhary (1990), Ferks, Thomas and Tomesen (1989), Gusnger and rfan (1980), Kaz (1987), Kemal and Mahmood (1993), Kbra (1990), and Mahmood (1990), Nadv (1990). These sudes examne varous aspecs of he nformal secor n Paksan ncjudng wage raes, labour producvy, capal-nensy, skll developmen and consrans on he growh. Snce mos of hese sudes are based on 'very small smnples and generajly n one or wo locaons, her resuls canno be generalzed. n an effor o gve concree polcy proposals for he pronloon of he nformal secor s essenal o know he basc characerscs and facs abou hs secor. Ths paper goes some way oward answerng such quesons as o who eners he nformal secor, wheher he/she earns hgher level of ncome, wha consrans are faced by hese uns, wha s her capal nensy, ec. n parcular, he paper focuses on he sylzed facs, such as he characerscs of he self-employed and nformal secor enerprses; he labour producvy and capal-nensy; consrans on he expanson of he nformal secor; echnologcal defcences; capal requremen and needs for he skll developmen, he employmen poenal n he nformal secor; and he earnng capacy of he self-elnployed and employees. Afer hs nroducory secon, daa are dscussed n secon. Secon o X dscusses he sylzedfacs of he nfonnal secor, whle concjudngremarks and polcy suggesonsare repoledn secon X.. DATA Presen sudy s based on a comprehensve survey of abou 1500 urban nformal secor enerprses. The sample ensures he ncjuson of man producon acves. and he geographc dsrbuon of he frms.l The survey was carred ou n 11 nlajor Furher deals abou he daa and conduc of he survey can be seen n Kcmal and Mahmood (1993).

7 1 f [!! f } 1.,! ",!, ;.,.. " f f ;. ces, havng large nformal secor and drawn from all he four provnces of Paksan? Four major economc secors, vz. manufacurng, rade, ranspor, and.servces have been dsngushed n he survey.3 Number of enerprses n each of he secor has been deelmned by akng no consderaon he relave mporance of each secor n he GDP and employmen and he heerogeney of he economc acvy whn he secor. The manufacurng secor has been accorded maxmum wegh n he sample, because of s heerogeney n elms of boh he echnology and he envronmen. The naure of economc acves n he nformal secor and clusers of manufacurng, rade, and servce acves n each cy were asceraned n consulaon wh he local labour deparmen and he sample was drawn n approxmae proporon o. he economc acv},esn he area.4 The sample s sub-dvded n he followng proporons: (a) Manufacurng (b) Trade (c) Transpor (d) Servces 50 percen 15 percen 15 percen 20 percen. CHARACTERSTCS OF THE SELF-EMPLOYED Varous facors, boh economc and non-economc, nfluence an enrepreneur's choce o se up a busness enerprse. The characerscs of ndvduals such as age of he self-elnployed, sze of he household, famly background, avalably of funds, educaon 2The sample ncluded nne hundred uns from Punjab, four hundred from Sndh and one hundred each from N.W.P.P. and Balochsan.. 3The nformal secor s presen n almos every acvy bu s presence s mos fel n manufacurng, rade, ranspor and he servces secors. "The survey of 1500 uns was carred ou n he sampled proporons. However, ceran quesonnares were lef ou of he analyss because eher he daa were ncomplee or hey were fauly. Therefore, he analyss presened n hs paper relacs only o 1417 uns dsrbued over he four acves. 3

8 4 level, he ranng acqured, he experence and he possbles of supplemenary ncome playa crucal role on he decson o work and n he choce of professon. (a) Age of he Self-employed Age of an enrepreneur underles some of he facors nfluencng enrepreneur's decson o jon he nformal secor. Whle a pool of relavely younger enrepreneurs n he nfolmal secor may mply ha he nformal secor s a ransonal acvy, he presence of relavely more maure self-elnployed may mply ha.he enrepreneurs consder as a permanen and preferred busness choce. Table 1 suggess ha whereas 64 percen enrepreneurs were n he age group of as nany as 34 percen of hem be n he age group of 40 and above. Whle clearly suggess ha que a few enrepreneurs jon he nformal secor as long as hey do no ge a job n he formal secor, a subsanal proporon of he self-employed ake as a permanen acvy. Table 1 Percenage Dsrbuon of Se(fel77pl()yedn Dfferen Age Groups Aver. Age vlan 1rac - lnng Servces Trade Transp0l Toal ).) 5.5 The relaonshp beween age and he enrepreneurshp can be beer. undersood by comparng he age dsrbuon of he selfemployed n he nfolmal secor wh ha of he age dsrbuon of oal labour force n he counry. Whereas he age groups of accoun for 39.8 percen of he oal labour force, he promoon of self-employed n he nfonnal secor belongng o he Sl1n.eage

9 -' group, was as hgh as 63.4 percen. On he oher hand, he nformal secor accouned for smaller proporons n age groups of less han 25 and more han 45 compared o her shares n he oal labour force. The relavely hgher proporon of younger self-enlployed n he nformal secor han he labour force suggess ha a very early age, ndvduals ry for a job n he formal secor bu some of hem due o frusraon of beng under- or un-employed and ohers afer ganng he necessary experence and savng some money qu he fomal secor and se up her own busnesses n he nformal secor.) However, only he. successful self-employed connue wh he nformal secor whle ohers ry o seek he job as wage employees n he nformal or he formal secor. Very successful enrepreneurs make a graduaon o medum- and large-szed frms and hus move ou of he nformal secor. Qualy and ably of enrepreneurshp and producvy of labour vares posvely wh he nvesmen n human-cap'al especally n he form of educaon and ranng.6. 7 As many as 81 percen of nformal secor enrepreneurs are educaed whch C0111pareS raher favourably wh he average of 58.6 percen of he labour force n he urban areas. Neverheless, mos of he enrepreneurs had only prnlary or secondary educaon even hough some enrepreneurs had even he Pos-graduae degrees. As many as 55 percen of enrepreneurs had some knd of ranng bu very few had he nformal ranng. The proporon of enrepreneurs who had some knd of ranng s maxmum n he servces secor,.e percen. Smlarly, 68.4 percen enreprelj F r, f. f f (b) Educaon and Tranng of he Self-employed :\The nference s also suppored by he daa on Sources of Fnance. (Sec, sc on X). 60her forms of nvesmen n human capal nclude mgraon and search for new jobs. hese arc ou of he scope of he presen paper and as such we do no dscuss hese: 7For hs paper we defne an educaed person as he one wh an educaun or a leas prmary level.

10 6 neurs n he manufacurng, and 25 percen n he ranspor secor were raned. Even hough radng hardly requred any ranng, ye all of he enrepreneurs reporedly were raned. Enrepreneurs n he rade secor repued ha her job was no n accordance wh he ranng hey had acqured, whle n oher acves, 73 percen of he raned enrepreneurs repored ha hey had ranng suable o her presen busness. Only 5.7 percen of he enrepreneurs had he formal ranng. The n:os mporan source of formal ranng has been he echncal. schools (33.3 percen), followed by vocaonal (22.4 percen), polyechncs (17.7 percen) and oher publc and prvae secor nsuons (26.6 percen). (c) Famly Background of he Self-employed s generally beleved ha he famly backgrounds of enrepreneurs, n parcular he educaon and ranng of he faher, deelmne he ner-generaonaloccupaonal mobly and he growh poenal of he nfo1111al secor. However, seenls ha n case of Paksan, faher's educaon and he chldren's educaon levels do no have a sgnfcan and posve relaonshp. Whereas here has been a sgnfcan mprovemen n he educaon saus of hose whose fahers were llerae or had low levels of educaon, here has been a major rerogresson n case of hose whose fahers had hgher level of educaon. There has hardly been any change n he average saus of he enrepreneurs n he manufacurng and rade secors, whle rerogressonwas observed n he servces and ranspor secors. (d) Experence of he Self-employed Besdes educaon and ranng, experence of enrepreneurs help hem n runnng enerprse effcenly and sllccessfully. nformal secor enrepreneurs are que experenced. As many as 36 percen enrepreneurs had an experence of more han 15 years, 56 percen had an experence of more han 10 years and 81 percen had experence of more han fve years n he busness hey are presenly operang. Snce enrepreneurs have experence n he oher secors

11 J!;. f ( f r f 1 f. f as well, he proporon of enrepreneurs wh oal experence of more han ffeen years s 35.9, more han en years s 55.9 and 81.2 percen had experence of a leas fve years. (e) Supplemenary Sources of ncome for he Self-employed Some of he enrepreneurs run more han one busness smulaneouslyo supplemen her ncomes Tlanlybecause hey are eher under-employed n he man busness or hey work as par me n he nformal secor. The prop011onof such enrepreneurs, however, s que small,.e. 0.73, 3.13, 0.90 and 4.53 percen n nanufacurng, servces, and rade and ranspor secors. Ther ncomes, however, from he secondjob range beween 14 o 50 housand rupees. V. CHARACTERSTCS OF THE NFORMAL SECTOR Three characerscs of he nformal secor. vz, sngle and jon ownershp, permanency of her premses, and he age of he frm have been dsngushed n hs secon. 7 (a) Sngle and Jon Ownershp A flm owned and operaed by a sngle ndvdual s usually confronedwh a number of problems n s expanson, ncludng he produc dversfcaon.however, he sngle owners whch presumably do effec s growh generally own he nformal secor enerprses of Paksan.The pm1nershpsare no very common and hey accoun for less han en percen of he nfornlal secor enerprses. - n he jonly owned frms, he share of respondens, presumably he one responsble for runnng he busness, n he capal nvesed n he enerprse has been less han half. Ths knd of paern n nvesmen reflecs he fac ha he acve parner s compensaed n he form of lower capal conrbuon. (b) Ownershp of Premses The frms locaed n rened premses always face he possbly ha he busness shall have o be shfed o oher premses whch nfluences her long erm paern of nvesmen and growh. Only 37,

12 8 percen nformal secor enerprses own he premses of her work place; 52.1 percen manufacurng frms, 20.9 percen frms n he servces and 30.1 percen frms n he rade secor own her. 8 premses. (c) Age of he Frm A verage age of a frm shows he sably of frms n a busness. A he same l1e, a hgh growh rae of enerprses mply a more favourable enrepreneural supply suaon. \Vhercas, such daa are hard o come by, he number of frms by age roughly ndcae he number of frms jonng he acvy over a specfed perod of mc.9 Whle abou 14 percen of he nformal secor enerprses have been n exsence for more han weny years, nearly 60 percen of he frms al:e less han 10 years old (see Table 2). The dsrbuon of Table 2 Percenage Dsrbuon of Frms by.number of Years he Frms has been n Exsence by ndusfl)! Year M::mufacUlng Servces Trade Transpol1 Toal () A No ransporer n he nformal secor owns premses. Normal pracce n Paksan s ha he local governmens normally provde ranspor sand facles, hough some bg ransporers do own her sands. 9The possbly, however, does exs ha here may have been swch-over from one acvyo anoher or fromone cy o anoher,ye heseare he onlydaa on he bass of whch some meanngful conclusons can be drawn abou he growh n he number offrms.

13 \ r f ț frms by vnage n all he four acves.shows ha here has been a specacular growh n a11he nformal secor acves over he las en years; he nmnber of enerprses have more han doubled n he pas 10years. v. SUBCONTRACTNG N THE NFORVALSECTOR Sub-conracng s one of he man sources of demand for he nformal secor fm1s, especally n he manufacurng secor. The nformal secor enerprses, n Paksan, have been sub:-conracorso boh he oher uns n he nfo1'n1alsecor as well as o frms operang n he fonnal secor. Subconracng leads o lower producon coss, as he frms specalze n he producon of dfferen componens. Somemes large frms sub-conrac a par of her producon o small frms wh a vew o avodng ax and labour regulaons, whle he smal1frms sub-conrac o overcome he lmaon of capal and o enjoy benef from hgh urn-over. Sub-conracng n Paksan s prevalen n he manufacurng secor and o some exen n he rade and servces secors; 63 percen of he manufacurng secor frms pracce sub-conracng whle:only 3.5 percen raderslo and 1.9 percen frms n he.servces secor pracce sub-conracng. n general, sub-conracng s done for he formal secor enerprses. The sub-conracors are somenles prov.ded wh raw maerals for processng Tlanlybecause sub-conracors wan desgn and,qualy of producs accordng o her specfcaons. Almos 2S percen of he frms whch pracce sub-conracng are provded wh raw maerals. Some of he manufacurers who do no receve raw maerals from he conracor ge some cash n advance and he subconracors, n reurn, provde some rebae. However, he pracce of 9 OTradefrms sub-conrac he producon of goods o oher nformal secor enerprses by placng orders on he small frms o supply goods n accordance wh her specfcaon and desgn. The raders also provde somemes raw maerals o he sub-conracors.

14 10 recevng cash n advance o purchase npus has been less prevalen; only 8.5 percen manufacurng frms and 14.3 percen servce frms whch dd subconracng receved cash n advance. Frms whch receve advances generally gve rebaes o cover fnancal charges borne by he conracor. Averagc rebae as a percenage of cash n advance pad by manufacurng and.servces frms are].72 percen and 3.57 percen, respecvely. V. LABOUR FORCE N THE NFORMAL SECTOR The nfornlal secor has he capacy o absorb nore labour han he formal secor. However, he workers are exploed by he elnployers n he nfonnal secor n erms of longer hours of work and lower wages, and as such hey need proecon. The average elnploynen sze of he nformal secor eneqjrse COnes ou o be abou 3.3 persons. s 4.69 persons n he manufacurng, 2.0 persons n he servces, and 1.87 persons n rade and 1.92 persons n he ranspor secor.. The labour,force employed n he nformal secor shows four neresng feaures. Frs as many as 84 percen workers are sklled; he proporon of sklled workers amongs females has been as hgh as 80.8 percen. Second, only 2.5 percen of he workers are females whch s farly lower han her share n he oal urban labour force,.e. 6.3 percen. Thrd, no felnale worker s engaged n ranspor acves. Fourh, all he work force n rade has repored hemselves as sklled workers; as a ll1aer of fac, no many had acqured any ranng-formal or nformal. The raders, however, nss ha sellng goods s a specalzed skll. (a) Labour Force by Employnlen Saus The self-employed al1d he famly helpers accoun for half he employed workers whle he employees accoun for abou 43 perccn of he employmen. (See Table 3.) Ths dsrbuon paern of labonr force by employmen saus s no much dfferen Fron1 he paern for he enre economy of he urban secor.

15 Self-employmen s raher mporan n he nonmanufacurng secors where accouns for abou 47 o 53 percen of employed workers. However, he share of self-employed s only 16.3 percen n he nanufacurng secor. Therefore, f he objecve s o promoe nformal secor enerprses over he manufacurng esablshmens, jus promoon of self-en1ploymen would no be suffcen. Effors shall have o be made o expand he exsng manufacurng enerprses and o proec he wage employees, who accoun for 73 percen of manufacurng employmen, agans he exploaon of he manufacurers. Table 3 1. Dsrbuon of Workers n he nformal Secor Toal Percenage Dsrbuon of Employed No of \Vorkers Self Emp]oyed Employee Famly Secor Esablshmen (Numbers) He]per Manufacurng ] Servces Trade ],6.7 Transpor Toal (b) Skll Formaon n he nformal Secor Female workers n he nformal secor are abou wo percen of he oal labour force employed n he secor. n he nformal manufacurng secor, females are abou wo percen of he labour force, bu n he formal manufacurng secor hey are 8.8 percen. On he oher hand, he share of female workers n nformal rade acves s 1.85 percen agans 1.3 percen n he formal rade acves and n he servces secor females fonned 1.6 percen n he nformal secor compared o 13.7 percen n he enre servce secor n he urban areas. Thus he proporon of female workers n he nformal manufaclrng and servces acves s far lower han ha n he folmalsecor.

16 12 Whereas relavely larger proporon of he sklled females workers have been n he nformal secor, very few unsklled female workers have been able o ge,employmen n he nformal secor"and even hese unskl1ed females are workng only n he nanufacurng secor. Dsrbuon of workers by male and female adul and by male and female chldren yelds some neresng resuls. The nformal secor comprses of 91.0 percen adul males, 4.9 percen chldren and 4.2 percen of adul fel11ales. There are no felnale chldren n any of he nformal secor acves.. s encouragng o noe ha he chld labour s no all ha prevalen n he nformal scor as some of he earler sudes have ndcaed. The hghes proporon of chld labour s found n he ranspor secor where chldren formed 8.8 percen of he work force; followed by 4.4 percen n he manufacurng secor, 4.2 percen n he servces secor and 2.1 percen n he rade secor. (c) Gender Dsrbuon Major source of skll acquson n he nfonnal secor has been he Usad-Shagrd (Maser-apprence) sysem. n he form of shagrds, enrepreneurs fnd hardworkng labour who work as hard as he regular or casual workers, bu are pad very lle. As n1any as 26.5 percen enrepreneurs admed he cheap labour o be he movaon behnd her decson o ake shagrds.12 Enrepreneurs generally are relucan o ake shagrds and he enry s no free for he workers. Ths s because he shagrds n her eens have a endency o run away. Therefore, ranng s mpared only o he close relaves or o hose for whch frends provde guaranees. As many as 21.5 percen relaves and.35.7 percen on personal guaranees were nduced as shagrds. Accordng o 1981 Census, 4.2 percen workers n urban areas were chldren. 12Usad-Shagrdsysem may be conceved as he one where boh ranees and raners benef; fanner obanng ranng a low opporuny cos and he laer geng cheap labour. n he absence of oher ranng modes, he sysem conrbues owards mparng skjls. Ye s probably he second- or he hrd-bes soluon.

17 1 - Usads frs look a he learnng poenal and hen ask for guaranees. As many as 40.8 percen enrepreneurs n he manufacurng secor gave maxmum wegh o he learnng poenal of he shagrds. n he servces and rade secor, he percenage was no less sgnfcan,.e and 35.0 percen respecvely. s generally beleved ha ranng hrough he Usad-Shagrd sysem s very slow and s a long drawn process. On average, akes 15.7 monhs n he manufacurng secor and 20.9 monhs n he servce secor o ran a shagrd. Each manufacurng frm, on average, has raned 12.2 shagrds whle he servce frms and he raders have raned 8.5 and4 shagrds respecvely. Formal educaon does no play much role n he acquson of skll hrough he Usad-Shagrd sysem. Moreover, he enrepreneurs who feel ha educaon helps he shagrds n he acquson of sklls, fel ha prlnary or mddle level educaon s suffcen o acqure he skll. s neresng o noe ha mos of Shagrds connue o work for Usad even afer he compleon of ranng eher because hey feel oblged or some bndng conrac prohbs hem o leave Usad for a specfed perod. As many as 70.8 percen Shagrds n he servces secor, and 57.9 percen n he manufacurng secor were found workng wh Usads. Those who leave usad afer somemes, generally se up her own busnesses n he same acvy. 13 (d) Job Preference of he Self-employed A raonal enrepreneur allocaes resources o an acvy where he expeced rae of reurn s he maxmum,.e. an enrepreneur res o maxmze reurn on boh he physcal as.well as human capal. However, somemes enrepreneurs s consraned o pursue he preferred busness. Lack of physcal capal, s he major consranng facor; 42 percen of he enrepreneurs repored o be a m,or problem. The oher consranng facors nclude he n011- avalably of suable premses, lack of raw maerals, Jack of suable machnery, lack of echncal workers, nadequae demand

18 14 for he produc and governmen regulaons. No surprsngly, governmcn regulaons arc he leas ced facor whch consraned enrepreneurs busness. o ake up he preferred jobs or o sar a preferred ' (e) Hours of Work n he nformal Secor The workers n he nformal secor, on average, work for sxy hours per week compared 'o 45 hours n he formal secor. Famly helpers and casual workers have o work he maxmum number of hours, bu even shagrds work as much as 55 hours per week. The enrepreneurs henlselves work for almos 59 hours. Males n he nfonnal secor end o work longer hours han he femalesl3. For example, male famly helpers, on average, worked for 61 hours per week bu female famly helpers worked for only 32.7 hours. Ths s also rue for he self-employed female workers n he manufacurng secor. For nsance, whereas nlale self-employed worked for 56.2 hours a week, female self-employed, on average, worked for 45.4 hours a week. V. WAGES AND FRNGE BENEFTS N THE NFORMAL SECTOR Workers receve rcmuneraons for hc scrvces o any enerprse. Despe workng raher long hours, he nformal secor employees are poorly pad. They do no ge hgher wage raes commensurae wh longer hours of work and receve lower frnge bcnefs han he formal secor enerprse. Earnngs of he self-employed, on average, have been Rs 5,675 per monh whch s almos four mes he wage rae n he nformal secor. However, her earnngs comprse boh of wages as well as her profs. The wages of he regular employees, on average, exceeds a lle ha of he casual workers and s smlar o ha of he unsklled workers n he consrucon secor; he average nonhly 13Bu neresngly enough, he female famly helpers n he servce secor work longer hours han he males.. f f.,, -. r J..f.:! j,} )!', ' r;}

19 \, \ wages of regular and casual workers n he nformal secor have been Rs 1,633 and Rs 1,577 respecvely. These wages are sgnfcanly lower han he wages of her counerpars n he fonnal secor. The wages of famly helpers are que smlar o hose of he casual worker,.e. Rs 1,573, bu he shagrds, on average, have been pad only one-hrd of he wages of he regular employee. n addon o wages, he employees also receve frnges n he form of bonuses and conlnlssons. Besdes, workers n he servces, rade, ranspor and manufacurng secors, also receve benefs ncludng free meals (n ceran cases) medcal allowance.fa roncally, alnl0s one-fourh enrepreneurs dd no pay he \\'ages o her workers durngv he sckness. 15 V. EFFCENCY OF NFORlVALSECTOR ENTERPRSES The rapd growh of he nfornlal secor n he face of sff compeon from he organzed secor suggess ha he nformal secor acves are effcen. Snce he low capal-nensy s he hallmark of he nformal secor enerprses, capal-labour rao, capal-qupuraos and producvy of capal have been examned n hs secon. also examnes he nlpac of he exempons from paymen of sales axes and excse dues and he exempons from some labour regulaons o he nformal secor. (a) Capal-nensy There are hree nan problems n he esmaon of he capal sock especally n he nformal secor. Frs, snce a large number of small frms are locaed n he resdenal areas and he sanle buldng v s used for boh he housng and he busness purposes s dffcul o apporon he cos of buldngs o he busness acvy.) Second, J.JFull coverage means paymen of docor's fee and medcnes for he workers only. Generally such expendures are very low amounng no mor han Rs lapel' day. 15Theproblem ha been overcome n hs sudy by esmang capal slock whch s boh nclusve as well as exclusve of land and buldngs.

20 16 a large number of enrepreneurs do no own. buldngs and/or equpmens bu hre hese on ren. The value of capal n such cases lus been mpued on he bass of he enrepreneur's valuaon anel/or on he bass of he value of capal repored by oher snlar enrepreneurs. Thrd, he esnaon of value of capal a curren prces becomes problemac because he capal s of dfferen vnages and prces of equpmen and buldng ncrease over me.() Average capal-labour rao n he nformal secor was Rs 110,700 and f he land and buldngs are excluded, s Rs 17,180 (see, Table 4). The capal-labour rao n he nformal secor s subsanally lower han he average capal-labour rao for he enre economy (Rs 2,36,582 for he 1980/81 o 1991/92 perod). Assumng ha he nfonnal secor enerprses are locaed n he resdenal premses,, hus, has a poenal o creae upo 14 n1es more jobs han res of he economy, wh he gven capal sock. Table 4 Capal- and Labour-Producv(v and Capal-Labour Rao enrepreneurs. (n 000 Rs) Capal Producvy Capal Labour Rao ncludn<r 0 Excludnu0 Excludnn0 ncludnu'" Labour- Land & Land & Land & Land & Secor Producvy Buldng... Buldng... Buldng Buldng Manufacurng Servces Professonal Non ] professonal Trade Wholesale Real ]00.84 Transpor Mechancal Non Mechancal Toal Thevalue of capal repored n he paper s essenal1y he valuaon by,.. ",.. " : }.".....! \.f. r

21 . \ \ - \! \,.' Producvy of capal, defned as he nverse of capal-oupu rao, n he nformal secor, has been 1.28 and f land and buldngs are excluded, s as low as 0.29 (see Table 4). Compared o he capal-oupu rao of around 3.0 n he counry, he producvy of capal n he nformal secor s, ndeed, very hgh. may be noed from Table 4 ha he capal-oupu rao s he leas n ranspor, followed by rade, manufacurng and servces. (b) Producvy of Labour Labour producvy, defned as value-added per worker, n he nformal secor, on average, has been Rs 84,840; he hghes producvy of labour has been observed n rade, followed by 11anufacurng,ranspor and servces secors (see Table 4). The producvy level n each of he nformal secor acvy exceeds sgnfcanly han ha for he whole economy. The fndng ha labour producvy n he nformal secor s hgher, s subjec o wo caveas. Frs, he survey may have yelded beer esmaes of earnngs han he eslnaes of Naonal Accouns due o beer enumeraon. Second, presen esmaes are of un-weghed labour producvy whle Naonal Accouns provde weghed esmaes. Accordngly, s more nsrucve o examne he producvy level by each acvy. Very sharp dfferences n boh he capal-nensy as well as producvy of capal and labour n he manufacurng secor are que vsble. For nsance, capal-nensy s very hgh n beverages, obacco, wood & cork, and prnng and publshng ndusres; capal-labour raos n hese ndusres exceed he average capallabour raos for he'manufacurng secor (boh formal and nformal secors). The capal-oupu rao has also been hgher n hese ndusres. Bu surprsngly enough, producvy of labour n hese ndusres s no hgher han he average producvyof labour n manufacurng. These are he ndusres whch are subjec o sales axes and excse dues n he formal secor and are survvng only by avodng axes. f hey are subjeced o he axes, hey may become non-vable n he nformal secor. 17

22 18 Sharp dfferences across varous manufacurng acves sugges ha f labour absorpon s he basc objecve, governmen may have o be very selecve n provdng facles o hem. Any facly whch promoe neffcen ndusres n preference o effcen ones, needs o be whdrawn. On he oher hand, all he consrans may be removed whch resrc he growh of nformal secor enerprses n any acvy. Lke n he manufacurng secor, capal-nensy... and producvy of capal and labour vary sgnfcanly across varous servces. \Vhle capal-oupu raos and capal-labour raos are hghly correlaed, producvy of labour s no much relaed o capal-nensy. suggess ha oher facors ncludng hun1an capal nay have played more role han he capal n rasng he labour producvy n varous servce acves. As expeced he resuls show ha mechancal ranspor s he mos capal-nensve modes. Producvy of capal n hese acves s lower han he average level of producvy n he ranspor secor. n hs secor, however, producvy of labour s sgnfcanly relaed o capal-nensy. The capal-nensy and producvy of labour and capal'vares sgnfcanly across varous ac v es of he rade secor. (c) Poenal for mprovng Producvy n he nformal Secor Due. o ceran polcy-mposed and/or narke-relaed consrans, he. nformal secor n1anufacurng and servce acves. have faled n ralzng fully he poenal of producvy. 17 A large pr9poron of frms are workng below her full capacy level n he nformal secor; n he manufacurng secor, 95.2 percen frms and n he servces secor, 96.7 percen frms have unulzed capacy n varyng degrees. The r,le of under-ulzaon was 31.0 percen n he manufacurng secor and 19.9 percen n he servces secor.. The 17None of he enrepreneurs n rade or ll;anspor secors fel ha producvy can be mproved wh he exsng resources. '"'\

23 19 enrepreneursn he manufacjrngsecor esmae ha her oupu can ncrease by 37.2 percen and hose n he servces secor can ncrease her oupu by 53.] percen whou any addon o capal f he consrans ncludng lack of demand, non-avalably of raw maerals, and governmen regulaons are removed. X. NVESTlVENT REQUREMENTS OF FUNDS N THE NFORMAL AND SOURCES' SECTOR s a commonperceponof he enrepreneurs ha he lack of capal s he major consranng facor n effecvely runnng he exsng busness and n expanson of her enerprses, and graduaon of her frms from nformal o modern Jnes of producon.lack of capal forces he enrepreneurs o use nferor mehods of producon,.e. hand-drven ools and second-hand machnery, and neffecve echnques of procuremen of raw maerals and markeng of her fnshed producs. n fac hs problems so acue and pervasve ha all oher problems ncludng hose relang o avalably of raw maerals and nadequae nfrasl11cure,labour, narkeng, ec. become n he ulmae analyss a problem of fnance. The 111ajorsource of funds n all he acves of he nformal secor s famly savngs. Famly savngs accoun, on average, for more han half he funds. They accouned for 53.9 percen of funds n he rade secor, 51.7 percen n he manufacurng secor, 49.3 pelcenn he servces' secor and for 44.7 percen n he ranspor secor. nvesmen from own savngs whle workng as wage employees s he second mos mporan source of funds, confrmng our earler fndng ha wage employees make a ranson o he nformal secor n he role of self-employed afer accumulang suffcen capal from her jobs n he fonnal scor. Such savngs formed he hghes proporon he ll1anufacurng secor followed by servces,rade and ra.nsp0l1secors. Own savngs from workng abroadare also an mporansource of fundng accounng for abou 6.2 percen of oal funds. nvesll1en made ou of foregn savngs s

24 20 he hghes n rade, followed by servces, he manllfacurng and he ranspor secors. Use of farm ncome for nvesnen n he urban nformal secor s neglgble. Loans from banks accoun for 8.1 percen of funds. has been an mporan source of nvesmen bu only n he manufacurng and ranspor secors. n he servces secor, accouns for 4.0 percen of oal funds and n he rade secor, he proporon s less han one. percen. Even more mporanly,loans from local moneylendersare neglgble. Only he manufacurng and he rade secors ulze hs facly bu even here que sparngly whle he ranspor and servces secors do no use hs facly a all. Ths fndng s oppose o he fndngs of earler sudes on he nformal cred marke especally for he ranspor secor. Loans from relaves o se up he busness s also mporan: he hghes proporon of frms who useclloans from relaves are n he ranspor secor fo11owedby rade, servces and manufacurng secors. The proporon of renvesed profs from he curren busness s also gue sgnfcan, especally n case of ranspor and servces secor. nvesmen from renvesed profs of curren busness s almos one-half n he rade secor and one-enh n he manufacurng secor.... X. CONCLUDNG REMARKS AND POLCY SUGGESTONS The nfonnal secor of Paksan s boh large and growng rapdly. Consderng s poenal n generang employmen opporunes, needs o be promoed, by remo'vng consrans on hem. A he same me some of he nformal secor has flourshed only because of he ax exempons and avodance of labour regulaons.. Smlarly, he workers are beng exploed n he nformal secor n erms of low wages and longer hours of work. also encourages chld labour and hus consran he accumulaon of human capal n he counry... ",, 1. 1.

25 ! j! > ị!., 1!, \ \ 1!! J f { \ f Mcro enerprses are labour-nensve and as such wh lmed avalably of capal, hey can be effecvely ulzed o generae producve employmen.. However, he exsng srucure of ncenves dscrmnae agans he nformal secor enerprses. There s a need o ra<?nalzehe ncenve srucure o promoe an effcen nformal secor. Whle he exelnpons from paymen of sales axes and excse axes whch nerferes wh effcen-resource allocaon be whdrawn, he rae of mpor.duy on commercal and ndusral users be equalzed so ha hey do no have o pay hgher coss for n1pored raw maerals. Non-nervenon of he governnlen has been he man facor gvng rse o buoyancy of he mcro enerprses and as such hey may be exelnped froln paymens of varous fees and cess under labour laws. However hey mus CO11plywh he labour laws. They may no be allowed o explo he workers, especal1y he chld workers, by exendng he workng hours whou adequaely compensang hem. The mcro-enerprses are he man source of he nformal ranng, ye here are a nunber of problems assocaed wh hs form of skll acquson. The Usad-Shagrd sysem plays a useful role n mparng skns o he workers. However, Usads generally ake que long o mpar sk11s.moreover, such sklls are somemes even obsolee because he Usad can mpar only hose sklls whch he had acqured hn1self. Snce s raher dffcul o movae he Usad o leave hs shop and aend a. ranng course, moble workshops can be que useful n nlparng new sklls o he Usads. and he Shagrds as well. To provde praccal ranng o he workers, new nsuons provdng non-formal ranng,.e. nsuons gvng very praccal ranng whou gong hrough long drawn syllab, would be also que helpful. Low producvy of workers, especally n he servce secors, has manly been due o he fac he workers are usng ou-daed hand ools. Hgh raes of mpor duy make he mpored ools expensve, whle he qualy of domescany produced hand ools, due o proecon, has been raher poor. Allowng he nlpor of ools freely 21

26 22 a mnmum duy would help n resolvng he problem. The mcro-enerprses have a large poenal o expand, ye clue o varous consrans, hey have faled o realze he poenal. Lack of fnances has been he major consran. The nsuonal cred accouned for a very small proporon of he oal nvesmen n he nformal secor. Non-avalably of cred o l11croenerprses has been due o wo n1an facors: () hgher ransacon coss and rsks whch dscourages he fnancal nsuons o lend o mcro enerprses and () he nformal secor enerprses do no have he requred collaeral. nsead of subsdy on he neres rae, he nformal secor has always demanded greaer avalably of cred and concessons n he collaeral, e.g. hypohecaon of raw maerals or machnery. Demand for goods produced n he nformal secor s he m,\jor consranng facor. n general, goods produced by he nformal secor are of poor qualy and arc sub-sandard. Governmen may consder provdng facles of esng, qualy conrol and gradaon agans a nomnal cos. Besdes, same facles of concessons n mpor duy be provded o sub-conracors as are provded o hose who subconrac. A dssemnaon cenre whch helps n negrang he expor markes wh he 111cro-enerprseswould be que useful. Provson of he facles of expor fnances o ndrec exporers would also be helpful. REFERENCES Afab, K. (1990) "Growh of nformal Secor Frms: Lessons from Experence" QAU/FES, Naonal Workshop on he nformal Secor of Paksan: Problel11sand Polces. Sepember Ahmad. E. and Arshad (1990) "Wage and Work Profles of workers n he Urban nforl1alsecor" QAU/FES, Naonal Workshop. on he nformal. Secor of Paksan: Problen1s and Polces. Sepember 1214., Burk, A. A. (1989) "Urban nformal Secor. n Paksan: Some Seleced ssues." The Paksan Developmen Revew, Vol. 28, No.4 (Wner).

27 Chaudhry, H. (1990) "Self-employed n he Urban nformal Secor: A Soco-economc Profle". Naonal Workshop on he nformal Secor of Paksan. Organzed by he Deparmen of Economcs Quad--Azam Unversy n collaboraon wh Fredrch Eber Foundaon, slamabad. FerKs, G. E., H. Thomas, and L. B. M. Tomesen (1989) "Effec Monorng and mpac Evaluaon". Repor of a Workshop held on 12-13November, Royal Neherlands Elnbassy, slan1abad. Gusnger, S., and M. rfan (1980) "Paksan's nformal Secor",. ]Olll7W!of Developmen Sudes Vol. 16, No.4. Kaz, S. (1987) "Skll Forn1ulaon, Employmen and Earnngs n he Urban nfol111alsecor", The Paksan Developmen Revew VoJ. 26, No.4. Kemal, A. R., and Z. Mahmood (1993) "Labour Absorpon n he nf0l111al Secor and Economc Growh n Paksan". Fredrch Eber Sfung, slamabad.. Kbrja G. (1990) "Engneerng ndusry n he nformal Secor"' QAU/FES, Naonal Workshop on he nformal Secor of Paksan: Problems and Polces. Sepember MahmoodZ. (1990) "The Urban nformal Secor of Paksan: A Revew". QAUFES, Naonal Workshop on he nformal Secor of Paksan: Problen1sand Polces. Sepen1ber Nadv, K. (1990) "Nlulple Forms of Subconracng Arrangemens: mplcaons for he Growh of he e nformal Manufacurng Secor" QAU/FES, Naonal Workshop on he nformal Secor of Paksan: Problen1sand Polces. Sepen1ber j-' -.)

28 24 ABSTRACT n order o prepare concree polcy proposals for he prollloon of he nformal secor, s essenal o have a knowledgeable accoun of he basc characerscs and facs abou hs secor. Ths repor presens he sylzed facs abou he urban nformal secor, such as he characerscs of he self-employed and nforn1al secor enerprses; labour producvy and capal-nensy; consrans on he expanson of he nformal secor; echnologcal defcences; capal requremen and needs for he skl1 developmen, employmen poenal; and he earnng capacy of he self-elnployed and employees. Keepng n vew hese sylzed facs abou he nformal secor he repor concludes wh a se of concree polcy proposals for he promoon and generaon of he nformal secor.