Informal economy : Conceptual framework

Transcription

1 Informal economy : Conceptual framework

2 LEARNING OBJECTIVE 1. Develop your knowledge of concepts relating to informal sector and informal employment within the SMEs sector 11/11/2017 2

3 Reflection? MALI informal sector what defines informal economy and which economic units and workers can be found in the informal economy! 11/11/2017 3

4 Meet our characters! Otieno: A business owner in Rwanda Rafael: the owner of a restaurant in the Dominican Republic Maya: A trader in Cambodia Leyla: A rural entrepreneur in Jordan Lorena: successful entrepreneur in Kenya John: the owner of a small farm 11/11/2017 4

5 WHAT DO YOU THINK? Would you qualify the characters as formal or informal businesses - workers? What are the reasons for the characters being formal / informal? How do you define (in)formality?

6 informal sector, informal employment? 6

7 Milestones 1972 kenya 1991 Informal Sector coined Describing the activities of poor working women and men who were not recognised, recorded, protected, or regulated by the public authorities DG Report: The dilemma of the informal sector ( Link here) 1993 Statistical Definition: Fifteenth International Conference of Labour Statisticians 2002 ILC: Conclusions Concerning Decent Work and the Informal Economy From sector to economy 2015 ILC: Recommendation No. 204: Concerning the Transition from the Informal to the Formal Economy Focus on formalisation of both economic units and workers

8 Economic units refer in R204 to units that employ hired labour, own account workers (either alone or with contributing family workers), cooperatives and social and solidarity economy units Economic activities by workers or economic units that are in law or practice not covered or insufficiently covered by formal arrangement. Paragraph 3, ILO Resolution Concerning Decent Work and the Informal Economy. International Labour Conference, 90th Session, June

9 Economic activies insufficiently covered by formal arrangements by economic units : workers in informal economic units (informal sector) by workers : workers with informal jobs (informal employment)

10 Enterprise-based definition by economic units : workers in informal economic units (informal sector) Economic activies insufficiently covered by formal arrangements production not registered under specific forms of national legislation such as factories or commercial acts, tax or special security laws, professional groups regulatory acts or similar acts, laws or regulations established The informal sector by national includes informal agricultural production legislative bodies); and/or whose employees are not units but does not include registered. (ICLS 17th session, 2003). households as employers of domestic workers Employment in the informal sector covers persons working in units that have informal characteristics in relation to their legal status, registration, size, the registration of the employees, their bookkeeping practices.

11 Jobs-based definition Economic activies insufficiently covered by formal arrangements Informal employment, refers to the prevalence and characteristics of informal jobs (including the number of such jobs, from a statistical point of view). Informal jobs which could occur in formal, informal sectors as well as households are defined based on the characteristics of the employment relationships and the employment status. An employee is considered to be an informal worker if his employment relationship is not subject to labour regulation, taxation, social protection or entitlement to certain employment benefits (advance notice of dismissal, severance pay, paid annual leave or sick leave, etc ( ICLS 17th, session, 2003). Own account workers, employers and members of the producers cooperatives are considered to have informal job if the production unit is informal. by workers : workers with informal jobs (informal employment) Informal employment is a job-based concept and encompasses those persons whose main jobs lack basic social or legal protections or employment benefits and may be found in the formal sector, informal sector or households

12 HOUSEHOLDS FORMAL SECTOR Composition and heterogeneity of informal employment in the informal economy: a cartography Formal sector entrepreneurs (own account workers, employers and members of producers cooperatives in the formal sector) Employees in the formal sector who have formal employment Employees in households producing exclusively for own final use who have formal employment Informal employment Employees in the formal sector who have informal employment cell 2 Employees in households producing exclusively for own final use who have informal employment cell 10 Informal sector entrepreneurs (Own account workers, employers and members of producers cooperatives in the informal sector) - cells 3,4,8 Employees in the informal sector Employees in the informal sector who have informal employment cell 6 Own account workers in households producing exclusively for own final use -cell 9 Who have formal employ -ment - cell 7 INFORMAL SECTOR Total employment

13 Country Source Definitions Brazil Moldova Republic Turkey South Africa Viet Nam Zambia Urban informal economy survey Labour force survey Household labour force survey Quaterly labour force survey Labour force survey 2009 Labour force survey 2008 From international to national definitions Informal employment: examples 13 Employees without a formal contract (carteira assinada) Employees for whom the employer does not pay social security contribution, or who do not benefit from paid annual leave (or financial compensation for untaken leave) or will not be given paid sick leave in the event of illness or injury. Employees without any social security registration Employees without written employment contract, or for whom the employer does not contribute to the pension/ retirement fund or to medical/ aid benefits Employees without a written employment contract, or not covered by social insurance or not entitled to paid annual leave/ public holidays Employees not entitled to paid annual leave or for whom employer does not contribute to social security scheme

14 Informal sector units Produce goods or services with the primary objective of generating employment and incomes to the persons concerned; Operate at a low level of organization, with little or no division between labor and capital as factors of production and on a small scale; Depend on casual and family workers, rather than on employees with written contracts and formal guarantees; Are household enterprises Do not intend to evade the payment of taxes or social security contributions, or to infringe labour or other legislations or administrative provisions

15 Different criteria to define informal sector units 1. Destination of production: The economic unit produces at least some goods or services for sale 2. Registration of the unit: The economic unit is not registered under national legislation (registration at the national level, not at the local level 3. Size: the number of persons engaged /employed on a continuous basis is below a number decided by the country 4. Registration of the employees: None of the employees of the economic unit is registered under the national legislation 5. Bookkeeping : the economic unit does not maintain the set of accounts required by law( e.g balance of sheets) 6. Legal organization and ownership : the owners are persons or households not legal persons

16 Other criteria used by countries Place of work : Lack of registration of economic units with the sales tax authorities Industry : excludes those economic units that are in the agriculture, in export oriented activities,

17 From international to national definitions The informal sector: examples Country Source Definitions Brazil Urban informal economy survey Ethiopia Urban employment/ unemployment survey Moldova Republic Labour force survey Turkey Household labour force survey United Republic of Tanzania Integrated labour force survey Enterprises with fewer than 6 employees and without a complete set of accounts (agriculture excluded) Enterprises without an accounts book that have fewer than 11 employees or no licence (agriculture included) Enterprises that are not registered (agriculture included) Enterprises paying a lump-sum tax or not paying any tax, and with fewer than 10 persons engaged (agriculture excluded) Enterprises with fewer than 10 employees and without a complete set of accounts (agriculture excluded) 17

18 The example of Cameroon What are informal enterprises? Exemples of cameroun In Cameroon, the law defines as informal, any enterprise that does not comply with all those criteria: 1. Compliance with the fiscal administration in possession of a taxpayer s card 2. Affiliated to the social protection regime registration of the entrepreneur, and employees (if necessary) to the National Social Security Fund (CNPS) 3. Good standing with the judiciary Commercial register The Cameroonian National Institute of Statistics adds: 4. Formal accounting Photo ILO, Cameroon 18

19 Informal Economy Are all informal enterprises the same? Cameroon (Photo by J. van Doorn) Non-official enterprises with low levels of registration (most operations are not declared; most employees are not declared; the entrepreneur is educated & has skills, competitive market, product diversification Formal Economy Subsistence activities (100% informal) (poverty ; lack of education and skills; easy entry market, product homogeneity; the entrepreneur needs capital, insurance and social protection) Non-official enterprises with high levels of registration (most sales are declared; most employees are declared, entrepreneurs/employees are well educated &have skills, niche markets, entry barriers) Adapted from DCED (2009), Business Environment Reforms and the Informal Economy 19

20 Informal units informal employment Source: Zevallos, E. (2012) In order to design adequate policies to reduce informality, we should look at it as a primary stage in the entrepreneurship development process. Stage O: Potential entrepreneur There is no economic unit. Only business ideas and some degree of preparation to enter the market. Stage 1: Emerging entrepreneur Without signs of registry or tax formality; minimizes its visibility; generates precarious employment and does not register in any public registry Stage 2: New entrepreneur (1-2 years) Growth forces the business to greater formalization. Part of the employment is formal and the rest can be informal or subcontracted. Some registration phases are completed. Stage 3: Established entrepreneur The business is consolidated and formal registration requirements are met, tax is paid and labor formality is achieved Stage 4: Mature entrepneur (advanced, mid/longterm) Empirical evidence shows that at best, only 20-25% of informal entrepreneurs ever become fully formal 11/11/

21 Is informal employment increasing or decreasing in the world? Source: ILO calculations based on national household surveys.

22 Quizzz ( Yes or no) An informal sector economic unit is a production unit operated in the owner s home All small economic units are in the informal sector A person is in the informal sector if he/she has a precarious job All migrant workers are in the informal sector A person can work both in the formal sector and in the informal sector To measure the informal sector, the most important criterion is place of work Right now, countries all use the same definition of the informal sector o Informal employment can only happen in the informal sector o Employees of large enterprises cannot be in informal employment

23 GOING BACK TO OUR CHARACTERS 11/11/

24 Assessing the formal/informal employment status of our characters 11/11/

25 Assessing the informal /formal status of our characters enterprises 11/11/