Skills development in the informal sector Arvil V. Adams
Initial observations The informal sector plays a predominant role in job and national wealth creation in developing countries worldwide, but particularly Africa Training systems are focused on modern, formal companies, while excluding the vast majority of people of working age in the informal sector from any structured system of skills development.
Objectives Measuring the informal sector What we know about providing skills for the informal sector How to promote skills for those working in the informal sector
1. Why the concern for the informal sector? The IS represents two-thirds of today s nonagricultural employment in Africa The percentage has been growing More than half in the IS are crowded into trade The IS is home to large numbers of the working poor The IS accounted for 42% of GDP in 23 African countries in 2000 IS has played a critical role for job creation in SSA
Measuring the informal sector Combines enterprise and worker characteristics Size of firm, usually under 10 workers Non-registered Non-agriculture Characteristics of the worker Self-employed with paid workers Own-account Unpaid work in family enterprise Members of a producer cooperative No labor contract
ILO building-block approach to measuring the informal sector
Profile of informal sector employment Employment (1,000) Employment in Percentage Year Total Men Women Total Men Women Botswana 1996 60.5 21.1 39.4 19.3 12.3 27.6 Ethiopia 1999 4814.8 1444.2 3370.6 74.2 56.4 85.7 Mali 1996 1176.1 485.6 690.2 94.1 91 96.4 South Africa 2001 3319 1572 1746 31 25.7 38.2 Tanzania 1991 2369.4 1531.1 838.3 22 28 15 Barbados 1998 6.9 4.2 2.7 5.9 6.8 4.8 Brazil 1997 18113.3 8652.6 9460.6 34.6 28.3 43.4 Mexico 1999 9141.6 5693.8 3447.7 31.9 32.7 30.7 India 2000 79710 63580 16130 55.7 55.4 57 Turkey 2000 1319.5 1183 136.5 9.9 10.6 6.2 Source: ILO Compendium of Offical Statistics on Employment in the Informal Sector, 2002 7
Reasons why statistics vary for the informal sector Criteria used to define the informal sector, for example, employment size of the enterprise, use of registration status; Branches of economic activity covered, Inclusion or exclusion of paid domestic employees employed by households or producers of goods, Inclusion or exclusion of persons with a secondary job in the informal sector; Inclusion or exclusion of person engaged in professional or technical activities: and Geographic coverage, some for urban areas only.
Characteristics of those employed in the informal sector 70% of those in the informal sector self-employed Women s share of employment is higher in half of African countries Men more likely to hire other workers than women Women comprise most of unpaid family workers Half of all informal sector employment is in retail and wholesale trade Street vending and ambulant trading can constitute up to 75 percent of informal sector employment Average earnings of informal sector are higher than minimum wages and agricultural employment
2. Skills development in the informal sector The informal sector trains the great majority of young people in many countries Formal training (15-20%) Non-formal training (80-85%) On-the-job training Enterprise-sponsored training Traditional apprenticeship
Informal sector is the major source of skills in Pakistan 78 percent of youth ages 15-24 find employment and skills in the informal sector 68 percent of those aged 25 and above find employment and skills in the informal sector These percentages have increased 4 and 7 percent respectively from 1999 to 2006
Public sector accounts for small share of skills in Ghana: 2006 20% 3% 15% Current apprentice Past apprentice 5% Current vocational trainee Past vocational trainee 15% 40% Current on-the-job trainee Past on-the-job-trainee 2% Other Centre for the Study of African Economies, Oxford and the Ghana Statistical Office 12
Potential sources of skills for informal sector Public technical and vocational education and training programs Ministry of Education Other Line Ministries, e.g. Labor, Industry, Gender Private training providers For profit Non-profit Enterprises
Why public sector trainers fail to serve the informal sector Mission statement to serve industrial development, slow to recognize the informal sector Focus on full-time students and first job training Supply-driven financing reduces incentives for innovation Complexity of multi-skilling, difficult and hard to organize Delivery departs from traditional schooling schedules Limited ability of clients to pay
Private non-profit providers are responsive to the informal sector NGO s offer good training model, responsive to market demand for skills Responsive to the poor Training often linked with other business services, e.g. finance, technical assistance, but Limited and insecure financing in many settings For-profit sector often concentrated in urban areas, low-capital intensive trades Quality assurance important as a guide to good quality private providers of training, e.g. trades test scores, accreditation, placement record, etc.
Private for-profit providers serve a special market niche Focus is on soft skills due to investment costs, e.g. information technology, accounting and book keeping, tailoring, hair dressing, etc. Profit limits the social focus of program Weak capacity of clients to pay limits services to the poorest of the poor Providers are responsive to market changes Expanded role in informal sector is possible
Enterprises are active trainers Total EAP LAC SSA ECA MENA South Asia 0 10 20 30 40 50 60 70 Source: Hong Tan, World Bank Institute, 2006, WB Investment Climate Assessment Surveys
Characteristics of enterprises that train Large enterprises train more than small enterprises Exporters train to meet quality standards Users of technology demand skills Involvement of foreign direct investment Hire educated workers
Constraints facing smaller firms in training Workforce with limited education Multi-skilling needs High opportunity cost of time spent in training Cash flow constraints Lack of technical capacity to design and deliver training Limited information about benefits of training
Popularity of apprenticeships in the informal sector Self-financing and regulating Good prospects for post-training employment Practical, hands-on, but Limited infusion of technology Weak education base of workers Lack of quality standards Limited potential for scaling up to the needs of a modern economy
3. Promoting skills development in the informal sector Putting the informal sector on government s agenda Raising education and literacy of the workforce through second-chance programs Address the weaknesses of traditional apprenticeships Combine training with other inputs needed by the sector a menu of services Strengthen industry associations as a provider Creating a role for public TVE Monitor and evaluate
Policies encouraging enterprise training have mixed results Payroll levies and training funds Favors large firms, heavy dead weight Can be adapted to serve micro and small enterprises the Singapore and Malaysia experience Vouchers Provides trainees with choice Requires market information to inform choice Administrative requirements Tax credits and expenditures Micro and small firms may not show profits to claim tax deductions Credits can be used where profits do not exist
Improving traditional apprenticeships Offer workers literacy and second chance education programs Upgrade pedagogy and technical skills of master crafts persons Open access to new technology Develop industry associations to provide expertise and scale in training for small enterprises Test and certify skills obtained to improve quality extending National Qualification Frameworks
Financing skills for the informal sector Reform of training funds to reach small enterprises TA for training needs assessments and design - Malaysia Off-the-shelf courses -- Malaysia Reduce cash flow requirements for training Singapore s use of vouchers Incentives to use excess capacity of larger firms Use of targeted vouchers for the micro and small firms -- Kenya Realignment of incentives for public training providers to support informal sector financing outcomes rather than inputs Offer tax credits for training
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