Informal employment revisited: theories, data & policies.

AuthorChen, Martha Alter
PositionBy Invitation


Informal employment is back on the policy agenda. (1) It represents a major share of the workforce in most developing countries and is on the rise in developed countries. Across the developing world, the majority of informal workers are poor; and the majority of working poor are informally employed. Adding to these policy concerns are the lingering impacts of the Great Recession on employment and the global crisis of youth unemployment.

This paper seeks to provide a summary overview of recent rethinking and recent data on informal employment, particularly in developing countries. Section I details two international statistical definitions--of "informal sector" and "informal employment"--and presents recent data on non-agricultural informal employment. Section II discusses to "formalize the informal economy" debate and presents a comprehensive framework for responding to informal enterprises and informal employment. Section III analyzes why existing labor market models and regulations need to be re-examined in light of the reality and complexity of informal employment today. The paper concludes that employment should be the cornerstone of the development agenda and that economic diversity should be the cornerstone of the future economy.

  1. Statistical Definitions & Data

    International Statistical Definitions: In 1993, the International Conference of Labour Statisticians adopted an international statistical definition of the "informal sector" to refer to employment and production that takes place in unincorporated small and/or unregistered enterprises. But soon thereafter, beginning in 1997, the International Labor Office (ILO), the international Expert Group on Informal Sector Statistics (called the Delhi Group), and the global network Women in Informal Employment: Globalizing and Organizing (WIEGO) began working together to broaden the concept and definition to incorporate certain types of informal employment that had not been included in the enterprise-based concept and definition of the informal sector. They sought to include the whole of work-related informality, as it is manifested in industrialized, transition and developing economies and the real world dynamics in labor markets today, particularly the employment arrangements of the working poor.

    The expanded definition focuses on the nature of employment in addition to the characteristics of enterprises and includes all types of informal employment both inside and outside informal enterprises. This expanded definition was endorsed by the International Labor Conference (ILC) in 2002 and the International Conference of Labor Statisticians (ICLS) in 2003: statisticians refer to this expanded notion as "informal employment."

    Informal employment is, by design, a large and heterogeneous category. For purposes of analysis and policymaking it is useful to, first, sub-divide informal employment into self-employment and wage employment, and then within these broad categories, into more homogeneous sub-categories according to status in employment, as follows: (2)

    Informal self-employment including:

    * employers in informal enterprises

    * own account workers in informal enterprises

    * contributing family workers (in informal and formal enterprises)

    * members of informal producers' cooperatives (where these exist)

    Informal wage employment: employees hired without social protection contributions by formal or informal enterprises or as paid domestic workers by households. Certain types of wage work are more likely than others to be informal. These include:

    * employees of informal enterprises

    * casual or day labourers

    * temporary or part-time workers

    * paid domestic workers

    * contract workers

    * unregistered or undeclared workers

    * industrial outworkers (also called home workers)

    This expanded definition extends the focus from enterprises that are not legally regulated to include employment relationships that are not legally regulated or socially protected. It also serves to focus attention on informal workers: i.e., those who are informally employed. (3) This employment-centered focus has been accompanied by significant rethinking of the composition, causes, and consequences of informal employment. Today, informal employment is widely recognized to include a range of self-employed persons, who mainly work in unincorporated small or unregistered enterprises, as well as a range of wage workers who are employed without employer contributions to social protection.

    To sum up, there are three related official statistical terms and definitions which are often used imprecisely and interchangeably: the informal sector refers to the production and employment that takes place in unincorporated small or unregistered enterprises (1993 ICLS); informal employment refers to employment without legal and social protection --both inside and outside the informal sector (2003 ICLS); and the informal economy refers to all units, activities, and workers so defined and the output from them. Together, they form the broad base of the workforce and economy, both nationally and globally.

    Recent National Data & Regional Estimates: Since the expanded definition of "informal employment" was adopted by the 2002 International Labor Conference and the 2003 International Conference of Labor Statisticians, many countries have begun using this definition of informal employment in the collection and tabulation of national labor force data. What follows is a summary of recent analyses of available data on the size and significance of non-agricultural informal employment compiled by the ILO and the WIEGO Network for an update of a 2002 statistical publication called Women and Men in the Informal Economy: A Statistical Picture. (4)

    Analysis of the data compiled by the ILO and WIEGO suggests that informal employment represents a significant share of non-agricultural employment in developing regions: ranging from 45 per cent in the Middle East and North Africa (5) to 51 per cent in Latin America to 65 per cent in East and Southeast Asia to 66 per cent in sub-Saharan Africa (excluding South Africa and other countries in Southern Africa with a relatively low prevalence of informal employment) to 82 per cent in South Asia (Vanek et al 2012).

    There is significant variation by country within the regions: from 31 per cent (Turkey) to 57 per cent (West Bank and Gaza) in the Middle East and North Africa; from 40 per cent (Uruguay) to 75 per cent (Bolivia) in Latin America; from 33 per cent (urban China) to 42 per cent (Thailand) to 73 per cent (Indonesia) in East and Southeast Asia; from 33 per cent (South Africa) to 82 per cent (Mali) in sub-Saharan Africa; from 62 per cent (Sri Lanka) to 83 per cent (India) in South Asia.


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