Informal Sector: Statistical Concepts

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Informal SectorStatistical Concepts
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What are we going to discuss today?

• Why are we interested in informal sector
  statistics?
• What are some related concepts?
• How do we define informal sector?
• What are the key criteria to facilitate data
  collection?
• What are various tools to collect data on IS?
• DA Project on Interregional Cooperation on the
  Measurement of Informal Sector and Informal
  Employment Unified Data Collection Strategy
• Incorporating estimates into national accounts

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Problem Lack of sound data

• Informal sector not covered in official
  statistics
• Inadequate information on contribution of
  informal sector to GDP and labour market
• Data collections typically ad hoc studies (i.e.
  not part of regular national statistical systems)
  and with limited scope
• Available data not internationally comparable
• No time series data
• Poor analysis and dissemination

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Consequences Statistics to Policy

• Potentially significant underestimation of the
  GDP
• Lack of info on differential characteristics of
  informal sector enterprises in the use of
  technology, access to credit, training, markets,
  etc.
• Lack of info on input-output relations between
  formal and informal sector enterprises
• Lack of info on informal sectors contribution to
  employment and employment characteristics

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Type of informal sector statistics needed

• Total of informal sector units
• Production and incomes generated through informal
  sector activities
• Conditions of creation and operation of informal
  sector units
• Total employment in informal sector units

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Scope of Non-Observed Economy

• Illegal
• Underground/Concealed
• Household production for own final use
• Activities missed in data collection
• Informal sector

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NOE Components and Production Units
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Illegal Production
Producer/service provider unlicensed
Goods or services prohibited by law
Monetary
Non-monetary
Illegal production is included in SNA 1993
production boundary in order to avoid erroneous
attributions in financial accounts/transactions.
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Underground/concealed activities

• Not clearly separated from illegal production
• Mainly unreported income from production of legal
  goods and services (monetary/non-monetary)
• Certain activities may be productive and also
  legal but deliberately concealed from public
  authorities to     (a)  Avoid the payment of
  income, value added or other taxes
      (b)  Avoid the payment of social security
  contributions     (c)  Avoid having to meet
  certain legal standards such as minimum
• wages, maximum hours, safety or health
  standards, etc.     (d)  Avoid complying with
  certain administrative procedures, such
• as completing statistical questionnaires or
  other administrative forms. E.g.
  construction, service industries where small
  enterprises dominate

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Household production for own final use

• (a) Production of agricultural products and
  their subsequent storage
• (b) Production of other primary products such as
  mining salt, cutting peat, the supply of
  water(c)  Processing of agricultural products
• (d)  Other kinds of processing such as weaving
  cloth dress making and tailoring the production
  of footwear the production of pottery, utensils
  or durables making furniture or furnishings
  etc.
• Storage of agricultural goods and supplying of
  water are included in
• the production boundary as an extension of
  production activities.

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Statistical Underground

• Activities missed due to data collection
  deficiencies
• such as
• Undercoverage of enterprises
• (b) Non-response by enterprises (not imputed)
• (c) Underreporting by enterprises

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Informal Sector

• No unified definition hampering
• Comparable datasets
• Comprehensive guidelines
• Promotion of international standards
• There are international guidelines (15th ICLS,
  17th ICLS)

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Differences in Definitions Across Countries Differences in Definitions Across Countries
Azerbaijan Complete NOE definition except for illegal activities
Kazakhstan Complete NOE definition (refers to hidden and informal activities)
Kyrgyzstan Covers hidden (deliberately concealed or missed in data collection) and informal activities (carried out by individual producers or unincorporated enterprises which belong to individuals or households based on informal relations and produce goods and services completely or partially for their own consumption).
Turkey Unregistered economy
Turkmenistan NOE covers essentially non-government units
Uzbekistan Informal economic activities (informal sector includes the activities of households and individual entrepreneurs working with or without licenses)
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What is a household unincorporated enterprise?

• Fixed/other K does not belong to production unit
  but to
• owner
• (b) Enterprises cannot engage in transactions or
  enter into contracts with other units, nor incur
  liabilities on their own behalf
• (c) Owners have to raise the necessary finance at
  their own risk and are personally liable, without
  limit, for any debts or obligations incurred in
  the production process
• (d) Expenditure for production is often
  indistinguishable from household expenditure
• (e) Capital equipment may be used
  indistinguishably for business and household
  purposes

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Informal Sector Criteria, 15th ICLS

• (a) Size The number of employees on a continued
  basis (in practice can be total employees or
  engaged) is under a specified size (depends on
  national context, not the best criterion as there
  may be small enterprises which are perfectly
  formal).
• (b) Non-registration The enterprise is not
  registered under pertaining national legislation
  (such as factories or commercial acts, tax or
  social security laws, professional groups
  regulatory acts, or similar acts, laws or
  regulations established by national legislative
  bodies).
• ICLS recommended the exclusion of agriculture
  from
• scope of informal sector measurement due to
  practical
• reasons (and we abide by this recommendation in
  our
• project).

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Criteria for Identifying IS Enterprise
Essential Essential
Legal organization Unincorporated enterprise
Ownership Household
Type of accounts No complete set of accounts
Product destination At least some market output
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Criteria Additional Optional
Additional Operational Additional Operational
employed/engaged Specific to country
Non-registration Specific to country
Optional Optional
Kind of economic activity Possible exclusion of Agriculture and related activities Paid domestic services
Geographic area Possible exclusion of rural areas
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Informal Sector based on Delhi Group
Recommendations

• For international comparability-- narrower
  definition based on the largest common
  denominator of currently used national
  definitions.
• 3 essential criteria additional criteria to be
  applied simultaneously
• Productive units with less than five paid
  employees, and
• Productive units not registered, and
• Exclusion of households employing paid domestic
  employees

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Framework of IS Definition
Household Unincorporated Enterprises
Informal own-account enterprises
Other own-account enterprises
Own-account enterprises
Other enterprises of employers
Enterprises of informal employers
Enterprises of employers
Informal Sector
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Informal Own-Account Enterprises

• Operated by own-account workers, either alone, or
  in partnership with members of same or other
  households
• May employ family workers and occasional
  employees, but not employees on continuous basis
• Include all or exclude those registered under
  certain specified national legislation

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Enterprises of Informal Employers

• Owned and operated by employers, either alone or
  in partnership with members of same or other
  households, and employ one or more employees on
  continuous basis
• Employees (hired on continuous basis) below a
  specified number
• Non-registration of the enterprise
• Non-registration of employees (labour laws)

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Employment and Informality

• Informality of employment is characterized by
  absence of
• contracts, social protection, entitlement to
  benefits and not
• being subject to labour legislation and income
  taxation.
• Informal employment versus informal sector
  employment
• Given a reference period
• Employment in informal sector all jobs in ISEs
  or all persons who were employed in at least 1
  ISE irrespective of status (can be main/2nd job)
• Informal employment total informal jobs in
  formal or informal sector enterprises or
  households

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NOE Components and Employment
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Informal Sector Measurement Methods
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How do we collect data on IS and IE?
Household Surveys
Informal Sector Surveys
Establishment Surveys
Household Income Expenditure Surveys
Labour Force Surveys
Mixed Household Enterprise Surveys
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Household Surveys LFS

• Measurement Objectives
• Monitor evolution of IS employment
• and characteristics of employees, employment
  conditions
• Data on labour inputs can be used in conjunction
  with informal sector surveys to extrapolate data
  on other characteristics, e.g. value-added
• Methodological Considerations
• Additional questions or module to LFS
• Ask all people employed during reference period
• Ask in respect of both main and secondary jobs
• Probing questions needed for often unreported
  activities, e.g. unpaid work, womens
  own-account/home-based activities, secondary
  activities of farmers, government officials,
  formal sector employees

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Household Surveys LFS

• Limitations/Concerns
• Seasonality
• of IS enterprises versus IS entrepreneurs
• Disaggregation by economic activity depends on
  the sample size and design

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Household Surveys HIES

• Measurement Objectives
• HH demand for goods and services produced in the
  informal sector
• Methodological considerations
• Info on each expenditure item, distribution based
  on place
• Limitations/Concerns
• Does not provide total demand but household final
  consumption only

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Informal Sector Surveys

• Measurement objectives
• Collect detailed structural information ( and
  characteristics of businesses, employment, income
  generation and K equipment of ISEs,
  conditions/constraints of operation, relations to
  formal sector/public authorities
• Tools
• Establishment Surveys
• Mixed Household and Enterprise Surveys

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ISS Establishment Surveys

• Methodological considerations
• Prerequisite sampling frame
• List frame often not available or do not cover hh
  enterprises
• Establishment or economic censuses can be used as
  list frame or sampling frame (PSUs) (depending on
  the time lag of ISS)USUs would need update
• Limitations/Concerns
• High cost
• Omissions
• Duplications

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ISS Mixed HH and Entreprise Surveys

• Methodological Considerations
• Based on area sampling and conducted in 2 phases
• Phase 1 (HH Survey) Sampling frame through
  household listing/survey in selected areas or
  PSUs (all businesses and owners are identified)
• Phase 2 (Enterprise Survey) All or a sample of
  business owners interviewed
• Post-sampling identification
• Possible to analyze jointly various activities of
  the same individuals/hh
• Possible to link informal sector
  activities/business owner characteristics with
  household characteristics ? contribution of
  family members (women and children)

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Mixed Surveys Independent Informal Sector
Surveys (1)

• Methodological Considerations
• Multi-stage design
• Selection of areas as PSUs
• Household listing or interviewing
• Selection of sample hh with owners of potential
  IS businesses as USUs
• Main interviewing of sample households and
  business owners
• Density of informal sector entrepreneurs and type
  of activity (stratified sampling)
• Info on density of employers/own-account workers
  in the enumeration areas classified by
  activity/type of work place/ employees
  concentration of small establishments
  stratification of enumeration areas by
  income/socio-economic criteria other info
  obtained during listing or data collection for
  ISS local expert knowledge.

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Mixed Surveys Independent Informal Sector
Surveys (2)

• Limitations/Concerns
• High cost of survey operations, especially Phase
  1
• Quality of listing (type of activity, basic
  characteristics data needed for stratification)
• Listing of hh and hh-based business operators,
  establishments (different area sampling frames
  may be useddifferent geographical clustering)
• Listing may be expanded into survey to ensure
  coverage
• Different sampling fractions are used for
  different strata to have adequate sampling units
  from each stratum
• Complex survey operations sample weighting and
  estimation procedures

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Mixed Surveys Modular Approach (1)

• Methodological Considerations
• ISS sample is a sub-sample of the base survey
  (LFS or HIES)
• Conducted simultaneously or consecutively
• Allows regular/sustainable IS data collection
• Complete coverage and accurate identification of
  IS entrepreneurs in the sample hh
• Same sampling weights can be used as the base
  survey
• Information on IS can be related to other info
  from the base survey

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Mixed Surveys Modular Approach (2)

• Limitations/Concerns
• Need for a suitable base survey (survey
  operations and response burden)
• Frequency/reference period of base survey
• Base survey samples are not selected for ISareas
  or hh (disaggregation, distribution,
  representation)

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Mixed Surveys Integrated Surveys

• Methodological Considerations
• Special modular approach to meet several
  objectives (IS, labour force, hh income and
  expenditure data collection)
• Incorporate sample design requirements for IS
  measurement into the survey design (efforts
  increase of IS entrepreneurs and have better
  representation of different activities during
  sample allocation and selection)
• Limitations/Concerns
• Complex response burden
• Often limited to urban areas

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• MODULAR APPROACH A
• Phase 1
• Same sample of PSUs as base
• Sample list of USUs for base/ISS
• Phase 2
• Same sample of USUs for base/ISS
• Simultaneous conduct for base/ISS

• MODULAR APPROACH B
• Phase 1
• Same sample of PSUs as base
• Different list of USUs for ISS
• Phase 2
• Different sample of USUs for ISS
• Consecutive survey for ISS, e.g. 1-2-3

• INDEPENDENT ISS APPROACH A
• Phase 1
• Specific sample of PSUs
• Selection of PSU not based on IS
• Household listing
• Phase 2
• Joint listing/interviewing of all IS hh
• activities irrespective of work place
• No stratification of samples of USUs

• INDEPENDENT ISS APPROACH B
• Phase 1
• Specific sample of PSUs
• Selection of PSU based on IS (by
• industry)
• Household survey
• Phase 2
• Separate listing/interviewing of all IS
• establishments households
• Stratification of samples of USUs

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To have sound data

• Avoid replacement
• Improve response rate
• Mitigate effects of reference period
• Consider effects of seasonal variations
• Allocate adequate resources for data editing

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THANK YOU!
www.unescap.org/stat/isie