Informal Economy: Challenges and Opportunities for Trade Unions

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Informal EconomyChallenges and Opportunities
for Trade Unions
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Points for Discussion

1. Is informal economy an issue for T.U.?
2. Defining Informal Economy
3. Analyzing current situations in the world
4. Identifying causes of informalization
5. Addressing the issue of Informal Economy
6. Developing trade union policies and strategies on
   Informal Economy

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1. Is informal economyan issue for trade
unions?
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What is Mission of Trade Unions?
To protect and promote decent work for their
members.

• Expansion of informal economy is a great threat
  to the mission of trade unions
• Bad money drives out good!
• Just imagine what is going to happen if the
  expansion of informal economy continues

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Negativity Impact ofInformal Economy

• Unfair competition for good enterprises
• Less, or no tax income for the states
• Less, or no social security contributions for the
  states
• No decent wages for workers
• Less savings ? no capital
• Less spending ? weak domestic market
• More occupational injuries/diseases
• Damage to the human capital ? no future

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Decent Work Commitment
All those who work have rights at work,
irrespective of where they work and how they work!

• The commitment and goal of the ILO and trade
  unions should be to achieve Decent Work for All
  along the entire continuum of economic activities.

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Who Enjoys Decent Work?
Socially Excluded, VulnerableWorkers and
Families Priority Target of our Activities
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0
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2. Defining Informal Economy
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Historical Overview

• First appearance of the concept - informal
  sector - in 1972 when ILO issued a report on
  Kenya.
• During the 70s and 80s, the common interpretation
  was informal sector would be a transitory
  phenomenon, and economic progress would help the
  informal workers move into the formal sector.
• Dilemma in early 90s whether the
  international community should promote the
  informal sector as a provider of employment and
  incomes or seek to extend regulation and social
  protection to it. ()

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Original Assumption
Formal Employment
Informal Work
Informal Work
Informal Work
Informal Work
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Development in 1990s

• The early perception proved to be wrong
• The size of the informal sector has expanded
  although the volume of world trades and
  investments increased significantly
• Informalization and flexibilization of work and
  workers continued as the globalization and
  information technology accelerated market
  competition and
• It became clear that informal sector is not a
  temporary or transitional phenomenon. ()

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So, What Happened?
1970s-1980s
1990s-2000s
Formal Sector Majority of Economic Sectors were
Formal
Formal Economy Became smaller and smaller
Informal work expanded and emerged in all kinds
of economic activities
Particular sectors of economic activities were
considered to be informal.
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From informal sector toinformal economy

• The term, informal sector, has been found to be
  an inadequate as well as misleading term
• Use of Informal Economy to reflect these
  dynamic, heterogeneous and complex aspects of a
  phenomenon which is not a sector. ()

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Defining Informal Economy
1. All currently unregistered economic activities
which contribute to the officially calculated (or
observed) Gross National Product
2. Those activities which are not recorded in the
national income accounts
3. Income-generation activities which take place
outside of the formal regulatory framework
4. Units engaged in the production of goods or
services with the primary objective of generating
employment and incomes to the persons concerned
5. Units in small unregistered enterprises, both
employers and employees, as well as self-employed
persons who work in their own or family businesses
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Formal Definition ofInformal Economy
All economic activities by workers and economic
units that are in law or in practice not
covered or insufficiently covered by formal
arrangements. (Conclusions concerning decent
work and the informal sector at the 90th
International Labour Conference 2002)
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Working Definitions forTrade Unions
Unrecognized and unprotected workers, mostly in
an unregulated or unregistered economy, who are
trying to sell their labour or products (to an
unidentifiable employer) for survival.

• Little capital, and very few fixed assets or
  property
• Excluded from the protections provided by
  collective bargaining and/or labour laws
• Self-employed, employed casually without a
  contract, members of family business, or
  homeworkers employed on a piece-work basis and
• Mostly women or young workers

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Major Segment of Informal Economy

• Status of Employment
• Owner / Operator
• Self-employed /Own-account
• Wage worker

• Type of enterprise
• Micro-enterprise
• Own account unit / Family business
• Micro-enterprise / Sub-contracting chain / No
  fixed unit

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7 Essential Securities Denied to Informal Workers

1. Labour market security
2. Employment security
3. Job security
4. Work security
5. Skill reproduction security
6. Income security
7. Representation security

Lack of Social Safety Nets (Social Protection)
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Methods for Empirical Studies
Type Of Workers Labour market security Employ-ment security Job security Work security Skill repro-duction security Income security Repre-sentation security



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Comparison between the informal and formal economy

• Informal
• Ease of entry
• Reliance on indigenous resources
• Family ownership
• Small scale of operation
• Labour-intensive
• Adapted technology
• Skills acquired outside formal school system
• Unregulated, competitive markets

• Formal
• Difficult entry
• Reliance on overseas resources
• Corporate ownership
• Large scale
• Capital intensive
• Imported technology
• Formally acquired skills, often expatriate
• Protected markets (tariffs, quotas, trade
  licenses)

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3. Current Situation of Informal Economy around
the World
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Trends of Informal Economy

• Globalization and flexibility of labour markets
• 80 of world population - insufficient coverage
  of social protection
• 50 of world population no social protection
• Majority of those in developing countries
• Majority of those in informal economy
• Particularly women and young people

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Informal Economy in South Asia and Pacifique
Source Size and Measurement of the Informal
Economy in 110 Countries around the world,
F.Schneider , July 2002.
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(No Transcript)
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Size of Informal Economy 1
Low-Income Countries Middle-Income Countries High-Income Countries
Share of Formal Wage Employment in Total Employment 17 58 84
Source World Development Report 1995.
Washington D.C. World Bank
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Size of Informal Economy 2
Latin-America / Caribbean Africa Asia
Non-Agricultural Employment 57 78 45-85
Urban Employment 40 61 40-60
New Jobs 83 93 N/A
Source Charmes, Jacques. 2000. Informal Sector,
Poverty, and Gender A review of Empirical
Evidence. Paper comissioned for World Development
Report 2000/2001
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4. Identifying Causes ofInformalization of
workers
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Causes of Informalization

• Demand-side causes (pull-effect)
• Supply-side causes (push-effect)
• Structural causes(promotional-effect)

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Demand-side Causes (pull-effects)

• Pressure on reducing production costs due to
  over-competition and profit-oriented business
  minds (needs for cheap labour)
• Needs of urban poor for cheap goods and services
• High tax and social protection burdens
• Bribery and cumbersome procedures for
  formalization
• Less incentives for OSHE investment
• Avoidance of trade unions
• Illegal activities (needs to be hidden)

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Supply-side Causes (push-effects)

• Unemployment and poverty
• Difficulty (or impossibility) to find employment
  with formal employer
• Shrink of employment and wages in public service
  sectors
• Fall of the prices of agricultural products
• Population growth / migration
• Lack of education, skill and/or training chances
• Miss-match between demand and supply
• HIV/AIDS

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Structural Causes

• Lack of political will (no national policies)
• Lack of sustainable economic development or
  systems for fair redistribution of wealth
• Lack of legislation or defects in labour and
  social laws (no standards)
• Lack of legal systems, effective enforcement of
  law, or effective labour inspections (no justice)
• Lack of comprehensive social protection schemes
• Lack of primary/secondary education and
  vocational training/re-training (no opportunities)

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Specific Reasons for Low Social Protection
Coverage

• Conventional social security systems rely on the
  employer/employee relationship as a basis for
  coverage
• Low and irregular income of informal economy
  workers reduce their capacity to make
  contribution
• Ignorance of social security rights and
  obligations
• Legislative requirements, particularly those
  concerning employment status, exclude some
  informal sector workers from participation
• Bureaucracy (insufficiency or inability)
• Geographic accessibility of social protection
  institutions

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Economic Restructuringand Crisis

1. Structural Adjustment Programme (SAP)
2. Neo-liberal economic policies

1. Unemployment and underemployment
2. Much less employment in formal (particularly
   public) sector
3. Lower wages insufficient to support a family

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Gender Issues

• More and more women enter into labour force but
  into informal economy, because

• Little education and skill
• Less access to resources / training
  opportunities
• Direct and indirect discrimination
• Family responsibilities

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Effect of Globalization

• Expansion of trade and investment
• FDI and international capital flow
• Diffusion of technology
• Competition for investment
• Emergence of multinational companies
• Global production chains
• Labour migration.

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End of Cold War

• End of the old East-West line power politics
• Beginning of new paradigm with hot war over
  economic initiatives
• Domestic wars, ethnic wars (cleansing)
• Terrorism organizations
• Mafia organizations
• Increasing number of refugees

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5. Addressing the issue of Informal Economy
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Three KeyDevelopment Objectives

• Better governance at national level
• Better social dialogue (e.g. tripartism and
  bipartism C.B.)
• Better international framework (governance at
  international level)

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Action List forImmediate Objectives

1. Enhancing rights and principles at work
2. Improving social protection
3. Strengthening representation of workers
4. Achieving sustainable economy and creating decent
   employment
5. Improving legal and institutional framework
6. Eradicating poverty and
7. Achieving better demographic planning.

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i) Enhancing Rights and Principles at Work

• Implementation of International Labour Standards
  and ILO Declaration on F.P.R.W.
• Promotion of ILO MNE Declaration / OECD
  guidelines for MNEs / UN Global Compact
• Strengthening of national and local legislation/
  regulations/institutions and law enforcement
• Effective use of private voluntary initiatives
  (PVI)
• Code of Conducts
• Framework Agreements

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ii) Improving Social Protection

• Extending and adapting statutory social security
  coverage
• Encouraging micro-insurance and area-based
  schemes
• Promoting cost-effective tax-based social
  benefits
• Establishing and promoting cooperatives
• Improving occupational health and safety
• Fighting against HIV/AIDS.

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iii) Strengthening Representation and Voices of
Workers

• Universal implementation of right to organize
  and bargain collectively
• Promotion and capacity building of workers
  employers organization
• Enhancement of tripartism, social dialogue and
  collective bargaining at national, industrial and
  local level
• Promotion of cooperatives.

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iv) Creating Decent Employment

• Placing employment policies at the center of
  all economic policies of the countries to create
  quality jobs with decent conditions
• Enhancing employability of workers
• Investing in knowledge and skills formation
• Primary, secondary and vocational education
• Training, retraining and skill development
• Life-long learning
• Developing enterprises
• Micro, small and medium-size enterprises
• Micro-finance

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v) Improving Legal andInstitutional Framework

1. Full coverage and application of labour
   legislation and administration (protection/minimum
   standards/ benefits) in the informal economy
2. Simplified, transparent, incorruptible,
   consistent and affordable legal systems (for
   greater compliance)

• Commercial and business regulations governing the
  establishment and operation of enterprises
• The laws pertaining to property rights, which
  could affect the ability to transform assets into
  productive capital
• Labour legislation governing employment
  relationships and the rights and protection of
  workers

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vi) Eradicating Poverty

1. Setting up comprehensive national policies,
   strategies and programs for poverty reduction
2. Focused poverty reduction policies targeting the
   most vulnerable groups in the society
3. Alliance with international community on poverty
   eradication initiatives (e.g. PRSP)
4. Time-bound programs for eradication of child
   labour.

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vii) Achieving BetterDemographic Control

• Strong political will and public support for
  social policies on effectively controlling
• Population growth rate
• Surplus labour
• Rural-urban domestic migration

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6. Developing trade union policies and strategies
onInformal Economy
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Steps to be Taken
Strong Determination on their Fight
against Informal Economy
Review/setting up of an internal structure on the
issue of I.E.
Development and implementation of Policies and
Strategies on Internal Issues
Development and implementation of Policies and
Strategies on External Issues
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Development and Implementation of External
Policies and Strategies

1. Improving labour standards labour legislation
2. Promoting good governance and sound labour
   administration
3. Fighting for a better taxation policy and local
   government regulations
4. Engaging in the national discussions on social
   protection (social safety nets)
5. Participating in macro-economic policy debates
   and PRSP
6. Promoting employment-intensive infrastructure
   projects
7. Promoting small and medium-size enterprises
8. Advocating for human resource/capital
   developments
9. Improving access to credit
10. Ensuring property rights for all workers.

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Development and Implementation of Internal
Policies and Strategies

1. Organize and represent workers in informal
   economy
2. Set up structures and developing special
   services
3. Formalize access to unions and membership
4. Build up broader alliances with communities and
   establishing community-based unions
5. More actively participate in ILO/ILS mechanism
6. Participate in international trade union
   networking for code of conducts and framework
   agreements
7. Mainstream gender issues in all programs
8. Set up cooperatives, mutual-assistance society
9. Mobilize young people and
10. Use mass-media and attract more public support.

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Online Resources onInformal Economy

• ILO Informal Economy Website
• http//www.ilo.org/public/english/employment/infe
  co/publ.htmespanol

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