Transition to Formal Economy: Concepts and Recommendations
Conceptual framework
Resolution concerning
statistics of work,
employment and
labour underutilization
(19th ICLS, 2013)
Resolution
concerning statistics
of employment in
the informal sector
(15th ICLS, 1993)
Guidelines
concerning a
statistical definition
of informal
employment
(17th ICLS, 2003)
Recommendation
concerning the transition
from the informal to the
formal economy
(ILC R204, 2015)
2
Measuring informality: A
statistical manual on the
informal sector and
informal employment
(ILO, 2013)
Resolution concerning
statistics of the
economically active
population
(13th ICLS,
1982)
Resolution concerning
statistics of the
economically active
population
(13th ICLS,
1982)
The concept of informal economy
Recommendation 204 provides a definition:
“… the term “informal economy” refers to all economic
activities by workers and economic units that are – in
law or in practice – not covered or insufficiently
covered by formal arrangements” §2(a)
3
Workers
in the informal
economy
Economic units
in the
informal economy
Those not covered
or insufficiently
covered by formal
arrangements
Formal arrangements
•
Procedures established by the government
–
To regulate the actions and functions of economic
units
–
To recognise the economic units and protect their
legal rights
•
To carry out economic activities, to engage in commercial
contracts, to safeguard their intellectual and physical
property, etc.
•
Procedures to report economic activities,
employees
–
In order to pay taxes (on production, on sales)
–
In order to cover employees for social security, etc.
4
Informal economy
Two components (2 statistical units):
Informal sector
(enterprise based concept) 15´th ICLS
5
Informal
sector
Two different aspects of informal economy
Important to keep separate as often require different policies
Important to understand the relation between them
Informal sector
Informal sector is like a giraffe ”difficult
to define by usual standards, but easy to
recognise when you meet one” Hans
Singer
Informal sector is not so much defined by what
it is rather by an absence of characteristics
Why work in the informal sector
•
Survival strategies, due to lack of (adequate) jobs
•
A wish for independency and flexible work
arrangements
•
More profitable then working in the formal sector
•
The continuation of traditional activities
•
Avoiding regulations
and so on……….
Many faces
•
Large diversity
–
Different between different regions, countries and areas
within the same country, Urban/Rural
–
Different industries, activities, different types of enterprise
•
Informal activities range
–
from street vendors, shoe shining and other minor
activities requiring little or no capital and skills
–
To manufacturing, tailoring, car repair demanding more
skills and capital and with higher productivity.
•
Informal sector do not equal illegal work
Concept of Informal sector
15´th ICLS
•
Market oriented
“
The informal sector may be broadly characterised as consisting of units engaged in the
production of goods or services with the
primary objective of generating employment and
incomes to the persons concerned
”
•
Low level of organisation
“
These units typically operate at a low level of organisation,
with little or no
division between labour and capital as factors of production and on a small scale
”
Informal sector
Statistical definition I
•
Based on SNA “household sector”
•
Economic units in the “household” sector :
I.
Are not constituted as separate legal entities (are owned by
persons/households)
II.
Do not have complete accounts (i.e., excludes quasi-corporations)
Can produce goods and services for sale or barter
Can produce goods and services exclusively for own final use
•
Including households that employ paid domestic employees
Informal sector
Statistical definition II
•
Adding a criteria of producing at least
something for the market
•
Excluding Own use production exclusively for
own final use
–
Household
market
units
Informal sector
Statistical definition III
Housholdemarket units:
I.
Are not constituted as separate legal entities
(are owned by persons/households)
II.
Do not have complete accounts (i.e.,
excludes quasi-corporations)
III.
Do
produce goods and services for sale or
barter
Statistical definition IV
•
Household market units can be divided in two sub-
categories
•
No employees (Own account enterprises)
–
Either all own-account workers
or
–
Only those which are not registered under specific forms of national legislation
•
With employees (Enterprises of employers)
–
size of the unit below a specified level of employment
or/and
–
only those which are not registered under specific forms of national legislation
or/and
–
Only those that have registered (some of) their employees
Additional criteria's for operational purposes,
depending on the national context
Institutional units
of the System of National Accounts
15
(i) Not incorporated
(ii) No complete set of accounts
(iii) Market production
Institutional units
of the System of National Accounts
16
(i)
Enterprise registration (under specific
forms of national legislation
(ii) all
(i)
Enterprise registration
(ii)
Establishment size
(iii)
Employee registration
For operational purposes,
depending on the national context
Market production
•
Units that produce at least some goods or
services for sale
–
Recognises that informal sector seeks to generate
income
–
Excludes production solely for own final use
•
Operationalization:
–
Is typically covered initially, when identifying
employment
–
Might not be relevant in countries with a insignificant
share of own use production work
Unincorporated
•
Units are not a separate legal entity
–
Recognise that the owners are persons or households and
not legal persons
–
Excludes:
•
Governments
•
Corporations
•
Non-profit organisations
•
Operationalization :
–
Part of defining institutional sector (or a direct question)
–
Need to use national expressions for an incorporated
enterprise e.g. limited company, trading partnership,
limited partnership
No bookkeeping
•
To exclude economic units that keep formal
accounts required by law (Quasi-corporations)
–
It is not possible to separate between the
economy of the economic unit and the household
•
Operationalization :
–
Find out what are the requirements in your
country
–
Be as precise as possible
–
Just keeping books for own use does not qualify
19
No registration
To exclude economic units that conform with the legal and
administrative framework in force in the country
•
Registration at national level in order to apply to
– ´Factories´/ commercial acts
– Tax/social security laws,
– Professional groups’ regulatory acts, etc.
•
As distinct from local regulations for issuing trade licenses or
business permits
– Because they are governed by administrative regulations
that may vary from region to region and in time
– Because they do not affect the way the units operate and
behave
•
Operationalization :
–
Use national examples in the question
20
Size below x
•
To include small units
–
It is a proxy to low level of organisation and small
scale operation
–
Not always a good proxy as there may be small units
which are registered and keep accounts
–
Should only be used when there is no other
information available
•
The size may vary between countries and
branches of economic activity
–
Should take into account the size limits used in formal
sector establishment surveys
21
Flexibility within the 15´th ICLS
•
The use of the register criteria
–
Recommendation from ILO is to use it
•
The use of size criteria
–
Recommendation from ILO is to not use it
•
For practical reason possible to only cover non-
agriculture
–
Recommendation from ILO is to cover agriculture as well
•
Covering main jobs or all jobs
–
From the perspective of informal sector all jobs should be
covered.
–
From the perspective of informal employment, might be
sufficient with main job and second job if possible.
Example: combining the
criteria
(§6, Resolution concerning statistics of employment in the
informal sector, 15th ICLS)
23
The
economic
unit is
incorporated
The
economic
unit
keeps
required
accounts
Household
economic
unit (SNA)
The
economic
unit is
registered
The
economic
unit produces
goods or
services
for
sale
Market
household
economic unit
(SNA)
The economic unit is a
“household”
producing exclusively for
own final use
The economic unit is in the
“formal sector”
No
No
No
Yes
Yes
Yes
Yes
No
Quasi-
corporation
(SNA)
The economic unit is in
the “informal sector”
Government,
corporations,
non-profit
institutions (SNA)
Employment in the informal sector
•
Employment in the informal sector =
All persons employed in the informal sector
(13´th ICLS definition of employment)
OR
All persons working in the informal sector
(19´th ICLS definition of work)
Minimum
set of data items that
needs to be collected
•
Number of economic units that are in the
informal sector (informal sector units)
–
Production, value added (Input to SNA)
–
Number of informal sector entrepreneurs
•
Number of workers and jobs in the informal
sector
25
The concept of the informal economy, formal arrangements, and the distinction between informal sector and informal employment are explained in detail. Recommendations and resolutions from ILO concerning the transition from informal to formal economy, statistical guidelines, and definitions are highlighted to provide insights into addressing the challenges of informal economic activities.
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Presentation Transcript
Conceptual framework Recommendation concerning the transition from the informal to the formal economy (ILC R204, 2015) Resolution concerning statistics of work, employment and labour underutilization (19th ICLS, 2013) Work Measuring informality: A statistical manual on the informal sector and informal employment (ILO, 2013) Resolution concerning statistics of the economically active population(13th ICLS, Resolution concerning statistics of the economically active population(13th ICLS, 1982) 1982) Employment Guidelines concerning a statistical definition of informal employment (17th ICLS, 2003) Resolution concerning statistics of employment in the informal sector (15th ICLS, 1993) (Employment in) Informal sector Informal employment 2
The concept of informal economy Recommendation 204 provides a definition: the term informal economy refers to all economic activities by workers and economic units that are in law or in practice not covered or insufficiently covered by formal arrangements 2(a) Economic units in the informal economy Those not covered or insufficiently covered by formal arrangements Workers in the informal economy 3
Formal arrangements Procedures established by the government To regulate the actions and functions of economic units To recognise the economic units and protect their legal rights To carry out economic activities, to engage in commercial contracts, to safeguard their intellectual and physical property, etc. Procedures to report economic activities, employees In order to pay taxes (on production, on sales) In order to cover employees for social security, etc. 4
Informal economy Two components (2 statistical units): Informal sector (enterprise based concept) 15 th ICLS Informal employment (worker / job based concept) 17 th ICLS Informal employment Informal sector Two different aspects of informal economy Important to keep separate as often require different policies Important to understand the relation between them 5
Informal sector Image result for Informal sector
Billedresultat for measuring giraffe Informal sector is like a giraffe difficult to define by usual standards, but easy to recognise when you meet one Hans Singer Informal sector is not so much defined by what it is rather by an absence of characteristics
Why work in the informal sector Survival strategies, due to lack of (adequate) jobs A wish for independency and flexible work arrangements More profitable then working in the formal sector The continuation of traditional activities Avoiding regulations and so on .
Many faces Large diversity Different between different regions, countries and areas within the same country, Urban/Rural Different industries, activities, different types of enterprise Informal activities range from street vendors, shoe shining and other minor activities requiring little or no capital and skills To manufacturing, tailoring, car repair demanding more skills and capital and with higher productivity. Informal sector do not equal illegal work
Concept of Informal sector 15 th ICLS Market oriented The informal sector may be broadly characterised as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned Low level of organisation These units typically operate at a low level of organisation, with little or no division between labour and capital as factors of production and on a small scale
Informal sector Statistical definition I Based on SNA household sector Economic units in the household sector : I. Are not constituted as separate legal entities (are owned by persons/households) II. Do not have complete accounts (i.e., excludes quasi-corporations) Can produce goods and services for sale or barter Can produce goods and services exclusively for own final use Including households that employ paid domestic employees
Informal sector Statistical definition II Adding a criteria of producing at least something for the market Excluding Own use production exclusively for own final use Household market units
Informal sector Statistical definition III Housholdemarket units: I. Are not constituted as separate legal entities (are owned by persons/households) II. Do not have complete accounts (i.e., excludes quasi-corporations) III. Do produce goods and services for sale or barter
Statistical definition IV Additional criteria's for operational purposes, depending on the national context Household market units can be divided in two sub- categories No employees (Own account enterprises) Either all own-account workers or Only those which are not registered under specific forms of national legislation With employees (Enterprises of employers) size of the unit below a specified level of employment or/and only those which are not registered under specific forms of national legislation or/and Only those that have registered (some of) their employees
Institutional units of the System of National Accounts Institutional sectors Corporations Government units Non-profit institutions Households Non-market household units Institutional households, households with no unincorporated enterprises, households only undertaking production for own final use Market household units Unincorporated enterprises owned by households Quasi-corporations Corporations (Complete set of account) (Seperate legal unit) (i) Not incorporated (ii) No complete set of accounts (iii) Market production 15
Institutional units of the System of National Accounts For operational purposes, depending on the national context Market household units Unincorporated enterprises owned by households Owned by own- account workers Owned by employers Informal sector Formal sector Informal sector Formal sector (i) Enterprise registration (under specific forms of national legislation (ii) all (i) (ii) Establishment size (iii) Employee registration Enterprise registration 16
Market production Units that produce at least some goods or services for sale Recognises that informal sector seeks to generate income Excludes production solely for own final use Operationalization: Is typically covered initially, when identifying employment Might not be relevant in countries with a insignificant share of own use production work
Unincorporated Units are not a separate legal entity Recognise that the owners are persons or households and not legal persons Excludes: Governments Corporations Non-profit organisations Operationalization : Part of defining institutional sector (or a direct question) Need to use national expressions for an incorporated enterprise e.g. limited company, trading partnership, limited partnership
No bookkeeping To exclude economic units that keep formal accounts required by law (Quasi-corporations) It is not possible to separate between the economy of the economic unit and the household Operationalization : Find out what are the requirements in your country Be as precise as possible Just keeping books for own use does not qualify 19
No registration To exclude economic units that conform with the legal and administrative framework in force in the country Registration at national level in order to apply to Factories / commercial acts Tax/social security laws, Professional groups regulatory acts, etc. As distinct from local regulations for issuing trade licenses or business permits Because they are governed by administrative regulations that may vary from region to region and in time Because they do not affect the way the units operate and behave Operationalization : Use national examples in the question 20
Size below x To include small units It is a proxy to low level of organisation and small scale operation Not always a good proxy as there may be small units which are registered and keep accounts Should only be used when there is no other information available The size may vary between countries and branches of economic activity Should take into account the size limits used in formal sector establishment surveys 21
Flexibility within the 15th ICLS The use of the register criteria Recommendation from ILO is to use it The use of size criteria Recommendation from ILO is to not use it For practical reason possible to only cover non- agriculture Recommendation from ILO is to cover agriculture as well Covering main jobs or all jobs From the perspective of informal sector all jobs should be covered. From the perspective of informal employment, might be sufficient with main job and second job if possible.
Example: combining the criteria ( 6, Resolution concerning statistics of employment in the informal sector, 15th ICLS) The economic unit is incorporated No Yes Government, corporations, non-profit institutions (SNA) Household economic unit (SNA) The economic unit keeps required accounts Yes No Market household economic unit (SNA) Quasi- corporation (SNA) The economic unit produces goods or services for sale No No Yes The The economic unit is a household producing exclusively for own final use Yes economic unit is registered The economic unit is in the informal sector The economic unit is in the formal sector 23
Employment in the informal sector Employment in the informal sector = All persons employed in the informal sector OR All persons working in the informal sector
Minimum set of data items that needs to be collected Number of economic units that are in the informal sector (informal sector units) Production, value added (Input to SNA) Number of informal sector entrepreneurs Number of workers and jobs in the informal sector All data items should be cross-classified by relevant variables 25
