Informal Economy: Challenges and Opportunities for Trade Unions

1. Informal Economy:Challenges and Opportunities for Trade Unions

2. Points for Discussion • Is “informal economy” an issue for T.U.? • Defining “Informal Economy” • Analyzing current situations in the world • Identifying causes of informalization • Addressing the issue of “Informal Economy” • Developing trade union policies and strategies on “Informal Economy”

3. 1. Is “informal economy”an issue for trade unions?

4. 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…

5. 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…

6. 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.

7. This Group enjoys a good level of Decent Work This Group has major limitations on Decent Work This Group has some limitations in Decent Work Who Enjoys Decent Work? Socially Excluded, VulnerableWorkers and Families = Priority Target of our Activities 0% 100%

8. 2. Defining Informal Economy

9. Historical Overview • First appearance of the concept - “informal sector” - in 1972when 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.(+)

10. WRONG! Original Assumption Formal Employment Informal Work Informal Work Informal Work Informal Work

11. 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.(+)

12. 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”.

13. From “informal sector” to“informal 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”.(+)

14. 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

15. Formal Definition of“Informal 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)

16. Working Definitions forTrade Unions • 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 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.

17. 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 Major Segment of “Informal Economy”

18. 7 Essential Securities Denied to Informal Workers • Labour market security • Employment security • Job security • Work security • Skill reproduction security • Income security • Representation security Lack of Social Safety Nets (Social Protection)

19. Methods for Empirical Studies

20. 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) Comparison between the informal and formal economy

21. 3. Current Situation of “Informal Economy” around the World

22. 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

23. 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.

26. Size of Informal Economy 1 Source: World Development Report 1995. Washington D.C. World Bank

27. Size of Informal Economy 2 Source: Charmes, Jacques. 2000. Informal Sector, Poverty, and Gender: A review of Empirical Evidence. Paper comissioned for World Development Report 2000/2001

28. 4. Identifying Causes ofInformalization of workers

29. Causes of Informalization • Demand-side causes (pull-effect) • Supply-side causes (push-effect) • Structural causes(promotional-effect)

30. 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)

31. 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

32. 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)

33. 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

34. Economic Restructuringand Crisis • Structural Adjustment Programme (SAP) • Neo-liberal economic policies • Unemployment and underemployment • Much less employment in formal (particularly public) sector • Lower wages insufficient to support a family

35. 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

36. 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.

37. 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

38. 5. Addressing the issue of “Informal Economy”

39. 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)

40. Action List forImmediate Objectives • Enhancing rights and principles at work; • Improving social protection; • Strengthening representation of workers; • Achieving sustainable economy and creating decent employment; • Improving legal and institutional framework; • Eradicating poverty; and • Achieving better demographic planning.

41. 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

42. 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.

43. iii) Strengthening Representation and Voices of Workers • Universal implementation of “right to organize and bargain collectively”; • Promotion and capacity building of workers’ & employer’s organization; • Enhancement of tripartism, social dialogue and collective bargaining at national, industrial and local level; • Promotion of cooperatives.

44. 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

45. v) Improving Legal andInstitutional Framework • 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 • Full coverage and application of labour legislation and administration (protection/minimum standards/ benefits) in the informal economy; • Simplified, transparent, incorruptible, consistent and affordable legal systems (for greater compliance)

46. vi) Eradicating Poverty • Setting up comprehensive national policies, strategies and programs for poverty reduction; • Focused poverty reduction policies targeting the most vulnerable groups in the society; • Alliance with international community on poverty eradication initiatives (e.g. PRSP); • Time-bound programs for eradication of child labour.

47. 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

48. 6. Developing trade union policies and strategies on“Informal Economy”

49. 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

50. Development and Implementation of External Policies and Strategies • Improving labour standards & labour legislation; • Promoting good governance and sound labour administration; • Fighting for a better taxation policy and local government regulations; • Engaging in the national discussions on social protection (social safety nets); • Participating in macro-economic policy debates and PRSP; • Promoting employment-intensive infrastructure projects; • Promoting small and medium-size enterprises; • Advocating for human resource/capital developments; • Improving access to credit; • Ensuring property rights for all workers.