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Use of Data on Informal Sector and Informal Employment in National Accounts

Use of Data on Informal Sector and Informal Employment in National Accounts. Seminar on International Standards in Economic Statistics 6-9 July 2010, Antananarivo, Madagascar Gerard OSBERT, Senior Regional Advisor on Household surveys. Content. Chapter 1: Introduction

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Use of Data on Informal Sector and Informal Employment in National Accounts

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  1. Use of Data on Informal Sector and Informal Employment in National Accounts Seminar on International Standards in Economic Statistics 6-9 July 2010, Antananarivo, Madagascar Gerard OSBERT,Senior Regional Advisor on Household surveys

  2. Content Chapter 1: Introduction Chapter 2: Measuring Informal Economy Chapter 3: Surveys implemented in African countries Chapter 4: Using data in National Accounts Chapter 5: Proposed Plan of Action 2

  3. Chapter 1: Introducing informal economy The informal economy is taking up an increasinglylarger share in developing countries: Production : from 25 to 45% of GDP Employment : > 80% of urban new created jobs Statistical surveys on the informal economy give precious indication of its measurement but its actual share can only be quantified through NA using integration method

  4. I.2 Recent developments on Informal Economy Measurement The IWC on SNA-2008 has produced a full chapter on including informal sector in NA The Delhi Group publicizes a manual on surveys on informal sector and employment in 2010 ESCAP + ESCWA + ECLAC DA-Project “Inter-regional Cooperation on the Measurement of Informal Sector and Informal Employment” ACS intends to strengthen the capacity of African National Statistical Systems in that direction

  5. Chapter 2: Measuring informal economy Definitions and concepts : reports on 15th & 17th ICLS by ILO; content of the informal economy concept Efficiency of LFS and mixed surveys on households & enterprises in African Including the surveys’ results in national accounts: integration steps

  6. I: Definitions and concepts 1993, 15th ICLS : Informal sector  = set of all households establishments or IPUs 2003, 17th ICLS : Informal  Employment = Total employment by households + IPUs + non registered jobs in formal sector From informal Economy to non observed economy (NOE) NB: Each country should precise these definitions according to its local context

  7. A1. The informal sector according to the 15th ICLS  All units engaged in the production to generate employment/incomes to persons concerned Fixed & other assets do not belong to IPUs but to their owners ; expenditure for production not separate from household’s. NB: IPUs are not deliberately evading taxes or social contributions => the informal sector to be distinguished from the hidden or underground economy

  8. A2. Operational arrangements The informal sector = group of IPUs which is part of the household sector, comprising: IPUs owned and operated by own-account workers, which may employ contributing family workers informal employers, alone or in partnership with members of the same household, with > 1 employees on a continuous basis According to the SNA, IPUs differ from formal enterprises on: legal organization of the unit, and type of accounts kept

  9. A3. Special cases and exclusions Informal sector includes household enterprises in both urban/rural areas, but not IPUs engaged in agricultural activities IPUs exclusively engaged in non-market production, for own final consumption or fixed capital formation, are excluded NB: The informal sector is itself a component of informal employment

  10. B1. Informal Employment 17th ICLS considered 3 entities at the origin of informal employment: enterprises of the informal/formal sector and the household Labour statisticians & national accountants argue on: ICLS revolve around the production account, SNA basis include all accounts and balance. For ICLS: households are producers of goods + employers of domestic workers; for SNA household are also lenders and borrowers For SNA, a barter producer sells all his production at a significant price; for ICLS, producer needs only to sell a portion of it.

  11. B2. Conceptual Framework

  12. C. From informal sector to NOE OECD introduced the NOE-concept: Underground economy = activities concealed to avoid paying taxes (VAT) social contributions, etc. Illegal economy = activities that contravene the criminal code or carried out by unauthorized persons (illegal medical practice). Informal sector production refers to activities that are not concealed but that are poorly registered due to the inability of public authorities. Production for own final use is a significant non-barter component of the production.

  13. Chapter 3: Most relevant African experiences Direct measurement of employment Employment surveys (LFS) on households Examples: LSMS and Phase 1 of 1-2-3 survey B. Establishments and mixed surveys Households-enterprise mixed surveys ; Using consumption survey to measure IS C. Choice and proposal for an integrated survey Complementarities between LFS and mixed survey Questions to insert in the employment survey Content of the mixed survey

  14. A.1: Direct methods of measurement Those are sample surveys on establishment, individual or household. They include mixed survey (1-2-3). Objectives of the Labour Force survey To collect information on the distribution of the population based on position in the labour market. To identify those who work in the informal economy - in IPU or holding an informal job Sampling methodology and type of survey Household sample built from a multi-level selection, from the most recent P&H census data Rotating panel reduces error in temporal comparison; permits individual’s follow-up

  15. A.2: Typical examples in Africa Employment segment of Living Standards Survey LSS is one of the 3 components of the LSMS program undertaken by the World Bank. 60 surveys conducted in Africa (CIV, Ghana, Madagascar, Morocco, Malawi Tanzania). A questionnaire, subdivided into 20 sections: demography, credit, food expenditures, etc. In the economic section, the working-age population is analysed, primary + secondary jobs. LSS’ results are first presented for the country as a whole, then by community (rural/urban) province.

  16. A.3: the 1-2-3 mixed surveys Phase 1: Employment survey of the 1-2 system Two questionnaires: Q1 on household socio-demo-economic characteristics ; Q2 : individual question. covering all member of the labour force, classified by institutional sector Phase 1 = best instrument for measuring informal employment, including precarious jobs. Phase 1 identifies IPUs’ chiefs among employed persons to be surveyed in phase 2 Phase 3: on household’s informal consumption: the demand side

  17. B. Direct measure of establishments B1. Objectives of the establishment surveys To collect information on IPUs’ accounts: Composition of the work force by status Data to be used by national accountants to get technical coefficients and VA breakdown Direct survey are empirical, no sampling framework. Selected units face constraints: size; activities etc. In the absence of a sampling frame, indicators cannot be extrapolated nationally. Hence, this tool should be replaced by the mixed household-enterprise survey

  18. B2. Objectives of the mixed household-enterprise survey Additional analysis can be launched using socio-demographic characteristics of IPUs’ heads, collected during Phase 1. Preliminary operation for locating IPUs: A labour force survey to determine IPUs’ heads, whether as a main or secondary activity; A household survey or a household consumption budget survey; A listing of households established during an enumeration operation in the primary survey units.

  19. B.3: Mixed survey based on an employment survey Phase 2 is surveying IPUs, from a stratified sample obtained from the list of IPUs’ heads in phase 1 Key criteria are: activity branch; status of IPUs’ head (self-employed, boss, with at least one employee). Building IPUs’ production account gives technical coefficients, ratio wages/production; gross operating surplus and detailed breakdown of sales The 1-2 survey has been implemented in Cameroon (1993, 2005), Madagascar (1995, 2004), 7 capitals of WAEMU (2002), Morocco (2007), DRC (2006) and Burundi (rotating panel 2006-2008)

  20. C.1 Complementarities between LFS & mixed survey Only LFS can capture the 9 cases of informal employment categories listed by ILO. Direct interview of IPUs’ heads necessary to get a real picture of informal production/distribution Employment is better estimated thru direct informal sector surveys, provided that the IPUs sample is representative.

  21. C.2 Key questions to be included in LFS LFS questionnaire to find out all jobs in the reference period, including persons temporarily out of work Active persons asked on their category; type of unit they work for, work schedule per week In private enterprise: total workforce; whether the entity is registered. For IPUs’ heads: formal bookkeeping kept for payment of duties and taxes. For employees & dependent workers: written work contract; paid leave, retirement pension

  22. C.3 Content of the mixed survey To prepare NA, the survey should elicit on: Production and intermediate consumption; Composition of the labour force by category, work schedule during reference period, remuneration etc. Main activity branch of the unit and secondary activities. For policy makers (poverty, gender approach): gender of members of the IPU; financing of the unit, and its credit access; date of creation  IPUs’ demography

  23. Chapter 4: Measuring Informal Economy through National Accounts Concepts of the informal economy and SNA Ways of developing the central framework to measure the Informal economy African examples of the incorporation of survey results into the SNA Using integrated method (LIM) and specific informal production function

  24. A.1. Informal economy concepts & SNA SNA-08/chapter 25 “Informal Aspects of the Economy” proposes how to measure IS: IS includes unincorporated individual enterprises: production/operation accounts Households can include other merchant or non-merchant establishments The informal sector present in all economic activities, albeit thru merchant establishments IS depends on legal/social conditions unique to each country and that may change over time

  25. A.2 Effective definition of informal economy Three different fields to be considered: The statistically non-registered economy due to non-surveyed areas/activities, etc. The informal sector among difficult areas to access, but accessible to statistics. Illegal activities/underground economy not surveyed, due to under-reporting. M. SERUZIER operational definition (2008): IE includes merchant production units owned by households, recognized by public authorities even when they do not meet required standards for carrying out a legal activity

  26. B.1: NA objective: to measure the entire national economy 1st step: Mapping the national economy SNA partitions on merchant/non-merchant by sector, economic activity to be reconciled 2nd step: measuring IE through employment Listing of enterprises by administration, Economic censuses and other statistics on establishments; Employed workforce from censuses & LFS

  27. B.2: Proposed Methods andOverview of the Process Building the production accounts of the economy using available partitioning of the production Initiate the iterative process, using SUT and Labour Input Matrix (LIM), developed in 3 steps: (a) Gauging the employed workforce: LFS more rigorous than census, depend on the sampling (b) Comparison of employment data: EWF is compared to the economic matrix: (c) Employment, compensation and amount of work: NA estimate production of non economic jobs, based on average productivity by activity

  28. B.3 Description of development process LIM to be developed from fresh Benchmark; Definition of informal sector to fit local situation: economic, sociological, administrative & statistical; Economy mapped before partitioning sector by production mode (formal/informal) Developing 2 matrices on employed workforce: Labour supply matrix: from census & LFS including secondary jobs Labour demand matrix: built from economic census, professional and administrative sources => Estimate undeclared employees in formal sector or in units escaping economic statistics

  29. C1: The Reconciliation process Demographic and economic matrices have the same structure to generate a unique LIM: By status in employment (wage earners, bosses, self accounts, family helpers) By economic detailed activity, by status and if possible by occupation M1 – M2 = non registered economy: IPUs + non declared employees of formal units

  30. A six-step-elaboration process Setting available items from IPUs => Jobs matrix by branch & status ; Jobs associated to partition are attributed; other belong to “non observed zone”; All production modes are defined, including informal ; Setting data according to classifications: jobs matrix by branch, status, production mode Primary elaboration of branch accounts => supply and use of IC; Iteration within SUT framework.

  31. C.2: Satellite account on Informal Satellite accounts (SA) allow economic analysis of specific SNA sub-sets In the case of informal economy: Quite consequent: 25 to 45% of GDP Its measurement is a part of the central SNA framework elaboration; It can only be estimated thru indirect ways, using all statistical sources within specific partitions (production mode)

  32. C.3: Proposed content of SA Informal 1/ A differentiated measurement: IPUs (merchant units belonging to households) informal employment (including non declared formal employees) 2/ Placing informal economy in the whole national economy: The formal economy; Underground/illegal economy;

  33. C.3: Proposed content of SA Informal 3/ Various classification of informal sector: With or without employees urban/rural By revenue groups (of IPUs) 4/ Main Recommendations from Delhi group: To isolate agriculture Outside liberal or highly technical activities To put aside domestic servants

  34. Proposed analysis from SA Informal 1/ Analysis within the households’ sector A same person might have several jobs, among which one only is informal Criteria must focus on jobs diversity, including revenues generated 2/ Which on links between poverty & informality 3/ Etc.

  35. Conclusion: Requesting statisticians to implement satellite account SA on Informal Economy  a double objective: To convey survey statisticians and national accountants on a coordination frame To share the same approach, thru LIM, which requires: A specific production mode dedicated to informal sector To locate the IPUs among other formal small size units, via updated business registry To collect data allowing monitoring evolution of the IE, via annual LFS (households’ panel)

  36. Thank you! African Centre for Statistics Visit us at http://knowledge.uneca.org

  37. Annex 1: How to build the Satellite Account on Informal economy Scheme No 1: Matching Labor Supply and Demand Matrices Scheme No 2: Informal jobs by status in employment and type of production units Scheme No 3: Statistical mapping by institutional sector and survey coverage Scheme No 4: Reconciliation iterative process to produce the LIM

  38. 1: Matching Labor Supply/demand Matrices (*): All Employment components to include secondary jobs

  39. 2: Informal jobs by status & units type NB: Categories A and B contend informal employment but only categories C and D are to be taken into account for informal GDP

  40. 3: Statistical mapping by institutional sector and survey coverage NB: Category B is considered as formal because its units are registered

  41. 4: Reconciliation iterative process to produce the LIM Labor Supply FORMAL UNITS Labor Demand A: % of units escaping survey Mode 1 : Jobs observed in economic census Formal employment in formal production units Mode 2 :Jobs non declared by responding units in economic census Informal employment in formal sector B: Informal units surveyed in economic census Total employment in informal sector Mode 4: Jobs observed in phase 2 of mixed survey (including declared secondary jobs) Demographic Matrix INFORMAL UNITS Mode 3 : Jobs observed in LFS but not to be included Households employment not elsewhere counted HOUSEHOLDS + AGRICULTURE C: UNDERGROUND ECONOMY Economic matrix NB: Employment in mode 4 is the largest and corresponds to market outputs jobs not registered by economic statistics

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