Understanding Informal Employment:

The contribution of public opinion surveys to public policy

Benjamin Temkin YedwabFLACSO-Mexico

Introduction

The ubiquity of informality Complexity for social sciences Complexity for public policy

Changing Definitions

Informal Sector Informal Employment

Some researchers prefer to look at Informal or “Shadow Economy”

The Magnitude of Informality In a recent study the World Bank (2009) calculates that the typical Latin

American country produces approximately 40% of GDP and employs 70% of the work force in informality.*

It should also be noted that in developed nations a significant (and growing) percentage of the work force is employed in “atypical” or “non-standard” jobs.**

For Mexico, it is estimated that in 2010, informal jobs were more than 60% of the total. *** (Negrete, 2010)

Informality in developing countries is growing under the impact of globalization and crisis. (Temkin and Veizaga, 2010) **** 

* http:/ / www – wds . worldbank.org/ servlet/ WDSContentServer/WDSP/IB/2009/ 03/30/000158349_20090330131803/ Rendered/PDF/ WPS4888. pdf

** Three categories of non-standard or atypical work/self employment, part-time work, and temporary work-comprise 30 percent of overall employment in 15 European countries and 25 percent of total employment in the United States. International Labour Office( 2002): Women and Men in the Informal Economy: A Statistical Picture, International Labour Organization, Geneva

*** Rodrigo Negrete Prieto, El empleo informal en México visto bajo el esquema conceptual OIT . Unpublished manuscript.

**** The Impact of Economic Globalization on Labor Informality, New Global Studies, 2010

Informal Employment in Mexico

In Mexico, at the beginning of 2010, the work force was 43.6 million people: 26.4 million (60.6%) with an informal job, of which 12.5 million were in the

informal sector and 13.9 million in the formal sector*.

* Rodrigo Negrete Prieto, El empleo informal en México visto bajo el esquema conceptual OIT . Unpublished manuscript.

Perspectives regarding labor informality

Duality or Marginality. Modernization theory. Structural1. Keeps unemployment low. Prevents social unrest and people

engaging in outright criminality.

2. Helps keep low the salaries of both formal and informal workers in the formal sector. Internal “maquiladoras”.

3. Allows consumption to poor people in the informal and formal sector.

4. It provides fertile ground for corporatist and clientelistic politics.

Choice-Legal Bureaucratic.

Main debates regarding informality

About impact of free trade and globalization. About impact of business freedom, flexibility of labor markets, health

and environmental regulations. About impact of social protection programs. About character of informal (self) employment: “Incipient

entrepreneurship” or “survival strategy” About the role of “choice” as opposed to “constraints” in joining

informal employment.

Most research: Economic (econometric) or institutional, and at the individual-motivational-subjective level mostly qualitative.

Problems with qualitative research on informal labor.

Main Claim Public opinion surveys are an instrument of research that can help us understand better the attitudes, values and motivations of informal participants in the work force, and provide valuable information for the development of public policy.Surveys can also be helpful in unveiling different aspects of the economic, social and political behavior of informally employed individuals as well as the networks they develop in these spheres of activity.Problem: Few relevant surveys. Lacking questions to identify informal participants in work force*.

* The module on informality of the Argentinian Encuesta de Hogares consittutes an interesting exception.

Contributions of Wider Research Project

To the debate concerning “incipient entrepreneurship” vs. “survival response”.

To the role of “choice” as opposed to “constraints” in joining informal employment.

To the study of the economic, social, organizational and political networks associated with labor market informality.

To better understand cultural and socio-political values, attitudes and opinions of informal workers.

To develop a better informed public policy regarding informal employment.

The inclusion of three specific questions in the 2005 Mexican version of the World Values Survey (WVS) made it possible not only to identify the informal participants in the labor market, but also to ascertain their particular level and kind of informality.

These questions allow researchers not only to identify the different levels of informality defined in terms of employment and work-place characteristics, but also, to determine the type of employment*.

*Benjamin Temkin. "Informal Self-Employment in Developing Countries: Entrepreneurship or Survivalist Strategy? Some Implications for Public Policy" Analyses of Social Issues and Public Policy Vol. 9.No. 1 (2009)

Informality: entrepreneurship or survivalist strategy?

Informality Operationalized

Key questions:

Work with or without a contract,

Work with or without social security,

Work place or occupation that issues official receipts

Type of employment:

Formal participants in the labor force

Informal employees (all informal wage earners regardless of their level of informality).

Self-employed or own account informals (again regardless of their level of informality)

Levels of informality:

• Formals (with no characteristics of informality);

• Informals level 1 (with only one characteristic of informality);

• Informals level 2 (with 2 characteristics of informality);

• Informals level 3 (with all 3 characteristics of

informality).

Selected by:

Which is your occupation or work?

Socio-Demographic Profile of Respondents by Level of Informality and Type of Employment

Higher presence of women. Older Less schooling Lower incomes Lower self-placement in class terms

Values and Attitudes

Source: Pennsylvania Partnership for Economic Education and Economics (2003), Pennsylvania, Retrieved on Dec. 01, 2007, the Website:http://www.millersville.edu/~mucee/techconnect/tc/lesson4.html

• Earle & Zakova (1998), for example, remind us that “on the one hand, a self-employed worker may be an entrepreneur exploiting new opportunities and inventing and improving products, production processes, and ways of distribution. At the other extreme, self-employment status may reflect the inability of a perhaps destitute worker to find a satisfactory ‘regular’ job as an employee, and her activities and income may differ little from those of an unemployed person. A self-employed worker may be striving to grow wealthy by taking risks with new ventures, or she may be casting about desperately for any means to ensure survival. She may be developing new markets and creating jobs for others—her employees—or her self-employment may involve withdrawal from markets, a return to pre-modern self-sufficiency.”

• Also to be noted in this regard is the sharp distinction drawn by Glueck (1980) between entrepreneurial ventures and family business initiatives. The strategic practices of entrepreneurial ventures are geared toward the best interest of the firm and are growth oriented as well as innovative. Family businesses, in contrast, emphasize preferences and needs of the family as opposed to those of the business. In line with Shumpeter’s (1934) criteria for entrepreneurship, Carland and his colleagues (1984) maintain that the critical factor that sets apart entrepreneurs from nonentrepreneurial small business owners is innovation: “The entrepreneur is characterized by a preference for creative activity, manifested by some innovative combination of resources for profit.”

Entrepreneurial or Survivalist Syndrome?

Informal participants in work force (as compared to formals) and self- employed informals in particular, show:

Lower level of “satisfaction with life” Lower level of feeling of “freedom to choose and control over life” Lower level of “satisfaction with economic situation of household” Lower “capacity to save money” Lower level of “subjective well being” or happiness

Continuation

Lower level of self-perception of “health” Less agreement with “I decide by myself which are my goals in life” Less importance attached to “teaching independence to children” Less importance attached to “teaching perseverance and

determination to children”

Self-Perception of Happiness and Health By Level of Informality.

Self-perception of Happiness andHealth By Type of Employment

Some provisional implications for public policy Reduce “constraints”

The most appropriate strategy to overcome employment precariousness and vulnerability is one that promotes macroeconomic policies encouraging the creation of formal employment, strengthens the inspection of labor conditions in the formal sector, provides incentives for formalization of specific types of employment such as domestic service, and, most importantly, raises the human capital level of the general population. (Novick, 2007)

Our results suggest that the best way to foster the growth of formal employment, improve the lives of working people, and spur economic development is to design public policies and economic strategies aimed at fostering the growth of the formal sector, by creating more secure and better paid jobs. It also seems imperative to carry out significantly higher and more efficient investments in education and human capital.

It seems that “incipient entrepreneurship” as attributed by some consultants and policy makers to the informally self-employed is quite limited. Very unlikely that this group will be a detonator of economic growth. Micro-credits and easing of legal and registration procedures and regulations can be helpful to particular individuals and groups, but these will not bring about leaps in average productivity in the economy. Steps to “formalize” or regularize informal sector units will be extremely difficult to carry out as long as their (and their clients) economic, financial and social precariousness continues.

Further flexibilization of the labor market will not succeed, if it is not accompanied by serious inspections of labor conditions in the formal sector.

If, informal and precarious employment in developing countries result from developments occurring in the formal sector of their economies, specifically from the efforts of formal companies –under national or international pressures to lower their labor costs and increase their competitiveness, then it follows that the problem of informality has to be tackled primarily in the formal sector.

Given that the great bulk of informals workers and self-employed informals, seem to act in the framework of “constraints” and less out of “choice”, the main efforts and most state resources should be directed at improving the lot of the formal sector and formal employment, as well as reducing the number of informals workers in that sector. This will also contribute to the generation of a larger internal market, the lack of which constitutes an important obstacle to growth.

Informality and entrepreneurship: Mexico City and Ciudad Juarez

Using a specially designed public opinion survey among informal participants of the work force (employers, employees and self-employed) in two Mexican cities, two indexes have been calculated:

1. An Index of Informality

2. An Index of entrepreneurship

Type: • Contextual

Informality• Informality of the

activity

Levels:

Low Informality

High Informality

Informality in Mexico City and Ciudad Juárez

Contextual Informality:

• Level of family informality: The recipient of the highest income in the respondent household has social (health) security from his employment? Does that person workplace operate with fiscal accounting?

• Work trajectory: Has the respondent received social security in previous jobs?

• Family labor informality: Do members of the family of the respondent have temporary jobs?

Informality of the activity:

• Work-place location: private home, street or other public space, permanent premises.

• Proper accounting practices

• Temporality of the job: Permanent or seasonal.

Informality in Mexico City and Ciudad Juarez

The Entrepreneurship Index is composed of two dimensions: Objective and subjective.

Dimensions of Entrepreneurship:

• Objective• Subjective

Levels: • Entrepreneurial• Non-

Entrepreneurial

Entrepreneurship in Mexico City and Ciudad Juarez

Objective entrepreneurship:1. What type of change are you planning for

next year?:

+ Hire more workers

+ Buy machinery or instruments

+ Doing job training

+ Start an additional business

2. Presently or next year, are you planning to save money (alone or in association with others) to invest in your activity?:

+ I am saving or planning to save by myself.

+ I am saving or planning to save in association with others.

3. In the last two years: Have you asked for loans (money or in kind) to carry out your present activity?

+ yes

Subjective entrepreneurship:

How much influence did the following factors had in your decision to start your present activity?

(1. A lot; 2. Some; 3. None) :

+ Did not have an option

+ Saw it as an opportunity to progress.

Entrepreneurship in Mexico City and Ciudad Juarez

The indexes of informality and entrepreneurship were combined

Entrepreneurship and informality

Levels: • No entrepreneurship• Entrepreneurship with

low informality• Entrepreneurship with

high informality

Informality and entrepreneurship: Mexico City and Ciudad Juarez

Higher level of labor informality in Mexico City than in C. Juarez This is particularly true for informality of the activity. Informals in Mexico City hold less entrepreneurial attitudes. Informals in Cd. Juárez engage in less entrepreneurial activities. In general very low levels of entrepreneurship.

Informality and entrepreneurship: Mexico City and Ciudad Juarez

Political views and attitudes of informal workers in Latin American

Using the last version of the Latinobarometro and the 2008 version of Latin American Public Opinion Project (LAPOP).

Some Findings from Latinobarometro-Lapop on Socio-Political Attitudes of Informal Participants (as compared to “Formals”) in the Work Force

Less “satisfaction with democracy” Less agreement that: “democracy guarantees (political, labor,

religious, and civil) rights” Less agreement that: “in spite of its problems, democracy is

preferable to any other form of government” Less support for democracy when “it fails to deliver economic

growth” More supportive of authoritarian measures against opposition “when

circumstances require it” More supportive of “military rule”

STATISTICAL APPENDIX

Socio-Demographic Profile of Respondents by Level of Informality

Socio-Demographic Profile of Respondents by Type of

Employment

Socio-Demographic Profile of Respondents by Level of Informality

Socio-Demographic Profile of Respondents By Type of Employment

Self Description in Class Terms By Level of Informality

Self Description in Class Terms By Type of Employment

Satisfaction with Life By Level of Informality.

Satisfaction with Life By Type of Employment

Self-Evaluation of Economic Situation of Household By Level of Informality

Self-Evaluation of Economic Situation of Household By Type of Employment

Self-Reliance By Level of Informality.

Self-Reliance By Type of Employment

Creativity by Level of Informality

Independence and Creativity By Type of Employment.

Values important to teach to children by Type of Employment

Nociones sobre democracia y legalidad

Nociones sobre democracia y legalidad

Nociones sobre democracia y legalidad

Nociones sobre democracia y legalidad

Nociones sobre democracia y legalidad

Evaluación del gobierno

Evaluación del gobierno