TESTING THE CONCEPTUAL FRAMEWORK OF INFORMAL EMPLOYMENT - A CASE STUDY OF INDIA

 

 

 

- Dr. G. Raveendran & G.C. Manna

 

1.                  The Concept

 

            The term 'Informal Sector,' which was first used by the International Labour Organisation (ILO) mission to Kenya in 1972 to denote a wide range of small and un-registered economic activities, has been under review and debate during the last three decades. In 1993, the Fifteenth International Conference of Labour Statisticians (ICLS) defined the informal sector as all un-registered or un-incorporated enterprises below a certain size, including micro-enterprises owned by informal employers who hire one or more employees on a continuing basis; and own-account operations owned by individuals who may employ contributing family workers and employees on an occasional basis.

 

The Delhi Group deliberated on the definition of 'Informal Sector' in its third meeting held at New Delhi in 1999 and recognized the difficulty in harmonizing national definitions of the term as it manifests itself in different ways in different countries. Nevertheless, recommendations were made by the Delhi Group in the meeting to disseminate data for a sub-set of informal sector so as to facilitate international comparability.

 

The concept of  'Informal economy' has recently come into use to incorporate informal employment even outside the 'informal sector'. In other words, informality of both the enterprises and employment relations is incorporated in the concept of informal economy. A conceptual framework of informal employment was presented in the Fifth meeting of   Delhi Group at New Delhi during 19-21 September 2001. It is, essentially a classification of jobs by status of employment of various categories of workers in different types of production units consisting of (a) formal sector enterprises (b) informal sector enterprises and (c) households which produce goods for their own final use and/or those employing domestic workers. They may be performing the jobs as (a) own account workers (b) employers (c) contributing family workers, (d) employees or (e) member of producers co-operatives. The status of employment may be formal or informal in many of the above categories.     The framework, thus, recognizes informal employment in the formal sector, informal sector and households and consists of the following:

 

·        Informal employment in Informal Enterprises (small un-registered or un-incorporated enterprises) including employers, employees, own account workers and unpaid family workers in informal enterprises

 

·        Informal employment outside Informal Enterprises (formal enterprises, households or no fixed employer) including domestic workers, casual or day labourers, temporary or part-time workers, industrial outworkers and un-registered or undeclared workers.

 

            The expanded concept of informal employment thus include all types of remunerative employment which are not recognized, regulated or protected by existing legal or regulatory frameworks as well as non-remunerative work undertaken in an income producing enterprise. These workers are typically deprived of secure work, worker's  benefits, social protection and representation or voice. Informal employment relations consist of employees of informal enterprises as well as domestic workers without a regular contract, casual day labourers without a fixed employer, temporary workers who get work through an agency, part-time workers for a fixed employer, industrial outworkers for formal or informal firms and un-registered or undeclared workers.

 

2.                  The Labour Force and Informal Sector Surveys in India.

 

            The National Sample Survey Organisation (NSSO) in India has been conducting integrated labour force and consumer expenditure surveys once in five years since 1972-73. The sixth quinquennial labour force survey was conducted during (July 1999 to June 2000 (55^th round survey).An important feature of this survey was  that certain additional questions were included in the survey schedule to capture the characteristics  of enterprises in which the workers were employed. This was done to estimate the number of persons employed in informal sector. Yet another distinguishing feature was that a survey of informal sector enterprises was integrated with the labour-force survey for the first time.

 

As per the NSS concept, any activity resulting in the production of goods and services that add value to national product is defined as 'economic activity' for the purpose of the survey. Such activities include production of all goods and services for the market (market activities) ie., production for pay or profit, and, the production of primary commodities for own consumption and own account production of fixed assets, among the non-market activities.

 

In the case of labour force survey, each person in the sample households is classified into one of the following broad activity statuses by using the concept of usual status, or current weekly status.

 

(i)                 working or being engaged in economic activity. Unpaid helpers who assisted in the operation of an economic activity in the household farm or non-farm activities were considered as workers.

 

(ii)               being not engaged in economic activity (work) but either making tangible efforts to seek 'work' or being available for 'work',  if work is available.

 

(iii)             being not engaged in any economic activity (work)  and also not available for work. 

 

The usual activity status relates to the activity status of a person during the reference period of 365 days preceding the date of survey. The activity status on which a person spent relatively longer time (i.e. major time criterion) during the 365 days preceding the date of survey is considered as the principal usual activity status of a person. The current weekly status of a person is the activity status obtaining for a person during a reference period of seven days preceding the date of survey. A person who has worked at least one hour on atleast one day during the seven days preceding the date of survey is considered as working and the current weekly status is decided accordingly.

 

            For the purpose of both the labour force survey and informal sector survey, all unincorporated proprietary and partnership, non-agricultural enterprises were considered as informal sector enterprises. It included both own-account enterprises and other enterprises.

 

3.         Testing the Conceptual Framework of Informal Employment

 

            The labour force surveys are conducted primarily to estimate the worker participation rates, distribution of workers by industry groups and by age, un-employment rates, etc. The estimation of informal sector employment was another important objective of 55^th round labour force survey. In order to meet this objective, details about the usual status, type of enterprise, location of work place, etc were collected through the survey. In addition, data on nature of employment (permanent or temporary) and availability of provident fund benefits were also collected in 55^th round survey. In order to meet this objective, details about the usual status type of enterprise, location of work place, etc were collected through the survey.  In addition, data on nature of employment (permanent or temporary) availability of provident fund benefits were also collected in 55^th round survey.

 

            The information on usual status of each person categorises the individuals into the following groups of workers apart from the categories of those seeking work and not in labour force.

 

(i)                 Own account worker

(ii)               Employer

(iii)             Helper in household enterprise (unpaid family worker)

(iv)              Regular salaried/wage employee

(v)                Casual wage labour in public works

(vi)              Casual wage labour in other types of work

 

Clearly, all the above categories except those at (ii) and (iv) are in informal employment. Even amongst employers and regular salaried/wage employees a good percentage can be classified as those having informal employment by using the information on type of enterprise. The different categories used for classifying the type of enterprise were

 

(i)                 Proprietary - male

(ii)               Proprietary - female

(iii)             Partnership with members from the same household

(iv)              Partnership with members from different households

(v)                Public sector

(vi)              Semi-public

(vii)            Others (including co-operative society, limited companies, units covered under Annual Survey of Industries, etc)

(viii)          Not known

 

Of the above categories, the first four are informal sector enterprises as per the definition followed while the next three constitute the formal sector. 'Households' are not specifically included as a separate category in the type of enterprise and as such, there is a good proportion of not known and not recorded cases. No doubt, many of them may be workers in the households or may be without any fixed employer. The group also includes those who have not indicated the type of enterprise though having a fixed employer.   Making use of these classifications and using the criteria of casual nature of job to define informal employment, the situation that emerges in the case of India is as given in the Table:1.

 

Table: 1    Percentage distribution of Informal Employment Based on Casual Nature of Jobs

                                                                                                                        Rural

Production Units by type	Jobs by status in Employment
	Own account worker		Employer		Family workers	Employees		Total
Formal sector Informal sector Others	Informal	Formal	Informal	Formal	Informal	Informal	Formal	Informal	Formal
	-   32.89   2.89	0.30   -   -	-   0.52   0.04	0.00   -   -	0.05   11.50   1.11	2.74   17.76   5.70	12.82   8.03   3.65	2.79   62.67   9.70	13.12   8.03   3.65
Total	35.78	0.30	0.56	0.00	12.66	26.20	24.50	75.20	24.80

                        Total Rural Workers              =          67,919,462

                                                                                                                                    Urban

Formal sector Informal sector Others	- 28.94   1.27	0.25 -   -	- 1.09   0.11	0.04 -   -	0.05 8.59   0.46	1.63 11.48   2.64	22.04 17.50   3.90	1.68 50.10   4.48	22.33 17.50   3.90
Total	30.21	0.25	1.20	0.04	9.10	15.75	43.44	56.26	43.73

                        Total Urban Workers            =          71,931,385

 

                                                                                                                             Combined

Formal sector Informal sector Others	- 30.86   2.06	0.27 -   -	- 0.81   0.08	0.02 -   -	0.05 10.00   0.77	2.17 14.54   4.14	17.56 12.91   3.76	2.22 56.21   7.05	17.85 12.91   3.76
Total	32.92	0.27	0.89	0.02	10.82	20.85	34.23	65.48	34.52

                        Total Workers                        =          139,850,847

 

            Going by the casual nature of jobs, about 65.5% of non-agricultural workers are in informal employment though about 69.12% of the workers are employed in informal sector. It is because about 12.91% informal sector workers receive regular salary/wage while in the formal sector only 2.22% of the workers are casual workers.

 

            There is considerable variation between rural and urban areas in the distribution of informal workers. While in the rural areas, about 75.2% of the non-agricultural workers are in informal employment; in the urban areas the corresponding percentage is only 56.3%.

 

            Another variable for which information has been collected in the survey was 'nature of employment'. A person is considered as having permanent employment if he is likely to continue in the same employment in the normal circumstance. Otherwise the person is considered as having temporary employment. By using this criteria along with the casual nature of employment and adjusting for non-response, the percentage distribution of employment in various types of enterprises has been estimated and given in Table 2

 

Table: 2   Percentage distribution of Informal Employment Based on Casual and temporary Nature of Jobs

                                                                                                                       

Production Units by type	Jobs by status in Employment
	Own account worker		Employer		Family workers	Employees		Total
Formal sector Informal sector Others	Informal	Formal	Informal	Formal	Informal	Informal	Formal	Informal	Formal
	-   30.51   2.05	0.27   -   -	-   0.77   0.06	0.03   -   -	0.04   9.69   0.86	4.36   21.61   5.33	15.58   6.23   2.61	4.37   62.58   8.30	15.91   6.23   2.61
Total	32.56	0.27	0.83	0.03	10.59	31.30	24.42	75.25	24.75

 

Yet another variable of interest was the availability of social security measure of coverage under Provident Fund. By using this variable along with the casual nature of job, the distribution of persons in employment has been derived and given in Table 3.

 

 

Table: 3   Percentage distribution of Informal Employment Based on Casual nature of job and coverage under Provident Fund                             

 

Production Units by type	Jobs by status in Employment
	Own account worker		Employer		Family workers	Employees		Total
Formal sector Informal sector Others	Informal	Formal	Informal	Formal	Informal	Informal	Formal	Informal	Formal
	-   30.29   2.03	0.27   -   -	-   0.77   0.06	0.02 -   -	0.04   9.60   0.84	5.56   25.81   6.19	14.57   2.16   1.79	5.60   66.47   9.12	14.86   2.16   1.79
Total	32.32	0.27	0.83	0.02	10.48	37.56	18.52	81.19	18.81

 

            It may be seen from the above tables that the percentage of informal employment increases with the addition of different criteria. Thus, the choice of criteria for the identification informal employment is a critical factor.

 

4.         Conclusions

 

            It is evidently possible to estimate the magnitude of informal employment through labour force surveys by using one or other of its characteristic features. It would, however, involve suitable modifications/enlargement of labour force survey schedules.

 

            The most distinguishing feature of informal employment may vary from country to country and as such, it may not be possible to use the same criteria in every country.

 

            Since the harmonization of the definition of informal sector across all the countries is difficult and the criteria for the identification of informal employment may vary from country to country, the problem of deriving internationally comparable estimates of informal employment is a statistical challenge.