THE CONCEPTS OF INFORMAL SECTOR AND
INFORMAL EMPLOYMENT:
AN APPLICATION FOR BRAZIL
-
Angela Filgueiras Jorge, Lucilia
Valadão
Introduction
The labour
market has been submitted to important changings in the last years and the
theme of informality is inserted in this context. Although the exact contents
of what is informal is still very
discussed and even questioned by many scholars on the subject there is no doubt
that it is a growing phenomenon.
The
concept of informal may be figured
under many forms, but basically there can be identified, from the pertinent
literature, two approaches for its measuring. One of them stems from the
characterization of the productive unit according recomendation of the 16th Conference of Labour
Statisticians carried out by International Labour Organization (ILO) which
defines the informal sector as from the organizing and working of the
economic undertaking. Hence the informal sector is composed by the productive
units whose owners are either own account workers or small employers that
produce for the market and have not a complete system of accounts, that is,
belong to the institutional sector families
in the National System of Accounts.
The
second approach is connected to what is called in literature as informal employment which stems from
the characteristics of the worker and it is usually related to his precarious
form of insertion in the labour market, without access to labour protection and
social covering. Latin America particularly in years 90 saw the amplification
of the contingent of workers without formal labour contracts and thus without social
protection. In the Brazilian case the segment of informal employment is traditionally defined as the own account workers and the employees
with no formal contract.
This
work aims to contribute with this discussion to apply for the Brazilian case the
model proposed by Ralf Hussmanns in 2001, which means to distinguish the
concepts of informal sector and
informal employment, by using the informs normally gathered in the surveys
about labour force. In the first section we present a brief summary on the
relation between the economic conjuncture in the decade of the nineties and its
impact in terms of labour market. In the second section we present the
methodology to measure the size of the informal sector in terms of the
Brazilian labour market. In the third section we present the methodology and
the results for the size of the informal employment in the Brazilian market
and, at last, the final considerations.
1. The economic conjuncture
and the impact on the labour market
The Brazilian
economy has experienced in the last years a deep reformulation in terms of its economic structure. The decade of the
nineties starts with many problems inherited from the previous years, being the
most dramatic the question of the inflation. The Collor administration besides
a policy of stabilization brought a proposal of a long term project that
connected the struggle against inflation with the implementation of structural
reformations in the Economy, in the State and in the relations of the country
with the rest of the world, with strongly liberal characteristics, the main of
them being the policy of trade opening[1].
This project put the country in a process of institutional reformation,
modifying the existing standard of development.
In a first moment there was a defensive re-structuration of
Brazilian companies that removed administrative staff by adoption of new forms
of managing and production organization.
This process
became deeper with the policy of stabilization materialized in the Plano Real in 1994, that brought the
valuation of the national currency and large facilities to import, which
required rapid transformations in the national companies and their association
with foreign capitals as a way to survive in the new conditions of the markets.
The conjunction of the exchange valuation with the trade opening and the strong
foreign competition resulting allowed the prices of the tradeable goods to be
restrained since the begining of the plan, making effective the exchange anchor in the control of the
inflation.
With the
adoption of the new currency in July 1994 and the fall of inflation - as
already happened in other experiences of stabilization in the country - the
growing rythm of the productive activities was fastened and so remained up to
the first quarter of 1995[2].
This phase of
fast expansion of both the production and the employment is explained by the
raise of the purchasing power namely
among the population of lower income (that formerly could not protect
themselves from inflation by means of financial investments) and also by
increasing the purchases in installments.
The picture of
economic growth was reverted as from March 1995 on, and then begins the
measures of stop-and-go that
characterizes the economic Brazilian policy up to-day. The exchange valuation
connected to the trade opening resulted in a drastic reduction of inflation but
also brought an expressive deterioration of the foreign accounts of the country
particularly of the trade balance which presented successive deficits from 1955
on.
This
reversion of the economic policy took place firstly because of the Mexican
crisis at the end of 1994, when Brazil would experience a fast lost in the
level of its internacional reserves. The option then adopted was to increase
the inland interests rates aiming to stop the exit of capitals from the country
in view of the vulnerability of the balance of payments, and also to make a
more restictive monetary policy which rapidly reflected on the level of the
economic activity.
When
the financial international markets returned to normality as a result of the
American aid to Mexico, the economic policy of the Government allowed the
interests rates to decrease slowly thus bringing a re-warming of the Brazilian
economy in 1996.
In July 1997
the Asian crisis take place and again there is a significant loss in the
Brazilian capital assets. In view of the situation of the trade balance and the
public deficit the interests rates increase and the Government adopts a fiscal package combinig increased taxes
and cuts in the expenses[3].
In the year of
1998 we lived through another international crisis, this time with Russia,
limiting the re-starting of the level of economic activity in face of a new
increase of the interests rates. Besides that the Government decreed a new fiscal package for the period 1999/2001
cutting expenses and increasing taxes.
The foreign
choke and the threat of an exchange crisis led the country to ask for a loan to
the International Monetary Fund in 1998, which would bring more restrictive
measures along the following years with the purpose to comply with the goals as
settled in the agreement, both in fiscal terms and in inflation[4].
Besides that the Government freeded the exchange to flow and the national
currency had a strong devaluation in 1999.
As
shown in Graph 1 - which presents the path of variation of Gross National
Product of the country in the last decade - the level of the economic activity
was submitted to the oscilations of the economic policy particularly in
response to the variation of the interests rates of the economy. In 1994 we had
the apex in the growing of the economic activity - 5.9% - which, since then,
evolves at rates each time lower. In 1998 the economy was practically stagnant
- variation of 0.1% - and only in 2000 we had again a more significant growing:
4.4%. In 2001, on account of the world crisis as well as the inland energetic
crisis, the expansion was again shorter: 1.5%.
GRAPH 1
In terms of
labour market it may be seen that the impact on the rate of unemployment as
calculated by the Monthly Survey of Employment of IBGE[5] , was not
negligible and that the retraction in the level of demand was felt in a very
significant way in the unemployment rate in the period from 1996 to 2001, culminating
in 1998 with the unemployment rate of 7.6% of the EAP (Economically Active Population).
According to
Graph 2, we can see that the inversion in the descending course of the
unemployment rate in the decade of the nineties occurs precisely when the Government
economic policy becomes more restrictive by means of higher interests rates,
increasing the taxes burden and diminishing Government expenditures, as a
consequence of succesive international crisis. The rate of unemployment in the
period 1996/2001 is leveled very higher than the average for the period
1991/1995 (6.6% against 5.1%). The end of the decade of 1990 was particularly
difficult in terms of labour market as for the generation of jobs in view of
the economic conjuncture at the time.
GRAPH 2
The increase in the level of unemployment may be linked to
the capacity to create jobs in the industrial sector which considerably
decreased in the last years, as a consequence of the process of trade opening, which privileged adjustments
to generate productivity gains to increase its competivity in the international
scene. Regardless this straight impact on the level of employment, there is
still a concern about the fact that this sector is traditionally responsible by
the offer of labour posts of quality, in terms of salarial levels, access to
labour protection and opportunities of training and developing the worker[6].
Until the first
half of the decade of the nineties we had a fall in the rates of unemployment,
as already seen, with increase in the occupational level which was not being
generated by industrial sector but by the sector of services. Graph 3 shows how
evolves the participation of the different activity groups in the rate of
occupation: the industry of transformation that employed circa 22% of the
population in 1991, employed just 16% in 2001. And Services which used to
employ 49% in the begining of the decade, employed 55% of the total in 2001.
The sectors
that so far pushed the employment no more demanded personnel in view of the
drop in the absortion of employment in commerce, as well as the shrinking of
the financial sector, after the crisis in some banks and the wave of mergings
then resulting, and also the impact of the fiscal crisis on the personnel hiring
in public administration. Thus the adjustment that kept being made in industry
could no longer act as a counter-weight for the larger growing of employment in
other sectors[7].
GRAPH 3
>
This
reformulation in terms of the Brazilian market reached the labour market in a
very significant way. More and more discussions are taking place about
re-definition of the labour relations, labour processes and forms of labour
insertion, which for one side made flexible the Brazilian market, but for the
other side brought a process that made precarious the labour relations[8].
This
"precarization" of the labour arises from the different kinds of
contracts adopted as alternative to permanent contract, allowing the creation
of employments so-called non-standard or flexible, in which stability is not
appraised because the cost to rescind the contracts is cheaper, as well as the contribution to social
security. Cacciamalli[9] cites as main
types the following labour contracts: part time, temporary, third-party,
occasional and seasonal.
2. The informal sector
In this context
of changings in Brazilian formal labour market the informal sector has been
pointed out as the segment with largest growing particularly in the years 90
and mainly in the urban centers.
With
the purpose to better know this segment, the Brazilian Institute of Geography
and Statistics (IBGE) realized in 1977 the survey Urban Informal Economy
(ECINF) with national scope, to know - in a deeper way - the working logics of the small productive
units that integrate the informal sector.
Following
the methodology adviced by ILO to measure the informal sector it was taken into
consideration that[10]:
·
to delimit the scope of the informal sector the starting point should be
the economic activity - understood as a production unit - and not the
individual worker or his occupation;
·
the informal sector comprises the non-agricultural economic activities
that produced goods and services with the main purpose to generate employment
and income for the persons envolved, being excluded those units engaged only in
the production of goods and services for self-consumption;
·
the units of the informal sector were characterized by production in
small scale, low organizational level and almost unexisting distinction between
capital and labour as factors of
production;
·
although useful for analytical purposes, the absence of records was not
taken as a criterion for definition of the informal sector, once the substract
of the informality refers to the way of organizing and functioning the economic
unit, and not to its legal status or
to the relations it keeps with public authorities. Since there are several
kinds of official registrations this criterion did not show a clear conceptual
basis; it is not fit for historical and international comparisons, and could
raise resistance among the informers;
and
·
the definition of an economic unit as informal did not depend upon the
place where the productive activity was developed, or the use of fixed assets,
or the duration of the activities of the undertakings (permanent, seasonal or
occasional) or whether it was the principal or secondary activity of the owner
of the undertaking.
Therefore it
was defined in this statistical
approaching that belonged to informal sector all the economic
activities, non-agricultural, owned by own account workers or by employers with
up to 5 employees, living in urban areas, and being those units either the
principal or the secondary activity of their proprietors.
The survey
missed to cover the non-agricultural activities developed by residents of
domiciles in rural areas, who, in view of
their own organizational mode and of the economic calculation that rules
them, should in fact be included into the spectrum of the informal economy.
Such procedure was justified by the significant increase of the operational
costs that would be brought to the survey to cover the rural domiciles and also
by the empiric evidence that the most expressive part of the informal economy
was concentrated in the large urban centers.
The paid
domestic employees, although belonging to the informal sector, were not reached
by the survey, because it was assumed that the relevant informations for this
category are already exaustively surveyed every year by the National Survey by
Sample of Domiciles PNAD[11].
In short,
according to ECINF, the personal
occupied in the informal sector comprised the owners, own account workers and
employers with up to 5 employees and the workers of these units (with or
without formal labour contract) and the unpaid family workers.
Based upon the
methodology sugested by Hussmanns we used PNAD to dimension the total of
occupied personnel in this sector for the years of 1997 and 1999. The purpose
of this exercise was to estimate the number of labour posts generated by the
small undertakings and to evaluate its evolution in that period. An also
desirable output was the comparison of the results gathered by those two
surveys in 1997.
The estimates
of 1997 gathered from PNAD indicate an occupied contingent in informal sector
beyond the estimates found out by ECINF in the same year. This result is
particularly affected by the total of employees and unpaid family workers
workers. As for these it is not possible to identify, through PNAD, the size of
the undertaking in which they work;
therefore this value is increased with the persons working in
undertakings with more than 5 persons occupied.
ECINF excludes
from the scope of the informal sector the companies which legal constitution
classified them as Stock Companies and also those which Revenue Statement for
1997 was filled in the form Real Profit, which indicates that although
belonging to the definition of small undertakings those companies had a
complete system of accounting. Through PNAD it is not possible to proceed this
filtering because those informations are not gathered. Hence, as it was
expected, the number of own account workers, employers and employees is higher
when the source is the survey of the labour force. At same time when dimensioning the size of the undertaking where
they work, the employees tend to underestimate it because they have not a real
notion of the number of persons occupied.
Therefore the
estimates of PNAD, considering only the urban areas in Brazil, indicate a total
of circa 19 million occupied persons in the informal sector, being 10 million
own accounts, 1.7 million employers, 1.6 unpaid family workers and 5.5 million
employees with and without formal contracts. The estimates of ECINF, on the
other hand, point to a total of 13 million, being 8.6 million own accounts, 1.6
employers, 0.5 unpaid family workers and 2.2 million employees with and without
formal contract.
3. The informal employment
With the
purpose to complement the existing statistics about the employment in the
informal sector, according with the methodology developed in the previous
section, Hussmanns proposes the concept of informal employment. According to
the author one concept can not substitute the other although both must be
defined so that one be clearly distinct from the other[12].
The
proposal is to construct a matrix that make possible to decompose the total
employment in accordance with the following dimensions: lines represent the
sector of employment (informal sector and other sectors) and the columns
represent the relation with the employment, which in Brazilian case should be
the position in the occupation (own account workers producing for market, for
self-consumption, employers, unpaid family workerss and employees).
Although there
is not an international consensus about the definition of informal employment,
Hussmanns[13] proposes the
following approach which we adapted for the Brazilian case:
i) Own account workers producing goods for
self-consumption - cathegory that does not take part of the informal sector
because the objective of the production is not mercantile - it was assumed that
the persons envolved in this activity have an informal employment.
ii) Own account workers producing goods or
services for the market and employers - it was assumed that all the own account
workers have an informal employment, as
well as all the employers with up to 5 employees once PNAD does not supply
other data to identify the juridical constitution and the existence of a
complete system of accounting. It was adopted for the employers the cut of the
size of the undertaking, as defined by the survey Urban Informal Economy.
iii) Unpaid family workers - it was assumed that
all have an informal employment because
they do not have an explicit labour contract and their employment is not ruled
by the labour law, social protection, colective agreements, etc.
iv) Employees - it was assumed that have an informal employment those who are not
covered by the labour laws, social protection and labour benefits, which, in
Brazilian case, are the workers without formal contract.
v) Paid domestic employees - it was considered as
informal employment that of the paid
domestic employees without formal contract.
Based upon
this methodology it was built for the Brazilian case a matrix aiming to
estimate the total of informal employment in Brazilian economy. For that
purpose it was used the estimate of occupied personnel from the National Survey
by Sample of Domiciles (PNAD) for the years 1997[14]
and 1999. With those data it is possible to outline a table of the evolution
between those two periods which, as we have already seen, were extremely
troublesome in terms of labour market.
We present
below two tables: Table 1 shows the estimates for the year of 1997 and Table 2
those for 1999. The first part of the tables show the estimates of occupied
personnel, with geographic coverage in national level, i.e, it covers both
urban and rural areas, and the second part of the tables refers only to urban
area, aiming to show the same geographic scope of ECINF.
The columns
of the tables represent the position in the occupation of the occupied persons,
according to the following order:
1) Total employment
2) Total of own account workers
3) Own account workers that work for their
self-consumption
4) Total of own account workers producing for
the market
5) Total of informal own account workers
producing for the market
6) Total of formal own account workers
producing for the market
7) Total of employers
8) Total of informal employers, i.e with up to
5 employees
9) Total of formal employers, i.e with more
than 5 employees
10)
Unpaid family workers
11)
Total of employees
12)
Informal employees, i.e without labour
contract
13)
Formal employees, i.e with labour
contract
15)
Total of Informal Employment, obtained
from the sum of columns 3,5,8,10 and 12
The lines
show the sector of employment:
A) Agricultural activities
B) Other branches of activity
B1) Public
sector
B2) Unpaid
family workers
B3) Private
sector
B3.1)
Undertakings with up to 5 occupied persons
B3.2)
Undertakings with more than 5 occupied persons
C) Total
C1) Informal sector
C2) Other sectors
Therefore,
the employment in the informal sector, compatible with that estimated by ECINF,
would be the sum of the own account workers, plus the employers with up to 5
employees and those same employees, with labour contracts either formal or
informal, and the unpaid family workers. To this segment it should be
aggregated the paid domestic employees to dimension the total of the informal
sector in the Brazilian economy.
The
informal employment is constituted by all the persons working in the informal
sector, be them proprietors or employees, excluding the employees with formal
labour contract, plus the own account workers for self-consumption, the unpaid
family workers ones from other sectors, the workers without formal contract
from other sectors, and the own account workers in agricultural activities.
The cell C1
in Table 1 shows the total of occupied persons in the economy in September 1997
(69.3 million workers) and cell C15 shows the total of persons with informal
emplyment in the country (41.5 million) and in the bottom is shown the estimates for the urban area.
The lines allow to see the sectors where both the total and the informal
employment were generated.
Based upon
those informations it may be seen that from the total employment generated in
the economy in that year, 37% was created by the informal sector and 62% by the
other sectors in the total of the areas both urban and rural.
When only
the urban area is analyzed it is seen that the share of the informal sector
raises to 45% while that of the other sectors drops to 55%, which corroborates
the thesis that the informal sector is a phenomenon typically of the urban areas.
In relation
specifically to the total of informal employment it can be seen that 60% of the
total of employments generated by the Brazilian economy in 1997 - including both urban and rural areas -
were informal employments and in the informal sector this share was of
88% whilst in the other sectors it was 43%.
For the urban area the total of informal
employments reached 52% of the total of the occupied population, being 87% in
the informal sector and 24% in the other sectors. In the urban area the
informal employment has a much smaller share in the other sectors when compared
with the informal sector, that is, the share of the informal employment
increases when the rural area - characterized in Brazil by high participation
of workers without formal contract - is
considered. On account of this
difference verified in the total of informal employment when the rural area is
aggregated it is justified the fact that the agricultural activity is analyzed
in separate.
The estimates for 1999 presented in Table
2 do not indicate significant changings in those shares, that is, the situation
of the informal employment increases in comparison with the urban area when the
rural area is included.
What should be emphasized is the evolution
in terms of labour market between those two years. First, there was a growing
in the total of employments, in
national level, between 1997 and 1999 of 3.4% for the total of employment and
4.8% for the informal employment. That is, the informal employment grew more
than the total one. Besides, the analysis by sector shows that the informal
sector expanded in terms of total employment (4.2%) and also of the informal
employment (4%). The total employment in the other sectors had an expansion of
3.2% and 5.7% for the informal employment in those other sectors. There was an
increase in the informal employment in every sector of the economy.
When analyzing only the urban area it can
be seen that the total employment grew 2.7% and the informal employment
expanded 4.6%. In the informal sector the total of occupied persons increased
6.4% and 6.5% with informal employment while the other sectors showed
practically stagnation in relation to total employment and a fall of 0.9% in
the informal employment. The total employment in the other sectors practically
does not grow in the urban area between 1997 and 1999 while in the informal
sector the growing is significant.