Operationalisation from the point of view of the
policy maker
- Lourdes Ferran
When
it comes to solve problems of social and economic policy one of the main
considerations is determining the outlines of the target population and the
secondary repercussions on those inside and outside that frontier. In view of
the first requirement the decision taker looks at the classifications provided
by the statistical system and as far the second is concerned he/she will be
looking at the relations between the target population and those outside it.
It has been observed that the existing grouping of
production units based on certain characteristics does not always correspond to
the requirements of policy makers. This happens especially with the definitions
and classifications that refer to small units. Besides their reduced size, and
difficulty to locate and to communicate with them, their characteristics encompass
an extremely broad ensemble of activities that might exist in groups outside
the accepted frontier or be exclusive to it. In addition, they show high
existential turnover and frequent changes of activities. The difficulty to
communicate may be due to the fact that the person of no fixed abode has no
known address, but also to difficulties of communication because of language
(especially in the case of ethnic minority groups), illiteracy or resistance to
reveal their activities to third persons, who are not their
clients.
Moreover, in the historical past, statisticians were
interested mostly in big economic units, which were growing at the expense of
the small ones; the latter being considered as the disappearing witnesses of a
system the society was progressively growing out. While the present scenario,
passing or permanent, shows a situation in which the small components are
growing more rapidly than the big ones: undoubtedly in terms of employment and
less markedly in terms of production.
These changes present a challenge to policy makers
who have to decide what kinds of policy are to be applied, what activities and
sectors should be targeted and what are the means and procedures that can be
applied and are within actual possibilities. To orientate themselves, they need
information, qualitative and quantitative, which they expect to find in the
existing statistical inventory.
The question is whether the existing statistics,
concepts and classifications respond to these specific needs. In a market society
needs for individual goods and services are handled by market demand and
supply. But in the case of social goods and services the solution must be found
via a consensus of those who represent demand and those responsible for the
supply.
In this sense, the present paper tries to confront
the statistical concepts and classifications available for the purpose at hand
and the specific needs of policies concerned with these activities and sectors.
In short, it refers to the operationalisation from the point of view of the
policy maker. With this in mind, the paper presents, first, a brief revision of
the existing concepts and classifications; second, considerations concerning
units that fall within the categories of informal, micro, small and medium
enterprises; third some policies that have been proposed to deal with them; and
fourth, a section on collection of data. From this confrontation we derive some
proposals for better adapting statistics to the needs of the users.
Accordingly, the paper is divided in four parts:
I.
Existing concepts and
classifications.
II.
The universe of
informal, micro, small and medium units.
III.
Policies.
IV.
Collection of data.
The concepts and classifications most widely used are
those laid down by the International Labour Office which were incorporated into
the 1993 version of the System of National Accounts, although there exist those
used by countries, which are slightly different from those of ILO. The 1993 ILO guidelines refer to what is called
the “Informal Sector”. More recently there has been work carried out on small
and medium enterprises. And in 2002 the
1993 guidelines have been supplemented and in some instances broadened. The
main aspects in the 1993 resolution may be summarized in a few paragraphs.
The main objective of the informal sector units is
generating employment and income to the persons concerned. Low level of
organization, little or no division between labour and capital. Small scale.
Assets belong to their owners and not to the production as such. Expenditures for production are
indistinguishable from household expenditure. The units as such cannot engage
in transactions or enter into contracts with other units, nor incur liabilities
on their own behalf. The owners have to raise the necessary finance at their
own risk and are personally liable, without limit, for any debts or obligations
incurred in the production process. Capital goods (buildings, vehicles, etc)
used indistinguishably for business and household purposes. No deliberate
intention of tax evasion or infringement of labour or other legislations or
administrative provisions.
There is a mention referring to the fact that
informal sector activities should be distinguished from the concept of
activities of the hidden or underground economy. This is important because such
activities are often referred to as “informal employment”. The Conference of
European Statistician has published a Guidebook to statistics of the hidden
economy, a phenomenon observed frequently in European countries.
For operational purposes the resolution refers to the
definitions and classifications of the United Nations System of National
Accounts regarding household enterprises or unincorporated enterprises owned by
households and comprises a) “informal own-account enterprises” and b)
“enterprises of informal employers”.
For the purpose of this paper stays out one
definition: “The informal sector is defined irrespective of the kind of
workplace where the production activities are carried out, the extent of fixed
capital assets used, the duration of the operation of the enterprise
(perennial, seasonal or casual), and its operation as a main or secondary
activity of the owner.” (ILO, Fifteenth International Conference of Labour
Statisticians, Report of the Conference, p.53)
Household enterprises (also referred to as
unincorporated enterprises owned by households) are to be distinguished from
corporations and quasi-corporations on the basis of the legal organization and
the availability of accounts. This last condition is important because it
allows separating what belongs to the enterprise as such and what belongs to
the owners.
(a)
Informal own-account
enterprises are owned and operated by own-account workers and may employ
contributing family workers and also occasionally employees, but these not on a
continuous basis. An additional characteristic tries to take into account
national differences by leaving it to the decision of national authorities to
include all own-account enterprises or only those not registered in accordance
with national legislations.
(b)
Enterprises of informal
employers may be defined in several ways:
(i)
in terms of the size of
the unit (number of persons employed in the unit), in terms of registration or
non-registration of the enterprise or its employees.
Regarding
the size criterion, the resolution presents an observation which relates the
informal unit to other units: “The choice of the upper size limit should take
account of the coverage of statistical inquiries of larger units in the
corresponding branches of economic activity, where they exist, in order to
avoid an overlap.” (Op. cit. p. 54)
And
finally another quote from the resolution which must be taken into account by
confronting statistical concepts and classifications with the needs of policy
makers: “For particular analytical purposes, more specific definitions of the
informal sector may be developed at the national level by introducing further
criteria on the basis of the data collected. Such definitions may vary according
to the needs of different users of statistics.” (Op.cit p. 54)
Since this
resolution was passed employment went through various mutations and new
problems crept up. In almost all countries the most important part of new
employment was in the informal economy with consequent stagnation in
productivity and increase in poverty. A meeting of the Committee on the
Informal Economy of the International Labour Conference was called and it met
in 2002. The report of the Conference made proposals related to immediate
actions, short and medium term and also long term. As an immediate action it
envisaged the improvement of conditions for those currently in the informal
economy; a goal for the short and medium term was to enable those presently in
the informal economy to move into formal activities and for the long term, the
task was the creation of an economy capable to provide formal and secure
employment for all. The meeting adopted a set of resolutions with the title of
“Decent Work and the Informal Economy” that complement some of the
guidelines adopted in 1993. Some of these resolutions enhance the role of the
legal and regulatory framework because “...the challenge of reducing decent
work deficits is greatest where work is performed outside the scope or application
of the legal and institutional framework.” (International Labour Conference,
Ninetieth Session, Provisional Report, 2002; p.26) Accordingly, it proposes to substitute the expression “informal
sector” by “informal economy”, because it claims that the word “sector” is
currently applied to activities (something we do not agree with, because the
national accounts apply the expression also to institutions e.g. “institutional
sectors”) and also in order to include within the expression those working in
formal enterprises in some informal way (casual work or work of short
duration).
The
resolution stresses the fact that there are linkages between the two types of
economy. Especially, “linkages between changes in the organization of work and
the growth of the informal economy ... (specifically) flexible work
arrangements, outsourcing and subcontracting; some are found at the periphery
of the core enterprise or at the lowest end of the production chain, and have
decent work deficits” (Op. Cit. p.25). This of course is a confirmation of our
observation concerning the continuity of changing conditions across the whole
economy.
As one of
the causes of the deficiencies in the informal economy the report points out
the lack of organization: “Since they are normally not organized, they have
little or no collective representation vis-à-vis employers or public
authorities.” (Ibiden). We shall come
back on this point further on.
About
income, it is stated that while some people in the informal sector earn incomes
that are higher than those of workers in the formal economy, in general, they
are characterized by poverty, leading to powerlessness, exclusion and
vulnerability. In this connection it is also mentioned that, in as far as they
are unregulated and unregistered, they often do not pay taxes and benefits to
workers, thus posing unfair competition to other enterprises.
One of the
points of the resolution states that informality is principally a governance
issue. This statement however, has been questioned in some of the interventions
in the discussion preceding the final resolution. Those who question such a
statement point out that the crowding in the informal economy is highly related
to the growth of the population in the activity age brackets and the failure of
the formal economy to absorb the demand of jobs.
We turn
now to the small and medium enterprises. For a definition, we use again a
publication of ILO, namely “Guidelines for the analysis of policies and
programmes for small and medium enterprise development”. “A small enterprise is
understood to be an independent business undertaking where operational and
administrative management are in the hands of one or two persons usually the
owner(s)/manager(s) who are also responsible for making the major decisions of
the enterprise. Medium-sized enterprises are understood to be those which
already have a formal organizational structure, where responsibility and
authority are clearly defined, and where there is some specialization along the
functional areas of marketing, finance, production, etc.
Ultimately,
however, enterprise size is a relative concept and an enterprise will be
considered small or medium-sized depending on the structure and size
distribution of enterprises in the sector and in the country concerned.” (Guidelines etc. p.2 – 3).
While
there is much leeway in these definitions, we shall use them in confronting how
statistical information is presented and what are the real needs of the users.
From what
has been said, it should be clear that the universe we propose to look at is
more extensive than usual. This is so because we argue from the vintage point
of policy makers who face a continuum of situations, on which they have to act
in accordance with their general policy orientation, the needs and urgencies of
the different components of their field of action, the strength and weaknesses
of the units under consideration, the instruments at their disposal and last,
but not least, their financial and technical capabilities.
The
convenience to look simultaneously at the whole when deciding policies for a
certain segment, stems from the fact that policies aimed at one group will
unavoidably affect – favorably or unfavorably - other groups and such side effects
may turn out to be more important over-all than the effect on the group
originally targeted.
For
example, it has been claimed that such influence may exist between informal and
formal employment in as far as incomes in formal employment could be depressed
by the existence of an informal labour force.
This
dilemma surfaced in the discussions on the informal economy. In the nineteenth
session of the International Labour Conference (ILC-1992) one of the
participants from a developing countries, referring to the variety of
activities in the informal economy, called for a multifaceted approach to
decent work and social protection. And accordingly, it was important to define
the informal economy and differentiate between strategies to help business become
formal and strategies to expand social protection.
A parallel
situation presents itself in relation to the resources spent. As resources are
limited, they will have to be apportioned among the different targets and
policy measures, and here again help to one group will affect the availability
for other groups. This again obliges to look, not at one single group, but
simultaneously at all these groups, confronting advantages and disadvantages
and estimating the over-all result. As an example: resources used to expand the
formal economy in order to reduce informal activities (and unemployment),
diminish available resources to improve conditions in informal activities. In a
general way, what you do in one part of this universe of small and medium sized
units, affects, either favorably or unfavorably, other participants. And in
order to analyze the complex of results and consequences, you need a map
depicting not only a particular group or subgroup, but also one with a coverage
that presents all the areas concerned. In other words, to create a set of
statistics that would enable the decision taker to analyze simultaneously the
incidence of any single decision on all the interrelated groups and sub-groups.
This would comprise all the groups that usually are presented independently
under different titles, like informal sector, micro units, home workers, small
enterprises, medium enterprises, franchises, household workers, contracted
workers, etc.
In
conclusion, a simultaneous analysis, based on statistical information covering
all the groups could, by showing their absolute and relative importance
and characteristics and possibly their interrelationships, facilitate the
estimation of the global results of political measures and decisions.
In the same way as maps show not
only outlines of regions, but also different particulars, like… population
density, distribution of economic activities, etc. our statistics in addition
to the presentation of head counts, for the whole area of interest, will have
to contain the aspects directly useful for policy purposes.
III.
Policies
The characteristics the decision
maker expects to find in the statistics depend on the type of problems to be
solved, the aims to be reached and the instruments available, which, between
them, determine the scope of policy. For an exhaustive treatment of policy
areas as they relate to the informal economy see “Supporting Workers in the
Informal Economy: A Policy Framework” by Martha Alter Chen, Renana Jhabvala and
Frances Lund (ILO Working Paper in the Informal Economy)
What follows are some
considerations regarding this subject. I might add that many of the remarks
relate to the Venezuelan economy.
“Informal sector” vs. “Informal economy”
The Institution most concerned
with the informality issue is ILO. Its interest is focused on the worker and
therefore its suggestions and recommendations are formulated in this sense. The
90th ILC proposed the term “informal economy” which comprises all
workers engaged in “informal jobs”, including all jobs in “informal
enterprises” as well as employees, though employed by formal enterprises, their
job is insecure, not protected by neither labour nor social protection laws. This term of “informal economy”
refers to the production activity of the individual. The conclusions of the
conference are therefore related to the improvement of the “conditions of work”
and they are most commendable.
However, what is important for the
majority of people holding jobs in informal enterprises and obtaining their
main income from it, it is the level of living of their families and not only
their own position and conditions of work. Hence, they and their dependents
constitute a sector, and that sector is the “informal sector”. The measures the
policy maker has to propose should have in mind this situation. Thinking in the
terms of the System of National Accounts, the informal sector is a sub-sector
of the household sector, and it is necessary to know its transactions, its
consumption, its income, and its production account. And going further, the
information contained in the sector has to show their economic as well as their
social characteristics. The statistics should bring out a clear picture of the
sector, in order to be able to provide measures for its improvement.
Most of the problems listed in the
Report of the ILC 92 as problems of the informal workers are problems caused by
poverty. Therefore, the measures to overcome them are much related to those
directed to poverty alleviation. Hence a question arises: should the actions be
restricted to poverty relief policies, or are their specific policies directed
to the informality issue?
Differences inside the
“informal economy”
As has been said in the ILC-92,
the informal economy encompasses a variety of workers. One difference is between
workers in informal enterprises and workers holding informal jobs in formal
enterprises. Obviously the measures directed to them must be different.
There is also another important
distinction, between those engaged in producing goods and services and the
“street-vendors”. The policies directed to these two groups must be different.
The “producers” are more prone to be registered because of their interest in
receiving help by training. They need training and financing in order to be
able to cover the local demand. The situation is different with the
street-vendors. Apparently, after reading the literature about them, it seems
that they perform differently in different countries. In some countries they
are opposed to be registered, they may not be keen in becoming formal; many of
them prefer the street as place of work, because that is where their customers
are. Some surveys include a question on the reason they are in this job. Often
the answer is that they like the freedom and the possibility of earning more
that they could as employees, given their present knowledge and technical
capacities. It must be taken into account that many may not consider training
as a possibility, because it takes more time than they are willing to give. As
to the other part of their answer, that is, that they expect to earn more, it
implies that they prefer to act as entrepreneurs and accept the risk involved
in their choice.
A.
Health
policies
The needs addressed by
governmental policies are of varied nature: health, education (general and
technical), nutrition, production related, transport, and housing. Some of them
must be directed to the whole population, while others might be focused on
target groups. One specific example is health insurance.
Insurance schemes are based on
contributions from all participants: workers and employers. In the case of
Social National Insurance the government also contributes. All formal workers
and their dependents are or should be protected by this scheme. On the other
hand, the government has a health system which, when performing satisfactorily,
should cover the rest of the population.
What is the meaning of a health
insurance system for the informal economy? It may be better to enforce the
functionality of the Social National Security and of the National Health
System. In some countries own account workers and domestic service can adhere
to the Social National Insurance provided they pay their contributions; an
opportunity that is also open to employees who have been laid off.
B.
Development
policies as seen by ECLAC
In Latin American thinking,
development is conceived frequently within the concepts of “peripheral
countries” and their structural heterogeneity. And the problems of informality
in these theories are examined as part of the structural heterogeneity, which
is the coexistence of sectors, with a high or at least normal productivity, and
other sectors where the productivity is very much lower. It is understood that
this disparity is much higher at the periphery than in the center. Such a
disproportional distribution reflects itself also in the occupational
structure, where predominate the underemployed and here what matters is not so
much the level, but its evolution.
For the purpose of economic
development with equity, the absorption of the underemployed labour force into
formal activities should have priority claim as a strategic objective. Not only because of equity considerations or
its significance for social and political sustainability, but because of
economic considerations.
C.
Trade
Union policies
While the informal sector exhibits
specific, albeit multifacetious, characteristics, it is linked, in one way or
another, to the sector that comprises formal activities. Therefore, it cannot be ignored by trade unions. Accordingly, a recent session of the
International Labour Conference issued a statement which is an invitation to
the trade unions to develop policies for the informal sector, referring to
labour standards, labour legislation, macroeconomic and employment policy, training
and human capital development, social protection and small enterprises
development.
In the literature there is a tendency to restrict the
debate of workers´ problems only in terms of the conditions of work, forgetting
that the main concern of workers is the welfare of theirs households.
When looking into the characteristics given to the types of jobs considered as informal, one finds that that they are much related to the conditions of living of those workers. They accept the precarious conditions of those jobs, not only because that solves their own survival, but also to cover the needs of their families. Therefore, the policies aimed to improve and/or to satisfy the needs of their households must be also considered. It has to be taken into account that in order not to reproduce the conditions that created the present situation, the policies must, not only improve the conditions of work of the workers, they must go into the causes, it means to give education and training to the future labour force, to supply for the needs of health, nutrition and housing.
There is a
need of monitoring continuously the informal sector and its conditions; it is
not sufficient to get a stationary picture. Working conditions could change
rapidly, conditions related to poverty are, unfortunately, more difficult to
abate. Results arising from policies are slow; hence, the changes affecting the
causes of poverty must be monitored as continuously as possible.
Due to the
fact that the informality concept appears abruptly in the literature with the
ILO Kenya Report, it has been and still is referred to in terms of the workers´
problems. Nevertheless, when looking into the characteristics given to the jobs
considered informal, one perceives them as more related to welfare problems
than to occupational issues. The precariousness of a job is important whenever
it affects the level of living of the workers and theirs dependants. A policy
of minimum salary and stable jobs is different when there is simultaneously a
set of comprehensive and effective policies designed to alleviate the basic
needs of the poor and the less poor.
The first step in collecting data is to decide on the concepts and classification to be used. Once the conceptual definitions are decided the next step is to agree on an operational definition. The most common operational definition on informality is related to the classification on Status in Employment, the kind of organization and the size of the unit.
The reason to use the Classification of Status in Employment is that this information is available from most surveys and censuses. Also, the results found by many studies agreed on the fact that the majority of persons working in the informal sector were “own account workers”. Each conceptual definition requires a specific operational concept.
Until very
recently the studies on informality were only concerned with the production
unit, with the exception of those, which included Domestic Services. As the new
agreement of the June meeting of the International Labour Conference includes
employees working in “informal conditions”, though employed by formal
enterprises, the studies, which will try to comply with this resolution, must
change their operational definition. An alternative would be to research
separately each of the aspects of the whole area: informal jobs engaged in
formal enterprises and informal productive units.
Information needed for analyzing
the informal sector can be obtained through different sources. The most
appropriate sources are three types of surveys:
·
Special surveys,
·
Household surveys,
·
Surveys of small enterprises
Note that
these surveys are not substitutive.
Special surveys. The first
problem they have to face is the framework. Due to the very nature of the
informal unit, be it a sector or a job, there is no list or registration of the
units. It is then recommendable to resort to other information in order to
design the sample. These surveys tend to be ad-hoc surveys, they are one-time
studies, and they are not usually repeated at regular intervals.
Several developing countries have
carried them out. The main difficulty that arises from them is that they are
not often included in the standard programme of the Statistical Office, though
some countries do this. Mainly focusing on the “small enterprises”.
The main
problems that these surveys confront are that they are isolated from the
remainder of economic and social statistics.
The period
they cover tends to be a short one, and due to the fact that their activity is
not as continuous as that of formal enterprises, results change according to
the time frame selected. One of the main characteristics of the informal
productive units, as well of the informal jobs, is their instability, which
means that the picture changes very rapidly.
The 90th
International Labour Conference agreed not to discuss again the concept of
informality. Nevertheless, there was an opinion that “a concept was a
powerful tool – it shaped perceptions, influenced actions and thus affected
reality. The use of the “”informal”” concept was seen as having a negative
influence on this reality, because it has been a barrier to solutions, making
it easier to hide the most vulnerable and marginalized workers, and to obscure
their problems”. This assertion is pertinent here, because statisticians
must tailor the questionnaire to satisfy the need for data by policy makers.
The operationalisation of the concept depends on the decisions regarding which
are the uses of the data obtained. And
the uses are related to the policy or policies.
The
resolution to expand the boundaries of the term informality to encompass many
different situations introduces the difficulty of how to design a survey to
cover all those circumstances.
Another decision to be taken
refers to what is the scope of information needed. Only conditions of work?
Should the data refer also to the level of living of the worker? Because, if
the answer to the second question is affirmative, then, the data must include
the conditions of the worker and that of his/her relatives living in the same
household. This problem is related to the decision on what is the issue: an
informal sector or an informal job? The design and scope of the survey is
different according to the answer.
The discussions on “Decent Work”
at ILC-2002 meeting were all related to “jobs”, as was stressed by the Worker’s
Representative when saying that “focusing on individual workers and their
problems was more appropriate for ILO”. Nevertheless, one can ask: isn’t the
welfare of the relatives and dependants of the worker an inseparable part of
the worker’s problem? If that is the case, then the information must cover the
level of living of the whole household. That is to say, to refer to a sub sector
of the household sector.
Experience has shown that
questionnaires must be designed carefully and intimately related to the
characteristics of the persons to be interviewed; this could be considered as a
normal guideline, but in this case is of the utmost importance, because this is
a field where normal standards do not apply. It is most recommendable, whatever
the kind of survey, to include questions on the place of work and on the
secondary job.
Household
surveys. Since long ago, countries in Latin America and Asia
have used a method based on household surveys, because the household is the
source that provides information that reveals the existence of an informal
unit. From there it is possible to go on, either directly to the operator of
the informal unit, or to design a follow-up survey based on this framework. In
the second case care must be taken to carry out the research as soon as
possible, because informal units tend to be very flexible and unstable. The
seasonality is very marked. Household surveys might be referred to different
subjects the most usual are those interested in employment characteristics.
They obtain, besides data on employment, also data on demographic and social
characteristics of the household. The other type is the survey on income and
expenditure. This one is more complete, though more expensive and takes more
time and resources. The employment surveys are usually undertaken annually,
every six months or even quarterly; the income and expenditure surveys are, at
most, repeated every 5 to 10 years in developing countries.
The Andean countries have started a common effort in
developing a programme based on the use of household surveys to design a sample
of informal units to be questioned in order to obtain information on their characteristics
of operation and level of production. The third phase of these surveys tries to
determine where and how much of the consumption of households is purchased from
formal and informal sectors.
Surveys of
small enterprises. In some developing countries they
have become popular and are undertaken at regular intervals. They contain a
number of accounting-related questions worded in a way that can be easily
understood. This is important because policy measures dealing with small
enterprises refer mainly to financial characteristics like capital, turnover,
value added etc. In that case defining “smallness” by the number of workers in
the enterprise must be supplemented with financial information.