Unified Data Collection Strategy for Measuring the Informal Sector and Informal Employment

1. Unified Data Collection Strategy for Measuring the Informal Sector and Informal Employment UNECA Andry Andriantseheno Regional Workshop on Basic Economic Statistics Addis-Ababa 16-19 October 2007

2. Informal sector definition • “… units that operate at a low level of organization, with little or no division between labor and capital as factors of production and on a small scale. Labor relations – where they exist – are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees” (para. 5 (1) from the Resolution

3. Analytical and policy relevance • In terms of employment and income generation, these units make significant contributions in developing countries with high rates of economically active population growth, high rates of urbanization, large segments of population not covered by social security systems, and high rates of subcontracting to small enterprises by large enterprises

4. Statistical concept (15th ICLS) Enterprise-based characteristics reflecting homogeneous production units with similar economic objectives, behavior and decision making processes and by and large in accordance with the terminology and principles of the 1993 SNA

5. Statistical Concept (15th ICLS) • Legal status: Informal enterprises are household unincorporated enterprises owned by one or several individuals of the same household, or jointly with other households for which no complete sets of accounts are available (including balance sheets); or in other words informal enterprises are not incorporated as separate legal entities that are independent of their owners. • Market production: all or at least some[1] of the goods or services produced are meant for sale and barter and thereby excluding production of goods and services exclusively carried out for own final use.[1] The 1993 SNA formulation of market producers are those that produce all or most as compared to all or at least some of the goods or services. • Size of employment, number of paid employees should be under a nationally determined threshold and/or non-registration of the units or non-registration of employees under factories or commercial acts, tax or social security laws, professional groups’ regulatory acts, or similar acts, laws or regulations established by national legislative bodies

6. Statistical concept (15th ICLS) Exclusions • Agricultural and related activities • Production for own use • units producing exclusively for own use differ in their economic objectives, behavior and decisions from market producers • (i) services from owner occupied dwellings, (ii) services for own use by employing paid domestic staff as employees, (iii) construction and major renovations of buildings and other gross fixed capital formation for their own use, and (iv) goods for own final consumption.

7. Clarifications Legal Status • The first criterion of the informal sector on legal status is identical to the definition of the 1993 SNA. In its application, the 1993 SNA update should be clarified by being more prescriptive to exclude from the household sector those units that meet the criteria of quasi-corporations with the intent that the household sector would not include “formal sector” enterprises as distinct from “informal sector” enterprises.

8. Change in 1993 SNA • The informal sector principle of on market production is not identical with the definition of the 1993 SNA. The 1993 SNA formulates market producers as those that sell most or all of their production on the market at economic significant prices while the 15th ICLS uses the phrase some or all. A change to the 1993 SNA is proposed to adopt the description of the 15th ICLS only for household unincorporated enterprises

9. Supplementary definition of informal sector Exclude the size/non-registration criteria • diverse national practices in applying the size and non-registration criteria, the international definition of the informal sector has hampered the international comparability of official statistics of the informal sector’s contribution to employment and value added

10. Three Recommendations • Reinforce the exclusion of quasi-corporations (enterprise maintaining complete sets of accounts) from the household sector in 1993 SNA • Redefine market producers of unincorporated household enterprises to those producers that sell some or all of their production on the market at economic significant prices in 1993 SNA • Supplementary definition restricting enterprise-based criteria to legal status and market production

11. Problem: No unified definition of the informal sector Needed— • To produce comparable data across countries • To respond to countries’ request of clear guidelines • To promote the adoption of international standards

12. Guidelines • 15th ICLS: • Informal sector enterprises are a subset of household unincorporated enterprises with some or all production for the market • Size limit and/or registration criterion • 17th ICLS • Employment in IS and informal employment definition • The 1993 SNA revised is harmonized with IRIS and IRTDS and coverage of household enterprises

13. Framework of Informal Sector Definition Household Unincorporated Enterprises Informal own-account enterprises Other own-account enterprises Own-account enterprises Other enterprises of employers Enterprises of informal employers Enterprises of employers Informal Sector

14. Informal Own-Account Enterprises • Operated by own-account workers, either alone, or in partnership with members of same or other households • May employ family workers and occasional employees, but not employees on continuous basis • Include all or exclude those registered under certain specified national legislation

15. Enterprises of Informal Employers Owned and operated by employers, either alone or in partnership with members of same or other households, and employ one or more employees on continuous basis • Employees (hired on continuous basis) below a specified number • Non-registration of the enterprise • Non-registration of employees (labour laws)

16. Informal Own-Account Enterprises Owned and operated by employers, either alone or in partnership with members of same or other households, and employ one or more employees on continuous basis • Employees (hired on continuous basis) below a specified number • Non-registration of the enterprise • Non-registration of employees (labour laws)

17. Criteria for Identifying IS Enterprise

18. Criteria: Additional & Optional

19. Harmonized definition SNA • For international comparability-- narrower definition based on the largest common denominator of currently used national definitions. • 2 essential criteria + additional criteria to be applied simultaneously: • Productive units not registered, and • Exclusion of households employing paid domestic employees • (Productive units with less than five paid employees) Removed

20. Conceptual Framework: IE Purpose: Relate/extend enterprise-based concept of employment in the IS in consistent manner with/to a broader, job-based concept of IE. • Basis: Employed persons hold jobs having various job-related characteristics, which are undertaken in production units (enterprises) having various enterprise-related characteristics. • Observation unit for employment: Jobs rather than employed persons (reason: multiple jobholders). • Result: Total employment classified by type of production unit and type of job.

21. Conceptual Framework (17th ICLS Guidelines) • Establish an integrated national system (INS) for the data collection on companies, in collaboration with central banks, tax revenue and line ministries, the INS contains financial statements, labor forces and other information, this will avoid the duplication of efforts such as collect of financial statement and industrial surveys. • Update of the business register through cross checking with tax registration, social security, the population censuses(for formal companies owned by household), and ultimately censuses enumeration of enterprises and production units • Include an informal sector module in the existing household surveys or labour force surveys

22. Problem: No unified definition of the informal sector Systematically, find answers to WHY?— • Analyze metadata on country practices contained in the ILO database • Analyze differences in implementing the size and the registration criterion

23. Results: Limited Convergence • Divergence in concepts, definitions, coverage and data sources in implementation • No analysis on why these differences occur– need further information from countries • Some commonalities at sub-regional level • Attributed to donor influence • Difficulty in harmonizing the criteria of— • Non-registration • Employment size

24. Problems: Registration Criterion • Registration requirements vary widely across countries • Registration requirements can change over time within the same country • Not clear with which institution the production unit should be registered (factories or commercial acts, tax authorities, social protection institutions, etc.) • Partial overlap with the book-keeping practice criterion • In some countries all production units are required to be registered and to pay taxes -lump sum- even if they lack a complete set of accounts • Information difficult to collect, both in household and establishment surveys

25. Problems: Size criterion • Variations in threshold value distinguishing small from medium and large enterprises • Sometimes set by national legislation for industrial policy purposes • Issue: statistical versus policy needs • Variations across industries within the same country • Small unincorporated enterprises can be very dynamic and endowed with very advanced technology– “informal”???

26. Unifying data collection strategy on the informal sector • Cover all household unincorporated enterprises with at least some market production • Collect information on these production units • Identify informal sector enterprises from among these production units on the basis of their characteristics

27. Required Characteristics • Coherent with 15th ICLS definition of the informal sector and employment in the informal sector • Coherent with recommendations of 3rd Delhi Group Meeting on international comparability • Coherent with 1993 SNA concept of household unincorporated enterprises producing at least some goods & services for the market • Independent from national circumstances yet … encompasses national definitions • Independent from data collection tool • Comprehensive: covers all industries and locations

28. Household Unincorporated Enterprises (HUEM) as starting point Starting point for data collection

29. Identifying Criteria: HUEM • HUEM1. Legal organization • Production units that are not constituted as separate legal entities independently of their owners • HUEM2. Book-keeping practice • Production units that do not keep a complete set of accounts • HUEM3. Product destination • At least some of the products are sold in the market

30. UDCS: Main Elements • Scope of data collection • Survey design and organization of data collection • List of Variables • Questionnaires

31. Data collection method

32. IS/IE Data Collection Methodologies

33. IS/IE Data Collection Methodologies

34. Informal Sector Surveys

35. Informal Sector Surveys

36. Optimal Conditions- • Utilize existing data collection vehicles • Introduce modifications • Inclusion of data items on household unincorporated enterprise characteristics and informal employment • Survey design • To account for seasonality • Survey operations– data collection on employment and on enterprises • Sample design considerations for enterprise units • Integrate modifications into regular data collection system

37. “1-2-” Survey Approach: Basic Idea Data is collected in two phases • First phase— • Collect data on employment, including informal employment • Collect data on characteristics to be able to identify HUEMs • Second phase— • Use first phase data to construct sampling frame for HUEMs • Collect data on HUEM Identification of ‘informal sector’ enterprise is done in the data analysis stage

38. “1-2-” Approach: Survey Design • First phase— Use labour force survey (LFS) as base hh survey • Integrate questions in LFS to collect data on informal employment • Integrate questions in LFS to identify household unincorporated enterprises • Second phase— • Conduct HUEM survey

39. “1-2” Survey Approach

40. Issues • Coverage of HUEMs may be limited if ‘usual’ labour force survey sample design is utilized • Modify LFS sample design • Expand listing of sample PSUs to identify HUEMs • Apply coverage adjustments in estimation stage using additional information on distribution of HUEMs • Use employee information • Accuracy of data provided by LFS respondents on enterprises: legal status, accounting practices, size, registration

41. In Summary • We talked about— • Issues related to the need for a unifying definition of the informal sector • Project approaches and strategies • Methodological approaches • What can be learned from your experiences?

42. Thank You