Informal Sector and Informal Employment Measurement in African Countries

1. Informal Sector and Informal Employment Measurement in African Countries Workshop on Household Surveys and Measurement of Labour Force 14-18 April 2008, Maseru, Lesotho Dimitri Sanga, Ph.D. Senior Statistician

2. Outline • Background • Objectives • Definition and concepts: practices in African countries • Surveys on the informal sector • Keys content and questions to capture the informal sector/employment • The way forward

3. Background 3

4. Background • The informal sector plays an important role in economies of developing countries including African economies: • Production • Income distribution • Employment creation

5. Background (Cont’d) The lack of information on the informal economy in official statistics limits the assessment of the real economy: Measurement of GDP Women participation in the economy Women participation in the labour force Multiplicity of measurement methods: Limits international comparability 5

6. Background (Cont’d) ACS resolved to contribute to ongoing discussions on the development of an integrated methodology for measuring the informal sector/employment that: Complies with internationally recognized concepts and definitions Reflects African realities Builds on ongoing efforts: Delhi Group and the UN Development Account on the Informal Sector 6

7. Objectives 7

8. Overall objective To present an overview of current practices and methodologies for measuring the informal sector and employment in African countries 8

9. Specific objectives Review the definitions and concepts used by African countries Review methodologies used to survey the informal sector and informal employment in Africa Suggest a way forward in terms of “harmonizing of the measurement of the informal sector and employment in African countries” 9

10. Concepts and definitions: practices in African countries 10

11. Various definitions Several definitions for the informal sector Most important: The 15th International Conference of Labour Statisticians The recommendation of the Delhi Group in Rev.1 of the SNA 1993 The OECD definitions of the non-observed economy These various definitions include the following criteria : Size of the unit below a specified level of employment Non-registration of the enterprise or its employees Lack of bookkeeping Absence of a contract or social security 11

12. Various definitions 12

13. Various definitions 13

14. Review of practices in African countries Variability in the definition of the informal sector and informal employment Difficulties in international comparisons of corresponding statistical survey results Variability based on: Survey methodology (surveyed units) Size in terms of employment Inclusion of the agriculture sector Registration criteria Minimum age of the potential active individual 14

15. Variability: Survey methodology Botswana, Tanzania and Namibia Mixed household-enterprise surveys Definition based on the informal production unit (IPU) (similar to that of the 15th ICLS) In South Africa: October Household Survey: HS with an employment and an informal sector segment Partially captures informal employment (as defined by the 17th ICLS) and informal production units 1-2-3 surveys (many FR speaking countries) A three phases survey that measure the informal economy differently in each of them Def. includes those of both the 15th and the 17th ICLS 15

16. Variability: Size Namibia, Botswana, Zambia and Tanzania: Minimum threshold: 5 employees (increased to 11 in Dar-es-Salaam for manufacturing) 1-2-3 surveys or the OHS in South Africa: no size criterion Five-employee threshold: Recommendation of the Delhi Group 16

17. Variability: Agriculture sector Tanzania and Namibia include agriculture in the informal sector if: The activity is for barter And if the other criteria of the informal sector definition are met 17

18. Variability: Registration 1-2-3 surveys, Botswana: formal bookkeeping to define informal production units Zambia: employment is informal if it is not covered by social security South Africa: registration for the purpose of paying VAT Madagascar (1-2-3 survey): an enterprise is considered registered if it has a statistical identification number Kenya: Administrative procedures And the possession of a license that guarantees the exercise of a professional activity 18

19. Variability: minimum age Tanzania : 5 years Zambia: 10 years South Africa (OHS): 15 years ILO minimum age of employment: 15 in general 18 for hazardous work Age lower than the legal minimum impacts on the number of informal jobs for comparison purposes International comparisons should be made for a specific age group, such as the 16-64 age group 19

20. Variability: Others Botswana limits the definition of the informal sector to units that do not have a fixed location or whose activity is temporary Namibia and Tanzania: exclude professionals such as physicians, notaries and lawyers from the informal sector 20

21. Surveys on the informal sector 21

22. Direct methods of measuring the informal sector Sampling surveys: direct methods to measure the informal sector/employment Units of observation: enterprise, establishment, individual or household Main surveys: Labour force or employment surveys Household surveys Establishment surveys Mixed household-enterprise survey 1-2-3 surveys 22

23. Employment or labour force surveys Some typical examples in Africa: The employment segment of Living Standards Surveys (LSS) of the LSMS (WB): Cote d’Ivoire, Ghana, Madagascar, Morocco, Malawi, and Tanzania Phase 1 of the 1-2-3 survey 23

24. Establishment surveys Collect information on the operation of the informal production unit, its characteristics and its operating accounts Provide information on: Formal bookkeeping, registration... Production, added value, intermediate consumption, sales figures, work remuneration, income taxes and other taxes paid to public authorities.... Widely used by national accountants : Added value, intermediate consumption and technical coefficients Criticized for its weak coverage of all economic activities that may be undertaken informally 24

25. Mixed household-enterprise surveys Collect additional information: other socio-demographic characteristics of the heads of IPUs Typical example: Phase 2 of the 1-2-3 survey: survey of IPUs Gross operating surplus Number of employees Relationship between employees and the head of the IPU Socio-demographic characteristics of employees… 25

26. The consumption surveys Measure the share of the informal economy in household supplies Typical example: Phase 3 of the 1-2-3 Surveys Collects data on household consumption 26

27. Key content and questions to capture the informal sector and employment 27

28. Key questions: employment surveys To capture informal employment or serve as the sampling frame for the mixed household – enterprise survey , LFS or employment segments of HS should: Contain filter questions to find out who has a job, in the ILO sense, during the reference period Even for those who worked for one hour during the reference period If negative response: over the past seven days, has the individual carried out an activity included in given list of economic activities If the response is still negative: is the person on leave, on sick leave, on maternity leave, temporarily out of work, and so on This series of questions ensures to include all persons who are actively employed 28

29. Key questions: employment survey (Cont’d) For those considered to be actively employed: Socio-professional category Type of entity they work for Work schedule during the week In the case of a private enterprise: Workforce of the entity that the individual is working for Whether the entity is registered For leaders of enterprises: Do they formal bookkeeping for the payment of duties and taxes? For employees and other independent workers: Written work contract Entitled to paid leave, sick leave Employer pays an employer’s contribution for their retirement pension 29

30. Key content: mixed household-enterprise surveys For the purpose of preparing national accounts, the survey should collect information on: Production and intermediate consumption: sales of products processed, stocks, services delivery… Expenses by category: energy, transport, telecommunications… Composition of the labour force according to socio-professional category The branch of activity of the unit 30

31. The way forward 31

32. StatCom-Africa Working Group Fist meeting of the Statistical Commission for Africa: 21-23 January 2008 Setting up of six working groups including one on the measurement of the informal sector Composition during the first meeting: Ghana, South Africa, Uganda, AFRISTAT and UNECA 32

33. StatCom-Africa Working Groups Recommendations: Real need for harmonization of definitions and methodologies within the region Necessity to revisit existing methodologies carried out by South Africa, India, Ghana, AFRISTAT, etc. Need to deepen the discussions on the informal sector by the working group under the leadership of AFRISTAT Called upon other countries to join the group to reinforce the pertinence of the discussions since the informal sector is very important in the region Called upon StatCom-Africa to earmark funds to support the informal sector the working group to meet 33

34. Thank you! African Centre for Statistics Visit us at http:www.uneca.org/statistics/