A post-Keynesian approach to labor markets (I. Rima)

1. A post-Keynesian approach to labor markets (I. Rima) Sectoral changes in employment: an eclectic perspective on ‘good’ jobs and ‘poor’ jobs Ingrid Rima (2000) Review of political economy vol 12, #2

2. Linkage between employment and firms requirements • Keynes: employment in the short run is uniquely determined by the aggregate level of domestic activity • The aggregate supply or Z curve function is in fact a job offer curve • Job offers are inseparable from the economy’s aggregate expenditure level (demand) • Firms are not powerless in this market. They are price maker with mark-up

3. Keynes • The demand for output is the basis for a supply of employment offers made by business firms to realize the proceeds that can be earned when markets are served

4. Other theories and approaches • Human capital or labor market segmentation • They do not present a macroeconomic employment model that explain the different production functions that develop different outcomes in the labor market

5. The supply price of added output is the additional wage cost plus a share of the overhead embedded, divided by the added output The curve resulting is the aggregate schedule for employment offers Jobs offers depended on the aggregate demand and the RZ curve The price-output combination relates to the number of employment/hours necessary to produce Proceeds Z R Employment

6. Demand outlay function for price taking industry Prices d3 d2 DO d1 S DO or demand outlay, is the analog for the industry to the output-demand curve for the economy competitive sector P2 P1 P q q1 q2 q3 Quantities

7. Demand outlay for a price setting industry Prices are high relative to competitive prices. The firm with the largest share of market is the price leader. Price line equals w+mark-up Prices d3 d2 DO d1 P2 P1 P q1 Q1 q2 Q2 Quantities

8. Differences • The competitive sector faces demands inelastic with respect to higher incomes and price cuts, which limits consumer expenditures on them and proceeds levels can be generated to support increasing employment • The price making sector responds positively to rising incomes and falling prices. This shifts demand from necessities to goods with increasing returns to firms. This explains the use of excess capacity to resist price competition from other firms.

9. The dynamic of the system • The increasing returns in the price making sector can be attributed to the combination of price and income elastic demands and declining average costs of production as firms expand their output. Selling prices increase their proceeds more rapidly than employment. • Even at constant wage rate, increasing employment is associated with a rising wage bill increasing aggregate demand • The differences between jobs in both type of firms are not due to sociological or personal attributes, rather they derive from the opportunities for firms in different sectors to benefit from technological changes and positive consumer responses to new products.

10. Informal sector and employment growth Daniel Kostzer CFEPS, April 2006

11. Informal sector as a policy concern Due to… • The magnitude of the phenomena • The implication on people’s income and its distribution • The impacts on workers and its family vulnerability • The future economic and social costs associated

12. Conceptual framework There are serious difficulties to conceptualize the informal sector in general What do we include in the informal sector ? Non declaration of workers? Illegal immigrants? Micro enterprises? Illegal activities? Subsistence activities? Self-employed workers? Low productivity firms?

13. Black MarketCasual WorkClandestine ActivitiesCommunity of the PoorFamily-enterprise SectorHidden SectorInformal EconomyInformal OpportunitiesInformal SectorIntermediate SectorInvisible SectorIrregular SectorLower-circuit of the Urban EconomyNon-Plan ActivitiesNon-Westernized Sector One-Person EnterpriseParallel economyPeople's EconomyPetty Commodity ProductionShadow EconomyTrade-Service SectorTransient sectorUnderground EconomyUnobserved EconomyUnofficial EconomyUnorganized SectorUnrecorded Economic ActivitiesUnremunerated SectorUnstructured SectorUrban Subsistence Sector Different names…

14. The international debate (1) • Hart and ILO 70s • Dual markets=>formal vs. informal • Wage earner vs. self-employed • Multiple occupations?

15. International debate (2) • Sethuraman: “A subgroup of private firms” that: have less than 10 workers, non declared operation, family participation in the productive process, quasi mobile operation, most workers with less than six years of education

16. Kenya 1972: Characteristics • (a) ease of entry; • (b) reliance on indigenous resources; • (c) family ownership; • (d) small scale operations; • (e) labor intensive and adaptive technology; • (f) skills acquired outside of the formal sector; • (g) unregulated and competitive markets

17. International debate (3) PREALC-Tokman “an alternative approach to the structural shortage of employment” • The unprotected profile of the activity • Workers and firms organized in the absence of a legal/institutional capitalist framework • Simple technological processes • Operating in competitive markets • Workers without wage or salary as the normal remuneration

18. The international debate (4) Castels and Benton Process of income generation… non regulated by the institutions of society in a legal and social framework as done with similar activities. Dual and non communicated markets vs. Overlapped markets

20. Informal sector as a development strategy • The informal sector can reduce unemployment and poverty, generating incomes to the households • ILO 1972 • De Soto “The other path” (El otro sendero) • Property rights • Taxes reductions • Why enforcement, if can not be accomplished?

21. ILO 1999 • (a) owner-employers of micro enterprises, which employ a few paid workers, with or without apprentices; • (b) own-account workers, who own and operate one-person business, who work alone or with the help of unpaid workers, generally family members and apprentices; and • (c) dependent workers, paid or unpaid, including wage workers in micro enterprises, unpaid family workers, apprentices, contract labor, homeworkers and paid domestic workers.

22. Some characteristics of the informal sector: Employment • Absence of official protection and recognition • Non coverage by minimum wage legislation and social security system • Predominance of own-account and self-employment work • Absence of trade union organization • Low income and wages • Little job security • No fringe benefits from institutional sources

23. Some characteristics of the informal sector: Enterprise and activities • Unregulated and competitive markets • Small scale operation with individual or family ownership • Ease of entry • Reliance on locally available resources • Family ownership of enterprises • Labor intensive and adapted technology • Absence of access to institutional credit or other supports and protections

24. Some characteristics of the informal sector: Habitat • Unauthorized use of vacant public or private land • Illegal subdivision and/or rental of land • Unauthorized construction of structures and buildings • Reliance on low cost and locally available scrap construction materials • Absence of restrictive standards and regulations • Reliance on family labour and artisanal techniques for construction • Non-availability of mortgage or any other subsidized finance

25. Some characteristics of the informal sector: Credit • Unregulated and non-subsidized • Easy accessibility • Availability in very small size and for short terms • Low administrative and procedural costs • Little of no collateral requirements • Flexible interest rates (from very high to no interest at all) • Highly flexible transactions and repayments tailored to individual needs

26. Possible causes • Production costs? • Overall tax evasion? • Culture? • Uncertainty framework? • New occupational structure? • Outsourcing, putting out • New labor relations

27. Multidimensional taxonomy • Productive Units • Formal firms • Non registered firms (non incorporated) • Households • Activities • Legal • Submerged • Illegal • Posts • Registered • Non Registered

28. Jobs Activities non declared Declared Productive Units Legal Illegal Registered Underground Emerging Firms Underground Firms Households

29. Non declared workers • They are in incorporated firms • Sometimes can be disguised as putting out of the firm • Security • Cleaning • Accounting • Technical services • Firms inside the firm

30. Underground economy • They are part of a larger fabric that many times articulates with the incorporated firms • Italian type of informality • Textile activities, shoe industry • Agriculture and rural services • Personal services • Sales (retail and wholesale) • Construction, maintenance and restoring

31. Illegal or marginal economy • Activities banned by the legislation • Food processing • Stolen car’s parts (scraping) • Smuggling • CD, DVD, pirates • Prostitution, gambling, drugs

32. Low productivity activities • Households as productive units of simple reproduction • Family business and household activities • Low productivity services • House help

33. Links between the two • Are we in a dual labor market setting? • Which are the linkages? • The Benetton case • The front-shop case • The Toyota case • The modern outsourcing case

34. Some world numbers

35. Size of the informal economy…

36. Some numbers in selected countries

37. Underground economy in certain E.U. countries • Austria (7%) construction, crafts, trade, micro industries, entertainment. • Belgium (21%) Young low skills males in catering, retail trade, construction, textiles, transport, agriculture, HH services • France (14%) National and immigrants 60% services and 26% construction • Germany (14%) mainly by illegal immigrants in construction, hotels, road haulage, cleaning and cultural activities • Greece (35%) textiles, tourism, household services • Italy (26%) mainly youngsters, female and pensioners in agriculture, construction, textiles, private services • Spain (23%) Young, women and skilled workers in agriculture and services • UK (13%) Construction, street markets and hotels and cattering

38. Summing up:Social Protection and the labor market • In the Keynesian-Fordist pattern of growth the mere condition of wage earner would provide, retirement pension, vacation, health, child allowance, etc. • During the 90s’ the growth of unemployment and informalization increased the people without social protection and social security

39. The “remedy” of the 90s’ • Normative flexibility for hiring and firing. • Reduction of pay-roll taxes and contributions to social security • Subsidies to hire • Reform to individual capital accounts for pension funds • Individual unemployment insurance

40. The results of the 90s’ • Rise in unemployment and non declaration of workers • Social security evasion • More than half of the labor force in precarious contracts or labor relations • Low capacity of the state to enforce the law

41. Tools for the change • Strengthening labor administration and enforcing labor rights • Legislation that reduces difficulties to register workers mainly in the • Rural sector • Household workers • Micro firms • Use of the minimum wage as an efficient policy (lighthouse effect) • Law enforcement improving the capabilities of the state • Stick and carrot policies (credit on payroll) • A voice for the sector

42. Adapting things in relation to social protection by… • revising the statutory schemes to facilitate partial membership by the self-employed, domestic workers, agricultural workers and those with a regular income from informal activities; • strengthening the administrative capacity of the social security schemes, particularly in compliance, record-keeping and financial management; • undertaking education and public awareness programs to improve the image of the social security system; • extending coverage within a prescribed timetable to all persons working as employees except in special groups such as domestic servants, family workers and casual workers; • opening up new “windows” and offering benefits that suit the needs and contributory capacity of currently non-covered groups

43. Organizing informal economy workers: the challenges facing unions • Informal economy workers do not represent a uniform group and may have obvious differences of interests among themselves; • they may not share common interests with the bulk of current union members. Ethnic, family and kinship ties may be stronger among such workers than working class solidarity; • they are often caught up in the daily struggle for survival that they are not inclined to join in collective action, especially when they cannot see how such action or membership in a union can help them solve their practical problems and basic needs; • the highly precarious nature of their work means that they are often too worried about losing their jobs to join a union; • importantly, there are often legal barriers to trade union organizing in the informal economy;

44. Organizing informal economy workers: the challenges facing unions • it may be hard for unions to contact and mobilize informal workers, especially home-based workers and those in micro-enterprises – organizing drives can be costly and difficult, as well as time- and resource consuming; • unions may find it hard to retain such workers as members because of the precarious nature of their employment, and would therefore have to consider whether it is an efficient use of their human and financial resources to try to organize such workers; • many unions do not have tested strategies for organizing them; • current union members may not see the rationale for organizing such workers and may object to the necessary changes in policies and resource allocation required to reach out to such workers. The challenge is for the unions to reach out to new groups without undermining their traditional support base