Measuring the Informal Economy in Brazil: Trends and Implications

1. Session Number: Session 5a (Parallel) “Measuring the Informal Economy in Developing Countries”September 24, 16:00-17:30 Sector and Informal Employment in Brazil João Hallak Neto; Katia Namir; Luciene Rodrigues Kozovits, Instituto Brasileiro de Geograhia e Estatisgticas – IBGE, Rio de Janeiro

2. Scope and Objective • Objective of the paper: • To discuss the concepts of value added, employment in the context of informal sector and informal employment • Organisation of production units, vs. characteristics of employment • To measure the Brazilian informal sector and informal employment following the ILO and SNA concepts • To present value added and number of jobs by production sector and type of employment in Brazil between the years 2000 and 2006

3. Data sources used • The database used was the new series of the Brazilian SNA, the reference year is 2000 • Preference to national accounts data: • The informal employment measurement could also be obtained from other sources such as household surveys. However, the use of SCN is preferable because it presents a series with both annual periodicity and national coverage. Moreover, it enables crossing data by production sectors and type of employment, in compliance with the ILO recommendation.

4. Brazilian System of National Accounts • The new national accounts • Made no major conceptual changes, perhaps 1993 SNA was implemented in 1997 • incorporated all available data (new data source: companies’ accounts) and new classification of products and activities, besides few methodological improvements • provided more detailed data on households including informal sector, due to separation of NPISHs and transfer of agriculture corporations and micro-enterprises to the Non-financial Corporations • incorporated the new international recommendations for calculation of aggregates for both production sector and employment.

5. Contd… • Although the SNA does not use the term "formal sector," Corporations, General Government, and NPISHs are part of it • informal sector - a subdivision of the Households institutional sector in which are classified the non-agricultural production units characterized by a low level of organization and for not having a clear division between labor and capital as production factors and production of which is primarily designed for the market • The remaining household units, termed as other household units here, are agriculture for market production or production for own final use, actual and imputed rent, and paid domestic services

6. Contd… • The Brazilian SNA publishes employment results disaggregated by • jobs with formal contracts (formal jobs) • Formal jobs include employees with legal contracts, military workers, civil servants and employers of formal and incorporated enterprises. • non-formal ones (informal jobs) • Informal jobs include employees without legal contracts and autonomous workers. These, in turn, include self-employed workers, informal employers and non-paid workers

7. Results • Very interesting and innovative study • Household segregated to informal and other hh activities • Workers cross-classified by formal/informal activities and characteristics of workers • Interesting results which to some extent contrary to other developing countries’ experiences • Formal sector share increasing in employment • Incentives like general credit expansion, especially to micro and small-sized businesses, and measures to simplify and reduce taxes for these, must have contributed to the growth of formalization

8. Few findings • Downward tendency in the contribution of both informal and other household units sectors in GVA • The contribution of these two sectors reduced from 12.7% and 14.5% of the GVA in 2000 to 9.9% and 11.7% in 2006 • Thus, the Households institutional sector as a whole experienced a decrease from 27.2% to 21.6% in the GVA • Consequently, in the same period, the share of gross value added in the formal sector rose from 72.8% to 78.4%.

9. Contd… • total employment rose from 78.9 mn. to 93.2 mn. Showing an 18.1% increase in 7 years • growth in formal employment 31.3%, but informal employment was only 9.9% • This formalization increase in the labor market in recent years has partially reversed the earlier deterioration movement of labor quality perceived by the considerable increase in participation of more precarious forms of job links—employees without legal contracts and self-employed workers—characteristic of the 1990s.

10. Contd… • informal sector contributed 9.9% to GVA with 27.2% of labor force • other household units - 11.7% of GVA using 22.3% of labour force • formal sector - 78.4% of GVA, but using 50.4% of labour force

11. Contd… • out of the total 93 million jobs in 2006, • 42.4% was formal ones • 22.5% was related to jobs of employees without legal contracts • 35.1% self-employed

12. THANKS