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IN M IT
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 THE RE-CONVERGENCE OF
INTEREST IN THE INFORMAL
ECONOMY

New guises Growth

Unexpected places Poverty Reduction
 THE OLD DEFINITION
traditional economy that will wither and die away
Marginally productive
Exists separately from the formal economy
Reserve pool of surplus labor
Street traders and small scale producers
Illegal, unregistered enterprises avoiding regulation
& taxation
Survival activities and not subject for economic
policy

THE NEW DEFINITION

Here to stay and expanding
Major provider of employment, services and
goods and contributes to the GDP
Has links in the formal economy
Wide range of informal occupations
Not only enterprises
Not only for survival

THE INFORMAL
ECONOMY
THUS, THE INFORMAL ECONOMY IS

comprised of all forms of INFORMAL

EMPLOYMENT employment without
labor or social protection both inside
and outside informal enterprises,
including both SELF-EMPLOYMENT in
small unregistered enterprises and
WAGE EMPLOYMENT in unprotected
jobs.
 S AL
R E M
U R
T FO
E A N
F E Y I
EY H M
K F N T O Significance &
permanence
O CO Continuum of
E employment relations

Segmentation
Self employment Wage employment in
in informal informal jobs
enterprises
* Employers * Employees of informal
* Own account enterprises
operators * Other informal workers
* Unpaid family casual or day laborers
workers domestic workers
unregistered / undeclared
workers
some part time workers
* Industrial outworkers
(homeworkers)
 Inf
Average Earnings or Segmentation by Sex
ma
HIGH l PREDOMINANTLY MEN
Em
plo
yer
Informal
s
Employees
MEN AND WOMEN

Own Account Operators

Casual Wage Workers

PREDOMINANTLY
Industrial Outworkers / Homeworkers WOMEN
LOW
SO WHAT?
 S :
CU
O E S
F I N
IN E PP
H I Definition, Categories,

T IL
Characteristics & Trends

H
Employment Arrangements

P
and Labor & Social
Protection Needs
Transition to Formality
Formalizing Informal Work
Transition From Informal to
Formal Economy: Policy
 N , C
,
O ES ST I
I
T RI RI
I
N O E S
F I T
G
E E AC ND
D AT R E
C HA TR
C ND
A
 Informal sector: units producing goods and services in
order to earn a living, operates at a low level, no division
between labor and capital, consists of unincorporated
enterprises and not constituted as legal entities, labor
relations are based on casual employment, kinship or
personal and social relations.
Informal sector: unincorporated enterprises which consist
of both informal own-account enterprises and enterprises of
informal employers.
Informal employment: total number of informal jobs
whether carried out in formal sector enterprises, informal
sector enterprises or households during a given reference
period.
Informal own-account enterprises: household
unincorporated enterprises owned & operated by own-
account workers, either alone or in partnership with
members of the same or any other households which may
employ unpaid family members as well as seasonally hired

Defining The Informal Economy

workers, but dont employ employees on a continuous
basis.
General categories of informal
workers
IN TERMS OF INFORMAL SECTOR
Almost half of total employed in 2001 to 2006 were informal
sector workers
5 in 10 are in agriculture, 3 in 10 are in wholesale and retail trade
Mostly farmers, forestry workers, and fishermen, laborers and
unskilled workers
Male workers outnumber female workers
6 in 10 are between 25 to 54 years old
More than half of informal workers were formally educated
IN TERMS OF INFORMAL JOBS IN FORMAL SECTOR
From 1 in 4 in 2008 to 1 in 3 in 2010.
731 548 non regular workers in non-agricultural establishments in
2008.
Between 2006 and 2008, there is roughly 69.6% share of informal
employment in the Philippines.
In 2012, estimate total share of informal employment is at 69.8%.

Characteristics
and trends
 M E
Y M
E N D
LO G A
P N R
M RA O N
R B I O
A L A I AL T
& OC TE C
S O DS
R
P EE
N
 even cleaning the feces off the body of
the elderly is still part of the job

In most cases, even though you stayed

already for eight hours work, I need to
stay whenever my employer wished me to
stay, especially when there is an
occasion

At least, here, we do not need to secure

requirements like NBI, Police Clearance,
Medical, etc. It is just a matter of whom
you know to refer you to the right and

PROFILE:
good employer

THE DOMESTIC
 I am already retired and no company
would hire me with my age. Being a
tricycle driver is the only option for me
considering the my wife does not have
work.

What should I do, can the government

provide me with our daily needs?

When I got sick, I could not work. That

meant I was not able to make a living for
the day. What I did is to borrow money
from the tricycle owner to buy medicine
and food.

PROFILE:
THE TRICYCLE DRIVER
 Even for minor infractions, whenever
the enforcers wants to ask you
something, they will charge you for
violations you have not even
committed in the first place.

Sometimes, we feel like squatters in

our terminal We do not have a
choice, or else, we and the
commuters will suffer.

There seem to be no protection from

the government for us, small transport
groups.
PROFILE:
THE TRICYCLE OWNER
 You cannot make repeated mistakes,
otherwise the foreman will not get you
on the next project.

When one of my fingers got cut, my

employer just gave e a small amount
of money to buy alcohol and band-
aid.

You have to toil with your sweat and

blood to get a meager income.

PROFILE:
THE CONSTRUCTION
 Street vendors with movable stall or
wheeled cart: Mang Rolly Revuelta,
Home-based food processing business
& Ate Edna, fishballs and snack seller

Vendor in a tiyangge without a

permanent stall: Ate Editha Simagala,
food business

Ambulant vendor: Manong Dingdong,

taho vendor

PROFILE:
VENDORS
Olive, produces home care
products such as soap,
dishwashing liquid.

Maritess, doormat sewer

PROFILE:
HOMEBASED
 The informal economy is marked by acute decent work
deficits.
Two major segments of the informal economy have
significant variations in the workers motivation to
formalize.
They also have contrasting labor and social protection
needs and views on their engagement in the informal
economy.
Policies and approaches must be multi-dimensional,
complementary and coordinated.
Many are simultaneously engaged in variety of informal
and partially formal activities.
Work and social relations overlap. Very often, family ties
are observed.
Work organizations are very helpful.
Transition to formality: Current
debates, challenges and
demands
Main Question: 'Why do people participate in the
informal economy?'

Two Theories
Segmentation or Exclusion Theory
Self-selection or Exit Theory
Transition to formality: Current debates, challenges
and demands

Exclusion Theory

According to de Soto (1989), the burdensome entry

regulations prevent small firms from becoming
formal. Moreover, the exclusion theory suggests
that informal employment is a response to
involuntary unemployment. High entry barriers to
formal jobs or the lack of qualifications exclude
some people who, as a result, are constrained to
find work in the informal sector.
 Baste (hindi tunay
na pangalan)
'HS graduate lang
ako, nag sarado
iyong pinag tra-
trabaho-an kong
factory. Halos doon
na ako lumaki,
ngayon mahirap na
mahanap ng
trabaho sa edad
ko.'

https://www.google.com.ph/search?q=informal+employment&espv=2&biw=1422&bih=657&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj3jMeK4L_QAhVBOI8KHc-4AMMQ_AUIBigB#tbm=isch&q=informal+employment+philippines&imgrc=bXoWjetXXHPN0M%3A
Transition to formality: Current debates, challenges
and demands

Exit Theory

Explains that firms rationally exit the formal sector

when the costs of being formal outweigh the
benefits it provides. In contrast to the exclusion
theory, the exit theory regards informal
employment as a voluntary choice by workers
because of the perceived advantages it offers:
autonomy, non-wage related benefits such as
avoiding rules and regulations, better suitability to
personal ambitions and characteristics, or financial
profits.
 James (hindi tunay na pangalan)
'Hey guys, 6mos na akong Uber driver. Well nakakapagod
mag drive ng buong araw pero mas okay na ito kaysa
nakikinig sa mga utos ng dating boss ko. At least dito kapag
masipag ka, mas malaki kita. Higit sa lahat hawak ko oras ko,
hindi ako tali sa desk ko for 8hours.'

https://www.google.com.ph/search?q=uber+driver+philippines&source=lnms&tbm=isch&sa=X&ved=0ahUKEwi_hfKx5b_QAhUHuY8KHctyDNIQ_AUICCgB&biw=1422&bih=657#imgrc=Bgu-mbHbFfcdvM%3A
Reasons why people participate
and choose to remain in the
informal economy.
 Reasons for
participating in
the informal
economy

J De Beer et al
Entry barriers to the formal economy that
informal workers face
Bacchetta, Ernst, and Bustamante

Workers in the informal economy may lack

sufficient information regarding available job
opportunities in other firms, sectors or geographical
areas. They may not be well-informed about wages,
required skills, and professional expertise. Public or
Informal private infrastructure to support their
search for jobs may not be available.
Entry barriers to the formal economy that
informal workers face
Bacchetta, Ernst, and Bustamante

Workers may lack portable skills. Skills gained in

apprenticeship systems in the informal economy
may only be accepted by a limited number of firms
within a restricted geographical area. Even if skills
are portable, professional experience gained in the
informal economy may not be recognized by
prospective future employers.
Entry barriers to the formal economy that
informal workers face
Bacchetta, Ernst, and Bustamante

Workers may lack the necessary financial and

physical capital to move to the upper tier informal
economy (e.g. self-employed), the segment from
which transition back into formal employment is
easiest and where earning conditions are similar (or
even better) than in the formal economy.
Entry barriers to the formal economy that
informal workers face
Bacchetta, Ernst, and Bustamante

Job search is costly. In countries where no proper

unemployment benefit system is in place, displaced
workers from the formal segment may not be able
to afford an extended search for alternative
opportunities, but may rather switch to immediately
available vacant jobs, even in the informal
economy.
Entry barriers to the formal economy that
informal workers face
Bacchetta, Ernst, and Bustamante

Displaced workers may lack the proper social

capital and networking resources to access jobs
with similar characteristics elsewhere. Transition
from one network to another may be out of their
reach, depending on community-level activities and
political decisions. Even within their particular
networks, they may be restricted in terms of the
activities and job opportunities they can take up,
depending on their own position within the network
or their relationship with others.
The probability of moving from one segment to
another depends on

the characteristics of the

individual worker
(such as education level and skills, professional experience, age,
gender) and
country specificities
(i.e., the quality of the legal environment, importance of social
capital, and the macroeconomic environment).

Bachetta et al
Multi Segment Labor Markets
Bachetta et al
 Job quality distribution for
formal and informal workers
Kucera and Roncolato
Sector-specific demands and
proposals for formalization
MAIN QUESTION:
'How should the transition from the
informal to the formal economy in the
interests of workers in the informal
economy look like?'

Despite the heterogeneity of the informal economy,

the working poor in the informal economy have
common core needs and demands.
COMMON CORE NEEDS AND
DEMANDS
Women in Informal Employment: Globalizing and Organizing
(WIEGO)
Organizing/Labor Rights: Workers in the informal
economy must be able to effectively exercise their
rights to organize and bargain collectively, as well
as their other fundamental rights at work.

http://www.hedcor.com/images/2003.jpg
COMMON CORE NEEDS AND
DEMANDS
WIEGO

Voice and Bargaining Power: The working poor in the

informal economy need individual voice and bargaining power
founded in an awareness of their rights. They must also have
collective and representative voice that allows them to
negotiate on a continuing basis with the dominant players in
the sectors or value chains in which they operate.

Collective voice comes through being organized in democratic

membership-based organizations.

Representative voice comes through having representatives of these

organizations participate in relevant policymaking, rule-setting,
collective bargaining, or negotiating processes
COMMON CORE NEEDS AND
DEMANDS
WIEGO

Legal Identity and Standing: The working poor want to

be recognized as workers or as economic agents with a
clear legal standing in all relevant policy-regulatory-legal
domains. They do not want to be relegated, as the poor
or vulnerable, to the social policy domain alone; they
want to be recognized as legitimate contributing
economic agents by policymakers who frame both
macro-economic and sector-specific economic policies.
This necessitates extending the scope of labor laws to categories of workers
traditionally excluded (e.g. domestic workers, home-based workers, agricultural
workers) and/or amending laws so they cover the full range of relationships under
which work is performed.
COMMON CORE NEEDS AND
DEMANDS
WIEGO

Economic Rights: The working poor in the informal

economy need and demand a wide range of labor,
commercial, and land use rights to: improve their
employment arrangements and secure their
livelihoods; make their economic activities more
productive; and use their representative voice to
achieve appropriate changes to the wider
institutional environment that affects their work
and livelihoods.
COMMON CORE NEEDS AND
DEMANDS
WIEGO

Social Rights, including Social Protection: Social protection

coverage must be extended to all workers in the informal
economy through social assistance and/or social insurance
mechanisms, as part of universal social security. ILO Member
States should commit to this by adopting clearly elaborated
Social Protection Floors. This includes rights to housing,
education, health, food security, water, sanitation and social
protection against the core contingencies of illness, disability,
old age, and death, and against work-related risks.

Maternity and child care should be addressed as a priority due

to the over-representation of women in the informal economy.
'Putting these demands and proposals into
policies and strategies is a huge challenge.
In this regard, pursuing gradual (step-by-
step) or programmatic formalization
processes, that take into account the
heterogeneity of the informal economy,
including the possibility of within-
transitions and semi-formalization within
the informal economy, might be a better
way to tackle the formalization issue.'
But...
There are some issues in Formalization.

First, there is a global recognition that there is no unique strategy

that would apply in all situations and contexts. As pointed out earlier,
there are a host of factors that may in uence the success or failure
of formalization measures.

Second, in view of the heterogeneity of the informal economy,

multidimensional approaches are required to support transition from
informal jobs to formal employment.

Third, growth and stable macroeconomic conditions are key to

formalization.

Lastly, governments play a key role in the formalization process.

Other countries' efforts
EU - Targeted tax measures

Several European countries

encourage businesses and
consumers to use formal, rather
than informal, production. One way
of encouraging them is by reducing
value added tax (VAT) on specific
goods and services where the
informal economy is prevalent
(such as household maintenance
and repair).
Other countries' efforts
Germany - Linking employment
activation and generation with
formalization

In Germany, a mini-jobs category of

employment was created to encourage
people to legitimize undeclared
informal small jobs, especially for those
who are formally employed who
occasionally do work on the side.
Other countries' efforts
Belguim - The use of formalization
vouchers

Belgiums service vouchers scheme

which was created to stem informal
work in the household services
sector.The companies certifi ed under
the scheme hire the unemployed, first
on exible contracts, but after six
months, these companies are obliged
to offer these workers a permanent
contract of at least 50 per cent full-
time employment.
How does the scheme work? A
household purchases vouchers for
6.20 for an hour of work, which it then
uses to purchase the services of certifi
ed companies. These services include
house cleaning, washing and ironing,
sewing, doing errands, and preparing
Other countries' efforts
Kosovo - Adopting a comprehensive
SME development strategy

Kosovos SME Development Strategy

for 2012-2016 aims at strengthening
the legislative and regulatory
framework for the establishment and
development of SMEs by simplifying
the existing legislative and regulatory
framework, providing incentives to
SMEs to enter the formal sector, and
improving the facilitation of opening of
businesses.
Other countries' efforts
Italy - Incentivizing voluntary
disclosures of informal work

Another example of an enabling

regulatory framework is the
Regularization Law in Italy,
implemented between 2001 and 2003.
This law encourages employers and
workers who operated informally to
formalize their situation with respect to
tax, labor safety, social security
contributions, and land use
irregularities, among others, by
reducing the costs of sanctions for
employers (e.g. reduced taxes and
social contributions) for three years.
For their part, workers could pay
reduced pension contributions for the
period they failed to make such
contributions, after which they have to
Other countries' efforts
Thailand - Unique and affordable social
security and health care schemes for
informal workers

Thailands Universal Coverage Health

Scheme (UCHS) is touted among the
best practices in providing free health
care to the broadest population. When
the scheme was fi rst introduced in
2002, patients paid no more than 30
baht (about 1 USD at that time) per
visit in accredited hospitals and health
centres, for both in-patient and out-
patient care, including drugs. In 2007,
this co-payment scheme was fully
abolished, rendering UCHS free. As a
result, Thailand was able to make
health care free and accessible to 99
per cent of Thai nationals.
How about in our country?
Philippines

Magna Carta for Workers in the

Informal Economy (MACWIE). This
proposed Magna Carta offers a broad
definition of workers in the informal
economy by identifying at least 24
groups of informal workers. By
according to these groups the legal
concept of worker and all its
protective nuances, the MACWIE
attempts to address the limitations of
the Labor Code by providing them with
rights emanating from an employer-
employee relationship.

Nonetheless, the different MACWIE bills

appear to limit the meaning of work
or worker to mainly activities of
'How could an informal self-employed
worker move to the formal economy if job
opportunities are very limited, and the jobs
available are non-regular in nature?
Transitioning from the informal to the
formal economy is not done overnight....

It is crucial that the rise of non-regular

employment in formal enterprises is
curbed. This trend could be stemmed by
macroeconomic policies that encourage the
growth of regular/permanent jobs, and
instituting labor and social protection
policies that promote decent work.

'