The role of informal employment Western Balkan countries (Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia) Ardiana Gashi 1 st Vienna Conference on Western Balkan Labor Markets April 4 and 5, 2017

Outline Motivation and aim of this study; Labour market context in Western Balkan countries; Available data sources; Operational definitions and the rate of informal employment; Most vulnerable groups to informal employment; and Recommendations.

1. Motivation and aim of this study Informality is a widespread phenomenon in the Western Balkans; It has implications to workers, firms and the whole society; It has been on top of declared agenda of governments;

1. Motivation and aim of this study cont. Impacted groups Consequences Formally employed persons Bear the burden of safeguarding social development, as they have to contribute for informally employed, unemployed and inactive persons Informally employed workers Prioritise short term cash gains, in turn stifling economic growth and prosperity Low access to professional development Lower wages Firms Unfair competition Government Large share of active persons hold informal and public sector jobs. Small share of employees work in the private sector, who make real contributions to government revenues

1. Motivation and aim of this study cont. World Bank Enterprise Survey of 2013 Unfair competition On average, 49% of firms in the Western Balkans, competed against unregistered or informal firms; 26% of firms, stated that practices of competitors in the informal sector are major constraint for business development

1. Motivation and aim of this study The aim: Assess data availability and definitions applied to measure informal employment; Understand the rate of informal employment; Outline the most vulnerable groups to informal employment (by gender, age, education level and sector); and Draw recommendations for improving data and indicate future research areas.

2. Labour market context Labour markets in Western Balkan economies characterised with: Low activity rate; High, persistent and long term unemployment, particularly for women and youth; Low employment rate; Significant share of youth that are neither in employment, education or training (NEET); Large public sector employment: it accounts for one fifth of the total employment; and Relatively high Public sector wages that outpace the private sector ones: on average, public administration wages estimated at 124% of the country average wages (IMF, 2015)

3. Available data sources Main official data sources Labour Force Survey: in all countries; Living Standard Measurement Survey (LSMS): in Serbia, Bosnia and Herzegovina and Albania; and Statistics on Income and Living Conditions (SILC): in Serbia, Montenegro and Macedonia. b) Ad-hoc surveys with enterprises or households For example, in Kosovo, Riinvest undertook a survey in 2013, applying the BEEPS questions on depicting informal employment

4. Operational definitions and the rate of informal employment Clear and consistent definition for informal employment of central importance in order to: Properly understand the scope of informal employment; To design effective legal and administrative response to combating the informal employment; and To be able to track the progress and effectiveness of employed mechanisms against informality.

4. Operational definitions and the rate of informal employment, cont. ILO definition A job is informal when it lacks basic social or legal protections or employment benefits and may be found in: The formal sector, Informal sector; or Households.

4. Operational definitions and the rate of informal employment, cont. ILO definition Persons in informal employment include the following types: Own-account workers employed in their own informal sector enterprises; Employers employed in their own informal sector enterprises; Contributing family workers, irrespective of whether they work in formal or informal sector enterprises; Members of informal producers’ cooperatives; Employees holding informal jobs in formal sector enterprises, informal sector enterprises, or as paid domestic workers employed by households; Own-account workers engaged in the production of goods exclusively for own final use by their household, if considered employed given that the production comprises an important contribution to total household consumption

4. Operational definitions and the rate of informal employment, cont.

4. Operational definitions and the rate of informal employment, cont. The operational definition of informal employment differs between countries: From the most exhaustive provided for Serbia to the narrowest one for Albania, where it includes only contributing family workers. Different measures of informality have different quantitative implications which can be observed also within a single country: Montenegro: the lowest incidence of informal employment is given by employees without a written contract or family workers (6.4%, LFS), the highest number emerges if we use a definition based on envelope wages (32.7%, IPSOS).

4. Operational definitions and the rate of informal employment, cont. Measures of informality are not fully comparable between countries: Comparability is achieved for Serbia and Montenegro, as both countries use the same set of questions for distinguishing informal from formal work, although not the same data source Broad comparability appears for Bosnia and Herzegovina and Macedonia, given their similar measures of informality based on payment of social security contribution.

5. Vulnerable groups to informal employment: by gender Men are more likely to be involved in informal employment in Montenegro, Macedonia and Kosovo, women are more likely to be informally employed in Serbia, while no gender difference appears for Albania. Source: 2014 HSWC for Montenegro; 2014 LFS for Montenegro and Bosnia and Herzegovina; 2015 LFS for Serbia, Kosovo and Macedonia.

5. Vulnerable groups to informal employment: by gender The oldest and youngest workers are most likely to be informally employed Source: 2014 HSWC for Montenegro; 2013 LFS for Serbia; 2014 LFS for Bosnia and Herzegovina; 2015 LFS for Macedonia.

5. Vulnerable groups to informal employment: by gender Workers with primary or lower education are more exposed to informal employment Source: 2014 HSWC for Montenegro; 2015 LFS for Serbia; 2014 LFS for Bosnia and Herzegovina.

5. Vulnerable groups to informal employment in agriculture Source: 2014 HSWC for Montenegro; 2013 LFS for Serbia; 2014 LFS for Bosnia and Herzegovina and LFS 2015 for Albania.

6. Recommendations Improving data availability Collection of information required for an adequate measurement of informal employment according to the ILO guidelines. The Serbian LFS is a good example for such an implementation; Further advancement of LFS questionnaires: for example inclusion of questions that would depict envelope wages presence. Questions included in the Montenegrin HSWC on envelope wages is a good example; Unification of the national LFS reports. For policy purposes, all WB countries should regularly report overall informal employment rates (in their LFS reports) and informal employment rates across basic demographic and other characteristics of workers; Inclusion of questions to measure the informal employment in the Survey of Income and Living Conditions (the SILC in Serbia contains such questions). Given that SILC is the most comprehensive and detailed survey on individuals’ income, labour market status, and socio- economic features, it would enable to link research on informal employment, poverty and benefit policies.

6. Recommendations Research on informal employment To study factors that impact the engagement of employees in informal jobs (labour taxes, social benefit system, law inforcement), Where panel data are available: To assess labour market mobility i.e. focusing on transitions in and out of informal employment; and Examine the typical individual and household characteristics associated with those who move from informal to formal employment. Assessment of policies and mechanisms in combating informality

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