UNECA/UNSD Regional Workshop November 2005 Informal sector UN STATISTICS DIVISION Economic Statistics Branch 1

Thrust Improving the international comparability of official statistics on informal sector

Informal sector definition “… units that operate at a low level of organization, with little or no division between labor and capital as factors of production and on a small scale. Labor relations – where they exist – are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees” (para. 5 (1) from the Resolution

Analytical and policy relevance In terms of employment and income generation, these units make significant contributions in developing countries with high rates of economically active population growth, high rates of urbanization, large segments of population not covered by social security systems, and high rates of subcontracting to small enterprises by large enterprises

Statistical concept (15th ICLS) enterprise-based characteristics reflecting homogeneous production units with similar economic objectives, behavior and decision making processes and by and large in accordance with the terminology and principles of the 1993 SNA

Statistical Concept (15th ICLS) Legal status: Informal enterprises are household unincorporated enterprises owned by one or several individuals of the same household, or jointly with other households for which no complete sets of accounts are available (including balance sheets); or in other words informal enterprises are not incorporated as separate legal entities that are independent of their owners. Market production: all or at least some[1] of the goods or services produced are meant for sale and barter and thereby excluding production of goods and services exclusively carried out for own final use.[1] The 1993 SNA formulation of market producers are those that produce all or most as compared to all or at least some of the goods or services. Size of employment, number of paid employees should be under a nationally determined threshold and/or non-registration of the units or non-registration of employees under factories or commercial acts, tax or social security laws, professional groups’ regulatory acts, or similar acts, laws or regulations established by national legislative bodies

Statistical concept (15th ICLS) Exclusions Agricultural and related activities Production for own use units producing exclusively for own use differ in their economic objectives, behavior and decisions from market producers (i) services from owner occupied dwellings, (ii) services for own use by employing paid domestic staff as employees, (iii) construction and major renovations of buildings and other gross fixed capital formation for their own use, and (iv) goods for own final consumption.

Clarifications Legal Status The first criterion of the informal sector on legal status is identical to the definition of the 1993 SNA. In its application, the 1993 SNA update should be clarified by being more prescriptive to exclude from the household sector those units that meet the criteria of quasi-corporations with the intent that the household sector would not include “formal sector” enterprises as distinct from “informal sector” enterprises.

Change in 1993 SNA The informal sector principle of on market production is not identical with the definition of the 1993 SNA. The 1993 SNA formulates market producers as those that sell most or all of their production on the market at economic significant prices while the 15th ICLS uses the phrase some or all. A change to the 1993 SNA is proposed to adopt the description of the 15th ICLS only for household unincorporated enterprises

Supplementary definition of informal sector Exclude the size/non-registration criteria diverse national practices in applying the size and non-registration criteria, the international definition of the informal sector has hampered the international comparability of official statistics of the informal sector’s contribution to employment and value added

Three Recommendations Reinforce the exclusion of quasi-corporations (enterprise maintaining complete sets of accounts) from the household sector in 1993 SNA Redefine market producers of unincorporated household enterprises to those producers that sell some or all of their production on the market at economic significant prices in 1993 SNA Supplementary definition restricting enterprise-based criteria to legal status and market production