Viet Vu Consultant to United Nations’ Statistics Division March 2010

Importance of reliable measurement of informal activities at regional levels in developing countries At national level (*) On the basis of statistics on the informal economy that are still unreliable, ILO provides the following tentative picture of its relevance. In developing countries, informal employment makes up 48% of non-agricultural employment in North Africa, 51% in Latin America, 65% in Asia, and 72% in Sub-Saharan Africa. If agricultural employment is included, the percentages rises, in some countries like India and many sub-Saharan African countries beyond 90%. Estimates for developed countries are around 15%. At regional level: Share of informal activities in many regions are higher than the national average; Thus, reliable measurement of informal activities at regional levels are important to the measurement of GRPs. (*) Source: pdf

Households as statistical units in SNA production framework: refined definition SNA household sector SNA corporations sector SNA general government sector and NPISH sector HUEM units Non-HUEM units: Household quasi- corps. Incorporated enterprises Nonmarket units (general government, NPISH) Agriculture (commercial agriculture) Non-Agriculture Producing only for own final uses Subsistence farmers InformalFormal Informal Formal statistical units: household enterprises that do not incorporate This is the part of the system that the ILO is interested in Area subject to 1-2 survey

General practices in economic statistics Corporations sector: corporations, whether large or small are independent legal units and therefore must register with authorities, they can be subject to sample survey. The main requirement is that the list frame must be frequently updated. This list frame include basic information: Address Number of employees Sales Major activity classified by ISIC. Household sector: all unincorporated activities of the households must be measured in national accounts, whether they are “informal” as defined by the ILO or by ESCAP project or not.

Household production activities Non-HUEMs: Household unincorporated enterprises producing only for own final consumption. This includes subsistence farmers. HUEMs: are household unincorporated enterprises as defined by the SNA, but: (1) with “primary objective of generating employment and incomes to the persons concerned” as defined by the ILO in the resolution of the 15 th ICLS (SNA2008, 25.37); and (2) “with at least some production for sale or barter (SNA2008, 25.46)”. HUEMs as defined above must have entrepreneurial spirit in the sense that: Produce for the market on a regular basis; therefore HUEMs Should exclude the unincorporated household units that have some incidental sales, and subsistence farmers who must sell some of their outputs on the market to pay for nonfood survival needs.

Household activities measurement: ATERNATIVE I Non-HUEMS for own final consumption: Based on normal agricultural survey at regional levels Agriculture: Land use are x Yield rate per unit of land Livestock: Output of live animals + imports = animals slaughtered + exports + change in animal stock HUEMS: 1-2 survey (UNESCAP’s proposal) include: Stage 1: Utilize Labour Force’s survey (surveying households) to identify HUEMS (unincorporated units produced for the market) Stage 2: Survey HUEMS for labour, output, intermediate consumption and value added. Extrapolation using 1-2 survey and employment in Labour Force survey

Household activities measurement: ATERNATIVE I (extrapolation) Assumption 1: Informal employment = LFS employment less ES employment Assumption 2: productivity of informal activity with respect to productivity of small incorporated enterprises remain the same as in the benchmark year and lower. Value added per employee of HUEMs less or equal to a given percentage of value added of small incorporated enterprises Assumptions 1 and 2 are used to estimate value added for HUEMs. ADVANTAGES OF THE METHOD: If LFS and ES employment are available quarterly and for all regions, it is possible to estimate GRP quarterly. DISADVANTAGES OF THE METHOD: LFS focuses on employment of persons at given locations, not location of employment. Additional information is needed to allow for the reclassification of employment by place of residence to employment by place of work.

Household activities measurement: ATERNATIVE II: full-fledged household survey: Case of Laos (Diary still used in Japan) Any given household except expatriates and military barrack Questionnaires to get following information for the year Farm activity: quantity, values by types of agricultural output: crop, livestock, poultry Agricultural production household Nonfarm activity: sales, number of employees Nonfarm business production household Household purchases and sales of household durables and semidurables Nonproduction household Material and labor cost of household own construction of new buildings and extension Household income and transfers, borrowing and lending, with interest rate (for last week) Diary of transactions in one month of the year

Household activities measurement: Alternative II Classify a given recorded household transaction Agricultural activity (See table 2.10) Nonfarm business activity (See table 2.11) Nonproduction activity for household final consumption expenditure (table 2.12) What is the purpose of the transaction (sale, purchase, own produced, etc.)?  For Business  for Agriculture  For personal use Extrapolation should also be based on LFS

An integrated survey program to satisfy both national and regional accounts Benchmark surveys: every five years. Benchmark household survey (whatever form) may take place every five years. Quarterly and annual estimation, separately for: Agriculture (cultivated land area and yield rate) Other non-agricultural own final consumption (a fixed ratio of agriculture?) Unincorporated informal activities: employment Incorporated activities: sampling survey Government activities: budget data Non-profit institutions serving HH: employment Countries need to collect employment data by developing both regular Establishment Survey and Labor Force Survey. Probably the most economic way to collect information on household activities.

Application on regional value added estimation/extrapolation Assumption: Informal employment is assumed to be the difference between LFS employment and ES employment. Productivity adjustment: Productivity difference between formal and informal activities by activity need to be introduced to estimate corporate employment equivalent. This can be done at: Industry average for corporations or Industry average for only small incorporated enterprises if data are regularly available. Use corporate employment equivalent to estimate regional output and value added.