1. Statistical definitions of informal economy Informal sector
Regional course on Informality   Chiba, October 2017
Statistical definitions of informal economy Informal sector
ILO: Michael Frosch

2. Conceptual framework
Recommendation concerning the transition from the informal to the formal economy
(ILC R204, 2015)
Work
Resolution concerning statistics of work, employment and labour underutilization (19th ICLS, 2013)
Measuring informality: A statistical manual on the informal sector and informal employment
(ILO, 2013)
Employment
Resolution concerning statistics of the economically active population(13th ICLS, 1982)
Resolution concerning statistics of the economically active population(13th ICLS, 1982)
Guidelines concerning a statistical definition of informal employment
(17th ICLS, 2003)
Resolution concerning statistics of employment in the informal sector (15th ICLS, 1993)
Informal employment
(Employment in) Informal sector

3. The concept of informal economy
Recommendation 204 provides a definition:
“… the term “informal economy” refers to all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements” §2(a)
Economic units in the informal economy
Those not covered or insufficiently covered by formal arrangements
Workers in the informal economy

4. Formal arrangements Procedures established by the government
To regulate the actions and functions of economic units
To recognise the economic units and protect their legal rights
To carry out economic activities, to engage in commercial contracts, to safeguard their intellectual and physical property, etc.
Procedures to report economic activities, employees
In order to pay taxes (on production, on sales)
In order to cover employees for social security, etc.

5. Informal economy Two components (2 statistical units): Informal sector
Informal sector (enterprise based concept) 15´th ICLS
Informal employment
Informal employment (worker / job based concept) 17´th ICLS
Informal sector
Two different aspects of informal economy
Important to keep separate as often require different policies
Important to understand the relation between them

6. Informal sector

7. Informal sector is like a giraffe ”difficult to define by usual standards, but easy to recognise when you meet one” Hans Singer
Informal sector is not so much defined by what it is rather by an absence of characteristics

8. Why work in the informal sector
Survival strategies, due to lack of (adequate) jobs
A wish for independency and flexible work arrangements
More profitable then working in the formal sector
The continuation of traditional activities
Avoiding regulations
and so on……….

9. Many faces Large diversity Informal activities range
Different between different regions, countries and areas within the same country, Urban/Rural
Different industries, activities, different types of enterprise
Informal activities range
from street vendors, shoe shining and other minor activities requiring little or no capital and skills
To manufacturing, tailoring, car repair demanding more skills and capital and with higher productivity.
Informal sector do not equal illegal work

10. Concept of Informal sector 15´th ICLS
Market oriented
“The informal sector may be broadly characterised as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned”
Low level of organisation
“These units typically operate at a low level of organisation, with little or no
division between labour and capital as factors of production and on a small scale”

11. Informal sector Statistical definition I
Based on SNA “household sector”
Economic units in the “household” sector :
Are not constituted as separate legal entities (are owned by persons/households)
Do not have complete accounts (i.e., excludes quasi-corporations)
Can produce goods and services for sale or barter
Can produce goods and services exclusively for own final use
Including households that employ paid domestic employees

12. Informal sector Statistical definition II
Adding a criteria of producing at least something for the market
Excluding Own use production exclusively for own final use
Household market units

13. Informal sector Statistical definition III
Housholdemarket units:
Are not constituted as separate legal entities (are owned by persons/households)
Do not have complete accounts (i.e., excludes quasi-corporations)
Do produce goods and services for sale or barter

14. Statistical definition IV
Additional criteria's for operational purposes, depending on the national context
Household market units can be divided in two sub-categories
No employees (Own account enterprises)
Either all own-account workers or
Only those which are not registered under specific forms of national legislation
With employees (Enterprises of employers)
size of the unit below a specified level of employment
or/and
only those which are not registered under specific forms of national legislation
Only those that have registered (some of) their employees

15. Institutional units of the System of National Accounts
Institutional sectors
Corporations
Quasi-corporations
(Complete set of account)
(Seperate legal unit)
Government units
Non-profit institutions
Households
Market household units Unincorporated enterprises owned by households
Non-market household units Institutional households, households with no unincorporated enterprises, households only undertaking production for own final use
(i) Not incorporated
(ii) No complete set of accounts
(iii) Market production

16. Institutional units of the System of National Accounts
Market household units
Unincorporated enterprises owned by households
Owned by own-account workers
Informal sector
Formal sector
Owned by employers
For operational purposes, depending on the national context
(i) Enterprise registration (under specific forms of national legislation
(ii) all
Enterprise registration
Establishment size
Employee registration

17. Market production
Units that produce at least some goods or services for sale
Recognises that informal sector seeks to generate income
Excludes production solely for own final use
Operationalization:
Is typically covered initially, when identifying employment
Might not be relevant in countries with a insignificant share of own use production work

18. Unincorporated Units are not a separate legal entity
Recognise that the owners are persons or households and not legal persons
Excludes:
Governments
Corporations
Non-profit organisations
Operationalization :
Part of defining institutional sector (or a direct question)
Need to use national expressions for an incorporated enterprise e.g. limited company, trading partnership, limited partnership

19. No bookkeeping
To exclude economic units that keep formal accounts required by law (Quasi-corporations)
It is not possible to separate between the economy of the economic unit and the household
Operationalization :
Find out what are the requirements in your country
Be as precise as possible
Just keeping books for own use does not qualify

20. No registration
To exclude economic units that conform with the legal and administrative framework in force in the country
Registration at national level in order to apply to
– ´Factories´/ commercial acts
– Tax/social security laws,
– Professional groups’ regulatory acts, etc.
As distinct from local regulations for issuing trade licenses or business permits
– Because they are governed by administrative regulations that may vary from region to region and in time
– Because they do not affect the way the units operate and behave
Operationalization :
Use national examples in the question

21. Size below x To include small units
It is a proxy to low level of organisation and small scale operation
Not always a good proxy as there may be small units which are registered and keep accounts
Should only be used when there is no other information available
The size may vary between countries and branches of economic activity
Should take into account the size limits used in formal sector establishment surveys

22. Flexibility within the 15´th ICLS
The use of the register criteria
Recommendation from ILO is to use it
The use of size criteria
Recommendation from ILO is to not use it
For practical reason possible to only cover non-agriculture
Recommendation from ILO is to cover agriculture as well
Covering main jobs or all jobs
From the perspective of informal sector all jobs should be covered.
From the perspective of informal employment, might be sufficient with main job and second job if possible.

23. Example: combining the criteria (§6, Resolution concerning statistics of employment in the informal sector, 15th ICLS)
The economic unit is incorporated No
Yes
Household economic unit (SNA)
The economic unit keeps required accounts
Government, corporations, non-profit institutions (SNA) No
Yes
Market household economic unit (SNA)
The economic unit produces goods or services for sale
Quasi- corporation (SNA) No
Yes
The economic unit is registered
The economic unit is a “household” producing exclusively for own final use
Yes No
The economic unit is in the “informal sector”
The economic unit is in the “formal sector”

24. Employment in the informal sector
All persons employed in the informal sector
(13´th ICLS definition of employment) OR
All persons working in the informal sector
(19´th ICLS definition of work)

25. Minimum set of data items that needs to be collected
Number of economic units that are in the informal sector (informal sector units)
Production, value added (Input to SNA)
Number of informal sector entrepreneurs
Number of workers and jobs in the informal sector
All data items should be cross-classified by relevant variables

26. Thank you