Defining and Measuring Informal Employment and the Informal Sector in the Philippines, Mongolia, and Sri Lanka

Transcription

1 UNITED NATIONS DEVELOPMENT ACCOUNT PROJECT: INTERREGIONAL COOPERATION ON THE MEASUREMENT OF THE INFORMAL SECTOR AND INFORMAL EMPLOYMENT WORKING PAPER NO. 3 Defining and Measuring Informal Employment and the Informal Sector in the Philippines, Mongolia, and Sri Lanka James Heintz 1 March Consultant, UNDA Project 0607A- Interregional Cooperation on the Measurement of Informal Sector and Informal Employment. Political Economy Research Institute, University of Massachusetts, Amherst. jheintz@peri.umass.edu 1

2 Acknowledgements Marco Principi (consultant) and Lorenzo Saggiorato (intern), with the ESCAP Statistics Division, prepared the tabulations for this paper. 2

3 Contents I. Introduction...4 II. Defining and measuring informal employment... 4 III. Estimates of informal employment: the Philippines and Mongolia IV. Employment in household enterprises V. Conclusions References List of Tables Table 1. Population, labour force, and employment, Philippines, Table 2. Population, labour force, and employment, Mongolia, 2007/ Table 3. Employment by employment status and sex (agricultural and non-agricultural), Philippines, Table 4. Employment by employment status and sex (agricultural and non-agricultural), Mongolia, 2007/ Table 5. Urban and rural employment by employment status and sex, Philippines, Table 6. Urban and rural employment by employment status and sex, Mongolia, 2007/ Table 7a. Agricultural employment by employment status and formal/informal sector, Philippines, Table 7b. Non-agricultural employment by employment status and formal/informal sector, Philippines, Table 8a. Agricultural employment by employment status (enterprises v. own-use), Mongolia, 2007/ Table 8b. Non-agricultural employment by employment status and formal/informal sector, Mongolia 2007/ Table 9. Informal employment by sex and sector of activity, Philippines, Table 10. Urban and rural informal employment by sex and sector of activity, Mongolia, 2007/ Table 11. Unincorporated household enterprises by number of paid employees, Philippines (2009) and Mongolia (2007/8) Table 12. Unincorporated household enterprises by sector of activity and sex of the operator, Philippines Table 13. Unincorporated household enterprises by sector of activity and sex of the operator, Mongolia 2007/ Table 14. Unincorporated household enterprises by sector of activity and size, Philippines Table 15. Unincorporated household enterprises by sector of activity and size, Mongolia Table 16. Location of operation, unincorporated household enterprises, Mongolia, 2007/ Table 17. Share of respondents reporting problem associated with operating unincorporated household enterprises in Mongolia, 2007/

4 I. Introduction The concept of informal employment is meant to capture employment relationships that are not governed by formal economic regulations or basic social protections. There are several justifications for generating estimates of informal employment. Informal employment is often, but not always, more precarious with lower earnings. Households which depend on informal employment for their primary source of income often face higher risks of poverty (Chen, et al., 2005). Therefore, measuring the prevalence of informal employment is important for understanding the distribution of economic risks and sources of income inequality, including factors contributing to the economic vulnerability of women. In addition, processes of globalization and far-reaching changes in national economies have had a direct impact on the structure of employment in countries around the world. Therefore, measurements of informal employment give us a more complete picture of the full array of employment activities, allow us to track changes over time, and provide us with a better understanding of the forces that impact the well-being of individuals, their families, and the households in which they live. This report reviews recent labour force surveys (LFSs) 2 of three countries Sri Lanka, the Philippines, and Mongolia and suggests ways in which informal employment can be estimated from the survey data collected. For two of the countries the Philippines and Mongolia detailed estimates of informal employment are compiled and presented. II. Defining and measuring informal employment a. International guidelines for defining the informal sector and informal employment Two concepts are relevant for the measurement of informal employment as discussed in this report: the informal sector and informal employment. The informal sector is an enterprise-based concept i.e. the informal sector is comprised of all informal enterprises. When we use this enterprise-based concept to classify employment, we will refer to employment in the informal sector all employees, own-account workers, employers, and unpaid contributing family workers whose place of work is an informal enterprise. In contrast, informal employment is a broader, jobs-based concept 2 The standard LFS of these countries were modified to incorporate data requirements for the estimation of informal employment and employment in the informal sector. The modified LFS served as the phase 1 survey of the two-phased 1-2 Survey on Informal Employment and Informal Sector piloted in these countries under the United Nations Development Account Project on Inter-regional Cooperation in Measurement of the Informal Sector and Informal Employment. For more information, refer to Working Paper No. 1- The 1-2 Survey: A data collection strategy for informal sector and informal employment statistics 4

5 that is not tied to the nature of the enterprise. Informal employment may exist in formal enterprises and in employment located outside of an enterprise (e.g. employment as a domestic worker). Individuals in informal employment are those who work in jobs lacking basic social or legal protections. To define the informal sector, informal enterprises must be distinguished from formal enterprises. In 1993, the 15 th International Conference of Labour Statisticians (ICLS) adopted recommendations for defining the informal sector. The definition was developed, in part, to include the value of informal production in the system of national accounts (SNA). The focus on the enterprise was important for quantifying the contribution of the informal sector to aggregate economic activity. The resolution adopted by the 15 th ICLS identified the following set of criteria for defining informal enterprises: Legal organization of the enterprise. Informal enterprises are private unincorporated enterprises for which no complete set of accounts is available that would distinguish the financial activities of the enterprises from those of the household/owners. Market production. A portion of the goods or services produced by the informal enterprise must be exchanged in market transactions. Household activities which produce goods or services exclusively for own-consumption are excluded. Size and/or registration. Informal enterprises are often identified in terms of their registration status with respect to national regulatory frameworks and legislation, i.e. informal enterprises are unregistered enterprises. Alternatively, the size of informal enterprises is used when information about registration is not available. In this case, size is defined in terms of the number of paid employees. Using this approach, an enterprise is informal if the number of workers falls below a certain maximum threshold. In practice, the full set of criteria may not be consistently applied in defining the informal sector. Specifically, the legal organization of the enterprises may be unknown or presumed. It is common to see estimates in which the size criterion or the registration criterion is the only indicator used to identify informal enterprises. The concept of informal employment was developed to complement the concept of employment in the informal sector. A primary motivation for extending the definition is that many aspects of informalisation are job-related, and not directly linked to the nature of the enterprise. In 2003, the 17 th ICLS endorsed a framework that supplements the concept of employment in the informal sector with a jobs-based concept of informal employment. Jobs are classified in terms of (1) employment status category (own-account workers, employers, contributing family workers, employees, and members of producer cooperatives) and (2) formal/informal status. Informal jobs are generally taken to be jobs that lack a core set of legal or social protections. The definition of informal employment 5

6 is jobs-based, so it is possible for multiple jobholders to be engaged in both formal and informal employment. In practice, the primary occupation is often used to define an individual s status in informal employment when the focus is on the number of people employed (as opposed to the number of jobs). As has already been stressed, informal employment refers to employment which is not regulated or which does not enjoy core social protections. However, the regulatory regime is conditional on an individual s status in employment. Specifically, a distinct set of laws government the employment relationships of paid employees relative to those of the self-employed. Labour law typically focuses on the relationship between employers (the principal) and employees (the agent). For the self-employed, often no clear principal/agent relationship is evident (or such relationships are hidden). Therefore, these forms of employment are typically regulated by the laws governing enterprises. Because of this distinction in the regulatory frameworks governing individuals in different employment statuses, the definition of informal employment must be flexible enough to accommodate paid employees and various forms of self-employment. The ICLS framework for defining informal employment includes the following guidelines: The informal self-employed (informal own-account workers, employers, and members of producer cooperatives). Own-account workers, employers, and members of producer cooperatives are engaged in informal employment if the enterprise in which they work is informal. In these cases, the definition of informal employment corresponds to the definition of employment in the informal sector. Contributing family workers. All contributing family workers are classified as being engaged in informal employment. Wage employees in informal jobs. According to the ICLS guidelines, employees are considered to work in informal jobs if their employment relationship is, in law or in practice, not subject to national labour legislation, income taxation, social protection or entitlement to certain employment benefits. Own-account workers producing goods for own-use. Own account workers producing goods exclusively for their (or their households ) own final use are defined as being engaged in informal employment. As with the definition of employment in the informal sector, in practice the criteria used to distinguish informal employment from formal employment vary from country to country and context to context. In the next section, we discuss the variables which could be used to define informal employment given the current labour force surveys of the Philippines, Mongolia, and Sri Lanka. b. Applied definitions for informal employment: Philippines, Mongolia, and Sri Lanka 6

7 The international guidelines for defining informal employment and employment in the informal sector provide a set of recommendations that can be applied to micro datasets collected through labour force surveys (or other household surveys). Numerous challenges arise when the guidelines, outlined above, are applied to specific survey data. Not all labour force surveys collect adequate information to define informal employment. In these cases, informal employment cannot be defined or only approximations of informal employment can be defined until the questionnaires are revised to collect information on the necessary variables. Second, the set of variables collected varies from survey to survey. Therefore, the applied definition must be adjusted to accommodate the variables which are available. Finally, the most appropriate indicators for distinguishing informal employment from formal employment will vary depending on the social, legal, and institutional context. Some degree of relativism in the measurement of informality is unavoidable. The three countries discussed here the Philippines, Mongolia, and Sri Lanka collected household survey data that permits an applied definition of informal employment. In this section, we discuss how the general framework from the 15 th and 17 th ICLS could be applied to this survey data. In subsequent sections, we present the estimates generated through the application of the specific definitions for two of the three countries: Philippines and Mongolia. Defining Box 1. Examples informal paid of Social employees and Legal using Protection labour force Indicators: surveys Payments As noted to pension above, scheme, the definition provident of fund, informal or government employment social is conditional security on the status in o employment. Sri Lanka (Question Therefore, 11) we begin by considering how to define informal paid employees o using Philippines the labour (Question force 8) survey data from the Philippines, Mongolia, and Sri Lanka. As o we Mongolia will see, (Question the precise 78a) definition will vary somewhat from country to country. Nevertheless, the intention is identical in all three cases: to identify employment that Entitled lacks social/legal to paid leave protections and can be considered to be relatively unregulated. o Sri Lanka (Question 12) We use the o data Philippines from the (Questions labour force 9 & survey 10) to identify this category of informal employment (or, o in the Mongolia case of (Question the Philippines, 78g) the informal employment supplement that asks questions of paid employees). Legal entitlement to benefits/compensation in case of termination o Philippines (Question 13) o Mongolia (Question 78h) Existence of a written contract o Philippines (Question 7) o Mongolia (Question 77) Existence of a pay slip NEED TO SAY o SOMETHING Philippines (Question ABOUT THE 27) DATA SOURCES/SURVEYS The survey o questionnaires Mongolia (Question discussed 76) in this section include: 7

8 The Philippines: The Informal Sector Survey, ISS (2009), Phase I 3 and Phase II 4 (Phase II collects information on household enterprises). Mongolia: Labour Force Survey (2007/8) 5 and the Survey on Household Unincorporated Enterprises and Informal Sector (2007/8) 6. Sri Lanka: Survey Module on Household Unincorporated Enterprises Having Market Output (2008/9), Phase I 7 and Phase II 8. The survey questionnaires contain a number of variables that could be used as indicators of the existence or lack of social protection. Box 1 summarizes some of the relevant variables. The variables fall into two broad categories: indicators of social protections (pensions, government social security, and paid leave) and indicators of legal protections (legal entitlement to severance benefits, existence of a contract, and existence of a pay slip). Since the definition of informal employment is a jobs-based concept, the social protection indicators used to define informal paid employment must be linked to employment. However, not all countries provide social protections in the same way and the degree to which particular social protections are tied to employment varies. To give a concrete example: in some countries, access to health insurance or health benefits is provided primarily through employment. In other cases, access to health care does not depend on employment. Therefore, the appropriateness of using health benefits as an indicator of informality will differ from country to country. For this reason, definitions of informal wage employment often focus on social protections which are automatically linked to employment. For example, access to paid sick leave is, by its very nature, tied to employment. Pensions often fall into a similar category. The appropriateness of an indicator of informality may also be influenced by the nature of the social contract i.e. what social protections are expected in a given society. Lack of paid maternity leave may be an indicator of informality for some countries in which this social protection is expected. In cases where maternity leave is uncommon, using this criterion could lead to the vast majority of employment being defined as informal (even if other social protections are reasonably strong). In addition, the use of legal protections to define informal employment may not be appropriate in all cases. Specifically, the appropriateness of these criteria depends on whether individuals can realize their legal rights and protections i.e. whether the rights and protections are truly enforceable. Although the existence of a written contract should provide some degree of legal protection, these protections become meaningless if the contract cannot be enforced. In cases where the issue of enforcement is ambiguous or Mongolia.doc

9 questionable, the use of legal protection variables may not accurately capture the true extent of informal wage employment. In these circumstances, social protection criteria are preferred. Given these considerations, a basic applied definition which is consistent with other commonly used definitions of informal employment is: Formal paid employees: either the employer makes contributions to pension/social security or the employee has access to paid leave. Informal paid employees: no contributions to pension/social security, nor paid leave (i.e. neither of the two social protections apply). The specific questions from the labour force survey for each country are listed in Box 1. These criteria were used to generate estimates of informal paid employees for Philippines and Mongolia in the analyses presented later in this report. Defining informal self-employment As we have discussed, informal self-employment (own-account workers and employers) is defined by the nature of the enterprise. In the case of the three countries Sri Lanka, Philippines, and Mongolia it is possible to combine information from the supplemental household enterprise modules with the main labour force survey to identify informal enterprises. This can improve the accuracy of the estimates particularly when information on the nature of the enterprise is sketchy in the main labour force survey. However, this should only be done when the two parts of the survey can be matched precisely. Box 2. Variables for identifying informal enterprises/informal self-employment. Legal form of organization o Sri Lanka (Question PI04 Household enterprise module only) o Philippines (Question 17 Informal sector survey) o Mongolia (Question 63 Labour force survey) Formal accounts o Sri Lanka (Question 15 Labour force survey) o Philippines (Questions 25 and 26) o Mongolia (Question 65) Registration o Sri Lanka (Question 14 Labour force survey) o Philippines (Question 23) o Mongolia (Question 69) 9

10 Box 2 summarizes the variables which could be used to define informal enterprises, the informal sector, and informal self-employment. In some cases, missing variables or missing observations make a complete definition of informal enterprises difficult. In such cases, a subset of the above information can be used to classify informal selfemployment. For the estimates presented in this report, an enterprise is considered to be informal if: it is unincorporated (i.e. the legal form of organization is not a corporation) it does not maintain formal accounts (independent of the household) it is not registered The self-employed are classified as informal if the enterprise in which they work is informal. c. Defining total informal employment and employment in the informal sector Total informal employment is the sum of : Informal paid employees Informal self employment (own-account & employers) All unpaid contributing family workers All individuals employed producing goods exclusively for own-consumption Employment in the informal sector is a different concept from total informal employment. Recall the informal sector is made up of all informal enterprises. Similarly, the formal sector includes all formal enterprises. The formal sector also includes activities that take place in formal institutions that are not enterprises (e.g. the public sector). Informal enterprises are defined using the identical guidelines discussed above for informal self-employment. Therefore, employment in the informal sector includes: - paid employees that work in informal enterprises - the informal self-employed - unpaid contributing family workers in informal enterprises. III. Estimates of informal employment: the Philippines and Mongolia In this section, we present and discuss estimates of informal employment for the Philippines and Mongolia. For Mongolia, the estimates are based on data from the 2007/8 Labour Force Survey and the 2007/8 Phase II questionnaire on Household Unincorporated Enterprises and Informal Sector. For the Philippines, the estimates are based on data from Phase I and Phase II of the 2009 Informal Sector Survey. 10

11 a. The labour force and the structure of employment: an overview Table 1 presents a broad profile of the labour force and the structure of employment for the Philippines. The working age population (defined as age 15+) totals 57.7 million of which 37.8 million people are economically active. There are significant differences in the labour force participation rates of men (81.4 percent) and women (49.8 percent). As a result, men s employment exceeds women s employment by about 8 million individuals, although the male working age population is roughly equivalent to the female working age population. Unemployment rates of men and women are approximately equal. [Table 1 about here] Agricultural employment (including forestry and fishing) accounts for slightly less than a third of total employment and the majority of agricultural employment is informal. On average, employed men are more likely to work in agricultural activities than employed women. A higher percentage of employed women work in formal nonagricultural jobs (33.3 percent) than employed men (26.7 percent). This is somewhat unusual compared to countries in other regions (see, for example, Chen et al. 2005). Three factors would contribute to this outcome: (1) the importance of the public sector as a source of formal employment for women, (2) the larger number of men employed in agriculture (which reduces their relative employment in non-agricultural jobs), and (3) the low labor force participation rate of women (i.e. the women who report being economically active may be better educated or more highly skilled, and therefore more likely to work in formal jobs on average). Women s emigration for employment purposes could also contribute to this pattern (e.g. if women seek employment abroad as an alternative to informal employment at home) although we cannot draw firm conclusions from these estimates alone. Outside of agriculture, informal employment accounts for a larger share of total employment than formal employment for both men and women, with about 56 percent of non-agricultural informal employment located in urban areas. Table 2 presents similar estimates for Mongolia. Mongolia has a working age population (age 15+) of just under two million (1.9 million). The labour force participation rate for men is 63.7 percent and 54.5 percent for women. Therefore, women s labour force participation rate is lower than men s, but the gap is not as large as in the case of the Philippines. Men s unemployment rate is somewhat higher than women s 6.2 percent compared to 5.4 percent. [Table 2 about here] Over 40 percent of total employment is in agriculture and approximately 80 percent of agricultural employment is informal. Agricultural employment accounts for a slightly larger share of men s employment compared to women s. Outside of agriculture, total formal employment is larger than informal employment. Again the public sector 11

12 plays a significant role in providing formal jobs public employment accounts for about half of all formal, non-agricultural jobs. As in the Philippines, women are more likely to have formal jobs outside of agriculture than are men. The vast majority of nonagricultural informal employment is located in urban areas. b. Informal employment by employment status, urban/rural, and sex Table 3 presents estimates of the distribution of employment in the Philippines by sex, formal/informal, and employment status. The estimates are further disaggregated into agricultural and non-agricultural employment. For men employed in agriculture, the largest share work as informal own-account workers. Wage employment accounts for 29.8 percent of men s agricultural employment, and most of this is informal employment (i.e. lacking social protections). For women, the distribution of employment differs significantly. About half (49.8 percent) of women s agricultural employment is as (unpaid) contributing workers on family farms/plots. Own-account employment and employment as paid employees in agriculture is less common for women than it is for men. [Table 3 about here] Outside of agriculture, wage employment (as paid employees) is the most important employment status, accounting for 65.9 percent of men s non-agricultural employment and 46.1 percent of women s. In addition, 13.5 percent of women s nonagricultural employment is as employees in private households (if these domestic workers are included in the total for wage employment, paid employees account for 59.6 percent of women s non-agricultural employment). More men are employed as informal paid employees than are employed as formal paid employees. The opposite holds for women formal wage employment is larger than informal wage employment. However, if we include domestic workers, formal and informal wage employment account for approximately equal shares of women s non-agricultural employment. In addition, informal employment as own-account workers accounts for nearly 20 percent of women s employment outside of agriculture. Table 4 presents similar estimates for Mongolia. In agricultural employment, the distinction between men s and women s employment with regard to employment status is particularly stark. Self-employment as own-account workers accounts for 63.8 percent of men s employment. Within agriculture, women are also concentrated in self-employment, but as contributing family workers. This category accounts for 81 percent of women s employment in agriculture. Employment as agricultural employees is quite rare in Mongolia. [Table 4 about here] As in the Philippines, employment as paid employees is the single most important employment status outside of agriculture. Informal employment as own-account workers is less significant for women, this employment category only accounts for 8.1 percent 12

13 of non-agricultural employment. As mentioned in the previous section, formal employment accounts for a large share of non-agricultural employment for both men and women in part, due to the role of the public sector. Around the world, the urban population continues to grow faster than the rural population. This raises critical questions about urban livelihoods and employment. Therefore, it is useful to examine differences in the structure of urban employment relative to rural employment. Table 5 presents estimates of the distribution of urban and rural non-agricultural employment for the Philippines by employment status and sex. In urban settings, wage employment is the single most important form of employment. This is particularly true for men accounting for 70.2 percent of all non-agricultural urban employment. For women, the story is more complicated, since one significant source of wage employment is work in private households (e.g. as domestic workers). Wage employment accounts for 50.8 percent of women s urban employment outside of private households and employment as domestic workers (in private households) accounts for an additional 13.7 percent. Most of the wage employment available to women in private households is informal. [Table 5 about here] In rural areas, informal employment is relatively more common as a share of total non-agricultural employment. This implies, not surprisingly, that formal non-agricultural employment is concentrated in urban areas. In rural areas, non-agricultural selfemployment is also more common, relative to total non-agricultural employment, compared to urban areas. In rural areas, informal wage employment and informal ownaccount employment represent the two most important forms of non-agricultural employment for men. Women in rural areas have a similar structure of employment outside of agriculture, but it is important to recognize that, like urban areas, domestic work is an important source of informal wage employment. Table 6 presents a similar breakdown for Mongolia. For both men and women, employment as paid employees accounts for the largest share of urban, non-agricultural employment. Moreover, much of this employment is formal. The second most important category of employment is own-account workers although this form of employment accounts for just 21.2 percent of men s urban non-agricultural employment and 15.9 percent of women s. In the case of own-account employment, informal employment accounts for a larger share of men s urban employment than does formal employment, but this is not true for women. [Table 6 about here] Rural non-agricultural employment is relatively uncommon in Mongolia with only about 23,000 men and 17,000 women employed in total. Therefore, rural employment in Mongolia is very much dominated by agriculture. The patterns observed with regard to rural non-agricultural employment are similar to those observed for urban non-agricultural employment wage employment dominates (with a relatively large 13

14 share of formal employment) with own-account employment being a distant second in importance. Own-account employment is somewhat more common in rural areas compared to urban areas similar to what we observe in the Philippines. As with urban Mongolia, informal own-account employment accounts for a larger share of men s urban employment than does formal own-account employment, but again this is not true for women. c. Employment in the informal sector and informal employment In the discussion of the definitions used to estimate informal employment, we highlighted the distinction between informal employment and employment in the informal sector. Recall that employment in the informal sector is comprised of all employment in informal enterprises. Informal employment is defined as employment in informal jobs (and these jobs may be located in the informal sector, the formal sector, or in private households). Tables 7a and Table 7b presents estimates of formal and informal employment for the Philippines, disaggregated by employment status and formal/informal sector. Given the level of detail, it is helpful to treat agricultural employment separately from nonagricultural employment. Therefore, Table 7a presents estimates for agricultural employment and 7b for non-agricultural employment. [Tables 7a and 7b about here] As we have already noted, agricultural employment in the Philippines is dominated by informal employment. Table 7a shows that much of this employment is in the informal sector. Total agricultural employment for the formal sector (formal enterprises and farms) is 1,065,411 compared to total agricultural employment for the informal sector of 8,414,469 (of which 8,350,063 is also informal employment). Ownaccount workers and contributing family workers account for the bulk of agricultural employment in the informal sector, although there are an estimated 2,340,983 paid employees in the informal agricultural sector (the vast majority of which are also in informal jobs). Therefore, we can characterize agricultural employment in the Philippines as being highly informalized and dominated by small producers employed as own-account workers (the majority of whom are men) and contributing family workers (the majority of whom are women). There is also a significant agricultural wage labour force and much of this is employed by informal farms and agricultural enterprises (including fishing). Only about 327,000 individuals are paid employees hired by formal agricultural enterprises. The situation is quite different for non-agricultural employment (Table 7b). Employment in the formal sector exceeds employment in the informal sector. The majority of workers in the formal sector are paid employees in both government and private jobs. However, formal, non-agricultural self-employment as own-account workers 14

15 is also significant. In the informal sector, employment is split between paid employees (about 4,800,000 in total) and own-account workers plus contributing family workers (about 4,900,000 in total). As already noted, employment in private households accounts for about 1,420,000 informal jobs outside of both the formal and informal sectors. It is worth pointing out that there are a large number of informal paid employees in the formal sector (an estimated 1,680,406) but a significantly smaller number of formal employees in the informal sector (567,901). This asymmetry is typical of such estimates in other countries. Tables 8a and Table 8b presents similar estimates for Mongolia. Again Table 8a focuses on agricultural employment and Table 8b focuses on non-agricultural employment. Table 8a examines employment within and outside of all agricultural enterprises, while Table 8b specifically considers the informal and formal sectors. [Tables 8a and 8b about here] As in the case of the Philippines, agricultural employment is highly informalized. Paid employees are relatively uncommon. Therefore, informal self-employment (as ownaccount workers and contributing family workers) dominates agricultural employment. From our earlier discussion, there is a clear gender division in terms of employment status in agriculture with men working as own-account workers and women working as contributing family members. We observed the same pattern with regard to the Philippines. Table 8a also contains estimates of agricultural production exclusively for own-use (i.e. production which is not sold or barter on markets). Such employment accounts for over a third (approximately 35 percent) of agricultural employment in Mongolia. Table 8b presents estimates for non-agricultural employment. In Mongolia, nonagricultural employment is concentrated in the formal sector. As we had observed earlier, the public sector plays an important role in providing formal sector jobs. Within the nonagricultural informal sector, self-employment as own-account workers and contributing family workers accounts for most of the employment. Paid employees are relatively uncommon in the informal sector. Informal paid employees also work in the formal sector, accounting for about 9 percent of total formal sector employment. In the Philippines, this share was larger (about 26 percent of formal sector jobs). Therefore, employment in Mongolia is largely characterized by formal wage employment in the formal sector (non-agricultural) and informal self-employment in the informal sector (both agricultural and non-agricultural). In this respect, Mongolia more closely represents a classic example of a dualist employment structure (e.g. Fields, 1975). d. Informal employment by sector of activity Table 9 presents estimates of informal employment by broad sector of activity for the Philippines. We have already noted the critical position of agriculture in the overall structure of employment. However, other activities are also significant. Employment in trade accounts for 17.4 percent of all informal employment. Trading activities are 15

16 particularly important for women s informal employment, comprising 28.9 percent of women s informal employment. Construction and manufacturing are other notable sectors for informal employment. Informal construction is clearly male-dominated, accounting for 10.9 percent of men s total informal employment, but virtually none of women s employment. Women in informal employment are somewhat more likely to work in manufacturing than are men. [Table 9 about here] Table 10 presents estimates of informal employment by sector for Mongolia. Informal employment by sector of activity is disaggregated further into urban and rural employment. As we have already noted, the vast majority of rural informal employment in Mongolia is in agriculture. Outside of agriculture, trading, manufacturing, and transportation are the most common sector of informal employment but it is important to note that, due to the overwhelming importance of agriculture, such non-agricultural informal employment accounts for just 3.3 percent of total rural informal employment. In urban areas, trade, manufacturing, and transportation are more significant sectors. Women in informal employment tend to work in trade and manufacturing. This is similar to the case of the Philippines. For men, transportation, manufacturing, and construction are notable sectors. Trade is also an important source of employment for men in informal employment. [Table 10 about here] IV. Employment in household enterprises The surveys for the Philippines and Mongolia also contain information on unincorporated household enterprises. Such enterprises are operated by one or more members of a household and they are not incorporated (i.e. their legal form of organization is something other than a corporate one). Many household enterprises are informal and therefore belong to the informal sector. However, household enterprises may be formal if they satisfy the relevant criteria. To give two examples: in the Philippines, employment in informal enterprises accounts for 72 percent of employment in all household enterprises. In Mongolia, more than half (55 percent) of all nonagricultural household enterprises are informal enterprises. Examining household enterprise data gives us additional information on the nature of employment which would not be available if we restricted our attention to the standard labour force survey questions. The inclusion of a module on household enterprises is an important and innovative way of collecting information on both households and enterprises using a single instrument typically enterprise surveys are conducted separately from household surveys. Nevertheless, the household survey module is not a substitute for an enterprise survey, since the modules only capture a subset of the enterprises that exist (specifically household unincorporated enterprises). 16

17 Here we present some estimates based on the household enterprise data for the Philippines and Mongolia. Our primary focus in this section is non-agricultural household enterprises (with a lesser focus on informal employment and employment in the informal sector which has been detailed at some length in the previous section of the report. Table 11 presents an overview of the size of household enterprises for both countries. Size is measured by the number of paid employees. The vast majority of these enterprises in both the Philippines and Mongolia are quite small: having 2 employees or less. It is quite unusual for a household enterprise to have 3 or more paid employees (accounting for less than 5 percent of all enterprises). Often the term microenterprise is applied to firms with 5 or fewer employees. These estimates make it clear that most household enterprises in the two countries are microenterprises and small microenterprises at that. [Table 11 about here] Table 12 shows the distribution of non-agricultural household enterprises in the Philippines by sector of activity. Over half of all household enterprises are engaged in some form of trade. After trade, small-scale manufacturing and transportation services are next in importance. There is a clear difference in the types of activities in which maleoperated enterprises are engaged compared to female-operated enterprises. Transportation, trade, and construction account for the largest shares of male-operated enterprises. Trade is by far the most important sector for female-operated enterprises with small-scale manufacturing and personal services being the next most important sectors, albeit with much lower shares of the total. [Table 12 about here] Table 13 presents similar estimates for Mongolia. A similar pattern emerges. Overall, the most important sectors for household enterprises are trade, transportation, and mining/manufacturing. Female-operated enterprises are dominated by trading activities, just as in the case of the Philippines. Mining/manufacturing and other services are next in importance (but significantly less prevalent than enterprises engaged in trading). Male-operated enterprises are concentrated in mining/manufacturing, trade, and transportation services. [Table 13 about here] Table 14 examines the interaction of enterprise size and sector of activity for the Philippines. For the smallest enterprises (0 to 2 paid employees), trade, transportation, and manufacturing have the largest shares of the total. As the size of the enterprise increases, trading activities become less important and other sectors become more prominent. Manufacturing accounts for a larger share of enterprises with 3 to 5 employees compared to enterprises with only 0 to 2 employees. Construction, business services, and hotels/restaurants are much more common among the larger household enterprises (and relatively uncommon among the smallest enterprises). 17

18 [Table 14 about here] Table 15 presents parallel estimates for Mongolia. Unfortunately, information on the sector of activity and the size of the enterprises is not well captured in this data. No information is available for the larger household enterprises. The majority of the smaller enterprises have been grouped as other activities/unclassified. Therefore, we cannot present a similar comparison for Mongolia. [Table 15 about here] Although we do not have information on the intersection between enterprise size and sector of activity, the Mongolian survey does contain other, interesting information on household enterprises. For example, Table 16 presents information on household enterprises by the location of operation. Trading activities dominate household enterprises in Mongolia, so it is not surprising that the most common location is some permanent premises for trade, such as a shop or a permanent market. Mobile enterprises operated out of a vehicle, a cart, a wheelbarrow, etc. are relatively common as is operating the enterprise from one s own home. However, when the enterprise is located with the residence itself, it is common to find that some alterations have been made to accommodate the business activity. [Table 16 about here] Household enterprises face numerous constraints that can limit their productivity and earnings. The Mongolian survey of informal employment collects data on the challenges which household enterprises face. Respondents are asked whether certain potential problems are an issue for them. Table 17 summarizes these responses in terms of the percentage of all household enterprises which report having problems in a particular area. The responses are tabulated separately for formal and informal enterprises. [Table 17 about here] For household enterprises in Mongolia, the most common problem concerns demand in the local markets. The two most frequently reported problems both relate to difficulties in selling products due to market conditions. The problems with market demand are divided into two categories. The first is a lack of customers (or the lack of a big enough market). Two factors most likely contribute to this problem: (1) a lack of purchasing power among potential consumers (i.e. a lack of effective demand) and (2) a lack of market access (i.e. effective demand is there, but the household enterprise cannot access the market for some reason). The second is an abundance of competition: there are a large number of small traders competing for the same limited market. A smaller proportion of informal household enterprises report problems relative to formal enterprises. It is often assumed that informal enterprises face fewer barriers to 18

19 entry and operation than formal enterprises. This may help explain the smaller share of informal enterprises reporting specific problems compared to formal enterprises. The one exception to this observation is the problem of a lack of equipment. A larger proportion of informal enterprises report this as a problem compared to formal enterprises. This could indicate that informal enterprises have less capital to work with and are unable to invest in capital goods due to a lack of resources, limited credit, or some other constraint. One theory of the informal sector is that household enterprises chose to operate informally to avoid excessive regulatory burdens (i.e. informality is freely chosen). This does not appear to be the case for Mongolia. Regulatory barriers and taxes are not a commonly cited problem. Moreover, formal household enterprises report this being a problem at a slightly higher proportion than informal enterprises (14.5 percent compared to 11.1 percent). V. Conclusions This report has demonstrated how informal employment may be measured and defined using existing household survey data for three countries the Philippines, Mongolia, and Sri Lanka. In so doing, we reviewed the international guidelines for defining informal employment (including employment in the informal sector) and showed how these recommendations could be applied to specific variables for each of the three countries. For two of the countries the Philippines and Mongolia we presented actual estimates of informal employment and employment in the informal sector. In so doing, we tried to demonstrate how a rich analysis of the structure of employment could be generated and how such analysis could be used to provide new insights in terms of the varied nature of employment in these countries. In addition, we also specifically profiled unincorporated household enterprises an import source of livelihoods in these countries that has a close relationship with the concept of the informal sector. This was not meant to be an exhaustive analysis of informal employment in these countries. Rather, it represents an initial step to demonstrate how the international definitions can be applied and what we potential can learn by doing so. It is hoped that this exercise will lead to more in-depth work in the future to build our understanding of the nature and dynamics of employment in the Asia and Pacific region. References Chen, M., J. Vanek, F, Lund, J. Heintz, R. Jhabvala, and C. Bonner, (2005). Progress of the World s Women 2005: Women, Work, and Poverty, New York: UNIFEM. Fields, Gary (1975). Rural-urban migration, urban unemployment and underemployment, and job-search activity in LDCs Journal of Development Economics, 2(2):

20 Hussmanns, Ralf (2004a). Statistical definition of informal employment: guidelines endorsed by the 17th International Conference of Labour Statisticians. Paper prepared for the 7th Meeting of the Expert Group on Informal Sector Statistics (Delhi Group) 20

21 Table 1. Population, labour force, and employment, Philippines, Men Women Total Total population 45,262,857 44,753,450 90,016,307 Working age (15+) 28,710,662 28,988,893 57,699,555 Not economically active 5,337,718 14,550,116 19,887,834 Economically active 23,372,944 14,438,777 37,811,721 Labour force participation rate (%) 81.4% 49.8% 65.5% Unemployed 2,599,258 1,677,261 4,276,519 Unemployment rate (%) 11.1% 11.6% 11.3% Employed 20,773,686 12,761,516 33,535,202 Employed in agriculture 7,577,777 2,872,729 10,450,506 Informal agricultural employment 6,690,608 2,731,833 9,422,441 Employed non agricultural 13,195,909 9,888,787 23,084,696 Formal non-ag. employment 5,548,236 4,253,165 9,801,401 Public formal non-ag. employ. 928,394 1,028,130 1,956,525 Informal non-ag. employment 7,647,673 5,635,622 13,283,295 Urban informal non-ag. employ. 4,225,783 3,237,144 7,462,927 Share of total employment Employed in agriculture 36.5% 22.5% 31.2% Informal agricultural employment 32.2% 21.4% 28.1% Employment, non-agricultural 63.5% 77.5% 68.8% Formal non-ag employment 26.7% 33.3% 29.2% Public formal non-ag-employment 4.5% 8.1% 5.8% Informal non-agricultural employment 36.8% 44.2% 39.6% Urban informal non-ag. employment 20.3% 25.4% 22.3% Rural informal non-ag. employment 16.5% 18.8% 17.4% TOTAL EMPLOYMENT 100.0% 100.0% 100.0% Source: The Informal Sector Survey, ISS (2009), Phase I (Philippines). Estimates produced by ESCAP Statistics Division 21

22 Table 2. Population, labour force, and employment, Mongolia, 2007/8. Men Women Total Total population 1,306,683 1,334,535 2,641,218 Working age (15+) 949, ,812 1,940,240 Not economically active 345, , ,933 Economically active 604, ,982 1,144,307 Labour force participation rate (%) 63.7% 54.5% 59.0% Unemployed 37,207 29,040 66,247 Unemployment rate (%) 6.2% 5.4% 5.8% Employed 567, ,942 1,078,060 Employed in agriculture 239, , ,272 Informal agricultural employment 171, , ,363 Employed non agricultural 327, , ,788 Formal non-agricultural employment 232, , ,016 Public formal non-ag. employment 110, , ,906 Informal non-agricultural employment 94,584 73, ,772 Urban informal non-ag. employment 87,101 68, ,782 Share of Total Employment Employed in agriculture 42.3% 39.5% 40.9% Informal agricultural employment 30.2% 36.7% 33.2% Employment, non-agricultural 57.7% 60.5% 59.1% Formal non-ag employment 41.1% 46.2% 43.5% Public formal non-ag-employment 19.4% 24.6% 21.9% Informal non-agricultural employment 16.7% 14.3% 15.6% Urban informal non-ag, 15.4% 13.4% 14.5% Rural informal non-ag. 1.3% 0.9% 1.1% TOTAL EMPLOYMENT 100.0% 100.0% 100.0% Source: Mongolia Labour Force Survey (2007/8). Estimates produced by ESCAP Statistics Division 22