The Formal-Informal Labor Nexus and Growth in Bangladesh

Transcription

1 The Formal-Informal Labor Nexus and Growth in Bangladesh Krishna Kumar (RAND), Minhaj Mahmud (BIGD), Shanthi Nataraj (RAND), Italo Gutierrez (RAND), Farzana Munshi (BRAC University), Prodyumna Goutam (RAND) Workshop on Formal-Informal Labor Nexus and Bangladesh s Growth Bangladesh Institute of Development Studies (BIDS) Dhaka : March 28, 2017

2 We Thank the Various Organizations That Made This Research Possible UK Department for International Development (DfID), Institute for the Study of Labor, Germany, (IZA), for funding the initial study BIGD for hosting the inception workshop held in March 2015 and for help in collecting the worker survey data World Bank for funding a follow-on project, including the employeremployee survey ERG for help in collecting the employer-employee survey data BIDS and BIGD for hosting this workshop Our advisory panel: Professor Dr. Shamsul Alam, Dr. Sultan Hafeez Rahman, Dr. Rushidan Islam Rahman, Dr. Mustafizur Rahman, Dr. Kazi Ali Toufique Participants of the inception workshop held in March 2015 Kumar acknowledges additional support from the Rosenfeld Program on Asian Development at the Pardee RAND Graduate School Slide 2

3 One View of Informality Characterizes the Sector as Stagnant, Unproductive Source: LaPorta and Shleifer (2014) Slide 3

4 Per-Capita GDP Has Grown Substantially in Bangladesh Percent Formal Employment Per-Capita GDP (Constant 2010 USD) Formal Employment GDP Source: World Bank DataBank. Slide 4

5 But the Share of Formal Employment Has Remained Stubbornly Low Percent Formal Employment Per-Capita GDP (Constant 2010 USD) Formal Employment GDP Sources: World Bank DataBank and authors calculations based on Bangladesh Labour Force Surveys. Slide 5

6 Alternative View Characterizes Informal Sector as Dynamic Allows entrepreneurship Providing flexible work hours/locations Provides supply links to the formal sector Predicts that the informal sector will exist (maybe even thrive) as the economy develops (formal and informal labor are complements) Slide 6

7 Motivation for Research Agenda Are less productive than formal firms If the Pay informal their workers sector less is here to stay, could it be an important source of growth? May not give their workers the benefits to which they are entitled And what policies might improve conditions for informal firms and workers? Slide 7

8 We Addressed These Questions Through Several Approaches Analyzing the links between export-led growth and formal and informal employment, using data from the Labour Force Surveys (LFS) Examining whether workers are locked in to informal employment, and how much they value specific benefits of formality, through a survey of informal and formal workers Examining preferences of employers as well as employees at small, informal firms through a matched employer-employee survey Slide 8

9 The Inception Workshop Helped Shape Our View of Informality as a Continuum Safe working conditions Minimum wage Sick leave Paid holidays Maternity leave Termination notice Written contract Pension LFS Worker Survey Formal Regular paid employee Paid employee in private entity Paid employee in government Informal Day laborer/casual worker Day laborer/casual worker Seasonal worker Domestic worker Seasonal worker Domestic worker Self-employed Employer Self-employed / business owner, no employees Business owner, hiring only family members Business owner, hiring at least 1 paid worker Family helpers Unpaid family member Paid or unpaid family member working in a HH business Slide 9

10 As of 2010, 15% of Working Adults Are Formally Employed Total population in million Population Aged million Economically Active 55.0 million Economically Inactive 35.7 million Employed 52.8 million Unemployed 2.2 million Formal (15%) 7.9 million Informal (23%) 12.2 million Family (22%) 11.8 million Self-Employed (41%) 21.0 million Source: Bangladesh Labour Force Survey, 2010 Slide 10

11 How Do Growth Opportunities Affect Formal, Informal, Family and Self Employment? Ln(Formal employment) Ln(Informal employment) Ln(BGD Exp OECD - Total) Ln(BGD Exp OECD - Total) Ln(Unpaid employment) Ln(Self employment) Ln(BGD Exp OECD - Total) Ln(BGD Exp OECD - Total) Slide 11

12 How Do Growth Opportunities Affect Formal, Informal, Family and Self Employment? Ln(Formal employment) Ln(Informal employment) Ln(BGD Exp OECD - Total) Ln(BGD Exp OECD - Total) Ln(Unpaid employment) Ln(Self employment) Ln(BGD Exp OECD - Total) Ln(BGD Exp OECD - Total) Estimated relationship between export-led growth and levels, shares of employment Slide 12

13 We Considered Both Direct and Indirect Effects of Export-Led Growth Used supply chain linkages to account for how export opportunities propagate through the economy Export (billion, 2010 US$) Direct Demand (billion, 2010 US$) Indirect Demand (billion, 2010 US$) Formal Employment (million) Informal Employment (million) Unpaid Employment (million) Self Employment (million) Source: Bangladesh Labour Force Survey, 2002, 2005, 2010 Slide 13

14 We Then Examine Relationship Between Exports and Each Type of Employment at the Individual Level Probability of working in each type of employment as a function of total demand (direct + indirect) Emp ijt = α + βtotdem jt +γ X ijt +δ k +ε ijt Emp jt = 1 if individual i is employed in sector j at time t, 0 otherwise TotDem jt = demand for goods from sector j at time t that are induced by Bangladesh exports to OECD X ijt = individual characteristics (age, gender, education) δ k = control for broad sectoral effects Concern that demand for Bangladesh exports may be endogenous Use India s exports to OECD, along with India s IO table, as an instrument Slide 14

15 Growth is Associated with a Shift from Informal Employment to Self-Employment Formal Informal Family Self Employed Ln(Total Demand) *** ** (0.0135) ( ) ( ) ( ) ObservaIons 190, , , ,685 First Stage F-test Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p<0.01, ** p<0.05, * p<0.1 Slide 15

16 Women are More Likely to Move into Self-Employment Formal Informal Family Self Employed Ln(Total Demand) - Men *** ** (0.0129) (0.0105) ( ) ( ) Ln(Total Demand) - Women *** *** (0.0183) (0.0103) (0.0154) (0.0111) ObservaIons 190, , , ,685 Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p<0.01, ** p<0.05, * p<0.1 Slide 16

17 As Are Less Educated Workers Formal Informal Family Self Employed Ln(Total Demand) No Class ARained *** * *** (0.0134) ( ) (0.0105) ( ) Ln(Total Demand) Class *** ** (0.0138) ( ) (0.0105) ( ) Ln(Total Demand) Class ** ** (0.0141) ( ) (0.0108) ( ) Ln(Total Demand) Secondary (0.0241) (0.0110) (0.0101) (0.0127) Ln(Total Demand) Graduate (0.0475) (0.0171) ( ) (0.0317) ObservaIons 190, , , ,685 Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p<0.01, ** p<0.05, * p<0.1 Slide 17

18 Discussion and Policy Implications Sectoral growth is associated with a decline in informal wage employment But also with an increase in self-employment as well as formal employment Women are particularly likely to be self-employed rather than unpaid family helpers in fast-growing sectors Those with higher levels of education are likely to move to formal employment, those with lower levels of education to self-employment Policies to aid such entrepreneurship, especially among women are likely to be helpful This analysis does not tell us whether individual workers are moving between sectors è we conducted a worker survey Slide 18

19 We welcome your comments. Thank you!