Transition to formality Regional forum for the exchange of knowledge between countries in Latin America and the Caribbean 24 to 28 August 2015, Lima, Peru
Transition to formality in Latin America and the Caribbean: Trends, policies and challenges
Trends in informality Large-scale Declining trend Very heterogeneous
Context Annual growth (%) 7 6 5 4 3 2 1 0-1 -2 Annual variation of gross domestic product (GDP) in LAC per decade (%) 0 1 2 3 4 5 6 7 8 9 2000-2009 2010-2019 (Abr-2015) 2010-2019 (Abr-2014) Note: predictions for the period 2014-2019. Source: IMF (2015). World Economic Outlook Database. April 2015. Economic The region experienced strong economic growth during the decade 2000-2009 Growth forecasts for the decade 2010-2019 are ever decreasing. For the year 2015, the most recent predictions indicate that the region will grow by less than 1%. Socio-political There is great political will on the part of various governments: application of policies designed to promote formalization Social actors and international discussion of R204
Labour market 60 57 54 51 48 45 LAC: Employment and unemployment rates (% ) 12 11.1 11 10.3 10 9.0 8.6 9 8.1 7.9 8 7.3 7.3 6.7 7 6.4 6.2 6.2 6.3 6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-III 2015* Tasa de Ocupación (eje izq.) Tasa de Desempleo (eje der.) Notable improvements on employment indicators up to the year 2013: Employment grew and unemployment dropped to a historic low of 6.2%. Wage employment increased: this allowed social security to be extended, and reduced informality The context has changed Unemployment is expected to increase in 2015.
Registered employment 2000 2005 2010 2011 2012 2013 Argentina 100.0 118.7 152.9 160.3 Brazil 100.0 115.7 147.1 154.8 Chile 100.0 118.2 156.5 165.5 Costa Rica 100.0 116.1 147.8 152.5 El Salvador 100.0 108.6 121.7 125.8 Guatemala 100.0 110.4 121.9 127.1 Mexico 100.0 102.8 115.2 120.1 Nicaragua 100.0 123.2 173.3 187.4 Panama 100.0 108.5 158.2 174.6 Peru 100.0 107.1 142.2 149.9 Uruguay 100.0 110.7 153.8 161.2 163.3 165.5 159.7 162.4 175.4 181.3 157.8 161.1 128.4 135.3 130.5 134.5 125.6 130.1 202.1 218.2 186.4 194.1 155.8 160.3 167.5 170.5 Source: Cepal (2014).
Informal employment 2009-2013 Reduction in the rates of nonagricultural informal employment 2009: 50.1% 2013: 46.8% Large-scale: At least 130 million informal workers in the region Very heterogeneous Informal employment in the informal sector (30.5%) Informal employment in the formal sector (11.4%) Informal employment in households (4.9%) 50 40 30 20 10 0 Non-agricultural informal employment (%) 50.1 5.7 48.0 47.8 46.8 5.2 5.0 4.9 12.3 11.4 11.7 11.4 32.1 31.4 31.1 30.5 2009 2011 2012 2013 Informal sector Formal sector Households Note: Based on data from 14 Latin American countries. Population of > 15 years old. Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean.
Trends in formalization 2009-2013 Informality rate Contribution to total informal employment TOTAL 46.8 100.0 Employers and employees 33.7 52.7 Public sector 15.9 4.3 Private sector 32.9 38.1 1 to 10 workers 58.6 27.8 More than 10 workers 14.4 9.4 Domestic workers 77.5 10.3 Own-account workers 82.3 40.9 Unpaid family members 100.0 5.3 Others 96.7 0.0 Note: Based on data from 14 Latin American countries. Population of > 15 years old. Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean. Scale Informal employment: 46.8% Informal wage employment: 32.9% Heterogeneous: Own-account workers + workers in domestic service + workers in microand small enterprises Comprise 80% of informal employment
Characteristics of informal employment in Latin America (2013) Informality rate Informality rate Sex Sectors Male 44.5 Mining 28.3 Female 49.7 Manufacturing 38.8 Electricity, gas and water 10 Age Construction 68.6 15-24 years 55.7 Commerce, restaurants, hotels 55.7 > 25 years 44.9 Transport & communication 49.7 Financial services 26.2 Income Financial services 41.2 1st quintile 72.5 2nd quintile 59.7 Educational attainment 3rd quintile 51.9 Primary education or less 64.4 4th quintile 41.9 Secondary education 46.2 5th quintile 29.8 Higher education 26.3 Note: Based on data from 14 Latin American countries. Population of > 15 years old. Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean.
Informality and GDP Scale 130 million workers in the informal employment Heterogeneity Countries with similar levels of per capita GDP have different levels of informal employment GDP per capita 2013 (US$ constant PPP) 25000 20000 15000 10000 5000 0 20 30 40 50 60 70 80 Rate of non-agricultural informal employment 2013
Integrated approaches as a response in LAC R204 Multidimensional responses Diversity in points of entry Institutional leadership and coordination Tripartite commitments
FORLAC: Some experiences in reducing informality COUNTRIES INDICATOR PERIOD Evolution Argentina Unregistered wage employment 2003 2012 14.5 Brazil Colombia Ecuador Jamaica Mexico Paraguay Informal employment (% of total employment) Informal employment (% of total employment) Informal employment (% of total employment) Informal employment (% of total employment) Informal employment (% of total employment) Informal employment (% of total employment) 2002-2012 13.9 2009-2013 3.0 2009-2012 10.8 2008-2012 3.1 2010-2013 0.7 2001-2011 5.8 Peru Informal employment (% of total employment) 2004-2012 6.6 Dominican Republic Urban informal employment 2005-2010 10.7 Uruguay Employment not registered with Social Security 2004-2012 15.1 Source: ILO (2014). Recent experiences of formalization in countries in Latin America and the Caribbean. FORLAC Notes. Lima: ILO.
Integrated approach: R204 INTEGRATED APPROACH Productivity Standards Incentives Inspection Macro (environment) Information Training Link to business formalization (registry, taxes) Culture of compliance Meso (sectors, chains) Simplification Link to social security (focus on hard- toreach groups and non-conventional methods) Institutional strengthening (advocacy management, automation) Micro (business level) Social dialogue (improvement, change) Specific approaches (formalization standards, specific agreements, etc.) Specific approaches (substitution of fines with training, formalization agreements, etc). WAGE WORKERS OWN-ACCOUNT WORKERS DOMESTIC WORKERS
Some multidimensional experiences Argentina Brazil Colombia Mexico National Plan for Employment Regularization National Plan to Combat Unregistered Employment Law to Promote Registered Employment and Prevent Employment Fraud SIMPLES SIMEI National Plan to Combat Informality in Wage Workers Law 1429 Formalization networks Formalization agreements Sectorial initiatives Programme for the Formalization of Employment Programme to Support Productivity Crezcamos Juntos (Let s Grow Together)
Notes on MSE formalization (regional and for 4 countries) MSEs. Approximately 60% of employment is informal. More than 80% among ownaccount workers Some achievements The formalization of enterprises does not necessarily leads the formalization of labour. Deelen 2015
Formalization and inspections (six countries + regional note) DIMENSION INITIATIVES Culture of compliance Dissemination of standards Awareness-raising Tools to promote compliance Inspections usually focus on wage employment Greater inspection capacity Greater number of inspectors Increased use of information and computing Specific approaches Simplification of procedures Technological solutions Flexible criteria on compliance Some countries have modernized the inspection services and in some cases they incorporate flexible criteria on compliance Work in households Specific standards Specific solutions
Questions for participants How can a point of entry to formalization be transformed into multidimensional interventions? Institutional agreements? Plan, standard or resources? Leadership, coordination? Expected impacts? Deadlines?
Questions : Some challenges in implementing integrated approaches Articulation between the macro level and sectorial/territorial levels Institutional mechanisms for policy processes Transition for non-wage forms of employment Closing quality and coverage gaps in services Representation and social dialogue in the informal economy Formalization in times of economic slowdown? Others
Objective FORLAC is the ILO s Programme for the Promotion of Formalization in Latin America and the Caribbean launched at the end of 2013. Its goal is to contribute to the development and consolidation of processes of formalization in the region in coordination with governments and social actors. Strategic themes: Generation and dissemination of knowledge, statistics and analysis on the informal economy and options in terms of policies to promote formalization Technical assistance for tripartite constituents of the ILO and interventions applied in specific countries and sectors Awareness-raising and capacity-building in institutions and among social actors to promote formalization.