Public Policies and the Transition to Decent Work and Formality: perspectives from Sub-Saharan Africa Louise Fox The World Bank September 23, 2011
Transition to what in SSA? Macro: Higher income; sustained growth; diversified, higher productivity economy Micro (household): higher levels of monetary and non-monetary welfare; equity; lower risk of welfare loss; decent work Question: What does formality have to do with these objectives? Is it a cause or an effect or neither?
Issues for firms and wage employment quite different
More Formal Employment = unambiguous good More Informal employment = unambiguous bad Wage earners: employment relationship between unrelated individuals Formalization = compliance with regulations which govern this relationship Regulation has twin goals: legal protection for less powerful worker against abuse by employer (EPL, minimum wage) role for social insurance: wage income is observable, and potentially insurable More formal wage and salary employment means Higher wages, lower vulnerability for worker (decent work) Usually higher productivity.
Is an informal firm unambiguously bad? How to classify as informal or formal? From quality perspective keeps accounts, funds separate from the household hires workers (size of employment) what if owner can t meet these quality requirements? Should they not exist? From regulation avoidance perspective (Kanbur): Registers if required Pays taxes if required
Is informal firm unambiguous bad? What if firm is registered and pays taxes but is small family run kiosk? Is it an informal firm? What if firm is large and bribes tax inspector to avoid taxes? Is it formal? Does the household firm need any protection that state regulation can provide? Does the employment relationship within the family need regulation from the state? Do firms formalize to get rich or get rich and then formalize?
A new view on informality in SSA Key questions: (1)Why do we have so many tiny informal firms in Sub-Saharan Africa? (2) What should be done to increase their productivity and reduce vulnerability (e.g. better jobs)?
Total Self-Emp / Non-WageWage employment Uganda has achieved massive growth in both wage employment and non-farm family enterprises Growth in Employment, by type of job: Uganda, 1992/3 2005/6 (%) Public -0.6 Private Agriculture 6.6 7.3 Household enterprise 8.6 Family farming 1.8 2.9-2 0 2 4 6 8 10 12 14 Annual Rate of Growth 8
But the growth came from a low base Wage employment is still very small in absolute terms Most people still work within the household, not in an establishment Uganda Share Annual growth 1992/3 2005/6 rate (1992/3-2005/6) Annual growth rate (2002/3-2005/6) Wage workers 12.7 16.4 5.0 8.5 Non-Agriculture, of which Public 4.7 3.0-0.6 1.1 Private 5.2 8.9 7.3 11.9 Agriculture 2.8 4.5 6.6 13.0 Self-employment / Non-wage 87.3 83.6 2.6 5.7 Household enterprise 6.6 13.3 8.6-7.8 Family farming 80.7 70.3 1.8 6.6 Total (15 ) 100.0 100.0 2.9 4.6 9
What does the distribution of employment look? Female Male Uganda 2005 (Percentage) employer 0.0 0.2 employer 0.0 0.6 wage permanent contract 2.6 6.4 wage permanent contract 13.7 19.4 wage temp/casual 4.2 11.5 wage temp/casual 22.4 35.0 HE without outside HH employees 10.0 14.3 non-ag. family worker 2.1 0.5 HE without outside HH employees 53.0 43.5 agriculture 81.2 67.0 non-ag. family worker 10.9 1.4 100 80 60 40 20 0 20 40 60 80 If we include agriculture, not surprisingly, agriculture is the predominant activity 60 40 20 0 20 40 60 However, excluding agriculture, Household Enterprises represent the second biggest activity
As farming declines as a main activity, household enterprise grows 100 90 80 70 60 2 3 4 3 3 3 5 6 4 4 7 10 7 9 9 12 11 13 12 0 8 11 16 1 13 19 1 10 5 25 26 3 43 2 1 2000 1800 1600 1400 1200 Wage Public Wage Private 50 40 30 20 10 83 80 67 73 70 57 56 1 40 66 1000 800 600 400 200 Household enterprise Wage Agriculture Family farming GDp per capita PPP 2005 int prices in year of survey 0 0
Other Other Self-Emp / Non- Wage Self-Emp / Non- Wage Wage employment Wage employment Households added new activities, but did not shift out of traditional ones Ghana 1991 and 2005 Uganda 1992 and 2005 Private 27.8 24.5 Private 20.9 20.4 Agriculture 3.6 3.3 Agriculture 7.2 10.7 Household enterprise 46.5 50.7 Household enterprise 39.1 41.4 Family farming 56.9 61.6 Family farming 74.8 82.0 Remittances 53.3 59.0 Remittances 43.4 88.3 Other sources 3.9 10.3 Other sources 9.3 12 0 20 40 60 80 2005 1991 Percentage of households with source of income -10 10 30 50 70 90 2005 1992 Percentage of households with source of income
13 Why are HEs growing? Initial conditions and demography: even with very high growth, wage and salary can not absorb all new entrants Uganda, 2003-2006: 12% growth p.a. for private non-ag. w+s employment absorbed less than 20% of new entrants New entrants not prepared for w+ s jobs: 50% have not completed primary education HE sector offers better options than agriculture; In TZ, KE (Nairobi) and MZ, mean earnings are higher than wage (but high variance ) Increased income from other sectors brings demand for HE services: HEs serve mostly retail customers, minimal supply linkage to other firms; (exception: telecoms)
% of Households with HE Effect of adding non-farm enterprises seems to be poverty reducing Uganda: rural households w/ HE more likely to purchase inputs, sell crops Areas with more HEs richer in TZ, UG Panel data, MZ: households which added or kept HEs had faster income growth Ghana HEs by quintile 65 60 55 50 45 40 35 30 National Urban Rural 14
Share of labor force in private wage jobs in 2020 What wage employment can SSA countries expect after 10 years of good policies, progress? 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Annual growth rate in wage jobs Lower starting point Mean starting point Higher starting point
Implication for Employment Policies In both low and middle income countries, policies and programs for employment and youth transition focus primarily on wage & skilled sector but even low skill and semi-skill wage sector jobs get filled easily, and earn higher incomes, so these programs are actually regressive the non-wage sector is overlooked both agriculture and non-agriculture the less educated population is overlooked Need programs to make HE sector more productive not necessarily formal 16
Our HE Study Findings Most programs not reach HE sector: Most programs looking for growth out of HE, but only 5% of HE want this and are able to achieve it HE small, unorganized, hard to reach economically Credit is an issue but even more important is access to banking services and financial literacy many report they could not access a bank or pay back a loan Need appropriate, secure workplace or market location Hawkers often chased away by local authorities, not managed Harassment from officials, esp. local officials is big problem No voice in local decisions No urban services, police protection - lack of security, theft Need national infrastructure as well: roads, electricity, water Difficult for youth to transition out of school into this sector they are not prepared, do not have funds 17
What supports HE productivity? Need to improve not just the investment climate but the operating environment National level: Attitude change HEs are vital for development Infrastructure development plans that plan for HE development and support it Access to financial services savings as well as credit. Can cell phones help as aggregators? Invest in producer organizations link to markets, integration into value chains Information: youth, parents, educators, investors SP: social pension and health insurance? 18
Local government is key to HE productivity Attitude: Local Governments (LG)need to view HEs as part of local economic development, not nuisance or shake-down target Accountability matters elections not appointments Access to prime location to sell, deliver a service, or 19 manufacture a product LGs control zoning, access to public land incl. sidewalks LGs build and maintain markets, develop small industrial parks, may be the last mile for water supply and electricity LG plans for local transport, street upgrading should include HEs not exclude them Supply urban services: security, street lighting, waste disposal Facilitate local producer associations support two way communication with this sector use associations for self-regulation connect with opportunities for business support services, investors, etc. Apply tax rules fairly
20 THANK YOU