Who are they?

The informal sector is highly heterogeneous, encompassing production units of different features and in a wide range of economic activities, as well as people (i.e. workers, producers, employers) working or producing under many different types of employment relations and production arrangements.

Because of the heterogeneity of the informal sector, and its multiple dimensions, conceptual and statistical definitions of this sector are not as clear-cut as one might expect.

International statistical definition: The Resolution concerning statistics of employment in the informal sector, adopted by the Fifteenth International Conference of Labour Statisticians (ICLS), January 1993, conceives the informal sector as consisting of production units that "typically operate at a low level of organization, with little or no division between labour and capital... and on a small scale.... Labour relations - where they exist - are based mostly on casual employment, kinship or personal and social relations rather than contractual arrangements with formal guarantees." Moreover, these units possess the characteristics of "household enterprises", which are: fixed and other assets do not belong to the unit but to the owner; units cannot engage in transactions or enter into contracts nor incur liabilities on their own behalf; expenditure for production and capital goods are often indistinguishable from household purposes. For statistical purposes, the Resolution defines the informal sector as "a group of production units, which, according to the definitions and classifications provided in the United Nations System of National Accounts (Rev.4), form part of the household sector as household enterprises or, equivalently, as unincorporated enterprises owned by households ...." Within the household sector, the informal sector comprises (i) "informal own-account enterprise" that is owned and operated by own-account workers, either alone or in partnership with members of the same or other households, which may employ contributing family workers and employees on an occasional basis, but do not employ employees on a continuing basis; and (ii) "enterprises of informal employers" that are owned and operated by employers, alone or in partnership with members of the same or other households, which employ one or more employees on a continuous basis.

Operational definition in surveys - actual situation: At an operational level, for example, ILO informal sector surveys in Latin America for 1990-1995, define informal sector employment as consisting of: all own-account workers (but excluding administrative workers, professionals and technicians), and unpaid family workers, and employers and employees working in establishments with less than 5 or 10 persons engaged. Paid domestic workers are excluded. The combination of proxy indicators (e.g. employment size of the enterprise, non-wage employment, with or without registration as an additional criterion) used in household and establishment surveys to determine the magnitude of the informal sector varies from region to region, from country to country. In spite of the progress made in the definition of informal sector units and workers, statistical data could still be well below what exists in reality. For example, labour force and informal sector surveys typically count only one's primary occupation, thus effectively excluding secondary activities in the informal sector. Homeworkers represent a problematic case; as they are not own-account workers nor are they regarded as workers of informal or formal employers, they would not be counted as informal sector workers nor counted in establishment surveys.

What should be the unit of analysis? The definition adopted by the ICLS and by most informal sector surveys focus on the production unit or enterprise as the unit of measurement and analysis. An alternative that has been proposed by other researchers and social scientists is to focus on the worker or a job as the unit of analysis. Informality characterizes not only the management structure of an enterprise, but also the contractual status and conditions of employment. For example, a worker could be hired without an employment contract, or unregistered and undeclared, by an enterprise belonging in the formal sector; thus the worker belongs to the informal sector. The widespread strategy of outsourcing and subcontracting services and production to ever smaller enterprises, family undertakings and homeworkers has contributed to what is generally referred to as "informalization" of employment.

One view of the informal sector: The ILO/ICFTU international symposium on the informal sector in 1999 proposed that the informal sector workforce can be categorized into three broad groups: (a) owner-employers of micro enterprises, which employ a few paid workers, with or without apprentices; (b) own-account workers, who own and operate one-person business, who work alone or with the help of unpaid workers, generally family members and apprentices; and (c) dependent workers, paid or unpaid, including wage workers in micro enterprises, unpaid family workers, apprentices, contract labour, homeworkers and paid domestic workers.

Many other facets and faces: Many other variations can be found in the informal sector whichever unit of analysis is used. For example, own-account workers differ from each other with respect to their relations with the market and with the means of production: independent small shop owners and market stall operators compared to street hawkers; tricycle and pedicab drivers who own their vehicle compared to others who lease their vehicle for a daily amount. The greater part of production units in the informal sector consists of subsistence-level activities, motivated by the need for survival and characterized by low levels of income, productivity, skills, technology and capital, and weak linkages with the rest of the economy. However, there are also modern and dynamic segments which are capable of generating growth and jobs, or which are linked to organized and emerging markets in the country or abroad.

Some statistics: Trends based on available data are:

Urban informal sector: In Latin America, the urban informal sector was the primary job generator in the 1990s. An average of 6 out of every 10 new jobs were created by micro-enterprises, own-account workers and domestic services. Informal sector employment grew by 3.9 per cent per annum while formal sector employment grew by only 2.1 per cent in that region. In Africa, urban informal employment is estimated to absorb 61 per cent of the urban labour force. This sector was expected to generate more than 93 percent of all additional jobs in the region in the 1990s. In Asia, before the 1997 financial crisis, it was estimated that the informal sector typically absorbed between 40 and 50 per cent of the urban labour force, with differences between the newly industrializing countries (with less than 10 per cent) and countries such as Bangladesh (with estimated 65 percent of employment in the informal sector).

Informal sector in non-agricultural activities, rural-urban: Self-employed workers, most of whom are own-account and unpaid family workers, are considered the major component of the rural and urban informal sector. In all regions of the world, the number of self-employed in non-agricultural activities increased between the 1980s and 1990s. In the 1990s, own-account and family workers represented nearly two-thirds of the total non-agricultural labour force in Africa, one-half in South Asia, one-third in the Middle East, and one-fourth in East Asia and Latin America. A dramatic increase in self-employment has marked the transition process in former centrally planned countries of Europe. In the 1990s, own-account workers made up one-fourth of total employment in Poland, one-fifth in Romania and one-tenth in the Czeck Republic, Hungary and Slovenia.

Gender dimensions: Women's share of informal sector employment has remained high, estimated at typically 60 to 80 per cent, although in a few countries men dominate urban informal sector activities. However, women most probably number much more than reflected in available statistics. They comprise most of unpaid family helpers and home-based workers, and thus fall easily through gaps in enumeration. Productive but unpaid work is often confounded with household work. In many cases, women themselves do not view themselves as workers. The widespread strategy of subcontracting production and services to family enterprises and home-based labour has contributed to the further integration of women's home-based labour into the formal production system under informal, flexible employment arrangements. As in the formal sector, in contrast to their male counterparts, women workers tend to be concentrated in a narrower range of activities or occupations (common stereotyped activities are food processing, garment sewing, domestic services), in tasks that require less or no skills and pay less, and in the lower-end of the markets. Moreover, in addition to constraints faced by workers and producers in the informal sector with regards to assets, markets, services and regulatory frameworks, women face additional gender-specific barriers (e.g. restrictions to entering into contracts, insecure land and property rights, household and childcare responsibilities).

Data sources: ILO Key Indicators of the Labour Market (KILM) 1999; ILO Panorama Laboral 99  ILO, World Labour Report 1997-98; statistics compiled by Jacques Charmes for POLDEV, 1998.