Informal Sector Statistical Concepts by wpm87015


									                     Informal Sector:
                   Statistical Concepts

12 November 2007      Zeynep Orhun, Statistics Division
 What are we going to discuss today?
• Why are we interested in informal sector
• What are some related concepts?
• How do we define informal sector?
• What are the key criteria to facilitate data
• What are various tools to collect data on IS?
• DA Project on Interregional Cooperation on the
  Measurement of Informal Sector and Informal
  Employment: Unified Data Collection Strategy
• Incorporating estimates into national accounts
      Problem: Lack of sound data
• Informal sector not covered in official statistics
• Inadequate information on contribution of
  informal sector to GDP and labour market
• Data collections typically ad hoc studies (i.e. not
  part of regular national statistical systems) and
  with limited scope
• Available data not internationally comparable
• No time series data
• Poor analysis and dissemination
Consequences: Statistics to Policy
• Potentially significant underestimation of the
• Lack of info on differential characteristics of
  informal sector enterprises in the use of
  technology, access to credit, training, markets,
• Lack of info on input-output relations between
  formal and informal sector enterprises
• Lack of info on informal sector’s contribution to
  employment and employment characteristics
Type of informal sector statistics needed
• Total # of informal sector units
• Production and incomes generated
  through informal sector activities
• Conditions of creation and operation of
  informal sector units
• Total employment in informal sector units
  Scope of Non-Observed Economy
• Illegal
• Underground/Concealed
• Household production for own final use
• Activities missed in data collection
• Informal sector
NOE Components and Production Units
                 Illegal Production
  Goods or services                          provider
  prohibited by law                          unlicensed

Monetary              Non-monetary

  Illegal production is included in SNA 1993 production boundary
  in order to avoid erroneous attributions in financial
        Underground/concealed activities
• Not clearly separated from illegal production
• Mainly unreported income from production of legal goods and
  services (monetary/non-monetary)
• Certain activities may be productive and also legal but deliberately
  concealed from public authorities to:
     (a) Avoid the payment of income, value added or other taxes;
     (b) Avoid the payment of social security contributions;
     (c) Avoid having to meet certain legal standards such as minimum
         wages, maximum hours, safety or health standards, etc.;
     (d) Avoid complying with certain administrative procedures, such
         as completing statistical questionnaires or other administrative
   E.g. construction, service industries where small enterprises dominate
     Household production for own final use
   (a) Production of agricultural products and their subsequent storage

   (b) Production of other primary products such as mining salt, cutting
   peat, the supply of water
   (c) Processing of agricultural products

   (d) Other kinds of processing such as weaving cloth; dress making
   and tailoring; the production of footwear; the production of pottery,
   utensils or durables; making furniture or furnishings; etc.

*Storage of agricultural goods and supplying of water are included in
the production boundary as an extension of production activities.
            Statistical Underground

Activities missed due to data collection deficiencies
such as:

(a) Undercoverage of enterprises

(b) Non-response by enterprises (not imputed)

(c) Underreporting by enterprises
               Informal Sector

• No unified definition hampering:
   – Comparable datasets
   – Comprehensive guidelines
   – Promotion of international standards
• There are international guidelines (15th ICLS,
  17th ICLS)
Differences in Definitions Across Countries
Azerbaijan     Complete NOE definition except for illegal activities

Kazakhstan     Complete NOE definition (refers to hidden and informal
Kyrgyzstan     Covers hidden (deliberately concealed or missed in data
               collection) and informal activities (carried out by individual
               producers or unincorporated enterprises which belong to
               individuals or households; based on informal relations and
               produce goods and services completely or partially for their
               own consumption).
Turkey         Unregistered economy

Turkmenistan   NOE covers essentially non-government units
Uzbekistan     Informal economic activities (informal sector includes the
               activities of households and individual entrepreneurs working
               with or without licenses)
     What is a household unincorporated
(a) Fixed/other K does not belong to production unit but to
(b) Enterprises cannot engage in transactions or enter into
    contracts with other units, nor incur liabilities on their
    own behalf
(c) Owners have to raise the necessary finance at their own
    risk and are personally liable, without limit, for any
    debts or obligations incurred in the production process
(d) Expenditure for production is often indistinguishable
    from household expenditure
(e) Capital equipment may be used indistinguishably for
    business and household purposes
             Household Unincorporated Enterprises
              Market                              Non-market
 (all or most of output marketed)
Producing at least some goods & services    Producing goods & services
                 for market                      for own final use
  Non-agricultural          Agricultural      Goods           Services
Formal     Informal   Formal Informal      Agriculture,        Paid domestic
sector     sector     sector sector        forestry, fishing   services
                                           Other activities    Owner occupied
                                                               dwelling services

   Starting point for data collection
  Informal Sector Criteria, 15th ICLS
(a) Size: The number of employees on a continued basis (in
     practice can be total # employees or engaged) is under
     a specified size (depends on national context, not the
     best criterion as there may be small enterprises which
     are perfectly formal).
(b) Non-registration: The enterprise is not registered under
     pertaining national legislation (such as factories’ or
     commercial acts, tax or social security laws,
     professional groups’ regulatory acts, or similar acts,
     laws or regulations established by national legislative
*ICLS recommended the exclusion of agriculture from
scope of informal sector measurement due to practical
reasons (and we abide by this recommendation in our
 Criteria for Identifying IS Enterprise
• Legal              Unincorporated enterprise
• Ownership          Household
• Type of accounts   No complete set of accounts
• Product            At least some market
   destination       output
     Criteria: Additional & Optional
Additional Operational
• #employed/engaged Specific to country
• Non-registration     Specific to country
• Kind of economic     Possible exclusion of:
  activity               – Agriculture and related
                         – Paid domestic services
• Geographic area      Possible exclusion of rural areas
     Informal Sector based on Delhi Group
• For international comparability-- narrower definition
  based on the largest common denominator of
  currently used national definitions.
• 3 essential criteria + additional criteria to be applied
   – Productive units with less than five paid
     employees, and
   – Productive units not registered, and
   – Exclusion of households employing paid domestic
   Framework of IS Definition
  Household Unincorporated Enterprises

   Informal own-      Other own-account      Own-account
account enterprises      enterprises          enterprises

   Enterprises of     Other enterprises of   Enterprises of
informal employers        employers           employers

 Informal Sector
Informal Own-Account Enterprises

• Operated by own-account workers, either
  alone, or in partnership with members of
  same or other households
• May employ family workers and occasional
  employees, but not employees on continuous
• Include all or exclude those registered under
  certain specified national legislation
Enterprises of Informal Employers
 • Owned and operated by employers, either
   alone or in partnership with members of
   same or other households, and employ one or
   more employees on continuous basis
    – Employees (hired on continuous basis)
      below a specified number
    – Non-registration of the enterprise
    – Non-registration of employees (labour
  Employment and Informality
Informality of employment is characterized by absence of
contracts, social protection, entitlement to benefits and not
being subject to labour legislation and income taxation.
• Informal employment versus informal sector employment
Given a reference period:
• Employment in informal sector = all jobs in ISEs or all
   persons who were employed in at least 1 ISE irrespective of
   status (can be main/2nd job)
• Informal employment = total # informal jobs in formal or
   informal sector enterprises or households
NOE Components and Employment
               Informal Sector:
             Measurement Methods

12/11/2007        Zeynep Orhun, Statistics Division
 How do we collect data on IS and IE?

Household Surveys
                                         Informal Sector Surveys

                Household Income     Establishment Surveys
               Expenditure Surveys

Labour Force
                                                      Mixed Household
                                                      Enterprise Surveys
           Household Surveys: LFS
• Measurement Objectives
  – Monitor evolution of IS employment
  – # and characteristics of employees, employment conditions
  – Data on labour inputs can be used in conjunction with informal
    sector surveys to extrapolate data on other characteristics, e.g.
• Methodological Considerations
  –   Additional questions or module to LFS
  –   Ask all people employed during reference period
  –   Ask in respect of both main and secondary jobs
  –   Probing questions needed for often unreported activities, e.g.
      unpaid work, women’s own-account/home-based activities,
      secondary activities of farmers, government officials, formal
      sector employees
        Household Surveys: LFS
• Limitations/Concerns
  – Seasonality
  – # of IS enterprises versus IS entrepreneurs
  – Disaggregation by economic activity depends
    on the sample size and design
     Household Surveys: HIES
• Measurement Objectives
  – HH demand for goods and services produced in the
    informal sector
• Methodological considerations
  – Info on each expenditure item, distribution based on
• Limitations/Concerns
  – Does not provide total demand but household final
    consumption only
      Informal Sector Surveys
• Measurement objectives
  – Collect detailed structural information (# and
    characteristics of businesses, employment,
    income generation and K equipment of ISEs,
    conditions/constraints of operation, relations
    to formal sector/public authorities
• Tools
  – Establishment Surveys
  – Mixed Household and Enterprise Surveys
    ISS : Establishment Surveys
• Methodological considerations
  – Prerequisite: sampling frame
  – List frame often not available or do not cover hh
  – Establishment or economic censuses can be used as
    list frame or sampling frame (PSUs) (depending on
    the time lag of ISS)—USUs would need update
• Limitations/Concerns
  – High cost
  – Omissions
  – Duplications
      ISS : Mixed HH and Entreprise
• Methodological Considerations
  – Based on area sampling and conducted in 2 phases
   – Phase 1 (HH Survey): Sampling frame through household
     listing/survey in selected areas or PSUs (all businesses and
     owners are identified)
   – Phase 2 (Enterprise Survey): All or a sample of business owners
   – Post-sampling identification
   – Possible to analyze jointly various activities of the same
   – Possible to link informal sector activities/business owner
     characteristics with household characteristics  contribution of
     family members (women and children)
Mixed Surveys: Independent Informal
         Sector Surveys (1)
• Methodological Considerations
   – Multi-stage design
      • Selection of areas as PSUs
      • Household listing or interviewing
      • Selection of sample hh with owners of potential IS businesses as
      • Main interviewing of sample households and business owners
   – Density of informal sector entrepreneurs and type of activity
     (stratified sampling)
   – Info on density of employers/own-account workers in the
     enumeration areas classified by activity/type of work place/#
     employees; concentration of small establishments; stratification
     of enumeration areas by income/socio-economic criteria; other
     info obtained during listing or data collection for ISS; local
     expert knowledge.
Mixed Surveys: Independent Informal
         Sector Surveys (2)
• Limitations/Concerns
  – High cost of survey operations, especially Phase 1
  – Quality of listing (type of activity, basic characteristics
    data needed for stratification)
     • Listing of hh and hh-based business operators,
       establishments (different area sampling frames may be
       used—different geographical clustering)
     • Listing may be expanded into survey to ensure coverage
     • Different sampling fractions are used for different strata to
       have adequate sampling units from each stratum
  – Complex survey operations; sample weighting and
    estimation procedures
Mixed Surveys: Modular Approach (1)
• Methodological Considerations
  – ISS sample is a sub-sample of the base survey (LFS or
  – Conducted simultaneously or consecutively
  – Allows regular/sustainable IS data collection
  – Complete coverage and accurate identification of IS
    entrepreneurs in the sample hh
  – Same sampling weights can be used as the base
  – Information on IS can be related to other info from
    the base survey
Mixed Surveys: Modular Approach (2)
• Limitations/Concerns:
  – Need for a suitable base survey (survey
    operations and response burden)
  – Frequency/reference period of base survey
  – Base survey samples are not selected for IS—
    areas or hh (disaggregation, distribution,
  Mixed Surveys: Integrated Surveys
• Methodological Considerations
  – Special modular approach to meet several objectives
    (IS, labour force, hh income and expenditure data
  – Incorporate sample design requirements for IS
    measurement into the survey design (efforts increase
    # of IS entrepreneurs and have better representation
    of different activities during sample allocation and
• Limitations/Concerns
  – Complex; response burden
  – Often limited to urban areas
Phase 1                                      Phase 1
•Same sample of PSUs as base                 •Same sample of PSUs as base
•Sample list of USUs for base/ISS            •Different list of USUs for ISS
Phase 2                                      Phase 2
•Same sample of USUs for base/ISS            •Different sample of USUs for ISS
•Simultaneous conduct for base/ISS           •Consecutive survey for ISS, e.g. 1-2-3

Phase 1                                      Phase 1
•Specific sample of PSUs                     •Specific sample of PSUs
•Selection of PSU not based on IS            •Selection of PSU based on IS (by
•Household listing                           industry)
Phase 2                                      •Household survey
•Joint listing/interviewing of all IS hh &   Phase 2
activities irrespective of work place        •Separate listing/interviewing of all IS
•No stratification of samples of USUs        establishments & households
                                             •Stratification of samples of USUs
    To have sound data:
• Avoid replacement
• Improve response rate
• Mitigate effects of reference period
• Consider effects of seasonal variations
• Allocate adequate resources for data

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