Informal economy: the growing challenge for labour - AP-IRNet

201 Pages·2005·0.54 MB·English

INFORMAL ECONOMY :
The Growing Challenge For
Labour Administration
INFORMAL ECONOMY :
The Growing Challenge For
Labour Administration
ROLE OF SOCIAL DIALOGUE
Edited by
A. Sivananthiran
C.S. Venkata Ratnam
International Labour Organization (ILO) Indian Industrial Relations
Subregional Office For South Asia Association
Social Dialogue, Labour Law and Labour (IIRA)
Administration Department, Geneva New Delhi
Copyright © International Labour Organization 2005
Publication of the International Labour Office enjoys copyright under Protocol 2 of the Universal Copyright
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Publications Branch (Rights and Permissions), International Labour Office, CH-1211 Geneva 22,
Switzerland. The International Labour Office welcomes such applications.
First published 2005
Informal Economy : The Growing Challenge For Labour Administration
ISBN 92-2-118060-3 (Print)
ISBN 92-2-118061-1 (Web pdf) 92-2-111912-2
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Printed in India
Contents
List of Contributors vi
Foreword
— Johanna Walgrave & Leyla Tegmo Reddy vii
1. Introducion 1
— A. Sivananthiran and Prof Venkat Ratnam
2. Overview 17
— R. Thamarajakshi
3. Labour Administration and the Informal Economy in India 43
— Manohor Lal
4. Strategies for Enhancing the Role of Labour Ministry in 75
the Informal economy
— Vatsala Vatsa
5. Challenges Facing the Labour Administration in 107
the Informal Economy in Kerala
— Elias George
6. Role of Labour Administration in Promoting Decent Work 145
for Construction Workers in Tamil Nadu
— M. B. Pranesh
7. Bonded Labour in Tamil Nadu - A Challenge for Labour 185
Administration
— Sathya Maria
List of Contributors
Ratnam Venkata C.S., Professor and Director of International Management Institute,
New Delhi and Gitam Institute of Foreign Trade
Sivananthiram A., Senior Labour Administration Specialist, Social Dialogue, Labour
Law and Administration Department, ILO Geneva
Pranesh M.B., Former Principal Secretary. Labour and Employment Department Tamil
Nadu, Chennai
Tamarajakshi R., Former Secretary, Government of India
George Elias, Former Principal Labour Secretary. Labour Department, Kerala
Vatsala V, Principal Secretary, Department of Labour, Karnataka
Lal Manohar, Director General, Labour Welfare, Ministry of Labour and Employment, GOI
Sathya Maria, ILO-Bonded Labour Project in Tamil Nadu
Foreword
The informal economy accounts for about half of the workers in the world. In countries
such as Bangladesh, Nepal and Pakistan and India, it represents more than 70 per cent
of total employment. The informal economy has expanded with unexpected rapidity
throughout the world. In developing countries, structural adjustment programmes,
economic reform and demographic growth lie behind this expansion. Over the past
decade, informal work is estimated to have created over 90 per cent of new jobs in
Africa, and a major portion of jobs in South Asia.
The lack of legal and social protection, representation and rights at work which
characterize informal employment is prevalent in many countries and is an inherent
part of the current path of globalization. It is therefore important to stress that unless the
root causes of informality are addressed and approaches made to extend labour
administration to the informal economy, there can be no sustainable progress towards
recognized, protected, decent work. Thus, it is important to set up an integrated strategy
to deal with these causes.
The Subregional Office in New Delhi and the Social Dialogue, Labour Law and Labour
Administration Department (DIALOGUE) included in its programme for the biennium
2004-2005, a strategy which would help show how labour administration can contribute
to extending decent work to various categories of workers deprived of their rights. They
undertook joint studies on innovative approaches and new tools which can be used by
ministries of labour to address the concerns of the informal sector, as well as provide
technical assistance to small and micro-enterprises and to independent or self-employed
workers. The dissemination of best practices from these studies can help countries to
extend administrative reforms, programmes and methods of work in order to extend
decent work conditions to all categories of workers. Through case studies, governments
will be able to develop appropriate mechanisms in implementing services or
programmes to facilitate effective labour administration in the informal economy.
This volume presents a synthesis of country experiences and case studies mainly
from Asia, representing several segments of the informal economy with a focus on
labour administration and the informal economy. The case studies look at possible
approaches in the areas of social security, child labour, bonded labour, and home workers.
viii Informal Economy : The Growing Challenge For Labour Administration
It will be of interest to policy makers, industrial relations practitioners, labour
administrators, the employers, trade unions and civil society groups.
We thank all the contributors, particularly Mr. A. Sivananthiran, Senior Labour
Administration Specialist (DIALOGUE), Professor C.S. Venkata Ratnam, Director,
International Management Institute, and Secretary of the Indian Industrial Relations
Association for their valuable assistance in editing and jointly publishing this volume for
wider dissemination.
Johanna Walgrave Leyla Tegmo Reddy
Director Director
Social Dialogue, Labour Law and Subregional Office for South Asia
Labour Administration Department ILO Representative in India
ILO Geneva
2 December 2005
1
Introduction
A. Sivananthiran and C. S. Venkata Ratnam
CHARACTERISTICS AND COMPLEXITY OF INFORMAL SECTOR
The Social Dialogue, Labour Law and Labour Administration Department (DIALOGUE),
in its programme for the biennium 2004-2005, included a strategy which would help
show how labour administrations can contribute to extending decent work to various
categories of workers deprived of their rights. In this biennium, ILO is looking for innovative
approaches and new tools which can be used by ministries of labour to address the
concerns of the informal sector and also provide technical assistance to small and
micro-enterprises and independent or self-employed workers. The dissemination of
best practices can help countries extend administrative reforms, programmes and
methods of work in order to extend decent work conditions to all categories of workers.
Through case studies, governments will be able to develop appropriate mechanisms in
implementing services or programmes to facilitate effective labour administration in the
informal economy. This volume presents a synthesis of country experiences and case
studies mainly from South Asia, representing several segments of the informal economy
with a focus on labour administration and the informal economy.
There is a growing divide between a formal global economy and the expansion of an
informal local economy in most societies. The majority of the world’s population lives
and works in the informal economy and continues to be excluded from direct participation
in globalising markets. They enjoy none of the rights for workers, nor do they have the
capabilities and assets needed to enter into productive economic transactions.
In most developing countries today, there is also a large informal economy where
economic activity lacks recognition and protection under formal legal or regulatory
frameworks. It typically consists of small-scale manufacturing, services or vending in
urban areas, domestic work or agricultural work on small plots of land. In many of the
low-income countries, it accounts for the large majority of workers. Sixty per cent or
more of the developing world’s working women are in informal employment. The bulk of
home workers and domestic workers are women. They make up a substantial proportion
of street vendors as well, in part because of the continuing burden of family
responsibilities or as a result of discrimination, which limits their range of job alternatives.
2 Informal Economy : The Growing Challenge For Labour Administration
The ILO, in its report, Decent Work in the Informal Economy (2002) noted that out of the
42 countries studied, 17 had more than half of their total employment in the informal
sector, and only four countries had less than 10 per cent of total employment in the
informal sector. Among the regions covered, sub-Saharan African countries have the
highest proportion of informal to total employment.
In Asia, the South Asian countries (with the exception of Sri Lanka) have more than
90 per cent of the workers in the informal economy in India, Pakistan, Bangladesh and
Nepal. In other Asian countries, the number of informal workers ranges from 45 to 85
per cent of non-agricultural employment and from 40 to 60 per cent of urban employment.
In parts of East Asia, namely Japan, the Republic of Korea, Singapore and Hong Kong,
China, the informal economy declined as manufacturing and industry expanded and
created jobs in the formal economy.
The informal economy refers to all economic activities by workers and economic units
that are – in law or in practice – not covered or insufficiently covered by formal
arrangements. Their activities are either not included in the law or they are operate
outside the formal reach of the law.
The international Conference of Labour Statisticians issued the Guidelines on a Statistical
Definition of Informal Employment in 2003. It defined informal employment to include
the following types of jobs:
· Own-account workers employed in their own informal sector enterprises;
· Employers employed in their own informal sector enterprises;
· Contributing family workers, irrespective of whether they work in formal or infor-
mal sector enterprises;
· Members of informal producers’ cooperatives;
· Employees holding informal jobs (as defined in subparagraph 5, below), whether
employed by formal sector enterprises, informal sector enterprises, or as
domestic workers employed by households; and
· Own-account workers engaged in the production of goods exclusively for own
final use by their household.
Employees are considered to have informal jobs if their employment relationship is, in
law or practice, not subject to national labour legislation, income taxation, social protection
or entitlement to certain employment benefits (advance notice of dismissal, severance
pay, paid annual or sick leave, etc.). The reasons for being considered informal may be
the following: non-declaration of the jobs or the employees; casual jobs or jobs of a
limited short duration; jobs with hours of work or wages below a specified threshold
(e.g. for social security contributions); employment by unincorporated enterprises or by
persons in households; jobs where the employee’s place of work is outside the premises
Introduction 3
of the employer’ s enterprise (e.g. outworkers without employment contract); or jobs for
which labour regulations are not applied, not enforced, or not complied with for any
other reason.
Non-standard or atypical work is a growing phenomenon in developed countries as
well. This work is very diverse, ranging from small enterprises to survival activities,
including not only the self-employed and family workers but also wage labour in many
forms. Typically, such activities of low productivity and poverty levels among informal
workers are high. But there is also a large reservoir of entrepreneurship and innovation.
There are basically two opposing views that explain informality. The first, identifies the
source of informality in poverty, and the second, identifies it simply with cost-avoidance.
For the first view, informal activities are about survival or subsistence; for the second, it
is about reaching a threshold of profitability or obtaining benefits without complying with
laws which impose burdensome obligations.
Given that informality has often been described as those activities outside or on the
margins of the law, it is essential to examine the legal and institutional framework of a
country. Three types of legislation and regulations are important: commercial or business
regulations governing the establishment and operation of enterprises; laws pertaining
to property rights, which could affect the ability to transform assets into productive capital;
and labour legislation governing employment relationships and the rights and protection
of workers. What needs to be understood is whether existing laws and institutions are
poorly or well designed in terms of their influence on the costs and benefits to enterprises
and workers of becoming and staying formal or informal.
The growth in the informal economy has partly been in response to sustained and
increasing pressure for flexible production, especially through global supply chains.
This has affected both developing and industrialised economies. Another important cause
has been the inability of labour markets to absorb the impact of structural adjustment
programmes, which have been criticised for leading to greater poverty, unemployment
and underemployment and contributing to growth in the informal economy. The effects
of these policies were particularly acute in countries where the Government had been a
major employer.
The informal economy has been particularly responsive to these forces, proving to be
most dynamic in creating opportunities for workers to engage in productive activity.
Among other things the informal economy have shown great capacity to absorb workers
forced out of other employment, in particular as a consequence of privatisation of state-
owned enterprises. In Malaysia and Indonesia, many workers retrenched as a result of
* For a more detailed account of the conceptual framework see: Jose Luis Daza, Informal Economy,
Undeclared Work and Labour Administration, DIALOGUE Paper No. 9, Geneva, ILO, 2005.