Posts Tagged ‘employment’

Can too much formalization be bad for poverty alleviation?

Earlier this year, there was an interesting article which pointed out the important role the informal sector plays in developing countries, particularly on the African continent.

Apart from being over-financialised, which reduces the incentives to create “real jobs” the other structural problem facing the South African economy is its over-formalisation. The informal sector accounts for just 15% of South African jobs, compared to 70-80% in East Africa, for example.

The reason, again, hearkens back to the white-dominated economy that apartheid created, where the majority black population was only valuable for their labour, so any entrepreneurial self-sufficiency in the black community was stifled, in order to channel them into the wage economy.
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The over-formalisation presents a situation where a mama mboga (roadside vegetable seller) is expected to a get a food handling inspection license, pay corporate tax, pay the official minimum wage and provide health insurance for her assistant before being allowed to open a (physical) shop.

There is no space in such an economy for East Africa’s bodaboda or  Nigerian okada (motorcycle “taxi”) riders or second-hand goods sellers, and so, no wriggle room to quickly accommodate the mostly black young people coming of age every year.

Over-financialisation means there’s little pressure to create formal sector jobs, and over-formalisation means there’s little ability to create informal sector jobs.

In contrast, the Nigerian Bureau of Statistics has evidence that the bulk of the new jobs being created each quarter are from the so called ‘informal economy’ rather than the traditional formal sectors such as the civil service or large established private companies.

The informal economy’s comparitive weakness has always been its irregularity as compared to the predictable structure of teh formal, but here, as thousands of young people enter the workforce, this allows it to accommodate their income generation demands. Opportunity abounds for the hustler and the street vendor and low barriers to entry mean that anyone can earn a little something.

Perhaps its time for us to shift our perspective when we consider the informal sector, and consider its value and role in society with an unprejudiced eye. While numerous efforts are being made to address the dual challenges of unemployment and the demographic dividend, they will not happen overnight. The informal economy has clearly shown its persistence, resilience and importance for livelihoods wherever there has been significant need for development. Can we meet it halfway and speed up the time it would take to lift millions out of poverty?

The Great Informalisation: About 50% of Indian GDP from unorganized sector

From a special report on India’s economy

It might surprise some to know that most of the debates on labour issues in India, including the provision of social security & workplace challenges, actually revolve only around 7% of the total workforce.

And yet, as India integrates with the global economy, its the 93% majority that in some ways providing the resources to keep the country competitive and productive. The term is informalisation. And with increased sub-contracting due to globalisation and liberalisation, there is the universe employers are increasingly turning to.

GRAPH-13GRAPH-2-TRADING-DOMINATES

According to the National Sample Survey Organisation, in the year 2009-2010, the total employment in both the organised and the unorganised sector in the country was 465 million. Out of this, only 28 million (7%) were in the organised sector while the remaining 437 million (93%) was in the unorganised sector.

But on the other hand, the informal sector that provides employment to 93% of the work force accounts and accounts for, hold your breath, about 50% of the GDP.

Acknowledging the value of the informal sector as an economic engine

Chief John Kolawole, the General Secretary of Trade Union Congress of Nigeria (TUC), on Friday urged the Federal Government to harness the informal sector for economic growth.

Kolawole told newsmen in Lagos that the sector was well endowed with economic resources that had not been exploited.

“The informal sector, which is made up of hairdressers, mechanics, plumbers, caterers, etc, is largely unassisted and with no concrete government programme to raise the sector’s contribution to our economy,’’ he said.

`He said some businesses in the sector which had made impact on the economy and created jobs were sponsored through private efforts.

“For example, Nollywood and the `pure water“ (sachet water) business are two economic zones in the informal sector that have become huge employment areas through some people’s ingenuity,’’ he said.

Kolawole said that the time was ripe for the government to delve into other untapped areas in the informal sector to boost the economy and create more jobs. ~ Leadership May 2012

This snippet led to uncovering more such news of governments applauding the contributions of the informal sector for offering their citizens opportunities for income generation and employment. Given that this sector has tended to be suppressed, as Robert Neuwirth often chronicles on his Stealth of Nations blog, is this increase in conferences and events focused on the informal economy a weak signal of its importance and relevance as the ‘offical economy’ suffers in the more developed world?