CHAPTER-IV STRUCTURE OF LABOUR MARKET AND WORKING CONDITIONS OF INFORMAL LABOUR FORCE IN INCLUDING INTERNATIONAL EXPERIENCES

167 CHAPTER-IV STRUCTURE OF LABOUR MARKET AND WORKING CONDITIONS OF INFORMAL LABOUR FORCE IN ARMENIA INCLUDING INTERNATIONAL EXPERIENCES

4.1.INTRODUCTION

4.2.HISTORICAL BACKGROUND

4.3.GEOGRAPHICAL SITUATION

4.4.GOVERNMENT AND POLITICAL SITUATION

4.5.ECONOMY OF ARMENIA ^

4.6.PROFILE OF

4.7.STRUCTURE OF LABOUR MARKET AND CHARACTERISTIC OF LABOUR FORCE OF ARMENIA ^^.^

4.8.ARMENIA'S INFORMAL SECTOR AND INFORMAL LABOUR FORCES

4.8.1.INFORMAL SECTOR ENTERPRISES

4.8.2.INFORMAL EMPLOYMENT ^"^

4.9.COMPARISON OF ARMENIA'S INFORMAL SECTOR WITH OTHER COUNTRIES

4.10.REFRENCES

168 CHAPTER-IV

STRUCTURE OF LABOUR MARKET AND WORKING CONDITIONS OF INFORMAL LABOUR FORCE IN ARMENIA INCLUDING INTERNATIONAL EXPERIENCES

4.1.INTRODUCTION

The Informal sector plays a major role in Armenian economy. It is providing employment opportunities to millions of people and is also contributing significant share to the Nation's output. It is estimated that about two-fifth of Armenia's Gross Domestic Product generated from the informal sector and about 90 percent of the families are depending on this sector directly or indirectly for their survival. Despite this, a large number of labours particularly agricultural women labours are illiterate, poor and vulnerable. They live and work in unhygienic conditions and are susceptible to many infections and chronic diseases. These workers have neither fixed employer-employee relationship nor do they obtain statutory social security benefits by the government.

The emergence of informal sector is a major source of employment and income generating sector in developing countries like Armenia in the recent

169 years. It is primarily a manifestation of increasing pressure of burgeoning population, immaturity of employment market and insufficient alternative income generating sources for rural surplus labour.

In the present chapter researcher highlighted the significant features of sector in Armenia, a employment structure in Armenia and place of informal sector in the economy of different countries. The study of the selected topic is not complete without the review of the socio-economic and geographical profile of Armenia and Shirak province. Therefore, in the following paragraphs, researcher has explained the socio-economic profile of Armenia and Shirak province.

4.2.HISTORICAL BACKGROUND

Armenia first emerged around 800 BC as a part of the kingdom of Uraru or Van, which flourished in the Caucasus and eastern Asia Minor until 600 BC. After the destruction of the Seleucid Empire, the first Armenian state was founded in 190 BC. AT its zenith from 95 to 65 BC, Armenia extended its rule over the entire Caucasus and the area that is now eastern , Syria and Lebanon. For a time, Armenia was the strongest state in the Roman East. It became part of the Roman Empire in 64 BC.

In 301 AD, Armenia became the first nation to adopt Christianity as a state religion, establishing a church that still exists independently of both the Roman Catholic and Eastern Orthodox Churches. Since then, the Armenian nation has depended on the church to preserve and protect its national identity. From around 1100 to 1350 AD, the focus of the Armenia nation moved south as the Armenia kingdom of Cilicia, which had close ties to European Crusader states, flourished in southeastern Asia Minor until it was conquered by Muslim states. Between the 4th and 19th centuries, ethnic Armenians were conquered and rules by, among others, Persians, Byzantines, Arabs, Mongols and Ottoman Turks.

For a brief period from 1918 to 1920, Armenia re-emerged as an independent republic. In the late 1920, local communists came to power following an invasion of Armenia by the Soviet Red Army and in 1922; Armenia became part of the Trans-Caucasian Sp^^et Socialist republic. In 1936, it became the

170 Armenian Soviet Socialist Republic. Armenia declared its independence from the Soviet Union on 21st September 1991.

Armenians constitute nearly all of the country's population; they speak Armenian, a district branch of the Indo-European language family. The remainder includes Kurds, Russians and small numbers of Ukrainians, Assyrians and other groups. Most of Armenia's Azerbaijani population fled or was expelled after the escalation of the conflict between two countries. More than 3 million Armenians live abroad, including about 1.5 million in the states of the former Soviet Union and about 1 million in the Unite States.

The Russian Campaigns against the Persians and the Turks in the 18th and 19th centuries resulted in large emigration of Armenian under Muslim rule to the Transcaucasian provinces of the and to itself. Armenians settled in , Tibilisi, Karabakh, Shemlakha, Austrakhan and Bessarabia. AT the time of the massacres in Turkish Armenia in 1915, some Armenians found asylum in Russia. A number of settled in the enclave of Nagorno-Karabakh within the neighboring Muslim country of Azerbaijan. Armenia now constitute about three-fourth of the population of Nagarno- Karabakh, since 1988, there have been violent interethnic disputes and sporadic warfare between Aprr^nians and Azerbaijanis in and around the enclave.

The economic crisis of the 1990s caused substantial number of Armenia to emigrate. By the mid 1990 an estimated 750000 Armenians - about the one- fifth of the population has left the country.

Under Soviet rule the Armenian economy was transformed from agricultural to primarily industrial, agriculture, however, remains important, accounting for about two-forth of the gross domestic product and employing one-fifth of the labour force. Industry is heavily dependent on imports of energy and raw materials. The massive earthquake of 1988 destroyed nearly one third of Armenia's industrial capacity. Seriously weakening the economy. In 1989 the conflict over Nagorno-Karabakh led Azerbaijan to impose a blockade, closing a vital natural gas pipeline to Armenia. The subsequent severe energy shortage-combined with the disruptions of key trade routes due to civil unrest

171 in , caused a sharp drop in the industrial production, further devastating the economy. Most of the population of Armenia thus experiences severe economic hardship during the 1990s.

After independence, Armenia implemented a number of structural reforms in an effort to create the institutional and legal basis for a market economy. Reforms included substantial privatization of agriculture and industry, restructuring of the tax and financial systems, and price liberalization. The new currency, the 'Dram' was introduced in 1993, replacing the Rubble.

4.3. GEOGRAPHICAL SITUATION

In the following paragraphs, researcher has explained the geographical profile of Armenia in brief.

172 IRAN $(ile 1:2.000.000 Ow wlmW itprtitnk 20 hlOKtm, Ont kh Kpmtnti tppw^iinoitlf il mk\.

173 Armenia is tine second most densely populated of the former Soviet Republics. Armenia is a landlocked country between the black sea and the Caspian seas, bordered by Georgia, to the east by Azerbaijan, on the south by Iran, and to the west by Turkey.

Area: 29,800 sq km. (11500 sq. mt.), slightly larger than Maryland

Terrain: High plateau with mountains, little forest land.

Climate: Highland Continental, hot summers, cold winters

4.4. GOVERNMENT AND POLITICAL CONDITIONS

Armenians voted overwhelmingly for independence in September 1991 referendum, followed by a presidential election in October 1991 that gave 83% of the vote to Levon Ter-Petrossian. Ter - Petrossian had been elected head of government in 1990, when the Armenian National Movement defeated the communist party. Ter-Petrossian was re-elected in 1996. Following public demonstrations against Ter - Petrossian's policies on the predominantly ethnic Armenia enclave of Nagorno-Karabakh that is located within Azerbaijan, the President resigned under pressure in January 1998 and was replaced by Prime Minister, and was subsequently elected President in March 1998.

The government of Armenia's stated aim to build a western-style parliamentary democracy as the basis of its form of government. However, international observers have been critical of the conduct of national elections in 1995, 1999, 2003, 2008 as well as constitutional referendum of 2005. The new constitution in 2005 increased the power of the legislative branch and allows for more independence of the judiciary, in practice, however, both branches remain subject to political pressure from the executive branch, which retains considerably greater power than its counterparts in most European countries.

Following the 2008 presidential elections the Republican Party of Armenia, Prosperous Armenia, the Rule of law and the Armenian Revolutionary Federation signed a new coalition agreement on March 21, 2008. The Armenian Revolutionary Federation dropped out of the coalition in April 2009

174 citing differences over the conduct of foreign policy.

In the following paragraphs researcher has highlighted some important features of Armenian economy.

4.5.ECONOMY OF ARMENIA

Up until independence in 1991, Armenia's economy was based largely on industry-chemicals, electronic products, machinery, processed food, synthetic rubber and textiles and highly dependent on outside resources. Agriculture accounted for only 20% of the net material; product and 10% of employment before the breakup of Soviet Union. Construction, which was the leading sector of the economy for the past eight years, constituting 27% of the country's GDP in 2008, declined by 34.6% in 2009 and 3.3 in 2010. In 2010, the sector continued to shrink, with a decrease of 11.5% compared to 2010. The beginning of the slowdown in construction coincided with tense political situation connected to the presidential election campaign and the post­ election civil unrest in 2008. Market saturation, a drop in demand related to the global economic crisis, and a steep decline in foreign remittances contributed to the further slowdown^

The structure of Armenia's economy has changed substantially since independence in 1991, with sectors such as construction and services replacing agriculture and industry as the main contributors to economic growth. The diamond processing industry, which was one of the leading export sector in 2001 to 2004 and major recipient of foreign investment, faced a dramatic decrease in output since 2005 due to new material supply problems with Russia and an overall decline in international diamond markets. Other industrial sectors driving industrial growth include energy, metallurgy and food processing.

After rapid expansion in 2001-2007, economic and financial conditions worsened rapidly in Armenia in 2008, due to a drop in international metal prices in late 2008. The end of a remittance fueled construction boom that had driven forth in recent years resulted in a 14.4% drop of real GDP for 2009 (compared to 6.8% GDP growth in 2008) with about 80% of this decline due to a plunge in the con^ruction in investment, exports and real incomes

175 primarily caused by the global financial crisis. The government of Armenia's anti-crisis measures, additional loans and budgetary support from international donors helped to avoid further economic decline in 2010. However, economic indicators, while on the rebound, still fall short of the pre- crisis growth trend for the two decades following independence. Gradual recovery of remittance flows in comparison to 2010 also contributed to the slight upturn. Nevertheless, poverty and prices remain high and the substantiality of growth remains a concern. Some of the major impediments for potential investors remain the lack of transparency in the tax and customs administration, the unpredictability of doing business in Armenia, and unequal competition between domestic and foreign firms.

Armenia maintains a floating exchange rate regim^with no explicit exchange rate target. The nominal exchange rate of the Armenian Dram with major currencies was fairly stable between 19989 and 2003. During 2003-07, the Armenian Dram appreciated sharply against the US Dollar by around 45% mainly due to significant growth in remittances, growth of exports in absolute terms, the de-dollarization of the economy and weakening of the dollar in international markets. During 2008 the exchange rate was mainly stable at around 300 Drams per dollar, until March 2009, when the Central Bank stopped its heavy intervention in the foreign exchange market and announced that it would adopt a floating currency regime. As a result, the Dram devalued by around 25%. It remained at this rate until a smooth devaluation took place, throughout 2011, after which the Dram reached its current level of approximately 390 Drams per Dollar.

Armenia has received significant support from international institutions. The International Monetary Fund (IMF), World Bank, European Bank for Reconstruction and Development (EBRD), and other International Financial Institutions (IFI) and foreign countries, particularly Russia, are extending considerable grants and loans. These loans are targeted at reducing the budget deficit, stabilizing the local currency, developing private business, energy and the agriculture, food processing, transportation, health and education etc. In 2009, Armenia received more that 1.5 billion dollar in donor financing for budget support and different government led anti crisis

176 programmes. In 2011, the Eurasian Economic Community, an economic organization in wlnich Russia is a principal participant, provided a loan of 500 million dollars to finance Armenia's external debt and restructure a number of branches of Armenian economy, in retum for the transfer of major assets. Further, Russian energy conglomerates have pledged to invest 71 million dollars in natural gas and electricity distribution network in Armenia. ^^^^^-"^

Continued economic growth will depend on the ability of the government to strengthen its macroeconomic management, including increasing revenues collection, improving the investment climate, and combating significant corruption. A liberal foreign investment law was approved in June 1994, and a law on privatization was adopted in 1997, as well as a programme on state property privatization. Armenia joined the World Trade Organization in February 2003. Armenia recently acceded to World Trade Organization's Agreement on Government Procurement which imposes an obligation to improve its existing procurement practices^. -^

Industry - Mechanical engineering, machine tools and electrical power machinery, electronics, and the chemical and mining industries, hold a prominent place in Armenia's heavy industry, but light and food industries are also fairly well advanced. Yervan, Gyuniri and are machine- building cities. The centers of the chemical industries are Yerevan, Vanadzor, and Alaverdi, non-ferrous metallurgy in Alaverdi, and Kajran includes the mining and dressing of copper, molybdenum, and other ores, the smelting of copper and the extraction of precious are rare metals.

The food industry processes farm products, which meet domestic demand and are exported. The most advanced branches are involved in the primary processing of grapes and production of high quality review of brandy, wines, canned fruits, and vegetables for export. Light industry includes production of woolen, silk and cotton fabrics, knitted goods and clothes, carpets and footwear. Yerevan is the main industrial centre, accounting for nearly three- fifth of the total industrial output of Aprfienia. Other industrial centers and regions are developing notably in the

177 Agricultures - Agriculture in Armenia lias to contend with many difficulties. Arable land is scarce cultivated lands (plowland orchids and vineyards) occupy less than two-fifth of the total area. Pastures and meadows mowed for hay cover a larger area, approaching one-fifth of the territory. Farmlands in mountain regions form a mosaic of cornfields, orchids, vineyards and pasteres. Considerable tracts of arable land also are found in the Ararat plain, the Shirak steppe, and the southern parts of the Sevan Basin.

The extensive irrigation lands in the low, sunny Ararat Plain and cultivated stretches in the northern and southern river valley yield high - quality grapes and fruits. Storage lakes, dams arable land area is irrigated. Farming, above an elevation of 3300 feet also combines with cattle rising, grain crops are cultivated and cattle are raised in the mountains, while tobacco and potatoes are raised in the lower, warmer part of the mountain belt. Farm products provide raw materials for many industries. Viticulture is the leading branch of agriculture. Among the many orchid crops, peaches and apricots are the most common. Apples ,cherries and pears are cultivated in the colder climate and Walnuts, hazelnuts, almonds, pomegranates and figs are also produced in this area. Vegetables are grown in the main agricultural regions, potatoes in the cooler mountains. Quality tobaccos are widely cultivated. Cotton and sugar beets, formely grown in the Ararat Plain; are being succeeded by more valuable crops, such as grapes. The areas under grain crops have been sharply reduced.

Extensive alpine pastures enhance the productivity of animal husbandry, whose main branches are the raising of beef and milk cattle and sheep. Pig and poultry rising, as well as sericulture and apiculture, plays subsidiary roles.

The present study is particulariy concerned with the Shirak province of Armenia. Therefore it is necessary to take a brief review of profile of the Shirak province of Armenia.

4.6.PROFILE SHIRAK PROVINCE

Shirak marz is situated in the north west of the republic of Armenia. Borders with Turkey and Georgia. Shirak marz covers , Alchuryam, , Amosia

178 regions. It includes 3 towns, Gymri, Artik, and 128 rural settlenrients. Shirak occupies 9% of RA territory. The population of the Shirak comprised 8.8% of Armenian total population in 2002, including 61.3% urban, 86.6% of which only in .

Shirak province inherited its name from the Shirak province of Ayravat land of historical Armenia. Being at the height of the 1500-2000 meters above sea level (52 villages of the marz are at the height of 1500-1700 m above sea level and 55 at 2000m), the marz is the coldest region of Armenia, where the air temperature sometimes reaches -46o C in winter. The main railway and automobile highway connecting Armenia with Georgia pass through the Shirak marz. The railway and motor road networks of Armenia and turkey are connected here.

The airport is situated in the Shirak marz that provides air connection with CIS countries and has a facility to receive any type plane. On the river frontier with Turkey the Akhuryan reservoir was built that is the biggest of the country by its volume of 526 min. m3. Harich (south-east from Artik) Marmarashen (north west from Gyumri) monasteries, Ereruyr (near the ), Sarnghbyur Hogevanq (VII century), Artik churches and other antiquities are situated on the marz territory, the most of them were built in 10th and 11th centuries.

179 180 Shirak destructive earthquake of 1988, besides taking away thousands of human victims, has caused big destruction of Shirak province economy and, particularly, Gyumri town. To earthquake the marz took the second place in the Armenia by its development level and economic capacity, yielding only to Yerevan city. However, after the earthquake the marz economy endured a deep drop (earthquake consequences were destructive, in seconds powerful factories have been turned into ruins^„Jl6usands dwelling houses, schools, hospitals have been destroyed).

In 1989-1991 by the assistance of almost all soviet republics many foreign countries and international organizations a big reconstruction work has been conducted with a purpose to liquidate ruins. In the past period the Shirak economy and industrial capacities are slowly reconstructed. 110 industrial, 11 agriculture, hunting and forestry, 1 fishing and fish farming, 39 construction, 18 transport, 212 rendering services, 688 retail trade units, of which 270 stores, 380 kiosks, 32 public catering units, 2 markets of consumer goods and 2 markets of agricultural products functioned in the Stiirak. The following table highlights some features of Shirak.

Table No. V.

Shirak Province

Territory 2681 square kilometers

Agricultural land 1657^'ha.

Including arable land 84530 ha

Urban communities 3

Rural communities 116

Rural settlements 128

Population as of January 2003 282.5 thousand persons

Urban Population 173.1 thousand persons

Source: Provinces of Republic of Armenia in figures (2002-2009 Report)

181 4.7. STRUCTURE OF LABOUR MARKET AND CHARACTERISTICS OF LABOUR FORCE OF ARMENIA

The profile of the labour resources or the 15-75 year old de facto population that comprised 76.9% (i.e. 2.4 million) of the total population in Armenia is shown in the following table No. 4.7. Of this number, men comprised 45.4% and women 54.6%, while the proportions in urban and rural settlements were 65.9% and 34.1% respectively.

Economic activity rate (or labour force participation rate) was recorded at 59.2% (of the total labour resources), a 2.8 percent points decline compared to the 2008 figure. There are significant differences between economic activity rates of men (69%) and women (51%) as well as between urban and rural areas, at 70.8% and 53.2% respectively^.

The economic activity rate among young people (15-24 years) reached 33.4% which is 25.8% points less than the national average. The highest youth economic activity rate was recorded among men at 36.6% much greater than the rate among women at 9.4%. Youth economic activity rates were almost the same in urban (31.8%) and rural 38.8%) areas. The low participation rate of the youth in the labour market is mainly due to their attendance in educational institutions, as well as their lack of work experience and, consequently, their low professional skills level.

Meanwhile, the proportions of employed and unemployed persons in the economically active population were 8;l.3% and 18.7% respectively.

182 Table 2.4:

Population and Labour Force Characteristics by Sex and Urban/Rural

Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n

Total Population 1,4 1,6 2,0 1,0 3,1 (de facto) 48. 68. 34. 82. 16. 30 60 10 90 9

46. 53. 65. 34. 5% 5% 3% 7%

Labour 1,0 1,3 1,5 818 2,3 resources/working 88. 09. 79. .5 97 10 60 10 6 age population 45. 54. 65. 34. 4% 6% 9% 1%

Economically 750 668 839 579 1,4 active .6 .1 .6 .2 18. 8

52. 47. 59. 40. 9% 1% 2% 8%

15-24 years 104 80. 113 70. 184 .3 4 .8 8 .6

56. 43. 61. 38. 5% 5% 7% 3%

25-29 years 100 61. 107 56. 1 .3 4 .9 8 64. 7

183 Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n

60. 39. 65 34. 9% 1% % 5%

30-62 years 492 472 577 387 965 .3 .7 .9

51 49 59. 40.

% % 8% 2%

63-75 years 53. 50. 40. 63. 104 8 7 8 7 .5

51 48. 39. 60. .5% 5% 1% 9%

Unemployed 133 132 229 36. 265 .3 .6 .3 6 .9

50. 49. 86. 13. 1% 9% 2% 8%

Employed 617 535 610 542 1,1 .3 .5 .3 .6 52. 8

53. 46. 52. 47. 5% 5% 9% 1%

Employed in 209 244 47 407 454 agriculture .9 .9 .9 .8

46. 53. 10. 89. 2% 8% 3% 7%

Formal 4.3 2.7 3.5 3.5 7.1

184 Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n employment 61. 38. 49. 50. 4% 6% 9% 1%

Informal 205 242 43. 404 447 employment .6 .2 4 •3 .8

45. 54. 9.7 90.

9% 1% % 3%

Formal enterprise 0.2 0.2 0.3 0.1 0.4

53. 46. 73. 26. 7% 3% 5% 5%

Informal 169 184 13 339 353 enterprise .4 6 .7 .3

47. 52. 3.9 96.

8% 2% % 1%

Household 36. 57. 29. 64. 94 4 6 4 6

38. 61. 31. 68. 8% 2% 4% 6%

Employed in non- 407 290 563 134 698 agriculture .4 .6 .3 .7

58. 41. 80. 19. 4% 6% 7% 3%

Formal 306 253 462 98 560 employment .2 .8

185 Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n

54. 45. 82. 17. 7% 3% 5% 5%

Informal 101 36. 101 36. 138 employment .2 8 3 7 0

73. 26. 73. 26. 3% 7% 4% 6%

Formal enterprise 34. 18. 47. 5.1 52. 8 1 7 8

65. 34. 90. 9.7

8% 2% 3% %

Informal 56 15. 44. 26. 71 enterprise 1 1 9

78. 21. 62.

8% 2% 1% %

Economically 3^: 641 739 239 978 inactive* 4 .5 .5 .3 .9

34. 65. 75. 24. 5% 5% 6% 4%

15-24 years 181 215 255 140 396 .3 .4 .9 .3

45. 54. 64. 35. 7% 3% 4% 6%

25-29 years 16. 63. 60. 9.5 80 6 5 6

186 Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n

20. 79. 75. 24. 7% 3% 7% 3%

30-62 years 78. 255 287 46. 334 6 .8 .5 9 .4

23. 76. 86 14

5% 5% % %

63-75 years 61. 106 136 32. 168 3 .9 .1 1 .1

36. 63. 80. 19. 4% 6% 9% 1%

Pupil, student 91. 123 151 63. 215 (stationary) 8 .4 .8 5 .3

42. 57. 70. 29. 7% 3% 5% 5%

Housekeeper* 3.5 213 173 43. 216 .3 4 4 .8

1.6 98. 80 20

% 4% % %

Pensioner (by 95. 140 192 43. 236 age, health, 3 .7 .2 8 privileged 40. 59. 81. 18. conditions) 4% 6% 5% 5%

Other Jobless 146 164 222 88. 310 people** .9 .2 7 .9

187 Population Total (1,000 Persons)

Me Wo Urb Rur Tot n me an al al n

47. 52. 71. 28. 2% 8% 5% 5%

Source: National Statistical Service of the Republic of Armenia (2010)

In Armenia, the highest share of employment was recorded in the agricultural sector. During the whole period of transition and after the collapse of Union of Soviet Socialist Republics, privatization of public lands and overall liquidation of industrial enterprises became widespread, which caused activities in agriculture, through small scale, to flourish. The next sectors with the highest employments are industry, education and wholesale and retail trade. In 2008- 09 these was 1.1% growths in agriculture employment, and 12.0% drop in industry employment. The most likely causes of such redistribution in workforce are the high occurrence of dismissals, shortage of available work, liquidation of enterprises, and the forced administrative vacation of workers due to the global financial and economic crisis. In Armenia, industry is one of the sectors most vulnerable to the economic crisis. Of the total jobs assumed by men, employment in agriculture sector ranked the highest, followed by industry and construction. Almost half of the jobs engaged in by women labours were in agriculture, followed by education, health and wholesale and retail trade, such activities are traditionally considered to be feminine.

The following table indicates the employment by sector and nature of employment in rural and urban areas.

188 Table 3.4

Employment by Sector and Nature of Employment

Nature of Employment Sex Area

Formal Informal Men Women Urban Rural

Agriculture, 1.4 98.6 46.7 53.3 10.7 89.3 hunting, and forestry

71.4 28.6 73.2 35.8 83.5 16.5 Fisiiing

Mining and 98.5 1.5 78.2 22.0 80.2 19.8 quarrying

77.6 22.4 71 29.0 83.9 16.1 Manufacturing

Electricity, gas, 98.0 2 85.7 14.4 76.6 23.4 and water supply

42.0 58 97.9 2.0 70.9 29.1 Construction

189 Wholesale and 61.3 38.7 55.9 44.1 89.5 10.5 retail trade, repairs, etc.

Hotels and 61.5 38.5 36.6 63.1 93.2 6.8 restaurants

Transport, 78.5 21.5 84 160 88.1 11.9 storage, and communications

Financial 100.0 0.0 47.5 52.8 92.9 7.1 intermediation

Real estate, renting, and 90.9 9.1 56.5 43.7 95.1 4.9 business activities

Public administration 100.0 NA 67.7 32.3 72.6 27.4 and defense, social security

98.8 1.2 19.3 80.7 703 29.7 Education

Health and social 99.5 0.5 16.9 83.1 87.6 12.4 work

190 other community, 76.0 24.0 57.5 42.6 83.0 17.0 social and personal services

Private households with 14.4 85.6 29.4 71 84.4 15.6 employed persons

Extraterritorial 100.0 NA 56.7 44.3 99.5 0.5 organizations

Total 47.9 52.1 53.6 46.4 52.0 48.0

Source: Natic>na l Statistic a! Service i 3f tlie Rei3ubli c of Armenia (2010)

The patterns and relationships of the variables such as nature of jobs, economic industry, and distribution of employment by sex shows that wide discrepancies. From the above table we come to know that, some sectors exclusively provided formal employment, such as the financial intermediation, public administration, defense and social security and extraterritorial organizations. The lowest percentage of formality is in agriculture, private household with employed persons and in construction at 1.4%, 14.1% 42.0% respectively, of the total employment.

Although the mining industry in many Asian countries is generally composed of informal employment, the situation in Armenia is the opposite. As a priority sector of the economy, this type of activity is specifically monitored by the state. As such, mining enterprises are generally formal and provide formal labour arrangements. Formal employment in this sector is at 98.5%. Similarly, the fishing and fish breeding industry is mainly characterized in the industry is small scale.

191 Table 4. 4

Employment by Industry and Nature of Employment (Urban / Rural)

Nature of Employment (1,000 jobs) Total Employment Formal Informal

U R T U R T U R T Industry r u 0 r u 0 r u 0 b r t b r t b r t a a a a a a a a a n 1 1 n 1 1 n 1 1

4 4 4 4 4 5 3 3 6 3 8 3 8 Agriculture, hunting, 9 2 1 0 5 7 and forestry 4 5 9 0 4 9 8 4 7

0 0 0 0 0 0 0 0 0 Fishing 1 0 2 0 0 1 2 0 2

7 1 9 0 0 0 7 1 9 Mining and quarrying 7 8 5 0 1 1 7 9 7

4 5 1 1 5 1 7 6 5 8 4 0 5 9 1 0 Manufacturing 3 1 4 6 7 8 1 3 4

2 3 2 3 8 0 0 0 8 Electricity, gas, and 6 4 6 4 water supply 1 6 1 7 2 1 2 7 9

2 3 2 1 4 5 2 8 5 8 4 9 8 8 8 4 2 Construction 9 9 8 9 2 1 8 1 9

5 6 3 3 8 1 9 4 6 Wholesale and retail 5 0 1 7 7 0 7 trade, repairs, etc. 1 2 9 0 7 9 6 3 8

1 1 7 0 8 4 0 5 0 2 3 Hotels and restaurants 4 6 0 8 3 0 9 2 1

4 4 5 1 3 1 5 7 6 Transport, storage, and 6 1 1 4 7 5

192 communications 7 1 8 6 3 0 1 6 4

1 1 1 1 0 0 2 3 2 3 Financial internnediation g 9 1 1 1 1

7 0 8 0 0 0 8 0 8 Real estate, renting, and business activities 8 3 1 7 2 8 5 4 9

5 2 7 5 2 7 Public administration 6 1 7 6 1 7 and defense, social security 3 3 5 3 3 5

1 1 7 3 7 3 0 1 0 1 0 5 2 6 2 Education 7 8 3 0 3 0 2 3 2 2 5

5 6 5 6 7 0 0 0 7 3 1 4 1 Health and social work 7 3 0 3 7 9 6 2 9

Source: national staltistic s servu; e of/ ^rmen ia, 201 1

Different patterns were also noticed in tlie above table in the analysis of informal employment by urbanity. Of the total number of jobs in urban areas, industry recorded the highest level of employment at 15.1% followed by wholesale and retail trade (14.1%) and education (12.3%). In the rural areas, three in every four jobs were in agriculture, making it the primary provider of employment. Meanwhile, employment in the non-agriculture sector, totaling 136700 jobs is highest in education followed by construction (usually implemented out of the village where workers live) and in public administration and defense, social security. Note worthy is the labour migration that is generally widespread in the rural areas this is perhaps due to the low profitability in agriculture activities and the limitation in opportunities from non-agriculture jobs'*.

Through the above discussion researcher has tried to highlighting the significant features of formal and informal section of Armenia.

Since independence, labour market in Armenja have gone through a

193 profound transition affected by a systematic crisis of the economy during early 1990s, economic and social reforms, and continuous economic growth lasting more than a decade - since the mid 1990s up to 2008 (before the recent crisis caused the slow down followed by the economy's decline). However, real unemployment has persistently remained at double-digit levels and on average; roughly one out of four economically active people was unemployed. Moreover, about 2/3 of the employed depend on incomes from low productivity agriculture and trade.

Demographic trends, such as reproductive behaviour, migration patterns, along with the situation in labour market, influenced the economic activity rate causing an essential decline during the period of 1991-2009 from 81.4% to 52.3%. The employment structure by sphere of economic activity has been changed significantly as well, and in such a way that it becomes less diversified and more vulnerable to internal and external shocks. Subsistence agriculture emerged as a key factor mitigating the shocks of transition period, as well as the absence of policies for creating non agricultural jobs. Although the ratio of employer in subsistence agriculture of total employed still high in 2009 (45.1% or 491.6 thousand people compared to 501.6 thousand in 2004), conditioning higher level of employment in rural versus urban areas. However, those engaged in agriculture are non-registered self employed farmers with low productivity, paired with seasonality, and low pay. Although, jobs in the sector are not very promising from the perspective of poverty reduction, they still remain the main source of income for the rural population since the opportunity of non agricultural activity outside of Yeravan city is limited^

Since 1990, the private sector in Armenia has expanded significantly. However, the real job creation in the sector was not sufficient. From the mid to late 1990s, the main factor behind the emergence of private sector in Armenia was privatization. Although over the past few years the private sector has been the main engine for job creation in Armenia, it was not sufficient due to a number of obstacles preventing further business establishment, growth and formal employment in Armenia.

Informality is another challenge for Armenian labptfr market, employment in

194 the informal sector is mostly casual and based on personal and social relations rather than on contractual arrangements. Informal employment is usually low paid instable and creates challenges for the future as well. People engaged in the sector do not accrue any social protection rights. In the case of unemployment or sickness, any insured pension rights will depend on social pension only, therefore putting an extra burden on a budget.

Self reported unemployment rate is significantly higher in Armenia than unemployment rates recorded at employment services. Although there has been a noticeable improvement in Armenia's labour market, there still exists a large supply and demand gap®.

Wages have fallen in Armenia in the early years of transition and began to rebound beginning in the mid 1990s. However, wage disparities by types of economic activities and by sectors of economy, as well as the gender pay gap, are significant.

Interventions both outside and within the labour market have significant potential to improve labour market performance in Armenia. In the early 1990s, the employment policy in Armenia was mainly concentrated on passive measures such as provision of unemployment benefits. Starting from the early 2000s the main priorities in socio-economic development and poverty reduction were tight with labour market issues and special importance was given to active labour market policies aimed at improving employment and reducing the rate of unemployment with specific focus on structural unemployment. Although the situation in the labour market is conditional to a range of external factors and the function of state employment services (as an agency implementing the state policy) is important (to match available jobs with job seekers), the agency has no direct influence on either labour supply or demand. Still, labour market interventions, in particular Active Labour Market Policies aimed at improving employment and reducing the rate of unemployment with specific focus on structured unemployment . Although the situation in the labour market is conditional to a range of external factors and the function of state employment services (as an agency implementing the state policy) is important (to match available jobs with job seek^), the agency has no direct

195 influence on labour supply or demand. Still, labour market interventions, in particular Active Labour Market Policies, have great potential for improving labour market performance, enhancing labour supply, increasing labour demand (eg. Through wage subsidies and public works), and improving the labour market mechanisms.

4.8. ARMENIA'S INFORMAL SECTOR AND INFORMAL LABOUR FORCE:

Labour force participation or the economic activity has changed in Armenia Since the early 1990s. Demographic trends, such as reproductive behaviour, migration pattern, along with the situation in labour market, influence the economic activity rate. Labour force survey is the only source providing information on labour force participation on activity rate by gender, the male and female economic activity rates comprised accordingly 69.0% and 51.0% in 2009 (70.8% and 54.4% respectively in 2008). The higher economic activity rate is explained by high self reported unemployment rather than employment rate.

Employment in Armenia has steadily declined between 1991 and 2004 (from 1671.5 to 1081.7 thousand persons) but some improvements trend appeared during the period 2005 to 2008, when the number of employed reached 1117.6 thousand. Due to the economic crisis in 2009 it diminished again to 1089.4 thousand person. The cumulative reduction of employment comprised 34.8% over the period 1991-2009. The deterioration of employment did not have any emphasized gender face in Armenia and affected male and female almost equally, male and female employment over the period 1991-2009 have declined by 36.7% and 32.7% respectively. As for the structure of the employed by gender the share of female has increased a bit from 48.4% in 1991 to 48.9% in 2008 while the share of male declined by 0.5%^.

Until 2008, the construction sector remains to be the main driver of Armenia's economy over the recent years, contributing 25.3% of the total GDP. This is followed by agriculture (16.3%), wholesale and retail trade (11.6%) and manufacturing (8.8%). The financial and economic crisis in 2009 has largely affected Armenia's economy. Its economic output, measured by GDP noted a

196 decline of as much as 14.2% in real term. Construction was among the severely affected sectors, contracting by 42.3%. In real terms, manufacturing and wholesale and retail trade declined by 8.8% and 4.0% respectively.

Duhng the economic crisis, the share of the informal sector to total GDP in 2009 reached 11.2% This is approximately the same as the estimated contribution of informal sector production based on estimates of non- observed economy (NOE) for 2008. The following table shows the share of informal sector to Total Gross Value Added (GVA) by sector.

197 Table 5.4:

Share of Informal Sector to Total GDP by sectors

Gross Value Added Sr. Sector / Industry (in Million of Dram) No. Formal Informal

1 Agriculture, 399557 77.6 115026 22.4 hunting and % % forestry, fishing

2 Mining, and 55051 100 0 0

quarrying %

3 Manufacturing 259491 95 13577 5%

%

4 Electricity, Gas 99100 100 0 0%

and Water % supply

5 Construction 463174 84.6 84500 15.4

% %

6 Wholesale and 338962 85.2 58971 14.8

retail trade % % repairs etc.

7 Hotel and 17124 100 0 0%

restaurants %

8 Transport, 238008 96.3 9152 3.7

Storage and % % Communications

9 Financial 126948 100 0 0%

intermediation %

10 Real estate, 139480 91.3 13351 8.7

198 renting and % % business activities

11 Public 109254 100 0 0%

administration % and defence, social security

12 Education 106807 93 7981 7%

%

13 Health and 108211 95.1 5620 4.9

Social work % %

14 Other 47629 83.4 9491 16.6

community, % % social and personal service

15 Private 878 100 0 0%

households with % employed persons

88.8 11.2 Total 2509674 317669 % %

Sou rce:national statistica service of Ar nrienia.2010

199 Graph 1.4:

share of informal sector in GDP

Private households with employed..

Other community, social and personal-

Health and Social work

Education

Public administration and defence,..

Real estate, renting and business...

Financial intermediation

Transport, Storage and Communications

Hotel and restaurants

Wholesale and retail trade repairs etc.

Construction

Electricity, Gas and Water supply

Manufacturing

Mining, and quarrying

Agriculture, hunting and forestry, fishing

0% 20% 40% 60% 80% 100%

• Formal Informal

Source: National statistical service of the Republic of Armenia (NSSRA)

The contribution of the informal sector to total GVA was highest in the agriculture (22.45) , other services (16.6%), construction (15.4%) and wholesale and retail trade (14.8%)^.

In the Integrated Living Conditions Surveys' framework of Informal Employment devised by the ILO, there are three types of production units in which informal employment exists, namely - formal enterprises, informal enterprises, and the households. In this concept, subsistence agriculture farming falls under the household and not under the informal sector. In terms of proportion to total GVA of the informal sector, informal economy in 2009

200 was dominated by agriculture (36.2%), construction (26.6%) , and trade (18.6%). Comparing the non observed economy estimates of tine national accounts in 2008, it is obvious that contribution of the construction and manufacturing sectors to the total informal economy has declined, suggesting that it may have been more affected by crisis compared to the formal sector. In particular, the share of construction in the total informal GVA fell down from 50.4% in 2008 to 26.6% in 2009, causing agriculture to take the lead such that its contribution to Armenia's total informal sector's GVA increased from 17.3% in 2008 (using non observed economy-based estimates) to 36.2% in 2009^.

As stated earlier, the informal economy of Armenia was dominated by agriculture, construction and trade sectors, meanwhile, by administrative unit i.e. Yerevan has the largest share (38.8%) in the informal sector, followed by Aravat (12.1%), Shirak (9.1%), Armavir (9.1%), Syunik (8.8%) and Kotayk (4.9%). The informal sectors' total GVA is concentrated more in urban areas (60.1%). In the rural areas, high contributions of the informal sector were noted from Armavir (20.4%) (in proportion to total informal sector's GVA in rural areas) Aravat (19%) and Syunik (16.5%). The fact that subsistence agriculture is prevalent in Armenia may have inflw^nced the lower informal production in the rural areas.

In agriculture, 22.4% of production can be accounted to the informal sector and the remaining 77.6% to the formal sector. From the above discussion it is quite clear the overall composition of informal sector of Armenia.

The present study provides opportunity to analyse the current pattern in employment and acquire a clearer description of the labour market by distinguishing informal from formal employment. This is a significant feat especially since those engaged in informal sector employment are considered to be vulnerable in the Armenian labour market. Particularly, most of the workers under informal employment do not enjoy the same benefits (particularly agriculture women labours) as those received by the formally employed. In the following paragraphs researcher has highlighted some significant characteristics of informal sector enterprises in Armenia.

201 4.8.1. INFORMAL SECTOR ENTERPRISES

The informal sector accounts for a significant portion of the total economy of developing country like Armenia. Informal enterprises also supply a notable portion of employment at ^^.9% of the total and about % of the informal employment.

To better understand the production behavior of the informal sector, researcher examines the characteristics of these enterprises. In particular, researcher describes the informal sector unit in terms of i) type of premises where business activity is conducted, ii) employment size, iii) reason for choosing the respective type of entrepreneurial activities and iv) source of financial resources.

In terms of employment size, the above table shows that, on the average, each informal enterprise in the agriculture sector provides jobs to more than two persons; approximately the same with manufacturing. This supports the usual notion that informal sector units are usually microenterprises. Microenterprises in Armenia are also more likely to be informal than formal, though the other characteristics of the production unit still need to be examined for a definite classification.

Informal sector operators tend to choose their respective line of business activities not necessarily because they want to maximize profits, but because this is the only activity that they are more familiar with. Informal enterprises, most of which are associated with low scale production and thus are more vulnerable to income, are less attracted to riskier entrepreneurial activities even though these are expected to generate higher future returns. When the vulnerable members of the population discount the future this can have a negative impact for the economy in the long run because investment decision at the household level is suboptimal.

It is interesting to note that among those who availed credit to finance their business activities, their sources of financing are private banks.

The fact is that two in every three owners, that carried loan borrowed money from banks suggest the following scenario -

202 They are knowledgeable that banks can provide loans to small enterprises.

They know that they have access to banks, and

They prefer formal financial transactions than informal arrangements, such as borrowing money from relatives, friends, and other employers. In addition, given that there are no informal private money lenders in Armenia. Banks are more preferable source of loans than other private formal ones.

There is now evidence that business owners are open to getting loans from banks, but relatively shy away from other private money lenders or pawnshops. The table no. 4.6 also presents valuable data such as if the business owners are to be encouraged to borrow from banks, information dissemination concerning the availability of banks as a source of loan should not be priority. People are already aware of the fact.

In the following paragraphs researcher has discussed some important characteristics of labour in informal employment.

4.8.2. INFORMAL EMPLOYMENT

Informal employment (in primary and or in secondary job) was estimated at 52% of the total employment and comprised 621,700 of the total jobs (including the agriculture sector).

203 Graph 2.4

Employment by Nature of Employment, Sex and Urban/Rural

Men Women Total Urban Rural

• Informal Employment H Formal Employment

Source: National Statistical Service of The Republic of Armenia , 2010

Of the total number of jobs engaged in by women, 53.4% are informal, higher that the percentage of informal employment among men, at 51.0%. While analysis of the nature of employment by sex, does not show wide discrepancies in numbers, investigation by type of settlements presents a notable difference. Informal employment was prevalent in rural areas, with 82.1% of the 572100 jobs in the rural areas, mainly due to the agriculture sectors' employment. Informal employment in urban areas was posted at 24.5% of the total employment in the area.

Consequently, formal employment (in primary and or in secondary jobs) comprised 47.9% of the total employment. Of the total jobs engaged in by women, 46.6% are formal, slightly less than the percentage of formal employment among jobs assumed by men, at 49.0%. Meanwhile, formal employment in urban areas was estimated at 75.5%, four times more than the 17.9% registered in rural areas.(Graph No. 3.4 abpve)^°

204 Graph. 3.4

Nature of Employment by Sex

90% - 80% - • 45.1 9 70% - 1 '*''^»-a

60% -

50% -

40% - 30% - • 54.9 fl 20% - 1 ^2.^J

10% -

noi^ - Formal Employment Informal Employment

', BMen • Women

Source: National Statistical Service of The Republic of Armenia (NSSRA),2011

Graph 4. 4.

Nature of Employment by Urbanity

100% 90% 80% 70% 60% ' 50% I 40% • 82.1 S

• 30% 20% : 10% 0% Formal Employment Informal Employment

• Urban • Rural

Source: National Statistical Service of The Republic of Armenia

205 (NSSRA),2010

Different informal employment patterns were observed when analyzed by sex and urbanity. Of the total informal jobs 621700 (or 52.5%) were assumed by men, higher than the percentage of jobs engaged in by women (47.5%). Still, this difference is minimal compared to the wide discrepancies in numbers with respect to settlements. Informal employment is largely more common in rural areas (75.6%) than in Urban areas (24.5%).

In Armenia, formal enterprises or production units promote the greatest employment based on the number of jobs (52.4%), followed by informal enterprises (^^.9%) and household (9.8%). This follows the pattern of the primary job grouping, that is 53.8%, in informal enterprises, and 9.4% in households. However, the picture is quite different with respect to secondary jobs, 68.4% of second jobs are in informal enterprises, 21.5% in household, and only 10.1% in formal enterprises. The percentage of second jobs in informal enterprises is almost twice (68.4%) that of primary jobs (36.8%) in these production units.

206 Graph 5.4. Nature of Jobs by Type of Production Unit

Primary Second Total

• Household H Informal Employment H Formal Employment

Source: National Statistical Service of The Republic of Armenia (NSSRA) ,2010

There is also a noteworthy difference in the number of jobs in the household, by type of job. That is, while only 9.4% of primary jobs are engaged in household as production units twice this number (21.5%) is recorded in the second jobs . In both the cases, the activities associated with the households are agricultural ones, at 86.9%, in primary jobs and 96.0% in second jobs. Household, as type of production unit, were also more typical in rural areas.

In accordance with legislation of the Republic of Armenia, formal employment is only provided by legally registered organizations. Given that registration is one of the factors that determine formality of enterprises, it follows that in the country, formal employment exists only in formal enterprises. Cases of formal employment in informal enterprises or household, i.e. employees with contract in unregistered enterprises or private households hiring domestic help with contracts, are not likely.

To reduce the informal employment, the Government of Armenia made additional administrative arrangements in recent years, such as the amendments to the labour law of Armenia, and the Law of Armenia on

207 Administrative Infringement, etc. Unlil^e formal employment, informal employment exists in all three types of production units. The number of informal employment in the formal enterprises is for 4.5% of the total employment and 8.6% of the informal employment. Meanwhile, the informal enterprises are the main provider of informal employment and the number of jobs it supplied reached ^^.8 of the total employment or 72.6% of the informal employment. The households, on the other hand, provided 9.8% of the total employment or 18.8% of the informal work^^

The employment structure of the population by fields of economic activities have been changed significantly and has become less diversified and more vulnerable to internal and external shocks as found out during the last crises. The structural change of employment has been impacted in 1990-93 by the systemic crisis of the economy in 1994-2008 by continuous structured changes and economic growth and in 2009 by the economic crisis. The share of employed in industry has been decreased from 27.4% in 1991 to 10.6% in 2009 (11.4% in 2008). In construction, it comprised 10.6% and 4.6% (9.4% in 2008) respectively, the ratio of employed in the service sector has been relatively stable (38.7% in 1991 and 39.2% in 2009) but the sector as all other sectors in general experienced a rapid decline in employment as well.

Due to transitional changes, employment in all sectors of the economy has declined except in agriculture land reform initiated in 1991 resulted in emergence of subsistence agriculture, which absorbed 23.3% of labour employed in the economy in 1991 (compared to 17.7% in 1990). At that point the high engagement in subsistence agriculture emerged as a key factor mitigating the shocks of transition period, as well as the absence of policies for creating non-agriculture jobs. Although, the ratio of employed in subsistence agriculture starting in the mid 2000s showed a declining trend, it is still high and crisis showed that it is still important coping strategy during chocks.

Since, the Armenian labour market could be identified as having high informality and hidden unemployment, it is hard to estimate the real employment level decline and increase in the pool of unemployment. However, the officially registered unemployment level increased in Armenia

208 from 6.3% in 2008 to 6.8% in 2009. The trend is likely preserved during 2010 not only due to job losses within the country, but also due to large flows of returning migrants from Russia and other countries that are facing their own economic downturns.

Although, since 1990 the private sector in Armenia has expanded significantly, the real job creation in the sector was not sufficient and the employment growth in the sector took place mainly due to privatization of public enterprises. In 2009, the proportion of those employed in private sector of the economy, including agriculture, amounted to 80.7% (compared to 18.4% in 1990 and 30.1% in 1991).

The greatest change since transition has been the shift from stable wages and salaried jobs to casual and less-formal jobs and self employment - a type of employment that is being chosen because of limited opportunity of formal activity and as a coping tool against poverty. The main reason for engaged in self employment is the lack of alternative employment, especially in rural areas. From the perspective of social cohesion, self employment, as well as other less formal employment (such as working family members), being the only source of income and thus a coping / survival strategy for many households and assuring livelihood working independently (sometimes, representing the beginning of entrepreneurship) remain one of the most unprotected against economic and small risks.

Although, males and females in Armenia enjoy equal legal status, gender segregation have been developed in the Armenian labour market. Since early 1990s there have been significant differences in the participation of males and female in labour force. The wage differentiation for male and female is typical not only for economy in general, which is explained by the fact that women do always possess the same professional opportunities as men, as well as by the role in family preserved for females in Armenian families.

Informality is a challenge for Armenian labour market. The employment in the sector is mostly casual and based on personal and social relations rather than on contractual arrangements and the jobs in the sector are mainly low paid and unstable.

209 Moreover, the informal employment creates challenges for the future as well. People engaged in the sector do not accrue any social protection rights. In the case of unemployment or sickness, any insured pension rights and will depend on social pension only, thus putting extra burden on a budget.

While referring to informal employment, two categories should be discussed, employees with no formal employment contracts and unregistered self employed and employers. The majority of employed in the informal sector are labour intensive sectors such as agriculture, construction, retail, transport and domestic services. Self employment accounts for the bulk of employment in the informal sector, especially in subsistence agriculture. Since 2002, people who are engaged in agriculture can be excluded from paying social contributions. Due to this, from the institutional point of view, these employed are classified to the informal sector of economy stipulated by the absence of the institutional organization and legal status. Thus 99% of employed in agriculture sector, comprised 53% in 2009 (compared to 53.1% in 2008 and 60% in 2007). Regarding the gender aspect of the issue the share of female employed informally is higher in agriculture - 53.5% in 2009 (55.3% in 2008); while in the non-agriculture sector it is only 27.1% (27.0% in 2008).

As already mentioned above, informal employment is spread mainly in labour intensive sectors, such as agriculture - 98.6% of all employed (including employees, self employed, unpaid family workers) , construction 58.7%, trade, repair of motor vehicles, hotels and restaurants 39.0%, transport and communications 21.9% and other services 6.5%.

The main attraction of the non formal economy is financial. This type of activity allows employees, paid employees, and the self employed to increase their earnings or reduce their costs by evading taxation and social contributions. The amount of undeclared work reduces social security contributions and leads to a high tax burden on registered labour on one hand. On the other hand, the long working days, number of working days, annual vacation, insecure employment conditions as well as absence of social protection against illness and disability that are widely spread among employment in the informal sectors make non-formal sector employees social vulnerable.

210 Young, uneducated people are in the worst situation in the labour market. In general, this group with no vocational education and experience is so non­ competitive that even considerable improvement in labour market conditions and employment growth may not improve their situation.

The issue of mismatch between the skills and knowledge of job seekers, and labour demand is crucial for Armenia. One of the features of Armenia's modern reality is that the education system generates significant skill inadequacies, which contribute to a very high unemployment rate among recent graduates. Thus, the choice of specialization in education establishments is majority of cases is based on the interest of young people in the given specialty rather than on labour market considerations^^

Government affects the rate and dynamics of wages by setting minimum wages, establishing wage tariffs for payment of public sector salaries and detemnining direct taxes and social benefits (i.e. unemployment benefit). Since independence, the minimal wage policy in Armenia was aimed at encouraging entrepreneurship development and contributing to the expansion of formal employment. However, the country's experience shows that it did not lead to the desired consequences. Armenian economy is still characterized by high informality. From the policy perspective new approaches to the minimum wage policy was proposed. The establishment of correlation between the minimum wage and poverty threshold.

There exist wage disparities by type of economic activity and by sector of economy. Although there has been some improvement in overcoming wage disparities, the average wage in agriculture, services, education and social work, and public administration sectors in 2009 were 20-30%, lower than the nationwide average. Although the wage gap between public and private sectors has decreased in tendency, it is still significant, wages in the private sector in 2009 exceeded those in public sector by 33%.

During the period when the country was experiencing severe economic decline, due to absence of corresponding legal frame work and lack of economic interest on enterprises' side for reducing surplus employment, the employment level was artificially sustained at a high level. However, the

211 insignificant but positive economic growth in 1994-1997 was accompanied by increasing rates of decline in employment. Also, it has to be considered that the official definition of working age population in Armenia has changed since 1991. It included men aged 16-59 and women aged 16-54, and has been increased to 16-62 for men and 16-62 for women in 2009, and the share of employed retirees has increased according to the official statistics from 5% in 1991 to 7.4% in 2009.

While analyzing the labour market outcomes, it should be mentioned that although underemployment and the increased number of subsistence jobs in the informal sector are issues of a great concern, very limited information is available on it in Armenia. The only information particularly related to the issue of underemployment is the information relating to the employed persons willing to change the employment situation for some reason and engaged in temporary, seasonal, occasional or one off activities. According to Labour Force Survey 2009 data, 22.1% of the employed were engaged in temporary, seasonal, occasional or one off activities (24.4% In 2008) of which 41.0% were self employed (44.4% in 2008). This situation means that large elements of the population are essentially unprotected against economic risk and receive no help from the state. However, self employment is a very important category of employment that provides a livelihood by working independently.

In the following paragraphs researcher has highlighted the working conditions of labours in infonnal sector of various countries.

4.9.COMPARISON OF ARMENIA'S INFORMAL SECTOR WITH OTHER COUNTRIES

Informal workers include those for whom marginal risky, and low paid work is better than no work. Such workers do not have any safety net and earn low income or benefits provided by an uncertain or dangerous job. There is also a clear gender dimension to such employment; in general, women are less likely than men to have fonnal jobs, more likely to work in the informal economy, and within the informal economy, more likely to work in the lowest - paid and most precarious forms of employment. The term Informal

212 economy is widely used and can refer to such disparate economic activities as shoeshine workers In India, garbage collectors in Egypt or street cassava sellers in East Africa. The important characteristics of activities in the informal economy are a mode of organization different from a firm or corporation, unregulated by the state, and eluded from national income accounts. The workers in these activities are not likely to be protected by labour legislations or organized by formal trade unions.

The International Labour Organization defines informal work as self- employment in small unregistered business and wage employment in unregulated and unprotected jobs.

Informal employment in developing regions such as proportion of women and self employment, there are also a number of other defining characteristics of informal workers in terms of education levels, wages, hours worked and overall employment conditions. In particular, informal employment is characterized by the lack of decent work or deficits in comparison with employment in the formal sector and rates of literacy compared with the formal sector, reflecting that poor human capital increases the probability of participation in the informal sector.. There is a difference in the education levels of workers in the South African informal and formal sectors - 37% of workers in the informal economy in South Africa have not completed primary school education compared to only 16% of the fomrial sector. Related to low education is the phenomenon of skill mismatch, which occurs when job seekers lack the skills demanded by employers. This problem is evident in the urban labour markets of many African countries where school leavers seek a job in the public sector, but as a consequence of downsizing and retrenchments, there are few opportunities. At the same time, these youths do not have appropriate skills for other forms of fonnal sector employment in industry or service activities. These youths therefore, end up unemployment or working in the informal sector, with many of them queuing for a job in the public sector.

Secondly, in many African countries, wages are usually much higher in the informal sector, rates of poverty are subsequently higher amongst workers and families who rely on informal employment. According to ILO, wages are

213 on average 44% lower in the informal sector. Informal workers in Egypt eam approximately 84% on average of what workers receive in the formal sector. Similar results were also found for South Africa. However, such estimates do not control for occupation, which has been gender wage gap literature to have a large impact on the disparity between male and female wages.

Thirdly, in African countries, informal sector typically work longer hours in the week. In Egypt, the average number of hours worked in the informal sector is 51.6, while it is only 44.6 in the formal sector of the economy. Other decent work deficits that are more prominent in the informal sector vis-avis formal sector include poor health and safety, high job insecurity, no worker representation and few opportunities for skill enhancement.

In the Indian context, there are few characteristics of the informal sector stand out and contrast with the formal or organized sector, its enormous size, level of productivity, level of remuneration and difficulties of access to credit. The informal sector employment in India represents between 60% and 80% of non-informal sector is extremely important as employer of last resort and as source of revenue.

As in other countries, in India the informal sector is characterized by low wages, low productivity, poor working conditions and little or no social security. While the time-wage is a common mode of payment in the formal sector, the piece wage prevails in the informal sector, particularly in informal manufacturing. In India 80% of the informal sector units used the piece rate payment system. Piece wages are also common in informal manufacturing of surgical instruments where 90% of the workers are on piece rates.

About the informal workers in India, they constitute one of the worst affected category, both in terms of condition of employment and level of living. The average earning of these workers is much below the poverty line. By and large these workers live in the abject poverty and illiteracy. An Important feature of informal labours is that they are subjected to extreme level of exploitation. In many industrial cities, informal workers do not have direct contacts with the manufacturer or employer. Nevertheless, although there are various provisions to safeguard them in th^^ififormal Workers Welfare Act, the

214 home workers scarely get any benefit out of this act.

Generally, in metropolitan cities like Mumbai, Chennai, Kolkota, Delhi, Pune etc., th workers of informal sector live in slums, their houses are made of cheap building materials. Since, majority of them do not have their own houses, they have to spend a significant part of their income as a rent. By and large they live without access to basic amenities and essential sources. Their life is the most miserable one devoid of even elementary requirements.

Growth of the informal sector in India is spectacular. Informal sector existed even before the growth of trade unions. The important reasons for the growth of informal sector are labour and capital market distortions and changes in government policies. The growth of informal sector in India is said to be Inevitable in the changing labour market conditions. Feminization of employment has also become a part of this emerging labour market.

In the Indian context, feminization of labour force is heavily taken place in agriculture and related activities which are often considered as informal. This is mainly due to various reasons like i) As globalization and industrialization offer higher wages to non-farm work and provide better opportunities for men, they may quit the sector, ii) very often circumstances might pitch women into agriculture work, as they become heads of household and ill) In some cases, feminization of agriculture labour fore is due to the growing wage labour opportunities in non-traditional agricultural exports.

In the context of some African countries and Middle East countries, labour in the agriculture sector is declining for both men and women, with the exception of women in the Middle East and North Africa. The following table highlights this fact.

Although men are migrating out of agriculture faster in some areas, the decline In women's agriculture employment are also significant. Over the long run, migration out of agriculture is necessary. Migration poses opportunities and risks for both work are particularly vulnerable to abusive contracts and work situations. Underage Khmer, Lao and Myanmar girls migrate to work in agriculture sector in Thailand, where som^are held captive working under poor working conditions.

215 More women than men work in agriculture. Data show that when both self employment and wage labour are considered women provide both self employment in agriculture than men in the agriculture sector of Asia, Sub- Saharan Africa and the Middle East and North Africa. Women also dominate in some Caribbean and Central American countries, especially in economies with low per capita income. And women's proportion in agriculture wage labour market has increased although it still lags behind that of men in all regions.

One stimulus for the growth in women's agricultural wage labour has been the "industrialization" of agriculture, particularly the growth of high value agriculture production and agro processing for export. Between 1990-1994 in Chile, women agricultural workers in the fruit export industry increased by more than 20 percent and men agricultural workers declined by 20 percent.

Women face health hazards in the cultivation of many Crops reporting back pain and pelvic problems in rice cultivation and weeding. Agricultural work can be arduous for both sexes, but to the extent that women are concentrated in specific activities, they will experience greater exposure to some risks. Occupational safety risks can be high in factories and agro- processing plants, including equipment accidents, exposure to unsafe conditions and contact with chemicals and toxic substances. In many countries in South East Asia, women who work in fish and shrimp processing experience. Arthritis and other negative health effects of standing or sitting in wet and shrimp, cold environments for 10 to 12 hours a day. In the fish and shrimp industry in Argentina, the majority of the women held temporary jobs and therefore had no medical or social coverage.

Health risks in the growing horticulture industry include exposure to toxic products through in adequate training and protective clothing, poor hygienic conditions and physical demands and long hours. As per the report of International Labour Organization (2003), every year at least 170000 agriculture labours are killed as a result of workplace accidents, and some 40000 of these are from exposure to pesticides. To the extent that women predominate in some of these activities, they have greater exposure.

216 Under conditions of temporary, seasonal, or limited contracts, no health insurance is provided. Where there are no on-site medical facilities, women labours in greater proportion than men, bear the cost of medical services. In factories or on plantations, such as in fruit producing areas in South Africa, medical facilities may be few or lacking, and workers may even be dependent on employer's for transport to medical facilities.

In the Indian context, leaving out the working condition for wage, the workers in informal sector, especially women labours, have to look after the household duties, child rearing, maintenance of cattle. In addition to eight hours domestic work spoil the health of the women agricultural workers. Ill health, tensions and other work make most of the women agricultural workers invalid even at the age of 40. The male agriculture labours whose income is higher that the women workers, not even 50% is available for domestic expenditure. Many of them are addicted to liquor, tobacco, etc and waste nearly 50% of their earnings. But the women agriculture labours are spending the entire wage for the domestic requirements. Even though, their contribution is higher for family, they are not consulted for any decision regarding the pattern of expenditure.

Over the past two decades, employment in informal sector has risen rapidly in all regions in the world. Until the recent Asian economic crisis, it was only the rapidly growing economies of East and Southeast Asia that experienced substantial growth of modern sector employment. However, in the wake of that crisis, most of these countries have experienced a decline in formal wage employment and a concomitant rise in informal employment. Even before the crisis, the informal sector accounted for nearly half of total non- agricultural employment in East Asia, over half in Latin America and the Caribbean, and as much as in other parts of Asia and Africa. In terms of urban employment, the informal sector accounted for well over half in Africa and Asia and in Latin America and the Caribbean.

Women are over-represented in the informal sector worldwide. This basic fact has several dimensions. First, the informal sector is the primary source of employment for women in most developing countries. On the basis of existing data researcher has observed that, the majority of economically active

217 women in developing countries are engaged in informal sector. In some countries in sub-saharan Africa, virtually all the female non-agricultural labour force is in the informal sector. The informal sector accounts for over 95% of women workers outside agriculture in Benin, Chad and Mali. In India and Indonesia, the informal sector accounts for 9 out of every 10 women working outside agriculture. In five Latin American and four East Asian countries, more than half of the female non-agricultural workforce is in the informal sector. Second, the informal sector is a longer source of employment for women than for men. The proportion of women workers in the informal sector exceeds that of men.

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