Contents I International Labour Conference 90th Session 2002 Report VI Decent work and the informal economy Sixth item on the agenda International Labour Office Geneva II Decent work and the informal economy ISBN 92-2-112429-0 ISSN 0074-6681 First published 2002 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. A catalogue or list of new publications will be sent free of charge from the above address. Printed in Switzerland ATA Contents III CONTENTS Pages CHAPTER I. Decent work and the informal economy . 1 Old and new forms of informality and informalization . 1 Decent work and the informal economy . 4 Aims and outline of the report . 7 CHAPTER II. Who is in the informal economy and why is it growing? . 10 Who is in the informal economy? . 10 Employment in informal enterprises . 12 Status in employment . 14 Some regional and country “maps” . 16 Child labour in the informal economy . 25 The factors shaping and reshaping the informal economy . 27 Legal and institutional frameworks . 27 Economic growth, employment creation and the informal economy . 29 Economic restructuring, economic crisis and the informal economy . 30 Poverty and the informal economy. 31 Demographic factors and the informal economy . 32 Globalization and the informal economy . 33 Flexible specialization and global chains . 35 The links between the formal and informal economies . 37 CHAPTER III. Enhancing rights in the informal economy . 39 The rights deficit in the informal economy . 39 The ILO Declaration on Fundamental Principles and Rights at Work and the informal economy . 40 Freedom of association and the right to collective bargaining . 41 Elimination of forced labour . 41 Elimination of child labour. 42 Elimination of discrimination . 43 The promotional follow-up . 43 ILO instruments and the informal economy . 44 Promoting rights through national and local legislation, regulations and institutions 47 Improving labour legislation . 48 Legal literacy . 50 Strengthening labour administration and enforcing labour rights . 52 Protecting workers through improving commercial and business regulation . 53 IV Decent work and the informal economy CHAPTER IV. Improving social protection in the informal economy . 55 The social protection deficit in the informal economy . 55 The reasons for low social protection in the informal economy . 57 Improving social protection in the informal economy . 58 Extending and adapting statutory social insurance . 59 Encouraging micro-insurance and area-based schemes . 62 Promoting cost-effective tax-based social benefits . 64 Occupational safety and health in the informal economy . 65 The implications of HIV/AIDS for social protection in the informal economy . 69 CHAPTER V. Strengthening representation and voice in the informal economy . 71 The representational gap in the informal economy . 71 Strengthening representation and voice in the informal economy . 74 The role of national and local governments . 74 The role of trade unions . 77 The role of employers’ organizations . 86 The role of cooperatives . 92 CHAPTER VI. Meeting the global demand for decent employment . 95 The global employment deficit . 95 Creating quality jobs and enhancing employability . 99 Promoting employability and productivity through investing in knowledge and skills 99 Literacy and basic education . 99 Training and skills development for formal, decent employment . 100 Providing training for those in the informal economy . 102 Quality job creation through enterprise development . 105 An enabling policy, legal and regulatory framework . 106 Good governance and the role of national and local governments . 107 An enterprise culture for formal, decent jobs . 108 Support structures and services for micro-enterprises . 110 Improving job quality in micro- and small enterprises . 112 Securing property rights . 113 Financing in the informal economy . 115 Local economic development and quality job creation . 118 SUGGESTED POINTS FOR DISCUSSION . 120 ANNEX. Matrix and glossary of terms . 121 Glossary of terms used in the report . 125 A country-specific example based on the matrix: Mexico . 127 Decent work and the informal economy 1 CHAPTER I DECENT WORK AND THE INFORMAL ECONOMY OLD AND NEW FORMS OF INFORMALITY AND INFORMALIZATION It was exactly 30 years ago that the ILO first used the term “informal sector” to describe the activities of the working poor who were working very hard but who were not recognized, recorded, protected or regulated by the public authorities.1 And it was more than a decade ago in 1991 that the 78th Session of the International Labour Conference discussed the “dilemma of the informal sector”.2 The dilemma was posed as whether the ILO and its constituents should promote the informal sector as a pro- vider of employment and incomes or seek to extend regulation and social protection to it and thereby possibly reduce its capacity to provide jobs and incomes for an ever- expanding labour force. The 1991 Report emphasized that “there can be no question of the ILO helping to ‘promote’ or ‘develop’ an informal sector as a convenient, low-cost way of creating employment unless there is at the same time an equal determination to eliminate progressively the worst aspects of exploitation and inhuman working condi- tions in the sector”.3 The Conference discussion stressed that the dilemma should be addressed by “attacking the underlying causes and not just the symptoms” through “a comprehensive and multifaceted strategy”.4 Today, there is still a dilemma – but one that is much larger in magnitude and more complex. Contrary to earlier predictions, the informal economy has been growing rap- idly in almost every corner of the globe, including industrialized countries – it can no longer be considered a temporary or residual phenomenon. The bulk of new employ- ment in recent years, particularly in developing and transition countries, has been in the informal economy. Most people have been going into the informal economy be- cause they cannot find jobs or are unable to start businesses in the formal economy. In Africa, for instance, informal work accounted for almost 80 per cent of non-agricul- tural employment, over 60 per cent of urban employment and over 90 per cent of new jobs over the past decade or so.5 But work in the informal economy cannot be termed “decent” compared to recognized, protected, secure, formal employment. 1 ILO: Employment, incomes and equality: A strategy for increasing productive employment in Kenya (Geneva, 1972). 2 ILO: The dilemma of the informal sector, Report of the Director-General, International Labour Conference, 78th Session, Geneva, 1991. 3 ibid., p. 58. 4 ILO: Provisional Record, International Labour Conference, 78th Session, Geneva, 1991, reply of the Director-General to the discussion of his Report, pp. 27/7-27/8. 5 J. Charmes, cited at Women in Informal Employment: Globalizing and Organizing (WIEGO) Sec- ond Annual Meeting, Cambridge, Massachusetts, 22-24 May 2000. 2 Decent work and the informal economy There has also been increasing flexibilization and informalization of production and employment relationships in the context of global competition and information and communications technology (ICT).6 More and more firms, instead of using a full- time, regular workforce based in a single, large registered factory or workplace, are decentralizing production and reorganizing work by forming more flexible and spe- cialized production units, some of which remain unregistered and informal. A global variation of flexible specialization is the rapid growth in cross-border commodity and value chains in which the lead firm or large retailer is in an advanced industrialized country and the final producer is an own-account worker in a micro-enterprise or a homeworker in a developing or transition country. As part of cost-cutting measures and efforts to enhance competitiveness, firms are increasingly operating with a small core of wage employees with regular terms and conditions of employment and a grow- ing periphery of “non-standard” or “atypical” workers in different types of workplaces scattered over different locations and sometimes different countries. These measures often include outsourcing or subcontracting arrangements and more flexible and infor- mal employment relationships. The non-standard wage employment that flexible specialization has given rise to includes workers in sweatshop production, homeworkers, industrial outworkers and casual, temporary and part-time workers. However, not all of these flexible or “atypi- cal” workers are “informal”. For example, in advanced industrialized countries, tem- porary and part-time workers and teleworkers operating from home are normally covered by labour and social security legislation (although the level of pay and ben- efits is