WIEGO Working Paper No 4 September 2008 Informality in South Asia: A Review Martha Chen and Donna Doane WIEGO Working Papers The global research-policy-action network Women in Informal Employment: Globalizing and Organizing (WIEGO) Working Papers feature research that makes either an empirical or theoretical contribution to existing knowledge about the informal economy especially the working poor, their living and work environments and/or their organizations. Particular attention is paid to policy-relevant research including research that examines policy paradigms and practice. This series includes statistical profiles of informal employment and critical analysis of data collection and classification methods. Methodological issues and innovations, as well as suggestions for future research, are considered. All WIEGO Working Papers are peer reviewed by the WIEGO Research Team and/or external experts. The WIEGO Publication Series is coordinated by the WIEGO Research Team. This paper was prepared for the Swedish International Development Cooperation Agency - Sida. About the Authors: Martha Chen is a Lecturer in Public Policy at the Harvard Kennedy School and Coordinator of WIEGO. An experienced development practitioner and scholar, her areas of specialization are employment, gender, and poverty. Before joining Harvard in 1987, she worked in Bangladesh with BRAC (now the world’s largest NGO), and in India as a field representative of Oxfam America for India and Bangladesh. Dr. Chen received a PhD in South Asia Regional Studies from the University of Pennsylvania. Donna Doane currently works with the Gender and Development Studies Program at the Asian Institute of Technology (AIT) in Thailand. She is also the Programme Consultant for HomeNet South Asia and earlier served as the Subregional Research Coordinator for social protection projects for HomeNet South East Asia. Dr. Doane received an M.A. in Anthropology and a Ph.D. in Economics from Yale University, and has been working in universities and research institutes in Japan, the US, South Asia and Southeast Asia. Publication date: September 2008 ISBN number: ISBN 978-92-95095-20-5 Published by Women in Informal Employment: Globalizing and Organizing (WIEGO) A Charitable Company Limited by Guarantee – Company No. 6273538, Registered Charity No. 1143510 WIEGO Secretariat WIEGO Limited Harvard Kennedy School, 521 Royal Exchange 79 John F. Kennedy Street Manchester, M2 7EN, Cambridge, MA 02138, USA United Kingdom www.wiego.org Copyright © WIEGO. This report can be replicated for educational and organizing purposes as long as the source is acknowledged. Cover photograph by: Martha Chen WIEGO Working Paper No 4 Contents Introduction ............................................................................................................................................1 I. Overall Employment ..........................................................................................................................1 Participation Rates .............................................................................................................................2 Employment by Sector ........................................................................................................................3 Unemployment and Underemployment ..............................................................................................3 II. Informal Employment .......................................................................................................................4 Definitions and Measures ...................................................................................................................4 Significance and Trends ....................................................................................................................5 Diversity and Heterogeneity ...............................................................................................................6 Gender Differences ..........................................................................................................................12 III. Informal Labour Markets .................................................................................................................15 Employment Status .........................................................................................................................16 Place of Work ..................................................................................................................................17 Sector Linkages ................................................................................................................................19 IV. Labour Market Behaviour ...............................................................................................................21 Multiple Activities ............................................................................................................................21 Multiple Locations ............................................................................................................................23 Life Cycle Shifts ...............................................................................................................................23 V. Causal Theories ...............................................................................................................................24 Economic Factors .............................................................................................................................25 Social Factors ..................................................................................................................................26 VI. Responses to Informality .................................................................................................................26 References ............................................................................................................................................29 Appendix I: Labour Market Profiles: Bangladesh, Nepal, Pakistan, and Sri Lanka ...............................35 Appendix II: Profiles of SEWA Members ................................................................................................43 Appendix III: Three Trades In Ahmedabad City, India ..........................................................................71 WIEGO Working Paper No 4 Introduction South Asia and Sub-Saharan Africa (excluding South Africa) are the two regions of the world with the highest average incidence of informal employment: representing over three-quarters – as high as 90 per cent in some countries – of total employment (ILO 2002b). By comparison, informal employment represents around two-thirds of total employment in other developing regions: around 65 per in South East and East Asia and 60 per cent in Latin America, the Middle East, and North Africa (Ibid., Perry et al. 2007; see companion reviews for Africa and Latin America). In developed countries, non-standard work – which is mostly informal (i.e., not covered by social protection) – comprises 25-40 per cent of total employment.1 The term “informal sector” was coined in Africa in the early 1970s, by the British anthropologist Keith Hart and the International Labour Organization (ILO), to refer to the urban self-employed. Although the concept has been debated ever since, it has continued to be used by many policy makers, labour advocates, and researchers because the reality it seeks to capture – the large share of the global workforce that remains outside the world of full-time, stable, and protected employment – continues to be important and has been increasing over time. The official international statistical definition of the “informal sector” endorsed by the International Conference of Labour Statisticians in 1993 retained a focus on self-employment in informal enterprises. Since the mid-1990s, however, statisticians, researchers, and activists in India, together with the ILO Statistics Bureau, the global action-research-policy network WIEGO, and the International Expert Group on Informal Sector Statistics (called the Delhi Group because it is convened by the Government of India), have developed and promoted an expanded definition or concept that includes all forms of informality. In 2003, the International Conference of Labour Statisticians endorsed statistical guidelines for measuring this broader concept of “informal employment” that includes self-employment in informal enterprises (operating outside formal regulations) and wage employment in informal jobs (without legal or social protection) in both urban and rural areas. In this review, we seek to explore the diversity and dynamics of the informal economy across five countries in South Asia: Bangladesh, India, Nepal, Pakistan, and Sri Lanka. This review is in six sections. In the first two sections, we present statistical overviews of employment generally and informal employment specifically in South Asia. We then examine the dynamics of informal labour markets and how individuals and households respond to these dynamics in Sections III and IV, respectively. In Section V, we speculate on what causes or drives informal employment in South Asia, focusing on broad structural forces both economic and social. In the concluding section, we present a three-pillar framework for considering policy and other responses to informality with promising examples from South Asia. I. Overall Employment The total labour force in South Asia is very large,