Informal sector and informal employment:
Key concepts and definitions
Ralf Hussmanns
Head, Methodology and Analysis Unit
Bureau of Statistics
International Labour Office
ILO Bureau of Statistics:
Activities



Collection and dissemination of international
labour statistics: Yearbook of Labour Statistics,
Internet, etc.
Development or revision of international
standards on labour statistics: methodological
work, International Conference of Labour
Statisticians (ICLS);
Technical assistance in labour statistics (in
cooperation with ILO field offices): Technical
cooperation projects, advisory missions, training
courses, methodological manuals.
International standards on labour
statistics: Purposes
Provision of technical guidelines for the
development of national labour statistics
on the basis of accepted best methods
and practices
 Enhancement of the international
comparability of labour statistics
 Protection of labour statistics against
public criticism and political interference

International standards: Informal
sector and informal employment

Resolution concerning statistics of employment
in the informal sector (15th ICLS, 1993)

Guidelines concerning a statistical definition of
informal employment (17th ICLS, 2003)
Purpose of presentation
Explain international statistical definitions of the
informal sector and of informal employment;
 Present a conceptual framework that makes it
possible to complement statistical measures of
employment in the informal sector (IS) with
broader statistical measures of informal
employment (IE);
 Show how the two measures can be obtained in
using labour force surveys as the source of
information.

Concepts
 Informal
sector: enterprise-based.
 Informal
employment: job-based.
Conceptual framework:
Employment in the informal economy
Production units
Informal jobs
Formal jobs
Informal sector
enterprises
A
B
Other units of
production
C
D
Employment in the informal sector:
A+B
Informal employment:
A+C
Informal employment outside the informal sector:
C
Employment in the informal economy:
A+B+C
Why are statistics on the informal
sector (IS) needed?




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Research and analysis
Formulation, monitoring and evaluation of
policies and programmes
Advocacy purposes: recognise role of IS in
job creation, poverty reduction, etc.
Improvement of labour statistics and
economic statistics
Improvement of national accounts
(exhaustiveness of GDP measurement)
International statistical definition of
the informal sector (IS)
Adopted by the 15th ICLS (1993) and referred to
in the SNA 1993.
 IS defined in terms of characteristics of
production units/enterprises (enterprise
approach) rather than characteristics of persons
or their jobs (labour approach).
 IS defined as subsector of the SNA institutional
sector ‘households’.
 IS can be identified separately in the accounts.
 Its contribution to GDP can be quantified.
 Updated 1993 SNA (2009) will include special
chapter on IS.

Institutional units
(1993 SNA)
 Corporations
(incl. quasi-
corporations)
 Government units (incl. social
security funds)
 Non-profit institutions
 Households (incl. unincorporated
enterprises owned by households)
15th ICLS: Definition of employment in
the informal sector

All jobs in informal sector enterprises, or
all persons who, during a given reference
period, were employed in at least one
informal sector enterprise, irrespective of
their status in employment and whether it
was their main or a secondary job.

‘Enterprise’ defined in a broad sense.
15th ICLS: Informal sector concept
Informal sector: units engaged in production of
goods or services.
 Primary objective: generation of employment and
incomes for persons concerned.
 Characteristics: low level of organisation; little or
no division between labour and capital as factors
of production; small scale; labour relations (if
any) based on casual employment, kinship, or
personal/social relations rather than contracts
with formal guarantees.

15th ICLS: Criteria for defining
informal sector enterprises (1)


Private unincorporated enterprises excluding
quasi-corporations (1993 SNA: household
unincorporated enterprises, household
enterprises) owned by individual household
members, several members of the same
household, or members of different households:
Not constituted as separate legal entities
independently of their owners, and no complete
sets of accounts available.
15th ICLS: Criteria for defining
informal sector enterprises (2)

At least some of the goods or services produced
are meant for sale or barter.


Note: 17th ICLS excluded households employing paid
domestic workers from the IS.
Engaged in non-agricultural activities, including
secondary non-agricultural activities of
enterprises in the agricultural sector.

Note: The recommendation to exclude agriculture from
the scope of the IS, and measure it separately, was
made for practical data collection reasons, not for
conceptual ones.
15th ICLS: Framework of informal
ILO
sector definition
Household
enterprises
Own-account
enterprises
Enterprises of
employers
Informal
sector
enterprises
Informal
own-account
enterprises
Enterprises
of informal
employers
Other
household
enterprises
Other
own-account
enterprises
Other
enterprises of
employers
15th ICLS: Criteria for defining
informal sector enterprises (3.1)
Informal own-account enterprises:
 All own-account enterprises,
 or only those not registered under specific
forms of national legislation (factories’/
commercial acts, tax/social security laws,
professional groups’ regulatory acts, etc.)
as distinct from local regulations for
issuing trade licenses or business permits.
15th ICLS: Criteria for defining
informal sector enterprises (3.2)
Enterprises of informal employers:
 Establishment size in terms of
employment below a certain threshold (to
be determined by countries themselves;
Delhi Group: less than 5 employees, for
international reporting),
 and/or enterprise not registered,
 and/or employees (if any) of the
enterprise not registered.
Informal sector:
Motives for participation
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Survival strategy: lack of other jobs and social
protection (e.g. unemployment benefits), need
to supplement income
Desire for independence and flexible work
arrangements
Higher income than wage employment
Traditional activity (e.g. handicrafts)
Non-compliance with regulations (e.g. tax
payments, social security contributions, labour
legislation), reduction of production costs
(problems of non-response!)
LFS – Information usually available
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Socio-demographic characteristics: sex, age,
marital status, relationship to reference person of
household, level of education, place of usual
residence, urban vs. rural area, etc.
Household/family characteristics: household/
family size, household/family type, etc.
Hours of work and earnings
Industry, occupation and status in employment
Other job characteristics: full-time/part-time
work, job permanency (permanent, temporary,
seasonal, occasional, etc. job)
Note:
ISIC, Rev. 3/3.1/4: identifies persons
 working in agriculture and related activities,
 employed as domestic employees by households,
 or engaged in the production of goods for own
final use by their household.
Question on form of registration of the enterprise:
covers usually the criteria of
 non-registration of the enterprise,
 kind of ownership,
 legal organisation,
 and type of accounts.
LFS: Example of questions for
measuring employment in the informal
sector (1)
All respondents:
 Number of persons usually working in the
enterprise (in size classes)
 If few: Exact number by sex and status in
employment
 Place of work
Own-account workers, employers, contributing
family workers:
 Form of registration of the enterprise, or
 Type of tax payment by the enterprise
LFS: Example of questions for
measuring employment in the informal
sector (2)
Employees:

Registration of the enterprise, or
Kind of ownership of the enterprise
 If private: Legal organisation of enterprise
 If unknown: Type of the enterprise (approximate
information)

Note: Only few additional questions are needed to
measure employment in the informal sector.
QLFS South Africa: Questions on
employment in the informal sector (1)
Employees:
 Deduction by employer of income tax from the
employee’s wage/salary

Employers, own-account workers & contributing
family workers:
 VAT registration of the (household) business
 Income tax registration of the (household)
business

QLFS South Africa: Questions on
employment in the informal sector (2)
All respondents:
 Ownership/institutional sector of place of
work (government, public enterprise,
private enterprise, NPI, household)
 Number of employees at place of work
 Self-assessment of place of work (formal
sector, informal sector, household)

Criticism of the informal sector
concept (1)

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
The term ‘sector’ suggests homogeneity of the
units included, while in reality the IS comprises a
fairly heterogeneous set of enterprises.
In common language, the term ‘sector’ means
‘branch of economic activity (industry)’.
The dichotomy ‘formal-informal’ suggests a
dualism of the economy/labour market, while in
reality there is a continuum.
Criticism of the informal sector
concept (2)

An enterprise-based definition is unable to
capture all aspects of the increasing socalled «informalisation» of employment.
Reminder
Don’t blame your dog
because it does not
behave like a cat!
Informalisation of employment
Growth of the informal sector, especially
in developing and in transition countries.
 Increase of various forms of informal (or
non-standard, atypical, alternative,
irregular, precarious, etc.) employment in
most countries, incl. developed countries.
 Informalisation of employment goes far
beyond the informal sector.

Delhi Group
(5th Meeting, 2001)
« The definition and measurement of
employment in the informal sector
 need to be complemented
 with a definition and measurement
of informal employment. »

Employment in the informal
sector and informal employment




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Refer to different aspects of the informalisation
of employment and to different target groups for
policy-making.
One of the two concepts cannot replace the
other.
Are concepts that complement each other: both
are useful for analytical/policy-making purposes.
Need to be defined/measured in a coherent and
consistent manner, to be clearly distinguishable.
Unaware of the different observation units
involved (enterprises vs. jobs), statistics users
tend to confuse the two concepts.
Informal employment:
Relevance (1)
Statistics on informal employment can provide
data for some of the decent work indicators
being developed by the ILO,
 or serve as one summary indicator of decent
work itself,
 while statistics on employment in the informal
sector can be used as a context indicator for the
measurement of decent work.

Informal employment:
Relevance (2)

Informal employment is being proposed as part
of an additional indicator for monitoring of the
Millenium Development Goal (MDG) 3 ‘Promote
gender equality and empower women’:

‘Gender differences in the structure of
employment’, in addition to ‘Share of women in
wage employment in the non-agricultural
sector’.
17th ICLS: Conceptual framework for
informal employment (IE)



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Purpose: Relate enterprise-based concept of
employment in the IS in coherent & consistent
manner with a broader, job-based concept of IE.
Basis: Employed persons hold jobs having various
job-related characteristics, which are undertaken
in production units (enterprises) having various
enterprise-related characteristics.
Observation unit for employment: Jobs rather
than employed persons (reason: existence of
multiple jobholding).
Result: Total employment classified by (i) type of
production unit and (ii) type of job.
Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
Production units by type
Formal sector enterprises: corporations (incl.
quasi-corporate enterprises), non-profit
institutions, unincorporated enterprises owned
by government units, and those private
unincorporated enterprises producing goods or
services for sale or barter which are not part of
the IS.
 Informal sector enterprises: as defined by 15th
ICLS, but excluding households employing paid
domestic workers (as recommended by Delhi
Group).
 Households: households producing goods
exclusively for their own final use, and
households employing paid domestic workers.

Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
Jobs by type
1. Status in employment (ICSE-93): ownaccount workers, employers, contributing
family workers, employees, and members
of producers’ cooperatives.
 Breakdown by status in employment:
needed for definitional purposes and
considered useful for analytical and
policy-making purposes.
 2. Nature of job: informal vs. formal.

Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
Type of cells
Dark grey: jobs which, by definition, do
not exist (e.g. contributing family workers
in household non-market production
units).
 Light grey: formal jobs (e.g. employees
holding formal jobs in formal sector
enterprises).
 Unshaded: informal jobs.

Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
17th ICLS: Definition of informal
employment
Total number of informal jobs,
whether carried out in formal sector
enterprises, informal sector
enterprises, or households, during a
given reference period.
17th ICLS: Components of informal
employment (1)

Own-account workers and employers employed
in their own informal sector enterprises (Cells 3
& 4): informal nature of jobs determined by
characteristics of the enterprise.

Members of informal producers’ cooperatives,
i.e. cooperatives not formally established as
legal entities, etc. (Cell 8): informal nature of
jobs determined by characteristics of the
cooperative.
Components: Informal employment (2)
Own-account workers engaged in production of
goods exclusively for own final use by their
household (e.g. subsistence farming, do-ityourself construction of own dwellings), if
considered employed according to the 13th ICLS
(1982) definition of employment (Cell 9).
 Contributing family workers working in formal or
informal sector enterprises (Cells 1 & 5): no
written employment contracts; employment not
subject to labour legislation, social security
regulations, collective agreements, etc.

Components: Informal employment (3)
Employees holding informal jobs, whether
employed by formal sector enterprises,
informal sector enterprises, or as paid
domestic workers by households (Cells 2,
6 & 10).
 Note: Definition of informal employee jobs
represents major new element of the
guidelines.

17th ICLS: Definition of informal jobs
of employees
Employees are considered to have informal jobs
if their employment relationship is, in law or in
practice, not subject to national labour
legislation, income taxation, social protection or
entitlement to certain employment benefits
(advance notice of dismissal, severance pay,
paid annual or sick leave, etc.).
 Note: Definition covers (i) de jure informal jobs
and (ii) de facto informal jobs.

17th ICLS: Reasons for informal jobs
of employees
Non-declaration of the jobs or the employees;
 Casual jobs or jobs of a limited short duration;
 Jobs with hours of work or wages below a
specified threshold (e.g. for social security);
 Employment by unincorporated enterprises or by
persons in households;
 Employee’s place of work is outside the premises
of the employer’s enterprise (e.g. outworkers
without employment contract);
 Jobs, for which labour regulations are not
applied, not enforced, or not complied with for
other reasons.

Informal jobs of employees:
Operational criteria
To be determined by countries in
accordance with national circumstances
and data availability, due to large diversity
of informal employment situations found
in different countries.
 Impact on the international comparability
of informal employment statistics
recognized by 17th ICLS.

Operational criteria used to
define informal jobs of employees
Lack of coverage by social security
system
 Lack of entitlement to paid annual or
sick leave
 Lack of written employment contract
 Casual/temporary nature of work

Employees holding formal jobs in
informal sector enterprises (Cell 7)
Included in employment in the
informal sector,
 but excluded from informal
employment.
 Significance varies among countries,
depending upon informal sector
definitions used.

Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
Indicators

Employment in the informal sector: Sum
of Cells 3 to 8.

Informal employment: Sum of Cells 1 to 6
and 8 to 10.

Informal employment outside the informal
sector: Sum of Cells 1, 2, 9 and 10.
Components: Informal employment
outside the informal sector
Employees holding informal jobs in formal sector
enterprises (Cell 2) or as paid domestic workers
employed by households (Cell 10).
 Contributing family workers working in formal
sector enterprises (Cell 1).
 Own-account workers engaged in production of
goods exclusively for own final use by their
household, if considered employed according to
the 13th ICLS definition of employment (Cell 9).

Jobs by status in employment
Production
units by type Own-account workers
Informal
Formal
Contributing
Employers
Employees
family
workers
Informal Formal
Informal
Informal Formal
Formal sector
enterprises
Informal sector
enterprises (a)
Households (b)
3
9
4
1
2
5
6
7
Members of producers’
cooperatives
Informal
Formal
8
10
(a) As defined by the Fifteenth International Conference of Labour Statisticians (excluding households employing paid domestic workers).
(b) Households producing goods exclusively for their own final use and households employing paid domestic workers.
Related issues (1)
While problems in assigning jobs to status-inemployment categories affect data on informal
employment to a lesser extent than data on
employment in the informal sector (classification
errors vs. coverage errors),
 further work is needed to develop
methodologies helping to reduce classification
errors regarding jobs at the borderline of statusin-employment categories (own-account
workers vs. employees vs. contributing family
workers).

Related issues (2)

Usefulness of developing analytically relevant
sub-divisions of the various types of informal
jobs (especially those held by employees)

as part of further work on classifications by
status in employment.
Related issues (3)
Development of comprehensive statistics on
informal employment in countries, which
exclude agriculture from the scope of their
informal sector statistics:
 Need to define informal jobs in non-subsistence
agriculture, especially those held by ownaccount workers, employers and members of
producers’ cooperatives,
 to fill the definitional gap that exists in respect
of such jobs.

LFS: Measuring informal
employment (1)

Additional questions are needed only for the
identification of informal jobs of employees.

For all other status-in-employment categories the
classification of jobs as informal follows directly
from the status in employment of the job and/or
the characteristics of the enterprise,

possibly with exception of the jobs held by ownaccount workers, employers and members of
producers’ cooperatives in non-subsistence
agriculture.
LFS: Questions on informal jobs of
employees (tested in pilot survey)
Q11: Permanent vs. temporary employment
 Q12: Existence of written employment contract
 Q13: Payment of social security (pension fund)
contributions for the employee by the employer
 Q14: Possibility to benefit from paid annual leave
or compensation for it
 Q15: Possibility to benefit from paid sick leave
 Q16: Possibility to benefit from maternity leave
 Q17: Risk of arbitrary dismissal without advance
notice by the employer
 Q18: Possibility to receive legal benefits and
compensation in case of dismissal

Questions used to define informal jobs
of employees
(LFS as from 2004)
Q13: Payment of social security (pension fund)
contributions for the employee by the employer
 Q14: Possibility to benefit from paid annual leave
or compensation for it
 Q15: Possibility to benefit from paid sick leave


Employees are considered to have informal jobs if
the answer to any of the questions Q13, Q14 or
Q15 is ‘ no ’.

Principle: ‘No work, no pay’.
QLFS South Africa: Questions on
informal jobs of employees
Employer’s contribution to any pension/
retirement fund for the employee
 Entitlement to any paid leave
 Employer’s payment of UIF contributions for the
employee
 Entitlement to medical aid benefits from the
employer
 Employment through written contract vs. verbal
agreement
 Duration of the contract/agreement (limited,
permanent, unspecified)
