Informal Sector:
Statistical Concepts
12 November 2007
Zeynep Orhun, Statistics Division
What are we going to discuss today?
• Why are we interested in informal sector
statistics?
• What are some related concepts?
• How do we define informal sector?
• What are the key criteria to facilitate data
collection?
• What are various tools to collect data on IS?
• DA Project on Interregional Cooperation on the
Measurement of Informal Sector and Informal
Employment: Unified Data Collection Strategy
• Incorporating estimates into national accounts
Problem: Lack of sound data
• Informal sector not covered in official statistics
• Inadequate information on contribution of
informal sector to GDP and labour market
• Data collections typically ad hoc studies (i.e. not
part of regular national statistical systems) and
with limited scope
• Available data not internationally comparable
• No time series data
• Poor analysis and dissemination
Consequences: Statistics to Policy
• Potentially significant underestimation of the
GDP
• Lack of info on differential characteristics of
informal sector enterprises in the use of
technology, access to credit, training, markets,
etc.
• Lack of info on input-output relations between
formal and informal sector enterprises
• Lack of info on informal sector’s contribution to
employment and employment characteristics
Type of informal sector statistics needed
• Total # of informal sector units
• Production and incomes generated
through informal sector activities
• Conditions of creation and operation of
informal sector units
• Total employment in informal sector units
Scope of Non-Observed Economy
• Illegal
• Underground/Concealed
• Household production for own final use
• Activities missed in data collection
• Informal sector
NOE Components and Production Units
Illegal Production
Producer/service
provider
unlicensed
Goods or services
prohibited by law
Monetary
Non-monetary
Illegal production is included in SNA 1993 production boundary
in order to avoid erroneous attributions in financial
accounts/transactions.
Underground/concealed activities
• Not clearly separated from illegal production
• Mainly unreported income from production of legal goods and
services (monetary/non-monetary)
• Certain activities may be productive and also legal but deliberately
concealed from public authorities to:
(a) Avoid the payment of income, value added or other taxes;
(b) Avoid the payment of social security contributions;
(c) Avoid having to meet certain legal standards such as minimum
wages, maximum hours, safety or health standards, etc.;
(d) Avoid complying with certain administrative procedures, such
as completing statistical questionnaires or other administrative
forms.
E.g. construction, service industries where small enterprises dominate
Household production for own final use
(a) Production of agricultural products and their subsequent storage
(b) Production of other primary products such as mining salt, cutting
peat, the supply of water
(c) Processing of agricultural products
(d) Other kinds of processing such as weaving cloth; dress making
and tailoring; the production of footwear; the production of pottery,
utensils or durables; making furniture or furnishings; etc.
*Storage of agricultural goods and supplying of water are included in
the production boundary as an extension of production activities.
Statistical Underground
Activities missed due to data collection deficiencies
such as:
(a) Undercoverage of enterprises
(b) Non-response by enterprises (not imputed)
(c) Underreporting by enterprises
Informal Sector
• No unified definition hampering:
– Comparable datasets
– Comprehensive guidelines
– Promotion of international standards
• There are international guidelines (15th ICLS,
17th ICLS)
Differences in Definitions Across Countries
Azerbaijan
Complete NOE definition except for illegal activities
Kazakhstan
Complete NOE definition (refers to hidden and informal
activities)
Kyrgyzstan
Covers hidden (deliberately concealed or missed in data
collection) and informal activities (carried out by individual
producers or unincorporated enterprises which belong to
individuals or households; based on informal relations and
produce goods and services completely or partially for their
own consumption).
Turkey
Unregistered economy
Turkmenistan
NOE covers essentially non-government units
Uzbekistan
Informal economic activities (informal sector includes the
activities of households and individual entrepreneurs working
with or without licenses)
What is a household unincorporated
enterprise?
(a) Fixed/other K does not belong to production unit but to
owner
(b) Enterprises cannot engage in transactions or enter into
contracts with other units, nor incur liabilities on their
own behalf
(c) Owners have to raise the necessary finance at their own
risk and are personally liable, without limit, for any
debts or obligations incurred in the production process
(d) Expenditure for production is often indistinguishable
from household expenditure
(e) Capital equipment may be used indistinguishably for
business and household purposes
Household Unincorporated Enterprises
Market
(all or most of output marketed)
Producing at least some goods & services
for market
Non-agricultural
Agricultural
Formal
sector
Informal
sector
Formal Informal
sector sector
Starting point for data collection
Non-market
Producing goods & services
for own final use
Goods
Services
Agriculture,
forestry, fishing
Paid domestic
services
Other activities
Owner occupied
dwelling services
Informal Sector Criteria, 15th ICLS
(a) Size: The number of employees on a continued basis (in
practice can be total # employees or engaged) is under
a specified size (depends on national context, not the
best criterion as there may be small enterprises which
are perfectly formal).
(b) Non-registration: The enterprise is not registered under
pertaining national legislation (such as factories’ or
commercial acts, tax or social security laws,
professional groups’ regulatory acts, or similar acts,
laws or regulations established by national legislative
bodies).
*ICLS recommended the exclusion of agriculture from
scope of informal sector measurement due to practical
reasons (and we abide by this recommendation in our
project).
Criteria for Identifying IS Enterprise
Essential
• Legal
organization
• Ownership
• Type of accounts
• Product
destination
Unincorporated enterprise
Household
No complete set of accounts
At least some market
output
Criteria: Additional & Optional
Additional Operational
• #employed/engaged Specific to country
• Non-registration
Optional
Specific to country
• Kind of economic
activity
Possible exclusion of:
– Agriculture and related
activities
– Paid domestic services
Possible exclusion of rural areas
• Geographic area
Informal Sector based on Delhi Group
Recommendations
• For international comparability-- narrower definition
based on the largest common denominator of
currently used national definitions.
• 3 essential criteria + additional criteria to be applied
simultaneously:
– Productive units with less than five paid
employees, and
– Productive units not registered, and
– Exclusion of households employing paid domestic
employees
Framework of IS Definition
Household Unincorporated Enterprises
Informal ownaccount enterprises
Other own-account
enterprises
Own-account
enterprises
Enterprises of
informal employers
Other enterprises of
employers
Enterprises of
employers
Informal Sector
Informal Own-Account Enterprises
• Operated by own-account workers, either
alone, or in partnership with members of
same or other households
• May employ family workers and occasional
employees, but not employees on continuous
basis
• Include all or exclude those registered under
certain specified national legislation
Enterprises of Informal Employers
• Owned and operated by employers, either
alone or in partnership with members of
same or other households, and employ one or
more employees on continuous basis
– Employees (hired on continuous basis)
below a specified number
– Non-registration of the enterprise
– Non-registration of employees (labour
laws)
Employment and Informality
Informality of employment is characterized by absence of
contracts, social protection, entitlement to benefits and not
being subject to labour legislation and income taxation.
• Informal employment versus informal sector employment
Given a reference period:
• Employment in informal sector = all jobs in ISEs or all
persons who were employed in at least 1 ISE irrespective of
status (can be main/2nd job)
• Informal employment = total # informal jobs in formal or
informal sector enterprises or households
NOE Components and Employment
THANK YOU!
www.unescap.org/stat/isie
Informal Sector:
Measurement Methods
12/11/2007
Zeynep Orhun, Statistics Division
How do we collect data on IS and IE?
Household Surveys
Informal Sector Surveys
Household Income
Expenditure Surveys
Establishment Surveys
Labour Force
Surveys
Mixed Household
Enterprise Surveys
Household Surveys: LFS
• Measurement Objectives
– Monitor evolution of IS employment
– # and characteristics of employees, employment conditions
– Data on labour inputs can be used in conjunction with informal
sector surveys to extrapolate data on other characteristics, e.g.
value-added
• Methodological Considerations
–
–
–
–
Additional questions or module to LFS
Ask all people employed during reference period
Ask in respect of both main and secondary jobs
Probing questions needed for often unreported activities, e.g.
unpaid work, women’s own-account/home-based activities,
secondary activities of farmers, government officials, formal
sector employees
Household Surveys: LFS
• Limitations/Concerns
– Seasonality
– # of IS enterprises versus IS entrepreneurs
– Disaggregation by economic activity depends
on the sample size and design
Household Surveys: HIES
• Measurement Objectives
– HH demand for goods and services produced in the
informal sector
• Methodological considerations
– Info on each expenditure item, distribution based on
place
• Limitations/Concerns
– Does not provide total demand but household final
consumption only
Informal Sector Surveys
• Measurement objectives
– Collect detailed structural information (# and
characteristics of businesses, employment,
income generation and K equipment of ISEs,
conditions/constraints of operation, relations
to formal sector/public authorities
• Tools
– Establishment Surveys
– Mixed Household and Enterprise Surveys
ISS : Establishment Surveys
• Methodological considerations
– Prerequisite: sampling frame
– List frame often not available or do not cover hh
enterprises
– Establishment or economic censuses can be used as
list frame or sampling frame (PSUs) (depending on
the time lag of ISS)—USUs would need update
• Limitations/Concerns
– High cost
– Omissions
– Duplications
ISS : Mixed HH and Entreprise
Surveys
• Methodological Considerations
– Based on area sampling and conducted in 2 phases
– Phase 1 (HH Survey): Sampling frame through household
listing/survey in selected areas or PSUs (all businesses and
owners are identified)
– Phase 2 (Enterprise Survey): All or a sample of business owners
interviewed
– Post-sampling identification
– Possible to analyze jointly various activities of the same
individuals/hh
– Possible to link informal sector activities/business owner
characteristics with household characteristics  contribution of
family members (women and children)
Mixed Surveys: Independent Informal
Sector Surveys (1)
• Methodological Considerations
– Multi-stage design
• Selection of areas as PSUs
• Household listing or interviewing
• Selection of sample hh with owners of potential IS businesses as
USUs
• Main interviewing of sample households and business owners
– Density of informal sector entrepreneurs and type of activity
(stratified sampling)
– Info on density of employers/own-account workers in the
enumeration areas classified by activity/type of work place/#
employees; concentration of small establishments; stratification
of enumeration areas by income/socio-economic criteria; other
info obtained during listing or data collection for ISS; local
expert knowledge.
Mixed Surveys: Independent Informal
Sector Surveys (2)
• Limitations/Concerns
– High cost of survey operations, especially Phase 1
– Quality of listing (type of activity, basic characteristics
data needed for stratification)
• Listing of hh and hh-based business operators,
establishments (different area sampling frames may be
used—different geographical clustering)
• Listing may be expanded into survey to ensure coverage
• Different sampling fractions are used for different strata to
have adequate sampling units from each stratum
– Complex survey operations; sample weighting and
estimation procedures
Mixed Surveys: Modular Approach (1)
• Methodological Considerations
– ISS sample is a sub-sample of the base survey (LFS or
HIES)
– Conducted simultaneously or consecutively
– Allows regular/sustainable IS data collection
– Complete coverage and accurate identification of IS
entrepreneurs in the sample hh
– Same sampling weights can be used as the base
survey
– Information on IS can be related to other info from
the base survey
Mixed Surveys: Modular Approach (2)
• Limitations/Concerns:
– Need for a suitable base survey (survey
operations and response burden)
– Frequency/reference period of base survey
– Base survey samples are not selected for IS—
areas or hh (disaggregation, distribution,
representation)
Mixed Surveys: Integrated Surveys
• Methodological Considerations
– Special modular approach to meet several objectives
(IS, labour force, hh income and expenditure data
collection)
– Incorporate sample design requirements for IS
measurement into the survey design (efforts increase
# of IS entrepreneurs and have better representation
of different activities during sample allocation and
selection)
• Limitations/Concerns
– Complex; response burden
– Often limited to urban areas
MODULAR APPROACH A
Phase 1
•Same sample of PSUs as base
•Sample list of USUs for base/ISS
Phase 2
•Same sample of USUs for base/ISS
•Simultaneous conduct for base/ISS
MODULAR APPROACH B
Phase 1
•Same sample of PSUs as base
•Different list of USUs for ISS
Phase 2
•Different sample of USUs for ISS
•Consecutive survey for ISS, e.g. 1-2-3
INDEPENDENT ISS APPROACH A
Phase 1
•Specific sample of PSUs
•Selection of PSU not based on IS
•Household listing
Phase 2
•Joint listing/interviewing of all IS hh &
activities irrespective of work place
•No stratification of samples of USUs
INDEPENDENT ISS APPROACH B
Phase 1
•Specific sample of PSUs
•Selection of PSU based on IS (by
industry)
•Household survey
Phase 2
•Separate listing/interviewing of all IS
establishments & households
•Stratification of samples of USUs
To have sound data:
• Avoid replacement
• Improve response rate
• Mitigate effects of reference period
• Consider effects of seasonal variations
• Allocate adequate resources for data
editing
THANK YOU!
www.unescap.org/stat/isie