Understanding Informal
Employment:
The contribution of public opinion
surveys to public policy
Benjamin Temkin Yedwab
FLACSO-Mexico
Introduction
The ubiquity of informality
 Complexity for social sciences
 Complexity for public policy

Changing Definitions


Informal Sector
Informal Employment
Some researchers prefer to look at Informal or “Shadow
Economy”
The Magnitude of Informality


In a recent study the World Bank (2009) calculates that the typical Latin
American country produces approximately 40% of GDP and employs 70%
of the work force in informality.*
It should also be noted that in developed nations a significant (and growing)
percentage of the work force is employed in “atypical” or “non-standard”
jobs.**

For Mexico, it is estimated that in 2010, informal jobs were more than 60%
of the total. *** (Negrete, 2010)

Informality in developing countries is growing under the impact of
globalization and crisis. (Temkin and Veizaga, 2010) ****
* http:/ / www – wds . worldbank.org/ servlet/ WDSContentServer/WDSP/IB/2009/ 03/30/000158349_20090330131803/
Rendered/PDF/ WPS4888. pdf
** Three categories of non-standard or atypical work/self employment, part-time work, and temporary work-comprise 30 percent of
overall employment in 15 European countries and 25 percent of total employment in the United States. International Labour Office(
2002): Women and Men in the Informal Economy: A Statistical Picture, International Labour Organization, Geneva
*** Rodrigo Negrete Prieto, El empleo informal en México visto bajo el esquema conceptual OIT . Unpublished manuscript.
**** The Impact of Economic Globalization on Labor Informality, New Global Studies, 2010
Informal Employment in Mexico
In Mexico, at the beginning of 2010, the work force
was 43.6 million people: 26.4 million (60.6%) with
an informal job, of which 12.5 million were in the
informal sector and 13.9 million in the formal
sector*.
* Rodrigo Negrete Prieto, El empleo informal en México visto bajo el esquema conceptual OIT .
Unpublished manuscript.
Perspectives regarding labor
informality


Duality or Marginality. Modernization theory.
Structural
4.
Keeps unemployment low. Prevents social unrest and people
engaging in outright criminality.
Helps keep low the salaries of both formal and informal workers in
the formal sector. Internal “maquiladoras”.
Allows consumption to poor people in the informal and formal sector.
It provides fertile ground for corporatist and clientelistic politics.

Choice-Legal Bureaucratic.
1.
2.
3.
Main debates regarding informality





About impact of free trade and globalization.
About impact of business freedom, flexibility of labor markets, health
and environmental regulations.
About impact of social protection programs.
About character of informal (self) employment: “Incipient
entrepreneurship” or “survival strategy”
About the role of “choice” as opposed to “constraints” in joining
informal employment.
Most research: Economic (econometric) or institutional, and
at the individual-motivational-subjective level mostly
qualitative.
Problems with qualitative research on informal labor.
Main Claim
Public
opinion surveys are an instrument of research that
can help us understand better the attitudes, values and
motivations of informal participants in the work force, and
provide valuable information for the development of public
policy.
Surveys can also be helpful in unveiling different aspects
of the economic, social and political behavior of informally
employed individuals as well as the networks they develop
in these spheres of activity.
Problem: Few relevant surveys. Lacking questions to
identify informal participants in work force*.
* The module on informality of the Argentinian Encuesta de Hogares consittutes an interesting
exception.
Contributions of Wider Research Project





To the debate concerning “incipient entrepreneurship” vs. “survival
response”.
To the role of “choice” as opposed to “constraints” in joining informal
employment.
To the study of the economic, social, organizational and political
networks associated with labor market informality.
To better understand cultural and socio-political values, attitudes
and opinions of informal workers.
To develop a better informed public policy regarding informal
employment.
Informality:
entrepreneurship or survivalist strategy?
The inclusion of three specific questions in the 2005 Mexican
version of the World Values Survey (WVS) made it
possible not only to identify the informal participants in the
labor market, but also to ascertain their particular level and
kind
of
informality.
These questions allow researchers not only to identify the
different levels of informality defined in terms of
employment and work-place characteristics, but also, to
determine the type of employment*.
*Benjamin Temkin. "Informal Self-Employment in Developing Countries:
Entrepreneurship or Survivalist Strategy? Some Implications for Public Policy"
Analyses of Social Issues and Public Policy Vol. 9.No. 1 (2009)
Informality Operationalized
Type of employment:
Key questions:



Work with or
without a contract,
Work with or
without social
security,
Work place or
occupation that
issues official
receipts
Selected by:
Which is your
occupation
or work?

Formal participants in the labor force

Informal employees (all informal wage
earners regardless of their level of
informality).

Self-employed or own account
informals (again regardless of their
level of informality)
Levels of informality:
•
Formals (with no characteristics of informality);
•
Informals level 1 (with only one characteristic of
informality);
•
Informals level 2 (with 2 characteristics of
informality);
•
Informals level 3 (with all 3 characteristics of
informality).
Socio-Demographic Profile of Respondents by Level of Informality
and Type of Employment
Higher presence of women.
 Older
 Less schooling
 Lower incomes
 Lower self-placement in class terms

Values and Attitudes
Source: Pennsylvania Partnership for Economic Education
http://www.millersville.edu/~mucee/techconnect/tc/lesson4.html
and
Economics
(2003),
Pennsylvania,
Retrieved
on
Dec.
01,
2007,
the
Website:
•Earle & Zakova (1998), for example, remind us that “on the one hand, a self-employed worker
may be an entrepreneur exploiting new opportunities and inventing and improving products,
production processes, and ways of distribution. At the other extreme, self-employment status
may reflect the inability of a perhaps destitute worker to find a satisfactory ‘regular’ job as an
employee, and her activities and income may differ little from those of an unemployed person. A
self-employed worker may be striving to grow wealthy by taking risks with new ventures, or she
may be casting about desperately for any means to ensure survival. She may be developing new
markets and creating jobs for others—her employees—or her self-employment may involve
withdrawal from markets, a return to pre-modern self-sufficiency.”
•Also to be noted in this regard is the sharp distinction drawn by Glueck (1980) between
entrepreneurial ventures and family business initiatives. The strategic practices of
entrepreneurial ventures are geared toward the best interest of the firm and are growth oriented
as well as innovative. Family businesses, in contrast, emphasize preferences and needs of the
family as opposed to those of the business. In line with Shumpeter’s (1934) criteria for
entrepreneurship, Carland and his colleagues (1984) maintain that the critical factor that sets
apart entrepreneurs from nonentrepreneurial small business owners is innovation: “The
entrepreneur is characterized by a preference for creative activity, manifested by some
innovative combination of resources for profit.”
Entrepreneurial or Survivalist
Syndrome?
Informal participants in work force (as compared to formals) and selfemployed informals in particular, show:





Lower level of “satisfaction with life”
Lower level of feeling of “freedom to choose and control over life”
Lower level of “satisfaction with economic situation of household”
Lower “capacity to save money”
Lower level of “subjective well being” or happiness
Continuation




Lower level of self-perception of “health”
Less agreement with “I decide by myself which are my goals in life”
Less importance attached to “teaching independence to children”
Less importance attached to “teaching perseverance and
determination to children”
Self-Perception of Happiness and Health By Level of
Informality.
Self-perception of Happiness and
Health By Type of Employment
Some provisional implications
for public policy

Reduce “constraints”

The most appropriate strategy to overcome employment precariousness and vulnerability is one
that promotes macroeconomic policies encouraging the creation of formal employment,
strengthens the inspection of labor conditions in the formal sector, provides incentives for
formalization of specific types of employment such as domestic service, and, most importantly,
raises the human capital level of the general population. (Novick, 2007)
Our results suggest that the best way to foster the growth of formal employment, improve the lives
of working people, and spur economic development is to design public policies and economic
strategies aimed at fostering the growth of the formal sector, by creating more secure and better
paid jobs. It also seems imperative to carry out significantly higher and more efficient investments
in education and human capital.



It seems that “incipient entrepreneurship” as attributed by some consultants
and policy makers to the informally self-employed is quite limited. Very
unlikely that this group will be a detonator of economic growth. Micro-credits
and easing of legal and registration procedures and regulations can be
helpful to particular individuals and groups, but these will not bring about
leaps in average productivity in the economy. Steps to “formalize” or
regularize informal sector units will be extremely difficult to carry out as long
as their (and their clients) economic, financial and social precariousness
continues.
Further flexibilization of the labor market will not succeed, if it is not
accompanied by serious inspections of labor conditions in the formal sector.

If, informal and precarious employment in developing countries result from
developments occurring in the formal sector of their economies, specifically from the
efforts of formal companies –under national or international pressures to lower their
labor costs and increase their competitiveness, then it follows that the problem of
informality has to be tackled primarily in the formal sector.

Given that the great bulk of informals workers and self-employed informals, seem to
act in the framework of “constraints” and less out of “choice”, the main efforts and
most state resources should be directed at improving the lot of the formal sector and
formal employment, as well as reducing the number of informals workers in that
sector. This will also contribute to the generation of a larger internal market, the lack
of which constitutes an important obstacle to growth.
Informality and entrepreneurship:
Mexico City and Ciudad Juarez
Using a specially designed public opinion survey among
informal participants of the work force (employers, employees
and self-employed) in two Mexican cities, two indexes have
been calculated:
An Index of Informality
2. An Index of entrepreneurship
1.
Informality in Mexico City and Ciudad
Juárez
Type:
• Contextual
Informality
• Informality of the
activity
Levels:
Low Informality
High Informality
Informality in Mexico City and Ciudad
Juarez
Contextual Informality:
Informality of the activity:
•
•
Work-place location: private home,
street or other public space,
permanent premises.
•
Proper accounting practices
•
Temporality of the job: Permanent
or seasonal.
Level of family informality: The
recipient of the highest income in
the respondent household has
social (health) security from his
employment? Does that person
workplace operate with fiscal
accounting?
•
Work trajectory: Has the
respondent received social security
in previous jobs?
•
Family labor informality: Do
members of the family of the
respondent have temporary jobs?
Entrepreneurship in Mexico City and
Ciudad Juarez
The Entrepreneurship Index is composed of two
dimensions: Objective and subjective.
Dimensions of
Entrepreneurship:
• Objective
• Subjective
Levels:
• Entrepreneurial
• NonEntrepreneurial
Entrepreneurship in Mexico City and Ciudad
Juarez
Objective entrepreneurship:
1.
What type of change are you planning for
next year?:
+ Hire more workers
+ Buy machinery or instruments
+ Doing job training
+ Start an additional business
2. Presently or next year, are you planning to
save money (alone or in association with
others) to invest in your activity?:
+ I am saving or planning to save by
myself.
+ I am saving or planning to save in
association with others.
3. In the last two years: Have you asked for loans
(money or in kind) to carry out your
present activity?
+ yes
Subjective entrepreneurship:
How much influence did the following
factors had in your decision to start
your present activity?
(1. A lot; 2. Some; 3. None) :
+ Did not have an option
+ Saw it as an opportunity to
progress.
Informality and entrepreneurship:
Mexico City and Ciudad Juarez
The indexes of informality and entrepreneurship were
combined
Entrepreneurship
and informality
Levels:
• No entrepreneurship
• Entrepreneurship with
low informality
• Entrepreneurship with
high informality
Informality and entrepreneurship:
Mexico City and Ciudad Juarez





Higher level of labor informality in Mexico City than in C. Juarez
This is particularly true for informality of the activity.
Informals in Mexico City hold less entrepreneurial attitudes.
Informals in Cd. Juárez engage in less entrepreneurial activities.
In general very low levels of entrepreneurship.
Political views and attitudes of
informal workers in Latin American
Using the last version of the Latinobarometro and
the 2008 version of Latin American Public
Opinion Project (LAPOP).
Some Findings from Latinobarometro-Lapop on SocioPolitical Attitudes of Informal Participants (as
compared to “Formals”) in the Work Force






Less “satisfaction with democracy”
Less agreement that: “democracy guarantees (political, labor,
religious, and civil) rights”
Less agreement that: “in spite of its problems, democracy is
preferable to any other form of government”
Less support for democracy when “it fails to deliver economic
growth”
More supportive of authoritarian measures against opposition “when
circumstances require it”
More supportive of “military rule”
STATISTICAL APPENDIX
Socio-Demographic Profile of Respondents by Level of Informality
Socio-Demographic Profile of Respondents by Type of
Employment
Socio-Demographic Profile of Respondents by Level of Informality
Socio-Demographic Profile of Respondents By Type of Employment
Self Description in Class Terms By Level of Informality
Self Description in Class Terms By Type of
Employment
Satisfaction with Life By Level of Informality.
Satisfaction with Life By Type of Employment
Self-Evaluation of Economic Situation of Household By Level of
Informality
Self-Evaluation of Economic Situation of Household By
Type of Employment
Self-Reliance By Level of Informality.
Self-Reliance By Type of Employment
Creativity by Level of Informality
Independence and Creativity By Type of Employment.
Values important to teach to children by Type of
Employment
Nociones sobre democracia y legalidad
Nociones sobre democracia y legalidad
Nociones sobre democracia y legalidad
Nociones sobre democracia y legalidad
Nociones sobre democracia y legalidad
Evaluación del gobierno
Evaluación del gobierno