Communication on the Topic:
Indirect methods of accounting for informal sector: Using labor input methods
by RANDRIAMBOLAMANITRA SAMUEL
Economist Statistician Engineer - National Accountant
September 2015
Contents
Introduction:.................................................................................................................................... 3
Data Source ..................................................................................................................................... 3
Matrix employment:........................................................................................................................ 4
Total employment at the national level .......................................................................................... 5
Public administration: ..................................................................................................................... 5
Household sector............................................................................................................................. 6
Formal private sector and decomposition by branch of activity .................................................... 7
Extrapolation of the informal sector at other years: ...................................................................... 9
Estimate of production of the formal establishments: ................................................................. 10
Conclusion ..................................................................................................................................... 11
Introduction:
Madagascar carried out several surveys into the Informal sector. The last, which was made
into 2012 covers the 22 areas of Madagascar, is representative at the national level. The
preceding surveys were only made in the agglomeration of Antananarivo (Capital of
Madagascar). The methodology used for all the surveys is the same. They are the surveys of
the type 1-2-3. It is a survey near the households divided into three phases. And the first two
phases relate to the informal sector directly: the first phase aims at collecting information on
employment and the second on the Informal sector.
Although Madagascar had already an employment of the Informal sector survey
representative at the national level, the " Indirect Methods of accounting of the Informal
sector: using labor input method " was selected for this communication. That makes it
possible to have several approaches of evaluation of the informal sector and to see the
sector under several angles, to put in coherence all the data which relates to it and to thus
enrich knowledge by the sector.
This approach is indirect. It passes by the employment of the Informal sector to estimate the
values of the informal sector aggregates. It is to have both an overall vision at the national
level of employment and a vision on the employment of the formal sector to deduce
thereafter from it the employment of the Informal sector. The aggregates of the sector rise
thereafter from the multiplication of number of employment with the apparent
productivities of employment. If the total employment is noted as ET, the employment of
the formal sector noted as ESF, the employment of the sector neither formal nor Informal as
ESNFNI then the employment of the Informal sector, ESI, can be obtained with the formula:
ESI = ET-ESF-ESFNI
Thus, this approach has a cover broader than that of the direct approach of the survey. The
direct approach works directly on the data collected from the survey. It would be for
example difficult by the enumerators to have the data on the illegal activities. Whereas, the
indirect approach includes the activities which are not observed.
Data Source
The first element indicated by methodology above is the number of total employment (ET).
The main component of this data is the occupied working population (PAO). The first source
of the data necessary is thus demographic. It is necessary to have the working population
(Pa) of the year, for this document it is the year 2012. For Madagascar, the working
population occupied is consisted by the people 5 years old or more. To be able to calculate
the working population occupied it is necessary to have also the activity ratio (ta) and the
rate of unemployment (tc). The activity ratio and the rate of unemployment are provided by
survey 1-2-3 of year 2012. The working population occupied is given by the
formula:PAC=PA*ta*(1-tc)
The working population occupied is not sufficient to have total employment because an
occupied person can have more than one employment. This wants to say that we need to
have information on secondary employment. Survey 1-2-3 is still the source of these data for
that.
The second element, necessary to the calculation of the informal employment sector, is the
formal employment sector. The formal sector can be subdivided in private formal sector and
the Public administration sector. This latter is still constituted by the central Administration
and the decentralized Administration The data of the formal employment private sector and
the central Administration are administrative sources while those of the decentralized
Administration are obtained survey carried out near the Communal level.
The source of the data on the formal employment private sector is the Caisse Nationale
Nationale de Prévoyance Sociale (CNaPS). It is a publicly-owned establishment related to
commercial industrial and placed under the supervision of two Ministries: Ministry in charge
of Work and Social Laws, and Ministry in charge of Finances and Budget. It has the role of
contributing to the achievement of the policy of social protection of the State in favor of the
workers of the private sector.
It is in particular charged to serve the family allowances, of industrial accidents and
occupational diseases and retirement pensions to the workers and comparable like with
their families, to make apply the regulation of the social welfare and to undertake activities
within the framework of the medical and social action: prevention of the accidents of the
work and the occupational diseases, promotion of hygiene and health at the work,
popularization of the texts governing the social welfare and social actions in favor of the
recipients and their families.
It manages the file of the statistics of the workers and employers who pay the social security
contributions. The data are available by branches of industry. Let us note however that these
branches of industry are aggregate than the branches of activity used by the national
accounts.
Matrix employment:
The matrix employment is a two-dimensional table where there are on the lines the
branches of activity and on the columns the institutional sectors. It gives the distribution of
the employment of the Public administration, of the formal private sector, of the household
sector and thus total employment by branch of activity. The following paragraphs explain
each institutional sector and its branches of activity.
Total employment at the national level
The vision of the whole of the economy leans on this stage. It consists of covering the
employment of the whole of the economy: formal, Informal, illegal, not observed. The
principal source for total employment is the manpower of the population. Part of the
population is not active for several reasons: education, the infirmity, the age, unemployment
etc. What interests this paper is the occupied working population, i.e. working-age
population which has an occupation. This fringe of population is obtained by using the 5
year-old population and more and to which the unemployed persons are removed. The
employment survey estimated the number of unemployed persons at 1,3% of the working
population. The population can have in addition to its principal employment other secondary
employments.
According to the employment survey in 2012, 9% of formal employment is looking for a
secondary employment. It is considered in that paper that formal employment is the
employments declared at the CNaPS and the employments of the sector of the Public
administration. The number of secondary employment is thus estimated from this rate and
of the number of formal employment. It afterwards divided by branch of activity. Total
employment is obtained while adding to the working population occupied the secondary
employment mentioned above.
Public administration:
The sector of public administration is composed of the following under-sectors: the central
public administration, the local public administration and the National Case of Social
Welfare. The sector public administration can cover other branches of activity except its
three principal branches of activity of which are the branch education, the branch health and
the branch other administrations. But taking into account the fact that the employment
survey classified the employees of the central administration, local and of the publiclyowned establishments in the public administration then all the publicly-owned
establishments were integrated in the branch administration. Therefore in this
communication, the public administration has only its three principal branches of activities
mentioned above.
It is supposed that there is no Informal employment in the public administration. Thus, the
employments of the sector are thus composed of the employments of its three undersectors and the publicly-owned establishments. The principal source of the data is the file of
the wages of the civil servant managed by the Ministry in charge of the budget. The
employees of the Communes come from the survey near a sample of Commune while the
employees of the publicly-owned establishments are also obtained from a survey near the
publicly-owned establishments. To avoid double counting, the civil servant working in the
local governments and the publicly-owned establishments whose remuneration is managed
by the Ministry in charge of the budget is removed on. The employees of the public
administration have also secondary employment out of this sector.
The table below explains the calculation of total employment in the sector Public
administration. It is the total of the employees managed at the central level, Ministry of the
budget, and the employment only managed by the local governments which are for
Madagascar the Communal level and by the publicly-owned establishments.
Employment by level of management of remuneration
Employment Employment in the Local
Employment in the Public
in the Public
government
administration
administration
central
Managed at
the central
level
Managed
at the
central
level
Managed at
the local
level
Managed
at the
central
level
Managed by
the publiclyowned
establishments
A
B
C
D
E
Employment
in the Public
administration
A+C+E
Household sector
The sector household can also have manufacturing units. However these activities are
always abstract, they can be neither formal nor informal like the salaries work of the
households and the hiring of its house by itself. The rate of use of the sector spares provided
by the survey employment 2012 witch reveals that 9 out of 10 of employment are created
by the household sector. It was mentioned above that the total employment can be
estimated. The employment of the sector household rises from the multiplication of the rate
of employment of the household sector by total employment. The evaluation of the informal
sector requires that the employment of household sector must divide on employment of the
informal sector and on other employments of the household sector.
The job created by the hiring out its house to the household itself and by the paid domestic
works constitute employments of the household sector non informal. The creation of job for
the production of charged rent, i.e. the household is its own tenant, is not significant thus it
is supposed that the created job is null. In this paper, the manpower of the domestic
employees paid is estimated from the survey employment 2012. It is supposed that the
informal employment of the informal sector is the difference between the employment of
the household sector and domestic employees. That supposed that the employment of the
informal sector is over-estimated because of the employment of the household sector
included also the employments of the non-informal economies non observed. Up to now,
the employment of the informal sector is not breakdown on branch of activity. The following
part explains the approach for this breakdown.
Formal private sector and decomposition by branch of activity
The formal private sector is formed by the non-financial institutions, the financial institutions
and the non-profit-making institutions with the service of the households. The principal data
source on their employment is the Caisse Nationale de Prévoyance de Sociale which
manages the social security contributions paid by the workers of the private sector. The data
on these workers are available by branch of activity. The weakness of this source is that it
does not express the totality of the employments of the private sector. Indeed, certain
companies make under-declaration to reduce certain production costs, to be more
competitive and for better positioning on the market. To supplement the measurement of
the employment of this sector, it is thus necessary to consider employment under-declared
by branch of activity.
The following employment is available: total employment, the employment of the sector
administration, the employment of the households. Then the informal employment can be
deduced from the private sector employment. The last stage is the breakdown by branch of
activity the informal employment of the private sector and the employment of the
households sector and consequently the employments of the informal sector. And to do it,
the approach choose the RAS method because the total column is knew i.e. the total by
branch of industry and it is the same for the total by line i.e. total employment by branch of
activity. This made than the total employment of the private sector by branch of activity and
the informal employment sector rises directly from this method. And the results are given by
the table below.
Employment matrix
Formal Sector
Formal Employment Informal Employment
Primary
78 917
5 245
Extractive
14 898
Food
30 216
Confection
67 985
490
Wood
3 209
Other Industries
37 635
Energy
7 207
320
Construction
32 733
236
Trade
64 625
3 993
Transport
12 002
1 771
Household
7 360
Education
38 881
9 460
Health
17 058
704
Other Services
95 524
331
Public Administration
TOTAL
508 250
22 550
Activities
Administration
133 951
16 373
124 650
274 974
Household Sector
Total Employments
Informal Employment Non Informal Employment
1 915 995
2 000 157
56 666
71 564
101 772
131 988
234 537
303 012
12 207
15 416
143 153
180 788
7 527
112 925
145 894
748 804
817 422
148 889
162 662
234 618
241 978
63 212
245 505
27 762
61 897
216 218
312 073
124 650
3 782 141
234 618
4 822 532
The estimate of the account of production and the operating statement of the informal
sector is obtained by using the result of the survey informal sector which gives the apparent
productivity by branch of activity. The apparent productivity is the value added created by
employment in a branch of activity. The value added is calculated by multiplying the
manpower of the informal employment sector by the productivity of employment for each
branch of activity. The apparent productivities are presented in the table below.
Table
of
apparent
Activities
Primary
Extractive
Food
Confection
Wood
Other Industries
Energy
Construction
Trade
Transport
Household
Education
Health
Other Services
productivity
(a
thousand
of
Ariary
per
annum)
Apparent productivity
936
684
1260
540
816
744
876
1800
2184
2940
612
1776
1776
1776
The structures of account of production and operating statement are also calculated from
the survey of the informal sector. The structure of account of production expresses the
share, by branch of activity, of the value added in the production. The structure of the
operating statement gives the share, by branch of activity, of, tax and the rough surplus
compensation of employees of exploitation per added value. The following table gives the
account of production and operating statement of the informal sector by branch of activity.
Count operating statement production of the informal sector of billion Ariary
Activities
Primary
Extractive
Food
Confection
Wood
Other Industries
Energy
Construction
Trade
Transport
Household
Education
Health
Other Services
TOTAL
Production
2 792
42
321
206
18
176
224
2 490
630
159
224
98
766
8 148
Value added
1 793
39
128
127
10
107
203
1 635
438
144
112
49
384
5 169
salaries
326
3
8
4
1
10
40
57
36
1
13
6
45
550
Taxes
EBE
104
0
1
1
0
1
0
38
9
0
2
1
8
165
1 363
36
119
122
9
96
163
1 541
393
143
97
43
332
4 454
The following table gives summarize of the approach adopted. The table represents the
structure of the matrix employment, i.e. the institutional sectors are in the columns and the
branch of activity in the lines. The methods used or the data sources are in the cells. And
finally, the blue lines express the range of calculations or operations used.
Extrapolation of the informal sector at other years:
There are several manners of making extrapolation. The principal objective is to dispose the
aggregates in value and volume by each branch of activity of the informal sector. For the
branch and the year concerned, It is then essential to dispose, either an indicator on the
evolution of volume or an indicator on the evolution of price or both.
The traditional approach consists in extrapolating branch by branch according to the
available information. For example, it is possible to identify the branch of the informal sector
strongly related to a branch of activity of the economy. It is the case of the wood sector and
construction sector. It is possible to establish a relation between the increase of the
activities of construction sector and that of wood. We can obtain then the aggregate in
volume of the informal sector wood. The aggregate in value will be obtained by multiplying
the aggregate in volume by a deflator of the wood sector.
It is important to stress that the general approach which consists in using the two key
elements of the indirect approach, such as the employment matrix and the apparent
productivity of employment, remains valid for extrapolation. If the economic context
remains similar to that standard year, it can suppose that the apparent productivity of
informal sector remains unchanged from one year to another. Then, the employment
provided by the employment matrix, will be used as indicator of volume of the informal
sector. The aggregates in volume will be obtained by multiplying the employment provided
by the employment matrix updated, by the same apparent productivities. It is then
imperative to have a deflator by branch of activity in order to estimate the aggregates in
value by multiplying the aggregate in volume by the deflator.
The update of the employment matrix is established with the same methodology as
explained above. We use the same sources of data, such as the data of formal employment
which are provided by the CNaPS, the Administration and as well as the data of demography
provided by the Statistical institute. It is possible to make some assumption in order to the
various rates: rate of unemployment, rate of working population, rate of use of the informal
sector, remain the same ones as those of the benchmark year.
Let us note that the employment matrix will explain the transfer of employment among the
various institutional sectors. If the employment in the formal sector increased more quickly
than the number of the population then informal employment decreased or conversely.
That, the increase in volume of the informal sector and then the economy as a whole, is not
explained only by the increase of the population but also in the transfer of employment
between institutional sectors. The result will be still better if there are some information on
the rate of unemployment.
Estimate of production of the formal establishments:
The step applied is almost the same as the preceding one. The direct methods are used if the
information is available and in the contrary case the use of the employment matrix and the
apparent productivity per activity branch. Taking into account the available information, the
production of the large formal companies was obtained by the direct method and the
production of mean and small enterprise with the indirect method.
Let us note that the Malagasy tax authorities have the data on the sales turnover and the
employment of the large formal companies having a sales turnover higher than 200 million
Ariary. Thus, the direct method was applied to the companies managed by the Malagasy tax
authorities. The work consists just in establishing the production and employment per
activity sector. Employment per activity sector of the formal companies is used below for the
indirect method of the mean and small formal companies having sales turnovers lower than
200 million Ariary.
For the mean and small formal companies having sales turnovers lower than 200 million
Ariary, the indirect method requires the two key elements as follow: employment and the
apparent productivity per activity sector. The production is obtained by making the
multiplication of these two key elements. The two following paragraphs explain the
calculation of these two key elements.
Employment is obtained by the difference between the total formal employment and the
large formal companies employment. Indeed, the total employment of the formal private
sector is provided by the employment matrix, while the data of the employment of the large
formal companies is obtained from the tax authorities. Then the employments of the mean
and small companies are obtained by making the subtraction, sector by sector, between
formal total employment and the employment of the large formal companies.
The source of the apparent productivity of the mean and small companies is a survey carried
out near the companies on 2010. The assumption is always made that these productivities in
real term remain unchanged in time. To obtain the productivity at the current price, we
multiply the apparent productivity with the deflator of the sector concerned.
The production of the mean and small formal companies is estimated by multiplying, sector
by sector, the apparent productivity with employment. To obtain the production in real
term, we use the apparent productivity of the reference year and for the production in
value, we use the apparent productivity at the current price. The production of the formal
companies is obtained by making the addition of the productions of the large formal
companies and the production of the mean and small formal companies.
Conclusion
Approach summarize table
Operations range
Formal sector
Informal
Formal employment employment
1
5
Activities sector
CNaPS source
Activities
Operations range
TOTAL
RAS Méthod
1
Total
4
Balance
Household sector
Administration Informal
Informal non
employment
employment
1
5
Administrative
and survey
RAS Méthod
Estimed
sources
1
2
Total
Calculed from
the total
employment
Total
employment
2
3
Survey sources
2
Survey sources
2
Occuped active
opopulation+
secondaries
employment
In brief, the value estimated with the indirect approach is higher than that value calculated
directly by the informal sector survey. The indirect method gives 7% value added more than
value added from the direct method. The difference rises from several reasons. First, it
comes by made that the indirect method is a global solution because the informal
employment sector is calculated by balance after having added to the working population
occupied the secondary employment. As calculation was made starting from the total
population then employment covers the employments of all the types of activity which they
are formal, abstract or different. Moreover, there are supplements by introducing secondary
employment. And finally, the Informal sector was over-estimated because one simply
removed employment of the sector spares the paid domestic employees whereas it is not
the only employ of the non-Informal sector of the household.