Download Informal sector

ExhaustivenessNon-Observed Economy – Informal
Sector Accounting
Ramesh Kolli
1
Exhaustiveness
• Main objective of ICP - compare real GDP of countries
• Need - reliable and consistent estimates of levels of GDP in national
currency
• Conceptual framework is 1993 SNA
• Comparability is important – therefore, GDP must be exhaustive
• All economic activities have to be included whether legal or not
• Need to look into the following for ensuring GDP is exhaustive:
– Production for own consumption
– Informal sector, street vendors, private tutors, paid domestic
servants
– Smuggled goods
– All government expenditures, incl. local authorities and defence
– Own account construction
– Illegal activities, such as prostitution and drugs
2
Approaches for Exhaustiveness
• NOE handbook
• Eurostat tabular approach
3
NOE
OECD Handbook definition of NOE
• 5 components of NOE
– Economic Underground
• (1) Underground Production (deliberate concealment of legal
activities from public authorities to avoid taxes, etc.)
• (2) Illegal Production (forbidden by law, but transactions have
mutual consent)
• (3) Informal Production
– (4)Household Production for own final use (production of crops,
livestock, other goods, construction of own houses, imputed rents,
and services produced with the help of domestic servants)
– (5) Statistical Underground (missed due to deficiencies in data
collection programme)
• Difficult to separate NOE activities, as they mostly overlap
4
Eurostat tabular approach to
exhaustiveness
N1 Producer deliberately does not register (underground activity) –
avoid tax or social security obligations
N2 Producer deliberately does not register (illegal activity)
N3 Producer not required to register (unregistered)
N4 Legal producers not surveyed (newly registered or excluded from
the surveys due to wrong coding or classifications)
N5 Registered entrepreneurs not surveyed (special surveys or income
tax records)
N6 Misreporting by producers (under reporting of output or over
reporting of IC – tax audits, IO ratios
N7 Other statistical deficiencies – accounting for non-response, wages
paid in kind, production for own final use by market producers,
5
tips, valuation techniques and adjustments fro accruals)
Informal Economy
• Conceptual Framework for measuring Informal
Sector and Informal Employment
• A case study with India’s data to estimate the
contribution of informal sector to employment and
GDP
6
Introduction
• Informal economy contributes significantly to employment and
GDP in developing economies
• In 2004-05, informal sector in India accounted for
– 93 % of total employment including agriculture
– 82.4 % of employment in non-agricultural economic activities
– The sector accounts for almost 50 per cent of India’s GDP
• The size of informal economy could be of that order in similar
developing economies – Ethiopia GDP– 60% in 2008-09, excluding
agriculture – 12%, Employment - 90%, excluding agriculture – 19%
• Therefore, measuring informal sector is important for
– GDP exhaustiveness
– Policy and decision making
7
CONCEPTUAL FRAMEWORK
• The following are some important sources:
– 15th ICLS on informal sector ,17th ICLS on informal employment
– 1993 SNA
– OECD, IMF, ILO, and CIS STAT (2002) Handbook, NOE
– Delhi Group deliberations and recommendations
– Chapter 25 of 2008 SNA
– ILO documents on informal sector
– UN-ECE publications NOE in National Accounts: Survey of
Country Practices (2003, 2008)
– Project “Interregional Programme of Technical Cooperation on the
Measurement of the Informal Sector and Informal Employment”
by the UN regional commissions
8
Informal sector
9
th
15
ICLS
• Informal sector refers to a group of production units
• Belong to the household sector of SNA as household
enterprises or unincorporated enterprises owned by
households
• The production units which make up the informal sector are
identified as:
– "informal own-account enterprises" or
– "enterprises of informal employers "
10
th
15
ICLS (2)
• The units are identified based on their characteristics,
irrespective of
– kind of workplace where the productive activities are
carried out
– extent of fixed capital assets used
– duration of the operation of the enterprise (perennial,
seasonal or casual)
– operation as a main or secondary activity of the owners
11
th
15
ICLS (3) - Characteristics
– Units should sell some of their output in market
– Not separate legal entities independently of their
owners
– Do not maintain complete set of accounts
– production activities cannot be distinguished from other
activities of its owners
– size of employment below a certain specified level
– Not registered under specific form of national
legislation (business register)
– Lack of registration of the enterprise/ employees
12
th
15
ICLS (4) - exclusions
• Household production for own use is excluded as no part
of the output is marketed
– Own account production for own consumption
– Services of owner occupied dwellings
– Production of services by households employing
domestic workers for own final consumption
• Confined to non-agricultural activities
13
1993 SNA
– The 1993 SNA mentions the informal sector in
Chapter IV (paragraph 4.159) under the
subheading The household sector and its subsectors (S.14)
– It introduces the concept of the informal sector
and makes reference to the 15th ICLS
– Other than this Annex, there is no
methodological recommendation per se on the
informal sector in the 1993 SNA
14
Brief differences between 15th ICLS
and 1993 SNA
• Sector
– ICLS – refers to group of producing units
– SNA – sector refers to an institutional sector
• Market
– The SNA defines market producers as those that sell most or all of
their production on the market at economically significant prices.
– ICLS - Produce at least some of their goods or services for market
(sale or barter)
• Production
– ICLS - Produce goods and services using labour as input
– SNA - includes production for own consumption without using
labour as output, such as owner occupation of dwellings
• Exclusion of agricultural activities
15
Expert Group on Informal Sector
Statistics (Delhi Group)
• The Delhi Group held 11 meetings since its inception
• Concludes that informal sector manifests itself in different
ways in different countries, therefore, national definitions
of informal sector can not be fully harmonised.
• It recommended that
– international agencies should disseminate informal sector data
according to the national definitions used.
– All countries use the criteria of legal organisation (un-incorporated
enterprises), of type of accounts (no complete set of accounts) and
of product destination (at least some market output)
16
Delhi Group (2)
• Specification of the employment size limit of the enterprise in
national definition of the informal sector is left to the country’s
discretion
– For international reporting, countries should provide data
separately for enterprises with less than five employees
• Countries using the employment size criteria provide
– disaggregated data for Registered and non-registered
enterprises
• Countries using the criterion of non-registration provide
– disaggregated data for enterprises with LT5 and GE5
employees
• Countries, which include agricultural activities, provide
– Data separately for agricultural and non-agricultural
activities
17
Delhi Group (3)
– Countries should include persons engaged in professional or
technical activities if they meet criteria of informal sector
definition
– Countries should include paid domestic services unless these are
provided by employees
– Countries should follow paragraph 18 of the Resolution adopted by
the 15th ICLS regarding the treatment of outworkers/homeworkers. Countries should provide figures separately for
outworkers/home-workers included in the informal sector.
– Countries covering urban as well as rural areas should provide
figures separately for both urban and rural areas.
– Countries using household surveys or mixed surveys should make
an effort to cover not only persons whose main job is in the
informal sector, but also those whose main job is in another sector
and who have a secondary activity in the informal sector
18
NOE
OECD Handbook definition of NOE
• 5 components of NOE
– Economic Underground
• (1) Underground Production (deliberate concealment of legal
activities from public authorities to avoid taxes, etc.)
• (2) Illegal Production (forbidden by law, but transactions have
mutual consent)
• (3) Informal Production
– (4)Household Production for own final use (production of crops,
livestock, other goods, construction of own houses, imputed rents,
and services produced with the help of domestic servants)
– (5) Statistical Underground (missed due to deficiencies in data
collection programme)
• Difficult to separate NOE activities, as they mostly overlap
19
2008 SNA
• 2008 SNA notes that ICLS always regarded informal sector as a subset
of household unincorporated enterprises operating within the
production boundary of the SNA
• For identification of informal sector, it divides household sector into:
– households containing an unincorporated enterprise that is registered or
has more than a given number of employees;
– institutional households, such as prisons, retirement homes etc.;
– households with no unincorporated enterprises;
– households only undertaking production for own final use;
– Informal sector enterprises (Households containing unincorporated
enterprises that are not registered and/or have less than given number of
employees)
• Provides operational guidelines to identify informal sector activities
through exclusions from the SNA household sector
20
Informal employment
21
th
17
ICLS
• Conceptual framework of informal employment comes from
17th ICLS
• Job-based concept of informal employment, as a person can
engage in multiple jobs with formal/informal characteristics
• Emerged due to the development of more casual arrangements
between owners of enterprises and those contributing labour
services in the form of informal employment.
• Informality of employment is characterized by absence of
contracts, social protection, entitlement to certain employment
benefits and not being subject to labour legislation or taxation.
• Broadly, the informal employment comprises informal jobs
both in informal and formal enterprises and in households
22
Presenting data
on informal sector and
informal employment
23
Contd…
• Presenting the data
– Not possible to present full sequence of accounts
– two supplementary tables should be prepared
• production and generation of income
– Production
» of which for own use
– Intermediate consumption
– Value added
– Compensation of employees
– Gross mixed income
– Consumption of fixed capital
– Net mixed income.
• Employment
– Employment in the informal sector
» Formal jobs
» Informal jobs
– Informal employment outside the informal sector
» formal sector
» other household unincorporated enterprises.
24
Measuring informal economy
• Direct or indirect approaches to measure the informal
sector, through the following surveys
– Household surveys
• Mainly labour force surveys
– Establishment surveys
– Mixed household-enterprise surveys
• 1-2 surveys
25
Direct approach
• Generally, the production approach is considered the best
approach to estimate informal sector value added.
• data on output (if possible by products), intermediate
consumption and changes in inventories is collected from
the informal sector enterprises, through
– establishment surveys or mixed household-enterprise
surveys.
26
Indirect approach
•
•
•
•
labour input method suggested in the Handbook on NOE
This procedure involves three basic steps
– (i) obtaining estimates of the supply of labour input to GDP, for selected
economic activity and size of enterprise, from a household labour force
survey, population census and/or other demographic sources;
– (ii) obtaining estimates of output per unit of labour input and value added
per unit of labour input for the same activity and size breakdown from
regular or special purpose enterprise survey; and
– (iii) multiplying the labour input estimates by the per unit ratios to get
output and value added for the activity and size categories.
This approach has advantages of a more complete coverage of labour input to
GDP than do the enterprise surveys, and therefore, would provide a basis for
GDP exhaustiveness and consistent estimates between employment and output
Requires preparation of a labour input matrix
27
Case Study-India
28
Sources of data
• To measure informal sector employment and GDP and
informal employment, following are main sources :
– Household Employment and unemployment surveys,
Population census, administrative data on employment
in the organised sector, informal sector survey
– enterprise surveys on unorganised manufacturing and
services
29
Informal sector and Informal employment
• From India’s employment and unemployment surveys conducted in the
NSS 55th round (1999-2000) and 61st round (2004-05) and the
enterprise surveys, it is possible to compile the estimates of value
added and employment in ‘informal’ sector, as also on informal
employment, as per the guidelines provided in 15th and 17th ICLS.
• The first comprehensive survey of ‘Informal Sector’ using the criteria
laid down by the Delhi Group was conducted in the NSS 55th Round
during July 1999 to June, 2000, alongwith the periodical labour force
survey. This was followed up by introducing a module on informal
employment in the subsequent labour force survey undertaken during
July, 2004 to June, 2005.
• Using these sources, attempt has been made to measure informal
sector
30
Definitions adopted for ‘informal
sector’ and ‘informal employment’
In this study, the following definitions have been adopted:
i) Formal sector: All enterprises in the public sector, private
corporate sector, and household enterprises employing more than 5
workers.
ii) Informal Sector: All household enterprises having less than equal
to five workers.
iii) Formal Jobs: Principal Jobs which are regular salaried or wage
employee and are subject to written contracts for more than one
year.
iv) Informal Jobs: All subsidiary jobs and principal jobs other than
those classified as formal jobs
31
GVA per worker estimates
• From the enterprise surveys of NSSO
– ratio of the gross value added to the total employees in
the particular compilation category gives the estimate
of GVA per worker
32
Table 4: Labour Input Matrix for 2004-05 for the
overall economy
Institution/Sector
1. Formal Sector
2004-05
Y
ea
r
1.1 Public Sector
Number of Jobs in ‘00000)
% to total Jobs
Formal Informal
Total
Jobs Jobs
Formal Inform
Total
Jobs al Jobs
% to total Jobs within
institution
Formal Inform
Total
Jobs al Jobs
166
84
250
3.0
1.5
4.5
66.4
33.6
100.0
51
86
137
0.9
1.5
2.5
37.4
62.6
100.0
1.2 Private Corporate Sector
1.3 Household Sector
excluding Informal Sector
total formal sector
2. Informal Sector
25
440
465
0.5
7.9
8.4
5.4
94.6
100.0
242
7
609
4,707
852
4,713
4.4
0.1
11.0
84.6
15.3
84.7
28.5
0.1
71.5
99.9
100.0
100.0
Total
249
5,316
5,565
4.5
95.5
100.0
4.5
95.5
100.0
33
Sl.No.
Table 4.2: Labour Input Matrix for 2004-05 at the industry level – shares (%)
1
2
2.1
2.2
2.3
2.4
3
Industry
Agrl. & allied
Non-agrl. activts.
Manufacturing
Construction
Trade and hotels
Others
Total
Public
Sector
Forml
jobs
0.02
3.0
0.12
0.02
0.02
2.8
3.0
Pvt. Corp.
Sector
Infl. Forml
jobs jobs
0.04 0.00
1.5
0.9
0.06
0.4
0.3 0.01
0.02 0.05
1.1 0.48
1.5 0.92
Household
Sector excl.
infl. sector
Infl. Forml
jobs jobs
0.01 0.00
1.5 0.45
0.8
0.2
0.13 0.01
0.10 0.06
0.53
0.2
1.5 0.45
Informal
Sector
Infl. Forml
jobs jobs
0.4 0.00
7.5 0.12
2.9 0.02
2.4 0.00
0.8 0.03
1.3 0.07
7.9 0.12
Infl. Forml
jobs jobs
60.4 0.02
24.2
4.5
6.4
0.7
2.9 0.04
8.6
0.2
6.3
3.5
84.6
4.5
Total
Economy
Infl.
Total
jobs
60.9 60.9
34.7 39.1
10.1 10.8
5.7 5.7
9.5 9.7
9.3 12.9
95.5 100.0
34
Table 5: Estimates of GVA for formal/informal
sectors and formal/informal jobs
GVA at current price
(in Rs.10bn.)
Institution/Sector
1. Formal Sector
2004-05
Ye
ar
Total
Formal
Job
Inform
al Job
Total
Formal
Job
Inform
al Job
Total
587
94
682
19.8
3.2
23.0
86.2
13.8
100.0
1.2 Private Corporate Sector
1.3 Household Sector
excluding Informal Sector
572
39
611
19.3
1.3
20.6
93.6
6.4
100.0
51
200
250
1.7
6.7
8.4
20.2
79.8
100.0
1,210
333
1,543
40.8
11.2
52.0
78.4
21.6
100.0
156
1,268
1,424
5.3
42.7
48.0
11.0
89.0
100.0
1,367
1,601
2,968
46.1
53.9
100.0
46.1
53.9
100.0
1.1 Public Sector
435
15
450
24.3
0.9
25.2
96.6
3.4
100.0
1.2 Private Corporate Sector
1.3 Household Sector
excluding Informal Sector
296
24
320
16.6
1.4
17.9
92.4
7.6
100.0
23
64
87
1.3
3.6
4.9
26.0
74.0
100.0
total formal sector
753
104
858
42.2
5.8
48.0
87.9
12.1
100.0
95
834
929
5.3
46.7
52.0
10.2
89.8
100.0
848
938
1,787
47.5
52.5
100.0
47.5
52.5
100.0
total formal sector
Total
1. Formal Sector
Informal
Job
1.1 Public Sector
2. Informal Sector
1999-2000
Formal
Job
% to total GVA with in
institution
% to total GDP
2. Informal Sector
Total
35
Sl.No.
Table 5.2: Estimates of GVA for 2004-05 at the industry level – shares (%)
1
2
2.1
2.2
2.3
2.4
3
Industry
Agrl. & allied
Non-agrl. activts.
Manufacturing
Construction
Trade and hotels
Others
Total
Public
Sector
Forml
jobs
0.61
19.2
2.16
0.54
0.20
16.3
19.8
Pvt. Corp.
Sector
Household
Sector excl.
infl. sector
Infl. Forml Infl. Forml
jobs jobs jobs jobs
0.00 0.51 0.00 0.00
3.2 18.8 1.3 1.68
0.03 7.2 0.4
0.1
0.3 1.89 0.13 0.00
0.03 3.27 0.13 0.07
2.8 6.40 0.61
1.5
3.2 19.27 1.3 1.72
Informal
Sector
Infl. Forml
jobs jobs
0.1 0.00
6.6 5.26
1.7 0.00
2.3 0.00
1.1 0.03
1.6 5.22
6.7 5.26
Infl. Forml
jobs jobs
17.7 1.11
25.1 44.9
3.6 9.5
2.7 2.43
11.2 3.6
7.6 29.4
42.7 46.1
Total
Economy
Infl.
Total
jobs
17.8 18.9
36.2 81.1
5.8 15.3
5.3 7.7
12.5 16.1
12.6 42.0
53.9 100.0
36
Some key findings
• Contribution of informal sector to GDP in 2004-05 is about 48%
• The government and corporations account for 43.6%, balance HH formal
• This is much smaller than the informal sector share in employment (85%)
• Share of informal jobs in total GDP is 53.9%, as against the share of
95.5% in total jobs. On the other hand, formal jobs contributed as much as
46.1 per cent to the GDP, as against their employment share of just 4.5 per
cent.
• It is possible to construct these labour input matrices and GDP shares at
activity level from the micro-data of labour force surveys to achieve
exhaustiveness
37
General procedure of GVA
estimation for informal sector
•
•
•
•
•
Indirect procedures
benchmark-indicator method
base year GVA estimates – WF X GVA per worker
For other years – base year estimates extrapolated with
proxy indicators
Compiled at detailed activity level (compilation
categories)
38
ESTIMATES FOR OTHER
YEARS
– manufacturing - IIP
– Trade, Hotels and restaurants - gross trading index
– Road transport - quantum of index of passenger
kilometers
– Ownership of dwelling – extrapolated number of census
dwellings
– Other services – different indicators like, workforce
extrapolated estimates, growth in consumption
expenditure, ratio of organised sector (unorganised
banking)
39
Ethiopia
Statement 3.5: Estimates of Employment, 2001EFY, 2008 /2009
(in numbers )
General
Government
Public
corporations
Private
corporations
A. Agriculture, Hunting, and
Forestry
B. Fishing
0
205104
1026121
0
16959
C. Mining and Quarrying
0
0
D.Manufacturing
0
E. Electricity, Gas, and Water
Supply
F. Construction
G. Whole Sale and Retail
Trade
H. Hotels and Restaurants
industry
I. Transport, Storage, and
Communication
J. Financial Intermediation
K. Real Estate, Renting, and
Business Activities
L. Public Administration and
Defense
M. Education
NPISHs
Household/
Unorganised/
Informal
Sector
Total
0
27322016
28553240
7268
24227
71776
0
22439
94214
45036
139010
0
1990457
2174503
13692
19115
0
0
7819
40625
33969
64737
187462
44333
270901
601403
11620
5869
170459
1635
2586433
2776016
5147
2505
113045
377
1034736
1155810
0
26958
212880
0
4000
243838
0
68726
16749
2178
0
87653
56455
5511
28332
1732
42465
134495
487425
0
0
0
0
487425
600692
448416
0
131614
20662
0
N. Health and Social Work
59848
0
6373
2796
45944
114960
O. Other Community, Social
and Personal Services
P. Private Households with
Employed Persons
39580
14529
137737
27264
803091
1022201
0
0
0
0
589831
589831
Total employment
Agriculture, forestry and
fishing
Mining, manufacturing,
electricity & construction
1156151
458090
2258516
100977
34727400
38701134
0
205104
1043080
0
27329284
28577467
47661
128888
398248
44333
2291615
2910745
Services
1108490
124098
817188
56644
5106501
7212921
Total employment
1156151
458090
2258516
100977
34727400
38701134
Total excluding agriculture
1156151
252986
1215436
100977
7398116
10123667
40
Ethiopia
Statement 2.5: Estimates of Value Added, 2001EFY, 2008 /2009
(at current prices)
(Thousand Birr)
General
Government
Public
corporations
Private
corporations
A. Agriculture, Hunting, and
Forestry
B. Fishing
0
1152839
5767587
0
0
0
95323
0
40853
136176
C. Mining and Quarrying
0
0
967388
0
302425
1269813
industry
D.Manufacturing
E. Electricity, Gas, and Water
Supply
F. Construction
G. Whole Sale and Retail
Trade
H. Hotels and Restaurants
I. Transport, Storage, and
Communication
J. Financial Intermediation
NPISHs
Household/
Unorganised/
Informal
Sector
153570716
Total GDP
160491143
0
3915012
4890973
0
3814780
12620765
1382072
1852547
0
0
802230
4036848
6170837
1535043
513073
595232
7259669
16073853
21521
0
46424258
0
139058
46584838
20906
0
10117098
0
21278
10159282
0
8757514
3949280
0
12562
12719356
0
3190552
1552870
31274
0
4774697
2276360
0
19203
19203
22021873
24336640
10320218
0
0
0
0
10320218
6167973
0
1305799
205001
0
7678773
1507218
0
294034
64491
86968
1952710
133982
0
4314311
904288
4975
5357556
0
0
0
0
674240
674240
TOTAL GVA
Agriculture, forestry and
fishing
Mining, manufacturing,
electricity & construction
28001085
20403506
80211199
1819491
188751627
319186908
0
1152839
5862911
0
153611569
160627320
7552908
7302601
6371434
595232
12179104
34001279
Services
20448177
11948066
67976854
1224258
22960954
124558309
Total GVA
Total GVA excluding
agriculture
28001085
20403506
80211199
1819491
188751627
319186908
28001085
19250667
74348288
1819491
35140058
158559588
K. Real Estate, Renting, and
Business Activities
L. Public Administration and
Defense
M. Education
N. Health and Social Work
O. Other Community, Social
and Personal Services
P. Private Households with
Employed Persons
41
Thanks
42