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United Nations Economic Commission for Africa
African Centre for
Statistics
Annex B: Informal Economy in the context of
GDP exhaustiveness
Ramesh KOLLI
EN/SUT/2014/Pres/06
Senior Advisor on National Accounts,
African Centre for Statistics
At Expert Group Meeting on Supply and Use Tables
2-6 June 2014, Port Louis, Mauritius
Le Méridien Ile Maurice
Exhaustiveness
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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
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Approaches for Exhaustiveness
• NOE handbook
• Eurostat tabular approach
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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
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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,
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tips, valuation techniques and adjustments fro accruals)
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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
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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
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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 Statistical Manual on the informal sector and informal
employment: Measuring Informality (2012)
• UN-ECE publications, NOE in National Accounts: Survey of Country
Practices (2003, 2008)
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Informal sector
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th
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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 "
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th
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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
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ICLS (3) - Characteristics
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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
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th
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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
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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
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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
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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)
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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
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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/home-workers. 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
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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
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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
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Informal employment
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th
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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
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Presenting data
on informal sector and informal
employment
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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.
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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
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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.
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Indirect approach
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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
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The chapter provides a case
study with Indian data
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United Nations Economic Commission for Africa
African Centre for
Statistics
Thank you
Ramesh KOLLI
Senior Advisor on National Accounts, African Centre for Statistics
At Expert Group Meeting on Supply and Use Tables
2-6 June 2014, Port Louis, Mauritius, Le Méridien Ile Maurice