Download The Development of Informal Employment During the Financial

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The Development of Informal Employment During the Financial
Crisis ——Based on Research of Cixi City in Zhejiang Province
CHEN Min1, QU Liang2
1. School of Statistic and Mathematics, Zhejiang Gongshang University, China, 310018
2. School of Business Administration, Zhejiang Gongshang University, China, 310018
[email protected]
Abstract: Development of informal employment has become the country's strategic choice to relieve
the employment pressure, but the financial crisis and the drastic changes in global economic
environment make a doubt of the “reservoir” role of the informal employment. This paper, through the
KK electricity consumption method, describes the dynamic evolution of the informal economy. The
results show that the informal economic output is instable and severe amplitude than the formal
economy, but under the impact of the financial crisis, there is no collapse phenomenon. Even more, the
informal economy earlier perceived volatility of economic system, and the recovery phase of the growth
rate was much higher than the growth of the informal economy, which means the flexibility of the
informal economy is indeed higher than the formal economy. In conclusion, this paper pointed out that
the informal economy and formal economy complement each other, although there are counter-balance
in the relationship, but in a long-term perspective, informal employment’s "reservoir" effect could well
ease the employment pressure in China.
Keywords: Informal Employment, Informal Economy, development, estimate, K-K electric
consumption method
1 Introduction
Since the International Labor Organization(ILO) defined the concept of the Informal Sector(IFS) and
Informal Employment(IEM), the research of IEM has become a focus in economics and sociology, and
the center of attention one of which discusses the social effects of informal employment to estimate the
size of informal employment have become mainstream. Chen (2004) pointed out that since the 70s from
the 20th century, IEM has become the main way to solve the unemployment problem. In 90s, all of
Africa's new jobs in more than 90% are created by the informal sector ,and in some Latin American
countries, almost all new jobs from the informal economy (Yao Yu, 2008). In addition, the IEM help the
government solve the unemployment problem which from structural adjustment without huge financial
and reduce the cost of enforcement in some respects(Matthew McKeever, 2006). Moreover, the Informal
Economy(IEC) development can reduce poverty (Saibal Kar & Sugata Marjit, 2008).
For the judge, had the support of China scholars. IEM is conducive to narrowing the urban-rural wealth
gap and improves the standard of living for the rural population, even has a positive effect on township
enterprises(Zhang Gupeng, 2008). Moreover, IEM has a function to repair labor market regulation, and
its work to the labor market supply and demand and the flexibility to change prices as much as possible,
so that the number of labor with the volatility (Yuan Zhigang, 1997). As for the size of urban IEM,
different methods concluded that there is a big caliber error, which is more acceptable to about 25%
-30% of the households engaged in IEM activities (Wu Jiansheng & Zuo Ying, 2001 ; Xu Aiting, 2009).
Yao Yu (2007) estimated the total IEM in China in 2002 to 12 028.28 million, rising to 13 601.18
million in 2004. In addition, in 2002 China's urban informal economy of scale in the 3.72 ~ 4.03 trillion
yuan (Ren Yuan & Xi Zhepeng, 2006). Shows that already the size of the IEC can not be ignored, IEM
to solve the unemployment problem has become a strategic choice.
However, not to mention the high pollution, high energy consumption of the IEC, only its vulnerability
and the high mobility had faint touches our nerves. To be marginalized in the economic turmoil of
migrant workers probably nothing, attached to the formal business of the family workshop may also be a
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cry in the economic cold. 2008 financial crisis, Resignation is sweeping the globe, a large number of
business failures in Shenzhen. Zhejiang Province, as the export-oriented economy, can not be spared. So,
Under the impact of the financial crisis, what’s the performance of the informal economy? The family
workshop, as the represent of IEM, if there is a collective failure phenomenon? Whether the IEC is more
difficult to recover? Next, this article will through empirical analysis to demonstrate the size of the
informal economy and vitality.
2 The Choice of Statistical Methods
Cixi City is a county-level city, the small region limited the application of statistical methods and the
incomplete data also led to methodological limitations. Here, taking into account the applicability and
validity of data and availability, this paper follows the way of Yair Eilat & Clifford Zinnes (2002) used
to estimate the IEC scale of Cixi City. The theoretical basis of the method is proposed by KK electricity
consumption(Kaufmann & Kaliberda, 1996).
Suppose the difference between the two time periods consumption is different from the price and the
amount of GDP generated by the different result, then we can construct the following regression model:
∆Elect = α 1∆Epricet + α 2 ∆IndGdpt + α 3 ∆ Pr vGdp t + c
∆Elec t
refers to the difference between electricity,
∆ IndGdp
t
refers to the difference of industrial GDP,
(1)
∆ Eprice
∆ Pr vGdp
t
t
refers to price fluctuations,
refers to the difference of private
GDP.
Then,
∆Electresid = ∆Elect − α 1 ∆Epricet − α 2 ∆IndGdpt − α 3 ∆ Pr vGdpt − c
∆Elec
(2)
resid
t
Refers to the residual of type 1, which indicated the part that can not be explained by the
fluctuations in electricity price volatility and GDP fluctuations. It means that this indicator represents the
change in the informal economy has brought the use of power fluctuations. Although the model can not
calculate the size of IEC, but it in order to determine whether exist the IEC.
According to the KK electricity consumption, we can obtain the specific estimate of IEC by the
following equation:
TEA90 t = TEA90 t −1 × (1 + η × ∆Elect / 100), t = (1991,....n)
(3)
TEA t
TEA 90 t =
TEA
1990
Where
refers to the ratio of total economic activity in the t year (ie the total real GDP)
and the base year (in this provisional acceptance in 1990), ∆Elect refers to the fluctuations in the value
of electricity consumption, η refers to the Power consumption of production factors, according to the
relevant academic research, its value is generally between 0.5 to 2, the higher the value, indicating a unit
GDP power consumption generated by the greater value. (Note: TEA 90 90 assumed to be 100)
Now, we can get the IEC size estimation equation:
IECt = (TEA90 t / GDP90 t ) × (1 + IEC1990 ) × 100 − 100, t = (1991,...n)
IEC
(4)
GDP
90
t refers
Where
refers to the IEC in the proportion of the total economic scale in t year,
to the ratio of official release of t-year GDP and the base year (1990) GDP, which represents the ratio of
t
the formal economy, IEC 1990
scale, its value is not fixed.
as the base year (1990) IEC size of the proportion of the total economic
3 The Original Data and the Model Regression
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In view of the financial crisis on the real economy is late in 2008, this paper selects two-month data of
2008 and 2009 to analysis, in addition, since October 2008, there is a large gap between and electricity
consumption of other months and industrial production, and the consumption of electricity consumption
and industrial output is also extremely do not match, so we eliminate the October 2008 data as
interference. Specific data trends shown in Figure 1and Figure 2.
Figure 1 The Trends of Elect , IndGdpt and Pr vGdp t
Figure 2 The Trends of
∆Elec t ∆IndGdpt
and ∆ Pr vGdpt
Figure 1 clearly shows that the industrial GDP, private GDP and electricity consumption is among the
changes in the same direction, with a strong linkage between them. On the other hand, you can visually
see Figure 1, the financial crisis on the real economy, in December 2008 to February 2009 for three
months, the three variables have undergone dramatic fluctuations, with a slump to describe no
exaggeration. From Figure 2, although the industrial GDP and the private GDP volatility have taken
place, but the volatility of the private GDP, slightly less than the industrial GDP, which to some extent,
reflect the private economy the flexibility and ability to be slightly higher compressive in the overall
economic level. In addition, from Figure 1 and Figure 2 can be observed that the first wave of electricity
fluctuations in GDP, and in July 2008 to August and in June 2009 to September GDP in both periods,
and obviously the opposite occurs changes, the abnormalities may not be observed is the result of the
informal economy. Further can be found at the end of 09, industrial GDP, GDP and private consumption
have returned to pre-crisis levels, even slightly, does this mean the financial crisis is over it? This is, we
still unknown, but can be sure that the economy has shown a strong recovery.
On the model (1), taking into account the price adjustment time is the end of November 2009, selected
data for this paper does not constitute mutations affect, therefore, this paper based on the model of this
variable is removed, the return by Eviews6 specific The model results are as follows:
∆Elect = 0.174424∆IndGdpt + 0.209725∆ Pr vGDP − 1512.181
(3.832754)
(0.0013)
R2=0.507255
(-3.321737)
(0.0040)
Prob(F)=0.002439
R2 shows regression results is not good enough, only 50% of the change of ∆ Elec
∆ IndGdp
∆ Pr vGdp
(5)
(-0.612063)
(0.5486)
t
caused
by
and
, while the other 50% are caused by the changes in other factors, which
also explains that large-scale economy has not been observed in Cixi City is exist.
t
t
4 The Estimation and Analysis of IEC and IEM
Estimated using monthly data, we should first note of several issues: (1) Because of seasonal factors,
there are some fluctuations in the data itself, may bring some estimation results error. (2) on the use of
variable "above-scale industrial GDP" instead of "society as a whole GDP" variable, with "industrial
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consumption" instead of "Electricity Consumption" description. According to research on knowledge,
Cixi City, home workshops of local production of electricity is the three-phase electricity, it is industrial
use of electricity, hence the "industrial consumption," to calculate the informal economy has a certain
rationality, while the lack of access to monthly society as a whole GDP data, the model variables in
accordance with the actual situation on both sides of the same time transformation, which is logically
possible. (3) power consumption of output coefficient for the selection of this reference to Kaufmann
and Kaliberda two scholars on the handling of the countries, Central and Eastern European countries,
they regard (CEE) power consumption of output elasticity as 0.9, the Baltic States 1, the former Soviet
Union (FSU) was 1.15; another article also made reference to the relevant departments of the province
in the output elasticity of electricity consumption coefficient calculation results, the results for the 2003
was 0.68, with the economic results are more reasonable, in 2004 to 2006 expected to be 0.85. In
addition, Cixi City, a relatively developed economy, the economic structure compared to other places in
Zhejiang province is more reasonable, and then after two years of development, productivity has been
further improved, this article will be in power, Cixi City, 08,09 consumption as an output elasticity. (4)
on the basis of IEC size of the total economic scale ratio selected, this reference Xu Ai-Ting (2009) in
Zhejiang province IEC size estimates to be 25%, that in March 2008 IEC and the overall economy
compared to 25% .After the raw data into the formula for the corresponding conversion offspring (4),
IEC can be the size of every month to remove the results of a negative result, as specified in Table 1.
Table 1 The IEC of Cixi City
Time
IEC
08.03
25%
08.11
49%
09.07
68.6%
08.04
14%
09.01
8.9%
09.08
48.7%
08.05
25%
09.02
23.8%
09.09
10.5%
08.06
23%
09.03
56.4%
09.10
10.8%
08.07
57%
09.04
37.3%
09.11
5%
08.08
32%
09.05
35%
09.12
13%
08.09
3%
09.06
20.4%
From the table, we can see the IEC to 3% of small-scale, ranging from 68.6%, the band is great, in order
to facilitate comparative analysis, in which the IEC scale, IndGDP and PrvGDP the same time to
compare the three variables, the results shown in Figure 3.
Figure 3 The trends of IEC, IndGDP and PrvGDP
Figure 4 The Mean of IEC(%)
From the Figure 3, we can note that IEC's volatile fluctuations in the overall range is between 3% -70%.
In addition, instability in the monthly fluctuations are anomalies, such as the 2008's in June and July, all
of a sudden it went from 20% nearly 60%, or goes to more than 3 times, then dropped to 3%, a decline
of nearly 2000 %. Compared to the same period IndGDP and PrvGDP trend, IEC looks a little unusual,
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although the statistical methods and data in which the error, but also vividly demonstrates the instability
of the informal economy. In addition, IEC changes before IndGDP and PrvGDP changes, can see from
the graph, IEC in June 2008 to September between the first pass through an adjustment, then an official
in the real economy by the financial crisis period, and again with IndGDP and PrvGDP After another
period of adjustment. Thus, IEC can see the flexibility of the general, the perception of economic
fluctuations is better than the formal economy.
Further explore the relationship between the three can be found, IEC and IndGDP, PrvGDP to
fluctuations between the two is not the same, but the reverse wave. Before the financial crisis, IEC
relatively stable trend, with a slow rise IndGDP decreased; in June 2008 period, IEC suddenly reversed
sharply higher, but declined slightly over the same period IndGDP, followed by the increase with
IndGDP , IEC appeared more substantial decline. However, the impact of financial crisis on the two in
parallel and in the same direction, and both were significantly decreased production, reaching the lowest
level recently. As the economy gradually recovery, IEC before IndGDP rebounded in January 2009 from
8.9% to 56.4% in March. When IndGDP gradually rise, IEC has emerged a greater percentage of decline;
and when IndGDP production occurred in July 2009 when a slight decrease, IEC to improve the ratio of
moment, as if there is a tendency to fill the vacancy value.
The overall size of the IEC's analysis shows that 28.5% of its average, median 23.76%, the specific
shown in Figure 4. This also means that, in IEC Cixi 08,09 the total economic size of about 30%, 25%
higher than the end of 2007.
To sum up, IEC and IndGDP, PrvGDP represent the informal economy are complementary, when the
informal economy, rising steadily, IEC's share will be in the lower range of oscillation; and when the
formal economy slight decline, IEC will be more substantial growth. In addition, both the financial crisis
caused by a heavy blow, however IEC response to economic changes faster than the formal economy,
not only that, in the recovery phase, IEC's growth rate far higher than the growth of the informal
economy, which proves the IEC flexibility than the formal economy.
In the IEC estimated based on the results, in this number on the scale of informal employment estimate.
This article assumes that the output of the field of informal employment / population ratio and the output
of the entire community / population ratio of the same reasons as in the field research process, informed
of Cixi City of informal employment are strong groups of imitation, the quality of the products and
informal enterprises is almost the same quality of products, In addition, some family workshops to
provide spare parts for formal enterprises, shows that its capacity is higher with the conditions, so the
above assumption is valid.
Cixi City 09 at the end of the total number of about 43 million, the total population of about 103.5
million people, then according to the following formula:
IEC
(6)
IEM
=
× population
GDP
total
Thus can be estimated, Cixi City, the practitioners of non-regular employment is about 26 million
people, or 30% of the total population.
As informal employment can not be directly informed of the number of dynamic information, it is
difficult to accurately grasp the informal employment "reservoir" effect, however from 2009 the size of
the informal economy than in 2007 that can be drawn from the financial crisis does not appear to
informal employment substantially reduce, if some non-regular employment to become unemployed
persons, so also have the same or more of the unemployed to become employed in non-formal. This
suggests that informal employment as a "buffer zone unemployment", whose role is obvious.
5 Conclusion
A large number of non-existence of the phenomenon of informal employment during China’s transition,,
this application of electric consumption method KK Cixi City, Zhejiang Province, to conduct empirical
research, that: (1) 08,09 in the size of the informal economy accounts for about 30% of the overall
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economy , according to the same output in both areas / population ratio, the availability of informal
employment for 26 million people, 30% of the total population; (2) fluctuations in the informal
economic output frequency, amplitude is also much larger than the formal economy and the This can be
seen, the informal economy less stable, highly vulnerable to outside influence; (3) financial crisis on the
informal economy and informal economy have caused a heavy blow, but the informal economy is not
only no collapse phenomenon Instead, earlier perceived volatility of the economic system, and in the
recovery phase, its growth rate far higher than the growth of the informal economy, which confirms the
flexibility of the informal economy is indeed higher than the formal economy; (4) the informal economy
and complement the formal economy, although there are counter-balance the relationship, but a
long-term perspective, the informal economy will escort the formal economy, informal employment,
"reservoir" effect could well ease the employment pressure in China .
As a national strategy, in order to better promote the development of informal employment, we must
first set up new employment concept, a clear legal status of IEM for the development of IEM to provide
a good policy environment, make corresponding policies to encourage entrepreneurship, the
development of liberal professions, At the same time increase the education and promotion efforts to
change people's traditional ideas; Second, reform the existing vocational education system,
strengthening the skills training of workers, focus on cultivating high-skilled workers, use their personal
expertise, combined with market demand, efforts to achieve "informal employment the promotion of
informal employment, "the virtuous circle; Finally, establish a reasonable and efficient social protection
measures, step by step to informal employment are included in the basic social insurance coverage, in
regulating their conduct while maintaining vigor and vitality.
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