Transition to formality

24 to 28 August 2015, Lima,

Peru

Regional forum for the exchange of knowledge

between countries in Latin America and the

Caribbean

Transition to formality in Latin America and the Caribbean:

Trends, policies and challenges

Trends in informality

• Large-scale

• Declining trend

• Very heterogeneous

Context

•Economic

• The region experienced strong economic growth during the decade 2000-2009

• Growth forecasts for the decade 2010-2019 are ever decreasing.

• For the year 2015, the most recent predictions indicate that the region will grow by less than 1%.

•Socio-political

• There is great political will on the part of various governments: application of policies designed to promote formalization

• Social actors and international discussion of R204

Annual variation of gross domestic product (GDP) in LAC per decade (%)

Note: predictions for the period 2014-2019.Source: IMF (2015). World Economic Outlook Database. April 2015.

0 1 2 3 4 5 6 7 8 9

-2

-1

0

1

2

3

4

5

6

7

2000-2009 2010-2019 (Abr-2015)2010-2019 (Abr-2014)

Annu

al g

row

th (%

)

• Notable improvements on employment indicators up to the year 2013: • Employment grew and

unemployment dropped to a historic low of 6.2%.

• Wage employment increased: this allowed social security to be extended, and reduced informality

• The context has changed• Unemployment is

expected to increase in 2015.

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

-III

2015

*45

48

51

54

57

60

6

7

8

9

10

11

12

11.1

10.3

9.0

8.6

7.9

7.3

8.1

7.3

6.76.4

6.2 6.2 6.3

Tasa de Ocupación (eje izq.) Tasa de Desempleo (eje der.)

Labour market

LAC: Employment and unemployment rates (% )

Registered employment

2000 2005 2010 2011 2012 2013

Argentina 100.0 118.7 152.9 160.3163.3 165.5

Brazil 100.0 115.7 147.1 154.8159.7 162.4

Chile 100.0 118.2 156.5 165.5175.4 181.3

Costa Rica 100.0 116.1 147.8 152.5157.8 161.1

El Salvador 100.0 108.6 121.7 125.8128.4 135.3

Guatemala 100.0 110.4 121.9 127.1130.5 134.5

Mexico 100.0 102.8 115.2 120.1125.6 130.1

Nicaragua 100.0 123.2 173.3 187.4202.1 218.2

Panama 100.0 108.5 158.2 174.6186.4 194.1

Peru 100.0 107.1 142.2 149.9155.8 160.3

Uruguay 100.0 110.7 153.8 161.2167.5 170.5

Source: Cepal (2014).

• Reduction in the rates of non-agricultural informal employment • 2009: 50.1% • 2013: 46.8%

• Large-scale: • At least 130 million informal

workers in the region

• Very heterogeneous• Informal employment in the

informal sector (30.5%) • Informal employment in the

formal sector (11.4%) • Informal employment in

households (4.9%)

Non-agricultural informal employment (%)

Note: Based on data from 14 Latin American countries. Population of > 15 years old.Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean.

2009 2011 2012 20130

10

20

30

40

50

32.1 31.4 31.1 30.5

12.3 11.4 11.7 11.4

5.7 5.2 5.0 4.9

Informal sector Formal sector Households

50.1 48.0 47.8 46.8

Informal employment 2009-2013

Informality rateContribution to total informal employment

TOTAL 46.8 100.0

Employers and employees 33.7 52.7 Public sector 15.9 4.3

Private sector 32.9 38.1

1 to 10 workers 58.6 27.8

More than 10 workers 14.4 9.4

Domestic workers 77.5 10.3

Own-account workers 82.3 40.9

Unpaid family members 100.0 5.3

Others 96.7 0.0

Trends in formalization 2009-2013

• Scale• Informal

employment: 46.8%• Informal wage

employment: 32.9%

• Heterogeneous:• Own-account

workers + workers in domestic service + workers in micro- and small enterprises

• Comprise 80% of informal employment

Note: Based on data from 14 Latin American countries. Population of > 15 years old.Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean.

Characteristics of informal employment in Latin America (2013)

Note: Based on data from 14 Latin American countries. Population of > 15 years old.Source: ILO (2014). Thematic Labour Overview: Transition to Formality in Latin America and the Caribbean.

Informality rate Informality

rate

Sex Sectors

Male 44.5 Mining 28.3

Female 49.7 Manufacturing 38.8

Electricity, gas and water 10

Age Construction 68.6

15-24 years 55.7 Commerce, restaurants, hotels 55.7

> 25 years 44.9 Transport & communication 49.7

Financial services 26.2

Income Financial services 41.2

1st quintile 72.5

2nd quintile 59.7 Educational attainment

3rd quintile 51.9 Primary education or less 64.4

4th quintile 41.9 Secondary education 46.2

5th quintile 29.8 Higher education 26.3

Informality and GDP

• Scale– 130 million

workers in the informal employment

• Heterogeneity– Countries with

similar levels of per capita GDP have different levels of informal employment

20 30 40 50 60 70 800

5000

10000

15000

20000

25000

Rate of non-agricultural informal employment 2013

GD

P pe

r ca

pita

201

3 (U

S$ c

onst

ant P

PP)

Integrated approaches as a response in LAC

• R204

• Multidimensional responses

• Diversity in points of entry

• Institutional leadership and coordination

• Tripartite commitments

COUNTRIES INDICATOR PERIOD Evolution

Argentina Unregistered wage employment 2003 – 2012 ↓ 14.5

Brazil Informal employment (% of total employment) 2002 - 2012 ↓ 13.9

Colombia Informal employment (% of total employment) 2009 - 2013 ↓ 3.0

Ecuador Informal employment (% of total employment) 2009 - 2012 ↓ 10.8

Jamaica Informal employment (% of total employment) 2008 - 2012 ↓ 3.1

Mexico Informal employment (% of total employment) 2010 - 2013 ↓ 0.7

Paraguay Informal employment (% of total employment) 2001 - 2011 ↓ 5.8

Peru Informal employment (% of total employment) 2004 - 2012 ↓ 6.6

Dominican Republic Urban informal employment 2005 - 2010 ↓ 10.7

Uruguay Employment not registered with Social Security 2004 - 2012 ↓ 15.1

Source: ILO (2014). Recent experiences of formalization in countries in Latin America and the Caribbean. FORLAC Notes. Lima: ILO.

FORLAC: Some experiences in reducing informality

Productivity Standards Incentives Inspection

Macro(environment)

Meso(sectors, chains)

Micro(business level)

InformationTraining

Simplification

Social dialogue(improvement,

change)

Link to businessformalization

(registry, taxes)

Link to social security(focus on hard- to-reach groups andnon-conventional

methods)

Specific approaches(formalization

standards, specific agreements, etc.)

Culture of compliance

Institutional strengthening

(advocacy management, automation)

Specific approaches (substitution of fines

with training, formalization

agreements, etc).

WAGE WORKERS

OWN-ACCOUNT WORKERS

DOMESTIC WORKERS

INTEGRATED APPROACH

Integrated approach: R204

Argentina

• National Plan for Employment Regularization

• National Plan to Combat Unregistered Employment

• Law to Promote Registered Employment and Prevent Employment Fraud

Brazil

• SIMPLES

• SIMEI

• National Plan to Combat Informality in Wage Workers

Colombia

• Law 1429

• Formalization networks

• Formalization agreements

• Sectorial initiatives

Mexico

• Programme for the Formalization of Employment

• Programme to Support Productivity

• Crezcamos Juntos (Let’s Grow Together)

Some multidimensional experiences

Notes on MSE formalization (regional and for 4 countries)

• MSEs.– Approximately

60% of employment is informal.

– More than 80% among own-account workers

• Some achievements

– The formalization of enterprises does not necessarily leads the formalization of labour.

Deelen 2015

Formalization and inspections (six countries + regional note)

• Inspections usually focus on wage employment

• Some countries have modernized the inspection services and in some cases they incorporate flexible criteria on compliance

DIMENSION INITIATIVES

Culture of compliance • Dissemination of standards• Awareness-raising• Tools to promote compliance

Greater inspection capacity • Greater number of inspectors• Increased use of information and

computing

Specific approaches • Simplification of procedures• Technological solutions• Flexible criteria on compliance

Work in households • Specific standards• Specific solutions

Questions for participants

• How can a point of entry to formalization be transformed into multidimensional interventions?

• Institutional agreements? Plan, standard or resources? Leadership, coordination?

• Expected impacts? Deadlines?

Questions…: Some challenges in implementing integrated approaches

• Articulation between the macro level and sectorial/territorial levels

• Institutional mechanisms for policy processes

• Transition for non-wage forms of employment

• Closing quality and coverage gaps in services

• Representation and social dialogue in the informal economy

• Formalization in times of economic slowdown?

• Others

• Objective• FORLAC is the ILO’s Programme for the Promotion of Formalization in Latin

America and the Caribbean launched at the end of 2013. Its goal is to contribute to the development and consolidation of processes of formalization in the region in coordination with governments and social actors.

• Strategic themes:– Generation and dissemination of knowledge, statistics and analysis on the

informal economy and options in terms of policies to promote formalization– Technical assistance for tripartite constituents of the ILO and interventions

applied in specific countries and sectors– Awareness-raising and capacity-building in institutions and among social

actors to promote formalization.