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.
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