(Reposting- Published in Dawn Newspaper Pakistan )
ECONOMISTS have time and again emphasised a focus on inclusive growth for sustainable development without realising the magnitude of the informal economy in developing countries. According to a recent ILO report, two billion or 61.2 per cent of the world’s employed population aged 15 and over work informally. Agriculture has the highest level of informality (93.6pc), while industry (57.2 pc) and service (47.2pc) sectors are relatively less exposed.
According to Pakistan’s Labour Force Survey 2015, non-agricultural informal employment above the age of 10 is almost 52 million, or 73pc of the total labour force. Despite being a high-risk sector, a significantly higher number of women work in it than men. Besides not contributing taxes, there are many forms of exploitation and absolutely no incentive to transition to the formal market as it benefits the government, large corporations, and players running the informal economy.
While successive governments may have appeared concerned about attempting to regulate the informal economy, one cannot deny that this sector has evidently accommodated a large share of the unemployed population. Start-ups end up in the informal sector due to factors such as decentralised land records, a complicated tax system and cumbersome registration processes.
The magnitude of the informal economy must be recognised.
It is telling that the Pakistan Economic Survey 2016-17 does not have any breakdown of sectors that operate informally. Policies that can provide some regulation are also paid little attention. Laws on home-based workers (a highly vulnerable labour group) have yet to be passed, despite the framing of policies to that effect. Moreover, trade unions outside of the formal economy cannot form unions with collective bargaining power, which deprives the informal sector of transitionary elements. There are many more complicating factors that the government ignores, such as how to transition an uneducated and unskilled labour force.
Meanwhile, corporations take advantage of the low-cost labour, economical productivity and lack of accountability the informal economy affords. Concepts like responsible sourcing and responsible business have not reached developing countries, even for multinationals that otherwise abide by these principles in more formal economies. Similarly, local corporations often do not hire women in their factories as a matter of policy. Given the government’s talk of investing in the private sector, such suboptimal workplace practices fail to indicate a positive direction.
The trickle-down effect of these issues provides a greater playing field for local tyrants like landlords and other intermediaries. Child labour, bonded labour and other forms of exploitation exist predominantly in rural areas, home to most of the working poor, where there is also limited or no access to social protection or social services. These issues remain pervasive, and the absence of reliable data makes it difficult to formulate policies to eradicate them.
Currently, the government is developing policies, analysing growth and designing initiatives for only 30pc of the workforce. The government needs to develop parameters for transitioning the informal sector. In order to encourage companies to transition, it should simplify the rules and regulations for registration and taxation, and provide social protection through initiatives like the Benazir Income Support Programme. Providing training and resources to labour inspection units will help create a more enabling environment. Employment generation in the formal sector can be enhanced through extended education and training opportunities.
In order to facilitate the transition, it is imperative to recognise the informal economy’s diversity, and the various categories and drivers that are leading to its growth. Workers in the informal economy also vary depending on the size and type of organisation, job status and nature of employment.
Technology can play a vital role in this evolution; several local online platforms have engaged employees from the informal market to operate their businesses. These engagements not only help enterprises but have also provided specific sectoral skills to employees. Nonetheless, the government needs to develop a regulatory framework for digital technology.
Local rural agri-economies, meanwhile, can benefit from small-scale cooperatives. Besides being more formal and providing collective bargaining rights, they also lead to socioeconomic empowerment by involving members in decision-making that creates additional employment opportunities, and enables them to become more resilient to economic and environmental shocks.
It is important to realise that tacitly accepting the informal economy has also led to destabilising the formal economy. The government must focus on underlying causes, not just symptoms, through a comprehensive, multifaceted strategy to lead us to actual growth. Major institutional mechanisms will have to be designed to accommodate this paradigm shift.
