You are here: Home Knowledge Base Economy Escaping the Informal-Employment Trap in Developing Countries Proposals Women in the Informal Economy
Symposium 2010

Proposal - Women in the Informal Economy

The Challenge

Informality of employment is a way of life throughout the developing world. In poor Sub-Saharan African countries, the informal sector employs the vast majority of the nonagricultural labour force ...

Informality of employment is a way of life throughout the developing world. In poor Sub-Saharan African countries, the informal sector employs the vast majority of the nonagricultural labour force. Informal jobs continue to account for a high share of employment in the middle-income Latin American countries, The global economic crisis is likely to cause a further surge of informal employment because of job losses in the formal sector.

Introduction

The face of the informal sector is that of women. They are disproportionately represented as informal workers in most developing countries. In Benin, Chad and Mali, for example, the informal sector accounts for 95% of women workers outside agriculture. In India and in Indonesia, nine out of ten women in non-agricultural work are informal workers. In ten Latin American and four East Asia countries, half or more eke out a living in the informal sector. Despite income earned from informal work, women are also the majority of the poor. Just as they earn less than men in the formal economy, so do they earn less than men in the informal sector.

Far from disappearing, informal employment is persistent and widespread. Estimates are that the share of the informal sector in non-agricultural GDP is between 45-60%. There was an assumption prior to the recent economic crisis that global economic expansion would absorb and shrink the informal sector. Instead, informal employment became part of the production value chain through subcontracting and outsourcing by transnational companies. The attraction to employers – low labor costs and the absence of regulation in many countries – which enhanced profit.

The solutions to curbing the growth of informal employment will require the three major players in society in order to create lasting change that will benefit not only women workers but also men. Just in the area of labor laws alone, governments need to revise existing laws and policies so as to ensure fair wages for all workers. Corporations must respect and comply with international labor standards and minimum wages. Informal workers need to organize as groups to make their work visible, to be counted in order to hold the public and private sectors accountable. Some steps in this direction have been undertaken, for example, by U.S. clothing manufacturers, who now insist on good working conditions and fair wages from their suppliers, in reaction to disclosures of slave labor working conditions that besmirched their own or their competitors’ brands.

Lasting solutions, however, will come out of partnerships among business, government and civil society that will leverage each sector’s resources, in steps large and small, that may be replicable in other emerging economies. This paper presents three such partnerships spearheaded by a nonprofit, a government, and a corporation.

 

SELF-EMPLOYED WOMEN’S ASSOCIATION (SEWA)

Informal workers’ lack of power in the labor market stems in large part to their invisibility as a group. A pioneering Indian woman named Ela Bhatt found a solution when she formed the first ever women’s trade union of self-employed women in 1972, and successfully registered a group of informal women workers as a union. SEWA was able to negotiate with textile manufacturers on behalf of these self-employed women who were doing piece work at home and in factories, while it developed at the same time services that improved the women’s economic literacy, skills and bargaining power. It expanded to form other cooperatives, such as those of street vendors or vegetable sellers or craft producers. In time, it established a microenterprise loan program that became adopted by the Grameen bank.
The success of this grassroots organization in organizing and growing the economic capacity of informal women workers who form its membership has been such that India’s government invited SEWA in 2006 to help formulate a national policy on home-based work. Now with its 1.2 million members nationwide, SEWA also succeeded in lobbying the government to pass a social security bill for informal sector workers.

SEWA has been instrumental in forming global partnerships that resulted in the founding of HomeNet, an international alliance of home-based workers, and StreetNet, which is an alliance of street vendors. U.S. Ambassador Melanne Verveer called SEWA a global role model, because of its success in enabling women from the most backward areas of India to break through the boundaries of illiteracy, caste and social backwardness to
independently raise their social and economic status. It is a model that is now crossing borders.
Recently, the Ministry of External Affairs of India selected SEWA to assist Afghanistan’s Ministry of Women’s Affairs to develop Vocational Centers for Training in Kabul. SEWA is also collaborating with other South Asian countries to produce and collectively market home-based crafts and textile products under a unified brand called “SABAH,” which will open overseas markets for women microentrepreneurs and bring them increased income.

 

Mexican Government: Certifying Agricultural Workers

The main laborforce for companies exporting fruits and vegetables from Mexico are 3.1 million workers, of whom 1.2 million are migrants – 53% men and 47% women. The majority travel from farm to farm with their families, and their pay comes to US$4.00 – 7.00 per day. Like all informal workers, they lack job security, are in precarious living conditions, lack health care, pensions, and good working conditions. Because pay is so low, girls and boys are incorporated into the workforce early to increase the family income. Needless to say, illiteracy is high among these workers.

The exporting and transnational companies which employ this labor force generated US$5.173 billion from agricultural exports in 2006. The higher profit margins come from low wages paid to an ever growing cadre of informal agricultural workers, many of whom are women and girls.

The Mexican government’s solution to this issue was to develop a certification program for informal workers which came into effect in 2009, and in doing so, made these workers part of the formal economy. Basically, certification meant recognition of work experience, knowledge and abilities gained by migrant workers in vegetable harvests, according to international standards recognized in Mexico, the U.S. and Canada.

As of this past winter, 1,600 day laborers have been certified (38% women and 62% men). The benefits that accrue to these former informal workers required joint partnership between the Mexican government and the agricultural exporting companies. On the part of the government, several agencies and 26 provinces agreed

  • to expand health services to agricultural workers through 45 agricultural medical centers and 52 mobile health units;
  • to provide social security benefits for day laborers who are certified;
  • to create a sole report card system to recognize work completed by girl day laborers at any place they study.

Companies on their part agreed to recognize the certification program which was a form of guarantee for skilled workers. They agreed to the use of a voucher for each worker that recorded time worked and wages paid, thus promoting uniform minimum wages that can now be counted. Moreover, sickness and maternity insurance, along with access to disability and life insurance would now be provided. Most important, there was a tacit agreement between government and businesses affected to commit to reducing child labor and to provide protections to women and minors currently in the informal agriculural laborforce.

This is clearly a work in progress, and the challenge is enforcement on the part of government and commitment to regular inspections in the field to ensure compliance. On the part of corporations, they need to remain committed to the concept of social responsibility to their workers and its compatibility with profitability.

 

The Grameen Danone Foods Project

Most informal workers – male and female – are self account microentrepreneurs, who produce some level of income but not enough to become part of the mainstream economy. Part of the problem lies in the lack of a steady and sustainable market for products or services provided by them.

The ‘father’ of microcredit, the Nobel Prize winner Mohammed Yunus, understood this issue and developed a “next stage” paradigm that entails a holistic approach to creating a market eco-system for microenterprises that is dependable and offers possible expansion. In 2006, he persuaded Danone to become Grameen’s partner in a joint venture to create a “social enterprise” with an initial capital of $1 million. Its goal was to improve child nutrition in Bangladesh, which has one of highest malnutrition rates for women and children in the world; and to alleviate poverty by providing jobs at the same time.

Initial investment was used to establish a yogurt factory in Bogra, with plans to create 50 more plants in 10 years in rural areas, with each factory to generate 3,000 tons of dairy products. The community-based enterprise would be a new model for doing business with the extreme poor in a new capitalist paradigm.

Basically, Grameen would provide loans to micro dairy farmers, who will supply the milk to the Danone-built factory. Danone provides training in the processing of milk into yogurt, employing many more in the community. Sales women distribute the yogurt door to door, 50-100 cups of yogurt in four hour shifts a day. The enriched yogurt is priced at .05 euros or 5 tikals, which even the poor can afford. Solar energy is used to heat up the water for production and the packaging of the yogurt is biodegradable. It is estimated that 1,600 jobs were created in 2007 within a 30-mile radius of the Bogra plant that now provides a higher level of income to many more in the community with greater sustainability.

This is a win-win model that provides market penetration for a company in areas it could not possibly enter, while the community benefits from improved health, nutrition, employment and a green environment. The concept of social business is actually a form of capitalism that can make progress against poverty in ways that governments and traditional charities have not done. It marries the interests of corporations with economic development, a model that can be replicated in other industries and other countries that can transform informal workers into waged earners with steady income.

    Related Proposals

    Proposal
    Symposium 2010

    Incentives to Formal Employment: A Proposal for Colombia

    The creation of formal employment is currently the main challenge of economic policy in Colombia. The year 2010 began with unemployment in the double digits and high rates of underemployment and infor ...

    The creation of formal employment is currently the main challenge of economic policy in Colombia. The year 2010 began with unemployment in the double digits and high rates of underemployment and informal employment, which disproportionately affects young people and those with low educational levels. The current high level of unemployment, underemployment and informal employment in Colombia, rather than a situational phenomenon, is a structural problem. Even during a period of expansive growth, from 2003 to 2007, the unemployment rate remained in the double digits. The 2.5% GDP growth forecast for 2010 is insufficient to avoid a deterioration of current labor

    Polity, Business, Civil Society
    Proposal
    Symposium 2010

    Reforming Labour Law

    The labour market in most developing countries is dualistic and segmented. Formal and informal markets coexist. Transactions continue to be non monetized. Information is not complete and is costly. Mo ...

    The labour market in most developing countries is dualistic and segmented. Formal and informal markets coexist. Transactions continue to be non monetized. Information is not complete and is costly. Mobility is restricted. In addition to this problem of a vast majority in the unorganized sector, the work force also is remarkably heterogeneous. Laws that protect only the organized sector do not protect the unorganized or the informal sector. Added to this is the problem of the plurality, which results often in conflicting interests and goals. Caste or race factors and regional factors enter into the picture and worker interests get

    Polity
    Proposal
    Symposium 2010

    Escaping the Informal-Employment Trap in Developing Countries

    Informal employment can be the result of both people being excluded from formal jobs and people voluntarily opting out of formal structures. To deal with these distinct phenomena, a carefully targete ...

    Informal employment can be the result of both people being excluded from formal jobs and people voluntarily opting out of formal structures. To deal with these distinct phenomena, a carefully targeted government response is needed. For the world's poor, working informally is often the only way to participate in the labor market. Poverty-alleviation measures that provide improved risk management and social protection should be employed to address the hardship of these people. At the same time, governments should try to unlock them from their low-productivity activities. Specific options include active labor market policies, such as training and skill-development programs, which may open

    Polity, Academia, Business, Civil Society
    Proposal
    Symposium 2010

    Training and skill development

    Despite unprecedented growth in the last decade, India has a very low low per capita income. The Indian workforce is around 460 million strong. More than 90 per cent of the workforce is in the unorgan ...

    Despite unprecedented growth in the last decade, India has a very low low per capita income. The Indian workforce is around 460 million strong. More than 90 per cent of the workforce is in the unorganised sector and the unemployment rate is around 9 per cent. Employment surveys report low unemployment rates; the reality is that many Indians work on more than one job and continue to search for other opportunities even when they are already employed in some activity. Low productivity is a major cause for both of these. This disguised unemployed when added to the unemployed results in

    Polity, Business
    Proposal
    Symposium 2010

    Escaping the Informal-Employment Trap in Developing Countries

    Develop market-driven and market-recognised skill certification systems for informal workers to allow them to signal the market of their ‘acquired’ skill levels and seek gainful employment in the ...

    Develop market-driven and market-recognised skill certification systems for informal workers to allow them to signal the market of their ‘acquired’ skill levels and seek gainful employment in the formal sector. Certification will integrate labour markets and increase labour mobility. Brief description and rationale: One of the prime causes of informal employment in developing countries is the lack of adequate skills and training for labour which makes them unfit for formal-sector jobs. In other words, it is the lack of employability that forces millions of youth to the informal sector for employment and livelihood. For those working in the formal sector,

    Polity, Business