Areas of Expertise

Informal Economy

Informal Economy
© ILO/M. Crozet

Informal economy profiles

A majority of workers and enterprises enter the informal economy not by choice but as a consequence of a lack of awareness or opportunities in the formal economy and in the absence of other means of livelihood.  This applies as well to owners of economic units who may not have the capacity to offer decent working conditions to their workers because they run small and/ or unproductive businesses. Who are those workers and operators of the informal economy?

A domestic worker - Marife

Marife is 35 years old. She has been working as domestic worker for 18 years and with her current employer, her job terms (contract) were explained to her verbally and she thinks it is fine this way.  During the first years, Marife was often not paid. "I only started to receive a real salary when I was 21," she said. "Until that age, my payment was often in used clothes and food.” She is paid monthly, at a rate, below the set minimum wage. Her working hours range from 12 to 16 hours per day. Holidays have not been specified, and she does not receive overtime pay. She does work even when she is sick because she does not want to lose the job, and needs that income to support medical treatment. Marife  does not think that joining the trade union is worth it for her (as she believes trade unions are for company workers). She does not know that domestic workers in her country are protected within the "Domestic Workers Act" or "Batas Kasambahay" and are entitled to formal registration of contracts, provision for monthly minimum wage, social protection benefits, rest periods (C189[1]). Marife does not enjoy any of these basic workers’ rights; but her life could change soon because she heard on the radio about organisations of domestic workers fighting for their rights

[1] C189 - Domestic Workers Convention, 2011 (No. 189) - Convention concerning decent work for domestic workers

A wage worker - April

April is 34 years old. She has been working for the same firm for the last 10 years. Her contract is regular and is renewed every 4 years with all the benefits covered by formal arrangements: wages, social security, holidays. Her job description is specified clearly, and she has regular working hours (40 hours per week). She is also a member of the trade union committee of her firm and she is very engaged in improving the working conditions of her fellow co-workers

Construction worker -Danilo

Danilo is a migrant working as a construction worker in his neighbour country. In his country, he was a highly-skilled craft worker. But in this new country, for workers like him, jobs are scarce and competition is high among daily-work seekers in the various construction sites. He is lucky as his skills allow him to find regularly long-term jobs, but often without all the benefits.  The construction sector is booming in this new country and he hopes to get a contract leading to decent working conditions, matching his skills levels and allowing him to earn enough to bring his family. It is common among the construction operators to propose undeclared jobs.  Workers like him have no choice and are afraid to contact trade unions as employers can see this as a threat

A street vendor - Amor

Amor, 44 year old, sells vegetables in Manila. Since her arrival, four years ago, Amor has been working as street vendor in the colonial area of the city, very popular for tourists as well as local population. Amor is satisfied with her business. She has a lot of flexibility in term of working time: she can freely decide when to work or not and for how long. She also likes the possibility to decide whatever she chooses about her job and her life without any imposition. Furthermore, everything she earns she keeps! By contrast, Amor sometimes has to cope with public authorities’ harassment against informal street vendors. She must also hope to be always healthy and fit to be able to face the day-to-day work (no SSS, PhilHealth, as the public system does not accommodate their needs). Actually, Amor has limited access to healthcare and faces higher medical costs when she gets sick.

This might change, as Amor is member of a strong and popular trade union, which negotiated with the government a public programme giving incentives to the self- employed. As a condition, Amor first has to register her activity. The municipality promised to help the union to facilitate access to social security and health insurance regime for their members. 

Woman entrepreneur, sari sari store - Riza

Riza Mae runs a sari-sari store. She buys the supplies early in the morning and sells at a road side stall in her local community. She did not have much schooling but since she had small capital she decided to start this income activity, despite intense competition from other women doing similar work. She recently had her fourth child after a difficult pregnancy. As a result she had to stop her income activities while she recovered. Her husband lives and works in a nearby province and can only send money intermittently through trusted acquaintances. When she stopped working,  it resulted in a serious income shock for her family and she relied heavily on the support of neighbours and friends. She has now restarted her business, but since she lacked collateral and was intimidated by commercial banks, she uses the services of a money lender with exorbitant interest rates. Although she is reluctant to do so, she is considering taking her 10 year old daughter out of school to look after the younger children, so that Riza Mae can devote more time to earning an income. Riza Mae has never had business training, and does not even think of herself as an entrepreneur. She has never considered registering her enterprise or joining a cooperative

Driver - Piolo

Piolo started out as a conductor and after two years graduated to be a driver.  The only qualification he needed to get the job was a Driving License and NBI clearance. The industry is open to everybody who has the courage to face the consequences that comes with the job.  Piolo works for long hours and puts a lot of effort in his job but despite this the employer denies him all the benefits that other employees enjoy.  He has no PhilHealth, never had an employment contract, he is not registered or contributing to SSS. This leaves Piolo with nothing to show for his contribution at the end. Most investors in this industry do not really care about their employees; their main concern is the money the workers bring in.

For now Piolo is satisfied with his daily wage and does his budget according to the little income. To him, paying house rent and tuition fee plus providing food is all it takes. He does not realise the importance of investing.  Since the industry does not provide SSS, Piolo’s prosperity ends the day he fails to wake-up the next morning to go to work. Piolo further faces other challenges in the course of duty which includes harassment from the police, insecurity of the job and general bad attitude from the public. Piolo is not aware of any trade union in his field.

Wage worker - João

João works for a toy store as a wage employee. He would like to get a proper contract but he had no choice as it was the only job he found. Although the toy store is registered and has more than 10 with regular contracts, João is among the five non-registered workers. Notwithstanding João performs the same activities of the registered workers as a seller, he is not entitled to sick leave, unemployment insurance, sickness allowance, accident assistance, family allowances, maternity pay, retirement, paid vacation, Christmas bonus, safety and health at work, paid weekly rest, etc. João does not know he can make a complaint to the Ministry of Labour, which should keep his identity confidential. So, he is afraid of losing his job.

Business owner _ Popoy

Popoy owns an export trade business. He hires five workers on a regular basis and as his market position is good, he is thinking of expanding his operations, and hire more workers.

He has just obtained a loan from the country’s first investment bank that is specialised in enhancing the productivity of growth-oriented businesses. Popoy also gets support from a business association, which is registered as an employer organisation.

Popoy has registered all his employees, who get full employment benefits. This comes as a cost but he thinks that the well-being of his employees has contributed to higher productivity and staff motivation. He is a bit frustrated though by the unfair competition of his competitors. Indeed some employers in his sector, who are not declaring their workers are creating unfair competition as they can provide cheaper goods and services than companies respecting the rules, including health and safety obligations, payment of social security contributions and working conditions. His employers’ organization is working with the government to address this issue.

Popoy pays taxes under a simplified taxation format introduced by the Government for small enterprises.  This tax scheme means that he pays a lower tax rate than large enterprises on the basis of a relatively simple annual tax declaration form

Owner of a restaurant - Joselito

Joselito is 35 years old and is the owner of a small restaurant, which is not registered even though he claims so because he pays a tax to the municipality. He employs a family member (his nephew), but during peak times, he hires other seasonal workers to fulfil the needs. 

Working hours are often long and working conditions are poor: in particular, the kitchen of the restaurant is badly lit, not very well equipped and with insufficient ventilation. Because of that, the restaurants at the neighbourhood get more clients.  Sometimes, his workers do not show up as a threat for not offering better contract conditions. Joselito remains competitive only because he sells special local dishes.

Joselito has considered registering, but after spending a day going to different local agencies, he was daunted by the amount of documents to fill out, the costs of registering, and the number of different institutions that he needs to get permits and certifications from, dealing in particular with the food sector. He is also afraid that local authorities can shut down his eating place because of poor working conditions and lack of compliance with sanitary regulations. He also wonders whether he will be able to pay taxes every year as his revenues fluctuate.

Joselito wants to improve the situation of his workers and at the same time his business, but he is worried because of the costs implied by taxes and social security. Indeed, hiring informal workers and family members’ helps him remain competitive. Joselito is also a member of a small business association but does not have time to attend meetings to better understand how he can get support from the association. 

A trader - Maya

Maya operates a small business that buys vegetables in Vietnam and sells it in Cambodia. The business is composed of herself (manager), her elder brother (driver) and a female employee in charge of the distribution of the goods to clients in Cambodia.

The business model is easy. Maya and her brother drive to Vietnam in the morning, buy garlic in a small town close to the border and drive back to Cambodia in the evening. They generally undertake this trip two times a week. Depending on the season, they bring vegetables from Cambodia to Vietnam, selling them to their business contacts in the same border town. Maya and her brother know well the customs officers working at the border and regularly buy them some gifts.

The garlic is sold to local shops and restaurants in Maya’s home town in Cambodia. Maya’s clients are regular customers and her sales have been stable over the years. She has not seen any increase in her sales though, because the town where she lives and works is quite remote and no new restaurants or shops have been opened. Whereas the overall Cambodian economy has been growing over the past years, this growth has not translated to any increase in sales or income for Maya’s business. Income from the business, though, has covered the cost of living of Maya and her two employees.  

So far, Maya’s business is completely informal. It is not registered with the municipality, it is not paying taxes and the salaries are paid informally without any social security contributions. From time to time informal taxes need to be paid to local policemen in order for Maya not to get into trouble.

Maya is tired of the routine and she is worried about the lack of growth prospects. She dreams about starting a formal import-export business as this may allow her to diversify the range of products she could be trading and increase the volume as she could be eligible for a bank loan. She fears, however, that she may not have the right qualifications to open such a business. She has also heard that opening a business formally may increases certain costs. She has not shared her ambitions with anybody as people would probably just be laughing about her

A rural entrepreneur- Nadine

Nadine owns a sewing business in a small rural town.  She hires two workers on a regular basis and usually another three to four workers during the peak season. As productivity rises, she is thinking of expanding her operations. She has just obtained a loan from a private bank and she also gets the support from a local women business association.

A while ago Nadine decided to formalize her business in order to make it grow and access new markets. She registered her business with the municipality and with the Chamber of Commerce. She has also registered two of her employees who now get full labour benefits. This comes as a cost but brings also benefits: she thinks that the security and well-being of her employees have contributed to a higher productivity for her business. At times she gets annoyed with the time she has to spend on the administrative work related to the payment of the social security contributions each month, but she is quickly learning and spends less time on it every month.

The situation, however, also produces some jealousy amongst the temporary workers who join the firm during the peak season and who don’t have any social protection benefits.  Recently, one of them had an accident at the work floor, which was not covered by insurance, meaning that Nadine had to cover part of the hospital expenses. Nadine, however, considers that the cost of formalizing all of her workers at once cannot yet be covered by the income generated by the business.  

A farmer - Alden

Alden is 41 years old and lives, together with his wife and two daughters, on a small plot of land. Alden and his wife both work on the farm and during peak times, they hire two other seasonal women workers from a neighbouring village to help them with the harvest.  Working hours on the farm are long.

Alden’s farm has belonged to the family for generations. The land title of the farm is not registered, but everybody in the village knows which fields belong to the family.  Alden doesn’t pay any official taxes, but he contributes, just like everybody else does, to the village fund in order to help with the maintenance of the village church. Alden has never thought of the possibility to register himself, his family member or the seasonal workers in SSS or PhilHealth. He thinks it is too expensive to contribute to social security scheme and difficult to contribute in a regular basis because of seasonal instability of income. He also believes that the benefits offered by the schemes do not take into account the nature of his work and the needs of his family. Sometimes he is worried about who will take care of the family when something would happen to him, but he doesn’t think that contributing to a formal social security scheme would be of any benefit, he thinks it is better to try and save although this is not always possible, or rely on support from other family members. 

Alden does not have sustainable market for his produce and currently sells his products to informal traders who then sell them on to consumers/national markets or to export companies.  He wants to expand his business but he does not know who to talk to. He feels it is not worthwhile to approach a bank as he does not have the land titles to his farm and he is not registered, so they cannot offer them any collateral. John is interested in improving his business management skills, but so far he has not found affordable finance and training opportunities

A miner- Carlos

Carlos is a 28 year old mine operator. Every day he wakes up very early in the morning and reaches one of the many gold mines of his province. Carlos works with a group of 4 men: they spend hours, even days before finding gold. Carlos isn’t entitled to receive any form of social protection and his job is extremely dangerous, but he says he has to do it because he needs money to take care of his little brother. This activity also has severe consequences for the environment: most of the illegal operators use hazardous chemicals such as mercury causing water pollution, deforestation, wildfires and soil degradation. Carlos spends a lot of time underground, without natural light or ventilation and with little or no protection at all, with a high probability of contracting skin infection or other diseases – like cancer.

Carlos knows that the government issues licences to operate as legal gold miner: through formalization, he could work in better conditions, but he would be forced to work only in selected areas. The problem is that in his province, designated areas for gold mining are few, and some have very low level of gold: this is why Carlos prefers working informally.

In his country, informal gold mining is the second largest sector in terms of employment after agriculture, and profits are higher, which makes it a very desirable option. The presence of significant mineral reserves has the potential to generate substantial wealth and prosperity for the population, provided that the leadership exists to implement an industrial strategy that mobilizes the country’s extractive resource development in a manner that achieves a prosperous outcome for people like Carlos.



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