- Concept of Informal Sector
- Measuring the size of Informal Sector
- Self-Employment and Business Development
- Labor Market and Tax Regulations
- Coping Strategies and Exclusion
- Corruption and Governance
- Country Specific Information
| Country Specific Information|
It was estimated that 70 to 90% of the economically active population in Armenia in 1996 were employed at least partially by the informal sector. The informal sector mostly consists of subsistence informal jobs, secondary jobs, unpaid jobs performed by family workers, occasional jobs. Hidden unemployment, lack of opportunities in the formal sector, and the cycle of low productivity and subsistence level of employment in informal sector are the biggest labor market problems in Armenia. The informal economy has been growing extremely rapidly in recent years, and the informal employment have become an important coping mechanism for poor households. The scale of the informal sector present enormous difficulties for income targeting of social assistance. It may be more affordable for the state to allow the poor to secure their livelihood through informal activities than to provide them with costly social support and encourage a dependency mentality.
1. Armenia: Labor Markets, Unemployment and Growth.
2. Armenia: A Poverty Profile, PSP Discussion Paper Series, No.19702, World Bank, November 1995 (PDF)
3. Armenia: Confronting Poverty Issues. World Bank Report No.15693-AM, June 1996 (PDF)
In Georgia in January-August 2000, the volume of informal and shadow production was estimated as being 1.8 times bigger than the volume of the officially produced goods (Interim PRSP). Georgia Poverty assessment (1997) estimates the informal economy at 28% of GDP. The informal sector was very heterogeneous, including the self-employed, unpaid family workers as well as those with double employment. Most workers in the informal sector were formal wage employees receiving their wages and additionally involved in non-reported income-generating activities, often at their formal employment workplaces.
The contradiction between the new economic reality and the regulatory and labor income taxation framework inherited from the past are at the root of the increasing informalization of the Georgian labor force. On the one hand, it leads to weakening of the fiscal position of the state. On the other hand, the flexibility of the informal labor relations system has played a key role in tempering the negative impact of economic and political turmoil on living standards of the population. The labor market has shown outstanding flexibility during a period of severe political and economic turmoil, mainly through the informalization of employment. Informalization has dampened the impact of the crisis and served to protect the poor. However, most of the informal sector jobs remain in low-productivity agriculture or trading, with little earnings stability and little potential for long-term earnings growth. Prospects for the future hinge critically on the economy's ability to generate new private employment, and to reallocate labor away from these low-productivity activities into higher value added sectors.
1. Interim PRSP:
Poverty Reduction and Economic Growth Program of Georgia. Intermediary Document, Government's Statement, Tbilisi, November 2000 (PDF)
2. Georgia: Poverty and Income Distribution. Vol.1 (PDF), Vol.2 (PDF). World Bank Report No.19348-GE, May 1999
Former Yugoslav Republic of Macedonia
In Macedonia, many have come to depend on informal employment (seasonal jobs, temporary, and part time jobs), which now constitutes 27% of the labor force. The informal work is mostly seasonal or occasional in nature and requires a long search period. Wages are low and even if close to the average wage, can only be obtained for a few months of the year. Seasonal workers have the highest poverty rates amongst all workers.
The relatively long duration of unemployment benefits in FYR Macedonia creates a disincentive to work. The level of registered unemployment in 2000 was registered at 32% of the labor force, the number which overstates the true unemployment situation. It is likely that many of those who are registered as unemployed are performing informal sector jobs.
1. Poverty Reduction Strategy Paper (Interim version). Government of the Republic of Macedonia. Skopje, November 2000 (PDF)
2. Former Yugoslav Republic of Macedonia: Focusing on the Poor. Vol.1 (PDF), Vol.2 (PDF). World Bank Report No.1941–MK, June 1999
In Poland, there is an increasing reliance on alternative forms of labor contracts, particularly in the sectors that account for most of the growth in employment over the last several years. For instance, 30% of the jobs in services provided by private sector (e.g. trade and repair) are either self-employment or part-time. A survey carried out by the Central Statistical office in 1998, indicated that some of the high employment growth sectors (such as trade, repair, hotels restaurants, transportation and construction) had the highest degree of informal labor contracts. According to different estimates, the informal sector in rural areas constitutes from 20 to 50% of the workers.
A significant proportion of people who collect social assistance are thought to work in the informal sector. According to household survey data (1994), the income reported by the recipients of social support is 25% less than reported expenditures. It is likely that these people have additional sources of unreported income, probably from their informal sector jobs.
1. Poland Labor Market Study, forthcoming
2. Poverty in Poland. Vol.1 (PDF), Vol. 2 (PDF). World Bank Report No.13051-POL, September 1994
Different estimates suggest that in 1993-94 secondary employment in the Russian Federation involved 13%-20% of the formally employed individuals. Secondary employment was one of the largest sources of informalization of the economy. However, one aspect of informal sector activity, the private land plots, has become even more important in maintaining the real consumption of households. Up to 81% of respondents in different surveys reported that they were growing their own food and/or doing their own repairs. Private plots have become one of the most important hedges against poverty available to non-entrepreneurial households. In this sense, the informal sector has a safety net aspect in that it has offered additional sources of real income to households. In another survey, 60% of all households stated that they had access to private land, and 58% of all households provided ruble estimates of in-kind or marketed earnings from private plot production.
Goskomstat Rossii calculations suggest that in March 1994, with 4.4 million categorized as actively looking for work (i.e. unemployed according to ILO standards) and another 4.4 million underemployed (presumably on short-time or forced vacations), "potential" unemployment rate of 11.7%. Many of these people probably were performing informal sector jobs.
Further evolution of the informal sector into a pattern more like that observed in many developing countries is likely to occur as legislative reforms are implemented. In such a case, a dual informal sector may evolve, with the lower income segment gradually eclipsing the high returns area (which will become formalized and legalized).
Jeanine Braithwaite. From Second Economy to Informal Sector: The Russian Labor Market in Transition. ESP Discussion Paper Series No.21228, World Bank, April 1995 (PDF)
Slovak Republic's "hidden economy" is estimated to be in the range 7.2%-12.8% per cent of GDP (calculations based on 1993 household survey data – see Slovakia: Poverty, Employment, and Labor Market Study. Forthcoming, 2001). The largest share of the shadow economy is attributed to hotels and restaurants (38%) followed by trade and services (26%) and construction (15%). The rest is allocated mainly to processing industry, transportation and agriculture.
Source: Infostat and the Statistical Office of Slovak Republic