Social Protection in the Informal Economy

By Amuda Shrestha

Informal Sector

International Labour Organization (ILO) first coined the term "informal sector" to describe the economic activities being carried out by the working poor who were not recognized, regulated or protected by the public authorities. In fact, informal sector absorb excess labour not being employed in the formal sector. Not only that, the unchecked globalization process is significantly contributing towards informalization of formal economy also.

In 1991, seventy-eighth session of International Labour conference discussed the 'dilemma of the informal sector" on which there was a report of the ILO Director General. The discussion related to the question whether the ILO and its constituents should promote the informal sector as a provider of employment and incomes or seek to extend regulation and social protection to it and thereby possibly reduce its capacity to provide jobs and incomes for an ever-expanding labour force. The report of that time emphasized that there can be no question of the ILO helping to 'promote' or 'develop' an informal sector as a convenient, low-cost way of creating employment unless there is at the same time equal determination to eliminate progressively the worst forms of exploitation and inhuman working conditions.

Subsequently, the ILO carried out numerous action programmes and research on subject of informal sector. It has been found that the informal sector has been growing rapidly and continuously in almost every corner of the globe even though initially it has been perceived as temporary or residual of the formal economy. It has been expected to disappear as countries' economy progressed but activities of informal sector have become an important part of economies around the world. New employment in recent years has continued to be in the informal economy. Most of the worker is going into the informal sector due to inability to find job in the formal economy. Informal economy continued to expand throughout the world including the industrialized and developed countries. So the informal economy could not be considered a temporary phenomenon.

Informal Economy

The term 'informal sector' has given way to the 'informal economy'. However, the term 'informal sector' or 'informal economy' is still under the controversial definition and ambiguous understanding. It does not have such briefing that is acceptable universally without any confusion and controversy. But it seems to be appropriate to use the term informal economy instead of informal sector in these present conditions with perspective of workers and enterprises where the workers get the job. The informal economy expose the realistic sense because the workers and enterprises in question do not fall within one sector of economic activity, but cut across many sectors. Whatever might be the sector, as opposed to formal characteristics, informal economy is generally unorganized and lay beyond the control of the state. Informal sector is a narrow term that comes under the broader scope of informal economy. Informal economy covers all types of economic activities outside the formal economy where informal economy is one of the significant components.

The informal economy embraces a multitude of dispersed operational units and activities. Key differences between the formal and informal economy can be traced form the angle of letter of appointment, working hours, wage rate and availability of legal provisions. In the informal economy, people work on the basis of verbal contract without letter of appointment. Workers of the formal economy have fixed wage rate and fixed working hours where as informal economy has uncertain wage rate and uncertain working hours. Non-existance or poor level of legal protection in the informal economy increase the probability of exploitation to the labour market. Poverty cannot be reduced and human dignity cannot be assured unless the issues in the informal economy are mainstreamed.

Nepalese scenario reflects only small proportion of economy as formal and sizeable part is informal. Major share has been taken by informal economy in Nepal. Large majority of work force belongs to the informal economy. In real sense, the country's economic advancement with social upliftment is possible if the role players have been able to address the informal economy. So DECONT from its establishment organizing the workers engaged in informal economy. Informal economy has got three dimensions of informal activities, informal establishments and informal employment. DECONT's activities go around the informal employment and informal establishments with most priority because of its vision to enhance trade union and labour rights in the informal economy for social justice. As the size and contribution of informal economy is proportionately large in the national economy, it is unavoidable. So the attempt of trade union must be organizing these workers of informal economy under union's umbrella. DECONT is trying its best to ensure minimum wages, promote good working condition, minimize unfair labour practices, extend social protection for quality life of all through its' organizational network. Trade union should play the role for workers' right in the informal economy for facilitating social protection.

Decent Work Deficit

The 90th session of International Labour Conference discussed the informal economy in the context of the Decent Work Deficit. Decent work deficits in the informal economy are specifically in four areas; employment, right, representation and social protection.

Employment deficit: This is the situation that people cannot find the work or conduct business in the formal economy. In the absence of employment opportunities in the formal economy, less productive and less remunerative and own account work in the informal economy increase.

Representational deficit: Lack of organization and representation to peruse economic and social goals prevails representational gap situation. Informal workers are excluded from or under-represented in social dialogue institutions and processes due to the absence of employer-employee relations at work and also due to denial of the rights to organize resulting from temporary nature of work.

Rights deficit: The informal economy is where the workers' rights are in greatest deficit in terms of freedom of association, collective bargaining, forced labour and discrimination at work. There exists the right gap due to inappropriate or inapplicable labour legislation.

Social protection deficit: The lack of social protection is a critical aspect of workers in the informal economy. Even though the workers in the informal economy are most in need of social protection, the informal economy lacks access to schemes of social protection. It has been further compounded by the problem of compliance and governance in terms of contribution to the social security and protection from adverse working conditions.

The decent work deficits are most pronounced in the informal economy. Work in the informal economy is often characterized by small or undefined work places, unsafe and unhealthy working conditions, low levels of skills and productivity, low or irregular incomes, long working hours and lack of access to information, markets, finance, training and technology. Workers in the informal economy may be characterized by varying degrees of vulnerability and it has been heavily borne by women, migrant, ethnic minorities, less educated and child labours.

The activities in the informal economy remain the sole means of sustenance for millions of workers in Nepal. So it is impossible to convert all informal economy into formal economy. The long-term perspective is the creation of enough jobs that are formal, protected and decent work for all. The process should start to promote conducive legal and policy frameworks to enhance workers' and entrepreneurs' capacity to move along the continuum from informal to more formal. On top of that the immediate actions should have to take to ensure the workers currently in the informal economy for improved rights and social protection. Otherwise the social protection gap in the informal economy increases with great challenge. Workers in the informal economy have little or no social protection and lack of social protection leads to a deepening of their vulnerability and dependency in relationship to their employers with voiceless ness and exploitative condition. So social protection of workers in informal economy is concern to all. DECONT beliefs social protection as a human rights and makes the informal economy as one of its action priorities.

Social Protection

Social protection encompasses all of social security. Before the recent pervasive use of social protection, social security has been the most generic and inclusive term for formal systems. This was reinforced by the ILO influenced approach to the pillars of social security under which social insurance and social assistance would fall. Social insurance generally refers to systems in which workers themselves make contributions. Social assistance is more likely to be non-contributory, and more likely to be designed to meet basic needs as a whole rather than specific contingency. Social safety net is a term associated more with developing countries. Social safety nets were advanced as compensatory measures in the 1980s and 1990s to mitigate negative effects of structural adjustment or other imposed economic policies. The metaphor of "safety net' is inappropriate for the conditions to which it is applied while safety nets try to target limited groups, in many countries, by the time the list of 'vulnerable groups' has been completed. Women, the elderly, the young, the disabled, people in rural areas, children on city streets and minorities are counted as vulnerable group. It becomes clear that more programmatic, institutionalized and long-term responses would be more appropriate and these responses would have been called social protection.

Social security is the protection which society provides for its members through a series of public measures. To provide people with health care and to provide benefits for families and children has been defined as social security. The objective of social security is to offset the absence or substantial reduction of income from work caused by the stoppage or substantial reduction in earnings resulting from sickness, maternity, employment injury, and old age. Any kind of collective activity which is designed to ensure that members of society meet their basic needs of adequate nutrition, shelter, health care and clean water supply are protected from contingencies and maintain a standard of living consistent with social norms can be considered as a social security measure.

The term social protection is usually used to describe the way arrangements are made for those people and communities who encounter adverse contingencies. These arrangements aim to provide some form of maintenance of income and services to these people to ensure that they are catered for in times of need. Social protection includes public social security schemes and also private or non-statuary schemes, such as mutual benefit societies and occupational pension schemes. All sorts of non-statutory schemes, formal or informal, are included under the definition of social protection. The concept of social protection has been broadened to cover new concerns with food provision, housing, sanitation, income generation and employment generation. It implies a broad pro-poor approach with preventive, protective and promotional components. Social protection is considered to be an indispensable part of government social policy and an important tool in the prevention and alleviation of poverty. In fact work cannot be decent and workers cannot have human dignity without adequate social protection. So all those who work must be covered by social protection irrespective of where they work either in formal economy or in informal economy.

Challenges for social protection in the informal economy

Workers in the informal economy are not recognized, registered, regulated or protected under labour legislation. Most workers in the informal economy have little or no social protection and receive little or no social security, either from their employer or from government. Informal workers are exposed to the worst living conditions with almost no social protection.

This is the challenge of informal economy that creates the vicious cycle of poor job quality leading to low income resulting the poor working environment. Workers and economic units in the informal economy are characterized by poverty, powerlessness, exclusion and vulnerability. They have limited or no access to judicial system, public benefit, skill development opportunities and credit facilities. It is necessary to eliminate the negative aspects while at the same time ensuring the opportunities for livelihood and promoting the protection of workers in the informal economy into the mainstream of economy. Since the number of workers involved in the informal economy is staggeringly enormous, it has been beyond the means of the government to provide social security coverage. Once the decent work deficits social protection also deficit. It's a big challenge for government as well as other concerned social partners. The 90th session of the International Labour Conference has provided recommendations for undertaking measures for meeting those challenges of decent work deficit in the informal economy.

Social protection strategies for the informal economy

Extending social protection coverage to the vast number of workers engaged in the informal sector is seen as beyond the available resources but it is the important aspect of the strategy. A comprehensive strategy to meet the needs and aspirations of those working in the informal economy must seek to maximize their employment potential and improve the coverage of provisions under social protection. This broad framework can be useful to highlight four specific objectives that are of particular significance to those working in the informal economy and at the same time these are useful to seek to address the contingencies and hardships applying to all sections of the workforce.

1. Improvement of the productive potential and of employment and income generating capacity of the informal sector
2. Improvement in the welfare situation of the poorest groups of the society
3. Establishment of appropriate forms of social protection and regulation.
4. Organizing the informal sector producers and workers in the form of trade unions, micro producers association and co-operatives.

The workers in the informal economy need a wide range of protective as well as promotional provisions. Protective provision includes the schemes by which the government provides the means of livelihood when a person is not able to work due to certain contingencies or risk. Protective measures of social security have been designed primarily for workers in the formal economy. Employment injury benefit, sickness benefit, maternity benefit, old age benefit and family benefit are some example of social security which is implemented generally in organized sector of formal economy. Promotional provisions consist mainly of employment, training, nutrition, sanitation and income generation. By means of this social protection, person is able to work and earn a livelihood. This wider range of promotional components of social protection addresses the informal economy in the real sense.

On the one side a large proportion of Nepal's workforce is totally reliant on the informal economy and on the other side the workers in the informal economy face a much higher vulnerability and insecurity. Agricultural workers, former Kamaiyas, construction workers, domestic servants, street venders, home based workers and porters are all belongs to informal economy. Micro enterprises, family based units and establishments with less than ten workers has been uncovered by formal economy. His Majesty's Government of Nepal has made different social security provisions for salary bearers in public sector. But the beneficiaries are nominal as its compared to total workforce. The labour Act 1992 makes a number of social security provisions for wage earners in formal private sector enterprises that employ more than ten people. Old age provident fund and voluntary retirement gratuity are provided to them. In case of work injury, benefits have been provided as full medical expenses under certification of Doctor plus paid leaves in case of hospitalization but half paid leaves if not hospitalized. Salary of three years to the nearest family member and priority in employment to one of the family member is the benefit of life long invalidity. Accordingly they have got the maternity benefit, sickness benefit and medicure facilities. But those beneficiaries are less than four percent of total work force in Nepal. DECONT perceive every worker as a member of society and each and every worker, irrespective of involvement in the formal economy or informal economy, has right to social protection. Universal access to social protection is highly desirable. But the straightforward expansion of existing social protection system is often complicated by variety of social, economic and political factors.

Situation varies with political scenario of the nation. No single model of social protection can benefit everyone in every situation. The social and economic conditions of workers in the informal sector are extremely diverse. So the social protection measures have to be formulated accordingly. One common thing of workers in the informal economy of Nepal is vulnerability. Social protection activities, targeted at vulnerable groups might be more effective. Only the government machinery will be insufficient to gear up the social protection schemes in the informal economy. Along with government, community based organization and non-government bodies can play role in support of the development of social protection schemes. Trade unions can fit themselves with vital roles of coordinating their efforts that will reach out the social protection more effectively to workers in the informal economy.

Financing of social protection schemes and delivery of social protection means are issues of concern. Financing is carried out for the most part through combination of fees, grants and government subsidies. From the angle of delivery, the government can facilitate social protection access through direct intervention or through a facilitative role allowing other role players' participation at multiple levels. Government has worked on the issue of land resettlement, however the effective land reforms are yet to be implemented. Allowance for senior citizen, helpless and widowed women have been made in the national annual budget. Some imitation has been taken by local government for social protection of the working community but it differs from place to place. Social assistance to needy persons in the case of calamities like floods, landslides or earthquakes has been extended by District Development Committees and other local authorities. In fact the state has priority role in the facilitation, promotion and extension of social protection. Social protection has been considered to be an indispensable part of government social policy. Government should provide a broad and responsible role. Other social partners have a strong role to play in the management of social protection with coordinated efforts.

Community based organizations have managerial and financial expertise in developing social protection mechanism. Traditional mechanisms for the exchange of agricultural labour and food assistance prevail in the society. Dharmabhakari, dhikur, paincho and other different types of indigenous social protection mechanism is in practice as a custom. But the prevailing mechanism is absolutely insufficient to undertake the social protection for all with new concept. So the roles should be revised and practice should be in support of developing social protection schemes that will reach out to workers in the informal economy. So it is necessary to trace out the list of workers in the informal economy. Most of the carpenters, plumbers, mechanics, blacksmith, electricians, shopkeepers, tailors, painters, rickshaw puller, driver, hawkers, barber, butcher and many other workers belong to informal economy in Nepal. Major portion of agricultural workers are of informal economy. Yet their social protection could not be addressed adequately.

In order to encompass the workers of informal economy under the umbrella of social protection, immediate implementation of integrated social security scheme is necessary. For this, the government should start the policy of workers' registration at local level authorities. Once the workers of the informal economy come in the track of official registration, the procedure of creating contributory fund combined with tax-based welfare fund is possible. The proposed integrated social security fund will be contributed by government, employer and workers with ratio of 2.5: 2.5:1 respectively at national level. As well as, for the proper management of this fund, a tripartite body should be formed that represent all three contributors of the fund. Policies should be formulated to deliver the funds in different sectors that it will support the social justice and promote human right.

DECONT has taken the broad objective of organizing the workers of informal economy within the frameworks of trade union. It also takes the specific objective of sensitizing the workers in the informal economy to social protection. The conventional approach of organizing the workers for collective bargaining could be combined with the approach of organizing for improving social protection for the workers. Core elements of social protection are health care, disability, maternity, old age and protection against loss of income.

The actors must not forget the fact that lack of social protection is a critical aspect in Nepal. Due to low and irregular income and absence of employment, it is difficult for informal workers to make regular contributions to social security schemes. By extending social insurance schemes and encouraging informal sector system, ways can be find out for social protection. The ILO advocates social protection measures for informal workers through supporting innovative community-based support system as micro insurance for health or accident. Special attention is given by the ILO to protect informal workers through HIV/AIDS programme and occupational safety and health.

Recommendations

1. The ILO should encourage for awareness raising on social protection issues with particular emphasis on existing informal economy.
2. The government should introduce a coordination mechanism for social protection amongst all concerned ministries and decentralize social protection systems as well to ratify the ILOs' Convention No. 102 in this respect. Likewise, government should immediately formulate a separate legislation for the protection and promotion of informal workers.
3. Employers' organizations should enhance mechanisms for social protection in different sectors.
4. Trade unions should lobby government and employers' organizations to undertake new initiatives for social protection and establish workers co-operatives and self help groups. As well, trade unions should lobby and pressurize government for ratifying ILO Convention No. 102 and formulation of separate legislation for informal workers.

Serious proposals for discussion and recommendations are requested from the experts and participants for taking the approach of social protection of workers in the informal economy as their human right or as a basic minimum labour standard.

(Note: This paper has been presented in the National Consultation Workshop "Identifying Challenges of Informal Economy for Trade Unions" organised by DECONT on 15-16 May 2004 at Lalitpur)