Are we moving towards an informal, undressed economy?

Today the MO* published an article of mine as worldblogger, regarding the informal economy and the work some of our partners are doing in this field in South Asia. Here the English translation:

This article is about something I personally think of as one of the biggest challenges currently on the labor market, one that is visible at the global level, but which can be witnessed locally everywhere: how increasingly, work is done informally, how jobs get less suited up or taken away the warm clothes, how labour is being undressed progressively, sometimes to just an illusion, to the shameful nakedness of the emperor.

Speaking of clothes, let’s look at a clothing factory that shuts down here in South Asia. Because of the crisis, or for some other reason. All of the workers are laid off. But they can continue to deliver to the manufacturer, but must work from home. They are explained that they get paid per piece made, and can choose their own hours. No supervision, organize yourselves, no transport costs anymore, working from home, sounds nice, no? The koolies carry bales of cotton from the supplier to their houses and the processed fabrics back. They also get paid, per trip. Let’s say one of the women starts her own seamstress shop, next to her household duties. A daily worker, still dusty from work in the fields, asks her to make him a sari for his fiancée, to be part of the dowry. That fiancé works, in addition to the vegetable garden of which she sells half the produce, as a domestic worker for five families. She cleans the house and makes the food, and each family pays her a different amount, according to the tasks they are doing there.

Eight out of ten people in South Asia work in this kind of jobs, placed under the vague banner of the informal economy. South Asia is the region with the highest percentage of people who work in the informal economy. In Nepal for example, these informal jobs account for 40% of the GDP. It is usually work without a clear wage, regulations or status. Some see it as the solution for the ‘south’: no bureaucracy or strict measures, but free market, no curbing of the creativity of the people. But trade unions do see structural problems: workers without identification, no written contract of employment, no certainty when the next income will arrive, no guaranteed safe working conditions or coverage in case of work related accidents, unlimited hours, workers who are excluded from social security systems and have no protection by collective bargaining agreements or access to unions that defend their interests. Often, they are relatively unskilled workers, who work long hours for low wages and contribute relatively little to the national production (though they are essential for the running of the economy). It reduces labour to the bare minimum, work outside of a framework or any regulations.

Are these people employed or self-employed? When can it be considered as an employment contract (whether oral or written), and hence are the labour legislation and international conventions applicable or not? Is there a link of subordination, who is responsible for what?

Some feel this question might only seem relevant for the 'south', but less for western economies and societies? When talking about informal economy in Europe, many seem to think undocumented migrant workers. Yet informal economy is present in the west on a larger scale than we think. Belgians for instance are notorious for undeclared or ‘black’ work. For the EU, this shadow economy is estimated to be between 7 and 16% of GDP, Belgium around 15%. For the EU, this means between 10 and 28 million full-time jobs. Consider also the introduction in 2014 of the so-called "black box", which registers all manipulations of a cash register used in bars and cafes, and we can imagine why it provoked such a wave of protest? And the apparently very sympathetic system, über, by which anyone with a smartphone can become a taxi driver, also a form of informal economy?

Let me provide some possible answers on challenges from South Asia before turning to other questions still unresolved. The Indian trade union CFTUI, a partner of World Solidarity (WSM), tries to involve the informal economy in their union work. Because informal employers are often not willing or able to provide certificate attesting that a person is exercising a given profession, and therefore can enroll to specific rates for social security schemes, the Indian state, after consultation with the social partners, accepted that unions could deliver such a certificate. This leads to a win-win-win: the social security system gets more contributions and therefore can offer a wider protection, the union gets more members and can better defend their interests and the employee, despite his/her lack of status, still gets access to health insurances or pension schemes.

In Nepal, the two largest trade unions, GEFONT and NTUC, both partners of World Solidarity (WSM), provide vocational training and education to home based workers. This involves for example, knitting sweaters and hats, or shops as tailors. They organize these workers into groups by region or district. Hence, to avoid competition, hairdressers of the capital Kathmandu agreed on certain rates to be used, or that no new hairdresser was to open in a radius of 150m of an existing salon.

However, there remain problems: these people act and think often as self-employed, and the entire trade union work or training on labor rights holds little appeal to them. They often have family members help them in the business or hire other people to help them. Sometimes I wonder whether the union is then not starting to function as a guild, which defends the interests of a particular 'craft', but which lacks the collective working, labour rights ideology. Or is this a necessary evil to contribute to formalizing the informal economy?

Another question currently arising is regarding the social security fund which is under construction in Nepal. Employees would contribute 11% of their wages, employers 20+ 11% and the state would manage the system. This of course raises the question for the informal workers: who will contribute for them? The answer might depend per sector: for example, in the construction sector, with many informal workers, one might increase the building permit by 20% and use those funds to cover all employees against work accidents.

These are all steps which can offer a better status and protection to workers. And the International Labour Organisation (ILO) also focuses on this issue, which is going to be the hot item during the upcoming ILO conventions, with the aim of formulating a recommendation on the informal economy to all member states. Let's see if we can get that creature dressed...