Mainstreaming Informal Employment and Gender in Poverty Reduction

A Handbook for Policy-makers and Other Stakeholders

Martha Alter Chen
Joann Vanek
Marilyn Carr

Gender Section Social Transformation Programmes Division Commonwealth Secretariat Marlborough House, Pall Mall, London SW1Y 5HX Tel: +44 (0)20 7747 6284 Fax: +44 (0)20 7930 1647 E-mail: gad@commonwealth.int www.thecommonwealth.org/gender

© The Commonwealth Secretariat, 2004

The views expressed in the document are those of the authors and do not necessarily reflect the official position or policy of the Commonwealth Secretariat, the International Development Research Centre or any other agency or government identified.

Layout design: Wayzgoose Cover design: Pen and Ink Cover photo: Marty Chen Printed by Published by the Commonwealth Secretariat

Co-published by the Commonwealth Secretariat and the International Development Research Centre

Wherever possible, the Commonwealth Secretariat uses paper sourced from sustainable forests or from sources that minimise a destructive impact on the environment.

International Development Research Centre
PO Box 8500, Ottawa, ON
Canada K1G 3H9
ISBN: 1-55250-067-5 (Canada)

This book may be browsed online: www.idrc.ca/pub@idrc.ca

Copies of this publication can be ordered direct from: The Publications Manager Communication and Public Affairs Division Commonwealth Secretariat Marlborough House Pall Mall, London SW1Y 5HX United Kingdom Tel: +44 (0)20 7747 6342 Fax: +44 (0)20 7839 9081 E-mail: r.jones-parry@commonwealth.int

ISBN: 0-85092-797-8

Price:£12.99

Gender Management System Series

Gender Management System Handbook

Using Gender Sensitive Indicators: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Agriculture and Rural Development: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Development Planning: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Education: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Finance: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Information and Communications: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Legal and Constitutional Affairs: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in the Public Service: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Science and Technology: A Reference Manual for Governments and Other Stakeholders

Gender Mainstreaming in Trade and Industry: A Reference Manual for Governments and Other Stakeholders

A Quick Guide to the Gender Management System

A Quick Guide to Using Gender Sensitive Indicators

A Quick Guide to Gender Mainstreaming in Development Planning

A Quick Guide to Gender Mainstreaming in Education

A Quick Guide to Gender Mainstreaming in Finance

A Quick Guide to Gender Mainstreaming in the Public Service

A Quick Guide to Gender Mainstreaming in Trade and Industry

A Quick Guide to Gender Mainstreaming in Information and Communications

New Gender Mainstreaming Series on Development Issues

Gender Mainstreaming in HIV/AIDS: Taking a Multisectoral Approach

Gender Mainstreaming in the Health Sector: Experiences in Commonwealth Countries

Promoting an Integrated Approach to Combating Gender-Based Violence

Gender Mainstreaming in Poverty Eradication and the Millennium Development Goals

Gender Mainstreaming in the Multilateral Trading System

Engendering Budgets: A Practitioner's Guide to Understanding and Implementing Gender-Responsive Budgets

Integrated Approaches to Eliminating Gender-Based Violence

The GMS Toolkit: An Integrated Resource for Implementing the Gender Management System Series

About the Authors

Martha Alter Chen is a Lecturer in Public Policy at the Kennedy School of Government and Co-ordinator of the global research policy network Women in Informal Employment: Globalizing and Organizing (WIEGO). An experienced development practitioner and scholar with a doctorate in South Asian Regional Studies from the University of Pennsylvania, her areas of specialisation are gender and poverty alleviation, with a focus on issues of employment and livelihoods. Before joining Harvard University in 1987, Dr. Chen lived for 15 years in Bangladesh, where she worked with BRAC, one of the world's largest NGOs, and in India, where she served as field representative of Oxfam America for India and Bangladesh. She is the author of numerous books including, most recently, Women and Men in the Informal Economy: A Statistical Picture (co-authored with Joann Vanek) and Perpetual Mourning: Widowhood in Rural India.

Joann Vanek, a gender/social statistician, is the Director of the Statistics Programme of WIEGO. She retired from the United Nations Statistics Division after 20 years of work. At the United Nations, she developed the programme on gender statistics and co-ordinated the production of three issues of the UN global statistical report on women, The World's Women: Trends and Statistics. Her most recent publication, co-authored with Martha Chen, is Women and Men in the Informal Economy: A Statistical Picture, a book prepared for the International Labour Conference.

Marilyn Carr is a Research Associate, Institute of Development Studies, University of Sussex and Director, WIEGO Global Markets Programme. Formerly, she served as Senior Economic Adviser at the United Nations Development Fund for Women (UNIFEM), as well as a research fellow at the Radcliffe Institute of Advanced Studies; a senior research fellow at the International Development Research Centre (IDRC), Ottawa; and a visiting fellow at the International Institute for Environment and Development (IIED) in London. Prior to working with UNIFEM, she was Senior Economist with the Intermediate Technology Development Group (ITDG) in London, and worked on gender and technology throughout Africa with the Economic Commission for Africa in Addis Ababa.

Publication Team

Project Co-ordinator: Sarojini Ganju Thakur
GMS Series Co-ordinator: Rawwida Baksh
Editor: Tina Johnson
Production: Rupert Jones-Parry
Production Assistant: Marais Canali

This page intentionally left blank.

Contents

This page intentionally left blank.

Abbreviations

Foreword

The primary purpose of Mainstreaming Informal Employment and Gender in Poverty Reduction: a Handbook for Policy-makers and Other Stakeholders is to integrate a concern for employment, specifically the gendered dimension of informal employment, into poverty reduction strategies, including the Millennium Development Goals (MDGs) and the Poverty Reduction Strategy Papers (PRSPs) of specific countries. The Handbook is also intended to familiarise busy policy-makers and other stakeholders with the historical debate on the informal economy and with competing theoretical perspectives on the relationship of globalisation, growth and poverty.

The authors argue that hopes for poverty reduction largely hinge on the creation of more employment opportunities, particularly those accompanied by rights, protection and voice. Yet most governments – and the global community – have not adequately recognised this. Employment creation is not one of the eight Millennium Development Goals, and employment is neither a target nor an indicator under the first major goal of eradicating extreme poverty and hunger. However, this major goal cannot be achieved without promoting decent work opportunities for the poor, especially women. The authors illustrate why – and how – addressing the specific constraints and opportunities facing the working poor, especially women, in the informal economy is the central key strategy to poverty reduction. In brief, this is because the working poor are concentrated in the informal economy, earnings and benefits are lower on average in the informal economy than in the formal economy and there is a marked gender gap in earnings and benefits within the informal economy.

As far as possible, the Handbook draws on data and examples from Commonwealth countries. These are supplemented by data and examples from other countries. We hope that additional Commonwealth countries will be encouraged to collect data on the informal economy and to formulate appropriate policy responses to it.

The publication of this book has been made possible due to the contributions of many individuals and groups. We would like to thank the International Development Research Centre (IDRC), and Randy Spence, in particular, for their support for this initiative.

We would like to acknowledge the hard work and valuable expertise of the authors of the Handbook, Martha Alter Chen, Joann Vanek and Marilyn Carr, and the numerous individuals and organisations who have been willing to share information and experience with them. This includes the global research policy network Women in Informal Employment: Globalizing and Organizing (WIEGO), to which the authors belong and whose collective knowledge and experience has contributed to this Handbook. We would like to thank Jacques Charmes for the personal compilations of official national statistics included in Chapter 2, and Chris Bonner, Dan Gallin, Nancy Hafkin, Lou Haysom, Pat Horn, Renana Jhabvala, Rakawin Lee, Frances Lund, Caroline Skinner, Shalini Sinha and Daonoi Srikajon for providing some of the best practice examples included in Chapter 4. In addition, the authors would like to acknowledge Ralf Hussmanns, Lin Lim and Anne Trebilcock of the International Labour Organization (ILO) for their efforts to promote a concern for 'decent work and the informal economy' both within and outside the ILO and for their encouragement to the authors on this and earlier publications.

Our special thanks are due to Tina Johnson, who edited the book, and to Sarojini Ganju Thakur who co-ordinated the project. In addition we would like to acknowledge the contributions of Rawwida Baksh and Rupert Jones-Parry of the Commonwealth Secretariat and Marais Canali and Suzanne Van Hook of the WIEGO Secretariat in the production of the book. Finally, a special debt is also owed to outside readers who took time out of their busy schedules to provide critical feedback on early drafts of the Handbook: Debbie Budlender, Sarah Gammage, Caren Grown, James Heintz, Ralf Hussmanns, Renana Jhabvala and Frances Lund.

This Handbook is part of the Commonwealth Secretariat series on gender mainstreaming in critical development issues. It forms part of the continuing focus of the series on exploring the path to achieving the universally accepted goals of gender equality and poverty reduction, and complements other publications in the same series – Gender Mainstreaming in Poverty Eradication and the Millennium Development Goals and Gender Mainstreaming in the Multilateral Trading System.

We hope that this book will enhance our understanding of the critical linkages between gender equality, informal employment and poverty reduction, and contribute to our efforts to eradicate poverty in the world.

Nancy Spence
Director
Social Transformation Programmes Division
Commonwealth Secretariat
July 2004

This page intentionally left blank.

Executive Summary

The lack of sufficient economic opportunities for the working age population is a major contemporary problem. The International Labour Organization estimates that there are 550 million working poor and that these numbers may double before 2015 (the target year in the Millennium Development Declaration for halving extreme poverty) (ILO, 2004a). The United Nations estimates that over 80 per cent of the population in the least developed countries live on less than $2 per day and that about half of the people living in poverty are of working age (UNCTAD, 2000).

Employment – or, more precisely, decent work – is an essential pathway to poverty reduction. The ILO defines 'decent work' as employment opportunities accompanied by rights, protection and voice (ILO, 2002a).1 Yet employment does not receive sufficient attention in poverty reduction strategies or even in the global debates on the links between globalisation, growth and poverty. Little consideration is given to the poverty outcomes of different types of work or, conversely, to how improvements in employment opportunities might lead to poverty reduction. In the process, two key global facts tend to be overlooked: (1) that the vast majority of the poor work; and (2) that the vast majority of the working poor, especially women, are engaged in the informal economy. As a result, the economic contributions of the working poor as a force for poverty reduction, as well as the impact of gender inequalities within the realm of work, are also overlooked.

This Handbook focuses on the links between being informally employed, being a woman or a man and being poor, and on the changing nature of informal employment. Based on a review of available evidence, it presents a strategic framework for how best to promote decent work for the poor and, in so doing, to reduce poverty. It also includes practical examples of ways of assisting working poor women and men to minimise the constraints and maximise the opportunities arising from trade liberalisation and growth.

Although the concept of the informal sector or informal economy has been debated since its 'discovery' in Africa in the early 1970s, it has continued to be used by many policy-makers, labour advocates and researchers because the reality it seeks to capture – the large share of the global workforce that is not covered by labour legislation or social protection – continues to be important and has been expanding over time. At present, there is renewed interest in the informal economy. This stems from the fact that informal work arrangements have not only persisted and expanded but have also emerged in new guises and in unexpected places, leaving the majority of the global workforce outside the world of full-time, stable and protected employment. Most observers now accept that informal employment is a feature of modern capitalist development, not just a residual feature of traditional economies.

Chapter 1 traces the history of the debates within the international development community on the relationship between globalisation, growth and poverty, focusing on recent shifts in the terms of the debate. It highlights the relative lack of focus on employment in these debates and makes the case that a focus on work and the working poor is a 'missing link' in the debates.

Over the past two decades, belief in the 'trickle-down' benefits of market-led growth has been tempered by a growing recognition of the systemic disadvantages of the poor and the need for broad-based labour-intensive patterns of economic growth as well as a complementary set of policies to manage growth and redistribute national income. Despite this shift in thinking, orthodox policy prescriptions continue to favour free markets over state interventions. This makes it difficult for developing countries to do what is needed to ensure that growth is equitable and reduces poverty. Moreover, although the quantity of employment generated by growth has received some attention, the quality of the work generated tends to be overlooked. Yet poverty is related more to the nature of employment than to the absolute rate of employment. In countries where there is no unemployment compensation and few safety nets, the poor have little choice but to work – no matter how low or irregular their earnings.

While the vast majority of the poor work, few are able to work their way out of poverty. This is because poor people working in the informal economy face lower incomes, greater financial risks, lower standards of human development and greater social exclusion compared to better-off workers, especially those who work in the formal economy. Yet these disadvantages of the working poor have not been adequately addressed in poverty reduction strategies. This Handbook makes the case for a coherent focus on employment – and related market relationships – to bridge the persistent divide between growth and redistribution, to refocus attention on discrimination in markets and, thereby, to design strategies that will more effectively reduce poverty.

Chapter 2 provides the rationale for paying greater attention to the informal economy, and particularly to women workers within it. This is done by providing the most recent available data on the size and composition of the informal economy and on the links between working in the informal economy, being a woman or man and being poor. These data reveal the following key facts:

Size

Informal employment comprises one half to three quarters of non-agricultural employment in developing countries.

Self-employment, part-time and temporary work comprise 30 per cent of overall employment in 15 European countries and 25 per cent of total employment in the United States. Although not all self-employed persons or part-time and temporary workers are informally employed, the majority receive few (if any) employment-based benefits or protection.

Estimates of informal employment increase significantly when agriculture is included – rising, for example, from 83 to 93 per cent of total employment in India and 55 to 62 per cent in Mexico.

Composition

Self-employment represents nearly one-third of all non-agricultural employment worldwide and comprises a greater share of informal employment (outside agriculture) than wage employment in all developing regions.

Informal wage employment represents 30 to 40 per cent of informal employment (outside of agriculture) in developing regions.

Informal employment is generally a larger source of employment for women than for men in the developing world.

Women are particularly over-represented in low-paid informal or non-standard wage employment. Although fewer women than men are in the labour force, women represent 80 per cent or more of industrial outworkers/homeworkers in many developing countries and 60 per cent or more of part-time workers in all Organisation for Economic Co-operation and Development (OECD) countries reporting data.

To better capture this growing and changing phenomenon, an expanded definition of the informal economy has recently been introduced that includes both self-employment in informal enterprises (small unregistered enterprises) and wage employment in informal jobs (without secure contracts, worker benefits or social protection). Despite its diversity, the informal economy can thus be classified by employment status into two major groups (although some informal workers2 – notably homeworkers – do not fit neatly into one or other of these categories):

self-employed: including employers, own-account workers and unpaid family workers;

informal wage workers: including employees of informal enterprises; casual workers without a fixed employer; domestic workers; and those temporary, part-time and contract workers who do not receive employment-based benefits or protection.

Chapter 2 also provides a conceptual framework – what it calls the gender segmentation of the informal economy – for analysing the linkages between working in the informal economy, being a woman or a man and being poor. There is an overlap between working in the informal economy and being poor. The poor are more likely than the non-poor to rely on the informal economy for their livelihoods; average wages or earnings are lower in the informal economy than in the formal economy; and a higher percentage of people working in the informal economy, relative to the formal economy, are poor. However, there is no simple relationship between working in the informal economy and being poor or working in the formal economy and escaping poverty. The relationship with informal employment appears only when informal workers are classified by employment status (i.e. employer, own account worker, wage worker or industrial outworker/homeworker). As a general rule, average earnings or wages decrease as one moves down the employment status ladder: from being a micro-entrepreneur who hires others to working on one's own account to working as a wage worker to being an industrial outworker. However, in some sectors or countries, informal wage workers earn more on average than own account workers.

There is a significant overlap between being a woman, working in the informal economy and being poor. Available evidence suggests that, in most regions, women are more likely than men to work in the informal economy; women in poor households are more likely to work in the informal economy than men in poor households or women in non-poor households; and the average wages or earnings of women in the informal economy are lower than those of men in the informal economy. But, again, there is no simple relationship between being a woman, working in the informal economy and being poor. It depends on what women do and under what conditions. One of the important reasons why women in the informal economy are likely to be poorer than men is because they are less likely to be micro-entrepreneurs who hire others (who often enjoy relatively high earnings) and more likely to be homeworkers (who typically earn extremely low piece rates). Also, even within specific categories of informal employment, women are likely to earn less than men. Chapter 2 illustrates the gender segmentation of the informal economy with a case study of employment in the export-oriented horticulture sector in Chile and South Africa.

The impact that changes in the global economy are having on the informal economy and on women and men within it is detailed in Chapter 3, which is divided into three major sections. The first section compares three different approaches – that of neo-classical economics, gender analysis and informal labour market analysis – to tracing the impact of economic trends on poverty and gender relations, identifying particular processes that have specific consequences for the informal workforce, both women and men.

The second section provides a review of available evidence – primarily case studies – on the likely impact of economic reforms on employment, including whether they create or destroy economic opportunities and the quality of opportunities created. There are three common ways through which the working poor, especially women, are inserted into the global workforce:

1. Creation of new jobs – but without rights and benefits;

2. Opening up of new markets – but with unequal access and competitiveness;

3. Increased risk and uncertainty – but without adequate protection.

Each of these indicates that, while new economic opportunities are being created, the terms and conditions of employment generated often mean the working poor may not be able to take advantage of them or may not benefit fully from their involvement. The first two scenarios relate to the nature and the quality of economic opportunities associated with economic reforms. The third relates to generalised effects commonly associated with economic reforms, seen from the perspective of the working poor in the informal economy.

What is also clear is that the world of work itself is changing because of these economic processes. The third section of Chapter 3 details three key dimensions of the changing nature of work in today's world – place of work, employment status and production system – and the consequences of these for the working poor, especially women.

The majority of the global workforce now works in so-called 'non-standard' places of work, employment relationships and production systems. Some of these arrangements may have benefits for the workers involved, such as more flexible work hours, but they may also be associated with specific costs and risks, such as lack of benefits or long-term security. Effective poverty reduction requires maximising the benefits and minimising the costs associated with the employment opportunities available to the poor. As such, it needs to be based on an understanding of the costs and benefits associated with different work arrangements.

Building on this analysis, Chapter 4 presents a set of strate­gies and promising examples that respond to the opportunities and risks associated with trade liberalisation and the changing nature of work. These do not aim to be comprehensive, but rather to further our understanding of the ways in which different key actors – international agencies, governments, private corporations, trade unions and organisations of informal workers, non-governmental organisations (NGOs) and civil society – can assist the working poor in the informal economy to minimise the negative effects and maximise the opportunities associated with macroeconomic trends and policies. The four pillars of the ILO's Decent Work agenda – opportunities, rights, protection and voice – are used to organise the strategies and examples in a meaningful way.

It is important to note that most of these initiatives require advocacy and/or monitoring by civil society – notably by organisations of informal workers – to ensure that they are properly designed and implemented. In sum, these examples suggest a key pathway to poverty reduction and gender equity: namely, by supporting informal enterprises, improving informal jobs, providing protection to informal workers and recognising organisations of informal workers.

Finally, Chapter 5 outlines a strategic policy approach to the gender segmentation of the informal economy that is informed by an understanding of the economic contributions of the informal economy and premised on the notion that (a) all policies – both economic and social – affect the informal economy; and (b) policies have differential effects on the formal and informal economy and on women and men within the informal economy. The strategic policy approach calls for informed and comprehensive policies as well as the concerted action of different key players. Most critically, it underscores the need to build, strengthen and recognise the organisations of informal workers – and to promote their representative 'voice' in institutions that determine policies and other 'rules of the (economic) game' that affect their work lives.

The overarching policy goals of such a policy approach should be to:

promote opportunities: for both self-employed and informal wage workers through a mix of service provision (micro-finance, skills training, improved technologies and other business development services) as well as policy interventions;

secure rights: of informal wage workers through extending the scope of existing legislation, promoting collective bargaining agreements and/or enforcing labour standards; and of the self-employed through enabling equal access to credit and other resources and through equitable policies for formal and informal enterprises;

protect informal workers: through providing insurance coverage for illness, maternity, property, disability, old age and death through extending existing schemes and/or developing alternative schemes; and

build and recognise the 'voice' of informal workers: through the organisation of informal workers and their representation in relevant policy-making institutions.

Each of these goals needs to be translated into context-specific goals depending on which category of the informal workforce is being targeted, under what conditions and in which economic sector. They also need to take into account the different needs and circumstances of women and men within each category.

The policy process should be:

based on an informed understanding of the economic importance of informal workers. This requires improved official statistics on the size, composition and contribution of the informal economy;

aimed at mainstreaming the concerns of the informal work-force in those institutions that deal with economic planning and development;

gender sensitive, taking into account the roles and responsibilities of women and men in the informal economy. Compared to men workers, women workers tend to earn less and to be less likely to have social protection or be organised. As a result, they have the greatest need for supportive policies;

context-specific, based on the reality of different categories of informal workers in specific locales and industries and recognising and supporting both the self-employed and paid workers in the informal economy; and

participatory and inclusive, allowing policies to be developed through consultation with informal workers. In order to have voice, those who work in the informal economy must be organised and their efforts to organise into trade unions and co-operatives must be encouraged and supported.

Key messages

A key message of this Handbook is that the renewed interest in the informal economy needs to be translated into a greater emphasis on employment in poverty reduction strategies and in economic planning. More specifically, poverty reduction strategies need to be premised on the following two related facts: (1) decent employment is an essential pathway to poverty reduction; and (2) informal employment is less likely than formal employment to be decent work. As the Director General of the ILO argued in his 2002 report on 'Decent Work and the Informal Economy', those in informal employment suffer greater decent work deficits than those in formal employment (ILO, 2002a).

Since the early1990s, the international community has increasingly reoriented its development approach to focus on poverty reduction. Reflecting this concern, the Bretton Woods institutions agreed in 1999 that national poverty reduction strategy papers, developed through participatory processes, should provide the basis for concessional lending by the World Bank and International Monetary Fund (IMF) and for debt relief to the heavily-indebted poor countries.3 In 2000, at the Millennium Summit, the member countries of the United Nations agreed to attack severe poverty worldwide and halve the proportion of the global population that survives on less than $1 a day by the year 2015. Following the Summit, the various UN agencies collectively identified eight Millennium Development Goals and a set of 18 targets (and some 40 relevant indicators) to measure their progress.

These two initiatives – PRSPs and MDGs – are meant to reinforce each other. However, neither pays sufficient attention to employment as a key pathway to poverty reduction. For example, employment creation is not one of the eight MDGs, and employment is neither a target nor an indicator under the first major goal of eradicating extreme poverty and hunger. Yet this major goal cannot be achieved without promoting decent work opportunities for the poor, especially women. Admittedly, youth employment is a priority target under Goal 8 (Develop a Global Partnership for Development) and women's share of non-agricultural wage employment is one of the main indicators specified under Goal 3 (Promote Gender Equality and Empower Women). But the gender employment indicator, as currently formulated, is not an adequate indicator of women's equality and empowerment. As the evidence provided in this Handbook will illustrate, an increase in women's wage employment (both non-agricultural and agricultural) is likely to be associated with an increase in flexible or informal employment arrangements: that is, in employment without rights, protection or voice. This criticism was also made by the Millennium Project Task Force on Education and Gender Equality. This group has recommended that an indicator on informal employment either be substituted for the indicator on wage employment or be added (United Nations Millennium Project, 2004). Efforts are now being made to develop the appropriate indicator.

There is a clear need to better integrate the ILO's Decent Work agenda – with a special focus on the informal workforce and women – into current poverty reduction initiatives. However, within the international development discourse, there is a dominant school of thought that argues that the demand for labour should be left to the market and that social protection is affordable only for the formally employed. For those holding this view, labour and employment issues are not relevant to poverty reduction strategies. Overcoming such misconceptions will require continued research and advocacy (ILO, 2002c).4 This Handbook seeks to help in this effort by focusing on the linkages between informal employment, gender and poverty.

In sum, renewed attention needs to be paid to employment in economic planning, including in the PRSPs for heavily-indebted countries and the MDGs for the world at large. More specifically, poverty reduction strategies need to address the 'decent work deficits' in the informal economy as well as gender differentials within it. This Handbook makes the case for a focus on informal employment – especially women informal workers – in poverty reduction strategies, and then suggests ways in which the opportunities, rights, protection and voice of the informal workforce, especially women, can be enhanced.

The unique perspective of the Handbook is that it seeks to:

put employment, specifically the gender segmentation of employment in the informal economy, at the centre – to provide a 'missing link' – of development discourse, policies and practices regarding poverty reduction;

investigate how different groups of the working poor in the informal economy – especially women – are integrated into the economies of their own countries and into the global economy;

investigate the quantity and quality of work – for women and men – created by different patterns of economic growth and global integration; and

identify appropriate policies, regulations and practices to manage and govern the employment arrangements of the working poor in the informal economy.

Notes

1 Under the directorship of Juan Somavia, the ILO formulated and adopted the four pillars of Decent Work as its strategic agenda: (a) employment opportunities; (b) respect for fundamental principles and rights at work; (c) social protection; and (d) social dialogue (ILO, 2001). We refer to these in the Handbook as opportunities, rights, protection and voice.

2 The term 'informal workers' is used in this Handbook in a broad, inclusive sense to include wage workers, small producers, service providers and traders.

3 Earlier that year, in June, at a meeting of the G8 in Cologne, Germany, the political leaders of democratic industrialised counties announced a joint initiative for debt relief and poverty reduction for heavily indebted poor countries (HIPC2). The origins of HIPC2 and the PRSP initiative lie substantially with civil society movements that forced the issue of debt reduction onto the international agenda in the late 1990s, culminating in Jubilee 2000.

4 In working closely with national partners in several countries on the development of their PRSPs, the ILO has recommended that employment-intensive growth be made an explicit objective (ILO, 2002c).

This page intentionally left blank.

1. Employment: The 'Missing Link' in the Poverty Debate

Within the international development community, there has been a long-standing – and often heated – debate about the links between economic growth and poverty. During the 1990s, especially after the East Asian and other financial crises, the focus of this debate shifted to globalisation. Does – or can – globalisation work for the world's poor? This is the central question around which the debate now revolves (Rodrik, 1997). However, to fully understand the debate, it is important to draw a distinction between the globalisation of different markets (capital, goods, services and labour); between globalisation, growth and related policy prescriptions; and between income poverty and other dimensions of poverty. In Chapter 1 we provide a brief history of the globalisation-growth-poverty debate, highlighting these distinctions, and argue that employment – specifically the gender dimensions of informal employment – remains a 'missing link' in the debate.

Employment – specifically the gender dimensions of informal employment – remains a 'missing link' in the [globalisation-growth-poverty] debate.

The Globalisation-Growth-Poverty Debate

The growth-poverty debate

In North America and Europe, the two decades after World War II have been characterised as the 'golden age' of full employment. During the 1950s and 1960s, governments in most developed countries sought not only to provide social welfare to their citizens but also to lead industrial development, expand aggregate demand and create jobs. Because of the successful experience in North America and Europe, there was widespread belief among international development specialists in the 'trickle-down benefits' of growth, including the assumption that industrial development would create enough jobs to absorb surplus labour in developing countries (Lewis, 1954).

However, things began to change in the 1970s. In the developed North, production became more flexible and specialised, and belief in both the welfare-providing and economic­regulating functions of governments began to erode. In the developing South, there was growing recognition that economic growth does not automatically translate into jobs or other benefits for the poor. In response to persistent widespread unemployment, the International Labour Organization (ILO) mounted a series of large, multi-disciplinary 'employment missions' to various developing countries (ILO, 1972). By the mid-1970s, in response to persistent widespread poverty, an influential team of observers (within the World Bank) called for a complementary set of policies to manage growth and redistribute national income (Chenery et al, 1974).

Despite the fact that 'trickle down' economics had been discredited, orthodox policy prescriptions continued to favour free markets. By 1980, in North America and much of Europe, a different economic system was in place: one that emphasised the supremacy of market forces, questioned the welfare-providing function of the state and eschewed government regulation of labour, product or capital markets (Singh, 1998). To conform to this new economic system, developing countries were encouraged to restructure their economies by curbing inflation, stabilising their currency, privatising their public industries and deregulating markets. However, when the short-term costs of adjustment were recognised, another influential team of observers (this time from the United Nations) called for 'adjustment with a human face' (Cornea et al, 1987).

During the 1990s, despite the recognition of the costs of economic adjustment, the shift in favour of free markets over state interventions only intensified. In regard to employment, those who prescribe free market policies believe that demand for labour should be left to the market and that social protection is only affordable – through some mix of employer and individual contributions – for those who are formally employed. For free market advocates, labour or employment standards are not relevant to poverty reduction (ILO, 2002c).

Since 1990, however, there has been renewed concern about poverty in the international development community. More emphasis has been placed on job-led growth and rural livelihoods (World Bank, 1990) and a new focus on human development has been introduced (UNDP, 1990). Underlying the call for job-led or labour-intensive growth was the recognition that growth per se was not producing enough jobs to absorb people of working age. And underlying the call for human development was the recognition that economic growth at the national level (measured in terms of GDP per capita) does not necessarily translate into human development at the individual level (measured in terms of education, health and longevity). More recently, the Millennium Development Goals and the Poverty Reduction Strategy (PRS) initiative reflect the renewed commitment of the international community to poverty reduction.

The Millennium Development Goals and the Poverty Reduction Strategy initiative reflect the renewed commitment of the international community to poverty reduction.

In brief, over the past three decades, belief in 'trickle-down' economics has been tempered by a growing recognition of: (a) the systemic disadvantages of the poor; and (b) the need to supplement growth with a broader set of economic policies to manage it and social policies to redistribute it (see Box 1). Yet, over the same period, there has been a broader transformation in the economic policy environment, away from state interventions to free-market policies.

The globalisation-poverty debate

The best-known protagonists in the current globalisation debate are the pro-globalisation policy-makers and the anti-globalisation protestors. Those who are pro-globalisation tend to subscribe to three related assumptions: (1) that liberalisation, privatisation and stabilisation policies lead to economic growth; (2) that opening up an economy to trade and foreign direct investment (FDI) leads to economic growth; and (3) that economic growth leads to poverty reduction. Those who are anti-globalisation tend to take the opposite stance on each of these assumptions. They argue that economic growth and global integration tend to erode the incomes or livelihoods of the poor, while at the same time increasing the costs of public goods and services and thus increasing rather than reducing poverty.

Why do these two groups disagree so fundamentally? Much of the disagreement is a result of different approaches to assessing poverty, economic policies and the links between the two (Kanbur, 2001).

Those who are pro-globalisation tend to look at the incidence of poverty at the national or global level, to consider the medium- and long-term impact of economic policies and to subscribe to the standard economic model of perfectly competitive market structures.

Those who are anti-globalisation tend to look at the poverty levels of specific groups of people at the local level, to consider the short-term consequences (on the poor) and the long-term consequences (on the environment) of economic policies and to see markets as riddled with market power exercised by big corporations over small enterprises and by employers over employees.1

These rather stylised positions represent, of course, two extremes of a spectrum of perspectives. In real life, the debate tends to be less polarised and more nuanced. Many of the so-called critics of globalisation are not anti-globalisation per se but against the associated 'rules of the game' prescribed by powerful players – the International Monetary Fund (IMF) and the World Trade Organization (WTO) – including the lack of accountability of these institutions and the undermining of labour and environmental standards.2 Many people feel that globalisation "has developed in an ethical vacuum based on a 'winner-take-all' mentality ... [and] conceived for the strong – leaving the rest at a serious disadvantage" (Somavia, 2004). There is also a middle group of observers who seek to help the poor address the costs and seize the opportunities associated with macroeconomic trends and policies.

Tobacco pickers, India
MARTHA CHEN

Terms of the Debate

What is poverty?

As part of the broader debate on globalisation-growth-poverty, there has been a related debate on how to conceptualise and measure poverty. Some parties to this debate focus on the various dimensions of poverty that are not captured in the standard measures of what is now called 'income poverty', while others focus on how to improve the standard income-expenditure measures of income poverty. Today, there are several broad approaches to conceptualising and measuring poverty, including:

income and basic needs: that focuses on the income, expenditures and basic needs of the poor;

human development: that focuses on the health, education, longevity and other human capabilities of the poor; and

social inclusion: that focuses on the political participation, social dialogue and 'voice' of the poor.

From the perspective of the poor, each of these dimensions of poverty is of critical importance. But none of these focuses on employment per se; even the income poverty school pays surprisingly little attention to the sources of income. However, the work arrangements of the poor represent a key pathway to their well-being, capabilities, dignity and freedom.

The Decent Work agenda of the ILO offers a critical missing dimension to the debate on poverty: one that unites the international drive to eradicate poverty with the fundamental right to work in freedom.

The Decent Work agenda of the ILO offers a critical missing dimension to the debate on poverty: one that unites the international drive to eradicate poverty with the fundamental right to work in freedom. Each of the four pillars of the agenda offers tools to help reduce poverty, as follows:

Opportunities: promotion of investments and policy support to job creation, entrepreneurship and sustainable livelihoods, and the requisite skills development.

Rights: promotion of legal recognition and mobilisation of effective demand to secure the right to work and associated rights at work.

Protection: extension of existing social security measures to cover the informal workforce and development of alternative measures to insure them against illness, disability, loss of employment opportunities and old age.

Voice: promotion of the representation and effective participation of the working poor in collective bargaining, conflict resolution and rule-setting bodies.

What is globalisation?

In the broadest sense, globalisation refers to the international flows of ideas and culture, or people, as well as goods, services and capital – to global integration in the social, political and economic spheres. As used in this Handbook, globalisation refers to economic globalisation: to international flows of capital, goods, services and labour. The current wave of globalisation, dating back to 1980, represents the third major wave of globalisation over the past 150 years (see Box 2).

As noted earlier, popular discourse on globalisation tends to blur the distinction between economic restructuring and economic integration, and between trade liberalisation and other dimensions of economic integration. It is important to distinguish between:

economic restructuring, including privatisation of public enterprises and the public sector, deregulation of different markets (for goods, services, capital and labour) and stabilisation of currency; and

economic integration, including liberalisation of capital markets, of markets for goods and services (i.e. 'trade liberalisation') and of labour markets.

To illustrate, it was liberalisation of short-term capital accounts that triggered the Asian and other financial crises, not trade liberalisation or economic integration writ large (Bhagwati, 2004). It is also important to distinguish between trade liberalisation, growth and the policy prescriptions associated with them. It is now widely recognised that developing countries that complied with the orthodox policy prescriptions in opening up their economy have fared less well than developing countries that pursued their own domestic development strategy while opening up their economy (notably, China and India) (Rodrik, 1997; Stiglitz, 2003b).

In this Handbook, we try to draw these distinctions wherever relevant. But in real life it is hard to know which econ­omic process is driving what; and in analysing data it is difficult to isolate the impact of a single economic reform or a single type of economic integration. This is because none of these economic processes operates in isolation.

Poverty is related as much to the nature of employment as to the absolute level of employment. ... Most of the poor continue to work, no matter how low or irregular their earnings.

The 'Missing Link' in the Debate

Although the quantity of employment generated by growth has received some attention, in terms largely of aggregate employment rates, the quality of the work generated tends to be overlooked. Yet poverty is related as much to the nature of employment as to the absolute level of employment. In developing countries where there is no unemployment compensation and few safety nets, the rate of poverty is far higher than the rate of unemployment. Most of the poor continue to work, no matter how low or irregular their earnings. A major gap in the debate on globalisation-growth-poverty is the absence of any systematic analysis of the role of employment in the working of these linkages. To illustrate this point, consider the perspectives of the different parties to the debate.

Most pro-globalisation proponents subscribe to standard neo-classical assumptions regarding labour and development:

that labour is just another factor (like capital, land or any other good);

that labour markets behave just like other markets; and

that inflexible labour markets – specifically, wage rigidity – have adverse effects.

Based on these assumptions, their ready prescription for developing countries with chronic unemployment or underemployment is to abolish minimum wages, lower wages, eliminate job protection and privatise social security. Further, they tend to emphasise greater efficiency in economic policy and to overlook the risks, vulnerabilities and volatility associated with economic reforms and globalisation. More fundamentally still, they tend to de-link issues of efficiency and distribution, putting the primary focus of economic policies (including labour market legislation) on efficiency and handling issues of distribution through general legislation aimed at redistribution.

Clearly, some anti-globalisation critics have voiced concerns about labour standards. But their concern has focused largely on formal workers or workers in export processing zones (EPZs) and on international labour standards in the context of global trade agreements, to the relative neglect of informal workers, domestic labour legislation and country-specific economic reforms.

The quantity and quality of work generated are, we contend, the key determinants of the poverty and equity outcomes of different patterns of economic growth or global integration.

Various groups within the international development community have expanded the scope of their work to encompass a concern for work and livelihoods:

Human rights community: has begun to specify what is meant by economic rights and how to claim or enforce workers' rights.

Women's movement: has promoted the notion that women's unpaid housework and care activities should be seen as part of the economy and has investigated the implications for women of being integrated into labour markets (see Chapter 3 for more on gender analysis).

Environmental movement: includes a focus on rural livelihoods with a natural resource base and on increasing and securing assets as well as intellectual property rights.

Micro-finance movement and related micro-enterprise development initiatives: have provided financial and business development services to micro-enterprises.

Fair Trade movement: has focused attention on fair labour standards for wage workers and fair competition for small-scale producers.

However, outside the international labour movement, which historically has focused on the formal workforce, none of the groups within the international development community has adopted a primary focus on employment issues.3

The quantity and quality of work generated are, we contend, the key determinants of the poverty and equity outcomes of different patterns of economic growth or global integration. This relative neglect of employment issues represents, therefore, a 'missing link' in poverty reduction strategies. In the context of trade liberalisation, this neglect seems particularly hard to explain. Under pressure from the rich countries, the barriers to international trade in goods, financial services and investment flows have been lowered to the advantage of capital over labour and of large firms over small or micro firms and, in most instances, to the disadvantage of wage workers and own account producers in the informal economy. Arguably, the need to provide this 'missing link' in development discourse and practice – to introduce an explicit focus on the working poor in the informal economy – has never been more acute than in the present context of rapid global integration.

Underlying the lack of a systematic focus on employment in development circles is another quite fundamental debate: on the relative roles of markets and the state:

The free-market school focuses on growing the economy through a judicious mix of market forces and economic policies, placing greater emphasis on efficiency and deflation than on employment.

The government-mediated school focuses on redistributing national income through social policies, placing greater emphasis on social indicators than on economic opportunities.

Neither school pays sufficient attention to discrimination in the market place or to how this contributes to poverty. Under the free-market – or neo-liberal – school of thought, the dominant concern of macroeconomic policies has shifted from an earlier commitment to expanding aggregate demand and promoting job opportunities – or 'full employment' à la Keynes – to the current priority of controlling inflation and promoting investments and efficiency. Under the neo-liberal policy approach, the mechanism for dealing with employment – or, more precisely, the problem of unemployment – is deregulation of labour markets by eliminating or weakening minimum wage mandates, health and safety standards and measures supporting unionisation. Overall, it is not clear what impact these measures have had on employment rates, especially in developing countries where the problem of underemployment is far more pronounced than the problem of unemployment. But it is clear that such measures are likely to increase the flexibility of labour markets and weaken the bargaining power of workers. See Chapter 3 for a further discussion of these issues.

Conclusion

The vast majority of the poor work, but few are able to work their way out of poverty. This is because most of them are engaged in the informal economy, where they are likely to face lower incomes, greater financial risks, lower standards of human development and greater social exclusion compared to better-off workers, especially those who work in the formal economy. Box 3 presents a framework for thinking about the consequences of working in the informal economy.

Those who work in the informal economy are likely to have greater deficits in opportunities, rights, protection and voice ... than those who work in the formal economy .... And among the working poor in the informal economy, women are more likely than men to be worse off in all of these respects.

It is also the case that those who work in the informal economy are likely to have greater deficits in opportunities, rights, protection and voice – the four pillars of the Decent Work agenda – than those who work in the formal economy (ILO, 2002a). And among the working poor in the informal economy, women are more likely than men to be worse off in all of these respects.

The evidence suggests that the terms on which women and men engage in the labour market have a direct bearing on their level of income, human development and social inclusion, and on whether or not they enjoy decent work. Yet employment – much less the terms of employment – has not been adequately analysed or addressed in poverty reduction strategies. This Handbook makes the case for a coherent focus on employment – and related market relationships – to bridge the persistent divide between growth and redistribution, to refocus attention on discrimination in markets and, thereby, to design strategies that will more effectively reduce poverty.

The relationship between trade liberalisation, growth and poverty continues to be hotly debated, with some observers claiming that trade liberalisation contributes to both growth and poverty reduction and others that it adversely affects the poor. There is further debate on the differential impact on women and men among the poor. The linkages are, at best, ambiguous as the empirical evidence points in both directions. Inserting a focus on informal employment and its gender dimensions into the trade-growth-poverty debate should help identify the circumstances under which economic reforms, trade liberalisation and growth generate pro-poor outcomes. This point is discussed in more detail in Chapter 3. But first, in Chapter 2, we will review available data on the links between being informally employed, being a woman or man and being poor.

Notes

1 See Kanbur (2001) for a detailed analysis of the proponents and opponents of globalisation.

2 See Stiglitz (2003b) for a discussion of the policies or 'rules of the game' managing globalisation.

3 Two recent studies by the International Labour Office analyse the 'nexus' of economic growth, employment and poverty reduction and make the case that, for it to reduce poverty, economic growth has to be accompanied by employment growth with rising productivity (Khan, 2001; Islam, 2004). While one study addresses both self-employment and wage employment (Khan, 2001), neither study addresses informal wage employment.

2. Informal Employment, Gender and Poverty

The Informal Economy

The informal workforce

The most visible occupational groups in the informal economy are those who work on the streets or in the open air. City streets and village lanes in most developing countries – and in many developed countries – are lined with barbers, cobblers, garbage collectors and vendors of vegetables, fruit, meat, fish, snack-foods or a myriad of non-perishable items from used clothing to locks and keys or soaps and cosmetics to electronic goods. In many countries, head-loaders, cart pullers, bicycle peddlers, rickshaw pullers, bullock or horse cart drivers jostle to make their way down narrow village lanes or through the maze of cars, trucks, vans and buses on city streets. In rural areas, the vast majority of people earn their livelihoods working on farms, raising livestock, making handicrafts or collecting and processing minor forest products.

Somewhat less visible are the informal workers who work in factories or small workshops that repair bicycles and motorcycles; recycle scrap metal; make furniture and metal parts; tan leather and stitch shoes; weave, dye and print cloth; polish diamonds and other gems; make and embroider garments; sort and sell cloth, paper and metal waste; and more. The least visible informal workers, the majority of them women, sell or produce goods from their homes: stitching garments, weaving cloth, embroidering textile goods, making crafts, making shoes, processing food or assembling electronic and automobile parts.

The largest occupational categories within the informal economy, in most developing countries, include casual day labourers in agriculture and construction, small farmers, forest gatherers, street vendors, domestic workers, workers in EPZ factories or small unregistered workshops, and industrial outworkers who work from their homes (also called homeworkers). Other categories of informal employment that are common in both developed and developing countries include casual workers in restaurants and hotels; sub-contracted janitors, security guards and gardeners; and temporary office helpers or off-site data processors.

Conditions of work and the level of earnings differ markedly among those who scavenge on the streets for scrap metal or paper, those who produce garments on a sub-contract from their homes, those who sell goods on the streets and those who work as temporary data processors. And, even among home-based workers, there is a difference between those who work on their own account and those who work on a piece-rate basis for a contractor or a firm. In every country, the informal economy is highly segmented by location of work, sector of the economy and employment status and, in addition, by social group and gender.

Despite its diversity, the informal economy can be usefully categorised by employment status into two broad groups: (1) the self-employed who work in small unregistered enterprises; and (2) wage workers who work in insecure and unprotected jobs (although, as we will discuss in Chapter 3, some informal workers or producers – notably homeworkers – do not fit neatly into one or other of these categories). Also, most of those who work in the informal economy share one thing in common: the lack of economic security and legal protection.

Discovery of the informal sector

It was widely assumed during the 1950s and 1960s that, with the right mix of economic policies and resources, poor traditional economies could be transformed into dynamic modern economies. In the process, the traditional sector comprised of petty traders, small producers and a range of casual jobs would be absorbed into the modern capitalist – or formal – economy and thereby disappear.1 This perspective was reinforced by the successful rebuilding of Europe and Japan after World War II and the expansion of mass production in Europe and North America. By the early 1970s, however, the optimism about the prospects for economic growth in developing countries began to give way to concerns about persistent widespread unemployment. Reflecting this concern, the ILO mounted a series of large, multi-disciplinary 'employment missions' to various developing countries. The first of these was to Kenya in 1972.

The Kenya employment mission, through its fieldwork and in its official report, recognised that the traditional sector had not just persisted but had expanded to include profitable and efficient enterprises as well as marginal activities (ILO, 1972). To highlight this fact, the mission chose to use the term 'informal sector' rather than 'traditional sector' for the range of small-scale and unregistered economic activities. This term had been coined the previous year by a British economist, Keith Hart, in his 1971 study of economic activities in urban Ghana (Hart, 1973).

Debates about the informal sector

Although both Hart and the Kenya mission team were very positive about the informal sector – noting its efficiency, creativity and resilience – the concept received a mixed review in development circles. Many observers subscribed to the notion that the informal sector was marginal or peripheral and not linked to the formal sector or to modern capitalist development. Some of them continued to believe that the informal sector in Ghana, Kenya and other developing countries would disappear once these countries achieved sufficient levels of economic growth or modern industrial development. Other observers argued that industrial development might take a different pattern in developing countries – including the expansion of informal economic activities – from the way in which it had in deve