Written by Darcy du Toit [1]
The “informal economy” or “informal sector” has been seen as a challenge in labour law and policy development since the latter term was coined in the early 1970s. As the ILO put it forty years later: “As long as it persists, the informal economy will remain the most serious obstacle to the goal of decent work for all.” [2]
But what exactly does “informal economy” mean? Most obviously, it suggests a dichotomy between “formal” and “informal” economies. But where the borderline lies, orf if there is a boundary, has never been made clear.
“Informal economy” was originally used in a descriptive sense,[3] and this remains largely the case. In 2002 the ILO stated that “there is no universally accurate or accepted description or definition”, adding that the term “accommodates considerable diversity in terms of workers, enterprises and entrepreneurs with identifiable characteristics”, such as “specific disadvantages”.[4]
In other words, like an elephant, you know it when you see it.
From a legal perspective, or that of policy development, this raises obvious difficulties. Imagine defining a concept such as “discrimination” by cataloguing examples of “discriminatory”. Most would agree that a conceptual approach – i.e., defining it in terms of its essential characteristics rather than its manifestations – is preferable.
It is arguable that the ILO has begun to develop such a definition of “informal economy”. As early as 1971 it observed that “[i]nformal-sector labour markets are almost by definition unregulated”.[5] In 2002 the ILO went further: “The term “informal economy” refers to all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements. Their activities are not included in the law, which means that they are operating outside the formal reach of the law; or they are not covered in practice, which means that – although they are operating within the formal reach of the law, the law is not applied or not enforced; or the law discourages compliance because it is inappropriate, burdensome, or imposes excessive costs.”[6]
Yet in Recommendation 204[7] the ILO revived the notion of two economies. While describing the “informal economy” as “all economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements”,[8] it presents the “transition” as a process of uniting the two economies by bringing the informal economy into the framework of the formal economy, facilitated by appropriate adaptations.
From the standpoint of promoting “decent work for all”, this approach is problematic.
First, the “formal” and “informal” economies are, in practice, integrated and, to all intents and purposes, form an economic whole. This is implicit in the insight that the distinction between the two “economies” refers, in essence, to the degree of coverage by “formal arrangements” – i.e., compliance with (legal) regulation.
At the same time, in the ILO’s framework, adequate legal regulation by member states is the means of ensuring decent work. How, then, can it be said that “[a]s long as it persists, the informal economy will remain the most serious obstacle to the goal of decent work for all”? Doesn’t it come down to a tautology – i.e., as long as legal regulation remains inadequate, this inadequacy will remain the most serious obstacle to the goal of adequate legal regulation?
Secondly, the very reason for the existence of an “informal economy” is the incompatibility of “formal” regulatory systems with the conditions of “informal” work. The idea of transitioning “informal economies” into these systems implies a continuation of the status quo (particularly since, in a legal sense, there is no separation between “formal” and “informal”) unless the “formal” systems are radically altered to address the conditions of “informal” as well as “formal” work.
This proposition should hardly be controversial. What it does imply is that the crux of the problem lies not in any economic dichotomy but in the inadequacy of regulation intended to ensure decent work for all. Rather, the question becomes: how must the regulatory framework be developed to accommodate “informal” or other activities which, in practice, fall beyond its reach, to promote “decent work” across the board?
The starting point, it is suggested, is that the economy as a whole consists of very different parts, ranging from large-scale multinational enterprises to small business to self-employment and disguised employment operating in diverse sectors and economic frameworks. If we do away with the “formal/informal” dichotomy, the task becomes that of identifying those different parts and analyse their specific needs in order to ask what kind of rules might be needed for each of them.
This in itself is also not new. Collective bargaining is based on the principle of tailor made solutions developed by the parties per sector or workplace. The proposal is to apply this principle to the “transition” of unregulated activities to an environment of appropriate, supportive regulation across the board.
In doing so, we should take into account the various critiques of Recommendation 204. We should also recognise that, amidst accelerating socio-economic diversification, one size cannot fit all. Fundamental rights are universal, but implementing them calls for context-specific rules, including rulemaking and enforcement mechanisms, that respond appropriately to the needs of workers and work-providers in different areas of work.
The notion of a sui generis “informal economy”, however, obfuscates this task.
NOTES:
[1] With appreciation to Prof Manfred Weiss for his insightful response to an earlier draft.
[2] International Labour Office “Transitioning from the informal to the formal economy” Report V (1), International Labour Conference (2014) para 37.
[3] Hart, in his seminal study of “informal” activities in Kenya, observed that many “economic agents” in this “sector” “[pursue] similar economic activities to those in the formal sector—marketing foodstuffs and other consumer goods, carrying out the repair and maintenance of machinery and consumer durables and running transport”: “Informal Income Opportunities and Urban Employment in Ghana” The Journal of Modern African Studies, I, I (1973) 61 68.
[4] ILO “Conclusions concerning decent work and the informal economy” (2002) para 3. See also Fifteenth International Conference of Labour Statisticians, Report III, Statistics of employment in the informal sector (Geneva, 19 – 28 January 1993) para 17.
[5] ILO “Employment, incomes and equality: A strategy for increasing productive employment in Kenya” (International Labour Office, 1971) 253; see also 504.
[6] Conclusions concerning decent work and the informal economy (2002) para 3; restated in International Labour Office “Transitioning from the informal to the formal economy” Report V (1), International Labour Conference, 2014 para 1.1.4.
[7] Transition from the Informal to the Formal Economy Recommendation, 2015.
[8] I.1(2)(a).Secondly, the very reason for the existence of an “informal economy” is the incompatibility of “formal” regulatory systems with the conditions of “informal” work. The idea of transitioning “informal economies” into these systems implies a continuation of the status quo (particularly since, in a legal sense, there is no separation between “formal” and “informal”) unless the “formal” systems are radically altered to address the conditions of “informal” as well as “formal” work.
