Informal sector: its origin, rises and reasons to exist in today's globalised world

The idea of the informal sector is not very old. The International Labour Organization (ILO) introduced the concept of the informal sector in 1972. Anthropologist Keith Hart conceptualised the term.  

Famous economist Arthur Lewis predicted that this sector would be eliminated soon. However, till now, this sector has not been eliminated. Instead, it is getting momentum day by day and becoming an important sector for job creation in the global employment economy.

In Bangladesh, 51.7 million people are economically active, while 83 percent work in the informal sector. However, workers suffer from vulnerabilities in terms of job security, social protection, health, and security issues.

They are deprived of access to financial resources and the market to maximise their output and are unable to acquire the necessary skills.

Yet the sector is thriving and creating an opportunity for billions of people across the globe to enter into the job market.

What contributed to expanding this sector?

Urbanisation:  

The developing countries experienced significant urbanisation since 1950. The global urbanisation reached to 40.7 percent in 2000, which was 17.3 percent in 1950.

It has been argued that urbanisation had a strong influence on the persistence and growth of informality.

Since both are interlinked, and it is quite evident that rapid urbanisation will boost up the informal sector as the rural labours migrated into the urban areas are the major contributors to the growing urban informal workforce.

This can be evidenced from the post Second World War condition of Latin America and Asia.

In that period, Latin America and Asia experienced growing urbanisation, and their economy also shifted from agro-mining to industry.

That results in the migration of labours from mining and agriculture plantation to urban cities in search of a job in the industrial sector.

However, the urban formal sector was not sufficient enough to incorporate these large numbers of the workforce.

Moreover, the formal sector required skilled workers which most of these agrarian – mining labourers did not possess. Thus these groups of rural migrant labourers ended up in the urban informal sector.

These displaced labours from agriculture sector enter into the urban informal sectors as it provides a large market for these jobs, and the opportunity to stay there.

That is why, still the non-agricultural workforce in the informal economy is quite high, that is 51 percent in Latin America, in East and South-East Asia it is 65 percent whereas 82 percent in South Asia and 66 percent in sub-Saharan Africa according to a report of ILO of 2013.

In Bangladesh, 89.9 percent of industrial workers are part of the informal sector.

Feminisation of labour:

Female participation in the labour force is increasing day by day.

It is due to the rise in education levels of women and the growing tendency to migrate from rural to urban areas in search of new prospects of employment in the urban areas, however, the declining real incomes of the households also sometimes force women to move into the labour market.

In developing countries, the informal sector is the primary source of employment for women. In fact, in developing countries, most of the working women are in involved in the informal sector.

Despite the fact, it has been argued that the informal economy creates a poverty trap for women, involving them in low skill and low-income activities with little chance of career development.

However, a remarkable increase of female participation in the informal sector resulted in the feminisation of the informal labour since the contribution of women in this sector is more significant than men.

In Africa, Asia and Latin America, according to ILO 70 percent of female of the non-agricultural labour force are employed informally in comparison to less than 60 per cent of men.

In Bangladesh, 92 percent of the total female workers work in the informal economy. In India and Indonesia, every nine out of ten women, who are working outside agriculture are in the informal sector.

In India and Bangladesh, the informal sector, particularly the home-based work, creates the most significant opportunity for women to be involved in employment.

It offers relaxed working hours as women need to cope up with their family responsibilities and comply with the social norms even at their workplaces.

In Bangladesh and India, most of the businesses that are owned by women are micro- and small-scale enterprises in the informal sector.

The emergence of subcontracting within the global value chain:  

The neo-liberal globalisation policy of the trade creates a new form of employment (temporary and contractual) by establishing a link between industries anywhere in the world in the form of subcontracting and outsourcing.

Thus globalisation influences the trade and investment to move across the border into the areas of low and semi-skilled workers.

It is crucial to maintain their global competitiveness which encourages lead farms to build their networks in countries with low labour costs and have informal employment arrangements by restructuring their production and distribution through outsourcing and subcontracting within the global value chains.

In fact, almost all the goods that are produced within a value chain are subcon¬tracted. Thus these days, subcontracting is an integral part global value chain and are quite common in the apparel, electronics, furniture, construction, and many other industries.

Where the goods that are produced through subcontracting, a significant portion of it are produced in unregulated production areas, shops and even by home workers who are the part of the informal sector.

That is why the structuralist thoughts argued that to amplify the competitiveness of lead economic farms informal economy works as an auxiliary economic unit of it. Moreover, improvement in technologies increased the opportunity to work from different locations, even in from home and linked with the lead farms.

These subcontracting to employees, thus creates a link with informal entrepreneurship, especially with those who are working from their own home to several industries that ranges from the electronics to garments.

That is why the number of informal entrepreneurs is increasing day by day in developing countries of Asia, Africa and Latin America, where the labour cost is quite low.

It is also playing a significant role in future business potential and even a future incentive for being part of a large formal business.

This reflected in the number of self-employed workers in the figure of informal economy, which is 59 percent in Asia, 60 percent in Latin America 62 percent in North Africa and 70 percent in sub-Saharan Africa.

In a nutshell, the informal sector was often considered as the residual sector of the formal one, and there always has been a doubt of its existence too.

However, it is the biggest reality in the current global employment economy since its contribution is greater than the formal sector in terms of new job creation.

Hence informal sector opens a window of opportunity for the workers to enter into a new labour market, become an entrepreneur and also chance for acquiring skills to cope up in the globalised world.

As a consequence, women are also getting the opportunity to empower themselves.

However, it also failed to deliver a proper working and business environment to maximise and diversify their full potential on many occasions.

As well it creates the vulnerability and insecurity in terms of social protection and living condition of workers.

Nevertheless, it is hard to measure the entire positivity or negativity of the informal sector for the employment pattern and workers.  

The author is a senior assistant secretary of Bangladesh Civil Service. His can be reached at [email protected]