Transcript Entrepreneur Income and the Surge in Inequality in Chile

Special IARIW-SAIM Conference on “Measuring the Informal Economy in
Developing Countries”, Kathmandu, Nepal, 23-26 September 2009
Session 7: The Informal Sector in Nepal
Measuring Informal Sector Economic Activities
in Nepal
by Rudra Suwal and Bishnu Pant
Socio-economic Determinants of Income Generation
in the Informal Sector of Nepal –
A Case of Chitwan District
by Manoj Kumar Agarwal and Ram Chandra Dhakal
Discussion by Andrea Brandolini
Bank of Italy, Department for Structural Economic Analysis
Two papers are complementary
• Rudra – Bishnu paper
– focuses on the general problem of how to
measure informal economy and provides
aggregate estimates for Nepal
• Manoj – Ram Chandra paper
– presents microeconomic results from a survey
carried out in a Nepalese district
Measuring Informal Sector Economic Activities in Nepal - 1
Informal economy
• Benefits of informal employment may not be sufficient to
achieve acceptable standard of living, due to lack of
social protection, good working conditions and adequate
wages
• Challenge to policy-makers
– Improve working conditions, legal and social
protection
– Increase productivity, training and skills
– Develop appropriate regulatory framework
Measuring Informal Sector Economic Activities in Nepal - 2
Role of statistics
• Statistics on the informal sector are needed as an
important tool for policy making and advocacy
• Operational definition of the informal sector is required
• Regular data collection system of CBS Nepal does not
cover the informal sector. Two implications:
– Distorted estimates of the economy structure
– Imprecise understanding of social and economic
issues in policy making
Measuring Informal Sector Economic Activities in Nepal - 3
Informal sector definition: an unresolved issue - I
• For statistical purposes:
group of production units part of household sector, as
household enterprises or unincorporated enterprises,
defined irrespective of:
• work place
• extent of fixed capital assets
• duration of operation of enterprise
• main or subsidiary activity of owner
• Operational definitions vary in different countries
Measuring Informal Sector Economic Activities in Nepal - 4
Informal sector definition: an unresolved issue - II
• In many Asian countries (India, Indonesia, Philippines –
but also Nepal), un-organized segment of an economic
activity is defined to comprise:
operating units whose activity is not regulated under
any legal provisions and/or which do not maintain any
regular accounts
• In most developing countries, many economic units
escape the administrative, legal or statistical framework
• Problem: country-specific definition, depending on
prevailing administrative, legal or statistical framework;
informal sector expands or contracts with a change in
the underlying yardstick over time
Measuring Informal Sector Economic Activities in Nepal - 5
Nepalese experience
• In Nepal, CBS has not yet conducted nation-wide survey
of informal sector
• But CBS has attempted a number of statistical methods
for estimating the contribution of informal sector in the
overall economy of the country
• Questionnaires of regular household surveys modified so
that relevant information could be compiled
• Examination of results indicate that this is practical
approach for the collection of informal sector statistics in
absence of any specific survey
• Nepal Labor Force Surveys (NLFS).
– 1998 limited questions
– 2008 additional questions on the informal sector
Measuring Informal Sector Economic Activities in Nepal - 6
Share in total employment: 96.2%
Measuring Informal Sector Economic Activities in Nepal - 7
Comparing NLFS 1998 and NLFS 2008
• Strict comparison not possible because of limited
coverage and contents of questionnaire
• But employment in non-agricultural informal sector
seems to have increased by more than 29%
Measuring Informal Sector Economic Activities in Nepal - 8
Informal sector value added
• NLFS 2008 does not provide estimates of production
• Informal sector value added estimated using information
from surveys of small scale manufacturing
establishments, some 30 surveys for benchmarking
national accounts estimates, conducted by CBS in 2006
• Impute value added to informal employed:
Value added per labor × IS employment = IS value added
41,357
11,332,000
Total GDP including IS value added:
Contribution of Informal sector to GDP:
468,654 Rs millions
910523 Rs mln
51.5%
Measuring Informal Sector Economic Activities in Nepal - 9
Conclusions
• Mixed household and enterprise surveys is the most
appropriate method
• Need of specially designed surveys (including time use
surveys)
• Contribution of informal sector to economy is significant
Important to conduct regular surveys of informal sector
– official GDP estimates underestimated
– loss of tax revenue
– incorrect target spending across regions or socially
deserving groups
– employment related statistics highly questionable
Measuring Informal Sector Economic Activities in Nepal - 10
Comments
1. Authors’ favorite definition of informal economy
2. Size of informal employment
3. Imputation: using more disaggregated information?
Socio-economic Determinants of Income Generation - 1
Background information on Nepalese Economy
• Highly instable economic growth
– Up to 2000/2001 rate remained below 5%, but
afterwards, much below 4% → critical interruption
– Decline due to poor performance of non-farm
sectors, in the face of a progress in the farm sector
• High population growth
– no sign yet of demographic transition
• Political conditions harmful for growth
• High absolute poverty, but some progress
– 41.76% in 1995-96 to 30.85% in 2003-04
• Unemployment in 2003-04, 2.9% of population 15+
– 15% among youth
Socio-economic Determinants of Income Generation - 2
The Chitwan District – the “Rapti Valley”
• One of the 75 districts of Nepal
• Population of 470,700 in 2001
– high growth rate
– urban population of 27.5%.
• 55.5% of land holdings is marginal
• 3.1% of active population in industrial sector
– 71 manufacturing units employing 3,755 persons,
with total fixed capital of Rs 432 millions
– More employment in cottage industries, which
show a high mortality rate
Socio-economic Determinants of Income Generation - 3
Socio-economic Determinants of Income Generation - 4
Informal sector in Chitwan
• Sample survey of non-farm informal sector in rural and
urban locations
– Mixed household and enterprise surveys suitable to
collect comprehensive data on informal sector
• Informal sector activities are unregistered
Number
Male
Female
Total
% share
Male
Female
Total
Urban
(Bharatpur
Nagarpalika)
Urban
(Ratnanagar
Nagarpalika)
Rural
Total
122
62
184
61
21
82
118
34
152
301
117
418
29.2
14.8
44.0
14.6
5.0
19.6
28.2
8.1
36.4
72.0
28.0
100.0
Socio-economic Determinants of Income Generation - 5
Features of informal sector – I
• Women respondents have higher:
– household size (in U1 and rural)
– employment
– household literacy rate (schooling years)
– household property
• Respondents have higher literacy level than other
household members
• 66.7% had no training; 78.1% for females
• Initial investment higher in urban areas
• Beneficiaries of loans from microfinance below 20% in
urban areas, around 40% in rural areas
• Few received government help
Pattern of employment in informal sector
Persons
S. No.
Male
Female
Types of employment
N
%
N
%
N
%
1.
Self-employed (single
person)
159
38.0
130
43.2
29
24.7
2.
Family members
employed
148
35.4
81
26.9
67
57.3
3.
Family & unpaid others
employed
6
1.4
6
2.0
0
0.0
4.
Family, unpaid & wage
earners employed
40
9.6
26
8.6
14
12.0
5.
Self-employed & wage
earners employed
36
8.6
33
11.0
3
2.6
6.
Wage earning employed
29
6.9
25
8.3
4
3.4
418
100.0
301
100.0
Total
117 100.0
Socio-economic Determinants of Income Generation - 6
Features of informal sector – II
• Women more articulate in mobilizing household
support whereas men basically depend upon
themselves or wage earners and unpaid workers
• Women generally do not prefer to employ wage
earners when they themselves are involved
• Women are harder workers than their male
counterparts
– longer working hours in all seasons
– more working days in all seasons
Household earnings in informal sector
Mobility /Pattern of
Employment
Av. HH Earning
from IS (NRs)
Av. HH Earning
from OS (NRs)
Correlation
Coefficient (r)
Household earnings by mobility
Mobile
73,207
14,416
-0.019
Semi-mobile
72,236
13,586
-0.096
Fixed
90,418
15,350
-0.050
Household earnings by types of employment
Self-employed
Family member
employed
Family & unpaid other
employed
Family, unpaid & wage
earner employed
Self-employed & wage
earner employed
Wage earner employed
65,193
13,747
-0.018
83,892
16,176
-0.184**
85,000
9,500
0.594
139,030
14,800
-0.038
121,111
20,722
-0.070
54,931
8,376
-0.349
Informal sector earnings and caste
Urban 1
Urban 2
Rural
Caste
n
Mean
n
Mean
n
Mean
Brahman/
Chhetri
87
307.38
31
246.61
56
215.25
Vaisya
57
301.16
27
192.04
56
194.82
Dalit
14
249.17
12
167.64
28
179.10
Musalman
(Muslim)
12
282.36
9
168.89
3
145.56
Others
14
252.86
3
186.11
9
291.48
Total
184
295.22
82
206.34
152
204.20
Socio-economic Determinants of Income Generation - 7
Determinants of earnings in informal sector
• Log-linearized Cobb-Douglas production function
ln Y = 0+ 1 ln HHP + 2 ln ISL + 3 ln LITL + v
with 1 + 2 + 3 = 1
[?]
Y
daily earnings from informal sector
HHP household properties
ISL
number of workers
LITL schooling years of respondent
• Estimated separately by area/sex and caste
Earning function by castes
Estimated coefficients
R2
Caste
0
(Constant)
Brahman/Chhetri
Vaisya
Dalit
Musalman (Muslim)
Others
Male
All
Female
3.387
(26.588)*
2.991
(18.042)*
2.769
(16.752)*
2.784
( 8.006 )*
3.374
( 9.563)*
9.075
(144.106)*
8.674
(68.936)*
1
2
(Labor
(investmen
employed) t per day)
0.069
0.129
(1.154)*
(2.648)*
0.118
0.155
(2.147)**
(2.521)**
0.069
-0.027
(0.850)
(-0.359)
-0.003
0.033
(-0.024)
(0.226)
0.030
0.376
(0.300)
(3.327)*
0.094
0.037
( 3.381)*
(1.438)
0.083
0.150
(1.905)
( 3.557)*
3
(literacy
level)
0.763
(15.177)*
0.720
(11.915)*
0.913
(10.821)*
0.879
(5.874)*
0.670
(5.701)*
0.867
(30.432)*
0.818
(17.496)*
0.656
0.714
0.621
0.808
0.916
0.883
0.874
Socio-economic Determinants of Income Generation - 8
Income earnings in informal sector
• Schooling most important determinant for income
generation in rural as well as urban areas
• Number of workers significant determinant of income
only in women run urban informal sector
• Household property have significant bearings on
income generation
• It would have been due to poor background of women
entrepreneurs or else they failed to seek advantage
from the household properties for different
unexplained reasons.
Daily Investments & Earnings of Households from IS in Chitwan
Impact of informal sector earnings on household earnings
Household
monthly income
level
(NRs)
IS earnings excluded
IS earnings included
N
%
N
%
Poor
(<10000)
394
94.3
54
12.9
Low
(10000-20000)
22
5.3
172
41.1
Middle
<(20000-30000)
1
0.2
104
24.9
High
(>30000)
1
0.2
88
21.1
418
100.0
418
100.0
All income group
Socio-economic Determinants of Income Generation - 9
Conclusions and policy implications - I
• Firms in informal sector spread in urban and rural
areas, highly diversified, expand beyond family to
employ wage earners and others
• No formal training
• Women more efficient, generate better household
conditions, mobilize family participation
• Literacy level most important determinant of income
• Social structure (caste or community) influences
income generation
– Higher earnings for upper castes (Brahman/Chhetri
and Vaisya) than lower caste (Dalit) and Muslims
– Due to better endowments for the upper castes in
terms of household properties, literacy, etc.
Socio-economic Determinants of Income Generation - 10
Conclusions and policy implications - II
• Informal sector helpful in income and employment
generation, crucial source of earnings for many
• Low, if any, state support.
• Public policy options:
–
–
–
–
Quality training
Credit facilities
Social security
Education
• Women should be given greater prominence
• Poor and lower caste or social status people need
extra state support
Socio-economic Determinants of Income Generation - 11
Comments
1. More information about the sample: selection
process, representativeness, data collection
• How are owners of informal businesses selected?
• What does it mean: “To cover the homeless
respondents in informal sector, it was tried to
obtain the information at the working spot both in
urban as well as rural areas”?
2. Compare households with in formal and informal
sector
3. Multivariate analysis
– Constant returns to scale?
– Why not a single multivariate regression to assess
the weight of various factors?