EMPLOYER PERSPECTIVES ON THE INFORMAL ECONOMY

1. EMPLOYER PERSPECTIVES ON THE INFORMAL ECONOMY Frederick Muia Senior Adviser IOE

2. Definition • Manyfacets, multitude of activities • Influenced by specific national problems • Individuals or organizations • Operating fully or partlyoutside applicable laws on a sustained basis-outside the rules • Characterised by failure to observe or complywithcomerciallawsgoverningtrade, commerce, taxation, business registration, hygiene and product standards, weight and measures, occupationallicencing, qualification requirements, employmentlaws • Not equatedwithcriminality

3. Scope of informality • Informal enterprises-firms doing their business off the books by avoiding paying of taxes, under reporting revenues, producing informally by ignoring labour regulations, not declaring jobs, illegal immigrants • Informal self employment: own account workers who do not declare income for taxation

4. Whyweneed to reduce the level of informality in the economy? • With huge informality, we fail to maximise the productive contribution of the population • Deficit in tax revenues • Marginalisation of huge segments of society • Source of internal conflicts • Exclusion from the fundamental protective purpose of government regulation(food safety standards, wages, safety and health standards

5. Why Reduce informality • Child labour, early exit from school • Low productivity

6. Impact of Informality on business • Threat to order • Low incomes mean no consumers or investors • Huge tax burden on minority of formal enterprises • Pressures on employers to fund infrastructure • Distorted markets with prices of goods and services lowly priced below those of compliant operations

7. Impact on business • Fear of building supply chain linkages because brands are at risk of spoiling their reputation

8. Strategies to help transition from informal to formal • Reducing barriers to formality • Legal, economic and institutional reforms • Macro-economic policies • Investment in education, skills development • World Bank Doing Business Reports • Make it easier to do business • Smart regulation-overegulation leads to informality • Es

9. Business Development Services • Marketing, access to loans (microfinance?) • Insurance, technology, basic management skills • Productivity, innovation, diversification, value addition • Property rights- Hernando de Soto work • Requisite environment to create SMEs • Labour market policies • Infrastructure development

10. Good Governance • Political instability, armed conflicts in Africa, Latin America and Asia have pushed people to informality

11. Role of Employers’ Organizations • Advocacy • Lobbying • Influencing policy • Information • Productivity improvement • training