urban informal sector - bids.org.bd
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Urban Informal SectorDualism, Employment and Growth
BIDS Research ALMANAC 2019
Binayak Sen, Anwara Begum, Mohammad Harunur Rashid Bhuyan, MdIqbal Hossain and Shahidul Islam
December 1, 2019
Structure of presentation
• Two Types of Dualism
• Contribution to Employment
• Economic Correlates
• Policy Implications
Sen-Shahid-et al-BIDS
Sample Distribution by Urban Locations (N=966)
Chattagram Dhaka Khulna Rajshahi Rangpur
Percent 25.31 46.78 9.65 8.92 9.34
0
5
10
15
20
25
30
35
40
45
50
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On Dualism
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Distribution of enterprises by size of workers
38.51 39.09
50.97
42.07
29.05 30.45 28.96 29.3932.43
30.45
20.08
28.54
0
10
20
30
40
50
60
Dhaka Chattagram Others All enterprises
% o
f en
terp
rise
s
Single employee 2 employees >2 employees
Sen-Shahid-et al-BIDS
Types of workers by enterprises
40.70
11.36
89.88
11.39
Permanentworker
Temporaryworker
Unpaidworker
Femaleworker
% of enterprises employing different types of workers
Sen-Shahid-et al-BIDS
Distribution of Capital of Informal Enterprises by Cities
Enterprises
Ranked by
Size of
Capital
Dhaka
Mean BDT
(col %)
Chattagram
Mean BDT
(col %)
Others
Mean BDT
(col %)
All
enterprisesMean BDT
(col %)
Bottom
one-third
19372
(23.73%)
18462
(32.93%)
22226
(50.18%)
20343
(33.47%)
Middle
one-third
91096
(37.47%)
102652
(32.93%)
79994
(32.84%)
90943
(35.02%)
Top one-
third
391736
(38.8%)
390651
(34.15%)
409848
(16.97%)
394169
(31.51%)
Sen-Shahid-et al-BIDS
Distribution of enterprises by buyers’ characteristics
• Only 9.71 percent of our enterprises responded that their sales is mainly linked with formal sector
• Only 5.68% of the enterprises have “business license” and 1% of them have either TIN or VAT identification
20.69
58.52
16.53
4.26
Poor class Lower middleclass
Upper middleclass
Rich class
Income class of the buyers
Sen-Shahid-et al-BIDS
Distribution of enterprises by buyers’ characteristics• A large percentage of enterprises with the following businesses sells
to upper middle class:Metal fabricating, retail shop of groceries, electrical household appliances and handicrafts
• A large percentage of enterprises with the following businesses sells to formal enterprises or sectors:
Embroidery of textiles and wearing, Metal fabricating and Handicrafts
Sen-Shahid-et al-BIDS
Informal Enterprises Differ by Growth Potentials (2016-18)• Negative growth rate: 55% of enterprises
• Below Median: 22% of enterprises
• Above median: 23% of enterprises
• Note: (a) the median growth rate over 2016-18 is 1.7% (for thoseexhibiting positive growth); (b) the matched figure for the entiresample is -0.24% per year.
Sen-Shahid-et al-BIDS
Contribution to Employment
Trends in the Share of Informal Employment in Total Urban Employment (%)
0
10
20
30
40
50
60
70
80
90
1991-92 1995-96 1999-00 2002-03 2005-06 2010-11 2012-13 2015-16 2016-17
% d
istr
ibu
tio
n o
f u
ban
lab
or
forc
e b
y em
plo
yme
nt
stat
us
Formal Informal
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Who participates in urban informal employment?Variable
(Non-farm formal=1;
Non-farm informal=0)
Urban Non-farm Formal (LFS 2016-17)
Male Female
Age 15 to 64
Age 0.0261*** 0.0116***
Age squared -0.000246*** -9.72e-05***
Unmarried -0.0172* -0.0645***
Separated/widowed/divorce 0.0028 -0.00656
Household who have kids<6 0.0133*** 0.0182**
Class 1 to 5 0.134*** 0.0845***
Class 6 to 8 0.188*** 0.115***
Class 9 to SSC 0.265*** 0.170***
HSC and above 0.300*** 0.281***
Total Cultivable land 0.0481*** 0.0287***
Asset (Non-land) score 0.00554*** 0.00231***
Total Rainfall (2000 to 2013) 6.43e-05*** 8.81e-05***
Standard Deviation of Rainfall (2000 to 2013) 0.000845*** 0.000154
Distance to Dhaka -0.00101*** -0.000396***
Seasonal Shock (i.e. off-season) -0.202* 0.0981
Health Shock (i.e. illness/injury) 0.00361 -0.00511
Chittagong -0.103*** -0.0586***
Dhaka -0.163*** -0.110***
Khulna 0.0708*** -0.0146
Observations 31,700 9,024
Sen-Shahid-et al-BIDS
Who participates in urban informal employment?• We estimated marginal effects from the Logit Model for Formal vs.
Informal job choice for urban areas by male and female non-farm workers(Non-Farm formal=1, Non-Farm informal=0) to explore the choice betweenformal and informal jobs in urban areas based on the 2016/17 LFS.
• The results show the importance of human capital and non-land assets foropting for formal jobs.
• In contrast, distance from Dhaka and susceptibility to seasonal shocksencourage informal jobs.
Sen-Shahid-et al-BIDS
Economic correlates of Urban Informal Sector
Broad sectorial distribution of enterprises
Broad sectors All cities
(%)
Dhaka
(%)
Chattagram
(%)
Others
(%)
Industry 11.88 10.42 16.67 9.96
Business/Trade 64.88 71.84 44.31 71.96
Services 23.24 17.74 39.02 18.08
Sen-Shahid-et al-BIDS
Sectorial distribution of enterprises…
8.9
7.97
6.63
8.49
7.66
4.45
2.69
3.73
4.76
4.14
4.14
3.42
2.59
1.04
4.24
4.14
4.04
9.73
3.21
4.04
0 2 4 6 8 10 12
Retail sale of food in specialized stor
Retail sale of grocery and general sale
Tea stalls
Tailoring services
Retail sale of clothing, footwear and l
Other retail sale not in stores, stalls
Retail sale of pharmaceutical and medic
Hairdressing and other beauty treatment
Retail sale of electrical household app
Other non-mechanized road transport
Fast food shops / restaurants
Retail sale of mobile phone and equipme
Sale, maintenance and repairs of ricksh
Hardware and paint shop
Handicrafts
Garments accessories
Construction materials
Metal fabricating
Embroidery of textile goods and wearing
Others
Distribution of specif sector/business
Sen-Shahid-et al-BIDS
Summary Statistics of selected correlates: Enterprise level data
Variables All enterprises Dhaka Chattagram Other cities
Mean Mean Mean Mean
Sales 1,214,246 1,428,464 1,071,590 984,488
Sales per worker 702,631 822,166 601,130 602,298
Capital (Tk.) 162,853 190,736 173,272 106,993
Capital per worker (Tk.) 106,895 137,238 99,453 64,199
Number of workers
(including self-
employed)
2.41 2.37 2.07 2.30
Wage Cost (Tk.) 214,999 195,812 233,089 233,994
Profit 282,539 368,680 204,833 208,599
Sen-Shahid-et al-BIDS
Background of the owners by Cities
Variables Dhaka Chattagram Other cities All
enterprises
Mean Mean Mean Mean
Age (in years) 41.36 38.87 40.48 40.48
Married 0.90 0.83 0.94 0.89
Years in current business 9.98 9.67 8.79 9.57
Previous business
experience
1.61 1.81 1.70 0.31
Years of schooling 7.85 7.64 7.40 7.67
Working wife 0.07 0.04 0.03 0.05
Sen-Shahid-et al-BIDS
Regression results of sales, productivity and profit (Contd.)(1) (2) (3) (4)
VARIABLES Log(sales) Log(sales) Log(sales per worker) Log(profit)
Log(K) 0.060*** 0.041*** 0.046***
(0.014) (0.011) (0.012)
Log(L) 0.733*** 0.573*** 0.156**
(0.062) (0.078) (0.078)
Log(K/L) 0.043***
(0.013)
Business License 0.426*** 0.466*** 0.469***
(0.093) (0.096) (0.156)
Years of schooling 0.027*** 0.025*** 0.001
(0.005) (0.005) (0.005)
Age of the owner 0.030*** 0.031*** 0.040***
(0.012) (0.012) (0.012)
Squared age -0.000*** -0.000*** -0.000***
(0.000) (0.000) (0.000)Sen-Shahid-et al-BIDS
Regression results of sales, productivity and profit(1) (2) (3) (4)
VARIABLES Log(sales) Log(sales) Log(sales per
worker)
Log(profit)
Temporary worker -0.038 -0.220*** -0.249***
(0.073) (0.070) (0.074)
Permanent worker 0.244*** -0.004 0.329***
(0.059) (0.049) (0.061)
Sells to poor -0.194*** -0.180*** -0.094*
(0.052) (0.058) (0.056)
Dhaka 0.223*** 0.211*** 0.252***
(0.056) (0.061) (0.054)
Chittagong 0.057 0.036 -0.047
(0.058) (0.060) (0.051)
Constant 12.381*** 11.982*** 12.039*** 10.588***
(0.163) (0.306) (0.302) (0.319)
Observations 964 954 901 923
R-squared 0.448 0.532 0.475 0.301Sen-Shahid-et al-BIDS
Summary of the findings
• We find a large contribution/share of labor in total sales compared to the capital. But still capital per worker is a significant determinant for sales/output per worker.
• Education of the owners of urban informal enterprises is significantly important for sales and productivity.
• We find a positive effect of business/trade license for sales, productivity and profitability.
• Among others, there is a strong and significant Dhaka effect on all of the indicators, suggesting proximity to upstream and richer markets
• Expanding sells beyond the poor customer group is an important linkage for boosting output/ sales.
Sen-Shahid-et al-BIDS
Policy ImplicationsRoute to Formalization
• Informality in construction sector study suggested some regulatory measures toformalize this sector including workers registration, ID card, and othercompliance issues (Amin, 1981).
• Ghani & Kanbur (2013) suggested that the mayor of cities should focus on threeI’s—integration, intervention, and institution—and one E—entrepreneurshipfor the formalization of informal economy.
• ILO suggests a pathway of transition from informal to the formal economy-toease the registration process and reduce its cost and at the same timeadministrative procedures should be simplified.
• Tax simplification program in Brazil called SIMPLES has large effects offormalization.
• Department of Strategy Development, Turkey (2009) initiated steps to make taxand audit system more user friendly. They also used educational andpromotional activities to procure and strengthen societal consensus.
Route to Formalization: Relevance of National and International Experience
Sen-Shahid-et al-BIDS
Policy Implications…
• Not to force the informal enterprises into the formal line by any administrative control or decrees
• Need to respond to the differential needs of the informal sectorcategorised by very small, small, medium and large.
• Supportive policy environment for the “dynamic segment” of informalsector especially with a view to strengthening their linkages with theformal economy
• Social protection for urban informal sector workers as a whole, especiallyfor those employed in “residual” or subsistence sectors.
Sen-Shahid-et al-BIDS
Policy Implications…• The subsistence informal entities may be kept informal
with just simple registration or providing IDs for growthmonitoring and welfare support
• Medium entities have to be provided with support likeSIMLES of Brazil.
• Semi-formal or large entities can be gradually transformedas formal or quasi-formal with proper policy support suchas business licence and TIN so that they can access formalcredit and trade facilities
• Cost reduction of registration and simplifying theregistration process will work as major incentive.
Sen-Shahid-et al-BIDS
Policy Implications…
• Our survey suggests that about 10% of urban informal enterprises employ femaleworkers. But, they encounter the greatest number of constraints when it comes tojoining the workforce or carrying out their job due to early marriage, low esteem andrespect, lack of safe transportation, toilet, childcare facilities, and general work placesafety, all combine to hinder them;
• Many women are joining informal business by making their own products ranging fromhandicrafts to jewelry, boutique, home-based tailoring, snacks, food, beauty and fitness.The barriers they encounter could be minimized by creating awareness about existinglaws and formulating new policy frameworks for protection and incentivizing them withcost support so that the process of formalization becomes easy;
• Although the BLA, 2006 and subsequently, the Bangladesh Labour (Amendment) Act,2013, have incorporated several important items such as retirement benefit, deathbenefit, appointment letter, enhancement of compensation for both death andpermanent disability, introduction of provident fund for workers, punishment for sexualharassment etc. for which effective coordination is required, amongst MOL&E, relevantministries and ILO with respect to monitoring and follow-up actions.
Sen-Shahid-et al-BIDS