1 The Measurement of Informal Sector and Employment: Case Study of Palestine Saleh ALKAFRI Director...

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The Measurement of Informal Sector and Employment:

Case Study of Palestine

Saleh ALKAFRIDirector General of Economic Statistics,Palestinian Central Bureau of Statistics (PCBS),

Ramallah, Palestine. [email protected]

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Contents: What is the informality? Why measuring the informality is

important? How can it be measured? Recent case in Palestine Q4 2008 Data Analysis Conclusions and Recommendations

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Introduction

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The concepts and definitions: Informal Sector (IS)-15th ICLSEconomic perspective

The informality absorbs the national resources by declining the capital revenues in cash as tax and productivity; and in physical as human capital resources.

Depending on that view, the following criteria can describe the Informal sector (IS) and Informal employment (IE):

The main criteria of IS: Legal organization (unincorporated enterprise); Some of product destination go to the market; Do not have complete set of accounts; Do not pay TAX / do not have tax records

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The concepts and definitions: Informal Employment (IE)

The main criteria: Own-accounts workers who are producers for own final use

only Own-accounts workers who are producers for sale or

barter working in IS Employers working in IS All contributing family workers Employees working in IS (ruling out the possibility of

formal job contract in the IS) Employees with IJ working in IS enterprises and

unincorporated private enterprises engaged in non-market production

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The concepts and definitions: Informal jobs (IJ)-UNPROTECTED-social protection

The main criteria to classify the IJ are: Annual/sick/maternity paid leave Contributed in the social protection if

available or Retirement system, or compensation of the end of the services

Contract availableThe people classified as Formal

Employment if at least have Formal JobSource: ILO, 2008. Unprotected Employment in the West Bank and Gaza Strip.

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Importance of Measuring Informal Sector

Statistically: improving labor stat. and contributing towards exhaustive measures of GDP

Economically: represent one of the main negative factors of development of the nations in the long run, i.e. reduction of gov. revenues and reallocation of income.

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The main indicators:The Indicators: The Percentage of Informal Production Units

(enterprises) of total ent. The Percentage of Employed Persons in Informal

Sector of total employment The Percentage of Informal Sector Share of GDP The Percentage of Informal/Unprotected

Employment The Characteristic of Informal Sector The Characteristic of Informal/ Unprotected

Employment

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Methodology

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Methodology Collect and study available data Specifying the weakness of of the

current data to measure the informality and its characteristics

Designing suitable survey to obtain the missing information for this purpose

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Available resources and data

Population Census, Dec. 2007Includes: unincorporated enterprise classified by inside/outside the

establishments [Own-accounts workers and employers + place of work] = give us a framework for all unincorporated enterprises outside establishments as main job for workers distributed by economic activities

Establishments Census , 2007Includes: provide us with framework for all (inside) establishments (gov. NGO’s,

private,..) distributed by legal status and economic activities, Annual Economic Surveys, 1994-2008 (non-agricultural sectors)..Include: the main questions of informal sector [complete set of accounts and

pay tax or not]. Include also the main economic indicators i.e. value added, production,.. COVER the inside establishments

Quarterly Labour Force Survey, 1995-2009 ..Include:after Q4 2008, cover questions to classified the employed persons to

informal employment and to find the informal unincorporated enterprise as 1st phase of 1-2 survey. LFS sample is rotation sample.

Construction Survey and Transportation Survey to cover the outside establishments

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Weakness and Obstacles There is no specialized surveys for measuring the informality The available surveys/censuses can provide us with partial

information reflecting the state of different periods There are dramatical changes in the informal sector state due to

the crises of Gaza. The unstable labour market in Palestine cause difficulties in

depending on the census to calibrate the weights. Less details specially for unincorporated enterprises outside

establishments or unincorporated enterprises engaged at least partially in the market production (HUEMs)

Special case in Palestine, the population census 2007 did not complete in Gaza Strip (1/3 of the Palestinian Ter.) which made lack of data on HUEMs

Missing core variables in LFS

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Utilizing the current LFS to be part of 1-2 survey To estimate the informal

sector/employment and to avoid the obstacles, PCBS conducted 1-2 survey by using the available standard LFS

1-2 survey was conducted on 4th quarter of 2008

The survey includes 2 phases

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1-2 survey cont.

The objectives of the 1st phase are: Identify and construct a sampling

frame of HUEMs among the enterprises in which employed persons work;

Estimating the IE/IJ – unprotected employment

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1-2 survey cont.

The objectives of the 2nd phase are: Estimating the number of HH projects in

the IS Estimating the number of employment

and their compensations in IS Estimating the other economic indicators

for IS i.e. VA, output,… to use it for GDP estimate

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1-2 survey cont. PCBS employed the standard

quarterly LFS as the 1st phase With some additional questions,

phase 1 was completed The following structure shows the

additional questions to the standard questionnaire of LFS:

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LFS questionnaire: 1st Questionnaire

IS classification

th e en te rp rise reg is te red

P a y tax

sk ip to the ph a se 2[IE /IJ]

[IS]

d o es no t p a y tax

th e en te rp rise no t reg is te red

N o n -a va ila b ility o f co m ple te se t o f a cco u n ts A va ila b ile

a ll/pa rt o f P ro d uc tion fo r th e m arke t o n ly fo r se lf e xp .

U n inco rpo ra ted e n te rp rise s o w ne d by h ou seh o lds o th e rs

E m p loye r/o w n -a cco u n t w o rker o th e rssee the next slide

Stabdard LFS questionnaireE m plo yed P erson

Classified by main and secondary jobs

IS: Informal Sector

IE: Informal Employment

IJ: Informal Job

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LFS questionnaire: 1st Questionnaire

IE/IJ classification

U n p a id fa m ily m em b e rsIE /IJ

p a id le a ve / re tirem e n t/ so c ia l se cu rity sys tem

co n trac t a va ila b ility

w o rk n a tu rep e rm in an t/tem p ora ry/sea so na l...

e n te rp rise s ize

P la ce o f w o rk p a y ta x o r n o t

W a ge e m p loye esG o v ./N G O /U N R W A /p riva te

E m p loye r/o w n -a cco u n t w o rkerIE /IJ if IS

O th er e m p lo ym e nt [C o n t.]

Classified by main/secondary jobs.

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Methodology: 1-2 survey

The questionnaire-2nd phase:

The questionnaire includes the following: No. of workers and their compensations The production value from the main and

secondary economic activity The inputs and production for marketing Data about employer Data about the establishment

organization

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The LFS uses a stratified two-stage sampling design. It is carried out on a master frame of 481 primary stage units (enumeration units demarcated in the population census 1997). The rural, urban areas and the refugee camps of each governorate are defined as separate strata.

The sample of primary stage units constituting the master frame is selected using a probability proportional to size systematic scheme, independently from each stratum. The size variable used for this purpose is the population of the enumeration area according to the last population census.

Rotation Sample. The LFS is carried out in rounds of three months. For each round, a sample of households drawn by systematic sampling is used. Half of the sample of households is rotated in each round.

the estimation procedure to be followed for the phase-1 of ISS should be exactly the same as that used for the LFS.

Methodology: 1-2 surveyEstimation Procedure: The Sample phase 1 depends on LFS sample design

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Classifying IE:Self Emp./EmployerIE if their enterprise IS

Unpaid Family MembersIE

Wage Employees in Government, UNRWA, NGO’s, International Organizations

IE if: (Part-time or Seasonal/ temporary job) OR (Full-time and have limited time contract/no contract) OR (Full-time and Have contract and have paid leave)

Wage Employees in Private Sector as IrregularIE

Wage Employees in Private Sector as RegularIE if: (place of work do not pay tax) OR (place of work pay tax and he/she work part/seasonal / temporary work) OR (place of work pay tax and he/she work full-time and have limited time contract/no contract) OR (place of work pay tax and he/she work full-time and Have contract and have paid leave)

IJ: IE in main or secondary jobs. IE = if at least the employed person has Formal Job, he/she will be Formal Employment

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Methodology: 1-2 surveyEstimation Procedure for phase 2 Methodology of Weights Calibrationfor the informal Sector Survey (Phase 2)

We divided the enterprises into 2 types Inside Enterprises Projects Outside Enterprises Projects

Part 1 : Inside Enterprises Projects The design Weights for this stage is the individual weight from

Phase 1 (LFS). We used the following sources to calibrate the design weight which are :

1. Enterprises Census 2007, we extracted the enterprises which have the following specifications:

- Ownership Private National .- Legal Status individual or partnership.- Active Enterprises.- No Accounting Books.

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Economic Surveys results 2008 , we extracted the enterprises which have the following specifications:

• - Ownership Private National .

• - Legal Status individual or partnership.

• - Active Enterprises.

• - No Accounting Books.

• - Do not pay Tax +

The results of the census show that 78% of establishments do not have accounting books.

The results of economic survey show that 60% do not pay tax of the establishments that do not have accounting.

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Weighting Procedure:

1- We obtained a table of frequencies of Enterprises which have the above mentioned specifications from Est. Census 2007 and on strata Level.

2- We estimated the proportion of Enterprises which don’t pay Value Added Taxes (VAT) on the level of the same strata which are mentioned above from Est. Survey

3- We multiplied the results from step1 and step2 to get the estimation the total count of the informal sector projects inside the enterprises for each stratum..

4- we constructed the same strata which are specified before on the data file of Inside Enterprises Projects, and we estimated the sum of weights for each stratum.

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Part 2 : Outside Enterprises Projects

The design Weights for this stage is the individual weight from Phase 1. We used the following sources to calibrate the design weight which are

Labor Force Survey , we extracted all the projects which are identified as informal sector projects.

The inside enterprises data file in part1. The deference between LFS (all) and economic survey

(inside establishments) = the total of outside enterprises

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The results: PRELIMINARY-unpublished yet

37% of projects are informal of all projects and establishment

45% of projects are informal of total projects in private sector

Informal sector employed 22% of total employment

Informal value added represents 8% of GDP

54% of employment are unprotected

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Employment Distribution

IEFETotal

IS141,20040.7%, 100%

Zero0%, 0%

141,20022%, 100%

FS205,50059.3%, 41.0%

295,300100%, 59%

500,80078%, 100%

Total346,700100%, 54%

295,300100%, 46%

642,000--Col.%, Row%

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GDP

Current GDP5.024 M. US$

IS – inside establishments: all activities = 105 m. US$

IS – outside establishments=260 m. $ Agriculture+Transport.+Construction

IS – Outside establishments: Manufacture+Trade+Service= 40 m$.

FS – Outside establishments: Manufacture+Trade+Services??

Covered by current GDP

Uncovered by current

GDP

Estimated by 1-2 survey –2nd phase

Will find in the future

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Data Quality-consistency with other resources

•Several resources provide us with relative information

•The total projects in West Bank (inside+outside establishment) from LFS is around the total from 2 sources (establishment survey and population census)

•In Gaza Strip we faced problem of the lack of data for population census (outside establishment) and the crises in Gaza made the comparison so complex

•2nd phase has too small sample (1000 HUEMs)high variance

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Conclusions: The results of the available data (i.e., population and establishments

census and economic surveys) at the macro level very close with the 1-2 survey (one year between them)

1-2 survey (phase 2) provides us with complete information on informal sector to serve the national accounts

Labour Force Survey with the additional questions can provide us with the basic periodic information on informal sector and employments

The distinguishing between the projects inside and outside establishments is important when the country conducts an establishments survey, because it is enough to use LFS to estimate the main indicators i.e. production of projects outside establishments, and the establishments survey for inside establishments.

Informal employment reflects the degree of protection. We have to think deeply about the unprotected people for its importance

in the social and economic stability. Through 1-2 survey we can estimate the uncovered national accounts for

the projects outside the establishments

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