Informal Sector Research Articles

Does use of formal and informal credit reduce poverty in rural Mexico?

AbstractMotivationDespite efforts to reduce poverty, both income and multidimensional poverty continue to be high in Mexico, especially in rural areas. Most studies concerned with the effect of credit use on poverty analyse formal credit, but little is known about the impacts of different types of credit on poverty.PurposeWe investigate the impacts of the use of formal credit and informal loans obtained (primarily) for productive and investment purposes on multidimensional and income poverty of rural households in Mexico.Approach and methodsWe use data from the 2013 and 2015 CONEVAL Surveys of Rural Households in Mexico, representative of rural communities with fewer than 2,500 inhabitants, to investigate the impact of credit on poverty. We apply inverse probability of treatment weighting (IPTW) to account for differences between users of formal credit, users of informal loans, and non‐users of credit.FindingsBoth formal and informal credit usage reduce poverty in rural Mexico, generally with clearer impacts on moderate rather than extreme poverty. Informal credit appears to have largely reached households that could most benefit from it. Broader access to formal credit would potentially further reduce poverty.Policy implicationsPublic policies to reduce rural poverty should promote a greater access to the formal financial sector. Including vulnerable low‐income rural households in formal finance should be accompanied by financial education.

Anatomy of the shadow economy: Structure, dynamics and impact on macroeconomic stability in times of crises

Aim. To test hypotheses about the counter-cyclical nature of the shadow economy and its role as a “shock absorber of social costs”.Objectives. To study the dynamics and structure of the shadow economy and employment during the crises of 2008–2009, 2014–2016 and 2020–2022; to analyze the ability of the shadow economy to absorb unemployment and smooth the fall of the economy; to identify the components of the dynamics of the shadow economy during the crises.Methods. The article is based on the analysis of unobserved economy estimates, microdata of labor force surveys of Rosstat and the Russian Monitoring of Economic Situation and Health of the National Research University Higher School of Economics. The dynamics of shadow gross domestic product (GDP), employment without registration, tax evasion, and unregistered entrepreneurial activity is analyzed. Balance models of workers’ transitions between formal and shadow employment were developed.Results. The data showed that the shadow economy is highly flexible and can temporarily absorb part of the unemployed and gross output in crises. However, its impact on macroeconomic stability is limited. Shadow employment serves as a factor of instability for shadow workers. Three groups of actors that determine the dynamics of the shadow economy are identified: entrenched, outsiders and reactive. The bulk of the shadow economy is concentrated in small and medium-sized businesses.Conclusions. The shadow economy can both contribute to the maintenance of economic activity, employment, and act as a driver of crises. In the author’s opinion, it is necessary to improve state regulation to facilitate legalization of business and employment of the “rooted” segment of the shadow economy.

Hide and Seek: Female Parliamentarians and the Informal Economy

Hide and Seek: Female Parliamentarians and the Informal Economy

Hide and Seek: Female Parliamentarians and the Informal Economy

Hide and Seek: Female Parliamentarians and the Informal Economy

Diffusion dynamics of the informal sector sustainable innovations: Exploring cases of grassroots innovations in India

Over the last two decades, researchers, policymakers, and practitioners have focused on the innovations in the informal sector, particularly grassroots innovations (GI) from low-income countries. Such innovations' diffusion dynamics, however, are uncharted territory. As a result, this paper explores the diffusion of GI from India's informal sector. We chose ten GI and gathered data in ex-situ and in-situ conditions using a case study method. The data is analysed on four parameters of diffusion of innovation (DOI) theory by Rogers. The findings imply that the GI provide sustainable, and a low cost perceived use value while other innovations from the formal sector are either expensive, unavailable, or do not see it as a potentially profitable enterprise. Furthermore, informality vis-à-vis communication and social structure have a significant impact on diffusion of GI. Time dimension may not be as important for the informal sector innovations. The formal sector actors are more involved in dissemination of GI, employing new means. Finally, we discuss how DOI theory may be applied in the informal sector and how it can aid in alleviating GI diffusion concerns.

Are Informal Older Workers Utilizing Less Healthcare Services? Evidence from the Longitudinal Ageing Study in India, Wave-1

AbstractIndia’s informal sector employs many workers without social security benefits, such as pension support and health insurance. Many older workers continue to work in this sector beyond the retirement age (60 + years) due to financial and health needs. Given the vulnerable position of informal older workers in terms of their social and economic stature, as well as the increasing burden of non-communicable diseases, it becomes important to study healthcare utilization. The present research aims to investigate variations in healthcare visits by type of work in India for older workers. The first wave of LASI (2017-18) data has been used in this study. The overall healthcare visits, consisting of inpatient and outpatient care, are considered as the outcome variable for the analysis. Zero-inflated Poisson regression is applied to study the relationship between type of work and healthcare visits while controlling for other covariates. The results of zero-inflated Poisson regression shows that informal workers have fewer healthcare visits than formal workers (P < 0.01). However, the relationship between type of work and healthcare visits is influenced by health conditions, including chronic health conditions (CHC), depression as well as both CHC and depression. Informal workers with depression visit 0.892 times less (P < 0.05) than formal workers with depression. Informal workers with CHC and depression visit 0.847 times less (P < 0.0001) than formal workers with CHC and depression. The present study underscores the importance of proper economic support and healthcare provision to financially encourage older workers belonging to poor social-economic status to seek for healthcare services.

Are Informal Older Workers Utilizing Less Healthcare Services? Evidence from the Longitudinal Ageing Study in India, Wave-1

AbstractIndia’s informal sector employs many workers without social security benefits, such as pension support and health insurance. Many older workers continue to work in this sector beyond the retirement age (60 + years) due to financial and health needs. Given the vulnerable position of informal older workers in terms of their social and economic stature, as well as the increasing burden of non-communicable diseases, it becomes important to study healthcare utilization. The present research aims to investigate variations in healthcare visits by type of work in India for older workers. The first wave of LASI (2017-18) data has been used in this study. The overall healthcare visits, consisting of inpatient and outpatient care, are considered as the outcome variable for the analysis. Zero-inflated Poisson regression is applied to study the relationship between type of work and healthcare visits while controlling for other covariates. The results of zero-inflated Poisson regression shows that informal workers have fewer healthcare visits than formal workers (P < 0.01). However, the relationship between type of work and healthcare visits is influenced by health conditions, including chronic health conditions (CHC), depression as well as both CHC and depression. Informal workers with depression visit 0.892 times less (P < 0.05) than formal workers with depression. Informal workers with CHC and depression visit 0.847 times less (P < 0.0001) than formal workers with CHC and depression. The present study underscores the importance of proper economic support and healthcare provision to financially encourage older workers belonging to poor social-economic status to seek for healthcare services.

The informal economy and the reach of policy interventions: Evidence from the COVID‐19 lockdown in India

The informal economy and the reach of policy interventions: Evidence from the <scp>COVID</scp>‐19 lockdown in India

Analysing the heterogeneity in working conditions of migrant informal workers in China: a test of the WIEGO model of informal employment

This paper sheds light on the internal heterogeneity within the informal economy by examining the working conditions of migrant informal workers in China. It presents the first attempt to test the WIEGO model on the relationship between informality, income, poverty and gender. Based on 107,020 samples of informal workers from the 2017 China Migrants Dynamic Survey (CMDS), economic, social and occupational health components of working conditions of migrant informal workers in five employment-status tiers are analysed. The results show the significant heterogeneity within informal workers in terms of their income, working intensity, labour contracts, social security, union and community support. The relationships between the informal employment tiers and income, poverty and gender show a pattern that is not fully in line with the WIEGO model, suggesting the complexity and plurality of heterogeneities in informal employment. The paper concludes by calling for research on regional varieties of the heterogeneity in informal employment worldwide to better understand the unfolding of the inequality-informality nexus in specific contexts.

MULTICULTURAL EMPLOYEES’ PERCEPTIONS OF DIVERSITY IN SOUTH AFRICA

Purpose: This research explored the in-depth meaning of how multicultural employees perceive diversity in South African formal sector firms. In doing so, it extracted the lived experiences of multicultural employees about the cultural differences perceived within the country. South Africa is characterised by cultural and linguistic heterogeneity and a relatively large formal sector economy by African standards. Methodology: For this cross-sectional study, data were gathered through a homogeneous purposive sampling of nine participants and conducting semi-structured interviews. This small sample size allows for a thorough investigation into each participant's lived experience to gather qualitative data. The specific phenomenological method used in this study is a novel interpretative phenomenological analysis (IPA), which seeks to extract data and discern meaning in the participants' narratives. Results: The findings were interpreted through the lens of social identity theory within an interpretative philosophical paradigm. These interpretations were leveraged to extract a central narrative that is grouped thematically. The main finding was identifying several factors that contribute to the spanning of cultural boundaries in South African formal sector firms. Practical Implications: The study identified how participants make meaning of their experiences within the formal sector of South Africa and how their interpretations shape their behaviour and attitudes. Originality/Value: The findings indicate that a significant amount of intra-country cultural diversity is perceived in the South African formal sector workplace, which can cause friction and reinforce cultural stereotypes.

Informal Incentives and Labour Markets

Abstract This paper investigates how labour-market tightness affects market outcomes if firms use informal, self-enforcing, agreements to motivate workers. We characterise profit-maximising equilibria and show that an increase in the supply of homogeneous workers can increase wages. Moreover, even though all workers are identical in terms of skills or productivity, profit-maximising discrimination equilibria exist. There, a group of majority workers is paid higher wages than a group of minority workers, who may even be completely excluded. Minimum wages can reduce such discrimination and increase employment. We discuss how these results relate to empirical evidence on downward wage rigidity, immigration, the gender pay gap, and credentialism.

Informality, Rule-of-Thumb Consumers, and the Effectiveness of Monetary Policy in Emerging Economies

This paper investigates how the presence of a large fraction of rule-of-thumb consumers and an informal sector and (henceforth, informality) impact on the effectiveness of monetary policy in developing/emerging economies. We develop a small open economy New-Keynesian model, which is estimated using data on selected Sub-Saharan African countries where the coexistence of these two frictions is widespread - Burundi, Malawi and Rwanda. The results reveal that (i) rule-of-thumb consumption enhances the dominance of demand shocks and makes inflation stabilization a challenge; (ii) the presence of an informal sector causes supply shocks to be dominant, creating a trade-off between stabilizing inflation and output; (iii) rule-of-thumb consumption weakens the transmission mechanism of monetary policy while its interaction with informality worsens the situation in most of the selected countries; (iv) informality amid a large population of rule-of-thumb consumers causes the nominal interest rate to counterintuitively decline in response to a contractionary monetary policy shock; (v) in some of the selected countries, a positive productivity shock counterintuitively triggers a nominal exchange rate appreciation when informality interacts with rule-of-thumb consumption behavior; (vi) the coexistence of informality and rule-of-thumb consumption behavior amplifies country-risk premium shocks and; (vii) rule-of-thumb consumption behavior is welfare enhancing. These findings are informative to policymakers, particularly in emerging economies, on the priority reforms as they transition to inflation targeting frameworks. Direct policy implications emerge regarding financial inclusion, the size of the informal sector, and farm input subsidy programs.

Determinants of Digitalization in Unorganized Localized Neighborhood Retail Outlets in India

The increase in digital disruptions and changing preferences of different stakeholders has led to digital adoption in all hierarchies of business ecosystem. This study focused on the identification of the determinants of digitalization in unorganized small, localized retail outlets (Kirana stores) of an emerging economy. A theoretical model was constructed with certain modifications based on technology adoption models such as Technology Acceptance Model (TAM) and Unified Theory of Acceptance and Use of Technology 2 (UTAUT2) to study the impact on business performance in general and as an effect of pandemic. A survey of 285 Unorganized Localized Retail Outlets Stores from different regions of India was used to validate this theoretical model, and structural equation modeling was then further employed. The findings underscore that cost, compatibility, perceived ease of use, and perceived usefulness significantly affect the intention to digitalize. By addressing the post-pandemic impact of digitalization within an unorganized sector in an emerging economy, this study adds to the scant literature that exists in this context.

Understanding the Dynamic Linkages: Inflation, Real Balances, and Their Impact on Economic Growth in ECOWAS

This study examines the dynamic relationship between growth, inflation, and real money balances in the Economic Community of West African States (ECOWAS). We apply a new approach by extending comprehensive econometric methods so that monetary dynamics can be better understood in the West African sub-region. The study obtained data from the World Bank from 2006 to 2021 and covered 15 countries. For robustness checks, we estimate dynamic ordinary least squares and fully modified ordinary least squares. These findings reveal the existence of a significant cointegration relationship between growth, real balance, and inflation. Furthermore, this study found that real balance has a positive long-run dynamic impact on growth. Likewise, there is a short-run positive impact of money and inflation on growth. We contribute to the literature on the money-growth nexus by focusing on West Africa, which faces macroeconomic vulnerabilities due to structural imbalances. These findings have policy implications for central banks and the Fiscal Agency. Central Banks must collaborate to reduce money in the informal sector, while Fiscal Authorities must control inflation collectively.

Population aging, pensions, informality and labor market frictions in Lebanon. Reforms and policy choices

We evaluate the effects of population aging on the macroeconomic evolution of the Lebanese economy and the financial sustainability of its major pension schemes. We use an OLG model with labor market frictions as in de la Croix et al. (2013). Individuals are differentiated by their origin, age, gender, and education and choose the sector of activity, which implies that the size of the informal sector is endogenous. We assess the long-run implications of population aging and show that the public sector pension scheme is unsustainable. In contrast, the private sector scheme is insufficient to ensure decent living standards for the elderly. Finally, we evaluate the effects of two pension reforms. We first propose a mix of measures that guarantee the sustainability of the public sector scheme. Then, we evaluate the impact of the pension reform introduced in December 2023 and of an alternative reform aiming at increasing the size of the private sector scheme to improve the living standards for the elderly.

TRIMMING DOWN POVERTY THROUGH MICROFINANCE IN PAKISTAN

Microfinance refers to the provision of financial services, such as loans, savings, insurance, and other basic banking services, to individuals and small businesses in low-income or developing communities who have limited access to traditional banking services. Microfinance aims to alleviate poverty, empower marginalized communities, and promote economic development by providing financial resources to those who would otherwise be excluded from the formal financial sector. Credit does not play a direct role in poverty reduction; instead, it increases the borrowers&amp;#39; income so that they can be socially uplifted. This study was conducted to find out the role of microfinance in eradicating poverty in Pakistan. Punjab Rural Support Program (PRSP) provides small loans in the rural areas of Pakistan. In this study, three variables, credit, education, and family size, are taken as independent variables, while the borrowers&amp;#39; income is taken as the dependent variable. Data was collected from the rural areas of Tehsil Gujrat to project the impact of small credit. The study also presents some policy measures like expanding the outreach, increasing the amount of credit, etc, given, so that maximum benefits can be dropped to the last end.

Shadow Economy: Determinants and Its Impact on Foreign Direct Investment

The shadow economy poses a significant threat to government revenue and the effectiveness of economic policies. This paper investigates the causes of the shadow economy and its influence on foreign direct investment (FDI). Our study employs the currency demand approach, a component of the indirect method, to identify the determinants of the shadow economy in a dataset covering 105 countries from 2001 to 2017. These countries are categorized into four income groups: high-income, upper-middle-income, lower-middle-income, and low-income. Parameter estimation is conducted using the Generalized Method of Moments (GMM) model, with robustness tests incorporating reference estimates from Partial Least Squares (PLS) and Fixed Effects Model (FEM). Our findings indicate that a higher GDP and lower interest rates are associated with reduced shadow economy activity. Elevated market interest rates increase the cost of funds in the informal sector, discouraging engagement in shadow economic activities due to reduced profitability. Furthermore, higher tax revenues correlate with intensified regulatory enforcement, increasing the risks associated with shadow economy involvement. A larger workforce and lower unemployment rates similarly diminish shadow economy activity. In the context of foreign direct investment (FDI), the shadow economy positively affects FDI flows when formal institutions, including legal frameworks, property rights protection, and regulatory systems, are either weak or overly burdensome. In such scenarios, economic actors may opt for informal channels like the shadow economy, offering a flexible and cost-effective alternative to the formal sector, a crucial consideration for foreign investors.

Digital Infrastructure Construction and Improvement of Non-Farm Employment Quality of Rural Labor Force—From the Perspective of Informal Employment

The pivotal role of digital infrastructure as hardware support for fostering economic efficiency in the digital economy is widely acknowledged. However, it begs the question, can the development of digital infrastructure also advance social equity, particularly concerning horizontal equity, as exemplified by the quality of non-farm employment among rural laborers, which serves as a barometer for the fairness and inclusivity of the social opportunity landscape? This article delves into the ramifications of digital infrastructure development on the quality of non-farm employment for rural laborers. Initially, it conducts a theoretical exploration of the impact and mechanisms of digital infrastructure construction on non-farm employment quality within rural labor sectors, drawing upon the Todaro model framework and existing scholarly discourse. Subsequently, by integrating data on digital infrastructure construction at the prefecture-level city level with four periods of the China Family Panel Studies (CFPS) data spanning 2014 to 2020, employing various endogenous treatment methods including two-way fixed effects, sensitivity analysis, and instrumental variable techniques, it empirically tests and analyzes the internal mechanisms. The findings reveal that digital infrastructure construction plays a beneficial role in enhancing the quality of non-farm employment for rural laborers, encompassing both subjective perceptions and objective circumstances of non-farm work. Notably, it is observed that digital infrastructure construction significantly fosters improvements in the quality of informal employment among rural laborers, with notable disparities across gender and skill levels. This discovery exerts a positive influence on advancing the sustainable development of the labor market. Specifically, female rural laborers necessitate higher skill proficiency and educational attainment to attain commensurate benefits as their male counterparts. Moreover, caution is warranted regarding the potential for digital infrastructure construction to exacerbate existing power differentials and widen socioeconomic disparities through the perpetuation of the digital divide.

Analysis of the relationship between unregistered employment and occupational accidents in Turkey.

Occupational accidents are anticipated to decline when unregistered employment declines because of more regulated working conditions, inspections, and opportunities for legal protection. In the study, the accuracy of this presumption was examined. This study aims to examine how to protective legal regulations generate a relationship between occupational accidents and informal employment such as the Occupational Health and Safety Law in Turkey. In the research, which was structured within the framework of the quantitative method, various levels of relationship chains were created between informal employment and occupational accidents using correlation and slope calculations. The official data set was created using secondary data from the Turkish Statistical Institute and the Social Security Institution. It has been determined that the low positive correlation (r = 0.166) between unregistered employment and occupational accidents in 2008-2012 (pre-legislation period) in Turkey changed to the medium-negative direction (r=-0.602) in 2013-2020 (legislation period). While the assumption that unregistered employment would decrease in the first period was confirmed, the hypothesis was falsified by the increase in occupational accidents despite the decrease in informality in the second period. This study is unique because it shows that in a developing country where unregistered employment is high, the protective regulations for work accidents do not reflect a decrease in the number of work accidents in the short and medium term.

Gender Disparities and Social Responsibilities as a Barrier to the Adoption of E-Commerce for Women Entrepreneurs of India in the MSME Sector

Gender-based obstacles that prevent women from beginning and expanding their enterprises include unequal distribution of family and domestic duties, restricted mobility, discriminatory property, marriage, and inheritance laws and/or cultural traditions. When it comes to accessing resources such as commercial credit from formal financial service providers, more lucrative markets rather than traditional local markets, technology and information to launch and expand their businesses, national incentives in small enterprise development through gender-blind private sector development, fiscal policies and legislation, and training and education for small enterprise development, women entrepreneurs are less privileged than men due to these factors combined with social exclusion based on gender. In the informal sector, women entrepreneurs running micro and small companies significantly improve the financial security of their families and communities. They have little chance of creating successful firms as long as they are not covered by SME development laws and initiatives. In order to address these issues, this research paper takes a development and rights-based strategy that strives to meet the real-world needs of female entrepreneurs, eliminate the political, legal, and sociocultural obstacles to their success, and promote an atmosphere that is supportive of both gender equality and business growth.