Policy Matters: The Informal Economy

May 17, 2012
By Mari Megias, Alumni Relations and Resource Development

On a tour of a slum settlement in Ahmedabad City, India, Martha “Marty” Chen paused when she noticed a woman hunched over a neat row of little pill bottles. On closer inspection, Chen realized the woman was assembling cardboard boxes to hold the bottles.

Chen stopped to watch the woman work. This wasn’t a typical activity for a home-based worker. It seemed oddly out of context in the dusty alley, better suited to a factory or warehouse. Chen’s mind bubbled with questions, both practical and personal, all begging for attention.

“How long have you been doing this work?” she asked. “What happens when it rains? How much are you paid? Who supplies the work to you?”
For Chen, these questions are not merely academic—she cares passionately about the plight of the working poor. Chen is a cofounder of Women in Informal Employment: Globalizing and Organizing (WIEGO, pronounced “we go”), a global network that seeks to improve conditions for the working poor, especially women, in the informal economy. This includes not only home-based workers like the woman Chen saw in the alley assembling boxes of pill bottles for a multinational pharmaceutical company supplier, but also domestic workers, street vendors, and waste pickers (people who collect and sort waste for recycling).

Supporting and protecting informal workers

Chen advocates for appropriate regulations, protection, and support to improve conditions and give workers a greater voice in processes that affect their work. Progress toward this goal is uneven because WIEGO has to rely on national laws and legal cases to establish basic worker protections. Recently, the WIEGO network celebrated a major legal victory by an association of waste pickers in Colombia. Thanks to the efforts of pro bono lawyers, the Colombian constitutional court affirmed the waste pickers’ “right to survival”—i.e., their right to pursue waste picking as a livelihood—and mandated that the city government allow associations of waste pickers to bid for solid waste management contracts. This ruling put US$1.7 billion in solid waste management contracts on hold; these contracts would otherwise have gone to a handful of private companies. Since the legal victory, WIEGO and other supporters have provided technical and political support to the association of waste pickers in preparing their bid for a solid waste management contract.

Chen challenges the common misperception that informal workers are themselves the difficulty. “The informal economy is not the problem,” she emphasizes. “The workers provide a vital service. They are part of the solution.” She argues that reversing how the informal economy is perceived requires quantifying the size and contributions of the informal economy, which may be broadly defined as any economic activities and workers not explicitly regulated or protected by the state. She notes that workers who are uncounted are also unvalued and unprotected.

How big is the informal economy?

The WIEGO network has a program dedicated to improving labor force and other economic statistics on the informal economy. This involves enhancing data collection and analysis and making data more readily available. With the International Labour Organization (ILO), the WIEGO network has just completed the second edition of Women and Men in the Informal Economy: A Statistical Picture, which contains regional estimates and country-specific data. The report also publishes, for the first time ever, data on the share of domestic workers, home-based workers, street vendors, and waste pickers in urban employment.

WIEGO and the ILO estimate that one-half to three-quarters of nonagricultural workers in developing economies are informally employed and thus have no legal or social protection. When informal labor in agriculture is measured, the share may be as high as 90 percent in some nations, particularly in South Asia and Sub-Saharan Africa.

Effects of globalization

In today’s global economy, the issue of informal employment is becoming more pressing. While the globalization of production during the past two decades has generated more jobs, many of these jobs are informal. And as companies seek to cut costs, they often outsource production through long supply chains. The subcontracted workers at the bottom of these chains—like the woman in the alley stacking and boxing pill bottles—find themselves without a voice to speak up for their own working conditions and payment terms. It is not unusual for subcontracted workers to go three to six months without being paid after they have completed their work orders. What’s worse is that they have no recourse.

Marty Chen’s research and the efforts of the WIEGO network she coordinates are helping the working poor, especially women, in the informal economy find their voice.

Policy matters.

Martha Chen is an experienced development practitioner and scholar who specializes in employment, gender, and poverty with a focus on the working poor in the informal economy. Before joining Harvard in 1987, she had two decades of resident experience in Bangladesh working with BRAC (Bangladesh Rural Advancement Committee, now the world’s largest nongovernmental organization) and in India, where she served as field representative of Oxfam America for India and Bangladesh. Chen, who received a PhD in South Asia regional studies from the University of Pennsylvania, is the coauthor of numerous books, including The Progress of the World’s Women 2005: Women, Work and Poverty and Mainstreaming Informal Employment and Gender in Poverty Reduction. In 2011, Chen was awarded a high civilian honor, the Padma Shri, by the Government of India.

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picture of Martha Chen

Martha Chen, lecturer in public policy

“The informal economy is not the problem. The workers provide a vital service. They are part of the solution.”

picture of two women in Ahmedabad City, India