The Formal-Informal Labor Nexus and Growth in Bangladesh · 2017. 4. 2. · The Formal-Informal Labor Nexus and Growth in Bangladesh Workshop on “Formal-Informal Labor Nexus and
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The Formal-Informal Labor Nexus and Growth in Bangladesh
Workshop on “Formal-Informal Labor Nexus and Bangladesh’s Growth” Bangladesh Institute of Development Studies (BIDS)
Dhaka : March 28, 2017
Krishna Kumar (RAND), Minhaj Mahmud (BIGD), Shanthi Nataraj (RAND), Italo Gutierrez (RAND), Farzana Munshi (BRAC University),
Prodyumna Goutam (RAND)
Slide 2
We Thank the Various Organizations That Made This Research Possible
• UK Department for International Development (DfID), Institute for the Study of Labor, Germany, (IZA), for funding the initial study
• BIGD for hosting the inception workshop held in March 2015 and for help in collecting the worker survey data
• World Bank for funding a follow-on project, including the employer-employee survey
• ERG for help in collecting the employer-employee survey data • BIDS and BIGD for hosting this workshop • Our advisory panel: Professor Dr. Shamsul Alam, Dr. Sultan Hafeez
Rahman, Dr. Rushidan Islam Rahman, Dr. Mustafizur Rahman, Dr. Kazi Ali Toufique
• Participants of the inception workshop held in March 2015 • Kumar acknowledges additional support from the Rosenfeld Program
on Asian Development at the Pardee RAND Graduate School
Slide 3
One View of Informality Characterizes the Sector as Stagnant, Unproductive
Source: LaPorta and Shleifer (2014)
Slide 4
Per-Capita GDP Has Grown Substantially in Bangladesh
0
100
200
300
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600
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0 10 20 30 40 50 60 70 80 90
100
2002 2005 2010
Per-C
apita
GD
P (C
onst
ant 2
010
USD
)
Perc
ent F
orm
al E
mpl
oym
ent
Formal Employment GDP
Source: World Bank DataBank.
Slide 5
But the Share of Formal Employment Has Remained Stubbornly Low
Sources: World Bank DataBank and authors’ calculations based on Bangladesh Labour Force Surveys.
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0 10 20 30 40 50 60 70 80 90
100
2002 2005 2010
Per-C
apita
GD
P (C
onst
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010
USD
)
Perc
ent F
orm
al E
mpl
oym
ent
Formal Employment GDP
Slide 6
Alternative View Characterizes Informal Sector as Dynamic
• Allows entrepreneurship
• Providing flexible work hours/locations
• Provides supply links to the formal sector
• Predicts that the informal sector will exist (maybe even thrive) as the economy develops (formal and informal labor are complements)
Slide 7
Motivation for Research Agenda • Are less productive than formal firms
• Pay their workers less
• May not give their workers the benefits to which they are entitled
If the informal sector is here to stay, could it be an important source of growth?
And what policies might improve conditions for informal firms and workers?
Slide 8
We Addressed These Questions Through Several Approaches
• Analyzing the links between export-led growth and formal and informal employment, using data from the Labour Force Surveys (LFS)
• Examining whether workers are “locked in” to informal employment, and how much they value specific benefits of formality, through a survey of informal and formal workers
• Examining preferences of employers as well as employees at small, informal firms through a matched employer-employee survey
Slide 9
The Inception Workshop Helped Shape Our View of Informality as a Continuum
Safe working conditions
Minimum wage Sick leave
Paid holidays
Maternity leave
Termination notice
Written contract Pension
LFS Worker Survey
Formal Regular paid employee Paid employee in private entity
Paid employee in government
Informal Day laborer/casual worker Day laborer/casual worker
Seasonal worker Seasonal worker
Domestic worker Domestic worker
Self-employed Employer Self-employed / business owner, no employees
Business owner, hiring only family members
Business owner, hiring at least 1 paid worker
Family helpers Unpaid family member Paid or unpaid family member working in a HH business
Slide 10
As of 2010, 15% of Working Adults Are Formally Employed
Population Aged 15-65 90.7 million
Economically Active
55.0 million
Employed 52.8 million
Formal (15%) 7.9 million
Informal (23%) 12.2 million
Family (22%) 11.8 million
Self-Employed (41%)
21.0 million
Unemployed 2.2 million
Economically Inactive
35.7 million
Source: Bangladesh Labour Force Survey, 2010
Total population in 2010 149 million
Slide 11
How Do Growth Opportunities Affect Formal, Informal, Family and Self Employment?
68
1012
14
Ln(F
orm
al e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(In
form
al e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(U
npai
d em
ploy
men
t)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(S
elf e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
Slide 12
How Do Growth Opportunities Affect Formal, Informal, Family and Self Employment?
68
1012
14
Ln(F
orm
al e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(In
form
al e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(U
npai
d em
ploy
men
t)
10 15 20 25Ln(BGD Exp OECD - Total)
68
1012
1416
Ln(S
elf e
mpl
oym
ent)
10 15 20 25Ln(BGD Exp OECD - Total)
Estimated relationship between export-led growth and levels, shares of employment
Slide 13
We Considered Both Direct and Indirect Effects of Export-Led Growth
2002 2005 2010
Export (billion, 2010 US$) 5.9 9.1 16.7
Direct Demand (billion, 2010 US$) 6.1 9.5 17.5
Indirect Demand (billion, 2010 US$) 7.4 10.5 20.3
Formal Employment (million) 6.1 6.6 7.9
Informal Employment (million) 9.5 10.1 12.5
Unpaid Employment (million) 8.1 10.3 11.8
Self Employment (million) 20 20 21.9
Source: Bangladesh Labour Force Survey, 2002, 2005, 2010
• Used supply chain linkages to account for how export opportunities propagate through the economy
Slide 14
We Then Examine Relationship Between Exports and Each Type of Employment at the Individual Level
• Probability of working in each type of employment as a function of total demand (direct + indirect)
Empijt =α +βTotDemjt +γXijt +δk +εijtEmpjt = 1 if individual i is employed in sector j at time t, 0 otherwise TotDemjt = demand for goods from sector j at time t that are induced by Bangladesh exports to OECD Xijt = individual characteristics (age, gender, education) δk = control for broad sectoral effects
• Concern that demand for Bangladesh exports may be endogenous
• Use India’s exports to OECD, along with India’s IO table, as an instrument
Slide 15
Formal Informal Family SelfEmployed
Ln(TotalDemand) 0.0154 -0.0388*** 0.00647 0.0169**
(0.0135) (0.00929) (0.00999) (0.00856)
ObservaIons 190,685 190,685 190,685 190,685
FirstStageF-test 31.72 31.72 31.72 31.72
Growth is Associated with a Shift from Informal Employment to Self-Employment
Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p
Slide 16
Formal Informal FamilySelf
Employed
Ln(TotalDemand)-Men 0.0140 -0.0470*** 0.0229** 0.0101
(0.0129) (0.0105) (0.00985) (0.00912)
Ln(TotalDemand)-Women 0.0200 -0.0107 -0.0495*** 0.0402***
(0.0183) (0.0103) (0.0154) (0.0111)
ObservaIons 190,685 190,685 190,685 190,685
Women are More Likely to Move into Self-Employment…
Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p
Slide 17
Formal Informal FamilySelf
EmployedLn(TotalDemand)–NoClassARained 0.00175 -0.0598*** 0.0180* 0.0400***
(0.0134) (0.00882) (0.0105) (0.00971)
Ln(TotalDemand)–Class1-5 0.0177 -0.0368*** 0.00215 0.0169**(0.0138) (0.00872) (0.0105) (0.00833)
Ln(TotalDemand)–Class6-9 0.0286** -0.0213** -0.00586 -0.00142(0.0141) (0.00868) (0.0108) (0.00840)
Ln(TotalDemand)–Secondary 0.0288 -0.0124 -0.00203 -0.0143(0.0241) (0.0110) (0.0101) (0.0127)
Ln(TotalDemand)–Graduate 0.0283 -0.00620 0.00754 -0.0297(0.0475) (0.0171) (0.00559) (0.0317)
ObservaIons 190,685 190,685 190,685 190,685
…As Are Less Educated Workers
Robust standard errors in parentheses. Standard errors clustered at the consolidated IO sector level. *** p
Slide 18
Discussion and Policy Implications • Sectoral growth is associated with a decline in informal wage
employment
• But also with an increase in self-employment as well as formal employment
• Women are particularly likely to be self-employed rather than unpaid family helpers in fast-growing sectors
• Those with higher levels of education are likely to move to formal employment, those with lower levels of education to self-employment
• Policies to aid such entrepreneurship, especially among women are likely to be helpful
• This analysis does not tell us whether individual workers are moving between sectors è we conducted a worker survey
We welcome your comments. Thank you!
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