1 Providing Opportunities for Informal Sector Participants in Sri Lanka Nisha Arunatilake Institute of Policy Studies December 2004
Dec 17, 2015
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Providing Opportunities for Informal Sector Participants in Sri Lanka
Nisha ArunatilakeInstitute of Policy Studies
December 2004
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Motivation Providing Social Security to people
in the informal sector Strategies for protection from risks
- health insurance schemes, micro finance schemes, old age protection, etc.
Strategies for risk prevention- policy reforms for improving returns to
livelihoods, - Minimizing variability of incomes
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Objective of the study To better understand the
determinants of informal sector participation in Sri Lanka in order to identify areas where risk prevention is needed
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Background – Formal Sector
The Formal Sector This comprises employment in:
the government sector, the corporate sector,large private sector establishments and the estate sector
Around one-third of the employed in the country are in the formal sector
Wage setting takes place through collective bargaining or tripartite wages boards
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Background – Informal Sector Data on the informal sector are
scarce The sector comprises
Activities in agriculture, fishing, livestock rearing, small and medium scale enterprises, petty traders, and other small commerce, industry and service occupations
Wages, for the large part are determined by market forces
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Background – Unemployed Unemployment rates have come down in
the country since early 90s. However, the structure of the unemployed
is of concern to policy makers Unemployment rates are highest among the youth,
the educated and females The period of unemployment is more than a year for
75% of the unemployed 80% are first time job seekers
Also anecdotal evidence suggests large-scale under-employment
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Background – Social Protection
Labour legislation has provided for job and income security through several avenues EPF; ETF – Superannuating benefits TEWA – control lay-offs and retrenchment of
workers Gratuity Pension funds for farmers and fishermen Other income support and self-employment
promotion programs
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Background – Social Protection Issues:
Coverage is mostly for workers in the formal sector
Social Protection programs available for the informal sector workers not well functioning due to improper planning, resource constraints, politicization
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Model Assumes that sector participation is
determined by two factors: Rationing by the labour market
Influenced by labour market conditions, selection criteria of potential employers (e.g., education, skills, experience, etc.)
Individual preferences Influenced by expected income and other individual,
household, community characteristics Both Rationing and Individual preferences
are governed by opportunities available to individuals
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Data and Study sample Data: Sri Lanka Integrated Survey
(1999/2000) which collected data from 7,500 hhs in 500 communities
Sample restricted to 16-60 year olds labour force participants Estate workers removed
Resulting Sample – 11,950 individuals
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Classification of the sample by economic activity Salaried employed in the public sector 1,808(15%) Salaried employed in the private sector 2,048 (17%) Wage employed 3,039 (25%)
Individuals engaged in farm/ non-farm casual labour and those providing personal services
Self Employed 3,042 (25%) Individuals engaged in businesses, own farm
activities or fishing Both wage and self employed 280 (2%) Unemployed 1,733 (15%)
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The Informal Sector Sample Wage Employed
Casual non-farm workers (72%), casual farm workers (23%), personal services (5%)
Self Employed Own farm activities (60%), petty
businesses/ trade or manufacturing (36%), major businesses/ trade or manufacturing (2%), fishing (4%)
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Explanatory Variables Individual Characteristics
Male (72%); Age (34.15); HH head (57%) Married (56%); never married (40%); Other
(4%) Education
Less than primary (12%); Secondary (49%); More than secondary (39%)
Training Professional (12%); Technical (3%);
Vocational (4%)
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Explanatory Variables – contd. HH characteristics
No. of kids (1.22); No. of Elders (0.32); member working abroad (16%); Assets – financial or mobile (Rs. 60,000)
Location Western (26%); Central (14%); Southern (14%);
Northern and Eastern (11%); North Western (13%); North Central (7%); Uva (6%); Sabaragamuwa (9%)
Community Charateristics Time to market (21.69 min); Time to main road
(7.32 min); Access to electricity (62%); Community unemployment rate (14.81%)
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Results – multinomial logit Older educated males are more likely to be
in public salaried employment The younger individuals with somewhat
similar education levels and with less family obligations are more likely to be unemployed
Informal sector workers are similar to those in the public sector in most respect except in their educational level
Informal sector workers are more likely to come from provinces outside the Western province and from rural areas
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Results – multinomial logit contd
The private sector salaried individuals come from wealthier families. They are fairly well educated (although not as much as the public salaried and the unemployed). They are mostly from the Western Province
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Results - logit Unemployed Vs Private salaried
Having a professional qualification decreases the likelihood of being unemployed
Obtaining most professional qualifications are expensive, and requires English
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Results - logit Unemployed Vs Informal Sector
workers Unemployed are more likely to be
technically qualified Unexpected: most technical training
programmes are targeted to promote self-employment
Less access to technical training due to financial, geographical, time constraints?
Lack of complementary assets to make use of training?
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Results – multinomial logit, informal sector
Compared to wage employed, self employed are older, heads of households, coming from slightly wealthier families
Suggests that older (more experienced) individuals with higher family obligations are more likely to start self-employment projects.
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Policy Implications Results suggests several areas needing
attention of policy makers: Job creation, especially in provinces outside
the Western Province More equitable development across regions Improve access to credit and infrastructure Education Reform
Formal education is not market oriented Access to training needs to be improved (financial/
geographical) Quality of formal and tertiary education
questionable?
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Results (relative to public salaried) contd. Location
Private salaried were less likely to be in all provinces other than the Western Province
Informal sector workers were more likely to be in all other provinces (except N & E) than the Western Province
Unemployed were less likely to be in Northern & Eastern, North Central and Uva provinces than the Western Province
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Results (relative to public salaried) contd. Community Characteristics
Time to market or road didn’t have a significant effect on sector participation
Individuals in all other sectors had less access to electricity compared to the public sector
Individuals in private salaried and informal sectors were less likely to come from communities with high unemployment rates
The unemployed are more likely to come from communities with high unemployed rates