Informal Work

Informality Index - How does one define informal and formal work? What percentage of people work in informal sector. Find out more about informal work and workers around the world.

The Wage Indicator survey collects data from the working population as a whole. This includes ‘informal’ workers as well. It therefore can help fill the knowledge gap about the position of ‘informal’ workers in the labour market.

The survey asks respondents about their status. Are you:

  • self-employed?
  • an employee with a permanent contract?
  • with a fixed-term contract?
  • without a contract?

Likewise questions are asked about:

  • contribution to social security
  • entitlement to social benefits
  • agreed working hours
  • wage payment by bank or in cash.

The answers to these questions can be put on a scale measuring employment status. Workers who do not contribute to, are not entitled to social security benefits, and have no employment contract are placed at the ‘informal’, 0-end of the scale. Workers who do contribute, are entitled to social security and have a permanent contract are placed at the ‘formal’, or 100%- end.

Employment status

Source: Wage Indicator face-to-face survey Kenya, 2012, weighted data (N=1515)

It appears that workers with a permanent contract are more often entitled to social benefits. By contrast workers with a fixed-term or no contract at all are much less so. Also, those with a permanent contract relatively often contribute to social security, whereas workers without a contract do not. When it comes to working hours employees with a permanent contract more often have their working hours agreed in writing, but employees with a fixed-term contract do so more often verbally. And workers without a contract more often have no hours agreed at all. The last question is how wages are paid. Again, employees with a permanent contract more often receive their wage in a bank account. Workers with a fixed-term contract or without a contract more often receive their wage cash in hand.

A first overall conclusion may be that the difference between ‘informal’ workers and ‘formal’ workers essentially lies in how they are treated by employers. ‘Informal’ workers have less job security, little access to social benefits, and most probably no bank account. As regards their legal position, little is put down in writing. They do not however necessarily make extreme long working hours.

Thus, the 2012 Kenya-survey leads to a better understanding of the position of ‘informal’ respondents. The survey is representative of the position of ‘informal’ workers on the national labour market in Kenya. Future Wage Indicator research in other countries, in addition to Kenya, can help to refine the notion of ‘informal’ work in terms of labour rights and conditions.

Wage Indicator tries to publish labour data for all, i.e. for all individuals who make a living through selling their labour. Special attention must go to so-called informal workers, for less is known about their position.

Why is it good to formalize employment?

Usually wages are higher when work is formalized. Moreover, the tax liability is on employers, and contributions to social security are automatically made. This means a worker has access to the social system and protection by law.

It is also in their own interest if workers pay for social security. Most benefits pay off immediately when the situation calls for it, e.g. as sickness benefit, unemployment benefit, and the like. But also, later in life, when a pensioner, it is may be possible to escape poverty because of built up pension rights,

There is also an indirect interest in paying taxes. Clearly, without tax revenue there can be no investment in public schools, hospitals, roads, police and security, clean water, and good governance. Efficient and effective tax collection has a positive effect on living standards, neighbourhood safety, and overall economic development.

Read more: AIAS/WageIndicator: Who has an informal job and how is that job paid?

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