Informalization of Work and its Impact on
Organised by Centre for Labour and Social
Studies Nepal (CLASS-Nepal)
25 September 2012, Kathmandu
Ritu Raj Subedi
The Rising Nepal
Informal economy has been playing an important
role to grow income, nationally and globally. In Nepal, its share
to GDP stands between 15 to 40 per cent. According to data, of
the country's total workers that stands about 11.779 millions,
the formal sector has 1.991 millions and informal 9.788 millions.
The informal workers outnumber the formal ones in a large quantity
but, there is tepid response of the state to the concerns of informal
workers, whose contributions keep the national economy going.
Unlike in the formal sector that is organized and wields legal
weapons to fight 'greedy' employers, informal workforce is deprived
of basic facilities they are entitled to get as per the ILO declaration.
The worrisome part is that there has been growing trend of informalising
the formal sector. This has added additional challenge to deal
with the problems of the informal sector.
Against this backdrop, the Centre for Labour
and Social Studies Nepal (CLASS-Nepal) in the support of Friedrich-Ebert
Stiftung organized a national seminar 'Growing informalisation
of work and its impact on national economy' to draw the attention
of policy makers and stakeholders to the problems of the informal
sector. One-day seminar saw the participation of the representatives
from different organization, NOGs, INGOs and government. Divided
into two parts - opening and discussion sessions, it had three
working papers on the subject.
National Planning Commission vice-chairman
Dependra Bahadur Chhetri inaugurated the seminar amidst a function.
Addressing the programme, Chhetri said that there had been tendency
to run formal sector on the informal basis.
Citing the example of banking sector, Chhetri
said that these days banks did not directly appoint their employees.
Some companies that provide training to the prospective employee
supply them to the banks, which, in turn, give some portion
of their salary to the former, he said, adding that this had
exploited the bank employees.
The banks do not want to recruit employees
on the permanent basis because this would oblige them to give
facilities such as pensions and payment to the revolving fund.
Touching the negative sides of employees,
Chhetri said that they showed a tendency of not working honestly
once they became permanent.
The companies refuse to register more unions
because the former have to pay hefty amount to them once they
are recognized by the offices, he said.
Chhetri said that there was the need of clarity
at the policy level to address the problems of informal sector.
"Employers and employees must abide by the law to avoid
labour unrest and strikes facing the industrial sector."
The ongoing transition, strike and instability have overshadowed
the problems faced by the informal sector, he said.
FES Nepal head Dev Raj Dahal said that informal
sector in Nepal is huge and this space is mostly preoccupied
by those at the bottom of development statistics - poor women,
workers and also those who stand between labor and capital.
The deliberate exclusion of informal workers
exposed them to multidimensional vulnerabilities - the abuse
of their right, absence of entitlement, remuneration, paid leisure,
maternity leave, health and safety, pension and adequate living
wage for sustainable livelihood. "The labour-capital ties
in informal sector, except in cases of those run by family members,
are beleaguered by one-way dependency of workers and decision-making
by owner of capital and enterprise."
In the context of growing youth population,
declining public budget and rural push of poverty and foreign
pull of opportunity, the state often lags in providing a supportive
policy framework for their productive employment, he said and
added that the informal sector continued to grow in direct proportion
to the decline of the forma l economy owing to the negative
effects of globalization, crisis of global capitalism and political
instability. "But, one can clearly see the urban bias in
development policies and resource allocation of the state, employers
and even labour unions."
He stated that the corporate global world
is at conflict with the workers o welfare measures, science
over climate change and environmental issues and art over commercialization
of spiritual and human life. Dahal called for cohesiveness of
unions to exert pressure for policy reform, organization, solidarity,
communication and collective action on behalf of its members
and society at large.
All Nepal Trade Union Federation president Salikram Jamkattel
said that the trade unions were unable to demarcate a line between
the formal and informal workers. He said that all except agriculture
belonged to formal sector. The government and employers wanted
not to recognize workers engaged in construction and transport
sectors as formal, which was simply wrong. "The existing
Labour Act has failed to address the problems of the informal
sector's workers. We need to formulate common opinion on the
Namrata Bali, executive Director of Sewa,
Indian, said that informal sector contributed 60 per cent to
India's economy but informal workers were deprived of social
security benefits, minimum wage and collective bargaining power.
CLASS Nepal chairman Shankar Lamichhane
called on National Planning Commission to take initiatives to
solve the problem of informal sector. He was of the view that
the Central Bureau of Statistics could play an important role
to address the woes of informal workers by providing exact data
about their number and contribution to the national economy.
He said that regulating bodies failed to pay attention to the
concerns of working people. "Since every citizen is formal,
his work is also formal. The concept of informal sector came
into existence to exploit the workers."
CLASS-Nepal general secretary Tilak Jung Thapa
noted that the CLASS is partnering with all those working in
the field of labour. He said that informal sector consisted
of big portion of labour workforce and played an important role
in the national economy. Labour itself could not be segregated
into formal and informal one. It is practice that makes work
informal, he said and added, "Despite the huge contribution
of informal workforce, the state failed to recognize their contribution
and resolve their problems."
Sailendra Kumar Jha, national coordinator
for informal sector programme ILO-Nepal, said that the ILO was
soon going to launch a programme to carry out study about the
status of the workers involved in the informal sector.
Stating that the size of the informal sector
was increasing, he pointed out the need of policy to address
the workers of informal sector. He said that informal workers
are deprived of the social security. There was tendency to import
workers from India, he said.
Rajendra Kumar Acharya, director at the UNI-APRO, said the demarcation
line between the white collar and blue workers had been blurred,
and both they were mixed up.
Discussion Session- 1
The discussion session saw three separate
working papers related to the condition of informal workers
and their contribution to the national economy. GEFONT general
secretary Umesh Upadhyaya presented 'Trade Union movement in
Informal Economy: Challenges and Opportunities' in the first
discussion session. Sailendra Kumar Jha of ILO moderated the
first session. Shankar Lamichhane of CLASS Nepal and Baburam
Gautam of ANTUF commented Upadhaya's paper.
'Informal workers deserve trade union rights'
In his paper, Updhyaya offers a conceptual
framework to the informal economy and suggests ideas to bring
the vast informal workers into the framework of the formal economy.
He noted that owing to the transitional phase, the problems
of the informal workers are piling up. Making a class analysis
of the Nepali society, he said that there are mainly three active
opposing forces - feudal, business and working class. "While
the feudal class still holds its sway in the power equation,
the business class, which grew out from the feudal class, has
still feudal mindset when it comes making investment and operating
their business. This is a reason why the business class still
treats workers as servants, not as human being."
In the paper, he demarcates a line between informal sector &
informal economy in Nepal. According to him, informal sector
is a narrower term, encompassing family enterprises & micro
enterprises with less than 10 workers at work but informal economy
is a broader term, covering every economic activity outside
the formal sector and constitutes a segment of informal economy.
It includes registered establishments with less than 10 workers,
unregistered informal establishments or micro enterprises and
informal activities concerning production and services
Workers in the informal economy consist of wage-employed and
self employed, paid workers and unpaid family workers and attached
worker with no separate payment for her/his work. Informal sector
covers only paid workers whereas informal economy also covers
all paid, unpaid and attached workers including self employed
workers. There are various forms of informal works. Those working
in diverse fields such as farm & farm related areas, construction,
trading - street vendors, hawkers, small traders, sales workers,
transport, micro enterprise & cooperatives, craft workers,
garbage cleaners and sweepers and home-based workers, among
others, can be categorized as the informal workers. Upadhyaya
said that of the country's total workforce 11.779 millions,
males are 5.520 million and females 6.259 million. Of them,
the formal sector has 1.991 millions and informal economy 9.788
Highlighting the activities carried out by
the GEFONT in the informal economy, he noted that it has given
emphasis to specific trade union roles in informal economy basically
focused on the areas of organizing, ensuring minimum wages and
justice in the market to self employed workers, developing &
extending the social protection system and building awareness
and right-based education work, among others. He admitted that
they faced challenges when it comes to building awareness for
recognition as workers deserve trade union rights. Summing up
the experiences of campaign aimed at consolidating the rights
of the informal workers, he lists some important points useful
for the future drive in the favour of informal workers:
- Organizing easier with some benefit/welfare
package not with the empty hands/empty mind
- Issues of children and women should to
be given emphasis
- Wages to be considered as the basic area
- Local level social and political activists
as well as teachers can play very important role
- Strong lobbying with the government for
workers registration system and providing ID cards in local
He suggests for forming trade unions and expanding
committee network, launching for a campaign for the implementation
of the minimum wage, social security, mobile health camps and
separate especial programme for development of women leadership.
The slogan of 'not mere representation but real participation'
to organize more and more women workers should be applied. In
order to ensure collective bargaining strategy for informal
economy, he recommends following ideas:
- Demand for right to local bodies to settle
the cases of workers through tripartite structure
- Direct national level bargaining of national
federations with employers' commodity associations and negotiations
(Industrial Bargaining System in national level)
- Bargaining with Municipalities and negotiations
- Interactions and pressure to concerned
Departments of government
- Informal economy workers to be managed
within labour legislation through Labour market reform process
As a key commentator, Shankar Lamichhane said
that the informal sector, in which a large number of women are
involved, is not completely organized. "If we can organize
women through women-friendly programmes, it will become strong
sector." Stating that the workers are mentally and politically
fragmented, he said that they assume different roles at different
times. Sometime they are citizens and other time they are workers.
What the state needs to do is to recognize their role and identity."
He said that whole society is worker's society. The trade unions
are borrowing knowledge from outsides and the time has come
for the local trade unions to produce their own knowledge to
ensure their rights, he added.
Second commentator Baburam Gautam noted that
the main problem lay with the traditional economy that fails
to infuse modern technology and management. He also said that
the Nepalese workers are also divided in the name of gender,
religion and ethnicity, weakening the trade union movement.
"The trade unions should forge a common working strategy
for the cause of the workers:" He also asked the paper
presenter to define the self-employed workers by fixing the
ceiling of their income. He also expressed concerns over the
growing informalisation of the formal sector and urged for the
measures to check such a trend.
From the chair, Shailendra Jha said that the government has
not included informal workers in its laws and policies and subsequently
their earnings have not been included in the national income.
He said that annually around 400,000 workforce enter the job
market and most of them become under-employed, not unemployed.
It is a matter of satisfaction that all trade unions are up
in arms to secure the rights of informal workers.
Comments from the floor
There has been mixed responses on Upadhyay's
paper. About six participants commented on their papers. Some
of participants appreciated it for encompassing many things
about informal economy while some others advised him to add
some areas wherein the informal workers are engaged but go unnoticed
by the concerned bodies. Their comments can be summarized in
the following points:
- The paper fails to include the condition
of informal workers working in the media houses that are running
their institution on the informal basis as many of them are
deprived of trade union rights and do not get their salary
- It would have been better if one-person-one-job
policy is implemented to increase employment.
- The presenter needs to clarify the self-employment
- The government needs to revamp the sick
industries to promote job and growth.
- The efforts need to be concentrated to
attract foreign investment.
- There should be women friendly programmes
to organize women workforce in the informal sector.
- There is the need to modernize the traditional
entrepreneurship and industries.
- All trade unions must come together to
formalize the informal sectors.
- The government should invest in agriculture
sectors for where the nation makes income of billion of rupees.
- While organizing workers from both sector
formal and informal, the trade unions should pay due attention
to the health of the women workers through health-friendly
programmes and activities.
- A health insurance policy needs to be introduced.
Discussion Session- 2
Resham Thapa, lecturer of economics at the
Central Department of Economics, Tribhuvan University, presented
his dissertation entitled 'Size of unobserved economy, determinants
of informality and human capital formation in Nepal: A Glimpse'.
Jaya Kumar Sharma from Department of Statistics moderated the
session while Subarna Karmcharya of National Human Rights Commission
and Dr. Abdur Rihim Mikarani, a member of National Planning
Commission commented Thapa's paper.
Urgency to study underground economy: Thapa
There has been tendency to work informally
as there is the paucity of formal job and 80 per cent of economically
active population is engaged in informal activities in Nepal,
who are economically and socially insecure like Middle East
and North American workers, said Thapa. The size of unobserved
(informal economy or underground economy) is rising irrespective
of the state of development of any economy in the world. Quoting
Schneider and Enste, he said that the size of shadow economy
in developing countries ranges from 35 to 44 per cent of GDP
whereas the same for transition and OECD countries ranges from
2 to 30 per cent and 14 and 16 per cent respectively during
the last quarter of the 20th century.
According to him, Nepal has been considered
by many as a safe haven for the underground economic activities
attributing mostly to the absence of related acts, proper rules
and regulations, institutional arrangements etc to monitor and
control them. "Although there are no recent studies conducted
to estimate the size of unobserved economy in Nepal, indications
of its rampant prevalence and its sizeable effects on economic
and non-economic fronts such as higher budgetary and fiscal
deficit, increased cost of production etc are apparently noticeable."
Shedding light on the negative externalities
of the unobserved economy, Thapa noted that it has serious macro
and micro level consequence in the overall economy. "In
Nepal, considering the present political and social dynamics,
it is urgent to understand the current situation of underground
economy that not only downsizes the pace of growth but also
encourages the anomalies in the form o widening inequalities,
enmity and immorality."
"Unobserved economy," said Thapa
"stands at least 15 to 40 per cent of GDP in Nepal, which
is more than world average." The volume might have legal
and illegal facets. Out of legal informal and observed segment,
informal employment plays significant role that by nature our
economy is informal, he said.
There are various socio-economic determinants
whether people opt for informal employment. Thapa points out
following socio-economic determinants:
- Ethnicity matters whether to participate
or not in informal job
- People living in urban area are more engaged
in informal job
- Wage level definitely matters whether a
person remains in the informal job or not
- Females, married couple and divorced are
more engaged in informal job than males and the unmarried
- Contrary to other similar type of economies,
people in Nepal work in informal sector despite their older
- People with secondary education participate
in the informal job followed by higher education and college.
- There are wage discriminations in formal
and informal sectors.
- A national level mechanism must be in place
to check uncertainties caused by unobserved economy,
- While formulating policies related to informal
sector, gender, geography, educational status, marital status,
geography, educational status, age and ethnicity status need
to be taken into account.
- The wage differential and returns to education
in Nepal different for formal and informal sector. Therefore,
suitable compensation packages can be introduced so that the
working poverty might not increase further.
The comments of Dr. Abdur Rihim Mikarani and
Subarna Karmcharya on Thapa's paper are as follows:
- It is comprehensive and though-provoking
paper on the size on the unobserved economy and provides national
and global aspects on the matter.
- In Nepal, the informal sector is rising
rapidly, especially in education, health, agriculture, small
trade, hotel business and some other services sector. There
is lacking the needed policy to regulate them.
- The people working in the informal sector
are deprived of decent working condition, and are unreported
or underreported in the national data system, and also undercounted
in the GDP.
- On the one hand, they are more vulnerable
to job layoff, on the other the investors want more informal
labour so that they could pay less tax and can avoid labour
laws and social security.
- There is the need to formalize the informal
sector to ensure the social security of the workers, increase
government revenue and improve the estimate of GDP.
- The concerted efforts are necessary to
implement the above mentioned ideas. Trade unions, civil society,
the private sector, political parties and the government should
join hand and come up with a new strategy to solve this alarming
situation of the informalisation of the economy.
- It is good and informative paper on the
- Education and health sectors are also being
run on the informal basis.
- We must change our mindset that working
in the government offices are good and working at home or
in informal sector is bad.
Comments from the floor
Around three participants expressed their
views on Thapa's papers. Yuva Raj Neupane said that the paper
is full of data that boggles the mind of the audiences. "The
main challenge ahead of us is how to formalize the job and organize
the workers to ensure their social security. Baldev Tamang said
that there had been arrogant feeling that the trade union leaders
developed after they engage into their respective organizations.
Bhawanath Acharya warned that if the current trend of informalisation
of formal sector continues, the formal sector ceases to exist
within a few years. The concerned sector must pay attention
to this matter, he said.
Informal sector and experience from SEWA
Namrata Bali of SEWA, India shared the success
story of Self-employed Women Associations (SEWA) in India. Her
presentation covers informal works, their contribution to the
global, regional and Indian economy and lessons learnt from
organizing the rural, poor and illiterate women, who run SEWA.
Bali first moves to define informal economy and then offers
picture of variety of informal works and condition of women
involved in the informal activities. According to her, informal
economy involves self-employment small enterprises, which are
unregistered and unincorporated. They include employers/owner
operator, own account workers and unpaid contributing family
workers in family businesses. While wage-based informal employment
lacks contracts, workers' benefits and social protection.
Informal jobs includes:
Wage work for informal enterprises.
Domestic work without a regular contract.
Casual day labour without a fixed employer.
Industrial outwork for formal or informal firms (or their intermediaries).
Unregistered or undeclared work for formal or informal firms.
Temporary and part-time work for formal firms without worker
benefits or social protection.
Shedding light the status of informal economy
at global level, she said that the informal economy had not
only grown, but also emerged in new appearance and in unexpected
places. "It represents a significant, but largely over-looked
share of the global economy and workforce, a fact that has become
more apparent in the recent global downturn. That renewed interest
in the informal economy that also stems from the recognition
of the links between informality, growth, poverty and inequality."
Highlighting its role in Indian economy, Bali
quoted the National Council of Applied Economics Research's
findings that show the 62 per cent contribution of informal
economy in the GDP, 50 per cent in Gross National Saving and
40 per cent in national export.
"About 94% of all workers in India are
informal while 96% of all women workers are informal,"
She admitted that it was uphill task to organize
the informal workers as they harboured a suspicion whether they
should need organizations for their cause.
"It has been a Herculean work to sustain
organizations for workers at times the financial implications.
Many workers in the informal sector have no experiences of managing
vast amounts of money or talking boldly to many people at different
levels or in any way managing an organization," she said.
Bali noted that it is essential to bargain
for one's rights. This can be achieved only through struggle.
"In order to be able to deal with street vendor's issues
for example, we need to be recognized by the authorities so
that negotiations are possible."
How did they open bank?
A group woman approached the concerned authority
seeking the permission for the opening of their own bank to
save money and lend it to the needy in the fair interest rate.
The officials were taken aback by their initiative: "How
you, illiterate and poor women, could set up and run the bank?
It is quite impossible." They convinced the officials that
they collect small savings from hundred of thousands of women
to create the bulk of funds. They stumbled with another big
problem: They did not know to sign the documents. What could
the poor women do? They finally hit upon a bold idea. The leader
of the women locks up all of them in a room. "Until they
don't learn to write their names, no one could go out of the
room," they promised. After hours of efforts, they finally
succeeded to put their signature on the documents.
Dwelling upon the condition of women in informal
sector & need for organizing, she noted that from the economic
aspect, women's work is not counted as 'work' in the 'mainstream'.
"Socially, being women, and mostly of
the lower caste or community, they are not included in social
decisions making. Neither in community decisions (because they
are women) nor in the village level decisions (because they
are poor and low caste). They have little or no interaction
with government at any level. Individually and personally, they
feel they are nobody, their self esteem being systematically
crushed by the social system."
According to her, in the unorganized sector,
the gap between the male and the female workers' status widens
further. "Women are an essential production force in the
economy of developing countries, but the 'statistical purdah'
created by existing concepts and methods of defining and measuring
the labour force renders much of women's work invisible."
Bali put emphasis that organising is the most
effective and first step towards bringing a change in the condition
of women workers or workers in general. "Today the formal
or organised sector workers enjoy relatively better working
conditions and terms of employment largely due to the fact that
they are organised. Organising is the only means to ensure that
their grievances and demands are heard."
Participants were thrilled when she shared
the story of SEWA wherein around 1.3 million poor women have
been organized. At one point, she described how the poor and
rustic self-employed women finally succeeded to open their own
Asked whether the SEWA is a trade union or
which trade union it is associated with, Bali said that it not
a trade union, neither did it is affiliated with any national
trade union. "It is an organization of self-employed women
from lower class."
She was of the view that the trade unions
had to think about new strategy to include the informal sector's
women into their wings.