Executive Summary
A substantial part of employment in the developing countries is informal, as it is created outside the recognised institutional framework. And consequently the quality of such employment in terms of income and conditions of work tends to be below the acceptable national and international norms. It is believed that an increasing proportion of female employment is these countries is in the informal category. This review examines the evidence from countries on female informal employment and incomes. It traces the recent trends in female employment as well as its structure in developing countries using aggregate data. Women participation in the labor force has risen in most countries, which is also reflected in the changing sex composition of the total labor force. Women’s share in total labor force has risen. With a fall in women’s participation in agriculture in most countries, an increasing number of women are turning to the non-agricultural sector for jobs, most of which are located in urban areas.
Except in latin America, a majority of women in the developing countries does not have wage employment. Much of female employment in Asia and Africa is self employment and unpaid work. But the share of wage employment in total female employment is rising in all regions, but very slowly. Informal employment in the form of own account and unpaid work therefore may have declined slightly, but it is still important for women in Asia and Africa. The shift toward wage employment was apparently brought about through a significant growth in female employment, at least until the mid 1980s. Since then growth of formal wage employment among women appears to have slowed down, following the general global trend. Though more women gained access to wage employment only a few were apparently able to get jobs in the formal sector, mainly in public service. According to scattered evidence from micro level studies, some of these gains may have eroded in recent years due to poor GDP growth, and structural adjustment programmes adopted in several African and latin American countries. Women in some countries seem to have benefitted from globalisation of the world economy in terms of jobs, but many of them seem to be of poor quality because globalisation has been accompanied by informalisation and feminization of employment. It seems therefore likely that female informal employment in these countries has risen in recent years.
A considerable part of production and distribution of goods and services in the developing economies takes place outside the formal system viz., in very small scale activities outside the recognised institutional framework. Much of the employment in this "informal" economy can be termed as informal because the units or microenterprises that create such employment, being outside the recognised institutional framework, have neither the obligation nor the incentive or the means to create good quality jobs. Most of these micro enterprises are indeed owned and operated by single individuals with or without the assistance of paid and unpaid workers, and operate under conditions of informality. They generally lack legal recognition and free access to markets and resources, and operate in a hostile regulatory and policy environment. Women operating such enterprises also face additional constraints derived from social and cultural practices. These constraints explain why much of female employment in developing countries tends to be informal, and of a poor quality. They also explain why these activities tend to be small and use low human and physical capital and simple technologies. They are faced with the double burden of being not only small viz., scale related disadvantages, but also informal viz., deprived of legal recognition and access to resources and markets. It also seems that informality strikes women more severely than men because they face a more hostile environment including discrimination in various markets, which seems to explain the presence of gender bias in the informal sector.
Women in all age groups depend on the informal sector more heavily than men. Women are over-represented in this sector in the sense that their share in the sector is higher than their share in total labor force. Most women tend to be own account workers; and only a few are heads of microenterprises. Relatively lower level of education among women, compared to men, seems to explain, in part, this gender differential in informal employment. Discrimination in the labor market also explains in part the disproportionate concentration as it limits women’s access to formal and wage employment. Women also face additional constraints because of their home making and child care responsibilities, which limits their participation in formal employment. Even within the informal sector more women than men seem to be in poor quality employment. In latin America, more women seem to be in the unpaid categories than men. In Africa the proportion of unpaid workers among women appears to be relatively high, compared with other regions.
Quality of employment varies considerably even within the informal sector. Incomes of self employed women tend to be higher than that of wage workers, and also often above the national legal minimum wage, because of capital investment from own savings. Incomes of homeworkers are lower than that of own account workers, partly because of lower investment. Incomes of women are substantially lower in the informal than in the formal sector, even after taking into account differences in human capital investment. Gender disparity in income seems to be greater in the informal than in the formal sector. A much larger proportion of women in the informal sector than men receive very low incomes. In a large majority of cases reviewed more than half the female employment is of very poor quality because the workers were in the lowest income brackets; and gender disparity exists irrespective of the type of activity and employment status. There are substantial income disparities between men and women even when they are self employed. Return to investment in education appears to be lower for women in the informal sector, but they have a greater chance of moving out of informal employment with more education.
Variations in women’s income in the informal sector and gender disparity are explained in terms of a production function framework, using empirical evidence on a) sectoral composition of women’s activities; b) human capital, c) physical capital, d), informality including regulatory and policy environment and e) structural constraints derived from social, cultural and institutional setting. Since relevant data on the determinants of income are not available the analysis is based on proxies. Though differences in schooling and skills explain much of the income variations among women, and between men and women, differences in other enterprise characteristics such as scale of business, extent of product diversification and technology, extent of investment including nature and type of business premises and location, linkages and contacts, and access to social networks are also important. A large proportion of women in the sector have either little or no schooling and skills. Women owned enterprises tend to be much smaller, with very small investment, and more often located in home, with few market linkages and network contacts. Differences in sectoral composition of employment also explain much of the differences in income. More importantly, factors contributing to informality such as legal status, access to resources and markets, and structural constraints, insofar as they vary across individuals and enterprises, also seem to explain a significant part of income variations. Social capital and the use of social networks assume a major significance in determining access to incomes mainly because of the presence of informality in these countries.
A significant part of the income differential among women operators in the informal sector is the result of gender based discrimination, not only in the labor market that is widely acknowledged, but more importantly in other markets such as credit, training, land and infrastructure. Not only labor market but also other markets appear to be segmented. Differential access to capital, skills and other resources between men and women seems to explain the gender differences in the choice and type of business, scale of operation, location of business, and choice of products and technologies, which in turn explain the income disparities between men and women. The evidence supporting this is rather indirect, and scanty. If this is confirmed by a larger body of evidence then it would imply that informality and market imperfections affect women more severely. The above findings suggest that improved access by women to education and credit can play an effective role in reducing income disparities. But elimination of market imperfections, especially discrimination against women, as well as factors contributing to informality could play an equally important role in raising women’s income.
A substantial part of women’s informal employment is also outside the informal sector, especially in the category of independent wage workers; but few studies have focused on them and consequently there is little direct evidence on the determinants of their income. But they are captured indirectly through household or labor force surveys, and included in the labor market analysis. Women in informal wage employment face discrimination, and the gender gap in incomes appears to be larger in the informal sector. Many of them with little or no schooling tend to work in the service sector, especially in domestic service, in latin America. Women’s earnings are lower than men’s - up to a third or more, even when there are no significant differences in human capital endowments. Between 70 and 100 percent of earnings differential between men and women in latin America are due to factors other than human capital endowments - generally attributed to labor market imperfections or discrimination. Women’s access to more productive jobs appears to be limited owing to gender based segregation of jobs, but there is little direct evidence on this. Though higher education could improve women’s incomes and their access to formal employment, because of initial income disparities between men and women, and between informal and formal sectors, women probably find it less attractive to invest in education - even when access is improved.
Some women are apparently able to improve their employment and income situation over time by widening their contacts with networks, and gaining greater access to information and technical knowhow. Some are also able to accumulate savings over time, and increase their capital investment. Women in wage employment are also able to move into better jobs but the extent of such mobility is small, and less compared to men. Access to credit, and constraints derived from being informal seem to restrict such upward mobility. The situation of women in Africa seems to be mobile downwards. Deteriorating economic situation appears to have encouraged women to move into informal sector, especially in the involutive segment where productivity is low. This appears to have resulted in precarisation of female employment.
Women household heads, especially from poor families, seem to be over represented in the informal sector. There is also gender bias, as a relatively higher proportion of women household heads than men is in this sector. Households headed by women are more likely to be below the poverty line, compared with households headed by men. The proportion of workforce in microenterprises falls as household income rises. There seems to be a significant association between gender, informality and poverty. Women’s income from informal employment, though low, nevertheless contributes to a reduction in the level of household poverty in these countries.
The evidence reviewed offer some interesting conclusions. In the short term improved access to credit can help women in the informal sector to increase their incomes. Even those in informal wage employment could benefit from credit access because they can start their own small business. But the positive effect of credit will remain muted unless their access to complementary resources is improved. Easing the constraints attributable to informality and market imperfections would also seem to enhance the effectiveness of credit as they facilitate resource mobility. Finally, women are able to improve their incomes more easily in a growth rather than non-growth environment. But these conclusions should be considered as tentative owing to the deficiencies in the data used.
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