Amit Basole, Department of Economics, University of Massachusetts, Boston, MA

The Informal Economy from a Knowledge Perspective

Outline• The Informal Economy in Development• Site of unskilled labour• An alternative perspective

• Skill acquisition• Knowledge Flows

• Political Economy of the Informal Sector• Subcontracting and value chains• Surplus labour• Gender discrimination

• Conclusion

Overview• Informal economy: majority of employment and up to

half of value added in developing countries.• Thought of as a site of low-skilled or unskilled work.

• NCEUS: “The vast majority of the informal workforce is unskilled.” (Sengupta et al. 2009: 3)

• Conclusion relies on two facts: • low levels of formal education and training • low wages as well as low productivity.

• An alternative perspective• There is a vast store of knowledge in the informal sector

alongside well-established (though poorly understood) institutions of knowledge transfer and skill formation.

• Data: Census of Small-Scale Industry, NSS, and fieldwork among weavers and food sellers in Banaras and street vendors in Mumbai.

Informal Sector/Informal Economy

• Definitional Issues• Unincorporated or unregistered firms• Less than 10 workers • Outside the State’s fiscal and regulatory apparatus• Absence of written contracts

• Place in Development Economics• Modernization view• Exploitation view• Legalist view

• Diversity• Occupations• Production Relations

Source: NCEUS 2009

Dominance of the Informal in India

Manufacturing Employment (millions)

1983 1993 2004 2011

Formal 7.8 8.7 8.4 9.9

Informal 23.8 29.9 45.3 34.9

Total 31.6 38.6 53.7 44.8

% informal 75 77.5 84.3 77.9Source: ASI and NSS several rounds

Site of unskilled, low paid labour

% Firms reporting source of technical know-how in informal industry

Skills and Training in NSS Data

• Gen ed < secondary level: 70% rural males, 43% urban males, 83% rural females, 55% urban females (EUS 2011-12)

• 89% of the workforce: no formal or informal technical or vocational training (EUS 2011-12)

• Older survey: 10% of the population reported having specific skills (NSS 1993)

Source: Third and Fourth All-India Censuses of Small Scale Industry

Source 2001 2007

Abroad 0.67 0.80

Domestic collaboration

5.58 2.11

Domestic R&D 4.84 3.22

None 88.91 92.83

Annual Emoluments/ Employee, 2011

Formal Rs. 1,44,251 ($24/day PPP)

Informal Rs. 42,440 ($7/day PPP)

Average value added per worker per year (2011): Rs. 28,836 ($5/day PPP)

Source: ASI and NSS

• Bias towards formally acquired education in academic and policy work.• “nearly 90 per cent of the population above 15 years does not have

any skills” (Sengupta et al., 2009: 191). • “All workers who have a middle-school education or higher are

considered to be skilled. All others are unskilled workers.” (Kotwal et al, 2011, p. 1181)

• Informal workers also internalize such knowledge hierarchies.• “There is nothing worth studying in that.” A sweet- shop owner on

how workers acquire skills in his industry. • “Most of those with whom I broached the topic of how one learns to

weave (or teaches someone else) had a hard time understanding what there was to discuss” (Wood 2008, p. 139)

• But: • Capital utilizes all knowledge, formal or informal, for its purpose.• Informal workers critique different valuations placed by the labour

market on years spent in informal training versus a formal diploma or certificate.

Invisibility of Informal Knowledge

Fieldwork

• Surveys and Interviews• Weaving and Embroidery industry

in Banaras• Large industry employing around 400,000

workers in weaving and allied occupations.

• Produces silk and synthetic fabrics for domestic and export consumption.

• Traditional handloom industry diversifying into powerlooms.

• Food sector in Banaras• Manufacturers and wholesale/retail

sellers of namkeen, miThai, etc.

• Street vendors of garments, curios, and books in Mumbai

Informal workers on their knowledge

• A handloom weaver:• “We weavers don’t just know how to weave. Along with weaving we can

also set up the loom, what in other fields would be called an engineer [org. English], if something goes wrong, we can repair it.”

• A weaver-turned-carpenter:• “You will find many who are earning a living. But there should be steady

change in your trade, you must be forward-looking. [Otherwise] you will be there in the same place, doing your ancestral trade. [I say] don’t get stuck in what your grandfather did, try to do better work than him.”

• A sari design maker:• “Even today, ten years after I left design work, people mention my name to

others…that once he made something, he never repeated it . . . I always thought, what has been sketched already, don’t think about that. If you keep that in mind then one way or another, you will find yourself doing the same thing. Your thought won’t progress.”

• A street vendor and sweet-maker:• “My principle is that I should make something that is not available

anywhere else. I should have my own identity. I used to experiment in my spare time after assisting my father in the shop. I have customers who won’t buy anywhere else if my shop is not open.”

Training Mean (SEM)/Median

Age started 10.9 (0.5)

Years 4.2 (0.4)

Formal Schooling 0*

Source: Field survey. N=70. * - Median value reported

• Literature on economics of apprenticeships and informal knowledge flows is sparse.

• Surveys can give a preliminary idea but for real insights ethnography is more useful

• Some industries that have been studied:• Embroidery, Weaving,

Knitwear, Auto repair.

Apprenticeship Systems

Family-based apprenticeships in Banaras

Father teaching son to weave in Banaras

• Family/community based as well as other apprenticeships lasting from a few months to a few years.

• Integrated into ordinary life and work. • Embedded in family, caste, gender, and community

relations that are perceived as “non-economic.” • No classrooms, curricula, tests, certificates and no

identifiable place or time where/when learning occurs.• The amount of training or learning not easily

quantifiable. • Emphasis on applicability/usability of knowledge.• Often (but not always) no explicit fees. • Implicit costs: foregone wages during apprenticeships

and the opportunity costs of the trainer’s and trainee’s time.

Apprenticeship Systems

• Learner is seen as key to learning process. Emphasis on personal discipline and desire to learn. • A handloom weaver: “You have to have the inclination to solve

your own problems. I never called anyone for help. First I tried to figure it out myself before calling any help.”

• Employers guard skilled workers, since knowledge is embodied in workers not formalized in procedures.

• Workers seek jobs where new skills can be learned. • A handloom weaver: “Father used to make plain saris. So he sent

me out because he wanted me to learn new designs. That is still serving me. More and more fancy designs are being made, I can weave them all.”

• Soft skills also acquired informally• E.g. Street-vendors, taxi-drivers, and travel guides in Mumbai

acquire knowledge of English from seniors, public billboards, customer interactions, new mobile devices.

• As one shop-owner says: Linking road school ban jata hai (Linking Road becomes a school).

Apprenticeship Systems

Informal knowledge commons

• Right: A Banarasi design by artists known as ‘designer’ or ‘naqsheband’.

• Purchased by master-weavers.• Intense competition to bring out

newer designs fetching monopoly rents before they are imitated.

• Two principal channels via which designs propagate• directly via designers or weavers who

work for more than one master-weaver• Unethical

• or indirectly via the market: • What happens is that when I go to the

market, a thousand different designs pass before me, taking this idea from one, that idea from another, I create a new thing. The important thing here is the mind. It comes from the mind.

Banarasi Sari Samples

• Each new design adds to the collective store of knowledge.

• Drawn upon by other designers to imitate and modify, creating a common-pool resource.

• ‘Knowledge in the air’ (Marshall).• Lack of intellectual property rights

makes it difficult for producers to prevent imitation or to exclude others

• Other examples:• Garment and shoe producers in Aba, Nigeria,

‘constantly complain about the lack of secrecy which rapidly erodes the gains of a good design through copying and undercutting.’ Meagher (2010:136)

• Acrylic sweater industry in Otavalo, Ecuador where the designing process is ‘an unending sequence of mutual robbery.’ (Colloredo-Mansfeld and Antrosio 2009:144-5)

Informal knowledge commons

“Photocopy rates for cloth:Big: Rs. 6, Small: Rs. 3”

A photocopy shop in a weaving neighborhood

Lokavidya: Alternative Perspective

• Lokavidya: knowledge produced in ordinary life and work (Sahasrabudhey and Sahasrabudhey 2001).

• Not inferior to formal education • History of science: science, and mathematics have

been created by artisans and manual workers (Connor 2005; Long 2011).

• Knowledge management: the “working knowledge” perspective (Barnett 2000) sees work as a site of knowledge generation.

• Psychology of learning: “Situated Learning”, “Legitimate peripheral participation.” (Lave and Wenger 1991)

• Development Policy and Practice: “Rural innovators,” “Jugaad innovation”.

• There are no “unskilled workers” or “ignorant people.”

• Neoliberal manifestations:• Traditional and Indigenous Knowledge

(TK/IK)• Mainstreamed in development

(WB/WIPO)• Large literature on biodiversity, agro-

forestry, ecology, medicines, crafts of peasants, artisans, women and indigenous people.

• Integration of TK/IK into existing IPR framework  

• Geographical Indications (Gis) • India: As of May 2014, 482 Gis awarded,

of which 224 for artisanal products. • Each GI formalizes an informal

knowledge commons and tries to link it to the global market.

TK/IK

Sources: Finger and Schuler, 2004; World Intellectual Property Organization, 2008; Arewa, 2006; Drahos, 2011; Frankel, 2011a, b; Gervais, 2005).

Why are earnings low?

• If lokavidya is abundant and institutions are well-developed why are earnings so low?• Value is captured by merchants and exporters• Local markets can be highly competitive pushing

down earnings (“reluctant entrepreneurs”). • Surplus labour keeps wages tied to subsistence• Women are not seen as workers but as housewives

working in “spare time.”

Capturing of value

Factor Cost (Rs.)

Raw mat 22.5

Labor (incl. electricity, space)

20

Wholesale price (10% markup)

46.75

Local Retail price

200

A Banarasi Scarf Value Chain

Capturing of value

• Knorringa (1999) on the Agra shoe industry: • Because plenty of anonymous artisans must bargain with

a limited number of identifiable traders...the margins for artisans are pushed down...Moreover with all their working capital tied up in one production cycle, artisans cannot postpone selling (p 314).

• Value added is calculated simply by subtracting raw material costs from total receipts

• If lack of market power increases input prices and decreases output prices, this results in low value-added.

Surplus Labour

• In an economy with surplus labour even skilled workers may earn low wages due to low bargaining power. • Heintz (2006:510): Capital accumulation raises

productivity, but in a labour surplus situation wages do not increase. Unit labour costs fall when productivity improves, leading to lower prices or higher profits.

• When productivity increases piece wages adjust to keep hourly wages constant.

• In Banaras powerlooms are over ten times more productive than handlooms but hourly wages in both are almost the same.

Gender• Women: 50% of working owners, 72% of unpaid

family workers and 15% of wage-workers in informal manufacturing. (NSS 2005)

• Women’s knowledge seen first as personal virtue, and only secondarily as marketable skill.

• Jobs performed by women “low skilled” even if they involve “exceptional talent and years of informal training” (Sengupta et al., 2007, p. 84). • In the ceramic industry or in brick-kilns,

preparation of the mud or clay is a skilled activity. If the consistency of this raw material is not correct, the pottery will disintegrate and the houses built of the brick would collapse. This work is done by women but is valued as one of the lowest...(ibid)

Homeworking women in Banaras

• Homeworkers are among the lowest paid workers in the informal sector.

• 80% of homeworkers are women (Mehrotra and Biggeri 2007).

• Homeworkers in Delhi: work an average of 7 hours/day to earn Rs. 32.54 ($1.6 PPP). (AIDWA 2010. p. 5)

• Fully integrated into circuit of capital via putting-out (subcontracting).

• But seen as housewives working in “spare time.”

A woman’s work is (literally) never done

Average time-use pattern of 32 women over a 24-hour period starting at 5 a.m.

“Whatever time I get after cooking three meals, I spend on embroidery.”

Hourly wages in Banaras

Type of work “Fancy” Embroidery

“Aari” Embroidery

Thread cutting

Piece Rate 71.0 (47.8) 134.3 (57.0) 18.5 (3.7)

Hours per piece 18.8 (12.9) 24.6 (9.0) 3.8 (1.6)

Hourly Wage (Rs.)

4.2 (1.4) 5.6 (1.8) 5.0 (1.6)

Hourly Wage (PPP-adjusted $)

0.17 0.22 0.20

N 58 21 14

Women spend a full working day of around eight hours on paid work and get an hourly wage of Rs. 5 (25 cents, PPP adjusted, 2010 nominal value).

Conclusion• NCEUS asked: Are existing systems of informal on-the-job skill

acquisition through the traditional methods sufficient? (Sengupta et al. 2009: 9)

• No. • Well-designed policy can make a large difference. • But government-run vocational education and training

programs have remained disconnected from informal sector workers and entrepreneurs (Sengupta et al. 2009: 9).

• Big questions:• How to build on existing informal institutions with participation

from the sector itself?• How to grant formal status informal learning and skills?• What mechanism exist to regulate competition, how can they be

improved?

• Bigger question:• How to build a politics that wins equal status for lokavidya

alongside formal knowledge?

Acknowledgements

• James K. Boyce, J. Mohan Rao, Mwangi wa Githinji, Rajesh Bhattacharya, Smita Ramnarain, Swati Birla, Sunil Sahasrabudhey, Chitra Sahasrabudhey, Shilpi Suneja, Ehsan Ali Ansari, Pradeep Kumar Gond.

Thank You!

INFORMAL ECONOMY

Informal Employment

Self-employment

Homeworkers

In form

al firms

Petty Enterprise

s

Putting-Out (Subcontracting)

Wage worker

s

Job workersEntreprene

urs

In househo

lds

Informal Enterprises

Source: NSS several rounds

Informalization during the Neoliberal Period

• One of my respondents, a weaver-turned-carpenter had this to say when asked about learning to weave: • Our trade is such that, just as a fish is not taught how to swim, our

children are the same. They learn the skills by-the-by [dekhte dekhte]. There is no need for any formal studying. In this respect we are very different from you. You will do everything by studying, and as for us, even if we don't study at all, we will do our work just fine. That is the difference.

Apprenticeships

• Q: So you learnt as a child at home? • A: Yes. • Q: How old were you when you started helping?• A: If you ask an Ansari boy how old he was (when he started learning), he will

not be able to tell you. The workshop is downstairs, the weaver lives upstairs. When a boy starts walking, his mother says to him “take these bobbins to the workshops.” That is how it starts. . . When the warp is being dried after dying small children from home are taken to the field to hold it up, to prevent it from touching the ground. In weaving, this is how the child enters the trade. At that time the child is three years old.

• Q: What comes after that? • A. When the boy is four years old he is given a small empty shuttle, which he can

practice throwing between the warp yarn every time his father uses the treadle to lift the warp and pass the weft yarn through. Whenever he has some free time, (his mother will say) “son, go to the workshop” just like in educated people’s homes the mother says “son, go and study.” Slowly, in four or five years he starts helping with the sari border on one side, which in our language we call embroidering. He will break the delicate silk yarn, he will get beaten. In five years time, he has learnt everything, now he has only to wait till his body is big enough. He is not tall enough (to reach the treadle), the fabric is 45 inches wide, his arms only span 36 inches, so he throws the shuttle and runs to catch it. Now his mother prays ,“let my son grow up quickly.”

Key features-III

• Barber (2004) identifies the strengths of such learning as• lower barriers to entry, • emphasis on innovation and adaptation often to

resource-poor conditions and • development of tacit knowledge.• Weaknesses: • inadequate theoretical understanding and reflection, • difficult in adopting new techniques and safety practices.

• Strengths • no resources are devoted to creating a legal

system of exclusion• incremental changes are easy to make since no

copyright is infringed. • Weakness:

• lack of copyright encourages hoarding for as long as possible and changes tend to be conservative

Informal knowledge commons

• Emmanuel (1972, p. 419) notes:• When wages in a certain factory are fixed at 10

francs per article produced, this merely means that, normal wages for a day’s labor being say, 100 francs, it has been worked out that the average worker can produce 10 articles a day…Suppose, however that a new machine is invented which increases the average worker’s productivity from 10 to 20 articles a day. It would be absurd, says Marx, to imagine that the worker’s wages would then suddenly be doubled. Quite simply, the piece rate would be reduced from 10 francs to 5 francs.

Question

• To what extent does the formal- informal earnings gap result not just from observed worker characteristics (such as skill) but also from above factors?

• 1980s and 90s: debate among US labor economists on whether wages differences between industries can be explained assuming only human capital differences among workers.

• Non- competitive models: degree of product market competition, firms size, and capital-labour ratio to account for inter-industry earning differentials

Sources: Krueger and Summers (1988); Groshen (1991)l Goux and Maurin (1999)

Sources of labor in homework

Housework, Outside Work• ghar ka kaam (unpaid (house) work) and baahar ka

kaam (paid (outside) work).• Unpaid work more important, viewed as part of the

wife’s duties. Paid work performed in spare time (khali samay meN).

• A (male) powerloom weaver discussing his wife’s allocation of time to various types of work: • “Our main work is that one, downstairs [weaving]. That is

the main thing, everything else is supplementary” (Field Interview, 2/11/2010).

• 40-year old embroiderer talking about daughter:• “She is a girl, if she just sits around she will only get

bored. Its better, we think, just do whatever work you get. If we don’t do it, we won’t get any money, if we do something, at least we will get Rs. 10.” (40-year old embroidery worker, 18/2/2010)

Subcontracting

Future work• Knowledge production and use in IE less studied than use

of land and other resources. • Flows of designs, techniques, and market information

between firms are crucial.• Knowledge is non-rival but partially excludable. Informal

entrepreneurs lack formal IPRs, so what strategies do they adopt to sequester knowledge while ensuring needed transfers.

• Most informal markets are highly competitive, forcing prices, wages, and profits down to near subsistence levels.

• But not “free-for-all”. What informal arrangements arise to distribute and protect market shares, and regulate competition.

• Elucidating these mechanisms can potentially be useful for the improvement of incomes in highly competitive markets.