Informal Economy and Family Strategies

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Informal Economy and Family Strategies

BRYAN ROBERTS

Introduction The informal economy and family strategies have attracted widespread research attention in both developed and developing countries. The researchers and policy-makers who use these concepts often employ different definitions and various commentators have pointed to intrinsic internal incoherences that call in question the utility of either concept (Moser, 1978; Crow, 1989; Scott, 1991). Yet, the use of both concepts persists in face of these criticisms since they capture, even if imperfectly, contemporary trends that would otherwise be overlooked. This article seeks first to identify some of the basic interrelationships between informal economy and family strategies and then explores the diversity of their manifestations in different parts of the world.

The most generally accepted definition of the informal economy is income-earning activities unregulated by the state in contexts where similar activities are so regulated (Castells and Portes, 1989; Feige, 1990). Nothing in this definition implies that the informal economy is a self-contained set of activities that are unrelated, or only weakly related, to activities in the rest of the economy. Family strategies are those implicit principles that guide family members when seeking the family good, whether of survival or social mobility (Moch et al., 1987). As Tilly (1987) points out, this use of the concept does not imply that families are harmonious units nor that their strategies are consensual.

The master trend that underlies the contemporary significance of both the informal economy and family strategies is a familiar one. It is the restructuring of the world economy through an increasing integration of previously protected national markets and through new technologies, particularly in communications, that facilitate the decentralization of economic activities. One consequence of restructuring has been a move away from the vertical integration of firms towards more loosely structured horizontal linkages. These include subcontracting and industrial home work, more ‘flexible’ forms of organization in which the volume and type of producer service can be readjusted rapidly to market demand, and, as a consequence, what the ILO labels ‘non- standard’ forms of employment, such as part-time or casual work (Cordova, 1986; Ferndndez-Kelly and Sassen, 1993; Harrison and Bluestone, 1988; Roberts, 1989a; Standing, 1986). These trends, as Sassen (1991a) points out, underlie the current preoccupation with economic informalization and, by extension, with the informal economy in both developed and developing countries.

An integral part of industrial restructuring has been the ‘retreat’ of the state from both economic and social intervention as a strategy to promote market-led growth. This has resulted in a decline in the real value of welfare programmes in many countries or a halt to their expansion in those countries without such programmes. The increasing pressure on the poor to supplement welfare or to generate income in the absence of welfare is one reason for the renewed interest in family strategies as a means of coping with poverty

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Informal economy and family strategies 7

(Roberts, 1991). This research interest has been sustained, it should be noted, by the fiscal interest of states throughout the world in the caring capacity of family and community as a supplement to, or replacement of, state-provided welfare.

Though these trends are world-wide, their manifestations are regionally specific. In developing countries, family strategies and the informal economy have been depicted as the basis of economic survival during rapid urbanization (Lomnitz, 1977; Roberts, 1989b; Portes and Schauffler, 1993; Smith, 1984). In the United States, both topics tend to be identified with the economic adjustment of immigrant groups, particularly those from developing countries (Fernindez-Kelly and Garcia, 1990; Grasmuck and Pessar, 1991; Portes and Sassen-Koob, 1987). In Britain, interest in both the informal economy and family strategies has centred on understanding how people cope in face of the decline in formal employment opportunities and in the welfare state (Pahl, 1984; 1988). In Italy, in contrast, both topics are often associated with new and dynamic models of economic growth, such as that of the Third Italy (Brusco, 1992; Capecchi, 1989).

Both concepts raise the issue of the extent that people are free to create their own economic and social spaces in face of the structuring forces, particularly those of the modern, formally regulated market, that appear to foreclose choice. The informal economy is used by some researchers to suggest that enterprise can flourish in face of bureaucratic regulation by the state and the monopoly position of large-scale, formally organized companies. De Soto’s (1989) praise of the innovative potential of informal enterprise and Friedmann’s (1989) support for the barrio economy come from different political positions, but they share the belief that existing bureaucratic structures cannot adequately meet the economic needs of the mass of the population.

Household strategies suggest that people can choose, and their choices make a difference, despite the economic or social constraints they face. By pooling resources, by working in both formal and informal economies, by the self-construction of shelter, by self-provisioning, and by the skilful use of social networks, families, it is argued, avoid entrapment in a self-perpetuating culture of poverty. They become actors who work with others to get what they can out of the existing system. They thus shape politics, sometimes through social movements, but often by simply not supporting the smus quo of established political parties.

Both the informal economy and family strategies are related in concrete ways. The informal economy makes use of non-contractual but binding relationships, and kinship is the basis of many of these. Families often find in the informal economy the flexibility and accessibility that the formal economy does not have. Also, the informal economy and family strategies are essentially territorial phenomena. Both classes of activities are embedded in localized sets of understandings, practices and relationships. They are the basic elements of the ‘fragmented’ societies that Mingione and Smith describe in this issue.

The nature of the informal economy The literature on the informal economy is an extensive one, and various reviews are available (Moser, 1978; PCrez-Siinz, 1992; Portes, 1994; Portes and Schauffler, 1993; Roberts, 1989~). The informal economy, as usually defined, does not include activities that are inherently illegal, such as drug-dealing and other criminal activities. Thus, the economic activities of the informal economy, such as selling goods or making garments, are legal activities that are carried out illegally by avoiding one or more applicable state regulations. However, in some definitions, such as Sik’s in this collection, the informal economy does include inherently illegal activities. Also, as Morris points out, it has been usual in the British literature to include domestic self-provisioning activities as part of the informal economy. The informal economy is not, then, a clearly bounded set of activities.

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Incomes within it are heterogeneous and it includes a rag-bag of employment statuses and enterprise types that frequently do not coincide with each other. Workers in formal large- scale enterprises may be employed informally either ‘off-the-books’ or in semi-legal, casual statuses. The persisting interest in the idea of an informal economy lies not in its analytic precision, but because it is a useful tool in analysing the changing basis of economic regulation.

The issue is not one of regulation per se but of the form of regulation. All markets are regulated, as Smith points out in this issue, so the issue is the balance between formal regulation based, ultimately, on the state, and informal regulation based on personal relations such as those of kinship, friendship or co-ethnicity. Personal relations and the cultures that sustain them may, under certain conditions, prove more efficient in regulating economic activities than do formal structures giving those activities that are regulated socially a competitive edge over formally regulated ones. I Conversely, the state may reduce the role of personal relations in economic activity by extending rights to association among workers, providing social security, and by bureaucratic management of the economy.

The balance between formal and informal regulation changes over time, but not in any linear direction nor in the same way in all places. The economic activities included within the informal economy are rarely residues of traditional activities, such as domestic craft activities, that will be superseded by modern firms. Communications technology makes possible, for instance, a decentralization of economic activities that includes both informally organized ‘hackers’ and large-scale, vertically integrated software companies. Change results in diverse outcomes because there are many forms that informal economic activities can take. These range from innovative models of organization of considerable economic potential to marginal economic activities that are of no interest to the formal economy. There is, however, a pattern to these changes that can be perceived by examining the structural articulation between the formal and informal economies (Portes and Schauffler, 1993). This articulation is based on the inputs that the informal economy provides to support capital accumulation in the formal economy and on the types of income opportunities that the formal economy, and those employed within it, provide for informal enterprise.

There are at least three components to this structural articulation. And by taking account of them and their relative strength in different contexts, it is possible to understand the different regional manifestations of the informal economy. These components are: (a) the operating principles of the informal sector; (b) the relation of the informal sector to the state; and (c) its relation to the labour market.

The idea of an informal economy gained currency with Keith Hart’s (1973) emphasis on ‘informal’ and ‘formal’ income opportunities. Hart used the distinction to argue that there is a considerable entrepreneurial dynamic present among the urbanizing populations of developing countries. Using case material from Accra, Ghana, he noted that people did not just depend for their survival on the growth of employment opportunities in government or large-scale enterprises, but were skilled and imaginative in creating their own opportunities through self-employment. Studies of the operation of the informal economy show that it follows a market logic similar to that of the formal economy. The informal economy is not traditional in its practices nor in its products or services even though enterprises within it are undercapitalized (Roberts, 1976; Portes and Walton, 1981; Beneria and Roldan, 1987).

The guiding operating principles of the informal sector are, however, different from those of the formal sector. Essentially the advantages of informal economy enterprises lie

1 This is a similar point to that made by proponents of the new economic sociology in their criticisms of the new institutional economics, as when Granovetter (1992) attacks Williamson (1975) for his neglect of the importance of within and between firm social networks.



in their flexibility. They can rapidly adapt their labour, products and services to take advantage of new openings in the markets. This flexibility is based, in part, on the importance of social relationships in regulating the informal economy. Informal understandings, whether between employer and workers or between the firm and its suppliers or customers, reduce the costs associated with fixed commitments and increase manoeuvrability. The trust necessary to conduct business under these conditions is mainly generated by kinship and community relationships, including ethnic ones, while in the formal economy it is mainly generated by laws that guarantee contract and the operation of the free market.

The availability of trustworthy personal relations, consequently, is essential to the economic success of informal enterprise. Various case studies have shown that informal enterprises rely heavily on kin or co-ethnics for their labour force and on informal social networks of clients, suppliers and bankers rather than on contracts, in organizing their economic activities (Bailey and Waldinger, 1991 ; Portes and Stepick, 1993). Studies have also shown that the informal sector provides opportunities for those who have little capital other than strong kinship or co-ethnic ties to begin a business and to build it up (Guarnizo, 1992; Light, 1972, Waldinger 1986; Waldinger and Ward, 1990). Note, however, that networks of trustworthy personal relations are also important for formally regulated and technologically sophisticated small-scale enterprises. Such relations have been shown, for instance, to underlie the economic success of industrial districts in Denmark and Italy (Hansen, 1991; Lazerson, 1988).

The second component of the contemporary informal economy lies in its relationship to the state. The modern informal economy is, to a considerable extent, a response to the way in which both the state and capital operate in the contemporary economy. In developing countries, the state is highly bureaucratic and takes on itself extensive powers to regulate the economy through taxes, licensing, wage and price controls, health and safety regulations, and oversight of collective bargaining. The large-scale private sector in developing countries is dominated by large multinational corporations, and local business elites often function in a tripartite alliance with these corporations and the state.

The contrast with the minimalist state and the family-owned businesses of nineteenth- century Britain is instructive. In the nineteenth century, the expansion both of the functions of the state and of the business corporation went hand-in-hand with the growing complexity of the urban economy and were, in part, responses to the social and economic disorder created by unregulated competition. In the contemporary developing world and, to a considerable extent, in the developed world, a reverse process is occurring. The current importance of the informal economy is, in part, a response to state regulation and to the bureaucratic character of the corporation.

Portes (1994), for example, points out that, paradoxically, the expansion of rules and regulations encourages the informal economy. Rules and regulations impose costs on businesses, and by avoiding them through subcontracting or by operating informally, enterprises may be able to reduce their overheads and their wage bills and, by so doing, give themselves the edge needed to survive in the market. These advantages can be used by the formal enterprise through subcontracting arrangements, including industrial home work, as Beneria and Roldgn (1987) show in the Mexican case. Such arrangements emerge when the formal enterprise is prevented by union contracts or social security requirements from directly employing a casual labour force, but wants flexibility to meet changes in labour demand due to market uncertainty or product cycles.

Differences in their political economy and histories mean that states contrast with each other in the extent and nature of their intervention in the economy (Lash and Urry, 1987: 17-83; Roberts, 1989a). At one extreme, typified by many developing countries, state regulation is minimal, involves few fiscal costs and/or is not enforced so little advantage accrues to informal enterprise. At the other extreme, of which northern European countries are good examples, state regulation is pervasive and efficient and


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includes social security for the unemployed and those without incomes. In this case, equally, there may be few advantages to informal enterprise because of the risks of being discovered and penalized. Furthermore, losing unemployment benefits may be a substantial deterrent to people selling their labour at low cost. Consequently, informal enterprise is likely to be most significant when economies are beyond the stage of minimal regulation but do not have pervasive regulation. Examples are some of the more economically complex developing countries, such as Mexico or Brazil, and the countries of southern Europe. Informal enterprise is also likely to be significant when a regime of pervasive regulation is destroyed by moves to deregulate and ‘free’ markets as in the case of central and eastern Europe.

The informal economy’s third component is its function in providing easy entry jobs in the labour market. Skills are rewarded in the informal economy and the best opportunities are obtained through social networks. Yet, informal income opportunities can always be found if workers are prepared to accept low returns. Informal enterprises often have rudimentary tools and extra workers may impose few additional overhead costs. Thus, informal enterprises can often profitably absorb extra labour, but at low wages. The unpaid labour of children and wives is extensive in the informal economy and wages for employees are substantially lower than those for employees in the formal sector, even when differences in human capital are taken into account. Thus entry into the informal economy is often a survival strategy for those with no other sources of income.

Places vary in the relative abundance of the labour supply. One factor limiting that supply is the existence of a comprehensive social security coverage noted above. Demographic factors are also important as in the case where a city’s population growth outstrips job creation because of high rates of natural increase and immigration. Low birth rates and the absence of internal rural-urban migration ensure that the labour supply in developed countries is not an abundant one. Indeed, recent international migration in both Europe and the United States has been based on the demand for unskilled and semi-skilled labour. In the United States, there is now some evidence for an ‘oversupply’ of unskilled labour, and this is one reason, especially among immigrant populations, for entry into the informal economy (Borjas er al., 1991). In most developing countries, in contrast, high birth rates and rapid urbanization ensure an abundant supply of labour and emphasize the informal economy as a survival strategy.

Family strategies Though at times the terms are used interchangeably, household and family are not synonymous concepts. Household refers to the basic unit of co-residence and family to a set of normative relationships. It is, however, within the context of the household that family strategies have usually been discussed and this is the usage here. When the basis of the household is a family unit, the actions of individual members are likely to be influenced, even if contrarily, by normative assumptions about the obligations of family members and by shared principles as to family priorities. These norms and principles do not guarantee that members of a household will act together to further some common goal. Individual members of a household are likely to have different interests based on their family status, on their gender and on their generation, and, often, what appears to be a household strategy turns out on closer inspection to be little more than the strategy of one member of a household, typically the male head of household. As Morris argues in this issue, family strategies need to be understood within the context of the internal organization of the household. This organization, particularly the domestic division of labour, is slow to change to accommodate new circumstances such as women’s increasing importance as breadwinners.


Informal economy and family strategies 1 1

Despite these objections, there are grounds for claiming that family-based households do have strategies and that these make a difference to outcomes. Individual family members may have conflicting interests, but each is likely to derive some advantage from the enhancement of their collective welfare. Some members may gain more than others. Coalitions may emerge between members of a household to secure a greater share of resources for themselves. Yet, the family-based household has remained for its members the basic resource for coping with the environment, whether rural or urban (Schmink, 1984). This is particularly true for the poor in the absence of state-provided welfare. Individual survival in this situation depends upon family provision of care for the elderly and the infirm, the pooling of inadequate incomes and the sharing of shelter. The family, together with wider kinship and friendship networks, helps individuals find jobs and provides aid in an emergency. Budget restrictions in the developed world have renewed interest in the caring roles of family and community. Indeed, in the social science literature on developed countries, the term ‘informal’ is conjoined less with ‘economy’ than with ‘support’, as in the concept of ‘informal support networks’.

The wheel has turned full circle. When Tilly and Scott (1978) used the concept of family strategies to show how people actively participate in shaping historical processes, they described an uneven and never fully completed progression from strategies based on a family economy, to ones based on a family-wage economy and, finally, to ones based on a family-consumer economy. The move from one type of family economy to another entailed a lessening in the collective coordination of family strategies. The family economy was based on a common enterprise, typically a small farm, and the life plans of individual members were subordinated to that enterprise. The family-wage economy lessened that subordination even though having more than one wage-earner in the family was essential to family survival. Absent children could, for instance, support their parents monetarily from afar. Finally, in the family-consumer economy, coordinating the contributions of individual family members is not essential to survival since the wage of the main breadwinner is enough to ensure the subsistence of the whole family. Children are thus ‘released’ to pursue their formal education and the spouse may specialize in managing the household. Extra wages, whether of spouse or children, serve to enhance consumption.

Current economic trends in the United States are replacing the family-consumer economy by the family-wage economy. The dual earner family has become essential if consumption is to be maintained at accustomed levels and, as a consequence, is a focus of policy concern (National Research Council, 1991 ; McLeod and Schreiner, 1992). Economic trends are also reviving the family economy as household members self- provision, substitute informal caring and exchanges for inadequate or non-existent state welfare services, and reverse the decline in family-based entrepreneurship (Gershuny, 1985; Pahl and Wallace, 1985).

Alongside these trends, there are others that differentiate the way family strategies are used among social groups. Analytically it is useful to distinguish, as Hareven (1982: 359) does, between short-term defensive strategies and longer-term social mobility ,

strategies. Whereas social mobility strategies are likely to be attuned both to the values and to the means necessary for success in the wider society, such as educational achievement, short-term strategies are more likely to reflect the values and means of the local community. Consider the case of Towanda as described in this issue by Patricia Fernhndez Kelly. Towanda operates a successful family strategy based on motherhood and on the help that can be expected from her mother and grandmother. She obtains status in the local community by the means that the community respects, that is to say through having a child.

There are many reasons why individuals may find attractive alternatives to following a strategy based on membership of a traditional family. Women’s work outside the home, for instance, may become a basis on which women can achieve independence from


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patriarchal constraints. Thus, women are more likely to separate from an abusive husband if they can support themselves and their children independently. Female-centred community support networks may also become an alternative to marriage, as the case reported by Fernandez Kelly shows. The attractiveness of these options depends on labour market conditions, as Chant (1991) has argued for Mexico, so that in those urban economies where women’s work is relatively well rewarded, female-headed households are more common. Likewise, a woman may prefer to be a single parent where male unemployment is high, as in the black ghettos of US cities (Rolison, 1992). Sustaining a female-headed household also depends on a social welfare policy that enables women to survive, support their children outside of marriage and cope with the low market incomes that face women (Orloff, 1993).

But the attractiveness of alternatives to the traditional family is diminished when a collective social mobility strategy is viable. As Patricia Pessar shows in this issue, the independence that monetary income brings may not be enough to compensate women for the perceived loss of status that full-time employment may bring. Middle-class status for her Dominican informant, Margarita, meant that she should not work outside the home but instead attend to the family and its interests. Like Ferndindez-Kelly and Garcia’s (1990) Cuban informant, quoted by Pessar, Margarita prefers exploitation within the family to exploitation outside of it. Children, too, may find attractive alternatives outside the family, such as peer groups, that may counteract the attempts of parents to encourage them to continue with education. Various studies show the negative impact of street gangs and street culture in countering family attempts to foster their childrens’ education even among ethnic groups, like Mexican-Americans, who place a strong emphasis on family cohesion (Horowitz, 1983; Matute-Bianchi, 1986). The rejection of education is strongest in areas of concentrated poverty where employment opportunities are few and education brings no obvious rewards (Ogbu and Matute-Bianchi, 1986). To continue with education in face of contrary peer pressures is likely to depend on exceptional family cohesion. Robin Jarrett (1993) identifies the circumstances under which this occurs in her comprehensive review of studies of black, Mexican-American, Puerto Rican and low- income white youth. To achieve educational mobility in poor neighbourhoods, Jarrett shows, families must encapsulate children from the influence of peers by operating what she calls community-bridging strategies. Community-bridging strategies are based on social networks that involve families and their children with others outside the ghetto who provide role models of economic success. In some circumstances, however, the cohesiveness of low-income communities can contribute to family-based social mobility strategies as Portes and Zhou (1993) show, citing Gibson’s (1989) study of immigrant Sikh families in California. Despite discrimination in school from the white majority, Sikh children retain enough confidence in the system to achieve academically. In this case, parental pressures on children to achieve are supported by the relative economic success of the immigrant group. Also, the Sikh children are protected from peer group alternatives by their geographical distance from other minorities who have been taught by persistent poverty to trust the street more than the school as a means of survival.

Cross-national contrasts and similarities The foci of this section are the different mixes of informal economy and family strategy that result from the regionally specific impact of industrial restructuring. Household strategies and the informal economy are interconnected. The informal economy provides a basis for household economic strategies because it enables household members to combine their labour flexibly and to fit it to the demands of domestic chores and child- caring. Wilson (1993) argues that in the Mexican case gender ideologies that confine



women to the domestic space fit well with the need to conceal informal activity. Household and family relationships also provide the interpersonal trust that enables the informal economy to function outside of formal contract. In addition, family relationships serve to conceal the poor working conditions and low wages of the informal economy.

Perhaps the most fundamental interconnection, however, is the spatial one. Informal economies are heavily localized, drawing on local labour markets and often buying and selling to local clienteles. This does not prevent these localized economies from participating in national or international markets as Gavin Smith points out. Family strategies also tend to be anchored in localities and are constrained by the relationships available there. Both informal economies and household strategies have, then, to be placed in their particular spatial contexts to understand their interrelationships.

Mingione (1991) describes the advent of ‘fragmented societies’ in the developed capitalist world. The nation state has become a less constraining framework of association and regulation as a result of the decline in the significance of translocal work and class identities. This decline has occurred, in part, as a result of the increasing efficiency of the core capitalist economy. One facet of this has been the retreat of the state through programmes of privatization, declines in welfare expenditures and in subsidies to local governments. The impact of these cutbacks has been especially severe in large cities, which have also faced a decline in their tax base due to the relocation of industry and commerce. The large firm has also become leaner, concentrating on essential and profitable functions through a core of stable workers, while less profitable or more volatile functions are subcontracted or performed by temporary workers. These trends have created spatial contexts, particularly in the large cities, that encourage the informal economy and family strategies.

Within the great cities of the developed world, such as New York, London and Tokyo, there are signs of the development of a polarized income and employment structure in the major metropolitan areas which fosters informality (Sassen, 1991b: 245 - 3 19). New York, for example, remains home to major corporate headquarters and to the financial and other business services that maintain the corporate economy. It also is home for a host of people who service, at low levels of income, the more basic needs of the corporate economy: office cleaners and janitors, food preparers and servers, street and shop vendors, house cleaners and baby minders. Increasingly absent are the intermediate income jobs, usually unionized, in dock work, the garment trade and medium-scale engineering. These have been lost to suburban relocation or to competition from cheap imports from developing countries. Enterprise survival, as in the garment trade, is often on the basis of clandestine operations and domestic out-work, as Pessar describes in this issue.

The regional types of informal economy that are covered in this collection are: (a) the creation of an informal economy in the transition from communism to a market economy (the case of Hungary); (b) the limited role of the informal economy in the context of a fully developed welfare state (the case of Britain); (c) the community-dependent nature of the informal economy in the context of concentrated poverty, partial welfare coverage and large-scale immigration (the case of the USA); (d) the multifaceted nature of the informal economy in the context of uneven regional development and a partial welfare state (Italy and Spain); and, in this paper, (e) the role of the informal economy in providing subsistence (the case of Mexico).

The former communist countries In recent years, the second economy became an object of attention in the communist world (Stark, 1989). Stark (1992) points out that under communism personal relations


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were a pervasive means of economic organization and regulation in both the second economy and the socialist sector. These relations were used to coordinate the activities of workers and management, obtain supplies and informally plan targets, thus avoiding the bottlenecks created by rigid bureaucratic planning as well as providing informal income opportunities. The second economy follows a different logic, however, from the informal economy that is replacing it. The second economy is based, as Sik points out, on taking advantage of the inefficiencies and corruption of a fossilized command economy. It was the nearest approximation to the market economy that existed under communism and consequently appeared as the champion of individual choice and initiative.

But the hastily imposed market economy that has followed the fall of communism exposes entrepreneurs to a competition they previously did not have to face. The informal economy becomes, under these conditions, a means of gaining a competitive edge by avoiding regulation. In contrast to the practices of the second economy, the informal economy relies heavily on exploiting labour through avoiding social security obligations and through cutting salaries. The result, Sik argues, is an increase in income inequality. The character of the informal economy is shaped, however, by previous practices. In the Hungarian case, there is a more pervasive use of personal networks to articulate the informal sector with the state sector and the new private sector than is the case in the other regions considered here.

Britain In Britain, these trends have given rise to subcontracting chains in old industrial areas, including domestic out-workers (Phizacklea, 1993). But despite reductions, social security still protects the unemployed in Britain and both social security and other regulatory agencies maintain an effective vigilance to ensure compliance with the rules governing work. There are disincentives to both workers and employers in operating informally in these circumstances. An informal worker who is also receiving welfare will be penalized if discovered, though some will still choose to work off the books. Raising the risks is likely to limit the supply of informal workers and by doing so limits the expansion of informal enterprise.

Indeed, the form of the informal economy that has received most attention in Britain is self-provisioning and informal exchange, as in Pahl’s (1984) study of the Isle of Sheppey. The benefits of this type of informal economy fall mainly to those in work who have the resources to engage in exchanges and buy the necessary equipment for DIY jobs. Adequate incomes and the contacts provided through employment enable the employed to maintain a large kinship and friendship network. One implication is that the unemployed, the elderly and the infirm suffer the twin burden of poverty and of social isolation. In this issue Morris shows, however, that the unemployed are not as isolated as previous research has suggested. Informal exchanges of money and services are an important part of survival strategies.

The United States The growth of an enterprise-based informal economy has been more noticeable in the United States in the absence of universal social security protection resulting, as in the developing world, in many of the unemployed not having access to welfare. Informal employment appears to be most common amongst immigrants, particularly illegal ones, who are often less well protected by social security than are natives (Sassen and Smith, 1992). But a factor that is cited as explaining their participation in the informal economy is the strength of family and co-ethnic networks. Co-ethnic solidarity provides the



informal enterprise with protection against inspection and can also generate the ‘enforceable’ trust that enables small businesses to operate flexibly and without start-up capital through devices such as informal credit systems (Portes and Sensenbrenner, 1993).

As in developing countries, immigrant households often operate household strategies of pooling income and labour to cope with urban life. In some immigrant communities, such as the Chinese in New York, the informal economy flourishes as part of family and community strategies of survival and social mobility. Alongside evidence of solidarity, there are, however, many documented cases of severe exploitation. Thus, Petras (1992) describes the poor working conditions and low pay of Asian immigrants in the garment industry along the New York City-New Jersey-Philadelphia corridor. Many of the immigrants are illegal and have been brought over to the US under conditions approximating that of indentured labour. The subcontracting chains begin with informal sewing shops whose Cambodian and Vietnamese employees take extra work home, they pass through jobbers and trucking firms who are often linked to organized crime, and end with the major retailers of the region.

In contrast to the immigrant communities, cohesive family and community-based strategies are relatively absent in Afro-American ghettoes. So, too, is an informal economy based on small-scale enterprise. The informal income opportunities that are sought in the ghetto are individualistic ones such as working for cash as household workers or child minders. There are high levels of unemployment in the Afro-American ghettos, and, in the ghetto, household strategies contrast with those of immigrants, as Fernindez Kelly shows. Strategies are not aimed at maximizing income, rather at retaining respect within the norms of the community.

Spain and Italy The decentralization that accompanies industrial restructuring creates profitable opportunities for small-scale business when communications and infrastructure are good. Under these conditions, the small-scale firm can offer the quality desired by the large contractor or can combine with other small-scale firms in ‘industrial districts’ to market its product competitively. The risks attending the start-up of new ventures in a new market are reduced by the family basis of the firm and the reliance on informal regulation. However, the development of local regions is more dependent on international markets than in the past. The location decisions of multinational firms are a case in point, since these follow a global not a national strategy.* Although the Valencia region of Spain is configured by its particular combination of informal income opportunities, community and kinship ties, Smith reminds us that the Ford automobile plant remains an important actor.

Some local regions base their economic dynamic on international links, while others, in the same country, become marginalized from the new economic trends. One result is large disparities between regions of the same country not only in levels of income but in the patterns of economic development, as in the case of Italy. In this case, as Mingione shows in this issue, both informal economy and household strategies can mean very different things in the different contexts. The contrast between southern and ncrthern Italy lies in the particular combination of household strategies and informal economic opportunities. In the North, the family basis of the informal economy is part of its success

2 An example is General Motors’ recent (June 1993) decision to shift production of the Cavalier back to the Detroit area from a plant in northern Mexico. Automobile manufacture is organized on a North American basis and production shifts between Mexico, the United States and Canada in obedience to internal company policies that are affected by national political considerations, but not consistently so.

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and, in turn, promotes social mobility in the next generation. In the South, household strategies are subsistence strategies, since there are few economic opportunities, and familism is weak compared to the more developed North.

The Mexican case Uneven development in Mexico has resulted in pockets of capital-intensive enterprise in industry, in the services and in agriculture, that are surrounded by peasant farming, craft production and employment of low productivity in commerce and the personal services. High rates of population growth combined with rapid urbanization have resulted in a growth of the urban labour force that far exceeds the absorptive capacity of modern productive enterprise. Government employment has increased, as in other developing countries, absorbing part of the growth in the labour force, but in the 1980s budget constraints have slowed and at times have reversed public employment growth. In the absence of social security programmes to enable the unemployed and their families to subsist, people have had to find whatever income opportunities they can. Under these conditions, the informal economy has become primarily a subsistence economy. Some of the incomes earned in the informal economy will be high, partly because small-scale entrepreneurs make use of low-cost labour and unpaid family labour. But most incomes are low. This was the conclusion of a national urban survey of micro-enterprises of five or fewer workers (STPS/US Dept of Labor, 1992). These enterprises have, with few exceptions, little in the way of equipment, operate on a hand-to-mouth basis and generate very low incomes.

Problems of measurement make it difficult to give due weight to the various components of the informal economy in Latin America. It has been easiest to identify empirically the informal economy as micro-enterprises of five or less workers, the self- employed and, at times, domestic workers. This is the definition used by the International Labor Office’s Latin American branch (PREALC, 198 1). Small-scale establishments, the self-employed and domestic workers are unlikely to observe applicable regulations concerning social security obligations, tax registration and observance of health and safety rules.

There is a high correlation between these types of employment situation and informality, as the following data taken from the Mexican urban employment survey of 1989 show (Roberts, 1993: table 3.5). In ‘large’ firms approximately 17% of both males and females are not covered by social security as they legally should be. In contrast, this percentage rises to approximately 75 % in micro-enterprises, even in those who follow the legal requirement to register with federal and local a~thorities.~ The costs of registering a business are relatively low in Mexico and the fiscal obligations other than social security are not onerous. The heaviest burden is social security payments on behalf of workers and these, consequently, are the ones most likely to be avoided. The informal economy contains, as Tokman (1991) points out, a continuum of statuses from total illegality, as in the case of non-registered enterprises which do not observe any applicable labour regulations, to near legality when some regulations are observed and some not.

These same Mexican data also show that there is considerable heterogeneity in the informal economy. It is micro-enterprise workers who are the most disadvantaged, whether or not the enterprise is registered. Owners of informal enterprises earn considerably more than their workers. In contrast, the self-employed earn, on average,

3 Micro-enterprise is defined as those firms with 15 or fewer workers in manufacturing and 5 or fewer in other sectors. ‘Large’ firms are those with either more than 15 or more than 5 workers. The rationale for using two different size criteria is that in sectors such as commerce or personal services, a firm of more than 5 is often a substantial one with high levels of capital investment.



similar incomes to those employed in formal firms. However, the really disadvantaged are females, who not only earn substantially less than males but are more likely than males to concentrate in the lowest-paying employment categories (see also Wilson, 1993).

The most difficult period in family life is usually that of the early part of the household cycle when the children are young, their mother takes care of the household and the youth of the father results in a low wage. The principal family strategy has been for households to add members to the labour force, with children delaying their exit from the household and wives increasing their participation in the labour force (Gonzilez de la Rocha, 1991). However, married women have had low employment rates in Mexico, partly as a result of cultural biases against married women working outside the home and partly as a result of the preferences of employers for single women. Thus, as the family cycle advances, the supplementary earners in the household will be the children. The situation is similar to that described by Lamphere (1987) for immigrants in New England in the early part of this century when it was ‘working daughters’ not ‘working mothers’ who provided the additions to family income.

The use of the informal economy in family strategies is determined by location. In the largest metropolitan areas, Mexico City, Guadalajara and Monterrey, industrial restructuring has reduced the proportion of unionized, relatively well-paid jobs. An income structure is emerging that approximates that which Sassen and others have noted for New York and other large US metropolises. There is a growth of high-wage jobs, particularly in the business services sector and in corporate headquarter functions, but an equal growth of low-paid jobs in personal services and the informal economy, and a relative decline in intermediate-wage jobs (Pozos Ponce, 1992). Real wages in these cities dropped sharply during the 1980s, making it increasingly difficult for families to survive without more than one earner. There is evidence that the informal economy provided income opportunities for both wives and children in these three Mexican metropolises (Roberts, 1993: table 3.7). Thus, in households where the average age of children was under 8, the majority of those wives who were employed were either self-employed or worked in micro-enterprises. At later stages in the family cycle when the children were old enough to be employed, approximately half of them were also self-employed or worked in micro-enterprises.

The contrast with the Mexican Border cities is sharp. On the northern border of Mexico, the informal economy is more entrepreneurial and those within it exploit a series of opportunities that are essentially spin-offs from the rapid maquiladora-based economic and population growth of the whole Border region. However, there is little evidence as yet of the rise of technologically sophisticated small firms based on local capital and relationships that can feed off this growth and create the equivalent of the industrial districts of the Third Italy. The main beneficiaries of the growth of the Border region have been multinational companies and the large retailing chains which have established supermarkets and hypermarkets to cater for the population on both sides. The maquiladoras have relatively few linkages to the local economy, many of them being assembly operations that import supplies and export the assembled product. Also, the insistence of the large firms on high quality in subcontracting requires a degree of technological sophistication that is beyond most Mexican small firms. Often, for example, the subcontracting by maquiladoras of services such as maintenance and cleaning is done to firms on the US side. The principal employment for both wives and children at all stages in the household cycle is formal employment, particularly in manufacturing (ibid. : table 3.7). However, on the Border, the informal economy provides incomes that are as high as or higher than formal employment from the multiple opportunities to profit from cross-border traffic in tourism, short-haul transport and the demand from the US side for ‘cheap’ Mexican services such as auto repairs, medicine or dentistry (Roberts, 1992). The maquiladora sector pays wages that are lower in real terms than non-maquiladora large firms in the interior of Mexico. Thus, though wives and


18 Bryan Roberts

children are more likely to be employed in formal enterprises than is the case in the three metropolises of the interior, overall household income is little better in real terms.

We can explore further the changing match between family work strategies and employment opportunities by extending the comparisons to include four cities on the Texas side of the B ~ r d e r . ~ In the Texas cities of the Border, most employment is in the formal sector, with government employment being particularly important. The level of manufacturing employment is relatively low and this is mainly concentrated in large-scale firms. Most employment is generated in commerce and the services, and these are often branches of large retailing and fast food chains or are concessions. The only available statistical indicator of informality - the level of self-employment reported in the 1990 US Census - is low, with some 9% of the labour force of the Texas cities being full-time self-employed. The equivalent figure on the Mexican side is just over 20%. Self- employment is most frequent amongst the non-hispanic population, with some 14% reporting self-employment income, followed by Mexican immigrants with l o%, and is least frequent amongst Mexican-Americans, of whom only 7 % report self-employment income. The suggestion, then, is that for the Mexican immigrants on the Border, self- employment is a subsistence strategy, while it is Anglos who have been most successful in exploiting the small-scale entrepreneurial opportunities of the Border economy. Mexican- Americans are the group most likely to be employed by others. In contrast to the Mexican immigrants, they have the advantage of citizenship in obtaining jobs, particularly in the government sector. Their average employee incomes are, however, lower than those of non-hispanics.

One fundamental change in household economic strategies amongst immigrants in the United States has been the shift, as Lamphere (1987) shows, to households with working mothers. This shift is due in part to the changing structure of job opportunities that inhibit the full-time employment of adolescents while creating opportunities for married women. The shift is also based on children needing to spend more time in education if they are to obtain a job. But for low-income families, ‘working wives’ is as ambiguous a strategy for achieving social mobility as ‘working daughters’ was at the turn of the century in the US. The futures of these daughters was often sacrificed to the immediate welfare of the family. Nowadays, mothers at work may be essential if families are to meet their income needs, but, as Lamphere (1987) shows in the case of present-day Colombian immigrants, difficulties with child care can create severe pressures on the family.

In this context, note the sources of family-wage labour in households of migrants and natives on both sides of the US-Mexican border (Table 1). On the Mexican side, working children are more important than are working wives. Indeed, for the Border cities, the parallel is close to that of the New England mill towns described by Hareven (1982) and Lamphere (1987), since many of these working children are daughters employed by the maquiladoras. The proportion of working children is highest amongst migrant households, as are the number employed per household. The migrant households operate a family-wage economy in which all family members available to work enter the labour market and pool resources.

On the Mexican side of the Border, the contrast is sharp between migrant households and native households since native households approximate the ‘family-consumer economy’ in which husbands are able to support wives or children’s absence from the labour market. Children in native households are more likely to stay on in education than those in migrant households.

4 The four cities are El Paso, Laredo, Brownsville and McAllen, with their combined labour force of approximately 580,OO workers. These cities, along with their Mexican counterparts (Matamoros, Nuevo Laredo, Reynosa and Ciudad Juarez), are being studied as part of a project funded by the Ford and McArthur Foundations on cross-border linkages, labour markets and small-scale enterprise. The data reported for the Texas cities are provisional analyses of the 1990 US Census.



Table 1 Structure of household employment of migrants and natives, US and Mexican cities, 1 986- 1 990

Household United States Border cities Mexican Border Mexico City labour force N=5580 cities N =9285 N=5041 characteristics

Non- Mexican- Mexican Native Migrant Native Migrant hispanic American immigrant (34.8%) (65.2%) (57.2%) (42.8%) native* (47.3%) (28.2%) (24.5%)

% Household employment:

Male heads 48.8 34.7 44.1 63.2 45.6 52.0 43.8 Female heads 38.6 30.2 33.9 13.9 8.3 13.7 10.7 Children 10.5 30.5 15.1 15.8 33.4 22.3 31.7 Other 2.1 4.6 6.9 7.1 12.7 12.0 13.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 No. employed per household 1.7 2.4 1.9 2.0 2.5 2.2 2.6

* The ethnidmigrant status of all categories in the table are those of the householder. Mexican immigrants are those living in the US who were born in Mexico; Mexican-Americans are those who report their ancestry as Mexican but who were born in the US; in the Mexican cities, natives are those born in the cities and migrants those who were born elsewhere. Source: US data from the 1 % 1990 Census PUMS for Standard Metropolitan Areas of El Paso, Laredo, Brownsville and McAllen. Mexican data from the Enuesra Nacional de Migracidn Urbana of 1986/7, Consejo Nacional de Poblacidn, Mexico, DF.

On the US side of the Border, the patterns of labour force participation are strikingly different. Female heads of household are much more likely to be employed than on the Mexican side. Remember that these two sides are separated by only a few yards of water and the cities from which these data are taken are, in effect, binational conglomerations. The Mexican immigrant group, for instance, will have many relatives and friends across the Border and be in constant contact. On the US side of the Border, it is less usual for children in the household to be employed. In terms of the non-hispanic group, this reflects their tendency to stay on in school and to leave home after school to set up an independent household. Mexican immigrants also have fewer children in employment, though this reflects the younger average age of this group. Among Mexican-Americans, however, the proportions of household employment contributed by children and female heads is approximately the same. Mexican-Americans are a low-income group, most of whom are forced to adopt a family-wage economy to survive, in which children leave school early and take whatever jobs are available.

Final comment The Mexican case and the cross-border comparisons with the US illustrate the eclectic fit between family strategies and the informal economy. In the interior of Mexico, the informal economy mainly provides low-paid but flexible forms of work for families which desperately need extra incomes to survive. In the Mexican Border cities, however, the informal economy is more dynamic and allows those with few resources to build a business, using family labour and kinship networks. Interestingly enough, this path to social mobility, frequently followed by other ethnic groups in the United States and 0 Joint Editors and Basil Blackwell Ltd 1994

20 Bryan Roberts

present in parts of Europe, is not taken by Mexican-Americans. Nor are there, as yet, examples of cross-border economic collaboration amongst small-scale entrepreneurs. Unlike Cubans in Miami, Mexican-Americans, despite being the majority population in these Border cities, have not been able to construct a strong economic enclave in which co-ethnics help each other in business and in employment. Economic opportunities in the Texas Border cities have been controlled by non-hispanics and the recent ‘globalization’ of the Border economy may, if anything, further strengthen that hold. The presence of the large corporation is more evident on both sides of the Border than it was 20 years ago, bringing in from the outside managers and technical staff. This presence is likely to have increased the levels of capital resources and technological know-how needed for even small-scale ventures beyond the resources of local entrepreneurs and their social networks. This remains, however, a research hypothesis.

Bryan Roberts, Population Research Center, University of Texas at Austin, 1800 Main Building, Austin, Texas 78712, USA

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Informal Economy and Family Strategies