The Informal Sector
In developing countries today, the majority of new jobs are being created in the so-called informal sector. Concerted action is required to improve the incomes, productivity and working conditions of the very large and growing number of workers involved. Where institutional support exists and access to affordable credit is available, training can make a big difference.
The increased demand for skills resulting from technological change and globalized competition places numerous workers at risk of exclusion from employment or segregation into low-paying and insecure segments of the labour market. In industrialized countries, this process is manifested in very high rates of unemployment, low wages and the rise of part-time and temporary jobs. In developing countries, says the ILO's World Employment Report 1998-99, "the lack of jobs in the formal sector of the economy as well as the lack of skills in a large part of the labour force has resulted in the growth of a substantial informal sector in which most workers are in low-paid employment under unregulated and poor working conditions".
The informal sector is a major provider of urban jobs. "In Africa as a whole", says the report, "informal employment accounts for over 60% of total urban employment". Among individual countries for which statistics are available, the figures reach 57% in Bolivia and Madagascar, 56% in Tanzania, 53% in Colombia, 48% in Thailand and 46% in Venezuela.
The informal sector encompasses largely unrecognized, unrecorded and unregulated small-scale activities. It includes small enterprises with hired workers, household enterprises using family labour and the self-employed. Production processes characteristically rely on high levels of working capital as against fixed capital. Formal contracts between employers and employees or between buyers and sellers are rare and the often invisible activities involved usually fall below, or outside, the fiscal net.
Among the different categories in the informal sector, small and micro enterprises represent "the economically stronger and more dynamic element", according to the ILO report. A significant part of it is connected to the formal sector through subcontracting arrangements. Most of the enterprises concerned are independent "and cater to markets at the lower end of the income scale". Globalization and increasing competition increase the volatility of the environment in which these enterprises operate and demand better quality standards and access to new skills, a difficult challenge for informal enterprises because of their weak resource base.
A second category is composed of household-based enterprises where most of the work is carried out by members of the family - largely unpaid female labour. With few exceptions, the families involved find it impossible to break out of low incomes and poverty.
A third category, the independent service subsector - made up of maids, street vendors, cleaners, street barbers, shoe-shine boys, etc., and of casual, unskilled labourers - accounts, in terms of size, for the bulk of the informal sector. "The skills required by these occupations are the lowest in the informal skill hierarchy", notes the report.
Earnings in the informal sector vary greatly, "as does the level of education, which on average is low". Workers with some education are generally found in the more attractive and better-paying jobs. Those without, find it extremely difficult to take advantage of informal training opportunities to learn new skills and thus to overcome the low-income trap.
"Training is important in the transfer and development of skills and has a direct impact on productivity and therefore on income", says the report. Entrepreneurs in the informal sector place a high value on it as, among other reasons, apprentices often stay on as skilled labour in their workshops. Others start small businesses of their own. "In Kenya, with its relatively well developed formal training system, there are more apprentices enrolled in the informal sector than trainees in the formal sector", while "in Egypt, over 80% of craftsmen in the construction sector acquire their skills through traditional apprenticeship".
Besides informal apprenticeship, government and NGO-based training programmes also exist. Usually directed at owners or future owners of micro enterprises, these take the form of extension services, vocational training or business management programmes. "NGOs in particular have been in the forefront of training initiatives in the informal sector".
There are examples of successful NGO training courses for the self-employed. "The Centre for Educational Research and Development (CIDE) in Chile, for instance, has provided training for over 6,000 socially disadvantaged youth and women in shanty towns", says the report adding that, by contrast, "there are not many cases of successful government-sponsored training for self-employment in the informal sector".
"Training policy", argues the report, "would do better to address the needs of those already established in informal production and who require upgrading of specific skills" through an introduction, for example, to new technologies and new products.
In addition, "existing apprenticeship systems in the micro enterprise sector need to be upgraded". Successful as informal apprenticeship may have proved to be in transferring skills from one generation to the next, "it suffers from serious problems and there is ample scope for improvement", says the ILO report which goes on to identify strategies to improve the quality of the training provided. These include:
Even the household and independent service subsectors, where poverty is most pronounced, can be usefully targeted for training activities. "Though low in the skill hierarchy, workers here too possess skills, many of which (...) would benefit from information and advice on technology, access to better tools, and training in business and book-keeping skills". Producers' groups and co-operatives where education and training are provided have proved effective means of providing these services and foster successful business development.
Promoting an integrated approach
Training programmes have often failed, warns the report, "because of the unfamiliar terminology used and bureaucratic attitudes adopted - treating participants as inferior - and, most importantly, because training is considered as a single-intervention approach", requiring no complementary inputs. "Lack of institutional support and credit often render the new skills acquired through training unexploitable". It is therefore "crucial that training not be designed in isolation from the other necessary inputs".
"If training is complemented with credit at low rates of interest through a decentralized system of loan delivery and collection", the report concludes, "it is possible to make a real difference to incomes in the informal sector".