The Pandemic Could Transform Informal Labor

The Pandemic Could Transform Informal Labor

(Bloomberg Opinion) -- As coronavirus-induced lockdowns loom on the horizon in low-middle and low-income countries in the Global South, governments are confronting the challenge of massive unemployment in the informal economy. According to the International Labor Organization, 85.8% of employment in Africa is informal. The proportion is 68.2% in Asia and the Pacific, 68.6% in the Arab world, 40% in the Americas and 25.1% in Europe and Central Asia. In total, 93% of the world’s informal jobs are in emerging and developing countries.

As elsewhere in the Global South, governments in the Middle East and North Africa are discovering that having so many people working in informal activities—whether as irregular labor, self-employed or in household enterprises that depend on daily transactions—makes it hard to orchestrate and sustain prolonged lockdowns.

In the short run, this increases the vulnerability of economies like those of Egypt, Tunisia and Morocco, where informality ranges between 30% and 40% of GDP.  But seen from a higher altitude, the epidemic might constitute an historical juncture in which state-economy relations are reconfigured. The crisis could force states to improve regulation of the informal economy, and to incorporate once marginalized social segments into formal institutional arrangements.

Efforts to coordinate partial or full lockdowns are shedding new light on the regulatory no-man’s land that is the informal economy. This is especially true in the developing world, where hundreds of millions work on an informal basis, either as temporary workers with no contracts and no basic social protection or as self-employed and household enterprises, producing directly for market exchange. Studies show these jobs are concentrated among the urban poor, and especially among the young.

Vulnerable employment, which refers to the percentage of family-workers and on- account workers of total employment, stood at 48%, 27%, 21% and 20% in Morocco, Algeria, Egypt and Tunisia respectively in 2019. This kind of work is precarious at the best of times, and dependent on daily transactions. It is also beyond state registration and regulation.

In these conditions, a lockdown difficult to organize, given the lack of channels of communication and coordination with huge segments of active workers. It is also unlikely to be sustainable for a long period of time, given the hand-to-mouth nature of these activities.

Governments have an uphill struggle to force makeshift markets to shut down and clear vendors and peddlers off the streets. It is just as hard to deal with micro and small businesses that use informal workers. The bigger the informal economy, the poorer the capacity of the state to respond adequately to a public-health emergency, especially if this proves to be a lengthy crisis.

The prolonged nature of this crisis and its scale could alter the incentive structure toward more formalization of work rather than on formalization of enterprises and assets, which has been the traditional focus of governments and their international sponsors.

Until now, economic reform has tended to prioritize business at the expense of labor, dealing with workers’ informality as a feature of free market exchange. But high levels of informality have been associated with the perpetuation of low-skill, low-value and low-productivity economic structures.

For now, countries in the Middle East and North Africa can use existing universal food-subsidy systems to tide their urban poor over the duration of lockdowns. These systems can also be used for cash handouts in the event of a total and lengthy lockdown. Such arrangements can ultimately lead to the inclusion of informal workers and the self-employed in social protection schemes that give them access to healthcare and benefits in future emergencies.

In turn, states have discovered the importance of establishing channels of communication and coordination with the broad base of micro and small private businesses. In Egypt, the government is trying to coordinate responses to the epidemic with the Federation of Industries, which has the membership of tens of thousands of private firms, many of which are in the small and medium categories. These channels have historically been feeble and largely unrepresentative of the private sector. The current crisis could lead to their being reinvented for better economy-wide coordination.

Moreover, this crisis will create the incentives for states to collect and process information about previously marginalized micro and small businesses and informal workers. This could create incentives among those in the informal economy to organize and push for measures for their incorporation into formal safety nets, especially if this happens simultaneously in several countries.

Doubtless, this won’t pass without some contestation with the state and employers. But the experience of Western countries—where many of today’s institutional arrangements and regulatory capacities can be traced to times of emergency, like the Great Depression and the two World Wars—allows for optimism that the coronavirus crisis could have a transformational impact across the Global South.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Amr Adly is an assistant professor at the American University in Cairo. He is the author of "State Reform and Development in the Middle East."

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