informal economy

The Informal Econmy in Turkey

Burhanettin Noğay

Ege University 2010-2011

The Faculty of Economics and Administrative Sciences

Contents

2. How to define the informal economy

3.How to measure the informal economy

1.Introduction

4.Especially exposed groups within the informal economy

5.Size of the informal economy in Turkey

6. Causes of the informal economy in Turkey

7.An advice instead of results

3a. Damages of the informal economy

1. Introduction

The Informal Economy :

• Informal economy has a special place and importance for developing countries such as Turkey.

• Weighted share of taxes is a known fact that the public finances.

• The ratio of tax revenues in total public revenues is 90% in developed countries but 70% in developing countries.

• Social , psychological, political and moral dimensions can determine informal economy.

• The official statisticians have referred to this segment – or a closely comparable one – by various names like “unregistered”, “unorganised” and “unrecorded” segment of the economy.

1.Introduction

2. How to define the informal economy

Formal Definition of“Informal Economy”

All economic activities by workers and economic units that are – in law or in practice – not covered or insufficiently covered by formal arrangements.

(“Conclusions concerning decent work and the informal sector”: at the 90th International Labour Conference 2002)

The informal economy can be also called as the black economy, cash economy, hidden economy, illegal economy,

informal sector, underground economy, or unobservable

economy.

if the intension is to emphasize the clandestineness of economic activities

The informal economy is sometimes also called as the shadow economy, hiddeneconomy, disguised economy, underground economy, or twilight economy

if the intension is to emphasize the illegality of activities

as the black economy, gray economy, or illegal economy or illicit economy

if the intension is to emphasize that activities are disguised from State

as unofficial economy, non-formal economy, informal economy or unregisteredeconomy

if the intension is to emphasize that activities are left outside official GNP due to insignificance thereof.

as marginal economy, second economy, or secondary economy

1.1 Definitions of the Informal Sector

The basic nature of the informal sector units can be summarized in the following way

with the words of ILO (1993: 7, 8, 39): Informal sector units “... generally work at a low

level of organisation, have little or no division between labour and capital, and carry

on their activities on a small scale.

They are run by self-employed persons working alone, with the help of unpaid family

members or, in some cases, a few hired workers or apprentices ...

Informal sector units can adapt quickly to changing economic conditions because they

can lay off workers easily or hire additional workers; labour relations are based on

personal and social relations rather than formal guarantees.”

1.2 General characteristics of the informal economy

The informal economy is largely characterised by:– Low entry requirements in terms of capital and professional qualifications.– A small scale of operations.– Skills often acquired outside of formal education.– Labour-intensive methods of production and adapted technology.

1.3 Definition by activities (economic units/enterprises)

The international concept also distinguishes between the two

subcategories of informal economy enterprises :

– Family enterprises comprised of independent and own-

account workers, family workers, apprentices and workers,

and with no permanent employees.

– Micro-enterprises comprised of units with less than 5 to 10

employees (or jobs), and which are not registered as

enterprises

1.4 Definition by employment categories

Informal employment is all remunerative work, both self-employment and wage

employment that is not recognised, regulated, or protected by existing legal or

regulatory frameworks as well as non-remunerative work undertaken in an income-

producing enterprise. The informal economy can be described through the following

employment categories :

– (a) Self-employed, i.e. own-account workers , heads of family businesses and unpaid

family workers ;

– (b) Wage workers, i.e. employees of informal enterprises, casual workers without a

fixed employer, home workers , paid domestic workers, temporary and part-time

workers and unregistered workers.

– (c) Employers, i.e. owners and owner operators of informal enterprises

1.5 Definition based on the location of informal economy actors

The categories are:1. Home-based workers:a) Dependent home-based workers which:– Work at home outside the establishment that buys theirproduct;– Agree by prior arrangements to supply goods or services to aparticular enterprise;– Get remunerated through what is paid for their products;– Do not employ workers on a regular basis.b) Independent home-based workers are those who work in theirhome and deliver their products or services to prospective buyers.Their characteristics are those of the self-employed and areclassified as part of the “account workers”.2. Street traders and street vendors.3. Itinerant, seasonal or temporary job workers on building sites or roadworks.4. Those in between the streets and home, e.g. waste collectors.

1.Indirect measurement methods

2.Direct measurement methods

•Many methods used in the calculation of the informal economy. The method of calculation due to the differences from country to country leadsto very different conclusions.

•Trying to measure the informal economy methods are usually direct, and indirect


3a. Damages of the informal economy

• The informal economy comprises some of the most exposed as well as poor groups

on the labour market. Although the informal economy actors are not all poor, the

majority of the poor are found in the informal economy.


• Non-working age population such as children

• Unfortunately in Turkey 60 % of women employed in the informal


•Looking at the size of the informal economy by countries would be important for us to identify the point where we intend to reach to.

•Friedrich Schneider (2002) has estimated size of the informal economy in 110 developing, transition and OECD countries.

• in developing countries is 41%

•in transition countries 38%

•in OECD countries 18%

•With 32.1% Turkey is pretty above the OECD average (Graph 1).

Economy StatisticsInformal economy (most recent)by country

http://www.nationmaster.com/cat/eco-economy

6. Causes of the informal economy in Turkey

1. Level of development in the countries and there are no necessary investments

2.Public or private sector cannot create sufficient employment opportunities for registered

3.The share of public sector in economic activities

4. Injustice in income distribution and the width of low-income group

5.Tax Policy

7.Inflation and Economic Crises

6.Demography

8. Inability in some institution about tax audit

• Social ,

psychological, political and moral dimensions

can determine informal economy.

7.An advice instead of results

• Only the number of branch manager (I don’t mention workers!!) in Republic of Turkey Ministry of Environment and Forest is more than the number of employed in Ministry of Finance

• Republic of Turkey Ministry of Finance employees 30 thousand people.Only 10 thousand of them graduated.

http://www.maliye.gov.tr/pergen/istatistik/2005/ogrenim.asp

http://www.cevreorman.gov.tr/teskilat/index.htm

•Government should provide sufficient and qualified staff

Maybe the governments don’t want to solve this problem ?

WHY ?

• The informal economy creates demand to formal economy

• The informal economy provides employment

We hope it is not so

Informality is not a fate,

but everyone must do its part

“The biggest space in the world is

the space for improvement!”

Thank you!!!!