Issues in the Labour Market

The Informal Sector: New Directions for Businesses

Transitions to Formal Employment

Mariam, now 22 years old, dresses up to leave for work with a smile on her face. She is now a formal employee in the factory where she was previously working as a casual worker. She is a machine operator at the factory. Mariam owes a lot to Fatema and her employer for the training they provided. The training developed her and the skills of other entry level female workers. It also built their confidence so that they can be promoted to positions as operators and supervisors. It worked for Mariam.

When Mariam began working at the factory, she did not understand her work or how her job fitted in with her colleagues’ work. She did not know anything about her employer’s business. She did not understand the salary scheme nor her rights as an employee. During the training sessions she learned what her work actually meant and what her employer expected from her.

The training programs also encouraged Mariam to be ambitious and to think about a career rather than just her current job. Mariam studied workplace etiquette and how to talk to different people, about life skills, and how to operate factory machines. Mariam now knows about salaries, performance bonuses and overtime. Mariam hopes to become the female employee of the month after seeing Fatema win it for the last three years. After work she attends evening school at the factory for workers who did not finish primary school. Evening school has been running for over two years. Fatema and a fellow colleague are the instructors. Mariam loves reading and writing. After each class, Mariam’s face starts glows. One day she will help Fatema teach the classes, she hopes.

The Mariam that we see now is way different from the old Mariam. Now, she encourages her nephews and nieces to concentrate on their studies. She shares her work experience with her family. When she speaks, you can no longer sense the shyness in her voice. She speaks confidently, and is always ready to help her co-workers. She has made many new friends in the factory. Even the managers greet and ask Mariam about her life outside the factory. Mariam works with enthusiasm and dedication. She manages the machine by herself. She has even learned how to repair it whenever the machine jams. Mariam’s wage has also increased. She received a bonus last month. Mariam’s salary is deposited in her bank account on a fixed date every month. Her factory in collaboration with a local NGO had started a savings scheme for female workers. Mariam saves half of her salary every month. She thinks about repairing her old village house with her personal savings, and she pays her own house rent and even sends money to her parents back home.

Mariam no longer looks back on her life as domestic worker. She no longer feels unsafe at work. She knows her rights as a worker, and she knows if she gives one hundred per cent, she will do well. She knows that her work is what defines her and that just like any other employee she too has a job contract, right to sick leave, holidays, holiday bonuses and other benefits. Mariam is now an example for many girls in her village. Whenever somebody in her village thinks about sending their child to the capital to work as a domestic worker, Mariam’s family stops them, and tells her story. Mariam had a very difficult journey but she never looks back. All she wants is to move forward in life and to inspire others. She wants to become one of the factory supervisors.

Addressing Low Productivity in the Informal Sector

In this series of three posts we told the story of our fictional heroine, Mariam. Her work life began, like many real women, as a child casually engaged as a live-in maid in a family house. Later she found work in a garments factory. But she was still employed informally. There Maryam struggled to perform or even understand what exactly was expected of her. Finally in this last part of the trilogy we find Maryam thriving at work.

Read the first post in the series here

Read the second post in the series here

Using this fictional biography we looked at the early experiences of work and how these experiences can harm an individual’s future productivity at work. We identified low self-esteem, missed education, and a poor understanding of employment as significant impediments to a worker’s productivity. Finally, to conclude the story, we describe how employers can redress the negative effects of early work experiences and create motivated and productive workers.

Early Experiences of Work

Workers emerging from informal work arrangements are poorly prepared for formal employment with its requirements for performance, motivation, self-confidence, trainability, and compliance with regulations.

For young women with a limited level of education, early work experiences leave them ill prepared for formal employment.

The social characteristics of informal work shape the psychological experience of employment. Our ideas about work place behavior, motivation, and productivity do not apply to the informal sector or to workers entering into industry with unfinished schooling.

Informal employees may see the work relationship as patronage rather than contractual or transactional. They may associate work with abuse or other harmful experiences. They are poorly prepared for formal employment with its requirements for performance, motivation, self-confidence, trainability, and compliance with regulations.

People in the informal sector may not fully understand the concept of employment. They struggle to understand written job contracts. Similarly, they might not share the principles of the unwritten social contract between an employer and employee. The transaction of work-for-wage binds worker and employee to a mutually understood agreement. For example, a worker can rightfully expect that working beyond normal requirements incurs a benefit or compensation. That benefit may be additional pay, opportunities for promotion and training, or recognition.

Accounting for Low productivity

As we trace our fictional heroine, Mariam, through her career we try to understand the psychology of work for women and men like Mariam.  By following Mariam’s trajectory, we can see that several factors might impact her capacity to work effectively or be productive. Her early experiences have harmed her self-esteem and self-confidence. She has missed out on even a rudimentary education and never developed the cognitive and social skills that are integral to all work. The informal sector has different rules; the wider social contract between employer and employee is not evident. The lack of professional management in informal work means that workers may not be sufficiently directed or motivated possibly resulting in lower productivity.

From Informal to Formal Employment

What can employers do to help workers transition from formal to informal employment?

Government, skills councils, employers, industry associations, and workers representatives all have a role to play in supporting the transition from informal to formal employment. This includes creating more jobs and incentivizing the transition to formal employment arrangements. Formal employment can also grow by formalizing trades and associated qualifications. This gives employers the confidence to recognize the value of potential recruits and employees the confidence to seek out decent work opportunities. Government and workers representatives have a role in regulating employment conditions.

But in this article we focus more on the simple measures that business owners and employers can take. These measures can help workers with informal employment backgrounds transition to formal employment conditions and become more productive in the process.

What can Business Owners Do?

Businesses that invest in their employees and create attractive work can quickly become the employer of choice for workers looking for their first job.

Business owner and employers significantly increase the productivity of their employees by supporting new entry level employees make the transition from informal to formal employment.

Here are seven measures business owners can take to increase the productivity of new employees:

1.     Create clear objectives

Investing in human resources involves immediate costs. Businesses must be clear about the objectives for developing entry level works or incurring the obligations associated with formal employment. There are many good business reasons to support the transition of women and men into formal employment.

These reasons include becoming competitive in the market for labour. Despite high levels of rural unemployment and underemployment and large numbers of school leavers entering the labour market every years, major industries struggle to find suitable workers in their catchments. Ironically there is a competition for labour in specific environments. Companies that appear more attractive to workers will have a competitive advantage in recruitment of scarce human resources.

Businesses that invest in their employees and create attractive work can quickly become the employer of choice for workers looking for their first job. The objective is to expand the pool of potential recruits and become competitive in the acquisition of scarce human resources.

In addition, developing entry level employees increases the supply of potential candidates for higher level positions. This can create a more competitive wage environment for higher level positions and stabilize the wage costs of skilled workers where supply is even more scarce. This can contribute to the overall sustainability of the business by ensuring a supply of skilled, productive workers.

2.     Restructure jobs

The transition from lower skilled informal employment to more higher skilled formal employment is a big step. It is difficult for most entry level employees to cross that that gap in one step. Many businesses have restructured lower level jobs by developing positions between entry level worker and skilled operator known as “assistant” positions that serve a similar role to apprenticeships. In these roles assistants nominally help a higher skilled worker but also observe and learn the requirements of the position so that they can move into that position when an opportunity opens up. The creation of these facilitating roles is an effective means of transitioning workers from informal to formal work; from lower skilled to more productive and higher skilled work.

3.     Select for success

Not all employees will be capable of taking on higher skilled positions. It is possible to test for aptitude and to assess current levels of motivation and performance. Selecting employees on merit or transparent measures that  predict success in future roles is good human resource management. Choose the more capable and they will succeed.

4.     Train and develop

Training and development should encompass new technical skills such as how to operate and maintain a specific piece of machinery. But training must also address self-esteem and self-confidence. Development to build confidence is as important as learning new technical skills. Fortunately, skill training, confidence building and promotion is a virtuous circle. Remedial schooling may also have positive impacts on productivity. Numerical and verbal skills are essential for nearly all jobs. Completing schooling may also remove social stigma and indirectly improve self-confidence.

Learning about the world of work should also be part of any training and development programme. There are long established and usually unwritten rules about work behavior and the mutual expectations between employers and employees. For many emerging from lower educational backgrounds or informal employment these are not well understood. Another important element of employment is financial literacy. Understanding taxes, entitlements, bank accounts, and how to save effectively are important components of life but particularly important to new employees.

5.     Create role models

Role models, those that have succeeded in earlier iterations of the programme, have a high symbolic value. They signal what is possible to those following in their footsteps. They carve a path through the organizational hierarchy allowing others to follow. Role models should be cherished but it is important to understand that the burden of change does not fall solely on a few brave individuals. The onus is on the organization to create an environment where success is locked in and erosion of progress is guarded against.

6.     Communicate changes

In many cases a business will focus on encouraging women to enter the workforce. There will be new opportunities for women. Men may react to this in different ways. Men may simply question the fundamental fairness of directing resources to women. But they may also be more directly obstructive. Both men and women can raise cultural or religious objections to the changes implied by developing roles for women in the workforce. Some may even directly impede the activities or objectives of the programme by refusing to cooperate or withdrawing their support.

Clear communication of the reasons, benefits and allaying men’s fears is important to limit resistance or prevent a backlash to the programme.

7.     Align incentives

While women are often the focus of a transition programme, all employees can be incentivized to support them. Those that mentor or teach women new skills can be assigned bonuses for successful graduation of their apprentices. Senior factory managers should have targets involving the successful integration of workers into formal employment embedded into their incentive and bonus structure. These are simple ways to align everyone’s incentives with the programme.

Read how Quay Asia is helping Olympic Industries to create careers for entry level women workers.

Government and Labour Policies

What can government do to help workers transition from formal to informal employment?

This article is primarily for the benefit of the private sector but government has a very powerful role in creating formal employment opportunities. Improving the quality of education, working with business to design better vocation training, encouraging foreign and domestic investment, creating a conducive business environment, and formulating labour regulations that protect workers but do not discourage businesses from employing people are all key objectives for government.

Typically, workers in the informal sector have no education or only primary level education. They are often unskilled. Many people infer that productivity is low in the informal sector because workers are unskilled. This gives rise to many of the supply driven workforce development programs. These consist of the development of vocational educational systems including curricula, vocational standards and schools.

However, this approach to addressing productivity in the informal sector can only be successful if jobs are being created in the formal sector. The supply of skilled labour is a necessary but not sufficient condition for the growth of formal employment. There are many demand side factor that inhibit this growth. Successful governments work with the private sector to developed balanced interventions in both the supply of and the demand for labour.

Phillip Choudhury with thanks to Mandy Mukhuti for Mariam’s story

Originally published in 2018