Perceptions and Motivations

This is a page on perceptions and motivations of informality.

What are we learning about informality?

In March 2021, the UNDP Accelerator Labs hosted two learning circles on informality to dive deeper into the perceptions and motivations in the informal sectors. We set ourselves to exchange experiences around a common set of questions:

- How do informal workers see themselves? - What are the motivations for doing this work?

These reflections come from exchanging experiences and knowledge with 19 UNDP Accelerator Labs. This wiki unpacks what we think we have learned about the drivers and dynamics of informality. For more on our iterative learning from continuous reflection, check out our blogs at acceleratorlabs.undp.org

Attributes of Informality

Informality is a feature, not a bug

Informality is often entrenched and thus underrepresented through statistics. Those in informal jobs often do not want exposure to regulators out of fear of retaliation. In order to open up policy discussions, this work is an attempt to document motivations to understand the drivers of informality. Among what is known: more than 6 out of 10 workers and 4 out of 5 enterprises in the world operate in the informal economy. Based on lab experience, among those who rely on informal activities for their source of income, informality is often based on pragmatism as few to no other alternatives are available when people do not hold a formal education, are unemployed, and are living in a vulnerable socio-economic situation. The intent of our R&D focus is to try to address informality as a phenomenon occurring in the shadows and with observable vulnerabilities, but also recognize its value in terms of ingenuity and entrepreneurship. While informality is inherently linked to vulnerability, informal enterprises can also be a source of employment, entrepreneurship and innovation. Recognizing this also opens the door to consider how and where informality may also contribute to social equity, resilience and environmental sustainability.

Distinguishing types of work in the Informal Economy

When discussing the informal economy, we are using ILO distinctions to narrow down informality into at least two categories: informal businesses and informal employment. Informal Businesses are those businesses or enterprises that pursue a business model but are not registered. Informal labor represents the workers employed either by formal or informal business but are unregistered and lack social protection, labor rights, or appropriate working conditions. Both categories are part of the informal economy, are interconnected and interdependent.

The experiential evidence of our labs point to positive traits of the informal sector as almost exclusively associated with informal businesses, either through self-employment or owners running informal businesses. In contrast, we do not see evidence in workers who depend on informal arrangements with employers. In terms of scope, we address informal businesses and self-employed informal workers, leaving informal labor outside the scope of this learning exploration.

What drives/ motivates people to work in the informal sector?

Two clear motivations were mentioned: a) survival and b) perceptions of flexibility. Some informal workers, usually self-employed, try to generate a small income for day-to-day subsistence. On the other hand, informal business owners are also aware of existing markets and are motivated by developing a business model that can grow over time. Ultimately, however, informal businesses can remain stuck in low levels of productivity. Informal businesses cannot afford up to date technology, scale, highly trained workers, etc. so they are forced to compete on the basis of their flexibility and by minimizing input costs

Survival as a motivation For many, informality is a pragmatic opportunity as no other alternatives are available when people are left out with limited options, may or may not have a formal education, are unemployed, and live in vulnerable socio-economic situations. Their main motivation in getting in working informally is to survive, earn a living, and for a few, the hope of a safer future.

Perceptions of flexibility as a motivation

Informal enterprises, though, are not always driven exclusively by survival. For example, a study in Vietnam shows that about 61% of informal business owners have created their business for a reason other than survival or lack of opportunities elsewhere. Experience within the UNDP Accelerator Labs points to drivers for informality beyond exigency: flexibility, freedom, agility, and self-organization.

From our experiences, there is a pervasive perception that informality enables flexibility. For example, people work in informal settings to be able to also study, start a business, take care of children, or do household chores. Freedom in this context is interpreted as the opportunity to earn multiple income streams. An example of this perceived freedom can be found among waste pickers in Viet Nam. They are diverse individuals, very often women who take this job as it allows them to supplement their income while having other commitments. Some work on the street to pick up trash, some work at scraps shops to trade valuable waste, others work as business owners as part of the waste supply chain.

Perceptions of agility refer to one’s ability to adapt to new needs, set up a business faster, or not have to deal with bureaucracy. An example of agility is in Ghana where the informal collection is a very popular option for waste disposal. A frequent narrative is that high unemployment and the relatively low start-up costs of informal waste collection attract the unemployed to waste collection – a positive outcome for employment.

That agility, in many cases, leads to self-organization, considering that informal workers integrate and collaborate amongst each other, they are able to adapt quickly and pivot their services to market needs. A typical example of these self-organized groups is informal waste pickers, informal transportation service providers, or market vendors/food producers.

We see this agility and self-organization via experiences in Central and South America, where informal workers can adapt to various types of demand depending on the season or even the day of the week. For example, food street vendors can easily transport their carts depending on the likelihood of higher turnout in different localities at a given moment. This agility means a vendor could be selling street food outside of the soccer game one day and at a fair the next day. Interestingly, other vendors are doing the same, often without oversaturation in temporary markets.

Since informal enterprises tend to dominate the economies of developing countries, people entering the labor market often find jobs more easily in the informal sector. For example in developing countries workers who have no education or primary education are more likely to have informal jobs.

Where there is limited access to capital, the low investment required to enter the informal economy is another incentive. Formal incorporation can also have negative economic ramifications, due to the high cost and time associated with starting a business. According to a 2020 study by University of Dhaka, Bangladesh, 90% of respondents mentioned ease of doing business in informal settings as their motivation to enter into their activities.

As opposed to making the initial capital and time investment required in enterprise incorporation and application for loans, informal microenterprises are an attractive alternative option with a shorter timeline to recover micro investments.

Early indications about motivations for informality based on gender and age

Anecdotal evidence indicates that one’s motivation to pursue informal jobs may vary depending on one’s age, where younger workers value the agility and freedom informality brings, while older and predominantly female workers value flexibility.

Young workers are particularly associated with this desire for freedom and agility, for example in a recent interview with informal youth workers by the UNDP Accelerator Lab in Ecuador, we could hear a young male telling us “I don't want to become a “slave”. I want to own my time and that is why I don't want a “normal” job”. In Paraguay, UNDP’s cultural probe study on informality found that youth workers in the construction industry do not value the social protection benefits of formality, because they see it as something they will not need in the short term as they are healthy and can earn more by working several informal jobs. The value construction workers place on the informal social protection received from their employers and their aspiration to become self-employed strengthens this short-term rationality.

The desire for flexibility shows some signals as to why informality is predominantly associated with female workers in Africa and Latin America, considering their need to balance child care and household chores which are often disproportionately born by women and incompatible with an 8-hour working day. Out of the two billion workers in informal employment worldwide, just over 740 million are women, and although more men work in the informal economy​​, women are more exposed and are over-represented in the informal economy, especially in African countries. A key finding when documenting the daily life of waste pickers in Latin America concluded that domestic and care work is at the center of women’s daily routines. Phrases like "I like to be a waste picker because I have flexibility and I can pick up my children from school” are very common to hear from female informal workers.

Early indications for future learning

Is informal the right term?

Informal business owners and self employed workers do not necessarily perceive themselves as informal. Hence the binary categorization of formal/informal is not necessarily an appropriate approach.

Are perceptions of corruption and inefficiency a driver of informality?

Another motivation for avoiding regulation is the mistrust in government. Beyond perceptions of excessive business start up processes, or even the lack of institutions in some of the furthest left behind territories, there is a mistrust that relates to the apparent transaction between paying taxes and receiving public services. Lack of trust in the merits of these services is cited as a further motivation to avoid regulation. The research done by the Lab in Colombia about informality shows there is no clear understanding from the population about what it means to be formalized. They mainly do not see the cost-benefit relationship of what must be paid when formalized (taxes, social security, etc.), and the benefits they will obtain from it.

What does a systems approach to informality look like?

We cannot also assess informality merely only focusing on employment. It is also an ecosystem of services that add value to the market, to its citizens and has a key role in satisfying needs unmet by the traditional market and/or government services.

Some additional links:

Cooperatives

Informality and Culture

This excerpt is also potentially relevant to: Equity