Research,the application of ideas from the literature, problem solving and critical analysis (REPORT)

Futures 31 (1999) 547–558 www.elsevier.com/locate/futures

The formalisation of work thesis: a critical evaluation

Colin C. Williamsa,*, Jan Windebankb

aDepartment of Geography, University of Leicester, Leicester LE1 7RH, UK bPolitical Economy Research Centre (PERC), University of Sheffield, Sheffield S10 2TN, UK

Abstract

The aim of this paper is to evaluate critically the popular prejudice that economic develop- ment is characterised by a natural and inevitable shift of economic activity from the informal to the formal sphere which culminates in full-employment (the formalisation of work thesis). We show not only that this end-state has never been achieved in most advanced economies but that some nations have now moved into a ‘post-formalisation’ stage of economic development characterised by informalisation. Drawing upon new empirical evidence from Southampton in the UK, the view that informalisation is due to marginalised populations adopting informal survival strategies out of economic necessity is refuted. Instead, informal work is found to be higher in employed households who conduct such work for mostly non-economic reasons. In consequence, we argue that unless it is accepted that societies are moving into an era of informalisation and policies embraced which recognise this shift, then many will be left excluded not only from employment but also from informal coping strategies. 1999 Elsevier Science Ltd. All rights reserved.

1. Introduction

This paper will show that expanding the concept of work to embrace all forms of economic activity yields some important findings not only about the direction, structure and distribution of work but also about how we need to react to the pro- cesses of economic restructuring currently underway. To do this, the paper com-

* Corresponding author. Tel.:1 44-116-252-5242; fax:1 44-116-252-3854; e-mail: [email protected]

0016-3287/99/$ - see front matter 1999 Elsevier Science Ltd. All rights reserved. PII: S0 0 1 6 - 3 2 8 7 ( 9 9 ) 0 0 0 1 3 - 0

548 C.C. Williams, J. Windebank / Futures 31 (1999) 547–558

mences by examining some evidence on the changing balance between formal and informal economic activity in a number of advanced economies so as to reveal that the formalisation of economic life is not a universal trait. Instead, it will be shown that some nations appear to have entered a ‘post-formalisation’ stage in their econ- omic development in the sense that their economies are undergoing a process of informalisation. Following this, and to evaluate the implications of informalisation, some new empirical evidence from Southampton in the UK will be used. This will reveal that informal work is not only the principal means by which households get work done and is undertaken mostly for social rather than economic reasons, but that such work reinforces rather than reduces the socio-economic inequalities produced by employment. Finally, therefore, we argue that unless this is recognised and pro-active policies are adopted which recognise the emergence of informalisation, then many will be left excluded not only from the rapidly dwindling sphere of employment but also from informal economic activity.

Before commencing, however, it is important to clarify what is meant by informal economic activity. This can be defined as ‘productive’ or ‘work’ activities that are hidden from or ignored by the state for tax, social security and/or labour law pur- poses, but which are legal in all other respects [1]. Informal economic activity thus includes all work outside formal employment. As such, informal work is defined by what it is not. It is all work that is not formal employment. The problem in doing this, however, is that this reinforces the dominant discourse which casts employment as the principal form of work and lumps all else together into ‘other’ activity, namely informal work. Here, therefore, and in order to start to overcome this problem, we divide informal work into three principal types of activity in order to bring greater clarity to the heterogeneous set of activities included under the umbrella of informal work. First, there is ‘paid informal exchange’ which is the paid (either in money or in-kind) production and sale of goods and services that are unregistered by, or hidden from the state for tax, social security or labour law purposes, but which are legal in all other respects. Second, there is ‘self-provisioning’ which is unpaid work under- taken by household members for themselves and each other, and third and finally, there is ‘unpaid community exchange’ which is unpaid work exchanged within the extended family and social or neighbourhood networks.

2. The informalisation of work: some international evidence

A popular prejudice that characterises the study of economic development, and one that is seldom questioned, is that there is a natural and inevitable shift towards the formalisation of goods and services provision as societies become more ‘advanced’ (i.e., the ‘formalisation of work thesis’). Indeed, this is frequently taken as the ‘measuring rod’ that defines third world countries as ‘developing’ and the first world as ‘advanced’. In this view, the existence of supposedly ‘traditional’ informal activities is a manifestation of ‘backwardness’ and it is assumed that they will disap- pear with economic ‘advancement’ and ‘modernisation’ [2]. However, there are good reasons for questioning the universality of this uni-dimensional trajectory of econ- omic development.

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Although over the long wave of history, a relative formalisation of work has undoubtedly taken place [3], there is a good deal of evidence that the natural culmi- nation of formalisation—full-employment—has not only never been achieved but also that some advanced economies are moving ever further away from this holy grail. In 1961, for example, when the ‘golden age’ of full-employment was meant to be in full swing, 24 per cent of the population of working age in the European Union did not have a job. Such figures testify that even in the so-called era of full- employment, there was never really employment for all. Rather, there was only full- employment for men, not women [4]. Hence, full-employment has never been the norm for large sections of the working age population, and any notion that it can ‘return’ is logically impossible since it has never existed in the first place. It is also unrealistic since an ever greater proportion of working age people are becoming excluded from the realm of employment. By 1996, according to the EU Labour Force Survey, 30 per cent of the EU population of working age had become jobless, which is higher than the 24 per cent in 1961. Moreover, when this is coupled with the trend towards under-employment as permanent full-time jobs are steadily being replaced with temporary and part-time employment [5], then one can only conclude that many advanced economies are not only moving ever further away from full-employment but also fuller-employment. Indeed, by 1994 in OECD nations, about 1 in 6 (16.4 per cent) working-age households had no earner [6].

On its own, however, this shift away from full-employment cannot be taken as evidence of informalisation. After all, the provision of informal work has always existed side-by-side with employment, even if it has often been hidden from view [7,8]. In consequence, what is important is to examine the balance between formal and informal economic activity. To understand whether this balance is changing and how, one of the few sources of evidence available are time-budget studies which measure the volume of time spent on different forms of work. Examining the results of UK time-budget studies reveals that although work outside employment occupied 48.1 per cent of people’s total time in 1985–86, by 1995, this had risen to 58.2 per cent [9,10]. This intimates, therefore, that there has been a rapid informalisation of the UK economy. Such a conclusion, however, has to be treated with some caution, particularly since slightly different methodologies, sampling frames and definitions were employed in these two separate studies.

Nevertheless, there is good reason to suppose that this evidence of informalisation in the UK is not inaccurate. In France, two time-budget studies conducted by the Institut Nationale des Statistiques et des Etudes Economiques (INSEE) at different times but using the same definitions and methodologies found that unpaid domestic work alone constituted 52 per cent of total work time in 1975 but 55 per cent by 1986 [11,12]. In the USA, meanwhile, time-budget studies revealed that unpaid work as a proportion of total work time has gradually increased from 56.9 per cent in 1965, to 57.6 per cent in 1975 and to 58.4 per cent in 1985 [13]. Not all advanced economies, however, display an informalisation of economic activity. In Canada over the relatively short time interval of 1986 and 1992, unpaid work as a proportion of total work time decreased slightly from 59.6 to 59.2 per cent [13]. As such, infor-

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malisation cannot and should not be assumed to be a universal trait across all of the advanced economies.

The profound finding, nevertheless, is that informal work occupies well over half of people’s total work time and that at least in some advanced economies, a tentative informalisation of work can be identified. It is profound because the perception has been that formality is the dominant means of getting work done, whilst informal provision has been seen as a marginal or residual activity. The fact that informal modes of work now represent the principal means by which work gets done, at least in terms of time commitment, means that the tendency to give prominence to employment whilst placing all else in one catch-all ‘informal’ category is inadequate. Far from being a residual form of work, informal economic activity has now become the dominant way of getting work done.

Who, however, is engaged in this work? For adherents to the ‘marginality thesis’, informal work is a survival strategy undertaken for economic reasons by marginalised populations such as the unemployed [14–17]. Consequently, this activity is seen to be concentrated in those areas where unemployed populations are concentrated, such as deprived inner city localities and poorer peripheral regions [14,18–20]. Here, therefore, we use some case study evidence from deprived neighbourhoods in Sou- thampton to evaluate not only the extent of informalisation in such populations and whether it is indeed marginalised groups such as the unemployed who conduct this work but also whether they do indeed undertake it primarily for economic reasons.

3. The nature of informalisation: evidence from Southampton

In 1998, structured interviews lasting between 30 min and 1 h were conducted with 200 households composed of 465 adults in two deprived neighbourhoods of Southampton, one located on the eastern fringes of the city centre and the other a public sector housing estate on the eastern outskirts of the city. The aim was to investigate the extent and nature of informal economic activity in these localities along with the rationales for using such work.

To evaluate the magnitude and character of informal economic activity, a modified version of the successful survey technique first pioneered by Pahl was employed [21]. Using a list of 44 common household tasks (see Table 1), households were asked whether each task had been conducted during the previous 5 years/year/month/week, depending on the activity, and if so, whether self-pro- visioning, unpaid community exchange, paid informal work or formal employment had been used. The same task list was then used to elicit the nature and extent to which household members had conducted work for other households. If so, they were asked whether they were unpaid, received payment in-kind or ‘cash-in-hand’. Previous research using this technique reveals that when the results of customers and suppliers are compared, the same levels of informal activity are identified, mean- ing that the technique does not suffer from under- or over-reporting by respondents [22,23]. Indeed, this was also found in this survey suggesting that the data is rela- tively accurate. To understand the rationales for using a particular form of work to

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Table 1 Household work practices in Southampton: by source of labour

% Doing task Source of labour:

Unpaid self- Unpaid Paid informal Paid formal provisioning community work work

exchange

All house 53.5 53.8 8.6 6.8 30.8 maintenance (last 5 yr)

Outdoor 45.5 24.2 1.1 8.8 65.9 painting Indoor 83.5 78.3 7.2 4.2 10.3 painting Wallpapering 63.5 72.4 14.9 7.1 5.6 Plastering 31.5 34.9 9.5 6.3 49.3 Mending 33.5 27.9 7.0 7.0 58.1 broken window Maintenance 64.5 42.6 9.3 8.5 39.6 of appliances

All home 21.6 16.4 5.8 6.9 70.9 improvement (last 5 yr)

Double 38.0 0.0 0.0 3.9 96.1 glazing Plumbing 50.5 9.9 5.9 7.9 76.3 Electrical 35.5 18.3 7.0 8.4 66.3 work House 19.0 6.9 1.7 0.0 91.4 insulation Put in 15.0 0.0 0.0 16.7 83.3 bathroom Build a 1.5 33.3 33.3 0.0 33.3 garage Build an 4.5 22.2 11.1 0.0 66.7 extension Convert attic 1.0 0.0 0.0 0.0 100.0 Put in central 12.0 41.0 4.5 4.5 50.0 heating Carpentry 39.5 44.3 13.9 10.1 31.7

All routine 87.9 92.6 1.6 2.9 2.9 housework (last week)

Do 100.0 96.5 0.5 2.5 0.5 housework Spring clean 71.0 76.8 0.0 2.1 21.1 the house Clean 85.5 89.5 1.2 5.3 4.0 windows

(Continued on next page)

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Table 1 (Continued)

% Doing task Source of labour:

Unpaid self- Unpaid Paid informal Paid formal provisioning community work work

exchange

Spring 85.0 95.5 0.6 2.8 1.1 cleaning Do the 100.0 96.0 1.5 1.0 1.5 shopping Wash 100.0 94.5 3.0 1.5 1.0 clothes/sheets Ironing 92.0 95.6 1.6 1.6 1.2 Cook the 100.0 97.5 0.5 1.5 0.5 meals Wash dishes 99.5 99.0 0.0 1.0 0.0 Hairdressing 40.5 53.1 14.8 27.2 4.9 Administration 93.0 95.7 1.6 0.0 2.7

All domestic 16.6 95.8 2.8 1.4 0.0 production (last year)

Make clothes 10.5 100.0 0.0 0.0 0.0 Knitting 16.5 93.9 6.1 0.0 0.0 Repair 60.0 98.3 1.7 0.0 0.0 clothes Make 5.5 100.0 0.0 0.0 0.0 furniture Make garden 1.0 50.0 0.0 50.0 0.0 equipment Make 6.0 85.2 7.4 7.4 0.0 curtains

All car 46.0 47.3 5.1 9.0 38.6 maintenance (last year)

Wash car 45.5 67.0 1.1 8.8 23.1 Repair the 43.5 13.6 2.3 13.6 70.5 car Car 49.0 59.2 11.1 5.1 24.6 maintenance

All gardening 30.0 97.1 0.8 1.3 0.8 (last year)

Indoor plants 68.0 100.0 0.0 0.0 0.0 Outdoor 31.0 92.0 1.6 3.2 3.2 borders Outdoor 6.5 92.3 7.7 0.0 0.0 vegetables Lawn 14.5 96.5 0.0 3.5 0.0 mowing

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Table 1 (Continued)

% Doing task Source of labour:

Unpaid self- Unpaid Paid informal Paid formal provisioning community work work

exchange

Caring (last 30.5 90.6 3.7 5.7 0.0 month)

Baby sitting 41.0 89.0 2.5 8.5 0.0 (day) Baby sitting 43.0 84.9 7.0 8.1 0.0 (night) Courses (e.g. 2.0 100.0 0.0 0.0 0.0 piano lessons) Pet care 36.0 98.6 1.4 0.0 0.0

All tasks 45.3 74.8 3.6 4.4 17.2

get a job completed, meanwhile, respondents were asked in an open-ended manner why that source of labour was used to complete each of the 44 different tasks.

The 200 households surveyed broadly mirror the composition of these deprived areas. Reflecting the extent of non-employment in these neighbourhoods, just 33.5 per cent of the adult household members surveyed were in employment and just 23.0 per cent were full-time employees. Moreover, merely 26.5 per cent of households had single-earners compared with 28.7 per cent nationally, whilst 51.0 per cent were no earner households (35.6 per cent nationally) and just 22.5 per cent multiple earner households (35.7 per cent nationally) [24]. As a result, the vast majority of the households surveyed were on a low-income. Examining their total weekly household income before tax and other social contributions, 69.5 per cent had a gross income of less than £250 per week and 85 per cent of households less than the approximate individual (not household) national average full-time wage of £400 per week. Consequently, according to the marginality thesis, this is precisely the type of population which should be heavily engaged in informal economic activity as a survival strategy. Here, therefore, we test whether this is indeed the case.

4. Extent and character of informal economic activity

In this deprived neighbourhood, a large number of households are unable to under- take many of the tasks necessary to maintain their ‘quality of life’. As Table 1 displays, on average, households had conducted only 19.9 (45.3 per cent) of the 44 tasks surveyed. For example, 54.5 per cent of households had not undertaken any outdoor painting during the past 5 years and 36.5 per cent had not done any wall- papering. Nevertheless, when tasks were undertaken, Table 1 reveals that just 17.2 per cent were conducted through formal employment. The remainder of the

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tasks (82.8 per cent) were undertaken using informal work. Some 74.8 per cent of all the work surveyed was carried out on an unpaid basis by household members, 3.6 per cent using unpaid community exchange and 4.4 per cent through paid infor- mal exchange. Consequently, the overwhelming tendency in these deprived neigh- bourhoods is for households to rely on informal work, especially self-provisioning, to get tasks completed.

It might be assumed, therefore, that this provides evidence to support the mar- ginality thesis. Superficially, informal work does seem to be part of a survival strat- egy undertaken for economic reasons by marginalised populations such as the unem- ployed. As Table 2 displays, however, the range of activity conducted informally and the extent of reliance on informal sources of labour is higher in multiple earner households than in no earner households. That is, on average, multiple earner house- holds conduct 18.8 of the 44 tasks informally compared with just 14.9 in no earner households. Indeed, despite comprising 51 per cent of the survey sample, no earner households receive just 46.2 per cent of the informal labour. Contrary to the mar- ginality thesis, therefore, informal economic activity is not simply acquired as a survival strategy by unemployed households.

When the supply of such informal labour is investigated, moreover, no earner households, representing 51 per cent of all households surveyed, conduct just 45.0 per cent of all self-provisioning and supply only 31.9 per cent of all paid and unpaid community exchange. Multiple earner households, meanwhile, despite rep- resenting just 24 per cent of the sample, undertake 27.8 per cent of all self-pro- visioning and supply 31.4 per cent of all unpaid and paid community exchange. Informal economic activity, therefore, is not restricted to those excluded from employment as proponents of the marginality thesis suggest. Neither, and as we will now see, is informal work conducted simply out of economic necessity as a survival strategy, as the marginality thesis purports to be the case.

Table 2 Sources of labour in Southampton households: by number of earners in household

Average Average number of tasks conducted using: number of tasks conducted

Unpaid self- Unpaid Paid informal Paid formal provisioning community work work

exchange

All households 19.9 14.9 0.7 0.9 3.4 Multiple earner 22.8 17.3 0.5 1.0 4.0 Single earner 20.9 16.2 0.6 0.7 3.4 No earner 18.1 13.1 0.9 0.9 3.2

Source: Southampton survey.

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5. Motivations for using informal work

Commencing with self-provisioning, which is used to complete three-quarters of all the tasks surveyed, respondents stated that economic necessity was their primary motivation for only 45 per cent of the tasks undertaken using this form of work. Contrary to the marginality thesis, therefore, economic necessity did not explain the majority of this activity. Instead, some 17 per cent of self-provisioning was primarily undertaken because it was viewed aseasierto carry out oneself rather than be incon- venienced by others; 16 per cent because they perceived that the end product was of a higher quality; 5 per cent because they could individualise the end result; and 14 per cent due to the pleasure acquired from doing the work themselves. Hence, over half (52 per cent) of all self-provisioning is chiefly undertaken either because of ease, choice or pleasure, even in this deprived neighbourhood where money is in short supply and the range of tasks that people undertake is often limited to more mundane and routine self-provisioning.

Of the 3.8 per cent of all work provided using unpaid community exchange, more- over, there was little if any perception it was undertaken primarily for economic motivations. When relatives provided support, both suppliers and consumers seldom mentioned economic rationales as their primary motivation. Instead, and as Short has argued, it was primarily seen as a ‘labour of love’ so as to maintain kinship relations [25]. In the case of friends or neighbours, meanwhile, the chief motivation was again to construct and maintain social relations. As such, unpaid community exchange was conducted more for social rather than for economic reasons. Interest- ingly, it was only amongst employed households that economic rationales sometimes dominated. Indeed, perhaps this explains why multiple earner households more heav- ily rely on paid rather than unpaid informal exchanges and are also more likely to pay relatives, friends, neighbours and even household members for work undertaken.

It is often assumed, that is, that paid informal work involves a firm being paid for a good or service that goes unregistered by, or hidden from the state for tax, social security or labour law purposes, but which is legal in all other respects [1]. This study, however, shows that less than a third (29.6 per cent) of the paid informal work identified was composed of formal firms not declaring their incomes. The vast majority of paid informal work was conducted under a broad range of very different social relations. First, there is the situation where a friend or neighbour is paid either cash-in-hand (22.1 per cent of all paid informal work) or given a gift in-lieu of money (7.6 per cent), second, there is work where relatives are paid either cash-in-hand (18.0 per cent) or given a gift (10.5 per cent) and finally and sometimes overlooked, where a household member is paid (8.7 per cent) or given a gift (3.5 per cent). Paid informal work, therefore, is more often than not a transaction between a customer and supplier who have close social relations rather than between an anonymous buyer and seller.

Consequently, the motivations for engaging in such work are far more complex than the literature on informal employment has so far recognised [1]. Although using it as a cheaper alternative to formal firms is the dominant rationale when firms are employed to undertake paid informal work, when closer social relations are involved,

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‘community-building’ rationales predominate. For example, many asserted that paid informal work was employed to develop or maintain social networks and relations. This is unsurprising. After all, exchange remains the principal nexus through which social relations are forged and maintained in contemporary society [26]. To a lesser extent, there are also ‘redistributive’ rationales such as when money was provided to a relative. This did not involve one spouse paying another (and thus the monetis- ation of the gender division of domestic labour between spouses). Rather, it was either children or a relation such as a brother, sister or parent who was paid, often as a way of giving them much needed spending money when they were unemployed. Both customers and suppliers frequently rationalised such work as redistributing the resource that they had in relatively abundance so as to help each other out (e.g., the unemployed supplier provided time and the employed customer money). Hence, paid informal work is not simply used as a means of saving money. Other more socially- oriented rationales also exist.

In sum, informal economic activity in this deprived neighbourhood is not only undertaken more by employed than unemployed households, thus reinforcing rather than reducing the inequalities produced by employment, but neither is such activity simply used as a survival strategy. This evidence from Southampton, however, is not the only data showing that informalisation cannot simply be seen as the result of marginalised populations pursuing economically-orientated survival strategies. A large number of empirical investigations undertaken throughout the advanced econ- omies reveal that the unemployed engage in little informal work, that they are less likely to undertake informal work than the employed and that areas with higher levels of unemployment conduct less informal work than those with lower unemploy- ment rates.1 Informalisation, therefore, can no longer be seen merely as the province of the unemployed who, left bereft of the means of survival, turn to informal work as the only way of getting-by.

6. Conclusions

By expanding the concept of work to embrace all forms of economic activity, this paper has revealed that the formalisation of economic life is not a universal trait. Instead, and if anything, there appears to be an informalisation of at least some advanced economies. Analysing empirical evidence from deprived neighbourhoods in Southampton, meanwhile, has revealed that informal economic activities are not only the principal means by which households get work done but that such work reinforces rather than reduces the socio-economic inequalities produced by employ- ment. This case study thus provides empirical evidence that unless action is taken, then many groups will be left excluded not only from the rapidly dwindling sphere of employment but also from informal economic activity. Nor is informal work simply undertaken out of economic necessity. For many households, it is used either because

1 For a comprehensive review of these studies in the advanced economies, see Ref. [27].

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of ease, choice or pleasure in the case of self-provisioning and for social rather than economic reasons in the case of paid and unpaid community exchange.

What are the implications of these findings? First, we would assert that govern- ments have for too long held onto the life-belt of full-employment, hoping that the tide will turn and they will be washed back to its shores. Here, however, we have shown that they are being swept further out to sea and need to navigate a new route in acceptance of the changes taking place. Second, and once they begin to swim with the tide of informalisation, pro-active policies are required to help those not only excluded from employment but also informal coping strategies. In this regard, there are a range of initiatives that could be implemented which enable those cur- rently excluded to start to participate more actively in informal work. Although this cannot be entered into in any depth here, these initiatives including Local Exchange and Trading Schemes (LETS) and other local currency systems, Employee Mutuals and a range of community service schemes all of which have been shown to be capable of enabling those currently excluded from informal work to more fully par- ticipate [4,28,29].

Unless such pro-active policies are adopted, then those currently excluded from employment will continue to be left bereft of the means of meeting their needs. In other words, a laissez-faire approach towards informal work is no longer an option. To leave informalisation to its own devices will simply further reinforce the existing socio-economic inequalities.

Acknowledgements

The Joseph Rowntree Foundation has supported this project as part of its pro- gramme of research and innovative development projects, which it hopes will be of value to policy makers and practitioners. The facts presented and views expressed in this paper, however, are those of the authors and not necessarily those of the Foundation. Gratitude is expressed by the authors to both the Joseph Rowntree Foun- dation for funding this project and to Stephen Hughes for providing the research assistance to bring it to fruition.

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