1. Responding to globalization
A decent work agenda for the Caribbean in the context of regional integration
Summary of working paper entitled:
Options for generating indicators
on the informal economy using the
labour force survey
by Drs. Reynold Simons and Ms. Zaida Lake
The informal sector vs the informal economy
The increased informalization of work has led to the use of the term “the informal economy”.1
This concept includes employment in the informal sector - in informal enterprises, as well as
informal employment carried out in formal enterprises. The latter includes temporary work,
part-time employment, outsourcing, clandestine, undeclared employment and the use of a
third party in the employment relationship. More specifically, informal employment is defined
as the total number of informal jobs, whether carried out in formal sector enterprises, informal
sector enterprises, or households.2 It includes five categories:
1. jobs of informal own-account workers and informal employers;
2. jobs of all contributing family workers;
3. jobs of employees who have an employment relationship that is not subject to national
1ILO adopted a resolution concerning decent work and the informal economy at its 90th Session, 2002.
3 Unincorporated enterprises are legally, not separately established from their owners and book keeping does not
allow for a separation of income and assets of the owner and the enterprise (See also the 1993 System of National
Accounts).
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labour legislation, income taxation, social protection or entitlement to certain
employment benefits;
4. jobs of members of informal producers’ cooperatives; and
5. jobs of own-account workers engaged in the production of goods exclusively for their own
final use within their households.
Most surveys on the informality of employment aim to measure the informal sector. These
surveys attempt to measure informality through enterprises. As a result, these surveys define
the informal sector as “private, unincorporated3 enterprises (excluding quasi-corporations),
which are not registered and/or employ less than a nationally set threshold of employees and
which are usually limited to the non-agricultural sectors producing at least partly for barter or
sale.” Given this definition, workers such as maids, cleaners and others employed in
households are frequently excluded from surveys since they do not work in “enterprises.”
The more important point, though, is that informal sector surveys do not capture informal
employment - those who are employed in the formal sector but work in informalized
employment relations. A significant proportion of such employment is offered through
contracting work and other forms of flexible employment.
The significance of the informal economy in the Caribbean
To date, only two countries in the Caribbean have attempted to measure the significance of
the informal economy using specialized informal sector surveys. A survey of the informal
sector in Barbados (1998) showed that it accounted for only 6% of total employment, while a
2 This definition was adopted by the 17th International Conference of Labour Statisticians (ICLS) in 2004.

2. recent survey in Jamaica (2004) revealed a figure as high as 57%. Clearly, the size varies across countries.
The rapid rise in non-standard employment relationships since the nineties, however, suggests that informal
employment may have expanded considerably throughout the region. This is particularly the case in Guyana,
Jamaica, Suriname and Trinidad and Tobago.
The growth of informal employment has important implications for employment and income generation as
well as social protection. It is known that the informal economy provides less income and less protection to
workers. Countries will therefore have to devise strategies to confront the decent work challenges. They will
require fairly accurate estimates of the size of the informal employment and its characteristics.
In view of the paucity of data on informal employment, the ILO commissioned a paper to assist national
statistical offices (NSOs) to generate statistics on informal employment. Part One of this paper discusses the
conceptual and methodological issues relating to the measurement of informal employment and provides
detailed proposals on how to utilize existing Labour Force Surveys to this end. Part Two focuses on methods
using proxy indicators and existing micro-data files of Labour Force Surveys to produce estimates of informal
employment. These methods are applied to existing LFSs in Barbados and Trinidad and Tobago.
Part One: An informal sector module for the labour force survey (LFS)
Three options for measuring employment in the informal economy
Three approaches for measuring employment in the informal economy using the LFS are shown in Table 1.
Each approach has its advantages and disadvantages but the most difficult challenge is measuring the
formality of the employer/enterprise through LFS interviews of employees. Given this problem, it is
recommended that countries use either Option 1 or 2, depending on local conditions and options. In this
regard, two modules have been developed for use by countries based on these options. The “self-employed”
module is based on Option 1 and the “all employed persons” module is based on Option 2.
The “self-employed” module
This module contains eight questions, which are directed to own-account workers and employers. It covers
information on the informality status of enterprises and their employment. There are two main disadvantages
to using this module. Firstly, it produces information on the informal sector and not the informal economy.
Secondly, since estimates are produced using a sub-sample of the LFS sample, the actual size of this sub-sample
could have implications for the reliability of the estimates.
Table 1: Three options for measuring employment in the informal economy
Approach Sampling and sampling issue Respondents’
knowledge
Respondents’ willingness to
respond
Remarks
“Employers”
and “own-account
workers”
- Part of the LFS sample
- Employers make up a very small share of
total employment.
- In small LFS samples the number of
“employers” and/or “own-account” workers”
captured in the actual sample may be
inadequate to make estimates with
acceptable precision and reliability
Sufficient
Formal sector employers may
be reluctant to provide detailed
information on:
- their linkage with informal sector
enterprises
- persons they employ using
triangular or disguised
employment relations
Owners of informal sector
enterprises may be reluctant to
provide information on:
- the informal nature of their
enterprise
- the persons they employ
Best captures self-employment
in the informal sector and
weak in covering paid
employment in the informal
sector and
informal jobs in the formal
sector
All employed
persons
- Part of the LFS sample
- Estimates of the various components of
informal employment are not dependent on
getting the “informal employers” adequately
represented in the sample
- Employment in “enterprises of informal
employers” and “informal jobs” in the formal
sector are directly estimated using the total
sample. This improves the quality of the
estimates
Employees usually
do not have
sufficient information
on:
- key characteristics
of informality* of the
enterprise
- total employment in
the enterprise
where they are
employed.
This may
substantially increase
non-sampling errors
- There will be less reluctance to
provide information on informality
of one’s own job(s)
- It is not likely that the information
on informality of jobs can be
linked to the enterprise they work
in
Best captures informal jobs
but provides less reliable
information on the informal
enterprises
Both Allows one to balance pros and cons of the two approaches but implies a longer questionnaire and
may complicate the layout of the questionnaire
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Guidelines for generating indicators on the informal economy using the labour force survey 3

3. The “all employed persons” module
This module uses 18 questions and measures the informality status of the jobs of all persons identified in the
LFS. Its main advantage is that it measures both the informal sector and the informal economy. However, as
mentioned in Table 1, this module relies on the employees’ ability to provide information on the (informality of)
the enterprise in which they work. For example, an employee may need to state whether the enterprise is
formally registered or what is its legal status.
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Part Two: Deriving proxy indicators for the informal sector in the Caribbean
A list of proxy indicators
Existing LFSs in the Caribbean are not designed to measure informal activity. However, Labour Force
Surveys may provide information that could be used as proxy indicators for informality of work. According
to the 15th International Conference of Labour Statisticians (1993), informal sector employment is defined
as all persons employed in the informal sector:
(i) own-account units; and
(ii) units of informal employers.
Utilizing these international standards, the following items in existing LFSs or census questionnaires could
provide an indication of informality of persons employed and/or of units in which they are employed:
1.Status in employment of the person employed
2.Registration of the employed person or the economic unit
3.Size of the economic unit where the person is employed
4.Business premises or the place where work is usually performed
5.Book-keeping that does not allow identification of “any flows of income and capital”
6.Type of economic activity
7.Occupation
Unfortunately, most LFSs in the Caribbean cover only items 1, 6 and 7, and at least one country includes
item 3. Further, “status in employment” is measured across countries at varying levels of disaggregation.
Using the approach presented in the paper, this method is applied to LFS questionnaires from Barbados
and Trinidad and Tobago demonstrating how proxy indicators could be produced for these countries.
Barbados and most other Caribbean countries
Only one proxy indicator can be constructed from the LFSs of Barbados, Grenada, Jamaica and Saint Kitts
and Nevis. This is for employment in:
Informal own-account enterprises (total numbers of own account workers and contributing family workers in
informal own account enterprises).
Using the answers to the LFS questions on “Status in Employment,” “Industry and Occupation,” a score on
informality could be constructed for each employed person. Cross tabulations could then be produced for
informal own-account employment. For a complete estimate of the informal sector, it will be necessary to
estimate the remaining component of informal sector employment, that is:
employment in enterprises of informal employers (total number of employers, contributing family
workers and employees in enterprises of informal employers).
In countries where the LFS questionnaire limits the construction of comprehensive estimates, “external”
information may be assembled from non-LFS sources such as population censuses and business surveys.
However, a series of assumptions would have to be made.
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4. Trinidad and Tobago and the Netherlands Antilles
The LFS questionnaires from Trinidad and Tobago and the Netherlands Antilles contain information on the
“Size of Enterprises” and “Type of Work Premises,” in addition to data on “Status in Employment” and
“Industry and Occupation,” This extended information set allows for the construction of three proxy indicators
as follows:
1. Employment in informal own-account enterprises: total number of own-account workers and contributing
family workers in enterprises of informal sector. Using the answers to questions on “Status in Employment”,
“Industry and Occupation”, a score on informality could be constructed for each employed person. Cross
tabulations could then be run for informal own-account employment.
2. Self-employment in enterprises of informal employers: total number of employers and contributing family
workers in enterprises of informal employers. Using the answers to questions on “Status in Employment”
(employers and contributing family workers), “Industry”, “Size of Enterprise” and “Work Premises”
(classified as “informal”) a score for informality could be constructed for each employed person. Cross
tabulations could then be run for informal employers and contributing family workers in enterprises of
informal employers.
3. Paid employment in enterprises of informal employers. The answer in the LFS questionnaire to the
number of paid employees could be used to estimate the total number of informal employers in the
economy for selected International Standard Industrial Classification (ISIC) codes.
The paper provides detailed guidelines for NSOs on the assembling and processing of data for the production
of proxy indicators.
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