How Informal Labor Market Participation Maintains Gender Inequality

April 26, 2019

Ceyhun Elgin and Adem Yavuz Elveren find that women's participation in the workforce reduces inequality, but when this participation occurs in the informal labor market, inequality remains high

Ceyhun Elgin and Adem Yavuz Elveren find that women's participation in the workforce reduces inequality, but when this participation occurs in the informal labor market, inequality remains high



How Informal Labor Market Participation Maintains Gender Inequality

Story Transcript

MARC STEINER Welcome to The Real News Network. I’m Mark Steiner. Great to have you all with us. A new report by the Political Economy Research Institute in Massachusetts, tackles the complexity of the feminization of the labor force worldwide. Now this study analyzed unpublished data sets, looking at 125 countries over 50 years between 1966 and 2016. The report, Informality, Inequality, and Feminization of Labor, that these two gentlemen wrote, we are going to meet today, Adem Elveren and Ceyhun Elgin. It shows that women participating in the labor force does not necessarily reduce income inequality everywhere, but the growth of the informal sector in labor forces really increases income inequality. While rising standards in poorer countries says a lot of contradictions to this, women’s participation in the force, which we’ll talk about here, is not often associated with increasing inequality, and we’ll examine that. We are now joined by the two authors of the report who join us here at The Real News. Adem, good to have you with us. Good to have you both with us.

CEYHUN ELGIN & ADEM ELVEREN Thank you.

MARC STEINER So let’s begin and Ceyhun. Let me just start here with you. Let’s get an overview of this report and what it’s really telling us. It seems to me that when we first think about this, that it doesn’t fit logically, that the feminization of the work force creates equality everywhere, but that’s not necessarily the case, correct?

CEYHUN ELGIN Exactly. So the increasing female labor force participation rate is associated with lower income inequality if the informal sector size is low. So in countries where the informal sector size is large, this negative correlation between higher female labor force participation rate and lower income inequality basically disappears. So we basically find in this report that informal sector size significantly interacts with the relationship between female labor force participation and income inequality. And the female labor force participation rate is only beneficial for income inequality and reducing income inequality, only if the informal sector size is small.

MARC STEINER So Adem, take that. I’m just curious as to how— you spent a lot of time obviously talking about this informal workforce as opposed the formal workforce, and women seem to be driven into the informal workforce no matter what kind of economy you have. So describe what you mean by an informal workforce and how that changes the dynamic?

ADEM ELVEREN Basically, they both contribute to G.D.P., economic growth. But in the case of the informal economy, somehow employers are chain knots, they are not registered. That is, they contribute but they are not registered. And in that sense, there is a substantial difference between advanced and low-income countries in terms of the size and also in terms of the effect, or in terms of the relationship between income inequality and the size of the informal sector, according to our findings.

MARC STEINER So let me ask you a semi-naive, non-economist question here then. [laughter] So how do you know that what you do is exacting in terms of what results you find. If in fact, especially in the informal sector, a lot of that is not followed by the statistical agencies in certain countries, so how do you account for that?

ADEM ELVEREN That’s a really good question. Actually in the case of studies that deal with the informal sector, that’s the key question because you never have the real, actual data. That’s one major problem, but I like to emphasize that what we are trying to measure is not inequality within the informal sector, but what we pay attention to is the general, or I should say, overall income inequality. So that’s important because we know that overall wages, or I should say income in the informal sector, it should be less than the one in the formal sector. My point is that, maybe a short answer to your question— yes, we cannot deal with that, but that doesn’t actually create bias in terms of our findings.

MARC STEINER So there’s also— did you want to add anything to that, Ceyhun, before we move on?

CEYHUN ELGIN Yeah, sure. So the issue is that also that these income inequality measures are mostly relying on labor force surveys as well as on household surveys, where the government’s statistical agencies try to collect data directly from households and they get data about their household incomes, and all these income sources that both include formal and informal sector income to some extent. Therefore, the inequality measures that we have, of course they don’t perfectly capture informal sector income, but we believe that they to some extent capture some of the income generated by the informal sector.

MARC STEINER So in the report, you make the real distinction between core and peripheral economies, and economies in the periphery. So let’s talk about what those mean. And I also really want to more clearly define the kind of work we’re talking about that women seem to dominate in the informal sector. But let’s start with core and periphery. What are we talking about here? How different?

ADEM ELVEREN What we mean by core and periphery here, we simply borrow the categorization of Wallerstein in his world-systems theory. In that theory accordingly, he argued about one world, like the one-world production system, in which so-called there is international division of labor between dominating, capitalist countries and other countries basically that are based on agriculture. So this international division of labor actually, works in a way these peripheral countries provide raw materials to the core. This is actually also related with the informal sector, the type of jobs that are found, because what we see in most of the low-income countries, these jobs are actually mostly performed by women because they are domestic workers, they are home-based workers, and women also perform as contributing family workers.

MARC STEINER What’s the core difference, no pun intended here? The core difference between the informal sectors, whether they are in more developed countries or less developed countries. Are they defined differently?

ADEM ELVEREN They don’t but maybe Ceyhun can contribute. They don’t in both countries, but if you look at the ratio, in general. In general, the ratio, the size of the informal sector, is less in advanced countries, or let’s call it the core countries, compared to the low-income countries.

MARC STEINER Ceyhun, what were you about to say? I’m sorry.

CEYHUN ELGIN Sure, yeah. The issue is that generally, the informal sector size is defined globally in the same way in most of the countries. However, in emerging markets, in less developed economies where the countries have a lower level of G.D.P. per capita, the poor countries, they have a much larger informal sector size both in the labor market as a percentage of employment as well as the percentage of related. But however, this relationship between G.D.P. per capita, or how rich a country is and informal sector size, is not directly linear. There is also evidence towards the nonlinearity of this relationship— which means throughout the course of development from a time-series perspective for a particular country, or in a cross-sectional framework, in a cross-country framework— when the informal sector size gets larger, when G.D.P. per capita gets larger, the informal sector size increases to some extent up to a threshold level of G.D.P. per capita, and then starts to decrease after some threshold level of G.D.P. per capita. So there is an inverted relationship between informal sector size and G.D.P. per capita and it’s also why the relationship between the informal sector and income inequality, according to the findings of our paper, is different across developed economies and developing economies.

MARC STEINER So let me pick it up from there. Adem, I’m wondering if the way we defined informal and formal workers on the planet— it seems to me that from reading the report and looking at other reports, that the informal sector in the developing countries can almost form a huge factor in the economy of the country, just in terms of its size and number. And the informal workforce in the more developed countries in the West, play a different role. How does that affect the whole question of equality and inequality with men and women in the workplace?

ADEM ELVEREN I like to emphasize the part of the, I should say feminization of labor in that context, it has different effects on income inequality because what we see is if you look at advanced countries and pay attention to employed men, actually the share of employed men in the informal sector is higher than compared to women. It is higher in advanced countries compared to low-income countries. So that’s one key difference. And this affects their income inequality in a different way because as Ceyhun already mentioned, increases in the female labor force participation rate actually reduces income inequality.

MARC STEINER So when you used, explain to us, one of the keys you use here was the “expected household income inequality” as a key, right? Am I right about that?

ADEM ELVEREN Yes that’s right.

MARC STEINER So what does that mean?

ADEM ELVEREN Yes, that’s one of our key income inequality variables. It’s called “estimated household income.” I think it’s a novel approach to measuring inequality. It is actually computed by the University of Texas Inequality Project. It’s an informal research group led by James Galbraith. Of course that reflects, as we mentioned, as we discussed, just folks in the formal sector. It is a— inequality in the manufacturing sector, but what is good about this data set is, compared to other major inequality data sets, it has the highest number of observations which means actually for these kind of studies, more robust results because there are over forty-five hundred thousand observations over a huge number of countries, and also a really long time period.

MARC STEINER Wow. As you were speaking, I’m just imagining the kind of time and work the two of you put into this report, but if the data is based on official statistical agencies from countries across the globe— developed and undeveloped— isn’t there a risk that the data could be biased towards formal work? Informal jobs don’t seem to—like domestic care, wherever they might be— are not often reported, taxes are not paid, so how does that alter the dynamic?

 

[00:11:38] ADEM ELVEREN It’s a really good question. Once again, what we are measuring is overall income inequality. But one key fact is the wage difference between the formal sector and the informal sector. So there is a formal sector wage premium. That means, this is true for both Third World and European countries, that overall wage levels are less in the informal sector by nature because employers try to take advantage of this. So regarding your question, that means we cannot include this in our study but if you were able to include actually, that will increase the income inequality even more. That means actually we are underestimating income inequality, which means that if we were able to add this to our study somehow, if we were able to measure it, that would actually I think strengthen our results, make our results more robust.

MARC STEINER So let me finally ask you this one question about where this takes you. So you’ve done this report and it’s fascinating. It’s intense. But I’m curious— and we’ll start with Ceyhun and I’ll let you finish up Adem. But both of you comment on what comes out of this for us? What are the policy recommendations? What does it mean to know that income inequality between men and women is very different depending on the country you’re in and the kind of economy that is in those countries? So what are we saying here? What’s the next step for people to wrestle with in terms of how to address this? And Ceyhun, you want to go first and then we’ll go to Adem.

CEYHUN ELGIN Sure. So first of all, I also want to emphasize as an answer to the previous question, that we are working on different data sets here. One interesting aspect of our paper is that the two main variables that we are working with, which is the informal sector size and income inequality, they are by definition hard to measure. Especially very hard to measure in a cross-country and large time-series framework, but that is why we are using different data sets, both for inequality as well as for informal sector size for robustness, to establish robustness for our results, and obtain robust results with respect to the key findings of the paper. And for your second question, in terms of the policy recommendation that this paper might have is that, I strongly believe that this paper shows that increasing the female labor force participation rate as well as reducing informality, are not substitutes to each other if you want to reduce income inequality. Instead, they are complements. So they can very well complement each other. That is, if a government is concerned with the level of income inequality in its economy, then two policy recommendations for example that might be coming out of the results of this paper is that, it might design policies they can both at the same time increase female labor force participation as well as reduce informal sector size. For example, creating some tax incentives or social security incentives or subsidies for employers as well as for households, that might increase female labor force participation as well as report this participation to the government properly so that they are formally registered.

MARC STEINER Adem?

ADEM ELVEREN I point at maybe only thing to Ceyhun’s points. Yes, maybe we should look at the key barrier for women to join the formal sector. They find the informal sector more appealing because that speaks to the nature of women, so they can make a balance between household work and market work because they shoulder the large part of the household work. I mean, childcare or elderly care. I think the government policies in this context, should focus on the provision of social care. With such an incentive, a woman will be able to prefer the formal sector instead of the informal sector. So I think that should be the key issue. Also regarding income inequality, even if we can add economic growth, major research reports actually show that based on some policy simulations: if you create a job for women, rather than trying to create jobs in traditionally male-dominated sectors, the former is likely to create more jobs and higher economic growth, which is also very reeled with income inequality and informalization. So as Ceyhun put it very nicely, yes, they do complement each other. Try to reduce the size of the informal sector on one hand and also try to reduce income inequality and increase women’s labor force participation.

MARC STEINER Fascinating and important work. I appreciate the stuff you’ve done and for joining us here. Adem Elveren and Ceyhun Elgin— thank you both so much for being with us on The Real News. And a pleasure to talk with you both.

CEYHUN ELGIN & ADEM ELVEREN Thank you for having us.

MARC STEINER And I’m Marc Steiner here with The Real News Network. Thank you all for joining us. Take care.