Saving informal sector workers from pandemic shock

Updated on August 20, 2020 - By InM - No Comments

 Mustafa K Mujeri | Published:  August 20, 2020 23:31:04 |

Saving informal sector workers from pandemic shock
Throughout the world, Covid-19 has emerged as more than a health problem; it has also created devastating social, economic and other crises that are leaving deep scars in society and the economy. In particular, the world of work has been impacted severely by the imposition of lockdown measures. The closure of workplaces and implementation of other containment measures, combined with the rapid deterioration of business conditions, has led to massive losses in jobs and incomes across all countries including Bangladesh. The challenge for Bangladesh is to ensure that the responses are comprehensive as well as equitable and inclusive such that no one is left out; and the country can continue to make progress in achieving the SDGs.

No doubt, the severe fallout of the coronavirus has been grim for Bangladesh; and according to government estimates, GDP growth rate has fallen to 5.24 percent in FY 2019-20 from 8.2 percent in the previous fiscal year. The pandemic has also exposed the health vulnerabilities facing Bangladesh, especially for the informal sector participants. The informal economy is quite large in Bangladesh; nearly 52 million (13 million in urban areas and 39 million in rural areas) of the 61 million employed persons are employed in the informal economy which contributes more than 40 percent to GDP. Further, in both rural and urban areas, females and youths aged 15-29 are more likely to be in informal employment compared with their male counterparts.  The informal economy thrives mostly on daily work and daily cash, with little provisions of employment protection. As a result, the present crisis has exposed millions of informal workers, who are mostly the poor and marginalised, along with their families to starvation and hunger, and very bleak future prospects.  

A significant proportion of the informal workers are engaged in non-agricultural occupations, such as street vendors, waste pickers, home-based workers (often subcontracted by both formal and informal enterprises), and domestic workers. These workers are subject to an unpredictable and irregular employer-worker relationship, not defined by conventional forms of workplace and labour regulations. Many formal businesses also hire informal workers; and the formal sector accounts for nearly 5 percent of all informal employment in the country. Only a fraction of the 15 percent workers who are involved in the formal sector can switch to 'work from home' mode in this pandemic. But, for the informal workers, it is mostly a daily hand-to-mouth existence.

The occupational structure of the informal workers is quite varied; but most of the urban informal workers are concentrated in the highly susceptible occupations including salespersons in small shops and petty trade; labourers in construction, manufacturing and transport; domestic helpers, housekeeping, street vendors, garbage collectors, small restaurant workers, and market and stall salespersons. Obviously, these workers have been the worse hit during the crisis and consequently their families.

Moreover, domestic migrant workers make up a major share of the informal workers in Bangladesh. Although there is no firm estimate of such workers including seasonal migrants in the informal sector, these workers are in great distress. The exodus of migrant workers from the metropolitan cities has been a manifestation of loss of livelihoods. Those jobless migrants who returned to their villages find it increasingly difficult to survive with their dependents in the absence of any welfare programmes targeted to these distressed groups. The Covid-19 crisis has hit the household income of informal households in all sectors-- agriculture, industry and services--in both rural and urban areas. Available evidence shows that there has been a steep rise in the proportions of households reporting 'fall in income' after the crisis started.

One important aspect of the Covid-19 crisis is that although during previous economic slowdowns, the informal economy (comprising of both small businesses and individual workers) could perform without encountering any major disruption, they find it extremely challenging to sustain survival in the face of the current pandemic. A range of workers, including salaried MSME workers, small/daily wage earners, home-based (including gig) workers, and migrant labourers have been undergoing serious hardships.

Restrictions in movement have disrupted the supply chains for food, agricultural products, essential services, and reliable access to markets. A large number of MSMEs, which rely largely on informal workers, now face a reduction in domestic demand and are at risk of permanently shutting down their operations. Those who rely on the cash-based sector are struggling to earn the essentials to survive. Workers associated with the informal retail, wholesale, hospitality, and transport sectors are hit hardest by the containment measures.

The most widespread impact of the economic slowdown has been a loss of income for the majority of the 52 million informal workers.  Most of the poor households in Bangladesh are engaged in non-farm informal activity, such as construction work. This type of work has been significantly affected by the lockdown. For many, the loss of livelihood could be long-term. Even a temporary loss in income can have devastating consequences for those whose livelihoods are based on subsistence, without any savings or assets to fall back on. Further, the overall burden of any illness, accident, or disability tends to be high for the informal workers, given the nature of their work and the place where it takes place.

Even the few who could continue to work during the current pandemic face high exposure to the virus itself. They often live in slums or congested housing compounds without access to adequate sanitation or clean drinking water. Informal workers are often unable to access social safety nets and labour rights as they are not officially acknowledged as workers. They seldom have secure employment contracts in place and are therefore excluded from the protection of conventional labour laws.

It is true that Covid-19 has posed serious challenges for the vast majority of the labour force working in Bangladesh's informal economy--both in terms of health hazards and economic survival. Due to continuing uncertainties, measuring the full impact of the crisis is also difficult to predict at present. Nonetheless, identifying the right policy responses is urgently required for these highly disadvantaged informal sector participants.

In Bangladesh, direct cash/food transfers typically and predominantly target the extreme-poor populations. Due to exclusion errors, informal workers are mostly left out. An adverse income shock could be distinct from their baseline wealth/asset scores often employed to determine enrolment into the existing social protection programmes. In the absence of any coping mechanism to counter economic shocks, the migrant workers residing in big cities (like Dhaka and Chittagong) are left with no choice but to rush back to their villages. In the face of limited access to savings and contingency funds, these households are likely to resort to negative coping strategies, such as selling assets, borrowing from informal moneylenders, or engaging in child labour.

A major constraint in rolling out targeted assistance programmes for the informal workers is the lack of information. While technology can be used to fill critical information gaps, one needs to be realistic in expectations regarding reliance on spatial data and mobile phones to gather geo-tagged data. Using digital technology to make mobile payments may not be as effective in places where access to such technologies is limited.

Tax relief and wage subsidies are usually offered to formal enterprises and these do not reach informal enterprises where the bulk of the workforce is employed. Determining mechanisms to quickly deploy economic support to informal businesses and individuals, and establishing methods to target them effectively, is especially challenging. In the absence of functioning markets and supply chains, one may need to consider food/in-kind transfers as well.

Recognising the contribution of informal workers to the national economy, the government will have to proceed with what already exists along with working out new and better options. A universal self-targeting welfare programme may be effective covering a universal basic income and national-level employment guarantee scheme along the lines of the food/cash for works programme. The key will be to devise mechanisms to extend the coverage of existing social protection programmes to informal workers to enable them to survive the immediate impact of the pandemic. Where existing registries or databases exist, quick assessments can be made on their relevance for the scale-up of social protection interventions. The government also needs to introduce reforms to stabilise the long-term impacts of the economic shock on informal workers and find innovative and sustainable ways to identify and reach those who need assistance.

Possibilities may also be explored for designing social protection interventions based on self-targeting. For example, potential beneficiaries may be verified using machine learning algorithms equipped to differentiate a poor locality from a rich one. Similarly, background verification using electricity bills can be explored, especially at a time when means/asset testing may not be practical. Similarly, it is important for Bangladesh to protect the economic sectors that rely extensively on informal workers which can put food security at risk, such as the agriculture and food industries. Restoring disruptions in the food supply chain and strengthening market linkages for local producers can benefit informal workers and ensure the provision of essential services and products. Examples may include vans delivering vegetables to citizen's doorsteps and provision of required groceries to make nutritious meals for children, women and the elderly.

 The writer is Executive Director, Institute for Inclusive Finance and Development (InM).

The Institute for Inclusive Finance and Development (InM) is registered as an independent non-profit institution under the Societies Registration Act 1860.
The Institute works for developing the overall capacity of the financial sector and strengthening the links between the financial and real sectors through undertaking research, training, education, knowledge management and other programmes in priority areas including inclusive finance, microfinance, poverty and development.

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