Impact of the informal economy on the labour market

In 2011, Romanian national trade union confederation BNS published a report on the informal economy and its impact on the labour market. It shows that informal employment represents 31.4% of total employment in Romania. The distribution of informal employment by institutional sectors is 75.3% in the households sector, 0.7% in the formal sector and 24.0% in the informal sector. Subsistence rural households account for 96.4% of the household sector’s informal employment.

About the study

The report, Informal economy and its impact on the labour market (in Romanian, 7.56Mb PDF), was published by the National Trade Union Bloc (BNS), a national trade union confederation. The report uses data collected for selective research in Romanian households as part of a project known as Office for the Monitoring of the Labour Market and Quality of Workplaces, co-financed by the European Social Fund (ESF) through the Sectoral Operational Programme for Human Resources Development.

The study seeks to define more precisely two labour market concepts:

  • employment in the informal sector – defined as all workplaces or people in informal enterprises, irrespective of their professional background or the type of work performed;
  • informal employment – defined as all informal workplaces in both formal and informal enterprises (including individual households).

In other words, employment in the informal sector is approached from the perspective of the enterprise, while informal employment is approached in terms of workplaces and working conditions.

The survey underlying the study covered the whole of Romania and included a representative sample of the country’s population. The survey was based on a two-tier opinion poll in 9,804 households. The information was obtained through face-to face interviews with people aged 15 and over who had worked for at least one hour during March 2011. The no-response rate was 11.3% and the rate of refusal was 1.7%.

Key findings

Extent of informal employment

The survey indicated that a total of 2.9 million people (that is, 31.4% of the total employed population) were involved in informal employment in Romania in March 2011. The distribution of this informal employment was 75.3% in the household sector, 24.0% in the informal sector and 0.7% in the formal sector (Table 1).

Table 1: Distribution of employment by type of workplaces and sectors
 

Total employed population

Formal employment

Informal employment

Total number of people

9,239,000

6,335,000

2,904,000

Formal sector (%)

63.2

91.8

0.7

Informal sector (%)

13.1

8.1

24.0

Household sector (%)

23.7

0.1

75.3

Source: Voinea and Liviu Albu (2011)

Informal employment by gender and area of residence

Men and women in informal employment accounted for 17.6% and 13.8% respectively of all national employment. Men have the largest share of informal employment at 56%, compared to 44% for women (Table 2).

Informal employment is much more common in rural settlements (88.4%) than in urban communities (11.6%) (Table 2). Informal employment in rural areas involved some 2.6 million people, equivalent to 27.8% of overall employment in the Romanian economy. In urban areas, informal workers accounted for only some 3.6% of total employment.

The subsistence farmsteads in the rural areas, with 2.1 million people in informal employment, accounted for 96.4% of the entire informal employment in the household sector.

Table 2: Distribution of informal employment by gender and rural/urban area (%)
  Total Male Female Urban Rural
Total employment

9,239,000

55.6

44.4

55.4

44.6

Informal employment

2,904,000

56.0

44.0

11.6

88.4

Source: Voinea and Liviu Albu (2011)

Commentary

The magnitude of informal employment in Romanian households is an effect of the country’s traditional subsistence farming. Peasant workers undertake work in their own and other villagers' households through cooperation and mutual assistance. It is a barter exchange of labour, in that each day worked in the household of another is compensated for by the work of that person or another member of their household. This work is unpaid and unrecorded for tax purposes, and no contributions are made to social security, health, and unemployment insurances.

The study also highlights the fact that:

  • youths aged 15–24 are twice as likely to be involved in the informal sector as older people;
  • the risk of being entrapped in the informal sector is 12 times higher for people with a low level of educational attainment.

Reference

Voinea, L. and Liviu Albu, L. (2011), Economia informalã şi impactual ei asupra pieţei muncii (7.56Mb PDF) [Informal economy and its impact on the labour market], BNS, Bucharest.

Constantin Ciutacu, Institute of National Economy, Romanian Academy

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