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Transition to formal economy

Building back better in the Philippines

ILO activities in the Philippines are a good example of what can be done to facilitate the transition from the informal to the formal economy, as they not only brought immediate income to typhoon victims, but also a guaranteed minimum wage, social protection and safety and health.

Article | 17 August 2015
Marilyn, a “loan shark” victim
DAVAO (Mindanao, Philippines) – Purok 35 Bucana is a shanty town located just off the busy main road linking the airport of Davao, on Mindanao Island (Philippines) to the centre of Davao City.

Some 500 people live in this informal settlement, some of the many to be found in this city of 1.5 million inhabitants. Crossing the site on a 1-meter wide mud path we meet Marilyn, aged 45.

Her small grocery shop (called sari-sari) seems to be the meeting place for those living in the area. An ad on her shop promotes local beauty products that she sells on credit.

Marilyn is earning 200 pesos a day (about US$4.50) – but she has to pay back a 1,200 pesos (US$26) credit line at a 20 per cent monthly. Locally this system is called 5-6 (you pay 6 for 5).In other words, she has become a “loan shark” victim.

The shopkeeper came with her husband to Davao five years ago. “He suffered from heavy head injuries after a fight with other miners in Diwal Diwal, a gold mine in Compostela province.

Without health insurance, he had to be moved to a hospital in Davao, where luckily an NGO paid for his expensive treatment. “He now helps me with the shop,” Marilyn says.

One of her suppliers is Julius Aparente, aged 24. We find him a bit further down the mud path. He boils duck eggs to be sold in the streets, and splits the 180 pesos (US$4) he earns per day with Virgilio, 49, the owner of the balut (the place where you cook the eggs).

Julius Aparente
Julius earns another 250 pesos (US$5.50) daily as a temporary construction worker, where he is informally employed and paid below the minimum wage.

As Julius’ income is irregular – sometimes having to wait three to four months to find a new construction job – he is glad to earn another 90 pesos selling eggs for Virgilio.

Four workers in ten in the informal economy

The stories of Marilyn, Julius and Virgilio are familiar to Filipinos, and to many people living in other developing countries. Workers in vulnerable employment, often referred to as the informal economy, usually have no choice but to take whatever work is available in order to survive.

They not only find it hard to make a living, but are also deprived of social protection, representation of their interests and the legal guarantees of labour law.

The ILO estimates that at least 40 per cent of the global labour force works informally, with some observers putting the figure still higher.  The term “informal economy” refers to all economic activities that are, either in law or in practice, not covered by formal arrangements.

Rebuilding communities

However, things are changing – on Mindanao Island and elsewhere. A good example in the Philippines can be found only a few hundred kilometres north of Davao in the village of Sibahay.

This small fishing community was badly hit by typhoon Bopha, named Pablo locally, in December 2012. The fishing grounds that provided the village’s income were utterly destroyed.

“After Bopha, I lost everything. With my coconut trees destroyed, I had no other source of income than fishing,” recalls Richard Orcales, a fisherman and member of the Sibahay fisherfolk association.

The ILO, with the support of the Australian government and local communities, helped villagers rebuild better structures, as well as take the first steps to join the formal economy.

Benefitting from formalization

“In Sibahay, as in many other areas affected by natural disasters in the Philippines over the last few years, we helped people rebuild their lives by ensuring coverage for wages, social security, accident and health insurance for workers,” explains ILO Country Director Lawrence Jeff Johnson.

We helped people rebuild their lives by ensuring coverage for wages, social security, accident and health insurance for workers."

Lawrence Jeff Johnson, ILO Country Director
“For many people, it was the first time they ever benefited from the positive changes offered by having access to decent work and social protection.”

In the case of Sibahay, protective gears and tools for the construction of a lobster pen were provided. This allowed fishermen like Richard Orcales to have an income, work in safety and sustain their families, by working on the site until the fishing grounds recovered.

Other projects helped typhoon survivors to stay close to their homes in affected areas of Mindanao, instead of moving to big cities such as Davao or the country’s capital Manila.

These projects protected them from exploitation and precarious living conditions, such as those experienced by Marilyn and her husband in the Bucana shanty town.


A new Recommendation to tackle the informal economy

In June 2015, the 104rd session of the International Labour Conference adopted a new Recommendation – the first ever international labour standard specifically aimed at tackling the informal economy.

The new labour standard provides strategies and practical guidance on policies and measures that can facilitate the transition from the informal to the formal economy.

It acknowledges that most people enter the informal economy not by choice but due to a lack of opportunities in the formal economy and an absence of any other means of livelihood.

Depending on the developing region, between 45 and 90 per cent of workers are in the informal economy. As concerns small and medium enterprises with 10 to 250 employees, as many as 90 per cent are informal.

The vote by the International Labour Conference is seen as a crucial step in assisting countries to set up the necessary measures to promote decent job creation and sustainable enterprises in the formal economy.
 



This is a web version of the story published in the 2015 edition of the World of Work Magazine
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