The Informal Sector in the Greater Manila Area, 1976 : An Overview

This study describes informal sector enterprises in terms of their organizational and operational characteristics, discovers the impact of these characteristics upon the enterprises' productivity, employment and income generating power and explores policy measures to enhance the participation of informal sector enterprises in the realization of society's productivity, income and employment goals if such enhancement is desirable on social grounds. For purposes of the study, a sample of 3,500 enterprises in the Greater Manila Area was surveyed in the period March to May 1976. All in all there was little in the results of the survey to contradict a priori notions about the informal sector. The sector was characterized by low productivity, small employment, modest fixed assets, long hours of work and low wages. The majority of the enterprises finance their fixed and variable capital requirements from internally generated savings. The enterprises had very little linkage with the "formal" sector. Heads of enterprises were no longer young; almost all had formal education as well as were born outside of Greater Manila. Enterprise heads typically rented the house in which they stayed or shared it with relatives and friends. They had no other source of income except the enterprise. A number of variables representing characteristics of the enterprises and enterprise heads were used through stepwise regression to explain the enterprises' productivity, employment and income generating power but the exercise turned out to be singularly fruitless. From the maze of data that was gathered it seemed clear that contracting the sector was out of the question. The sector was characterized precisely by self-reliance, a quality that should be encouraged rather than discouraged. The "smallness" of informal sector enterprises tended to promote allocative efficiency rather than impair it. If policy on size is to be addressed to the informal sector, it should make no attempt to produce mergers excepts possibly on a selective sectoral basis. Through it seems like an island complete in itself, the informal sector does have links with the formal sector and this is mainly with the government. The government affects informal sector enterprises in three major ways: requiring their registration, collecting one form or other of tax from them, and "relocating" them. The majority of the enterprises said that these requirements and actions were restrictive. This is perhaps where policy can be brought to bear. If the informal sector is almost wholly self-reliant, policies intended to help the sector must, one, loosen up or eliminate restrictions, two, provide assistance that will either augment resources in the sector or improve the quality of resources already existing in the sector and, there, carry out "relocation" only when this is unavoidable and only after careful account is taken of the circumstances of families affected. The informal sector seems to be "of, by and for" low income households. The suggestion that the sector should not be contracted should not be construde to mean that the sector should be perpetuated. Rather the point is that the informal sector cannot be eliminated for as long as low income households exist. Once low income households have moved to the company of high income ones, the informal sector will disappear. Policy should therefore aim at enabling low income households to make the crucial transfer.