Employ Informal Workers

FIGURE 1.14 Low-Skill Services Are More Likely Than Global Innovator Services to Employ Informal Workers

Share of workers with and without contracts in selected sectors of LMICs

Share of sector employment (%) 60

50

40

30

20

10

0

Commerce and hospitality Financial and business services

Manufacturing Transportation and communications Self-employed Paid w/o contract Paid with contract Unpaid Source: Calculations based on World Bank’s International Income Distribution Dataset (I2D2). Note: The I2D2 is a global harmonized household survey database. The data are from 101 low- and middle-income countries (LMICs) for the most recent available year (between 2005 and 2017). “Commerce and hospitality” includes, respectively, wholesale and retail trade and hotels and restaurants. “Communications” includes post and telecommunication services. LMICs, by World Bank income group classifications, had 1994 gross national income of less than US$8,955.

(figure 1.14). This is perhaps indicative of a large informal segment within manufacturing where workers do not benefit from a wage premium owing to efficiency wages or institutional factors such as minimum wages, labor codes, and union bargaining (Jaumotte and Osorio Buitron 2015; Söderbom and Teal 2004; Verhoogen 2008).

The relatively large shares of self-employed and wage employees without contracts in the low-skill (tradable and domestic) services subsectors (trade, hotels, and restaurants, as well as transportation and communications) raises concerns about the extent to which these subsectors can raise the living standards of low-skilled workers. Informal employment arrangements are typically not characterized by access to minimum wages, labor codes, retirement plans, paid holidays and sick leave, and health and life insurance. They also tend to provide relatively unstable arrangements, relying more than the formal sector on part-time or temporary contracts. The returns to experience for a worker in the informal sector are also lower than in the formal sector (World Bank 2019).

Yet although many jobs in these low-skill services are in the informal sector and the productivity dynamics over time are not that high, these jobs still provide a higher and often more stable form of income for large numbers of people, especially those moving out of agriculture and off the farm. For example, evidence from India shows that labor productivity in the informal services sector was consistently higher than in agriculture since 1990 (Nayyar 2012).30 In addition, household enterprises in retail, food, and

accommodation services—as well as transportation services, particularly in secondary cities—have been important contributors to poverty reduction (Christiaensen and Kanbur 2017; Christiaensen and Martin 2018). And they provide opportunities to improve skills and earnings profiles over time (Beegle and Christiaensen 2019; World Bank 2012).

Moreover, recent experimental evidence from Ethiopia indicates that not all manufacturing jobs are better than self-employment in services: in the studied factories, there is no evidence of an industrial wage premium, and there are significant concerns about worker health and the safety of working conditions (Blattman and Dercon 2016).

Low-Skill Services Are Also Most Likely to Employ Women Women have particularly benefited from the expansion of low-skill (domestic and tradable) services. The share of female workers in wholesale and retail trade, hotels, and restaurants is about 45 percent, compared with 38 percent in the manufacturing sector, on average, across LMICs (figure 1.15, panel a). In Sub-Saharan Africa, the share of female workers in these commerce and hospitality-related services was as high as 59 percent, compared with just over 42 percent in the manufacturing sector (figure 1.15, panel b).

Female workers also account for approximately 44 percent of employment in the global innovator services, on average, across LMICs (represented by financial and business services in figure 1.15, panel a). In fact, the share of female workers in financial and business services exceeded that in commerce and hospitality-related services in Eastern Europe and Central Asia (60 percent versus 57 percent) and was not too far behind the commerce and hospitality subsectors in both East Asia and the Pacific (47 percent in finance and business versus 56 percent in commerce and hospitality) and Latin America and the Caribbean (42 percent versus 50 percent) (figure 1.15, panel b).31 However, women are typically employed in lower-paid occupations in finance and business services and therefore earn less than men in these subsectors (see chapter 2).

In addition, female entrepreneurs tend to be predominantly in retail services (World Bank 2019) and are more likely than men to operate in the informal sector (HallwardDriemeier 2013). In recent World Bank Enterprise Surveys of four LMICs, 58 percent of informal retail firms had majority female ownership, compared with only 33 percent of formal retail firms (figure 1.16).

Prospects for Productivity Growth

Over time, increases in productivity will be central to creating better-paying jobs. The increase in the share of low-skill services in value added has not been commensurate with that in employment. The share of wholesale and retail trade, hotels, and restaurants in total employment across 25 LMICs, on average, almost doubled, from 11 percent in 1985 to 20 percent in 2010, while their corresponding average share of GDP increased marginally, from 15 percent in 1985 to 17 percent in 2010.32 This evidence suggests that