Informal employment in the Kabylia region (Algeria): labour force segmentation, mobility and earnings.

• Author: Bellache, Youghourta

Introduction

The informal employment issue aroused in the early 1970s (Charmes, 2019) and it is closely linked to the theory of labour market segmentation (Doeringer and Piore, 1971). The divide between the formal and the informal sector (Fields, 1975) challenges the core assumption of human capital theory, i.e. the concept of a single labour market. The formal sector proves attractive, because it provides better-paid jobs and enjoys social protection that are missing in the informal sector. Segmentation can also take place within the informal sector itself: the informal "lower tier" (or subsistence sector) wherein women operate provides easy access to low paid jobs, whereas the informal "upper tier" includes similar barriers to entry as in the formal sector (Fields, 1990). In as much as education and experience explain wage (or income) differentials, human capital theory fits quite well the formal sector but it fails to explain such wage (or income) differentials in the informal sector.

Informal employment, both as for wage earners and self-employed status within the meaning of the ILO, (ILO, 2013), has expanded in many developing countries, becoming norm of the labour market (Jutting and Laiglesia, 2009).This is the case for Algeria we tackle in this paper.

Three stylised facts are noteworthy as for the macroeconomic picture of informal employment (Charmes, 2019, p. 41). First, average (non-agricultural) informal employment is a lasting or structural phenomenon. Second, informal employment is negatively related to GDP per capita. Last, informal employment is countercyclical: rising with economic growth slowing down until the late 2000s and contracting with upgraded economic growth in the early 2010s. The trends and level differ according to the impact of economic shocks and the employment policies designed to absorb these (Adair and Souag, 2019).

Labour Force Surveys (LFS) conducted by the National Statistics Office (ONS) in Algeria from 1997 to 2013 show that informal employment has been rising throughout 1997-2007 and stabilizes between 2008-2013 (Souag, Adair and Hammouda, 2017). This remarkable expansion from 33.5 per cent of total non-agricultural employment (2001) to 45.6 per cent (2010) was accompanied by an almost symmetrical drop in the unemployment rate, from 27.3 per cent to 10 per cent during the same period. The trend of these two indicators (See Figure 1 in the Appendix) supports the hypothesis of absorption of unemployment by informal employment (Adair and Souag, 2019). However, informal employment fell back to 32.5 per cent in 2016, whereas the unemployment rate remained roughly stable around 10-11 per cent, questioning the absorption assumption. In addition, the LFS does not collect any income data and does not shed any light on the determinants of employment and informal employment.

The level of informality follows an inverted U-shaped distribution, more likely to be higher among young and older workers (Charmes, 2019).

Informal employment is a larger source of jobs for men than for women (Charmes, 2019). The share of self-employment in non-agricultural employment, a proxy for the informal sector increased over the 1980s and the 1990s in Algeria (ILO, 2002).

Informal female employment is mainly self-employment: three out of four women in the informal sector are self-employed (67% and 7% are family workers), whereas over one fifth are non-permanent employees. In addition, almost nine out of ten (87.9%) self-employed women operate in the informal sector (ONS, 2013).

According to the ONS, from 2010 to 2018, the average participation rate is over fourth times higher for men (66.8%) than for women (16.4%).

Beyond these stylised facts, little is known about the determinants of access to the labor market and formal / informal segmentation, occupational mobility patterns, the associated gains as well as the gender inequality that this article addresses on a regional scale.

In this respect, we take advantage from two household surveys carried out in 2012 in Bejaia (Bellache, 2012) and in Tizi-Ouzou in 2013 (Babou, 2014), as a pooled and thus substantially enlarged sample comprising 3,290 workers (1,552 households) of all working age groups. We focus on gender inequality that goes hand in hand with informal employment (Malta et al, 2019), documenting the gender wage gap for formal and informal female employees with respect to their male counterparts, an issue that has not been tackled so far in Algeria. We use a consistent subsample of 827 workers to address occupational mobility from and towards formal/informal employment, a topic that is little documented regarding Algeria. Eventually, we apply a decomposition model in order to investigate the explained vs. unexplained parts of the wage gap with respect to the formal/informal divide and gender; it disentangles the factors relating to labour supply (human capital variables) from those relating to labour demand (job status and position variables). To our best knowledge, this issue has not been examined yet in Algeria.

Section 1 is devoted to the literature review on informal employment in Algeria according to the definition from the ILO, in particular the main results of the households surveys carried out from 2007 to 2015. Section 2 presents the sample and descriptive statistics, whereas a multinomial logistic regression investigates the determinants of access to the various formal and informal segments of the labour market. Section 3 examines occupational mobility towards and from formal employment vs. informal employment. Section 4 uses earnings functions to analyse the determinants of wages for formal and informal employees, and a decomposition model to identify the explained and unexplained parts of the segmentation between formal and informal employees, from supply-side and demand side factors.

1. Informal employment in Algeria: definitions and literature review

   We list hereafter the works carried out on the informal economy in Algeria, which inspire from the ILO definition of informal employment (See box 1).

   Box 1. Definition of informal employment The informal sector (ILO 1993) includes the unincorporated enterprises, a subset of the institutional household sector, gathering both own-account workers and employers. These economic units, which provide some legal market output, are not registered or their employees or their size stands below five permanent paid employees. Informal employment (ILO, 2003) encapsulates all jobs carried out in both informal as well as in formal enterprises by workers who are not subject to labour regulation, income taxation or social protection. This is due to the absence of declaration of the jobs or the employees, casual or short duration jobs, jobs with hours or wages below a specified threshold, workplace outside the premises of the employer's business. The extensive definition is based on nonpayment of social contribution rather than the absence of social protection, in as much as individuals may access to social protection thanks to the contribution of another family member (Charmes, 2019, p. 18). Theoretically, the informal sector is included within informal employment like Russian dolls. Informal employment or employment in the informal economy includes three components: (i) employment in the informal sector (the largest component), (ii) informal employment in the formal sector and (iii) informal employment in households (domestic workers and household members producing goods and services for their own final use). As Charmes and Remaoun (2014) point out, two categories of studies should be distinguished: (i) those relating to businesses and the informal sector, (ii) those relating to informal paid employment. The first category addresses the definition of concepts (Musette and Charmes, 2006), descriptive statistics (CNES, 2004; ONS, 2012) and a review of measurements (Hammouda, 2006). The second category gathers five surveys carried out respectively in 2000 (Adair, 2002), in 2007 (Bellache, 2010; Adair and Bellache, 2012), in 2012 (Bellache et al, 2014; Gherbi, 2014; 2016) and in 2013 (Babou, 2014; Babou and Adair, 2016). A last survey regarding exclusively young people (16-29 years old) from the MENA region in 2015 includes a sample from Algeria (Merouani et al, 2018; Gherbi et al, 2019; Gherbi and Adair; 2020).

   So far, no national survey has captured informal employment in Algeria, apart from a non-representative survey carried out in 2000 in five regions (Adair and Bounoua, 2003). The household survey carried out in Bejaia in 2007 is the very first regional investigation (Bellache, 2010). In 2012, a new household survey was conducted in Bejaia (Bellache et al, 2014), while a mixed household and business survey took place in Tizi-Ouzou in 2013 (Babou and Adair, 2016). The surveys carried out in Bejaia in 2007 and 2012 give rise to a longitudinal analysis, which identifies mobility patterns according to age and throughout the various labour market segments (Adair and Bellache, 2018).

   These cross-sectional surveys did document the determinants and earnings of informal workers on a regional scale. Such is not the case for time series studies on the absorption of unemployment by informal employment, which restated the aggregated data from the ONS (Souag et al, 2018; Adair and Souag; 2019) and do not provide any income information.

   Bellache (2010) and Adair and Bellache (2012) identify the determinants of access to informal employment with binary logistic regression, whereas Bellache et al (2014) use a multinomial logistic regression, and estimate the earnings functions of informal employees upon a first sample (1,252 workers) drawn from a first household survey conducted in 2007 in the region of Bejaia. Bellache et al (2014) conducted in 2012 a second household survey in the same region of Bejaia on a larger sample (2026 workers), addressing the same issue of access to informal employment. In...