May 2014

MEETING OF THE GROUP ON EXPERTS OF NATIONAL ACCOUNTS

INEGIGeneral Direction of Economic Statistics

Deputy General Direction of National Accounts

“Explicit Measurement of the Informal Economy in the framework of the SCNM Change Year Base 2008”

Contents

Objective

Theoretical and Conceptual Framework

A measurement for the Mexican case

Methodological Framework

Sources of Statistical Information

Obtain an explicit measurement of the Informal Economy value, in the framework of the System of National Accounts of Mexico 2008 (SCNM08) aligned with the set the International Organizations guidelines:

Informality index Production account informal main components Occupied personnel in Informality

Classification used is The North American Industrial Classification System 2007 (NAICS07) for 56 subsectors of the Mexican economy.

Objective

Statistical Information Sources

Statistical Information:

2009 Economic Censuses (CE, Censos Económicos 2009

National Survey of Households Income and Expenditure (ENIGH, Encuesta

Nacional de Ingreso – Gasto de los Hogares)

National Survey of Occupation and Employment (ENOE, Encuesta Nacional

de Ocupación y Empleo)

National Survey of Micro-business (ENAMIN, Encuesta Nacional de

Micronegocios)

EXPENSES AND INCOME OF THE INFORMAL SECTOR

K200 Consumed materials for service providing K431 Energy consumption for the

production process K833 Payments for toll and infrastructure uses

K310 Own Raw materials and auxiliaries consumed K521 Construction machinery and

equipment rental payments K910 Bottling and packages consumption

K311 Stationery and office articles K531 Transport equipment rental payments K921 Goods and services insurance payments

(65%)

K321 Consumed construction materials as main contractor K590 Other properties rental payments K950 Repairs and spare parts for current

operation

K331 Explosives, reagents and similar inputs consumed K620 Commissions payment without

base wage K961 Sold products freights

K332 Minerals bought to 3rd parties, processed by mining unit K630 Professional services payments K976 Water consumption payment

K411 How much did you spend in fuels and oils? K700 How much did you pay for maquila

or outsourcing? K999 Other expenses for goods and services consumption

K412 Electric power consumption K810 Payments for advertising How much you paid last month?

K421 Fuels and oils consumption for transport equipment K820 Payments for communications

services How many hours did you work last week?

Statistical Information Sources

For the subject of informality phenomena the statistical measurement, the norms and recommendations have been settled by the international agencies considering the following:

International Conferences of Labor Statisticians (ICLS XV and ICLS XVII).

The Non-Observed Economy Manual (NOE) 2002 chapter 12 section 12.4.

The 2008 System of National Accounts (2008 SNA) chapter 25.

Theoretical and Conceptual Framework

ICLS XV (1993)

Informal Sector

Units engaged in the production of goods and/or services.

Employment and income generator.

Non incorporated as legal entities.

Lack of capital accounting.

ICLS XVII (2003)

Informal Employment

Distinguishing:

Informal economy employment,

Informal employment,

Employment in the informal sector

And Informal employment out of the informal sector and the informal employment.

Disaggregation of informal employment by type production unit.

Theoretical and Conceptual Framework

Measuring Informality: a statistical manual on the informal sector and

informal employment published by the ILO (2012)

Starting from the recommendations expressed in the XV ICLS and XVII ICLS, and experience in the measurement of informality in different countries an expanded concept of informality is defined.

Now not only includes employment in informal economic units, but it incorporates the entire work does not registered with the social security, which is operating in the informal sector economic units.

• The unprotected work of agricultural activity.

• Paid domestic service of households.

• Subordinate workers, although they work for formal production units do so on modalities in which production units do not recognize a formal employment relationship and obligations that this entails.

Is added to the definition of informal employment other types of informal employment:

Matriz Hussmanns: México

Producers for own final use

only

Informal Informal Formal Informal Formal Informal Formal Informal Formal Formal

Informal sector 1 2 3 4 5

6 7 8

Other enterprises

* Producers' co-operatives, witch are not formally established as legal entities, are treated as private unincorporated enterprises. Persons working in such informal co-operatives are included

in one of the other categories of status in employment, and their jobs classified accordingly.

Private unincor-porated

enterprises

Other sectors

Jobs by status in employment

producers for sale or barter

Members of producers'

cooperatives*

Own-account workers Employers Contributing family workers Employees

Enterprises by Type

* Producers' co-operatives, witch are not formally established as legal entities, are treated as private unincorporated enterprises. Persons working in such informal co-operatives are included in one of the other categories of status in employment, and their jobs classified accordingly.

ILO: Informal Sector and Informal Employment

Sector Nbr. Of Subsectors Description

21 1 Mining, excluding oil and gas extraction

22 0 Water and gas supply by pipeline, excluding electricity23 3 Construction

31-33 16 Manufacturing Industries43-46 12 Trade48 - 49 5 Transports, Mail and Storage, excluding Pipeline Transportation

51 3 Mass Media Information52 1 Financial and Insurance Services, excluding Central Banking53 2 Real Estate and Property Rental and Intangibles 54 1 Professional,, Scientific and Technical Services 56 2 Business Support Services and Waste Management61 1 Educational Services 62 2 Health Care and Social Assistance Services71 2 Leisure, Cultural, Sports and Recreational Services72 2 Temporary Lodging , Food and Beverages preparation Services81 3 Other Services except Government Activities

Total 56

NAICS 2007

Source: Self prepared with SCNM 2008 data

Theoretical and Conceptual Framework

NAICS 2007

Sector 11. Agriculture, Animal Breeding and Farming, Forestry, Fishing and Hunting.

It is important to emphasize that in this study about informality are

considered implicitly the following: .

Jobs estimated in function of required labor days by product

without distinguishing employment features.

In Mexico, the agricultural property is assigned to peasants as

private property socially named Ejido. Meaning that Mexican

peasants have assets that they can sell, transform or extinguish.

Theoretical and Conceptual Framework

The current method in INEGI is the Direct Method for measuring total Informal Economy, from direct sources such as the Surveys of Employment and Micro-business.

Methodological Framework

The statistical technique for obtaining the explicit measurement by subsectors of the Informal Economy is the “Method of the Latent Variable”, characterized by an unobserved variable explained from known indicators.

Such technique reduces the dimensionality of the set of observations keeping the major part of the feasible information of the study set.

METHODS FOR ESTIMATING THE GROSS VALUE ADDED THE INFORMAL SECTOR (GVAIS)

Latent Variable Method applied to income of the matrix of employment for position in the occupation.

Vector (56X1) = Multiplication Index Informality by the level of Gross Value Added.

Methodological Framework

Measurement for Mexico in 2008

The GDP of informal activity, incorporating the informal sector and informal employment, contributed to the national GDP to 25.49% in 2008.

GDP 2008

25.49% INFORMALACTIVITY

GDP 2008

8.70% INFORMAL

SECTOR

GDP 2008

16.79% INFORMAL

EMPLOYMENT

Main Results

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