Thursday, April 27, 2017

The Overview of Informal Sector in Thailand

Jack Huang

Informal economy has been recognized as an important issue widely among developing countries and the increasing size of informal sector, especially during the economic downturn in 2008 and 2010, has had huge impact to society and economic growth. The informal economy, also known as informal activity, underground economy, grey economy, etc., can be generally regarded as a job without formal registration and does not comply with labour regulation. In many studies, informal economy has related to many social issues due to the lack of necessary protection. The issues such as poverty trap, low productivity and unsustainability, have attracted more and more attention by both policymakers and private sector managers. Therefore, it is worth to examine the situations on the ground and the solutions that different authorities deal with the informality.

Informal sector and informal employment can be found worldwide. However, the scale and size of informal economy is much larger in developing countries than in those developed ones, especially in Africa and Southeast Asia. If we exclude the agricultural sector, informal sector still accounts more than 50% of the total workforce in Asia-Pacific region (ILO, 2012)l, and contributes more than 55% of GDP in Sub-Saharan countries 
(AfDB, 2013)2. In practical, informal economy is the diversified activities that comprises more than half of the labour force in many sectors and it also provides a basic income for those low-skilled or unqualified people who are not able to compete in the normal market. Due to different statistical requirement, informality can be distinguish in different aspects. For example, 'informal sector' refers to the positions or behaviours conduct in an economic environment but they are not supervised by official regulation. The 'informal employment' is another form which mainly focuses on the labour side. It emphasizes the situation that a worker is lack of necessarily social protection in terms of payment, healthcare, pension system and legal rights, etc. The different concepts can overlap with each other, for instance, a labour may work in a legally registered company but with very little protection in his subcontract or even without any contractual guarantee. In any case, the informal economy is gaining more and more attention and both global and national agendas need to put efforts with the aim of formalising informal activities or creating decent jobs.
 1 International Labour Organization (2012), "Informal Economy in Asia and the Pacific".

2 African Development Bank (2013), "Recognizing Africa's Informal Sector".
3 This figure excludes the informal employment in agricultural sector. If we include the informality in agriculture, it will reach higher number of total working population in Thailand.

In Thailand, one of the fast growing countries in Southeast Asia, the informal economy is still remaining as a primarily challenge affecting its economic growth and social development. Informal workers in Thailand, according to the definition under Labour Protection Act (LPA), can account 55.9 per cent of workforce in 20153, which equals to 21.4 million of total working population. If we include informal workers and their families, the number will make up 76 per cent of Thailand's total population. Moreover, the informal jobs performed outside the protection scheme, workplace regulation and official monitoring result to many social problems and economic inefficiency. In the individual level, it is believed that informal labours in Thailand are largely not protected by any social insurance and also lack of awareness of their legal rights. Because of primary education level and limited accessibility to skill training, many informal workers keep trapped in poverty, insecure environment and low-income as a vicious cycle. On the other hand, form the macroeconomic point of view, increasing underground sector and informal employment may create economic burdens to Thai government. Such non-registered activities, like street vendor, construction labour, house maid and Tuk-Tuk driver, etc., usually perform outside the formal sectors that taxed by government and their fruit of labour are not listed in official balance sheet. Meanwhile, low productivity, inappropriate resource allocation and information asymmetry in labour market can cause extra costs and impede health economic growth. Furthermore, if the informal sector continually plays as a final resort for Thai people who cannot find a job in formal economy, in a long term, uncontrollable informal may hurt Thailand's global competitiveness and its own financial health.

The major employment related social protection in Thailand, is governed by legislations including Labour Protection Act, Labour Relations Act, Workmen's Compensation Act and Social Security Act, which mainly applicable to formal employees. Despite there are a few regulations and programs covering some informal employment social protection issues, such as Homeworkers Protection Act, Ministerial Regulation on the Protection of Agricultural Workers, National Health Security Act, National Health Security Act, National Savings Fund Act, Social Security Act, the enforcements of those regulations and programs are especially weak among informal  employees. With this awareness, the Royal Thai Government has addressed its attention to reduce informal employment countrywide and set as a key agenda with the objective of moving informal employment towards formal and decent jobs.

The progress in dealing with informal issue not only led by Thai government, but also contributed by other international agencies. For example, Social Protection Floor Joint Team (SPFJT) was collectively coordinated by International Labour Organization (ILO) and Thai government, which aims at supporting implementation of rights-based social protection system for people in needs. Such needs include the adequate compensation of work-related injuries, or providing training programs to graduated workers from informal sectors.

In sum, the informal economy in production sectors and the informal workers have conducted unrecorded activities that worth thousands of millions USD every year in Thailand. It is also believed that those informal workers suffering from the unfair wage and unstable income, the lack of access to social security and very little negotiating power with their employers. Indeed, many researches even show that the increasing size of informal economy may negatively affect economic growth and social development. In long term, Thai government needs to provide an universal basic social protection and implement necessary policies which can graduate those underground workers to formal sectors.
(Jack Huang is the Consultant in UN Office of Information and Communication Technology, OICT)

1.Cano Urbina, Javier, "Essays on Informal Labor Markets" (2012). Electronic Thesis and Dissertation Repository. Paper 649.

2.Henrik Huitfeldt, Sida, and Johannes Jütting (2009). Informality and Informal Employment. OECD Development Centre.

3.ILO (n.d.). Social Protection for Thailand's Informal Economy Workers.


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