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An Overview of the Lurking Economy

An Overview of the Lurking Economy: The Underground Economy and the National Accounts of the Philippines

ay Ann Toyoken Octo!er ""# "$%"

An Overview of the Lurking Economy

A&'T(A)T Being a permanent part of the nation's economy, the underground economy poses a lot of economic potentials and enefits when properly enriched and supported and!or improved y the government" #hese potentials include the fact that it somehow contri utes to the annual $%& and $'& of the &hilippines and that it also plays a significant role in the economy y a sor ing the surplus la or that cannot e taken in y the formal sector and thus serves as a safeguard and!or safety net during economic crisis" Overall, this paper provides an in depth e(ploration of the &hilippine underground economy))how it affects the annual summation of $%& and $'&, the roles it play in the economic growth of the country, and the laws, regulations, policies, and programs imposed and made y the government and '$Os upon it all the while challenging the system and its economic planning odies with regards to the &hilippine underground economy"

An Overview of the Lurking Economy

An Overview of the Lurking Economy: The Underground Economy and the National Accounts of the Philippines The informal economy has long !een a permanent fi*ture of a nation+s economy since the ,LO -,nternational La!or Organi.ation/ has identified its concept in %01" despite the conse2uences and disadvantages that the sector offers3 ,n an attempt to e*plore possi!le ways of 2uantifying it and to identify the roles it plays particularly in the Philippine economy# this paper aims to identify the effects of the increasing population growth rate of the informal economy to the country+s total yearly national output and to provide an overview of the Philippine shadow economy444its characteristics# roles it play in the economic growth rate# legislations and programs imposed !y the government# including concerned N5Os# upon it3 E*ploring on pu!lished articles# !ooks# 6ournal entries# and reports from reseraches gathered online -via the ,nternet/ and offline -li!rary reseraches/# this paper suggests that the informal economy has a lot of economic potentials when properly supported !y the government3 (eview of Literature The term 7 informal sector8 was used first in %01" to refer to activities that are unrecorded# unrecogni.ed# unprotected and unregulated !y the governing !odies -,LO#"$$"/3 &asing on the first definition# many researchers and authors attempted to provide their own definition of the term3 9or instance# )hen# :ha!vala and Lund -"$$"/ have presented three views of the informal sector prior to the formal economy and the governing !odies responsi!le to it3 To add# &ecker-"$$;/ proposed eight ways to define the informal sector in a more specific way at the same time characterising it and identifying reasons for its e*istince3 9urthermore# &olivar -"$$</# has also tried to provide a definition and sample magnitudes of it as a percent of the 5=P -5ross =omestic Product/ on different countries all

An Overview of the Lurking Economy

the while pointing out that the ma6or factors for the e*istince of the informal economy is the presence of 7high ta*es# complicated regulations# !ureaucratic hurdles# and corruption -p3>/8 as Edwards# :ones# and (am -"$$</ have also claimed when they cited 'chneider in the literature# Shades of Grey in the Informal Economy remarking that the high rates of direct and indirect ta*es plus social security !urdens drive people to informality3 'ome researchers have also focused on si.ing up the magnitude of the informal economy as a percentage of the national economy3 A hand!ook pu!lished !y the OE)= in "$$" on how to measure the non4o!served economy has identified and promoted !est practices in dealing with it statistically3 9urthermore# 'chneider -"$$"/ has also made an effort to si.e up the informal economy in %%$ countries worldwide using different proposed methods3 ,n relation to this# the 6ournal entry# Counting the Invisible Workforce: the Case of the Home-based Workers# pointed out that though home4!ased workers are a part of the informal economy# they should still !e included in the official statistics of la!or since what they practice are vital sources of employment3 ,n the Philippine conte*t# there have !een also attempts to define# 2uantify# and study the concept of the parallel economy3 9or e*ample# Alon.o and angahas -%00$/

presented summaries and discussions of various surveys conducted a!out the informal sector in etro anila with the latter as the main setting of the surveys3 5atchalian et al3

-%0?</ also conducted earlier researches and surveys a!out the unrecorded employment focused on the four ma6or cities of etro anila3 &asing from the gathered results# they

were a!le to esta!lish the nature# conse2uences# and prospects of underground employment in the Philippines3 @hile 'i!al -"$$1/ sought to 2uantify the informal economy in the Philippines# the )ongressional Planning and &udget =epartment of the Aouse of (epresentatives presented a profile of the sector in "$$? and Buang4:ung -%001/ focused on the su!6ect of 9ilipino retailing as a ma6or economic activity conducted !y poor 9ilipinos as a !uffer to economic crisis3

An Overview of the Lurking Economy 9urther studies conducted !y 9ilipino researchers and authors also focused on challenging the government to improve the sector3 9or instance# =orotan et al3 -"$%$/

presented a !udgetary analysis on government !udgets towards programs it implements for the purposes of improving the informal economy3 oreover# Lan.ona+s Transforming the

Informal Sector sought to provide a 6ustification for su!stantial government intervention to further develop the sector while 9arolan -%00?/ has discussed the need for social protection and social legislation for workers in the informal sector all the while listing some la!or policies on social legislation imposed on it3 ,n addition# acaranas# 'i!al# And Tolentino

-"$$%/ classified laws affecting the informal sector and provided assesments to the e*tent of empowerment of the sector !ased on the conditions of the imposed laws3 Lastly# Cu -%00;/ provided a list of N5Os that made programs for the it3 An Attempt to =efine the ,nformal Economy Otherwise known as the informal economy or parallel economy# the underground economy can !e defined in a !road sense as the group of !usiness activities conducted either legally# illegally or e*tra4legally for the mere purposes of su!sistence3 Accounts earned in these activities are not recorded !y the &,( -&ureau of ,nternal (evenue/3 ,n attempt to define the informal economy in a more specific way# the sector can !e defined using either any of the following eight proposed ways on defining it3 9irst# it can !e specified using the three viewsDdualism# structuralism# and legalism44 on it prior to the formal sector -&ecker# "$$;/3 According to )hen# 3A3# :ha!vala# (3 and 93 Lund -"$$%/

who proposed these three views in their working paper for the ,LO -,nternational La!or Organi.ation/# Workers in the Informal Economy: a olicy !rame"ork# dualists tend to see the informal sector as a separate and insignificant su!sistence economy for the disadvantaged relative to the formal economy3 ,n addition# structuralists see the informal economy as a dependent economy to the formal sector while the legalists give 6ustification

An Overview of the Lurking Economy why there are informal economies3 According to this view# informal economies are the

natural and logical response of the micro enterprises to the !ureaucracy and the red tape in the government -)hen# :ha!vala# and Lund# "$$%/3 A second way to define the informal sector more specifically is through its general characteristics -&ecker# "$$;/3 This sector is generally characteri.ed !y its insufficient re2uirements capital4wise and professional 2ualifications4wise3 oreover# the sector is

known for !eing made up of small4scale operations that are usually for the mere purposes of survival3 @hat is more# the skills that it re2uires are usually ac2uired informally and it also uses adapted or ad6usted technology3 The last !ut not the least defining characteristic of the informal sector as enumerated !y &ecker is it !eing la!or4intensive# meaning# it re2uires a large e*penditure of la!or# !ut not much capital3 A third way to descri!e the informal economy is to divide it into three categories444 the self4employed# the wage workers# and the employers -&ecker# "$$;/3 The self4employed workers are those who do independent 6o!s needing insignificant capital and training -Lan.ona# %00?/3 The wage workers are those who do not have enough capital to spearhead a !usiness so they resort to working for those who have the capital3 &ecker has included those informal enterprises employees# freelancers# and home4!ased workers# paid domestic workers# temporary and part4time workers in this category3 )orresponding to what &ecker has discussed in her work# !act finding study: The informal economy# the last category is composed of employers who are a!le to own and run informal !usinesses3 The fourth way to distinguish the informal economy according to &ecker -"$$;/ is !y categori.ing it to four444home4!ased workers# street trader and street vendors# itinerants# and those work in !etween the streets and the home444 prior to the location where the informal activities are conducted3 &ecker classified the home4!ased workers into two444the dependent home4!ased workers and the independent home4!ased workers3 On the one

An Overview of the Lurking Economy hand# dependent home4!ased workers are those who are 7in4!etween8 the formal and the informal economy3 )hen# 3# OE)onnell# L3# and 'e!stad# :3 -%000/ also termed these

dependent home4!ased workers as 7su!contract workers or outworkers for formal firms8 -p3 <$>/3 'u!contract workers or the outworkers for formal firms make up the group who provide their services for some esta!lishments# !ut do their services at home3 9ormal agreements !etween them and their employers are documented and these dependent workers are compensated for what their products and services are worth3 )hen# 3 et al3

-%000/ affirmed that this group is not usually included among the employees of the formal firms that they work for3 Of e2ual importance# they are also not encompassed in the surveys of informal workers3 On the other hand# independent home4!ased workers are those who deliver and provide products and services to potential !uyers3 )lassic e*amples for this group in the Philippine conte*t cover those women who go door4to4door and offer nail polishing services# small4scale farmers who sell their own harvests to the community and those who sell goods and services through social networking sites like 9ace!ook3 The second group apart from the home4!ased are those who do vending and trading on the streets as &ecker asserts3 ,n the Philippine scenario# it goes without saying that fish!all vendors are among those who can !e classified mem!ers of the group3 The third group comprises of seasonal workers or the 7itinerants8 -&ecker# "$$;# p3 %F/3 E*amples of itinerants include those who work for !uilding constructions or road works3 They can also !e those hired helps for !igger farms during harvest seasons3 Last of all# those who work in !etween the street and the home comprise the last group3 E*amples of informal actor for this category provided !y &ecker include waste4pickers -those who collect plastics# !ottles# and old papers and cartons/3 Another way to provide the informal economy a definition is to delimit it to its potential to enhance employment and income and the factors that push them to go underground -&ecker# "$$;/3 That way# the sector can !e divided to three groups3 The first

An Overview of the Lurking Economy group would cover those enterprises having the !iggest chances on !ecoming one of the ma6or contri!utors in the countryEs economic development due to their potential to spawn

development and wealth3 These enterprises choose to operate underground !ecause of the reality that the informal sector is not su!6ect to any rule or regulation and is mainly ta*4 free3 The sector !eing not su!6ect to any laws and regulation offers autonomy in the conduct of !usiness and it !eing mainly ta*4free means large pool of profit3 The second group would include those individuals or household workers who participate in the informal economy for su!sistence purposes3 ,n addition# they also engage informally !ecause it is where they can only 7ma*imi.e their only asset: la!or8- &ecker# "$$;# p3 %;/ plus the fact that the process of formalisation is too costly and that red tape and !ureaucracies in the registration processes are too time consuming3 The third in this segmentation according to &ecker are those who have formal works# !ut still take time to participate in the informal economy to augment the meagre income they are receiving3 'egmenting the informal sector into two !ased on production units3 This definition would include family enterprises and micro4enterprises -&ecker# "$$;/3 9amily enterprises are family owned !usinesses and micro4enterprises are !usiness units employing five to ten employees and are unregistered3 To add to the definitions proposed !y &ecker# 'i!al -"$$1/ also presented a definition from the 'ocial (eform and Poverty Alleviation Act3 The definition states that informal activities pertain to the small4scale !usinesses operated !y poor entrepreneurs or individuals and of which are unregistered to any government agency3 These small4scale operators sell their services in e*change for very meager wages any other kind of compensation worthy of the services they have provided3 9inally# the ,LO -,nternational La!or Organi.ation/ provides its own definition of the sector as4

An Overview of the Lurking Economy GThe informal sectorH consists of small sector self4employed activities with or without hired workers# typically operating with a low level of organi.ation and technology with the primary o!6ective of generating employment and incomes for their participantsI to the e*tent that these activities are carried out without formal approval from the authorities and escape administrative machinery responsi!le for enforcing legislation and other similar instruments concerning fiscal and

administrative matters and conditions of workI they are concealed -Lan.ona# %00?# pp3;/3 TAE ,N9O( AL 'E)TO( A' A PE( ANENT PA(T O9 TAE ,N9O( AL E)ONO C: =uring the 0$th ,nternational La!or )onference in "$$"# a report entitled# $ecent "ork and the informal economy emphasi.ed that contrary to prior estimations# the informal economy has incurred a rapid growth in almost every economy worldwide even in industriali.ed countries3 9urthermore the report also asserted that in the past recent years# large portions of the la!or force are in the informal economy# particularly in the developing and transition countries -,LO# "$$"/3 ,n support of the assertion that the informal economy is no longer a fleeting phenomenon# !ut rather a permanent part of the nationEs economy# Lan.ona -%00?/ affirmed that so long as there is surplus la!or una!sor!ed !y the formal economy and as long as the economy would not industriali.e to create more 6o! opportunities# the informal sector would stay undissolved and the informal workers would remain and stay as a compliment to the formal workers3 &ecker -"$$;/ also pointed out that the a!sence of government support and the income and asset ine2uityDmeaning# the economic growth is not supported !y advancements in employment levels and distri!ution of incomeDwould mean that the informal economy would stay3 &eing a permanent part of the nationEs economy# coming side to side with the formal economy# the nature of the informal sector varies greatly from the nature of the formal

An Overview of the Lurking Economy sector3 The two sectors are o!viously poles apart3Buang4:ung )3 -%001/ argued that the


customary way of operation in the developing countries# the Philippines !eing one# has led to the division of the total la!or force into two3 On the one hand# the first part works in the formal and structured economy which is characteri.ed !y amia!le wages# secured working terms and conditions# work security and sta!ility# and potential for advancements3 On the other hand# the other part of the la!or force works in the informal sector which is very opposite to the formal sector with it having low wages# poor working conditions# uneven and not uniformed employment# and limited chances for development -Buang4:ung )3#%001/3 ,nThe %ature# Conse&uences# and the ros'ects of the (nderground Economy in the !our )a*or Cities of )etro )anila # 5atchalian# :3)3# 5atchalian# 3 3# &arranco# N3O3# and

Almeda# )3:3 -%0?</ have also enumerated four characteristics of the informal sector deviating it from the formal sector3 These natures include the following: -%3/ workers in the informal economy tend to work long hours to make !oth ends meet since they are receiving very low earnings -"3/ the works done and the earnings and compensations received !y the participants are very unsta!le444irregular or seasonal -F3/ there is no formal contract drawn !etween the employers and the employees making the employees highly at risk for e*ploitation# and lastly -;3/ the terms and the conditions the 6o! re2uires are fle*i!le sym!oli.ing the e*istence of no fi*ed working hours or wages3 &asing on the four enumeration and on the allegation that the informal economy and the formal economy are very opposite# the researcher concludes that workers from the formal economy in comparison to the informal economy actors have fi*ed hours of working time# receive considera!le and sta!le !enefits and salaries from their formal employees unless they are dismissed# and have formal contracts a!out the terms and conditions that is re2uired in the 6o!3 5atchalian et al3 -%0?</ also added that the informal economy can !e distinguished from the formal economy through its mem!ers who are chiefly living in su!4standard

An Overview of the Lurking Economy conditions and through the activities done which in the case of the informal economy# usually are vending activities3 ,t goes without saying that the living conditions of workers


from the formal economy are at least !ars higher than those in the informal economy since they receive sta!le !enefits# compensations# and salaries from their formal employees# though this is not likely always the case3 ,n the Philippine conte*t# some employees may have formal works# !ut the minimum wage they are receiving is not enough to provide for a personEs daily needs3 The minimum wage rate as of :une "$$? ranges from %?13$$ pesos to F;>3$$ pesos. This amount of wage is hardly enough to sustain a daily living with the inflation and the crisis that challenges the economy3 ,n retrospect# Lan.ona -%00?/ provided characteristics of the formal economy that distinguishes it from the informal economy3 The following characteristics are: -%3/ formal enterprises have access to credit -"3/ formal economies have access to advanced technology -F3/ formal economies have access to large markets -;3/ the contracts and the rights enforcement !etween employees and the employers are secured and everything is in !lack and white ->3/ formal economies have the leastt chances of !ecoming a lia!ility and they also have the smallest chances of !eing risky# and -<3/ formal economies have !usiness information3 ,n compliment to the features of the informal economy provided !y 5atchalian et al3# Lan.onaEs features of the formal economy shows how !ig the difference is !etween the two3 As compared to informal enterprises# formal activities have the edge of having the greater access to larger and more profita!le markets# more advanced and updated technology# and credit3 9urthermore# the formal economy is secured in terms of working hours and conditions as stated in an earlier part in the paper3 @hat is more# since they are registered and are known# they en6oy the opportunity of having knowledge and !eing updated a!out the present workplace3 (EA'ON' @AC PEOPLE 5O UN=E(5(OUN=:

An Overview of the Lurking Economy There are considera!le factors that drive people to the underground and why the informal economy e*ists3 The most main and !asic reason is to provide income to their families and to create employment for themselves -Alon.o (3# J angahas#


a3 A3#%00$/3

9urthermore# &olivar -"$$</ stated that# 7Aigh ta*es# complicated regulations# !ureaucratic hurdles and corruption seem to !e the most important factorsthat drive an activity to go underground8 -p3 >/3 &olivar was supported !y 'chneider -as cited in Edwards# P3# :ones# T3# J (am# 3# "$$</ when he noted that the high rates of direct and indirect ta*es plus the oreover# the lack

social security !urdens drive people and micro4enterprises underground3

of attention paid !y the government to the development of the agricultural sector as Alon.o and angahas -%00$/ claimed proves these3 ,n support to this contention# the ,LO

-"$$"/stated that some developing countries tend to focus on reinforcing laws and regulations that concentrate on foreign investments# large companies# and manufacturing industries disregarding the agricultural sector even though the ma6ority of the countryEs population are located in the rural areas and are highly dependent on agricultural su!sistence3 Alon.o and anghasE and the ,LOEs claim prove to !e true in the Philippine

setting3 )onsidering the fact that the Philippines is an agricultural country# the governmentEs focus should !e more on the development of the agricultural sector# however# it proved to !e the other way around3 As Alon.o and angahas -%00$/ put it# the agricultural sector is

!eing !urdened !y many 7pu!lic and private monopolies8 -pp3?0/3 Other factors driving entrepreneurs and micro4enterprises to go underground can !e accounted to the inade2uate a!sorption of e*tra la!or3 Lan.ona -%00?/ argued that since the formal sector cannot a!sor! all the la!or force# the e*tra la!or or the surplus la!or serves as a !uffer or an a!sor!er3 TAE ,N9O( AL E)ONO CE' )ONT(,&UT,ON TO TAE NAT,ONAL OUTPUT

An Overview of the Lurking Economy


The underground economy is related to the countryEs total national output in terms of countryEs 5ross =omestic Product and 5ross National Product3 ,n order to know how they are related# a step to !e considered is to know the different ways proposed to si.e it up3 ,n his attempt to measure and estimate the si.e of the informal economy in %%$ countries worldwide# 'chneider -"$$"/ proposed three ways to measure the informal economy3 The three ways include the following: %3 =irect approachesDinclude the conduct of surveys that are voluntarily replied and ta* audits3 ,n the ta* audits# the discrepancy !etween the incomes declared ta* !y the population and those ta*es that are measured !y selective checks or the so4called ta* compliance data3 "3 ,ndirect approachesDare approaches that are mostly applica!le for macroeconomic activities3 At present# there are five methods comprising this approach3 a3 =iscrepancy !etween National E*penditure and ,ncome 'tatisticsDin the national accounting# the disparity !etween the e*penditure measure and the income measure is used as an indicator of the e*tent of the informal economy3 !3 =iscrepancy &etween the Official and Actual La!or forceDthis approach shows that a the gradual decrease in participation of the la!or force in the formal sector can !e used to show the increase in growth of the informal economy assuming that the total la!or force is unvarying# all other things !eing e2ual3 c3 Transactions approachDthis approach was developed !y Edgar L3 9iege# an economics professor at the University of @isconsin4 adison3 ,n this approach# the total nominal 5NP is related to the total transactions where!y

An Overview of the Lurking Economy the 5NP of the informal economy is derived !y su!tracting the official 5NP from the nominal 5NP3


d3 )urrency =emand ApproachDthis approach assumes that all transactions in the underground are all conducted using direct cash payments for the mere purposes of not leaving traces for the authorities# therefore# a gradual growth of currency demand sym!oli.es growth of the informal sector3 e3 Physical ,nput or Electricity )onsumption ApproachDthere are two methods in this approach namely: i3 Baufmann4Bali!erda ethodDaccording to this method# the difference

!etween the gross rate of the official 5=P and the cross rate of total electricity consumption can !e used to show the growth of the informal sector3 ii3 Lacko ethodDthis method concludes that in every nation# a portion

of the household consumption of electricity is utili.ed for activities in the informal economy3 *" The odel Approach -=ynamic ultiple4,ndicators ultiple4)auses/Dthis

approach takes into account the leading causes of the e*istence of the informal sector as well as the many effects of the informal economy -'chneider# "$$"/3 )ontri!utions to the 5=P and 5NP and to the La!or Employment The informal economyEs share to the yearly summation of the countryEs 5ross =omestic Product and 5ross National Product and its share in the a!sorption of la!or prove to !e very su!stantial3 The )ongressional Planning and &udget =epartment of the Aouse of (epresentative presented in the literature# 7Profile of the ,nformal 'ector8#dated Novem!er "$$?# that the share of the informal sector to the yearly national economic output stayed

An Overview of the Lurking Economy


the same since %00> at "$4F$ percent3 @hat is more# the informal sector is also responsi!le for one4third of non4agricultural 5=P3 The ta!le !elow shows the share of the informal sector in the 5=P of some Asian countries3 Ta!le %3 ,N9O( AL 'E)TO( 'AA(E ,N 5=P ,N 'ELE)TE= A',AN )OUNT(,E' -,N PE()ENT/
)OUNT(,E'-CEA(/ PE()ENT O9 TOTAL 5=P PE()ENT O9 NON4 A5(,)ULTU(AL5=P Philippines -%00>/ Philippines-"$$%4"$$</ Borea-%00>/ ,ndonesia-%00?/ Pakistan-%001/ ,ndia-%00$40%/ Source: Charmes +,,,# -.ES# +,,/ %ote: ada'ted from htt':00"""1congress1gov1'h0do"nload0c'db0fnf233+,,42'rofsector1'df1 ">3; "$4F$ %>30 ">3" "%3" F"3; F"3> K %<30 F%3; "?31 ;?3%

,n addition to this# the NT() -National Ta* and (esearch )enter estimated for the period of %0<>4%01$ that the informal sector produced an output e2uivalent of "< percent of the 5NP as reflected on the individual and corporate ta* discrepancies3 9or the period of %01%4%0?%# the output rose to 0 percent3 9or the succeeding years up to %0?;# this amount rose to <3> percent higher on the !ars making it to a total of ;%3> percent of the 5NP3 ,n %0??# the percent contri!ution went up to ;? percent of the total 5NP -Lan.ona# %00?/3 Aside from its su!stantial share to the 5=P ad 5NP accounts# the informal economy also plays a positive role in the la!or employment# it !eing all around every sector in the Philippine economy3 Pursuant to a "$$? survey done !y the La!or 9orce# presented in the literature# 7Profile of the ,nformal 'ector#8dated Novem!er "$$? !y the )ongressional Planning and &udget =epartment of the Aouse of (epresentative# ;;3< percent of the total

An Overview of the Lurking Economy Philippine la!or force are can !e found in the informal sector for the years# "$$" to "$$13


This total population of the Philippine la!or force working in the informal sector continued to increase over the years at a population growth rate of "3F percent# marking its highest growth rate in "$$; at <30 percent3 &elow shows a ta!le of all working group and the percent distri!ution of the informal workers that are associated with them3 Ta!le "3 PE()ENT =,'T(,&UT,ON O9 ,N9O( AL 'E)TO( @O(BE('# "$$"4"$$1-,N PE()ENT/
5(OUP All Occupations )orporate E*ecutives# anagers# Proprietors and 'upervisors Professionals Technicians J Associate Professionals $3> %3> $3; %3F $3F %3% $3; %3$ $3F $30 $3F %3$ "$$" %$$ %>3" "$$F %$$ %<3" "$$; %$$ %?31 "$$> %$$ %13> "$$< %$$ %130 "$$1 %$$ %?3;

)lerks 'ervice @orkers J 'hop J arket

%3" <3>

%3% >3?

$3; >3>

$3; >3>

$3> >3?

$3< >30

'ales @orkers

An Overview of the Lurking Economy


9armers# 9orestry





F;3; F;3$

@orkers J 9ishermen Trades J (elated @orkers Plant J achine Operators J Assem!lers La!orersJ Unskilled @orkers 'pecial Occupations $3% $3% $3% $3% $3% $3% "?30 "?3> "03F F$3F "031 "03> >3" >3F ;30 >3" >3> >3> >30 >3< >3F >3" ;30 ;3<

Source:.abStat ('dates# )ay +,,4# -.ES %ote: ada'ted from htt':00"""1congress1gov1'h0do"nload0c'db0fnf233+,,42'rofsector1'df1

TAE UP' AN= =O@N' O9 TAE ,N9O( AL 'E)TO(: Aside from its su!stantial contri!ution to the countryEs 5=P and 5NP and to the la!or employment of many a 9ilipino# the informal economy has also other !enefits3 One !enefit can !e seen when the informal sector !uys its capital from the formal sector -Lan.ona# %00?/3 The informal sector has no other place to !uy its capital or its non4la!or inputs# !ut from the formal sector3 )ompared to the formal sector# these capitals and non4la!or inputs are manufactured and sold !y the informal sector at a relatively cheaper price3 The process

An Overview of the Lurking Economy


alone# having the informal sector purchase its capital from the formal sector makes a huge contri!ution to the formal economy !y giving rise to the demand of goods in the formal sector3 Likewise# it also provides livelihood for those who !elong to the poorest of the poor in the country and it serves as a safeguard for those who are employed !ut still need additional income to support their families# laid4off employees# and underemployed workers3 5atchalian et al3 -%0?</ stated that these 7potential wage la!orers8 -p3 1/ need to have an employment in order to support themselves# hence# finding alternative and temporary means of su!sistence3 5atchalian et al3 further pointed out that the informal sector gives a !ackground for the enrichment of enterprising skills3 To add# employment underground serves as a !uffer in times of economic crisis3 As Edwards# :ones# J (am -"$$</ asserted# the sustained reproduction in the informal sector is a 7part of logic of une2ual e*change8 -p3F>0/ where the reason for their continuation is to provide simple and cost4effective goods and services to micro4enterprises and household units in the formal sector3 The very nature of the underground economy offers a lot of disadvantages and conse2uences# as well3 9or instance# the !enefits that the underground workers ac2uire are nearly e*istent with the very meager wages they are receiving3 oreover# employees in the

informal sector do not receive !enefits that the formal sector employees receive such as health !enefits and other compensations that workers ought to receive in the span of their la!or life3 5atchalian et al3 -%0?</ further discussed other disadvantages of the informal sector including its encouragement of child la!or and lack of formal work contracts among employers and employees making the latter easy targets for e*ploitation3 ,n addition# underground employments do not necessarily mean permanent 6o!s3 As was discussed in the earlier part of this paper# &ecker -"$$;/ has highlighted the itinerants who have seasonal 6o!s3 Lastly# on the governmentEs point of view# the fre2uency of the underground activities signify losses in incomes as A!ola-"$$?/ puts it in the literature# 7Profile of the

An Overview of the Lurking Economy ,nformal 'ector#8dated Novem!er "$$? !y the )ongressional Planning and &udget =epartment of the Aouse of (epresentative3


5OLE(N ENT LE5,'LAT,ON' AN= N5O P(O5(A ' ,n the Philippine conte*t# there are government legislations and programs that affect the informal economies in a positive way3 Pursuant to this# =orotan# 9353)3# )a!anilla# P3# ontemayor# a3 A3# J Tan# a3 )3 -"$%$/ listed certain government agencies that are

7championing pro4poor programmes and targeting workers in the informal economy8 -p3%%/3 'ome of these government line agencies include the ='@= -=epartment of 'ocial @elfare and =evelopment/# =OLE -=epartment of La!or and Employment/# TE'=A -Technical Education and 'kills =evelopment Authority/# and the =T, -=epartment of Trade and ,ndustry/3 Programs !y the ='@= listed !y =orotan et al3 -"$%$/ encompass the following: %3 ; Ps or the PantawidPamilyang Pilipino Program444according to the ='@=# the Pantawid Pamilyang Pilipino Program is a human development program !y the national government that is !ased on the ))T or )onditional )ash Transfer3 This programs aims to provide social assistance and social development3 "3 National Aousehold Targeting 'ystem for Poverty (eductionDspearheaded !y the ='@=# this program is a statistics management system that recogni.es who and where the poor are in the country3 ,n the ='@= we!site# www3 dswd3gov3ph# it is stated that this program is undertaken to identify potential recipients of social protection programs3 F3 BALAA,4),=''Dstanding for BapitK!isig La!an saBAhirapan4)omprehensive and ,ntegrated =elivery of 'ocial 'ervices# this is defined !y the ='@= as the Philippine governmentEs poverty4alleviation pro6ect having the @orld &ank to aid3

An Overview of the Lurking Economy


;3 'LPD'ustaina!le Livelihood Program is a community4!ased a!ility !uilding program that pursues to develop the participantsE socio4economic position3 >3 TindahanNatin ProgramDa national government program !y the national government ran !y the ='@= which good 2uality and low priced rice noodles to families who have low incomes3 These products are sold at stores co4operatively ran !y the L5Us and the provincial and municipal social welfare and development officers3 <3 9'PDthe 9ood for 'chool Programme is a8conditional food transfer program8 -)uenca# :3'3# J pupils3 9urthermore# the TE'=A# =OLE# and the =T, provide programs that mainly focus on the enrichment of hidden skills !y the participants and thus giving them the chances of getting employed in the formal sector having !een provided with proper and ade2uate skills development and trainings3 To aid these pro4poor programs enacted !y government line agencies# the Philippines has also laws approved !y the government that supports the disadvantaged sector3 acaranas# 'i!al# JTolentino -"$$%/ enumerated some repu!lic acts# presidential decrees and e*ecutive orders imposed !y the government towards the informal workers on the agricultural sector# small and medium enterprises# special groups of employees3 oreover# there are also cooperative sector laws that aim to improve the informal sector3 acaranas et al3 -"$$%/ provided three repu!lic acts and a presidential decree enacted to elevate the conditions of the small4scale farmers and fisher folks3 These legislations as stated are the following: anasan# (353# "$$?# p3"/ distri!uting N9A rice to elementary

An Overview of the Lurking Economy %3 (A ?;F>DAgriculture and 9isheries oderni.ation Act


"3 (A 1<$1D agna )arta for 'mall 9armers F3 (A <0?"D'ocial Amelioration Program in the 'ugar ,ndustry ;3 P= 1%144Agrarian (eform )redit and 9inancing 'ystem Likewise# small and medium enterprises are also supported !y the government through (A <011 otherwise known as the agna )arta for 'mall Enterprises3 Enacted in

%00%# this law aims to promote entrepreneurial activities and enhance self4reliance -9arolan# a3 3#%00?/3 'pecial groups of employees are also !eing favoured !y certain legislations3 acaranas et al3 included 7industrial homeworkers# househelpers# child workers and women8 -p3 %%?/ in the list of the special groups of employees3 9or the industrial homeworkers# )hapter ,L# Articles %>F4%>> of the La!or )ode of the Philippines protects these workers and their employers3 'imilarly# house helpers are also protected under )hapter ,,, Articles %;%4%>" of the La!or )ode of the Philippines3 ,n the same way# child workers are also under the care of the government through 'ection %" of (A 1<$$# Articles %F04%;$ of the La!or )ode# A& $1"FF# and A& $1%<1 - acaranas# et al3# "$$%/3 Also# women in the informal sector are !eing empowered and protected through Articles %F$4%;$ of the La!or )ode# especially Articles %F>4%F13 Other laws are concerned with the cooperative sector3 ,n compliance to Article M,,# 'ection %> of the Philippine )onstitution# (A <0F? and (A <0F0# also known as the Philippine )ooperative )ode and )ooperative =evelopment Act# these two were imposed to endorse the development and the feasi!ility of cooperatives as aids to the informal sector mem!ers -9arolan# a3 3# %00?/3

An Overview of the Lurking Economy On the same token# other related laws include Proclamation no3 >;?# E3O3 ;>"# (A ?;"># EO F<0 and (A 1%<$ - acaranas# et al3# "$$%/3 To aid the government policies and programs# the non4government organi.ations


more famously known as N5Os also have programs directed to the informal sector3 'ome of this includes the following: %3 Payatas 'cavengersE AssociationDsupported !y the Lincentian issionaries

'oacial =evelopment 9oundation and the Local 5overnment Unit of Nue.on )ity# F$# $$$ men# women and children who scavenged in Payatas formed this association in %00F aiming to create 6oint solutions to pro!lems they face and to !uild !etter# safer and secured communities# lives and 6o!s for their development -=orotan et al3# "$%$/3 "3 PATA A&A44Pam!ansangTagapag4ugnayngmga anggagawasa&ahay is a social protection program for home4!ased workers# especially women -=orotan et al3# "$%$/3 F3 'angsikap 9oundationDis among the programs of the N5Os that is organi.ed to provide loans to small4scale enterprises -Cu# '3O3# %00;/3 ;3 PE=9Dthe Philippine Enterprise 9oundation is among the N5O programs that provides !usiness consultancies for micro4enterprises3 >3 ',=))Dthe 'an =ionisio )redit )ooperative famous for !eing the !iggest and successful community4!ased N5O program for self4reliance3 )ON)LU',ON' AN= (E)O EN=AT,ON':

The informal sector as distinguished in this research paper# when properly supported and enriched !y the government has a lot of economic potentials3 9or one# it helps to put

An Overview of the Lurking Economy into e2uili!rium !oth the input and output markets# meaning# it contri!utes a significant


amount to the 5ross National Product and the 5ross =omestic Product and it also has a lot of advantages to the employment of the surplus la!or that cannot !e taken in !y the formal economy3 These contri!utions made !y the informal economy can !e more taken to a higher level if the government and its economic planning !odies focus more on its enrichment and development especially the agricultural sector since ma6ority of the 9ilipinos are located in agricultural places3 ,n order to unravel the wide e*panse of the potential of the informal economy# the researcher recommends the following courses of action: %3 )ontinue providing more skills development and trainings for the disadvantaged3 "3 )reate a market place environment that does not disregard the informal economy# rather accepts it3 F3 inimi.e the neglect of country side development and stop private and pu!lic monopolies on the agricultural sector3 ;3 inimi.e overregulation and !ureaucracies in the government3

>3 Promote social protection and provide loan and credit !anks for the informal actors3

An Overview of the Lurking Economy


(eferences: Alon.o# (3# J angahas# recent survey3 a3 A3 -%00$/3The informal sector in )etro )anila: findings from a

anila: ,LO4A(TEP arch/# %4F>3

&ecker# B3 93 -"$$;/3 9act finding study: The informal economy3 -"$$;#

&olivar# O3E3# -"$$</3 Informal economy: is it a 'roblem# a solution or both5 The 'ers'ective of the informal business-@orking Paper No3 %/3(etrieved on :uly %$# "$%" from http:OOwww3!g4consulting3comOdocsOinformalpaper3pdf3 2hen, 3"A", 4ha vala, 5", 6 Lund, 7" 821119" :upporting workers in the informal sector; a policy framework8&aper prepared for <LO #ask 7orce on the informal economy9" 5etrieved on 4uly 11, 2112 from http:OOwiego3orgOsitesOwiego3orgO filesOpu!licationsO filesO)hen4:ha!vala4Lund4 'upporting4@orkers4policypaper3pdf" 2hen, 3", O=2onnel, L", 6:e stad, 4" 810009"2ounting the invisi le workforce; #he case of the home) ased workers">orld %evelopment, 2.8*9, -1*)-11" )ongressional Planning and &udget =epartment Aouse of (epresentatives3 "$$?3 rofile of the informal sector1 (etrieved on 'eptem!er "># "$%" from http:OOwww3congress3 gov3phOdownloadOcp!dOfnfK%%"$$?Kprofsector3pdf3 )uenca# :3 '3#J anasan# (3 53-"$$?/3 @ho !enefits from the 9ood49or4'chool Program and TindahanNatin Program: lessons in targeting3Social Welfare and $evelo'ment 6ournal# +7%/# %4<$3 (etrieved on Octo!er 1# "$%" from http:OOco3dswd3gov3phOphocadownloadO swd?our1/!dswd@21?ournal@21vol"@212@21@211@21new@21revision@21+)20)1/"pdf"

An Overview of the Lurking Economy =orotan# 9353)3# )a!anilla# P3# ontemayor# a3 A3# J Tan#


a3 )3 -"$%$/3 Informal economy

budget analysis in hili''ines and 8ue9on City1- @orking Paper No3 %"/3 Philippines: @E,5O3 Edwards, &", 4ones, #", 6 5am, 3" 8211-9":hades of grey in the informal economy"<nternational 4ournal of :ociology and :ocial &olicy, 2-809, *,.)*.*"doi;%$3%%$?O$%;;FFF$<%$<0$>%;3 9arolan# a3 3 -%00?/3Aand!ook on the informal sector3 ,n 53 3 Lanto -Ed/# Social anila:

'rotection and legislation for "orkers in the informal sector -pp3F"4></3 &ishops4&usinessmenEs )onference for Auman =evelopment3

$atchalian, 4"2" 810/-9" #he nature, conseAuences, and aspects of uindeground employment in the ma?or cities of 3etro 3anila" BueCon 2ity; 4"2" $atchalian ,LO -"$$"/3$ecent "ork and the informal sector3 -(eport No3 L,/3 (etrieved on Octo!er F# "$%" from http:OOwww3ilo3orgOpu!licOenglishOstandardsOrelmOilcOilc0$OpdfOrep4vi3pdf3 Buang4:ung# )3 -%001/3 The 9ilipino 7tingui8 retailing approach and cigarette price increase3 ricing Strategy and ractice# :-;/# %;?4%>>3doi:%$3%%$?O$0<?;0$01%$%?;<;; Lan.ona# L3 A3 -%00?/3 Aand!ook on the informal sector3 ,n 53 the informal sector -pp3 %4F$/3 =evelopment3 acaranas# &3'3# 'i!al# :3L3# J Tolentino a3)3-"$$%/3 'urvey and assessment of laws on the informal sector3 hili''ine 6ournal of $evelo'ment# :3-"?/# %$?4%F<3 (etrieved on 'eptem!er "># "$%" from http:OOwwwF3pids3gov3phOrisOp6dOpidsp6d$%4%infosector3pdf3 )easuring the non-observed economy: ; handbook1-"$$"/3 Paris: Organi.ation for Economic )o4operation and =evelopment3 (etrieved :uly 1# "$%" from http:OOrru3world!ank3orgO=ocumentsOPapersLinksO'ida3pdf" 3 Lanto -Ed/# Transforming

anila: &ishops4&usinessmenEs )onference for Auman

An Overview of the Lurking Economy


'chneider# 93 -"$$"# :uly/3Si9e and measurement of the informal economy in 33, countries around the "orld1 Paper presented at a @orkshop of Australian National Ta* )entre# ANU# )an!erra# Australia3 A!starct retrieved :uly ># "$%" from http:OOrru3world!ank3orgO=ocumentsOPapersLinksOinformalKeconomy3pdf3 'i!al# :3L3 -"$$1# Octo!er/3)easuring the informal sector in the hili''ines and the trends in ;sia1Paper presented at the Tenth National )onvention on 'tatistics# )ity# Philippines3 A!stract retrieved :uly 1# "$%" from http:OOwww3nsc!3gov3phOncsO%$thN)'OpapersOinvitedP"$papersOips4""Oips""4$F3pdf " Du, :"O" 8100+9"Su''orting the informal sector: cases of %G< assistance 'rograms1 anila:,nstitute on )hurch and 'ocial ,ssues3 5rade: ,N)O?"3> andaluyong