1. Background
Informal employment is an employment status of an individual worker whose job characteristics can be described as unstable or not decent. These jobs are unregulated by labor legislations; they are usually not covered by social insurance system. Consequently the scale of informal employment in a country can be used to measure social vulnerability. From a macroeconomic perspective, the informal sector of labor market in a country reflects its development stage; it is well known that there always is lower informality level in advanced countries but higher in developing countries (Schneider F. , 2002; Schneider and Enste, 2000).
In a general wage framework, the fundamental characteristic of informal employment include lower wage in terms of monetary payment and instability and lack of respect. But, how to empirically measure the instability and vulnerability is still challenging for scholars from all over the world. ILO recommended the statistical definition in the 90th ICLS (Hussmans, 2002). Even though majority of scholars accept the definition in principle, but it is still difficult to define informal employment using survey data, this is because that there are always many special factors that need to be involved into the definition of informal employment in different countries.
Another constraint of the statistical definition of informal employment has to do with the data from surveys. The proposed definition suggests that informal employment be determined by jobs and employer (or unit) characteristics jointly, and job characteristics should be dominated. But in the manipulation, survey-designers always pay close attention to concerned questions which affect labor force significantly or mostly concerned by government. Hence, there are different questions in different survey instruments. The measurement and comparison in different countries usually is not able to find a standard of well defined.
Different countries have distinctive institutional environments. China as a transition country has developed a new style employment system with its own characteristics in the past 30 years. For example, China’s current labor laws focus only on an employee’s formal contract with his employer and it is considered as a symbol of a stable employment. These emphasis on formal contract is demonstrated both in labor law enacted in 1993 and labor contract law enacted in 2008. However, China has not yet enacted a social insurance law. According to the newly labor contract law in 2008, an employee has right to end the labor relation if his employer doesn’t provide him with a social insurance, but in practice, the regulation in the law is not mandatory. It is common that both an employer and a worker consider a job with formal contract stable even though the employer rejects to pay for the social insurance for the employee.
Whether or not participate in social insurance plan is decided by employers and employees especially those who are rural migrant workers. It is common that rural migrant has little incentive to participate a social insurance plan since social security coverage is restricted to local residents. This might be another very institutional condition different from other countries.
Since 1980’s, the reform on the social security system has started, but it hasn’t yet completed now. Given that the share of social pension is about 70% in total social insurance accounts, let’s briefly introduce the process of reform in the pension system and analyze the special constraint in measuring informal employment. State-owned enterprises (SOE)s provided pension for their retired employees directly before the aggressive reform of SOE by the end of 1990s. However, more and more SOEs were not able to provide pension for their retired employee any more due to their financial deficit during the transition. Central government made initiatives to advocate social insurance system to replace for unsustainable enterprise pension system. As a result, every province or municipal city was authorized to choose their own pension system. Majority of provinces gave the local authority at county or city level the autonomy to take charge of their pension system. This institutional arrangement causes a severe obstacle for labor force’s migration to join the social pension system, since the employee’s contribution to pension system can not be easily transferred from one city to another. Rural migrants have much higher mobility in the labor market than their counterparts who are local residents, and they are still discriminated by the institutional obstacle of hukou system; they are unable to reside in destination cities successfully. Hence, rural migrant workers reject to make contribution to pension account and escape from social pension coverage. The enterprises that hired rural migrant workers have incentive to escape from the contribution too, which can reduce their cost. The local government permits the escape for increasing the attraction for enterprise and investment from other administrative region.
The pension account is contributed by two parts, enterprise contribution enter into social account and worker’s contribution into personal account. The share of enterprise’s contribution is about 20% of total wage cost and the personal contribution is equal to 8% of wage. If a worker evades the contribution, his employer will save 20% of wage that they are supposed to bear to make contribution for the employee. If a worker withdraws from pension system, he will recieve the part of personal account, namely, 8% of wage. At the same time, the other part of social account should be deposited to local government’s finance income. Therefore, local governments also have incentive to permit rural migrant workers to withdraw from social pension system when they leave.
The region-segregated social pension system and hukou system lead to different choices between local resident workers and rural migrant workers. These two special institutional obstacles result in not surprising outcomes. That is local workers have higher share of social insurance coverage and rural migrant workers have lower share. The difference in social insurance coverage between the two subgroups of population led to significant difference in measuring the level of informal employment according to different definition standards.
Hence, the standard of social insurance on informal employment definition should overestimate the informality of rural migrant worker. Segregated hukou system and local social insurance coverage system caused the abnormal result. Lack of social insurance coverage is a result of self-selection but not vulnerable.
During the period of state –owned enterprise (SOE)’s aggressive reform, there were more than 60 millions of workers who were laid off (author’s calculation in terms of labor yearbook). To encourage these laid-offs to be re-employed, government made contribution to social insurance fund for them. In the survey data, if a respondent of re-employed worker reported that s/he had social insurance, the welfare could be provided by government instead of by employers. Unfortunately, we can’t accurately identify who made payment on their social insurance in the questionnaire; we don’t know exactly ether it is government or employer who paid for the social insurance costs. If informal employment measure the job characteristics and employment quality, the fact that social insurance provided by government should underestimate the informality in the subgroup of the re-employed who concentrated in local resident.
