Welcome to the Informal Economy

It’s graduation season, and while commencement speakers encourage graduates to work hard and pursue their dreams, most new grads are worried about finding a decent job.  All their professors can suggest is that students use internships to gain valuable work experience and be prepared to have five jobs by the time they are 35.

Here’s the reality, grads: things are worse than you fear.  When you’re 35, you could still be looking for a good job. You’ll have a family to support, your salary could well be lower than you expect, and you’ll receive little or no pension contributions or health care benefits. Taken together, episodic work with little opportunity for advancement and poor wages and benefits reflect the characteristics of work life once found largely in the informal economy but now becoming all too common in the formal economy.

According to UNESCO, the informal economy involves the largely unregulated exchange of goods and services and is characterized by intermittent employment, short job ladders, and substandard wages and working conditions.  Historically, the informal economy has referred primarily to workers paid under the table, like many nannies or home health care aides, itinerant workers, and those involved in black market exchanges. But increasingly, the conditions of the informal economy are being experienced in the formal economy, though they are generally ignored or hidden by such glossy terms as consulting, internships, subcontracting, and privatization.

The economic crisis is pushing more people into the informal economy. USA Today reported that in 2010 only 45.4% of Americans and 66.8% of men had jobs. Both statistics are among the lowest on record, and now the United States has a lower share of prime age men in the work force than any other G-7 nation. According to David Brooks, writing in the New York Times, this is the result of early retirements, work disability, the decline of manufacturing jobs, and poor job fits in the new economy. Regardless of the reasons, the number of unemployed and underemployed people, who are most likely to participate in the informal economy, is growing in every sector and profession as the recession/regional depression continues. Many of those who do not have jobs are finding ways to support themselves, at least minimally, within the informal economy.  They have no choice.

At the same time, employers are taking advantage of desperate, young, less expensive workers, often hired on a temporary or contract basis, who are displacing older professional and non-professional workers or simply allowing companies to avoid committing to permanent hires.

As companies resist hiring full-time workers, and as young workers clamor for any possible job opportunity, internships have become increasingly significant in American business, and informal economy conditions apply to many internships.  According to the Economic Policy Institute, 1 to 2 million people today work as interns in the United States, and most are either unpaid and poorly-paid. In his book, Intern Nation, Ross Perlin reports that internships usually don’t conform to labor regulations, contribute to socio-economic inequalities, and rarely provide a useful job ladder – conditions that are typical in the informal economy. Offering college credit in lieu of an hourly wage does not necessarily mean that employers are free to ignore wage and hour restrictions. The U.S. Department of Labor has begun to take note of these problems and plans to increase regulation of unpaid internships nationwide.

Another growing category of informal workers is home-based caregivers. While some work through employment agencies, home-based employment is largely unregulated and dominated by non-white and female workers who earn low wages and no benefits. As more families need help caring for young children, disabled family members, and aging parents, demand for home-based care services has grown. Personal home and health care employment now exceeds 3 million and is projected to be the largest sector of new job growth between 2008 and 2018, with 1.1 million new jobs.  In the last decade, these workers have won union organizing and bargaining rights, but Steve Early reports that there is bi-partisan support among many current governors to rescind executive orders or pursue legislation undermining these workers’ attempts to improve their working conditions.  As a result, their wages will decline, their working conditions worsen, and they will sink even deeper into the informal economy.

So what is to be done? A number of labor and social justice organizations have formed the Excluded Workers Congress with goal of organizing workers in the informal economy, connecting them with grassroots movements, and developing strategic responses to informalization. They aim to challenge discrimination in the current labor market, build support for ongoing campaigns to improve working conditions, expand labor rights for excluded workers, and advocate for policies that support all workers’ right to organize.

Acorn International’s founder Wade Rathke suggests that there is no quick fix for the informal economy.  Rather than offering programs to retrain informal workers to enter the shrinking formal economy, he argues, we should “embrace the informal economy and engage in survival strategies that provide sustainable livelihoods and community redevelopment.” With short timelines and low investment, communities could organize  “localized informal workshops, training, production, marketing, and sales that can provide dignified, remunerative work for millions.” The work would range from home repair and rehab to food and bio-diesel production to recycling and technical repair services. He also advocates social networking to facilitate the sharing of job information, dispatch, and distribution and micro-lending adapted to broader social and community purposes. Put differently, he thinks the solution to the problems of the informal economy lies in changing the conditions of the work, not the workers.  Rathke wants to make work in the informal economy legal and formalized.

Most certainly, Rathke’s ideas may seem out of the box in advanced economies that often look for quick fixes. But as we in Youngstown know from more than 30 years experience, large-scale, structural economic problems don’t have easy solutions. On the other hand, the solutions Rathke advocates have helped alleviate poverty in developing nations. They may offer a more sustainable model of economic recovery, one that acknowledges significant structural and social changes.

That doesn’t offer much immediate hope for this spring’s graduating class or those being displaced within the formal economy.  The jobs outlook remains bleak.  But their long-term prospects might be better if, instead of normalizing the poor working conditions of the informal economy, we organized to ensure decent wages, reliable pensions, good health care, and greater opportunities for workers across the spectrum.

John Russo, Center for Working-Class Studies

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