Informal workers

LAHORE: Workers are the major victims of informality. The imposition of minimum wage on the informal sector, is almost impossible as informal businesses operate outside the purview of formal institutions. Thus, monitoring and enforcing minimum wage laws can be difficult.

In Pakistan, where the informal sector is equivalent to the formal sector, this straight away means depriving at least 50 percent of the workforce of official minimum wage. In high inflation that is currently prevailing in Pakistan, it is challenging for workers drawing official minimum wage to pull on.

Those drawing almost half the minimum wage live in misery. Another drawback for informal workers is that they work for long hours instead of the usual 8 hours duty that formal workers perform. Formal workers are entitled to overtime, which normally is denied to informal workers.

Informality often arises due to various factors such as limited access to formal employment opportunities, excessive regulations, high taxes, and bureaucratic hurdles that deter individuals and businesses from operating within the formal sector. Informal activities can include street vending, unregistered small businesses, cash transactions, and under-the-table employment arrangements.

The reasons for informality can vary depending on the specific context, but some common drivers include the lack of opportunities that forces individuals to engage in informal activities or limited access to education and skills development.

Informal workers though appreciate the flexibility and autonomy that comes with operating outside formal regulations, allowing them to adapt quickly to changing market conditions. Informal businesses may avoid taxes, licensing fees, and regulatory compliance costs, which can make it more cost-effective to operate informally.

In most cases, the enforcement of formal regulations are very weak, making it easier for informal businesses to operate without facing significant penalties. High levels of corruption and excessive bureaucratic red tape in formal institutions also drive individuals a nd businesses toward informality.

As for government officials benefiting from informality, it is important to note that informality can have both positive and negative implications for those in power. Government officials may exploit informal businesses and workers by extorting bribes in exchange for overlooking their informal status or providing unofficial protection.

Informal workers and businesses, often representing a significant portion of the population, can become a vote bank for politicians who promise to protect their interests and refrain from imposing strict regulations.

In some cases, governments may adopt more lenient tax collection policies for informal businesses, hoping to encourage them to transition to the formal sector gradually. All this is visible in Pakistan.

Traders and agriculturist have a large vote bank. The nominal turnover tax on traders has been in vogue for 25 years without inducing them to go formal.

The informal sector escapes taxation, resulting in a loss of potential government revenue. Informal workers typically lack access to social protection benefits like healthcare, pensions, and unemployment benefits, putting a strain on social welfare systems. The presence of a large informal sector can hinder overall economic growth and productivity.

The state may try to address informality by implementing measures that encourage businesses to formalise, such as simplifying registration processes, reducing bureaucracy, providing access to credit, and offering incentives. However, imposing a minimum wage directly on the informal sector that operates as openly as in Pakistan would require careful planning and consideration of the sector's unique characteristics and challenges. In practice, it is often more feasible to focus on measures that encourage formalisation rather than trying to directly impose formal labour standards on the informal sector.