The Big Idea: Flexible Informal Employment as Sustainable Job Creation

Anna J. Kim UCLA Department of Urban Planning

How can informal employment be measured at the local scale?

Proxy indicators in secondary data: Census SF-1, SF-3; ACS PUMS 2000; 2006-2008

How can informal employment be counted as job creation?

Interviews with individuals who have participated in the informal sector, restricted by geography and target group.

Quantitative Proxy Measures

Measuring Informality at the Local Scale

1 Social Compact Model:Check-cashers, Foreign-born population demographics, Cash utility payments

2 Labor Force Participation:Employment Status (ESR) vs. Working/Not-working

3 Employer-Reported Employment:Payroll vs. Self-reported

4 Employment Sector:Undocumented Workforce as predictor of size of informal labor market

Data Set: Census PUMS (2000, 2006-2008)

Data Set: CA EDD ES-202 (2000, 2006-2008)

Data Set: Current Pop. Survey (2000, 2006-2008)

How are we counting informal jobs?

By Proxy:

1.Check-cashing businesses and their locations in certain neighborhoods

The Social Compact model, based on case studies of four neighborhoods in Chicago, proposes eight proxies as predictors of

informal employment. These include: Percentage of households with no banking relationships or credit histories; Percentage of utility

payments made in cash; Prevalence of check-casher operations per acre; Prevalence of check-casher operations per household.

(Alderslade, Talmadge, and Freeman, 2006).

Data Source: Geocode of 34 store locations from Acecashexpress.com

The example of ACE Cash Express reveals that they cluster check-cashing locations in areas of high poverty – but does this mean that the money that changes hands is earned informally?

In this example, results seem inconclusive as a predictor of informal economic activity.

So who does Check-Cashing target?

How are we counting informal jobs?By Proxy:

2. By residential density of highly immigrant neighborhoods

Marcelli, Pastor and Joassart (1999) propose a computation for calculating the number of “unauthorized” immigrants, and by extension,

unauthorized immigrant workers in the Latino population using four main characteristics (years since immigration, years of formal

education, age, and sex) as a predictor of legal status at an accuracy of about 85%.

Why is Koreatown important?

Source: US Census, LED on the Map. 2008 QCEW

Koreatown: Population Graphs

Data Set: Census PUMS (2000)

The residential population of Koreatown is predominantly foreign-born. Composed primarily of Korean, Mexican, Salvadorian, and Guatemalan ethnic groups, in order of size. All groups are mostly Non-English speaking.

How are we counting informal jobs?By Proxy:

3. Discrepancies in Reported Employment

Flaming and Burns (2006) also estimated informal employment by checking for anomalies between reported employment by workers

versus reported employment by employers. The report estimated that approximately one third of workers in the Koreatown area work in

informal jobs, and that this “rate of informal employment is twice as high as the rate found in the City of LA”.

PUMA

Neighborhood

05414

Koreatown

05412

West Los Angeles

05413

North Los Angeles (includes Hollywood)

05415

Eastern Los Angeles (includes Downtown)

05418 South Los Angeles

05703 Long Beach

Central City PUMAs: A Comparative Analysis

Immigrant Neighborhoods Look Different & Work Different

As a Comparison PUMA, Long Beach PUMA 05703 is markedly different, not just from Koreatown but Los Angeles in general

LA County Long Beach Koreatown

Population 10,000,000 130,000 115,000

Mean Wage $25,000 $34,000 $15,000

ACS Census PUMS 2006-2008

Testing Proxy indicators for informal employment (ACS PUMS 2000)

PUMA

NEIGHBORHOOD HHLD REPORTED EMPLOYMENT ERROR

05414

Koreatown 10.2%

05412

West Los Angeles 3.1%

05413 North Los Angeles (includes Hollywood)

2.1%

05415 Eastern Los Angeles (includes Downtown)

8.5%

05418 South Los Angeles 6.6%

05703 Long Beach(CSULB area)

0.59%

What Immigrant Workers Have to Say About Informal Jobs…

Interviews: Sonia

“The main difference in the formal and informal is that if I make $400 informally [a week] I get 400 to take home for me. If I make $400 in check, then maybe I take home like $375 for real. Out of that $25 goes into paying taxes and I don’t ever see that again. And yet there are no benefits for me that I can use.”

“We have to support the system, we pay the taxes. It’s what’s right. You know they always say that the undocumented are taking advantage of the Medicare or CalWorks and everything, and that someone else has to support us. But that’s an offense to us because at the end we are the ones giving, we pay and we don’t get anything back.”

Interviews: Gloria & John

“Well if we generalize the undocumented folks yes because of the documentation you need it [formal work] is harder. But to my luck I haven’t had a hard time because of my experience. I have my own ability and flexibility and dedication to the work I have.”

“I get paid in cash at my work. The bosses, a lot of times they don’t ask to see papers and I know because I check the ad when it is outside. If it just says looking for someone to work and doesn’t mention anything else, no requirements, I know what that means.”

Flexible, Quasi-Formal, Transitional Employment

“A long time ago in Koreatown it was always cash. Maybe there were some who paid people formally but definitely I used to always get paid in cash, then slowly I noticed they would change it to like a little bit more of check at a time and then tell me that I’m a “part-time” worker

… and then sometimes there would be inspections from the labor department at my work because maybe they thought there was something funny going on. And then the owner would adjust again for a little while and give me more checks, and then reduce it again and give me cash. There was a lot of incidences like that.”

… is that they are not very differentfrom formal jobs.

Why Do Firms Hire Informally?

Flaming and Burns (2006) found that “small businesses are more likely to hire informally and compensate workers informally,” and that within the Koreatown area there were higher rates of both self-employment

and small businesses (under 50 employees) than the city of Los Angeles as a whole.

For a full-time, minimum wage employee in California, an employer pays:

Employer Advantages to Informal / Semi-Formal Job Creation

What could informal job creation look like, as a policy or program?

1. Lower the risk of participation for undocumented persons (employees and/or employers) who participate in informal work “registration program”.

1. Business owners would be exempt from payroll taxes for new informal employees (as they already are); and workers will also be exempt from payroll taxes during the informal period

1. A third party agency like non-governmental organizations like workers centers, workers advocacy groups, workforce development agencies should maintain the database of participating firms and employees.

It’s already, almost, being done…

The Big Idea: Flexible Informal Employment as Sustainable Job Creation

1. Being able to “count” a hitherto uncounted informal job raises employment rates and lowers unemployment rates by adding to the count of jobs and employed persons that currently exist and lack exact measurement mechanisms.

1. In the absolute, facilitating informal employment and lowering the costs of employment creates more opportunities for work in both the short-term and long-term.