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Employment in the urban informal sector of the wood industries: summary of ILO studies.

B. Strehlke
ILO Secretariat, Geneva


During the First Session of the ILO Forestry and Wood Industries Committee held in 1985, the ILO submitted a report on the achievement of full employment in the wood industries for discussion by the Committee. Information available for the preparation to the Committee report was almost exclusively based on the formal sector. However, as the informal sector of the wood industries plays an important role in many developing countries, an attempt was made to obtain specific information on this part of the industry. An outline was provided to a number of external ILO offices on the basis of which five case studies were prepared, one each on wood industries generally in Côte d'Ivoire, India and Peru and on furniture in the Philippines and Mexico. The principal findings from these reports are summarised below. They refer primarily to urban employment.

Main findings

General Characteristics of the Informal sector

There is no clear-cut definition of the informal sector and hence studies dealing with it are difficult to compare. Production is normally outside government control and official statistics are generally not available. Enterprises usually employ less than five and seldom more than ten persons. Their working conditions are poor. Workshops and equipment are usually very simple. Managerial and technical skills are limited. Finance, raw material supplies and marketing tend to pose problems and yet, the sector has a remarkable capacity to provide jobs and to supply primarily the poorest part of the populations with basic goods and services.

During periods of depressed economic activity, the informal sector tends to show a particularly high degree of vitality, adaptability and dynamism. It often provides 50 or more percent of urban employment and plays also an important role in rural employment. For these reasons, in recent years this sector has attracted increasing interest as a means of coping with the growing number of job seekers.

The informal sector is un-organised, both at employers' and workers' level. Formal-sector workers' organisations deplore the poor working conditions and low wages in the informal sector and recommend that in the framework of employment policy, measures should be taken which ensure a gradual transfer of enterprises from the informal to the formal sector.

However, in many developing countries under presently prevailing circumstances, there are no indications that in the short- or medium-term, there will be substantial transfers from the informal to the formal sector. Therefore promotion and assistance to the informal sector should continue to give special attention to its specific structure.

The formal sector is usually sub-divided in small, medium and large-scale enterprises. With the growing size of the enterprise, control by but also promotion through the government normally increases. Small-scale formal enterprises may face to some extent similar problems as the informal sector. However, the dividing line between the two consists in the fact that the latter is left more or less completely to itself whilst the former has easier access to assistance. Especially in urban areas, there exist links between the formal and the informal sector. In periods of economic difficulty when the formal sector is obliged to reduce manpower, this may be partly absorbed by the informal sector on a temporary or permanent basis. Skills acquired in the formal sector are thus put to use in the informal sector. Furthermore, the informal sector sometimes works under sub-contracts for the formal sector.

Where the industrial activity is secondary wood processing the bulk of the production tends to consist of basic furniture such as chairs, beds, tables and wardrobes made to order and sold locally by the owner of the workshop himself, and only seldom through traders. Most buyers are poor people so the quality and the price of the products are lower than for the formal sector. Furniture repair also plays a role.

Size of the informal sector

For the secondary wood processing sector, some data are available for the Cote d'Ivoire comparing the formal and the informal sector. The former accounted in 1974 for 8 100 jobs and in 1981 for 7 139 jobs. In the informal sector, employment in towns with more than 10 000 inhabitants amounted to 3 487 jobs in 1976, growing to 5 921 jobs in 1984. Including an estimated further 30 percent in rural areas, the informal sector has doubtless now outstripped the formal one in terms of numbers employed and shows good prospects for further growth, whereas employment in the formal sector has tended to stagnate in recent years. On the average, an informal workshop occupies three persons including the owner, one paid worker and one unpaid worker, usually a member of the family.

Weighing firewood for sale

In Peru, the informal sector of Lima was studied in 1984. Of a sample of 1979 “mini-enterprises”, 67 were engaged in woodworking. If the findings are extended to the whole of Lima, one arrives at a total of 8 110 informal wood workshops employing on the average 2.5 persons and providing a total of 20 275 jobs - four times as much as the formal furniture sector or twice as much as the formal wood industries sector for the whole country. This employment grew rapidly during the periods of economic depression such as the years 1965-69 and 1980-84, when the formal sector encountered difficulties. There are obvious links between the two sectors insofar as redundant workers of the formal sector seem to switch to the informal one or workers employed in the formal sector-work extra hours in informal workshops.

In Mexico in 1975, 4268 furniture workshops, or 84 percent, employed five persons or fewer. Some of these small workshops were in the formal sector, whereas some of the larger ones exhibit the characteristics of the informal sector. The available statistical information does not allow a precise classification. As a result of economic recession, furniture production decreased by 25 percent between 1981 and 1984. Small workshops probably suffered less from this reduction than larger ones.

In the Philippines, a survey carried out in 1978 showed that of a total of 2357 registered furniture manufacturers, 1718 or almost three-quarters, employed ten persons or fewer. These firms were considered to fall largely into the informal sector.

In India, within the urban area of the Union territory of Delhi, employment in wood-based industries in 1980 amounted to 9865 of which 25.7 percent was in enterprises with 1-2 employees, 49.9 percent in enterprises with 3-9 employees and only 24.4 percent in enterprises with 10 or more employees. The informal sector provides much more employment than the formal sector and is indispensable for supplying citizens of Delhi with low-cost wood products.

Characteristics of Workers and Working Conditions

The educational level of the persons employed in informal woodworking shops is usually low. In the Cote d'Ivoire, 67.2 percent of the persons employed have never attended school. Training in woodworking is usually on-the-job. The study of Peru found that 37.3 percent of the workshop owners had acquired some skills during previous work in the formal sector, 34.3 percent were trained by members of their family and only 3 percent had undergone regular vocational training. The percentage of young workers appears to be high, many of them being considered as “apprentices”. In Mexico, 47 percent of persons working in the informal sector are between 12 and 24 years old, while in the formal sector the corresponding figure is 25 percent. This may be one reason why labour turnover is high. In the Philippines, workers remain in the informal sector only five years on average.

Working conditions in the informal sector are characterised by poor pay, lack of social security, higher accident hazards, heavy physical work and long, irregular working hours. In the Côte d'Ivoire, weekly working time ranges from 40 to over 100 hours per week. The average was given as 66. In Mexico, 40 percent of the persons employed in the informal sector obtain less than 50 percent of the legal minimum wage, while 63 percent of formal sector workers earn more than twice as much as the minimum wage. Workshop owners often claim ignorance of the need for improved working conditions and the higher productivity and higher job satisfaction in which they result.

Key problems and possible solutions

One of the greatest problems of the informal sector is finance. Most owners do not keep any records and are not eligible for bank credits. Finance therefore comes usually from own resources or from family members and friends, as in Peru (77.6 percent and 7.5 percent respectively). The main attraction is recourse to private moneylenders, who usually charge excessive interest rates.

Partly because these “Informal” sources of finance cannot raise very large sums, fixed industrial capital is very modest. Of the 67 Peruvian woodworking enterprises studied, in 30 cases it amounted to less than US $ 967 and in only five cases to more than US $ 9 678. For most workshops entrepreneurs have to make do with simple tools only or obtain very simple equipment which is often bought second-hand. There are problems with spare parts and maintenance. Among the registered furniture manufacturers in the Philippines, 12.1 percent have portable electric tools. In Peru, even the smallest workshops generally employ portable electric tools for sawing, drilling and sanding and have a small lathe and a simple planing machine. Elsewhere, electric tools are rarely available and simple hand tools prevail.

Problems in obtaining suitable wood for raw material are common, especially in urban areas. What wood is available is often not seasoned and entrepreneur knowledge of different species and their specific uses and treatment is often insufficient. Wood prices tend to be high and for this reason waste wood from packaging material is also used. Sometimes, however, wood is bought planed and cut to size.

With regard to solutions for informal sector problems and measures to strengthen these activities, there is a large measure of agreement on the most important areas which require attention: raw material supplies, credit and training. However, proposals for improvement differ depending on local conditions. The key person to be involved is the owner of the workshop and the best approach to take care of his problems may in many instances be a cooperative one. Institutional help is desirable provided it is flexible and respects the peculiar conditions that allow the informal sector to operate.

As regards raw material supplies, lumber depots would be helpful, where prices and quality are reasonable and wood could be cut to size and seasoned. Such depots could also collect, sort and distribute waste wood from sawmills, for which there are still many uses in the informal sector.

Access to credit under reasonable terms and conditions would be needed not only for the informal woodworking shops but for the informal sector as a whole. This might be coupled with advice in basic book-keeping and general business management. The involvement of public institutions would be necessary to take care of these questions.

As regards training, the informal sector evidently requires non-formal approaches, reaching workshop owners, “apprentices”, and workers. The emphasis has to be on short-term instruction within the workshops concerned, concentrating on specific activities where simple changes can help to increase productivity. Improve raw material utilisation, reduce down-time of machines, upgrade product quality and promote better working conditions.

In the long term, legal measures will be required in support of the informal sector favouring higher productivity and better working conditions and avoiding excessive constraints in terms of administrative requirements or taxation.

Last but not least, the employers' and workers' organisations in the formal wood industry should not consider the informal sector as a foreign body engaged in unfair competition and clandestine work under unacceptable working conditions but as a partner requiring, as far as possible, integration into the industry as a whole for the benefit of all concerned.


The findings from the case studies - although referring to the urban rather than the rural context - are largely in line with those from FAO's report on the contribution of small-scale forest-based processing enterprises to rural non-farm employment and income in selected developing countries, published in 1985.1/ In effect, the FAO report is primarily based on data from small-scale enterprises with less than five employees which would in general be informal enterprises in the sense of the ILO studies.

1/The Contribution of small-scale forest-based processing enterprises to rural non-farm employment and income in selected developing countries. Document FO:MISC/85/4, FAO,. Rome (1985).

It appears that different approaches are required to deal with the problems of the formal and informal sectors. It would be desirable to discuss and to clarify this question.

As data on the informal sector in the wood industries is scanty, the information collected by the ILO studies is being put together to be issued in greater detail. It has also been foreseen, as far as possible, to supplement the studies and to follow-up on them in the context of current operational activities of the ILO.

One area which should also receive attention in this context is pit-sawing which continues to play an important role in many developing countries and which supplies the rural carpenters and furniture makers with raw materials.

List of ILO case studies summarised

Mertens, L.:

The informal sector in the manufacture of wooden furniture in Mexico.

Salas Ciminago, E.:

Employment in the formal and informal sector of the wood industries in Peru.

Lantican, C.B. et al:

Report on employment in the informal sector of the Philippine wood furniture and joinery industry.

Anderson, R.:

Employment in the formal and informal sector of the wood industries in Ivory Coast.

Kacker, B.N. and Darwar, J.S.

Employment in wood industries with emphasis on the informal sector.

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