Local Solutions for a Global Economy

Promoting Informal Labor Rights

GFI is currently implementing PILAR (Promoting Informal Labor Rights), a two-year project initially funded by the US Department of State to improve government capacity to collect data on the informal sector while developing strategies that encourage formalization and provide capacity building to informal sector workers in Nicaragua and Guatemala. Using GFI’s multi-stakeholder approach, we have worked with a broad range of formal and informal worker organizations, government ministries, the private sector, and key civil society organizations to move forward feasible policy solutions.

Engaging Stakeholders to Assess the Problem

Beginning in 2008, GFI conducted national publicsurveyed stated that the lack of access to workers opinion surveys and focus groups on the social security was the worst aspect of informality. obstacles and barriers to formalization as well as on From the data assessment, GFI developed discussion ways to extend labor rights to the informal sector. In topics, which addressed the most pressing needs – Guatemala, the survey revealed that a significant while searching for consensus. These topics were percentage of informal workers (67%) are agreeable at national roundtables and also tied with discussed to registering and paying taxes if the processesdesign of a schedule of trainings for informal the are clear and workers gain access to government workers. services such as social security. In Nicaragua, 64% The national roundtables in each country focused on of strategies for formalization looking at various individual meetings, included government leaders, cross-cutting issues such as labor rights, women and informality, and labor union officials, civil society leaders, private sector vulnerable groups. The strategies included incentives – and informal workers. PILAR worked to representatives, for example, social security and better access to financial makers by building consensus among influence policy services and credit – to bring informal workers into the the private sector and civil society, finding government formal economy and improved government practices – allies, and working with multi-lateral organizations, such such as streamlining bureaucratic practices as the ILO, to cement policy recommendations under and improving tax collection. Participants of the roundtables, as well as of internationally-recognized standards.

Focus on Workers

To complement GFI’s top-down strategy, roundtables kept in direct connection with informal workers’ needs by providing bottom-up trainings on a wide range of topics, including computer skills, budgeting, complying with government requirements, accounting and financial management of microenterprises, assertiveness trainings for domestic workers, and more. In this manner, PILAR took a new approach to formalization: GFI assisted self-employed street vendors in setting up their own association (FENTRAVIG), which today has over 2,000 members. We further worked together to start a cooperative, allowing them to import goods and reduce costs by ending dependence on middlemen. Working directly with government, we encourage relationships with municipalities and help promote policies, currently in effect, to benefit workers and enterprises. Finally, PILAR encouraged workers to be part of the political system and bring their needs to the table in an effective manner.

Roadmap to Formalization

A tangible result of PILAR is the Roadmap to Formalization, a document that compiles the consensual recommendations of the many stakeholders. The Roadmap’s specific proposals are different in each country, as it is based on the cultural, political, and economic realities of the diverse sectors of workers and microenterprises as well as on each country’s laws. However, the core findings can be systematized: First, decent work is the Roadmap’s guiding principle. It was clear through the survey and national roundtables that improving competitiveness and extending labor rights is not mutually exclusive; in fact, formalization can serve as a tool to establish long- lasting businesses and attract sustainable investment. Second, one of the pillars of good governance is sound information; hence the roadmap focuses on improved labor statistics for the design of government programs. Taxation is also at the crux of formality. Informal workers and enterprises pay “taxes” in the form of bribes or other hidden costs, which through effective governance can be directly collected and used for improved government services. Finally, reducing administrative barriers is necessary to ease the entry of workers and enterprises, taking into consideration the high level of illiteracy and the importance of work hours for street workers. To start implementing integrative policy, the Roadmap recommends launching a simplified registration system called “monotributo.”