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Informal Employment in China PDF Print E-mail
Written by Yu Mi, Xu Xiao Hong, Apo Leong   
Monday, 04 December 2006 16:19

Note: this is a joint research paper for the APRN conference in Cebu by Yu Mi (People's Unversity), Xu Xiao Hong (Zhejiang Trade Unions College) and Apo Leong (AMRC)   Comments are most welcome! They can be contacted by &Yu Mi (fisheryu921@sohu.com), Xu Xiao Hong (xahgzr@mail.hz.zj.cn) and Apo Leong (apo@amrc.org.hk) Date: 4th December 2006

The so-called "informal employment" dates back to the late 1960s, when the ILO was conducting research on poverty and employment issues. The research team conducted social surveys to help them study and establish the national and regional employment promotion plan. In the survey, the experts found that there were a large number of make-a-living economic activities without registration and recognised by the government in the urban areas of developing countries.

herefore the government could not find any ways to put these activities under control or provide them any protection. ILO officially introduced the "informal sector" to generalize this kind of economic activities in its report "Employment, Income and Equality: the Increase of Productive Employment in Kenya" and the relevant employment pattern as "informal employment".

However, ILO does not define these concepts strictly. For China, under globalization, the changes in the industrial structure, economy, there have been an unprecedented problem of urban unemployment. Although the Chinese government has taken several effective measures, the number of unemployment is so huge and its complexity so great that the authorities at all levels find it difficult to deal with this problem. They all feel that in order to put forward an appropriate solution, fresh and innovative ideas are needed. In this context, the study on informal employment has generated much interest from various parties which try to explain or analysis the situation under the China context.

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Table 1. Decline of Employment in the State and Collective Sectors

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Number of migrant workers (peasant workers or rural workers) recently amounted to 120M,with annual increase of 55M.
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    In 1996, Shanghai City introduced the concept of "informal employment", which refers to a new employment pattern of the laid-off and unemployed workers. They can not establish a stable labor relationship with their new  ¢â‚¬Ëœemployers', or the condition does not permit them to do so. This includes the individuals or organizations to participate in community service, public environment/hygiene improvement; or to provide temporary or urgent services for enterprises, corporations or local residents. It also includes the self-employment practice such as the cottage industries and handdicraft workshops. Informal labor organizations officially include : housework services, catering services, logistics and distribution, electric appliance repair, miscellaneous repair work, materials recovery, darn laundry, hairdressing, copy typing, vehicles management and other service providers; removing house and logistics service of the labor service; handicrafts, woven articles, souvenirs and other simple processing industry in the workshop. This approach was then taken up by local governments in other provinces such as Zhejiang, Anhui and Qinghai. But all these definitions exclude rural workers and only include the urban unemployed. Based on the development of informal employment, the definition promoted in "the report of the informal employment in China" by the Labour Science Research Center under the Ministry of Labour and Social Security (MOLSS) is more appropriate .It refers to all sorts of employment different from the traditionally mainstream employment based on the industrialized and modern manufacturing system in work hours, compensation, working places, social security, and labor relations. Generally speaking, informal employment has following characteristics[1]:

  1. There is almost no systematic connection between informal employment and   social security. Even if there is, it is poorly observed.
  2. The basic form of compensation is generally hourly rated and very occasionally piece rated.
  3. The compensation is no more than the legal minimum wage.
  4. The labor relations are too instable and temporary.
  5. The informal employment falls outside the governmental monitoring especially the taxation

1. The main body and characteristics of informal employment

According to the status of the informal employee's working and living conditions,  we can see that informal employment is a kind of employment pattern of the vulnerable group in society. Their deprivation, which not only reflects poor economic conditions, but also inferior political and cultural status, leads to the formation of an underclass.

Based on the results of the spot check made by the Bureau of   Labor and Social Security of Haidian District in Beijing in 2001, there are 32.2% lay-offs,22.7%unemployed,13.5% migrant workers,7.7% retirees,5.7% persons on furlough and 8.5% others, and 0.7% migrant workers from Beijing. [2] In the harmonization process of unemployment insurance and basic living stipend, the laid off workers will enjoy social insurance benefits or the minimum living standard at the city level, meaning the phasing out of the laid off phenomenon. So the main body of informal employment is unemployed and migrant workers.
The source of the main body suggests that the informal employees` education background is rather low, and so is their competitiveness in the labor market.

Based on a research on the flexible employment in Anshan City by the China Institute of Industrial Relations it was found that there are 56.1% of interviewees who have graduated from junior high school or elementary school, 32.5% from senior high school, 6.5% from technical secondary school or professional school, 4.9% from junior college and others. On special skills, the number of flexible employees without special skills is the largest, accounting for 58.2%, 27.5% of them have the elementary qualification of a technical or professional post,14.2% have the junior qualification of a technical or professional post, but no flexible employee having senior qualification. [3] At the same time, there are 20.3% males and 79.7% females (interviewees were the workers in the city); pn age composition, those who are 35 or younger account for 27.9%, those who are 35 to 45 account for 64.8%,which constitutes the main part of the flexible employees, and those who are 46 or older occupy 7.3%.

Moreover, flexible employees concentrate in the service sector.   There are many casual workers and hourly workers who are employed in the shops, restaurants and other service industries; dispatch workers and self-employees supply public and domestic services. Manual contract workers are generally found the construction and light industries.

2. Working conditions of informal employees

(1) Compensation  

In general, the pay of informal employees is low and is internally heterogeneous.

For example, some small enterprise owners have fixed workplace.   They invest large amount of capital and manpower, operating under the proper management decisions, so their earnings are relatively high. In contrast, household servants, the apprentices are in the lowest level of society and their earnings can not meet even the basic need of living, which can be seen table 2.(4)   In addition, according to the second phase survey on the women status, which was conducted by the China Women Federation, The annual average income of informal employment male is 621.72 Yuan, which is  less than that of formal employment.

However the discrepancy of income between informal employment of female and formal employment male is larger and goes up to 1665.2 Yuan. The annual average income of informal employment for female is only 5982. 15 Yuan and monthly income is less than 500 Yuan. In 2000, the annual average income of employment for male in the city is 8272.82 Yuan and for female it is 7073.34 Yuan, which is 85.5 percent of the male income. According to the form of employment, the income of formal employment for female is 88 percent of the male income, compared with 80.30% for the informal female employment. As for formal employment, the discrepancy of income between male and female is 1684. 58 Yuan, while for informal employment, the number is 2728.06 Yuan.[4]

Table 2. The income, standard deviation coefficient, distributed situation of formal employment and informal employment

Professional type

Average income(Yuan)

s.d.of income

The proportion whose income is lower than overall average income

Regular worker




Temporary worker




Hour labor, odd-job




The family operation,   work by ones own




(2) Working time and Workplace

It is perhaps inevitable for informal employees to work for extra hours. As mentioned above, small enterprise owners are in relatively high income level within the informal employment group. But they gain higher income through longer working time and higher labor intensity. Moreover, in order to meet the basic survival needs, the domestic worker often needs to rush around between several employers, working for uninterrupted long time to gain more income. The, investigation by a local Communist Youth League in Guangdong Province 2002 demonstrated that 80.5 percent of interviewees worked for 10 to 14 hours nearly every day, 47.2 percent of interviewees did not have any holiday, they could not get overtime pay even they had worked overtime. [5]

One characteristic of international informal employment is that there is no fixed working place, which maybe different from our country experience where formal employees always work together with informal employees. Quite a lot of temporary workers, dispatch labor, the seasonal workers are working in formal enterprise which has a fixed workplace. In fact only the street corner peddlers and the casual workers  do not have a fixed workplace. The author randomly interviewed some informal employees which are mainly street corner peddlers and the faction delivers in the area of Zhongguan Village of Beijing Haidian District and found that they did not care about whether the working time is beyond the legal standard and whether they have the fixed workplace, what they care about is whether they could work for extra long hours and promptly shift to another workplace. For instance, the informal employee who sells the small accessories on the foot-bridge must avoid the frequent raid by city inspectors. They must be prepared to carry the goods and flee as soon as possible. Once caught by the inspectors, their goods will be confiscated and fined.

(3) Trade union organization

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ACFTU is the only legal trade union body in China.   It is based on enterprise or danwei (unit) unionism, which tends to ignore the union rights of the informal workers.   To add salt to injury, the formal workers tend to discriminate against the informal workers and so virtually the informal workers were excluded from joining trade unions.   Now the situation has changed.   The ACFTU has declared to launch a membership drive to recruit them, particularly the migrant workers.   At present, the ACFTU claims to have a membership of 150M, with 20M migrant workers which represent 20% organised rate.   On the average, the organised rate is 69.2%, which includes the organised rate of 66.8% of the SOE workers, and 59.3% of the private sector workers.

Throughout the history of the trade union movements in China, it is obvious that there is a close relationship between the job security of the workers and the organized rate of the trade unions. The more stable the jobs are, the easier to get people organsied. On the contrary, if workers do not have job security, the organized rate will go down accordingly. The informal employers, whose jobs are flexible, job locations are mobile, and who have multiple labour relationships, cannot join trade unions. The informal employers themselves, who are under great pressure to earn their livings, have a low sense of unionizing. According to an investigation held by the author in a medium-sized private enterprise in Hubei, out of the total 17 interviewed informal employees, 14 of them did not know whether they had or whether they could join a trade union. And the other 3 knew that they were not union members, but still believed that it was not necessary to join one: only to work and earn more was enough.

On the other hand, for more than ten years the Chinese trade unions did not regard the informal employers, like the casual laborers and the peasant workers, as their target group for protection, but considered them as the first target during laid off. Aiming at increasing the benefit and protecting the regular staff's posts, the unions usually negotiate with the employers to dismiss the casual laborers and the migrant workers at first and to make arrangements for the surplus staff. Then, between the joint efforts of the  ¢â‚¬Ëœpulling' and  ¢â‚¬Ëœpushing' function, the trade unions' organization rate is undoubtedly affected by the course of the informalisation in China nowadays.

(2) Labor relations

The labor relations operational mechanism of the informal employment is not normative and characterized by complixity, multiplicity and instability. It is still under dispute who has the proper labour relationship with the dispatch or informal workers as they serve more than one  ¢â‚¬Ëœemployer'. The migrant workers who have made labor contracts with the employers are different from those informal employers, and their written contracts also have lots of differences from the regular staff's in labor standards and democratic rights. The laid off workers on paper are still considered as employees of their former enterprise, but factually they are working for another employer. In this obscure labor relationship, some people suggest that the informal employees should be different from the formal employees in working hours, labor conditions and labor rights. Knowing that the defectiveness of the corresponding rules and laws on the labor contract management and social security, it is hard for the informal employees to get their labor rights protected. Most of them cannot get any labor contract, social security or labor safety protection. It's in the non-public owned enterprises that the employing forms are most complicated, and the informal employers are larger in number and much easier to be invaded than the others. In 2002, labor supervision departments of all levels in Guangdong province registered and investigated more than 8000 cases, in which the employers had delayed or defaulted the wages with no reason, especially in the private owned enterprises that covered 58% [6] of the aggregate number. In 2004 the informal forum, a group of astonishing figures were announced: in the 1162 invested informal employers from Beijing, 83.3% of them were working 8 to 16 hours per day, and 37.6%  ¢â‚¬Ëœsometimes didn't rest in a month', with 42.4%  ¢â‚¬Ëœnever rested', and moreover, those who had never made labor contracts with the markets, managing departments or employers covers 69.3% of the whole, with a number of 87% that had the experience of not getting the wages. [7] Just because of the frequent and common torts, most of the labor dispute cases of China involve informal employees.

3. The relative policies and measures of our country

The current situation of China's informal employment makes us realize that : firstly, only to guide and regulate the non-regular employment and raise it to the legal levels, can we get the guarantee which protects the rights and interests of the informal employees; secondly ,the situation of employment is severe, informal employment will be the main channel for increasing the employment in a quite long time .because to a great extent the development of non-regular employment is influenced by the tax policies ,it needs the coordination of the tax departments .

(1) Rights Protection

Currently, our country has a few specific laws and regulations to protect the informal employees' basic rights and interests. Moreover, the basic Labor Law does not cover the informal employees.

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(2) Tax Incentive

Our country has carried out the following tax incentive policies for the informal employment:

a. The tax incentive policies for the unemployed workers engaged in the individual management

These policies stipulate that the unemployed workers who have the "Re-employment Preferential Benefit Card" issued by the Department of Labor and Social Security and engaged in the individual management from the end of year 2005 can enjoy the following preferential policies from the day of receiving the tax affairs registration certificate: those who engaged in the business tax's dutiable items, can enjoy the policy of 3 years' exemption of the business taxes, the city maintenance construction tax, the education expenses attachment and the personal income tax; those who engaged in the increment tax's dutiable items, can enjoy the policy of 3 years' exemption of the city maintenance construction tax, the education expenses attachment and the personal income tax, but according to regulations the increment duty can not be exempted. The aim of above policies is to encourage the unemployed workers to engage in the individual management.

b. The tax incentive policies for the informal departments such as the individual   investment enterprises, individual joint venture enterprises who create the employment of the laid-off workers

These policies regulate that if the re-employed workers of the enterprise to achieve the stipulation proportion, and conform to other conditions of the re-employment tax policies, may enjoy the policy of 3 years' exemption of the business taxes, the city maintenance construction tax, the education expenses attach, but not the personal income tax. These policies, to a certain extent, promote laid-off workers' re-employment and alleviate our country's employment pressure.
In addition to the national related policies, the local governments of all levels also carried out various policies .for example, for the further job creation, guiding and supporting unemployed person to organize themselves for the employment spontaneously, in 2002 Ningbo City carried out the "The Opinion about Encouraging Unemployed person to engage themselves in the Informal Employment", and will also promote a series of preferential policies for the development of the informal employment, the opinion has assigned the scope of informal employment, has stipulated the recognized procedure of the informal employment labor organizations, and provided the essential policy support in the taxes and fees, administrative and entrepreneur charge , management charge, fund guarantee, job loan and so forth. In  order to reduce the risk of the workers and the third party person's injury and the belongings loses in the labor process also a commercial insurance will be set up .[8] Obviously, most of the policies are carried out for resolving the problem of employment, few aim for the improving the situation of informal employees and protecting their rights and interests. In reality, since the informal employment lacks the law and social security systems, two "safety nets", the further improvements of both the national legal system and the social security system are badly needed, as well as the further extension of their coverage.

[1] Chen Huai, developing informal employment is a strategic choice, Jing Ji Zong Heng, issue 5,2001

[2] Labor and Social Security Bureau in Haidian District of Beijing, establishing flexible employment system to adapt market employment mechanism -- investigation of flexible employment in Beijing Haidian District, Journal of Beijing Labour Cadre College 2002 (1).

[3] QiaoJian ¯Â¼Å’To create a favourable development environment for flexible employment & case study of Anshan   City in Liaoning Province in 2001, Chinese labor network http://www.labornet.com.cn, 4- 11-2002

[4] Jiangyongping ¯Â¼Å’Informal employment and sex differentiation in labor market ¯Â¼Å’ £â‚¬Å seminar papers of the third session on the rights of the women migrant workers £â‚¬â€¹ ¯Â¼Å’Beijing ¯Â¼Å’2004- 10

[5] Huangqin £â‚¬ÂMeizhiqing ¯Â¼Å’ the report of investigation about basic living conditions of youth who enter a city for work in Guangdong Province ¯Â¼Å’ £â‚¬Å South weekend £â‚¬â€¹ ¯Â¼Å’17-1-2002

[6] Disputes about wages in Guangdong province in 2002,http://www.sina.com.cn ¯Â¼Å½2003.1.2

[7] Zhen Li, focus on the rights of informalworkers,http://www.agri.gov.cn/llzy/t20041025_257886.htm ¯Â¼Å½2004.10.25

[8] Non-regular employment policies worked out by Ningbo ,the Ningbo information center , http://www1.cei.gov.cn/rei/doc/DQNBZC/200208276985.htm ,August 27th ,2002.

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Last Updated on Thursday, 27 November 2008 15:58
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