Evaluating the Formalization of Work Thesis: Evidence from France

A widely held belief is that as economies become more "advanced," there is a natural and inevitable shift of economic activity from the informal to the formal sphere (herein referred to as the "formalization of work" thesis). ¹ Hence, the existence of supposedly "traditional" informal activities is seen as a manifestation of "backwardness" that are assumed to disappear with economic "advancement" and "modernization." ²

The aim of this paper is to evaluate critically this formalization of work thesis. Taking France as a case study, we first outline the data available for France and, following this, the validity of the formalization of work thesis. Revealing that for some twenty-five years the French economy has been undergoing a process of informalization, we conclude by discussing the wider implications of this finding for understanding economic development.

At the outset, it is important to clarify what we mean by the formal and informal spheres. Here, we define the informal sphere to include all "productive" or "work" activities that are hidden from or ignored by the state for tax, social security and/or labor-law purposes, but which are legal in all other respects. ³ The informal sphere thus includes all work outside formal employment. This covers a heterogeneous set of activities ranging from unpaid housework through volunteering and informal employment.

A Methodology for Examining the Formalization of Work

To understand whether there has been a formalization of work, it is insufficient simply to examine whether the number of formal jobs or participation in the formal labor market has increased. Such a focus on employment alone tells us nothing about whether and how the balance is altering between the formal and informal spheres. For example, increased participation in employment may be accompanied by a quicker or slower growth in informal economic activities, a decline in informal work, or a similar growth rate resulting in no change in the overall balance. This will not be known unless all forms of work are analyzed. To evaluate whether there has been a formalization of work, therefore, either the volume and/or value of the inputs and/or outputs of both the formal and informal spheres need to be analyzed. ⁴

Presently, the only data available is on the inputs into the formal and informal spheres, that is, time-budget studies that first analyze whether people perceive their activity as work or leisure and then measure the time that they spend engaged in employment and other forms of work. To do this, participants complete diaries chronicling the number of minutes that they spend on a range of activities. From this, the time that they spend in formal employment and engaged in other forms of work is calculated.

In France, large-scale national-level time budget studies have been conducted in 1975, 1985, and 1999, making it one of the only European countries to possess such longitudinal data. ⁵ In the 1999 time-budget survey, for instance, some 16,000 people aged fifteen years or older returned diaries in which they described what they were doing during every ten minute segment of a day. From this, it has been possible to evaluate whether there is a formalization or informalization of work over the past twenty-five years in France.

To move from examining the volume to the value of people's inputs into the formal and informal spheres, three different methods have been developed that put a monetary value on time spent engaged in informal economic activity. First, there is the opportunity-costs model that calculates the income the worker would have earned if he/she had been in the formal labor force instead of undertaking the work on an unpaid informal basis. Second, there is the housekeeper wage-costs approach that calculates how much a worker in paid employment doing similar work is paid. Third and finally, there is the occupational wage-cost approach that measures the price of...