The Decision to Remain Informal The De Soto concepts of the costs of formality and informality are tested by a registration exercise in which the CRC set up a secretarial services firm in Cebu to simulate the steps required to register a firm. The study examines the implementation of the law and measures its popularity among informal entrepreneurs in Cebu. Pointing out that the introduction of Kalakalan 20 has simplified the procedure considerably. It also concludes that the barriers are not as formidable as in Peru but access to the formal system, though not insurmountable, is a bothersome process for an entrepreneur of modest means. Empirical data shows that incidence of informality is high where firm size is small and profits are marginal or unstable.
Firms decide to register and become formal when profits are high and size of the firm is large.
On the conceptual level there has been debate over the distortion of the labor supply and demand and secondly the absence of productivity in determining a fair minimum wage. Informal entrepreneurs fear that registration of their businesses may mean a hike in their wage bill. The CRC team recommends that wages be negotiated between labor and management without mandatory legal procedures. Informal entrepreneurs do not have assured access to a regular credit line to replenish their capital base, as Philippine public and private banking systems do not cater to informal enterprises. The CRC team recommends that non-governmental organizations be encouraged to expand their credit schemes to strategic provincial areas.