**MONGOLIAS INFORMAL SECTOR -**

**Reasons for Growth**

**20**

entrepreneurs when they attempted to establish an insurance company a few years ago: the state registry told them they must first get permission from Mongoldaatgal, the state monopoly insurance company.' 48. In addition to the registration as an economic entity, formal enterprises are subject to other regulations that informals may avoid, including the labor regulations discussed below. Many of the regulations (e.g., health regulations, safety inspections, environment protections, industry-specific licensing) are not unreasonable. The difficulty with registrations and regulations is not that there are too many, but that there is frequently too much discretion (and interpretation of the meaning of the laws) permitted on the part of the implementing authorities6' Such discretion adds to the uncertainty of formal sector entrants, leads to delays, and hinders formal sector development.

# **Informals Make Their** Own Labor Arrangements

49. A notable difference between the informal sector and the formal sector is the manner by which labor relations (wages, working hours, holidays, etc.) are settled. For the informal sector, in which family ownership is the norm, working arrangements are made informally. (The survey of kiosks, for example, found that for over 80% of kiosks there was no pre-defined mechanism for compensation; profits simply went into the family coffers.<sup>2</sup> Enterprises in the formal sector, on the other hand, must adhere to Mongolia's regulations on the labor market, particularly those imposed by the _Labor Law._ _50._ Mongolia's _Labor Law_ was enacted in 1991, and is very Coverage Under **Social and Health Insurance in** ambitious in its designs to protect the Mongolia's **Informal** Sector Mongolian worker. It seeks to ensure healthy and safe working conditions, The informal sector surveys provide some indication of the degree healthy and safe working conditions, to which informal sector participants are covered by the health and fair remuneration for an employee's social insurance systems. The percentage of informals not covered skills, spells out valid conditions for by either scheme ranges from 36% for the moonlighting-friendly firing, and requires that employers taxicab activity, to 55% for the informals that populate the streets retain a worker's post when a worker and outdoor markets. The lack of coverage for such large fraction leaves for government service, takes of a large segment of society could have important implications for regular annual leave, or goes on public policy, as it could be an indication that contributions to the strike. The _Labor Law_ is also quite health and social insurance funds may fall below current specific about the official workweek projections. However, pessimism on this score can be tempered (46 hours), the length of an ordinary with the knowledge that informals demonstrate some willingness workday (8 hours, 7 hours if at to make voluntary contributions to the health and social insurance night), and the minimum period of funds. Roughly half of the taxicab drivers, kiosks operators, and rest between two consecutive work street informals, who are not otherwise employed, make voluntary contributions to one of the schemes. Even at the outdoor markets, days (12 hours). Employers are 37% of the informals whose sole source of income is their generally forbidden from requiring informal occupation, make voluntary contributions to one or the overtime from their workers; when other schemes. overtime is performed, it is remunerated with double-pay. The Box 4 _Labor Law_ mandates eight holidays _Source:_ Author's informal sector surveys. per year, and Sunday is legislated as a public day of rest. With few exceptions, employers are forbidden from compelling work on a holiday or a day of rest. Annual leave is legislated to be 24 to 39 days per year, depending on years of service and working conditions.<sup>63</sup> The _Labor Law_ forbids dismissal of pregnant women or women with children