**MONGOLIA'S INFORMAL SECTOR** -

**Reasons** for **Growth**

**18**

42. But not all informals are **An Escape From Poverty** skilled factory workers unable to find formal employment. Many are How successful is the informal sector at providing families with unskilled people making a living in the means to escape poverty? It is well-known that a large number unskilled peoplemkingalvinh **o** f useholds fall under the official poverty line, but an the informal sector because there are examination of the SSO Household Survey data for late 1996 tells no other alternatives. Among those a much deeper story. While the data confirm that roughly 38% of who tell the _duureg_ that they are not Ulaanbaatar households had poverty-level income, the data also employed, many say the reason they allows us to answer the counterfactual: how many would be in provide is that they have no skills.<sup>50</sup> poverty if they did not have informal income? A startling 53% of For them, the informal sector is their Ulaanbaatar households would fall below the official poverty line, only available means of escaping attesting to the contribution to poverty alleviation made by micropoverty. Box 3 illustrates the enterprise. As an illustration of the importance of this result, the importance of the informal sector for households raised from poverty by informal income provide alleviating poverty in Ulaanbaatar.<sup>5</sup> ' homes for an estimated 31,000 children in Ulaanbaatar

## **Box 3**

_Source:_ Author's estimates based on data from the SSO Household Survey.

# **- Rural-Urban Migration Supplying Informal Labor**

43. In many countries, growth of the informal sector is associated with migration from rural areas to urban centers. New migrants arrive without jobs, providing a large pool of labor for informal "employment." In Mongolia, however, migration is not currently a driving force of the informal sector - although net migration to Ulaanbaatar has increased considerably since 1991, the levels remain fairly small, about 2% of Ulaanbaatar's population annually?<sup>2</sup> But migration can not be dismissed entirely for several reasons. (i) Migrants may not be officially registered with the police, implying that 2% net migration is an understatement of true migration. Indeed, some officials believe that the true level of netmigration is much higher. (ii) Unregistered migrants can not legally work in the formal sector. Thus it is a virtual certainty that un-registered migrants work informally or not at all. Several respondents to the informal sector surveys conducted by the author (particularly at the "black" market) said they avoid questioning by the _duureg_ on employment status because they are not legally permitted to live in Ulaanbaatar. (iii) An important constraint on migration is that migrants have difficulty finding living space, and this constraint may soon be alleviated. Until very recently, there was a small market for housing due to the slow progress on housing privatization and legal prohibitions on the sale of publiclyowned apartments. Development of new, private, housing stock was similarly hindered by the lack of a market for urban lands and difficulties obtaining utility connections?<sup>3</sup> In general, Mongolians wishing to migrate to Ulaanbaatar can only do so if they have relatives in the city who volunteer enough space in their living quarters for the new migrants. Housing privatization, urban land privatization, and improvements in the energy sector may be expected to lead to a more fluid market for living space in Ulaanbaatar - existing apartments will become more easily reallocated, and the improved access to utility connections and the market for urban land will accelerate the development of new living spaces. As one constraint to migration is eased, it can be expected that the level of migration will increase, and as it does so the relative importance of migration in shaping Mongolia's informal sector will grow.