**MONGOLIA'S INFORMAL SECTOR** -

**Size and Trends**

**9**

contributions of 0.5% of wages, to the social insurance fund,' Having made contributions for at least two years, a person who becomes unemployed can then collect benefits equal to 45-70% of the level of wages during their last three months of employment, depending on total years of service; unemployment benefits last until a new job is found, up to a maximnum of 2 '/2 months.'<sup>2</sup> 15. The ERO also acts as an employment broker, trying to match the skills of registered unemployed people with the requests of enterprises. The ERO staff interviewed for this study reported that they frequently have difficulty matching the skills of the unemployed with the demands of employers. Employers typically request skilled labor, while only about half of registered unemployed have skills. Although unemployment benefits expire after 2 1/2 months, there is no limit to how long an unemployed person may remain registered for the purposes of finding a new job, as long as they visit the ERO - regularly people who don't visit for more than three months are automatically dropped from the registry.

16. There are two sources of raw employment data that are used to compile employment statistics in Mongolia. The number of unemployed people is compiled monthly from surveys of the EROs, and therefore includes only the officially registered unemployed. The number of employed people is drawn from an annual census, called the Annual Labor Force Balance, conducted by each _duureg/soum._ This annual census enumerates the population, the number of able-bodied people of working age, and for those who are able-bodied and of working age but report that they are not employed, the annual census enumerates the reasons., placed into several categories. These categories do not permit a clear distinction between people who are unemployed and looking for work and those who are not in the labor force. For this reason, the able-bodied people of working age who report that they are not employed will be referred to, awkwardly, as the "not-employed." 17. It is generally accepted in most transition countries that official unemployment registrations are not very good indicators of the actual level of unemployment,3 and Mongolia is no different. Although someone who has recently lost a formal sector job would have incentive to register at the ERO, the incentive to remain registered declines rapidly as benefits expire<sup>4</sup> Furthermore, those who haven't paid social insurance contributions for the requisite two years have even less incentive to register since they are not eligible for benefits.

18. It is important to understand the processes that generated the statistics on the following pages. Each _duureg/soum_ questions each household about the characteristics of household members, including whether or not they have a job. If they are able-bodied, of working age, and report that they are not employed, the _duureg/soum_ then asks the reason, providing several categories of responses. The final category is "other" which ultimately gets reflected in the Annual Labor Force Balance as "without any reason." Some of the other categories, such as "watching a child," can be inferred to indicate people who are not in the labor force, and in Figure 1 below, these categories have been grouped together as "clearly not in the labor force."

# **Trends in Employment in Ulaanbaatar's Informal Sector**

19. The number of the "not-employed," as well as the "reasons for being not-employed" are instructive in the trends that they display. Recognizing that informnals often do not consider themselves "employed," an expansion of the informal sector serves as the best explanation for the observed trends in the Ulaanbaatar employment statistics. The informal sector surveys conducted during this study, and the