MONGOLIA'S INFORMAL SECTOR Notes 57 fully liable for the activities of the proprietorship, and proprietors were forbidden from being members of any other economic entity, except for joint-stock companies. Furthermore, a similar strand of the literature on the informal sector uses the number of employees as the defining characteristic of informality. The definition of sole proprietorship in the _Economic Entities Law_ was "an economic entity whose owner alone, not in connection with a cooperative or a company, regularly engages in production or provision of services in order to supply himself with a permanent source of income." (Article 8.) Second, it is instructive to consider data for 1994 for evaluating how informal the "sole proprietors" of the Annual Labor Force Balance are. In 1994 the SSO together with UNIDO conducted a Census of Industrial Establishments. They found only 69 industrial establishments registered as sole proprietorships in all of Mongolia. (Gereltuya, et al, 1995) In the same year, over 18,000 people in Ulaanbaatar alone reported that they were sole proprietorships, and nearly half of them were in the distribution sector.

29.For example, the low estimate is computed as follows. 17,706 accounted informals + (17,706*3) unaccounted informals = 70,824.

30.A quote from ILO 1993 is pertinent here: "the population employed in the informal sector comprises all persons who work in one or more production units considered to belong to the informal sector, irrespective of whether this work is their main or secondary activity." p.13.

# 3 l.Note that these estimates include pensioners, not only working age people.

32.A slightly lower estimate of the proportion of households with income from micro-enterprise was found by Centre for Social Development (CSD), 1996. Their survey of 174 households in the _Songino Hairhan Duureg_ during the winter of 95/96 found that 41% had some income from micro enterprise activities, as contrasted with the estimates of 47-51% presented in the text. The difference can easily be explained by a number of factors including the 10 month gap between the CSD survey and the referenced SSO household surveys, the difference in _duuregs_ sampled, and statistical discrepancies.

The estimates of 30% and 33%, presented in the text, are based on SSO household survey data from October and November, 1996, respectively. As an illustration, the adjustment for October was made as follows. The probability that a household will have some informal income equals one minus the probability that the household has no informal income. The probability that a household has no informal income (approximately) equals the probability that a single member has no informal income raised to the power of the number of working age household members. Since 46.9% of households had some informal income, and the average household had 1.78 working age members, the estimate of employment in the informal sector equals one minus X, where X solves the equation: 0.469 = I - X'<sup>78</sup> . Then I - X = 30%.

33.The focus here is on the aggregate contribution of the informal sector to household incomes. The earnings of informal activities relative to formal activities will be discussed later in the report.

34.The sample of areas chosen is designed to be proportional to the fraction of population living in such areas, and includes nearly every _aimag_ plus Ulaanbaatar. Within a given area, the households are selected at random from official records of households living in the area. (Thus recent migrants, likely candidates for informal sector labor, could not be sampled unless they were officially registered which is not a trivial task, especially in Ulaanbaatar.) The households are then surveyed on the details of their monthly income and expenditures.

35."Individual activities" are defined in the survey as including income from selling animal, agricultural products and raw materials, plus iincome from selling non-agricultural products produced within the household, plus income from providing services, plus rent income. Another category, commercial income, is sometimes listed separately but usually aggregated into the "other" category of income in published data. Commercial income refers to individual trading, international or domestic. Omitted from discussion here are the categories of pensions and allowances, and loan income. Loan income is only income in the sense of cash flow, since it really refers to money