# **III.  Approaches to measuring informality**

While a few data bases are readily available for many countries -- Informal ICA Surveys, World Bank Enterprise Surveys<sup>1</sup> , household socio-economic surveys, the Schneider Index – the following sections are intended to serve those who would like to conduct surveys of firms among a sample of firms that more closely represents the significant categories of informal firms active in a specific country.

## **A. Surveys of firms: Pros and cons**

Surveys of firms can capture both firm-level information and worker-level information -- both employers and employees. As indicated above the most readily available firm surveys include:

- Informal ICA Surveys: ICA surveys include a category labeled Informal; however these are largely based on official lists of firms, where informal firms are designated according to size (usually firms with fewer than five employees).  While these surveys may include many informal firms, or even be comprised of a majority of informal firms, they mainly rely on a sample frame of formally listed firms and do not include household enterprises [Nigeria, 2009 is an exception].

- World Bank Enterprise Surveys: These surveys are recently including more data from firms sampled in well-recognized informal market places.  Even so, while the firms surveyed there are quite probably informal, there remain issues of representativeness of the overall informal sector. Informal marketplaces can cluster businesses by type for a variety of reasons, including by sector or relations among proprietors, for example.  And this approach also leaves out enterprises conducted in dwellings, or with no fixed location.

Thus the main limitations of firm surveys concern sample frame issues. Enterprise registries may miss some formal firms if not updated (and by design may miss all informal firms – predominantly micro enterprises). Attempts to expand the sample frame may not be representative as firms may be clustered in location or “hiding” in dwellings.

Overcoming these limitations requires developing a sample frame of firms that includes many that are not on any official list – national or local, registration or tax – or are not known to national-level authorities. A similar issue was faced in the design of Rural Investment Climate surveys<sup>2</sup> . However, with a focus on the rural economy it is feasible to use a geographic approach, e.g., survey all buildings in a sample of communities for the existence of businesses or households running businesses. This approach is difficult to apply in an urban setting. Therefore, urban informal sector surveys generally make use of household surveys for identifying small informal enterprises, household enterprises, and informal self-employment.

1 While ICA surveys cover opinions on the investment climate and Enterprise Surveys cover firm performance and employment, there are varying degrees of overlap between the two surveys, depending on the country.

> 2 Highly relevant background information can be found in a useful manual -- Methodological Guidelines: Rural Investment Climate Survey, July 2010, linked to ‘Agriculture and Rural Development  > Rural Investment Climate’.

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