Journal of Business and Econometrics Studies

Impact on Informal Sector Workers During the Pandemic: A Case Study of Kenya

Yasin Kuso

School of Economics, Capital University of Economics and Business, Beijing China

Corresponding author
Yasin Kuso, School of Economics, Capital University of Economics and Business, Beijing China.

ABSTRACT
Informal sector (IS) workers comprise a significant proportion of the kenyan work force and contribute significantly to the GDP. Nevertheless, IS worker have little social protection and are economically marginalized, making them especially vulnerable to the effects of the government’s shutdown of the economy to address the COVID-19 pandemic. Using a sample of IS worker, researchers found that IS workers experienced dramatic decreases in their monthly income, although the reduction varied across occupation and geographic region. To compensate for reduced income, IS workers tapped their savings and increased their debt. The Kenyan government programmed to provide income support for workers during the shutdown reached less than half of IS workers. Social workers can help provide better social protection to IS workers from pandemic-amplified social exclusion.

Keywords: Informal Sector, Kenya, Covid-19, GDP

Introduction
The informal economy consists of both the informal sector and informal employment in the formal sector. The informal sector as used in this study refers to the informal economy, therefore captures both the traditional informal sector and informal activities in the formal sector popularly referred to as the “Jua Kali” sector in Kenya following Hope. The sector was in the past associated with low-income countries with the expectation that the size of the sector would reduce with economic growth as adequate employment opportunities were created in the formal sector, also referred to as the “Lewis Turning Point”. This has however not been the case. Globally, the size of the sector has been on the increase. Informal employment is presently a reality even in high-income and middle-income countries despite increasing economic growth. The sector provides employment opportunities, generates income and increases production hence plays a key role in the development of many developing and transition economies. The contribution of the sector to total output in the developing and developed countries is one third and between 10 to 20 percent, respectively.

The informal sector in Kenya employed roughly 14.5 million individuals in 2020. This corresponded to over 80 percent of the total number of people employed in the country. Service activities absorbed most individuals engaged in the informal sector: 8.7 million worked in wholesale and retail trade, hotels, and restaurants. Manufacturing came next, being the source of employment for roughly three million Kenyans.

Theoretical Literature
The emergence of the informal sector in Kenya can be explained by four dominant theories which are applicable globally. The oldest is the dualists theory popularized by the International Labor Organization (ILO) in the 1970s. According to the Harris and Todaro hypothesis, and Lewis and Kuznets, the economy is dual consisting of the urban capitalist industrial sector and the rural subsistence agricultural sector.

The urban sector which produces industrial goods offers higher wages than the rural sector. Capital accumulation was found in the urban sector which was therefore viewed as the engine of economic classified the dual sectors in urban areas as formal and informal, in line with classification of the whole economy.

Driven by minimum wage policies, expected wages in the urban or formal sector are higher than rural or informal wages drawing workers from the rural to the urban areas, or from the informal to the formal sectors. In cases where the level of investment therefore economic growth is low or the population growth rate is higher than the rate at which the economy is growing, the available urban or formal employment opportunities cannot cater for all who are seeking employment.

Economic Security Before Pandemic
The study classified the informal sector as comprising nine types of work (see Table 2). Street vendors make up the largest group (21%) and garbage collectors (2%) the smallest. Except for motorbike taxi drivers, women comprised the overwhelming majority in all work categories. Prior to the COVID outbreak, 23% of the sample worked another job to supplement their income.

The income IS workers earned ill-prepared them to weather the economic consequences of a recession. Before the pandemic, the average monthly income was ($434 US), whereas monthly expenditures were ($322 US), leaving IS workers about ($103 US) per month – an average daily income of less than 4 USD. Thus, IS workers were slightly above the poverty rate ($1.9 per day) for urban areas and had income double the 1.9 USD per day used to measure extreme poverty internationally.

The unemployed resort to informal employment. The informal sector is therefore a last refuge for persons unable to secure formal employment. 

According to the World Bank Development, the unemployment rates in Kenya following ILO estimates were 11.59 percent in 2015, and 11.52 percent in 2016 with total labor force of 18.75 million and 19.4 million in the two time periods. This translates to 2.17 million unemployed workers in 2015, and 2.23 million workers in 2016. The formal sector is unable to cope with the rising number of job seekers who have therefore resorted to informal employment.

Methods
A team of researchers from different regions, in collaboration with an IS nongovernmental organization (NGO), developed a survey to understand how COVID-19 impacted Kenyan IS workers. The survey, comprised of 35 open-and- closed ended questions, was administered in person or phone by project staff to 400 IS workers in the five regions of Kenya.

A convenience sample was drawn from workers associated with the IS NGO and recruited by word of mouth. Members of the research team and community development workers with the NGO assisted those respondents who could not complete the questionnaire on their own. A total of 380 fully completed surveys were received (a completion rate of 95%).

This paper reports on the characteristics of the sample and examines data from two close-ended questions (‘How has COVID-19 affected you financially?’ and ‘How did you adjust to COVID-19?’). A t-test was used to determine the before-and-after COVID impact on income. Researchers also explored whether incomes varied before and after COVID among different IS sectors (e.g., domestic workers, Bodaboda riders, street vendors) and the pandemic’s impact on IS workers living in various regions of the country. To analyze differences among IS sectors and regions, ANOVA was used.

Results
Characteristics of the Sample
The majority of the sample are female (65.8%) and the average age is 50 years. Approximately 60% of respondents are married and have an average of 4 family members in their households, with an average of 2 family members being employed. Almost half the sample (46.3%) had completed compulsory education such as secondary school or had obtained a high school certificate; a slightly lower percentage (43%) had completed no more than primary school (Table 1).

IS workers outside Nairobi could more easily return to their home villages/communities because the government shutdown permitted travel within a province. Social workers at the provincial level assisted migrant IS workers to access government assistance. Movement from urban to rural areas allowed returning IS workers to reduce expenses and to tap into local resources and social capital for assistance, a phenomenon observed previously with natural disasters and economic change [5]. This mitigated some but not all of the economic disaster.

Implications and Conclusion
The COVID-19 pandemic and resulting economic downturn aggravated the marginalization and social exclusion already experienced by kenya’s IS workers [6]. With income reductions and little savings, IS workers found themselves struggling to pay for food, housing, and other daily living expenses; often incurring more debt to do so [7].

Disasters such as the pandemic expose society’s fault lines, especially when normal means of production are disrupted [8]. Social protection programs intended to handle widespread job loss, such as unemployment insurance, provided no help to IS workers because they were largely ineligible [9]. The emergency financial relief program set up by the kenyan government assisted fewer than half of workers in the study, and even those helped often had to wait for long periods for aid [10]. If the government had had a more current database on IS workers, more of them would have been helped and helped faster [11].

The IS is not monolithic. Very real income differences exist within the occupations that make up the sector and among the regions [12]. Though all IS workers were financially harmed by the pandemic, the burden was not shared equally: some fared better than others depending on their occupation and location [13]. Efforts to remedy the social exclusion so dramatically revealed by COVID-19 must take into account [14].

Social workers have an important role in changing the process from exclusion to inclusion [15]. First, social workers can develop an outreach program to formally get IS workers into government databases (as noted, many IS workers failed to receive COVID income support because they were unknown to the government) [16]. Such registration could also be used to match IS workers to other income support programs.

Social change usually comes from the bottom up [17]. Clearly the community organizing and development traditions of social work are well suited to foster social change [18]. Like all efforts for social reform, IS workers must be better organized and empowered to pressure the government for greater social protection. Social workers can build coalitions with IS workers, allied NGOs, and the media to advocate for policy change [19]. Social protection could include expanding unemployment and old-age pension systems to cover IS workers – in essence, treating IS workers like formal sector workers.

COVID-19 revealed that IS workers had little access to normal sources of capital (e.g., banks) and instead relied on loan sharks for emergency loans. Collaborating with IS workers, banks, and the government, social workers can facilitate the development of mechanisms to secure low-interest loans to provide capital [20]. Perhaps a government-backed credit fund for IS workers could be established, and replenished as payments are made. Loan applications could be expedited by having borrowers’ information linked to existing government databases. Social workers can also strengthen IS workers’ economic capabilities by developing online marketing and internet technologies to link IS workers to new customers and opportunities.

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