Disclaimer:
Please be aware that the content herein has not been peer reviewed. It consists of personal reflections, insights, and learnings of the contributor(s). It may not be exhaustive, nor does it aim to be authoritative knowledge.
Title
Please provide a name for your action learning plan.
Enterprise and Employment Formalization
Challenge statement
Challenge type: If you are working on multiple challenges, please indicate if this is your "big bet" or "exploratory" challenge.
Please note: we ask you to only submit a maximum of 3 challenges - 1x Big Bet, 2x Exploratory. Each challenge must be submitted individually.
EXPLORATORY
Challenge statement: What is your challenge? (Please answer in specific terms: "Our challenge is that...”.)
Our challenge is to 1) accelerate and strengthen the integrated strategy for employment formalization, led by the Ministry of Labor, Employment, and Social Security, and 2) identify opportunities to strengthen the programs and policies for enterprise formalization led by the Ministry of Industry and Commerce and the Vice Ministry of SMEs.
Background: What is the history of your challenge? What is causing or driving it? Who is involved? How does the current situation look like? What undesired effects does it produce?
The Paraguayan economy is highly informal. A 2015 IMF study estimates the total size of the informal sector at between 38-40% of GDP (https://www.elibrary.imf.org/view/journals/001/2015/245/article-A001-en.xml) . A 2021 study by the Ministry of Industry and Commerce indicates that 69% of enterprises do not have their taxpayer ID (https://www.contrataciones.gov.py/t/download/BannerAdjunto/44 ), and the 2018 figures from Permanent Continuous Household Survey show that 48% of households are employed in enterprises without taxpayer IDs (http://www.cadep.org.py/2019/02/brief-report-measuring-the-informal-sector-in-paraguay/) . This translates into a situation where, according to the household survey, 70% of employment is informal, meaning dependent workers lack access to social security or self-employed workers do not have taxpayer ID status. In general, informal enterprises have low productivity and low access to financing and other resources for their development. Informal workers are a highly vulnerable population with insecure labor and economic conditions and limited access to resources for their personal development. Concentrating development efforts on extending social protection to the informal sector can create win-win outcomes where social equity and economic efficiency are enhanced simultaneously.
Quantitative evidence: What (official) data sources do you have on this challenge that better exemplifies the importance and urgency of this frontier challenge? You can add text, a link, or a picture.
Qualitative evidence: What weak signals have you recently spotted that characterizes its urgency? Please provide qualitative information that better exemplifies the importance and urgency of this frontier challenge. You can add text, a link, or a picture.
With the ramping down of quarantine measures, the end of emergency relief, and ramping fiscal constraints, the return to normality is both a relief and a risk. It is urgent to learn the lessons of the pandemic and avoid returning to a highly informal economy with very limited social protection for workers and limited avenues for the growth of SMEs. However, given very limited public resources, discovering ways to optimize current efforts at formalization is a high priority. On the other hand, a number of policy proposals, in addition to the Integrated Strategy for Employment Formalization (https://labformalizacion.org.py/?p=405) are emerging from the government to address these issues. Currently, the Ministry of Labor and the Presidential Social Policy Delivery Unit are developing policy proposals for new Social Insurance schemes specifically for SMEs with the goal of formalizing employment in these enterprises. In addition, the Ministry of Industry and Commerce is developing a proposal to construct local Entrepreneur Support Centers, based on state-level programs funded by the Small Business Administration in the US. The pessimism and polarized debate about how to navigate the current set of constraints is captured by this opinion editorial: https://www.abc.com.py/edicion-impresa/editorial/2022/03/23/paraguay-entra-en-el-mismo-circulo-vicioso-de-sus-vecinos/. In addition, we have conducted a series of structure dialogues with public sector instutions about the barriers we have detected for access to social isurance among informal workers, to validate our findings, further incorpoarte isntitutional knowledge about these barriersm, and identify institutional priorities for collaboration and experimentation to overcome these barriers. (See https://twitter.com/LabMtessPy/status/1499023689555271688?s=20&t=_LYcE2ka98kZBFDen4CIkA and https://www.facebook.com/Labmtess/videos/274892951431283/ ) The diagnostic reports generated by the laboratory’s work (http://labformalizacion.org.py/), also report sector-specific qualitative data generated through interviews, focus groups, and cultural probes.
Value proposition: What added value or unique value proposition is your Accelerator Lab bringing to solving this challenge? Why is it your Lab that needs to work on this challenge and not other actors within UNDP, other stakeholders in the country respectively? Why is it worth investing resources to this challenge?
The AccLab contributes two kinds of value to current efforts to address the problem of informality in the Paraguayan economy. First, a set of methods to identify and think systematically about the different barriers to formalization of employment and of enterprise, using collective intelligence and evidence generated through a variety of participatory and traditional methods. These methods permit us to break the problem into smaller pieces where we can design, test, and refine solutions through experimentation. Second, as part of UNDP, the AccLab is well positioned to articulate institutions from across the public sector and the public-private divide. This capacity helps design experiments that are better anchored in the “real world” of institutions and ensure that the knowledge and prototypes we generate are actionable for decision makers.
Short “tweet” summary: We would like to tweet what you are working on, can you summarize your challenge in a maximum of 280 characters?
How can we convert the informal sector into a source of decent employment and economic growth in Paraguay? By allying with public institutions, AccLabPY, conducts applied and participatory-action research to overcome barriers for employment and enterprise formalization.
Partners
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Ministry of Labor, Employment and Social Security
What sector does our partner belong to?
Government (&related)
Please provide a brief description of the collaboration.
The Ministry of Labor and its Directorate of Social Security are our main partners for the design and implementation of learning loops on the apparel, domestic work, and construction industries. These institutions have co-designed the interventions and coauthored our knowledge products in the framework of the “Participatory Employment Formalization Laboratory” project funded initially by office TRAC funds and subsequently by Rapid Response Facility funding.
Is this a new and unusual partner for UNDP?
No
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Ministry of Industry and Commerce
What sector does our partner belong to?
Government (&related)
Please provide a brief description of the collaboration.
We are currently exploring opportunities to collaborate with the Ministry of Industry and Commerce’s efforts at enterprise formalization and support to SMEs. Possibilities include a methodological design and implementation of a mapping exercise of the demands and needs of SMEs and of the policy offer from the Ministry and other government agencies. This would provide a prototype of the methodologies that could be adopted by the Entrepreneur Support Centers. Other possibilities include support design and execute impact evaluations of the Ministry’s support to entrepreneurs and an evaluation of the potential of a new legal identify for business (EAS) to spur formalization and entrepreneurship.
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
How might we design and evaluate interventions to overcome the barriers to employment formalization, such as lack of accurate information, high administrative and bureaucratic costs, low worker bargaining power, gender discrimination, low labor productivity, and low profitability of SMEs, specifically in the apparel, domestic work, and construction industries? How might we generate evidence and data to strengthen the Ministry of Industry and Commerce’s policies for enterprise formalization and support to SMEs?
To what stage(s) in the learning cycle does your learning question relate?
Explore, Test, Grow
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
These methods form part of an integrated methodology that begins by discovering barriers and opportunities for development integrating existing quantitative sources (survey and administrative data) with new data generated through qualitative methods, continues with exploration of innovative solutions, and culminates with prototyping and controlled experimentation.
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
The informal sector is tremendously heterogenous and so are the barriers to development and improved security within it. The descriptive and qualitative data help characterize and contextualize the challenge and illuminate a development path in a way that would be impossibly costly using survey data. The statistical and qualitative data created by the impact evaluation provide evidence about the efficacy of the prototype in addressing the problem.
Closing
Early leads to grow: Think about the possible grow phase for this challenge - who might benefit from your work on this challenge or who might be the champions in your country that you should inform or collaborate with early on to help you grow this challenge?
This work could strengthen existing approaches that are working or lead to renewed approaches to employment and enterprise formalization and labor regulation within the Ministry of Labor, the Ministry of Industry and Commerce, the Institute for Social Provision, and their many allied agencies. The ultimate goal of the learning loop is to transfer both the knowledge generated and the methodological capacity to do applied research for policy innovation in these institutions.
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5Gender equality
8Decent work and economic growth
16Peace, justice and strong institutions
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