07/25/08

How to reduce the informal sector of the economy? Redefining it

by Larry Email  393 words

Lies, dammed lies, and statistics! Each piece of government statistics has to be suspected a priori. Firstly for being a statistic and secondly for coming from the government (from any government), for the state, being an institution based on lie (that security cannot be provided by private non-monopolist parties), is particularly inclined to lie.

Case in point: the Venezuelan government and its unemployment statistics. Unemployment has been supposedly on decline for several months. What government statistics don't say (or at least I haven't been able to find on the INE web page) is how many of those currently "employed" are working for the government. I know that perhaps with a little more effort I can find the numbers, but for the moment I will conform myself with suspecting that a large number of currently "employed" people is working directly or indirectly for the government and its numerous "missions" (social programs), as the government is happily celebrating the drop in unemployment. But what's the problem with this? That by definition government employment is not production but welfare, and therefore represents net consumption of resources.

Now, part of the employed belong to what in Venezuela is called the informal sector of the economy. When we speak of the informal sector of the economy, we usually think about the so called buhoneros or street vendors, but the official definition of informal employment is a little bit different and includes self employed and those working for outfits with less than five (5) employees.

From this moment, however, this definition will be changed and all workers employed in companies with less than five employees will be classified as formal workers, as long as these companies pay income social security taxes. The result: an immediate drop of ten percent in the informal sector employment and of course a ten percent rise in formal sector employment. It looks better that way, doesn't it?

Informal workers will continue to exist and their number will probably increase as industries close under the heavy weight of regulations, controls and numerous market distorting measures, but government statistics will be rosier and more apt for the consumption of foreign journalists.

See for example this piece by Michael Albert in which he lauds the bolivarian revolution based on the numbers provided by the Venezuelan government and disregarding completely the type of considerations I have discussed here.

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