Informal workers’ associations could boost SME growth

Inclusive Economy01 Oct 2014Roger Tsafack Nanfosso

Trade unions in Africa have struggled to effectively include informal workers. In their stead, informal worker’s associations have assumed an important role, representing their increasing members in front of governments and the private sector. But how can unionization contribute to SME growth and employment?

As is well known, trade unions are organizations of employees inside and beyond their enterprises, which are devoted to protect them and to defend their rights through collective action. Of course such a definition holds only for the formal sector. In the informal economy, due to the diversity of workers, trade unions cannot be defined in the same way. Evidence from Africa shows that informal unions are more similar to membership-based organizations (MBOs), community-based organizations (CBOs) or simply associations of workers (Ryklief, 2012).

In the formal sector, trade unions can really help to increase the quality of workers’ status in SMEs, given that in Africa there is informal employment in the formal sector (a phenomenon usually forgotten). In Cameroon for example (as in many countries in Africa), where four kinds of contracts coexist (verbal, written, fix-term and permanent) with or without social security, workers can experience a change in their status while they are working in an enterprise. In that context, my previous research with Fomba Kanga showed that in the trajectory followed by employees (between their recruitment and the date of our survey in the firm), trade unions are very useful in discouraging precarious situations.

Effect of unionization on employment trajectory (logit modeling)

Type of contracts Impact of unionization Marginal effect
WC without SS Negative 5.5%*
From VC to FTC with SS Positive 10.80%*
From FTC to FTC with SS Negative 2.85%*
From PC to PC with SS Positive 12.26%*

Note: SS = Social Security; WC = Written Contract; VC = Verbal Contract; FTC = Fix-Term Contract; PC = Permanent Contract. (*) = statistically significant at 1%. Sample: 65 companies and 1,809 employees; survey data collected in 2006 in Cameroonian manufacturing firms with more than 15 employees.

For instance, as we can see in the table, unionization has a 5.5% negative and significant impact on the probability of a worker remaining permanently with a working contract without social security, and a 10.80% positive and significant impact on the probability of a worker recruited with a verbal contract to move on to a fix-term contract with social security. This is consequence of the unions’ presence and influence as insiders in the firms and their capacity to negotiate. As far as earnings are concerned, a few years before, in a different study using a survey of 1,074 wage earners in the same country, I estimated that the union wage differential is about 14.17%. That means that, taking account of certain wage-generating characteristics, unionized workers earn that amount more in hourly wages than non-unionized workers, which is a great achievement for trade unions (Tsafack Nanfosso, 2002). Such a union wage differential is, however, weak compared to that of South Africa where in 1993, as computed by Schultz and Mwabu (1997), male union members received wages that were 145% higher than comparable non-union workers in the bottom decile of the wage distribution, and 19% higher in the top decile of the wage distribution.

In the informal sector, there is a huge mass of people involved in a lot of different jobs, especially in urban areas (street vendors, car mechanics, car wash and laundry workers, domestics, fish or vegetable sellers, etc.). Their number has increased rapidly in recent years, as can be seen from the graphs below (various sources and ILO (2003)) showing that they represent on average 90% of total employment and 70% of non-agricultural employment in many African countries.

In the informal economy, employees are organized in two ways. In the first, traditional trade unions either include informal workers in some of their negotiations or create particular branches for them. In Benin, for example, the National Union of the Unions of the Workers of Benin has signed collective bargaining agreements that cover informal economy workers and provide education and training for collective bargaining. In Burkina Faso, the National Organization of Free Trade Unions has organized both male and female self-employed workers. In the second situation, informal workers can organize themselves through informal unions (like in Namibia where the Namibia Domestic and Allied Workers’ Union, established in 1990, has organized more than 30% of the country’s domestic workers). Even if the final purpose is not to formalize informal workers, such initiatives tend to remove them from the bush and make them conform to some of the realities of the formal sector: paying taxes, negotiating with authorities, acquiring a visible address, being registered as employees, account files, etc. But how all this directly affects SME growth and employment has still to be assessed. One may however suspect that if entrepreneurs and employees respond more to regulations in the formal sector, more opportunities in their trade will open up for them and thus contribute to the growth of SMEs.

In Ghana, for example, Adu-Amankwah (1999) states that the Timber and Woodworkers Union (TWU) incorporates the National Sawyers Association, Small-Scale Carpenters Association, the Wood Working Machine Owners Association and the Cane and Rattan Workers’ Association. With the establishment of the TWU (which claims a total of 48,000 members), anybody who wishes to deal with the workers belonging to it has to go via the union. Indeed, unity is strength: the number of members is important because it becomes hard for any actor – such as the Timber Export Development Board, the Ministry of Land and Forestry, and Parliament – to get a valuable result without involving the representative body. The TWU negotiates with District Assemblies and the Internal Revenue Service on tax rates for members. Clearly, by doing so it does not qualify as an informal organization anymore, especially because TWU effectively decreases the Ghanaian unemployment rate through its increasing membership rates.

To conclude, the WIEGO database has registered at least 200 informal unions ranging from MBOs (membership-based organizations), CBOs (community-based organizations) drawing and cooperatives to workers’ associations. The dynamics of this movement are unstoppable. I do believe that unionization of the informal economy will affect SME employment in terms of competition or complementarity because the progressive formalization is pushing informal workers towards micro and small enterprises (MSEs) that are a preliminary stage for the transformation to SMEs.