Nearly a third of Iranians work in the grey economy, Labor Ministry officials say.
It is a shift brought about by recession in the past half decade due to poor economic policy and sanctions.
The informal economy is neither taxed, nor monitored by any form of government. Informal employment most often means poor employment conditions and is associated with increasing poverty, according to the International Labor Organization, though it is hard to generalize concerning the quality of such jobs.
“For every two formal jobs, there is an informal job,” Minister of Cooperatives, Labor and Social Affairs Ali Rabiei said in a conference on Monday, Mehr News Agency reported.
ILO says half to three-quarters of all non-agricultural employment in developing countries comes from the informal economy. Iran is in the middle of that range.
There are 22.5 million people currently employed in Iran, according to Rabiei, 16 million of whom are formally employed. That leaves an estimated 6.5 million grey economy workers, with most of them working for cash without contract, healthcare or pensions.
“The enlargement of the informal sector threatens economic growth and job creation,” said Mohammad Taqi Hosseini, deputy labor minister, addressing the same event titled “The Conference on Transitioning From Informal to Formal Economy”.
The grey economy’s expansion can create a vicious cycle. Being unable to collect taxes from the informal sector, the government may be hindered in financing public services, which in turn makes the sector more attractive.
Workers in the informal sector usually earn less, have unstable income and do not have access to basic protections and services.
“Economic recession has reversed the flow of jobs toward heavy industries and large companies. Jobs have moved from heavy industries to services, agriculture and small industries, which can employ workers for cash,” the minister said.
Women dominate this part of employment, as scarcity of jobs and gender pay gap makes them the primary source of cheaper recruitment.
“As poverty spreads and incomes drop, informal jobs increase and are predominantly held by women,” Rabiei said.
Mohammad Attarian, the deputy head of Iranian Center Employer’s Association, said there are other reasons behind the growth of informal sector apart from declining per capita income that erodes purchasing power and gives rise to tax evasion.
Iran’s complex laws for creating a business prohibit the jobless from starting their own business.
“Currently, getting a permit for a company is so hard that people opt for informal jobs,” he said.
However the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. As such, integrating the informal economy into the formal sector is an important policy challenge.
“Many countries have walked the path of development with these jobs, as informal jobs increase in recessions,” Rabiei said.
