Geography Reference
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authorities, they may remain illegal on account of
their non-observance of legislated labour
arrangements. Indeed, with reference to 1989
figures, Roberts (1994: p. 16) notes that up to
three-quarters of workers in Mexican micro-
enterprises are not covered by social security. In
Latin America more generally, it is estimated that
only 2 to 5 per cent of self-employed persons (the
largest group of the informally employed in the
continent) have access to social security, mainly
due to high costs, administrative difficulties, lack
of incentives due to the eroding value of pensions,
and uncertainty in occupational prospects
(Tokman 1991: pp. 152-3; see also Lloyd-Sherlock
1997).
Lest it be thought that lack of social security
applies only to informal economic operations, it is
important to bear in mind that formal sector firms
may engage in similar practices. In Mexico in
1989, for example, formal sector employers were
not paying social security contributions for up to
17 per cent of their workforce (Roberts 1994: p.
16). This is also found in the Philippines, where
many multinational and indigenous factories use
loopholes in the law to avoid commitments to
social security, fringe benefits and redundancy
packages. This often takes the form of hiring
workers on a temporary basis (usually up to three
months), letting them go when their contracts
expire but re-employing them at a later date. This
fulfils the twin imperative of capitalising on
workers' previous training but denying them the
continuous service required for the status of
permanent employee and its attendant privileges
(Chant and McIlwaine 1995: Chapter 4). In many
countries, the pressure exerted by international
financial institutions to reduce 'structural
rigidities' in the workforce and to encourage
greater labour 'flexibility' has led to the passing of
labour law revisions to facilitate these processes
(Green 1996: pp. 109-10;Tironi and Lagos 1991).
In Peru, for example, legislation was introduced in
1991 that gave rights to employers to hire people
on 'probationary' contracts with minimal
entitlement to fringe benefits and no
compensation payable on their release (Thomas
1996: p. 91). In Bolivia, the new economic policy
Plate 38.2
Small-scale shoe factory in a residential
neighbourhood, León, Mexico
(photograph: Sylvia
Chant)
.
Tokman (1991: p. 143) identifies three types of
legality pertinent to the demarcation between
formal and informal sector enterprises.
1
Legal recognition as a business activity (which
involves registration, and possible subjection
to health and security inspections).
2
Legality in respect of payment of taxes.
3
Legality
vis-à-vis
labour matters such as
compliance with official guidelines on
working hours, social security contributions
and fringe benefits.
In many cases, informal businesses or operators
may be legal in some ways but not in others. Social
security is often the most costly aspect of legality,
so while micro-enterprises are often registered as
businesses with the relevant local or national
