Labor Markets & Employment

A subset of policy interventions particularly targeting the poor at the local level are:

• Support to small and microenterprises

• Increasing access to job opportunities

• Supporting home-based, income-generating activities and employment intensive work programs

Support to Small and Microenterprises (SMEs)

For the urban poor, small and microenterprises can be important source of income and employment (including self-employment) where no other alternatives are available. In many cities, a substantial share of the working population -- sometimes as high as 50 percent -- is engaged in microenterprise activity.

Despite wanting to stimulate microenterprises, the response of many local governments is to sweep mobile sellers off the street into back alleys, prohibit selling altogether, or subject them to strict regulations. Alternatively, the supply of rights and permits to permanent spaces may be severely restricted. Vendors stay small and mobile because they cannot afford the start-up capital to establish themselves in a permanent market where they are subject to inspection and have to pay rent, fees, and taxes.

Various activities to improve business environments can be considered. Regulations on hygiene, license fees, and area restrictions should be reviewed. Do they help SMEs to improve their services and operate in a better way? Or do these regulations constrain the activities of small-scale enterprises and prevent them from operating effectively? Land use decisions, such as inner-city revitalization projects, often victimize small-scale enterprises and street vendors. Regularization efforts, such as high license fees, can be detrimental for small-scale entrepreneurs.

Identifying and addressing constraints may be best approached through working jointly with traders. In Senegal and Nigeria, local governments and the different types of traders were brought together by an independent body to jointly analyze their problems and to come up with solutions. The building of additional and cleaner marketplaces in areas where traders want them to be located, and organizing traders to develop their own incentives for development and enforcement of rules, were deemed crucial (Tinker, 1997).

Providing advice and infrastructure can increase the productivity of microenterprises and their ability to operate in accordance with the safety and hygiene regulations. It can also foster networking and subcontracting opportunities. For example, a network of local service centers are planned in the Pretoria Witwates-Vereenining region, the economic hub of South Africa, to provide information and business advice services (including training, mentoring, business plan preparation, marketing, and subcontracting support) to SMEs. Local authorities can also collaborate with large companies and help to initiate training programs.

National governments and/or city authorities may need to develop simple and appropriate taxation policies for small businesses and the banks/financial institutions that serve them. For instance, small and microenterprises should not be required to provide detailed invoices since such responsibilities may be difficult.

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Increasing Access to Job Opportunities

Physical access:

• Improving physical access to jobs and markets can be facilitated through better and more affordable transport services to low-income settlements.

• Land use and zoning decisions should allow poor households and firms to have residential mobility. Such regulations should not require households to reside far away from employment opportunities and should also avoid incentives for businesses to locate to areas removed from their workers.

Other enabling policies:

• Facilitating the flow of information on jobs and markets for products, e.g., through publications and through the establishment of NGOs and other organizations that can provide such services. Local economic development programs need to be inclusive, and ensure that the urban poor benefit from them.

• Providing practical job training. The ability of the poor to benefit from growth requires good basic education and can be enhanced through job training programs. Cities can organize job training programs and workshops in collaboration with the private sector and central government to enhance the skills of the labor force.

• Facilitating child care to enable women to work. Governments can initiate simple and cost-effective programs with the help of NGOs and community-based organizations (CBOs). These child-care programs can be supported with modest subsidies. Cities must ensure basic hygiene and safety through advisory services and minimal regulations. Community day-care centers started in Latin America are an example for such programs. Under one approach, a woman from the community is selected to take care of a number of neighborhood children in her home. Usually parents and the government (central and/or local) share the cost of supplies and salary of the day-care provider. Food donations are often provided for feeding the children. Early-childhood stimulation activities and basic hygiene training are also provided. The extent of program coverage varies widely between countries, but in Latin America the range is between 3,500 children in Guatemala City to 800,000 in the urban areas of Colombia. Little information is available on the costs and benefits of these programs, but the high demand for the program and its popularity in Latin America suggests that this can be a successful approach to providing child-care arrangements for working parents and especially for single women (Ruel et al. 1999).

• Supporting the sectors that have higher employment generation capacity. For example, the construction sector (including housing and infrastructure) accounts for between 40 and 70 percent of gross fixed capital formation in developing countries. It also tends to be labor intensive (UNCHS/ILO 1995). Therefore, both national and city level policies should be designed to eliminate factors that may impede development of the construction sector. Lack of financing mechanisms for both developers and home-buyers and undeveloped land markets can easily impede development of construction activity. Labor-intensive construction methods -- like self-help housing -- can also be supported. Government support of formal housing construction programs, as well as self-help housing (which is more labor intensive), would boost employment and investment (Gilbert 1992).

• Cities can also take a role in the creation of short-term employment, for example, through public works programs. Such programs typically address urban infrastructure deficiencies through small works investments (see Section 2.2.2). Although the jobs created are only short-term, such programs provide temporary supplements to income and promote small-scale entrepreneurs.

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Supporting Home-Based Income-Generating Activities

Home-based production (or cottage industry) is also an important income-generating activity among the poor. Not only can housing space be used to earn rents but homes can also accommodate commercial and manufacturing activity. However, planning policies and land-use regulations tend to be based on the principal of separating housing and productive activities. City authorities often prohibit cottage industry to avoid health and safety hazards.

In view of the potential importance of home-based production for the urban poor, the regulatory framework can be adjusted to permit those activities while maintaining safety and providing infrastructure. City authorities can:

• Provide infrastructure services (electricity, telecommunications, water, and sanitation) which would increase the efficiency and productivity of home-based activities;

• Provide information and advisory services in relation to markets for the products and access to credit for SMEs;

• Provide information and training on safety measures;

• Organize practical vocational training courses; and

• Provide people involved in home-based income-generating activities with basic health care and labor right. This is important because isolation and lack of visibility can allow exploitation by factories and middle men (Kellett and Tipple 2000).

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