Patterns of Informality in the Ship Breaking Industry of Bangladesh

The relationship between economic growth and formalization of industrial sectors has not been unidimensional as several studies have brought different aspects of it from diverse contexts. This paper tries to evaluate the persistence of informality in the ship breaking industry of Bangladesh by setting it against the proclaimed formality of the sector. In addition, the paper also seeks to support the argument that informal patterns of employment can persist, if not grow, within a formal system. Both qualitative and quantitative data have been collected by questionnaire survey and key informant interviews. Analysis of the findings reveal a strong presence of informality within labor market dynamics of ship breaking industry in Bangladesh while several administrative aspects of the industry remain formalized. Study findings support the notion that growth as well as institutional development cannot necessarily transform informal conditions of labor market in developing country context. JEL code: O17, E26

Economic transformation from the traditional to modern structure has often been accompanied by a formalization of the sectors in the economy of a nation. Neoclassical economic thoughts pioneered the idea that countries experiencing growth and transforming to modern economy will also undergo changes in the informal sectors. This proposition was boosted up by the insights from institutional economics and the works of North (1991) which emphasized the fundamental role of institutions, along with economic growth, in shaping the formalization of sectors. The theoretical proposition on the parallel movement of economic growth and formalization has also been supported by primary data in several studies (Heintz and Pollin, 2003;Loayza and Rigolini, 2006;Elgin and Oztunali, 2013;Daniels, 2014). However, the idea of inevitable formalization in economy while any country experiences growth has been challenged in a different stream of literatures which questions the assumptions of linear relationship between economic growth and formalization of economy. Several time series and cross country data analysis have found that informal activities tend to rise or persist, if not rise, during economic growth in both developed and developing countries (Charmes, 2000;Beneria, 2001;ILO, 2002;Heintz and Pollin, 2003).
Though many developing countries have experienced growth revivals or high growth rates in last decades, the impact of this growth on informal employment remains minimal 1 . This dynamic is also reflected in the development experiences of Bangladesh. The country has maintained an average GDP growth of more than 6 per cent per annum since 2004. Growth projection for Bangladesh now stands at 7.15 per cent for the year 2016-17. The industrial sector has Print ISSN : 0424- 2513 Online  been one of the major drivers behind this steady progress of the country. Average growth rate of industry, service, and the agriculture sector has been consecutively 9, 6 and 4 per cent since 2011. Owing to the consistent growth, the industrial sector has contributed 31.54% of GDP in 2015-16 (Bangladesh Economic Review, 2016. Despite the persistent and upward-moving growth of industrial sector, evidence shows the presence of strong informal employment in the economy of Bangladesh. The Labor Force Survey (LFS) 2010 demonstrates that around 89% of the active work force are involved in informal employment. In addition to the strong presence of informal employment, studies also show that the growth in the formal sector has also led to a growth of the informal sector in Bangladesh (Raihan, 2010).
This paper seeks to evaluate the patterns of informality against the backdrop of recent growth and institutional reform in the ship breaking industry of Bangladesh. Upon doing that, the paper also moves on to support the existing argument from a developing country perspective that informal labor market can persist, if not grow, against the apparent proclamation of formality in some industrial sector. reasons behind the development of this industry in Bangladesh (Hossain et al. 2006 (BSBA, 2016). This industry is considered as vital for supplying raw materials to the steel industries and the overall infrastructural sector in Bangladesh.

Theoretical Framework
The present study adopts several criteria from Gërxhani (2003) to evaluate informality as Gërxhani conducted an exhaustive analysis of the secondary literatures on informal sector in the context of both developed and less developed countries. Informal economy, also referred as shadow or household economy, was originally used to denote the selfemployed urban labor force trying to make a living outside the formal sector (Hart, 1971). ILO (1972) revisited the idea and characterized 'informal economy' with the purpose of survival; household subsistence; the tendency to avoid taxes; and noncompliance with government regulations. There are a large number of literatures that analyzed the idea of informal economy and developed several indicators for its measurement and comparison. The overpopulated definitions of informal economy have however failed to develop a clear idea regarding informality and thus led to some conceptual confusion (Gërxhani 2003(Gërxhani , 2004. However, recent studies emphasize that informality can be mostly understood depending on the employment structure in an economy (ICLS, 2003;Raihan, 2010). This employment centred view of informal economy is also strongly reflected in the definition adopted at the 17 th International Conference of Labour Statisticians (ICLS) in 2003 (Hussmanns, 2004;Chen et al. 2005) 3 .
This paper adopts some of the major and relevant criteria from Gërxhani (2003) to develop the theoretical framework (

Methodology
This research has used both qualitative and quantitative data from primary and secondary sources. Primary data was collected through questionnaire survey and key informant interviews. Secondary data was collected by reviewing available literature.
Due to the absence of concrete database on the labor force and the seasonal variability of employment in ship breaking industry of Bangladesh, the population for this study remains somewhat unspecified. Hence, the questionnaire survey was conducted among 100 randomly selected respondents who are the workers in the ship breaking yards. A reconnaissance survey was carried out prior to conducting the field work to precisely identify the major settlements of the workers in the catchment areas of the ship breaking yards, location of the key government offices, location of the Non-Government Organization (NGO) and Civil Society Organization (CSO) offices etc. The survey was carried out at four different locations in the Sitakunda Upazila of Chittagong distrcit namely, Baro Awlia, Kattoli, Kumira and Kadom Rasul.
Most of the ship breaking yards are located in the surveyed areas. Twenty-five (25) respondents from each location were randomly selected and surveyed after availing their consent.
Key informant interviews were also conducted to collect the critical information on ship breaking industry as the respondents of survey questionnaire were laborers with little knowledge of the administrative and policy level information regarding the sector. The key informants' interview included 2 ship yard owners, 2 ship yard managers, 2 civil servants, 2 civil society activists, 2 trade union leaders and 2 persons from the academia.
In addition, a thorough review of literatures regarding the sector has been made during the whole period of this research. The sources of Table 1: Theoretical framework on conceptualizing informality

Indicators of informality in literatures
Indicators in the context of present study Government regulation ILO (1972), Beneria (1989), Renooy ( 1 9 9 0 ) , S wa m i n a t h a n ( 1 9 9 1 ) , Commander and Tolstopiatenko (1997) Presence of government regulation Presence of government regulation I l l e g a l p r e s e n c e o f business against formal regulation Registration of activity Beneria (1989), Renooy (1990), Swaminathan (1991), Commander and Tolstopiatenko (1997) registration or need for license from the government registration or need for license from the government Tax evasion Allingham and Sandmo (1972), Feige (1990), Tanzi (1982), Schneider and Enste (2000) unreported income or tax evasion unreported income or tax evasion Labor market or status of labor Beneria (1989), Harding and Jenkins (1989), Renooy (1990)

Findings of the study
By applying the methodology of the research, both quantitative and qualitative data has been collected against the selected criteria as described in the theoretical framework. The findings of the study are as follows: has been in force for several years, monitoring of the yards still appears to be insignificant. One indicator to test the aspect of government regulation is the incidence and frequency of interaction between laborers and government officials, specifically the labor inspectors from the Ministry of Labor and Employment. Data from recent survey reveals that about 61 per cent of the respondents have never encountered any government inspector in their respective yards to investigate the existing working conditions of the laborers. However, those who have encountered a government inspector in the yard have reported inconsistency in the frequency of visits they experienced last year (see Graph 1). In addition to weak monitoring of the labor conditions, enforcement of the environmental regulations also lack necessary rigor. The yard owners are still found to bypass the requirement of environmental clearance in several instances 5 . Amidst the tightening of government regulations, recent research by Talukder et al. (2015) finds strong signs of environmental degradation and shows that the industry keeps posing threat to the local fisheries, forestry and water.

Registration of the activity
The ship breaking yards have long been registered with several government agencies. The yards need to register under the 'Office of the Registrar of Joint Stock Companies and Firms' to start its operation as a business entity. Then, the yards need to register for Tax and VAT under the NBR (National Board of Revenue) as well as to get 'trade license' from respective local government authorities. Previously, the yards were mostly monitored by the Ministry of Commerce which has been changed with the recent policy shifts in 2011. Currently, the Ministry of Industries controls the permission of beaching of ships for the yards. The Bangladesh Ship Breakers Association (BSBA) also operates in collaboration with the Ministry of Industries in recent years.

Tax Evasion
The incidence of tax evasion has reportedly been lower, if not absent, in the ship breaking industry. The yards are mandatorily registered to NBR for VAT and Tax submission and to the local government authorities for getting trade license and its renewal. Hence, the complete avoidance of Tax and VAT has never been a routine incident in this industry.

Labor market and the status of labor
The condition of workers and labor market dynamics have been the most significant criteria to evaluate patterns of informality in the ship breaking industry of Bangladesh. The study has deployed several indicators in the pursuit of evaluating informality in several aspects related to laborers and the labor market.
Arguably, there was no government regulation to look over the issues of labor rights and welfare in this particular industry since its beginning. It was only in 2006 when the Bangladesh Labor Act first included a different paragraph to address the issue of labor rights and safety in ship breaking industry. Moreover, empirical data from the survey clearly indicates that informality in the labor market strongly exists in multiple dimensions.
Firstly, the 'scale of activity' mainly focuses on the number of people employed or self-employed in informal sector entities. The small-scale of operation is considered one of the main features of the informal sector as it involves less than 10 persons in most of the entities (Sethuraman, 1976). But, this criterion possesses little relevance with this study due to the factors like size of capital and number of manpower employed in ship breaking yards. Bigger ship yards employ as high as 400 workers while cutting 2-3 ships simultaneously while the smaller yards employ around 50-60 workers while cutting a single ship. Hence, there is a positive relationship between the number of workers employed and the number of ships cut in any yard at any given time.
Secondly, most of the laborers in this industry are employed on a temporary basis (table 2). Usually there are around 10-15 permanent staffs in each active yard while the rest are hired time to time. Permanent workers of the yard include managers, supervisors, accountants, security guards etc. and the temporary workers fall into a cluster of working groups, i.e. wiring group, cutting group, fitting group, and loading group. This research found that about 93 per cent of the respondents are working on a temporary basis. The hired workers do not have any formal job contracts as they are hired through intermediary contractors. Source: Survey (2016) Thirdly, work in the ship breaking yards is considered to be risky as it involves manual cutting of heavy steel plates from the ships. Critical sources of accident are unchecked presence of chemicals and gases in old ships that cause explosions while cutting the ship manually. It is found that, 50 per cent of the respondents have experienced some sort of accidents in the yards. All the respondents have said that they saw co-workers being heavily injured while at work 6 . Civil society activists and trade union leaders also claim that there have been many unreported deaths and injuries in the yards. Although there is high possibility of major and minor accidents in the yards, 28 per cent of the respondents said that they did not see any doctor in their respective yards. Except the satisfactory availability of helmets in the yards, other equipment like fire extinguishers and gas masks are still less than what is required. Despite working in such risky conditions, only 29 per cent of the respondents are found to receive formal training for doing the job (Table 3). However, recently, BSBA is arranging formal training programs for ship breaking workers while previously there were some small-scale training programs operated by the civil society organizations. Fourthly, empirical data from the survey shows that there is an absolute gender bias against female laborers in the industry. Almost all the workers employed in this industry are male. There also exists a significant number of child workers in the ship breaking industry (graph 2). The graph illustrates that 20 per cent of the respondents are under 18 years of age which is in complete violation of the Labor law of the country since the law prohibits appointing child and adolescents in hazardous work.

Graph 2: Age group of the respondents
Fifthly, the social protection and several employment benefits are unavailable for most of the workers in the ship breaking industry (Table 4). Social protection schemes like insurance and pension schemes are completely absent and only a small number of permanent workers have access to provident funds. Other employment benefits like paid leave is not an option for the temporary workers while only some of the permanent workers can avail it.

Ease of entry and exit
The workers in the ship breaking industry enjoy an ease of entry and exit from their job. A large pool of workers-being informed about the employment opportunities by their friends, relatives and neighbors-come from the northern part of Bangladesh. 'Social network' is the key to get a job in this sector. On the other hand, the distinct aspect of the ship breaking industry is that the yard owners have to invest big chunk of financial capital for buying ships and employing large number workers to operate a yard. Therefore, the criteria of 'ease of entry and exit' requires different explanation from the perspectives of the workers and the yard owners. Findings from the interviews indicate that, starting a business in this industry is highly competitive. In addition to the huge amount of capital requirement there are also various bureaucratic procedures, like availing certificates and clearances, that have squeezed the ease of entry into and exit from the business.

Survival
The research finds that all the respondents are working in the ship breaking yards due to having no better options at hand. Although the employment in the ship breaking industry is a matter of 'survival' for the workers, it is not the same for the yard owners. The yard owners take risk by investing a huge amount of capital in the business. Therefore,

Evaluating the patterns of informality in the ship breaking industry
A significant number of criteria, i.e. the scale of investment and operation, compliance with registration system, relation with international trade, were embedded in the ship breaking industry since its beginning. Several studies have indicated the presence of such criteria as critical preconditions of formal sector entities (Beneria, 1989;Renooy, 1990;Swaminathan, 1991;Commander and Tolstopiatenko, 1997;Anderson, 1998). Moreover, the investors in the ship breaking industry had to go through all the formal stages of doing business in Bangladesh. They had to manage license from government agencies, regularly provide VAT/Tax and comply with some other legal procedures.
Findings from the interviews show that, this business requires investment of big capital as the price of an imported ship ranges from a minimum of one million USD to several millions. In addition, investors need to have a thorough understanding of the complex mechanisms of international trade to import ships from abroad. Despite the presence of such stimulating factors for formalization, ship breaking had officially remained an informal industry until 2011. Early researches reveal limited use of personal protective equipment, unsafe working conditions, lack of training facilities, frequent accidents, use of child labor, minimal primary health and sanitation facilities in the majority ship breaking yards in Bangladesh prior to its 'formal industry' status (Karim, 2009;Sarraf et al. 2010). The concerns of environmental pollution and impacts on marine life due to disposal of hazardous wastes and highly polluting material have also been a major focus in relevant literatures along with the portrayal of the perilous working conditions in the industry (Greenpeace, 2000;Anderson, 2001;Mitra, 2005;Hossain and Islam, 2006;Ahmed, 2011). Apparently, the long period of informal status as an industry had worked as a stimulus for the yard owners to bypass the existing labor and environmental standards of the country.
In Bangladesh, three decades of commercial operation and successive growth of the ship breaking industry has failed to meet the requirements of labor standards and environmental protection. More recently, Government of Bangladesh declared ship breaking as a 'formal industry' in 2011 to address such failures in the sector. Government introduced a couple of new policies, brought more agencies to look over the labor and environmental aspects, and made various new certifications mandatory on the top of the previous ones. However, the officially formal status of the sector has brought little de facto changes in the condition of the status of laborers, let alone the environmental concerns.
Most of the workers still do not have any job contract, social benefits, provident funds, pensions or other securities. Usually the yard owners and managers have informal arrangements with the labor contractors who supply the pool of laborers to a yard. Most of the workers find the connection with the labor contractors through informal networks of friends and neighbors. As the laborers do not have any direct contact and contract with the employer, they are in a disadvantageous position to bargain on the employment benefits, i.e. working hours, minimum wage and other allowances.
Working conditions in the ship yards remain considerably risky while most of the yards do not have enough safety measures, medical facilities, instruments or any trainings for the workers. Yet a significant number of child laborers work in the risky conditions of ship breaking yards. Despite the lower status and perilous working environment, people tend to work in this industry due to their low skills and socio-economic conditions which leave them with little choice but to work in this sector. Evidently, there are no female laborers working in the ship breaking yards. Gender dynamics of labor in this industry can be the stand alone indicator to reflect highly risky and hazardous working conditions of the yards.
Finally, the analysis reveals simultaneous existence of formal and informal criteria in several aspects of the ship breaking industry (Table 5). The industry is observed to hold several signs of formalization, i.e. scale of operation and registration of activity since its inception. Added to the previously existing criteria, official formalization of the industry has brought substantial changes in 'government regulation' and subsequent institutionalization. But the research shows consistent growth along with government facilitation have not brought about anticipated changes in labor market conditions in the ship breaking industry of Bangladesh. The findings of this study supports the argument that informal patterns in the labor market can survive, and even grow, within a formal industry.

CONCLUSION
Several indicators of informality have been empirically tested to evaluate the patterns of informality in the ship breaking industry of Bangladesh. Simultaneous presence of formality and informality have been observed in the studied sector. The findings contrast with the arguments on parallel movement of economic growth and formalization of industrial sectors of an economy. This research on ship breaking industry explicitly shows that informal patterns in the labor market can survive and grow even within a formal industry. Industrial growth as well as the institutional development cannot necessarily transform informal patterns of labor market in the context of developing countries. Flexible entry through known networks and easy exit for the workers; but difficult entry into and exit from business for owners

Survival
The relation of work with economic survival of the workers and owners The workers work for survival; but the owners operate business for profit Mixed pattern of informality