COVID-19 and the value of relationships in informal economies

Governments in many developing countries have put in place restrictions to economic activity and mobility to curb the spread of the coronavirus. This is true also in Uganda, where public transport and non-essential businesses were closed from early April to June. While firms were closed, there were reports of workers leaving cities and traveling back to their home villages. This proposal aims to study the resilience of relationships in informal economies to external shocks like the coronavirus. In informal economies, there are usually no written labour or trade contracts. If relationships hold little value and there is a cost to re-match (e.g. workers traveling back to the city), relationships will be disrupted by the lockdown: firms will hire different workers as they reopen, or trade with different partners. If instead relationships are valuable, these will restart despite costs to re-match, even in the absence of formal contracts.

Our starting point is a representative survey of 1,000 SMEs and their employees that we conducted in 2018-19. We propose to re-survey this sample to understand which relationships have been disrupted and why. For instance, if a worker is not re-hired, we will know whether this is because the firm did not have enough work, or because the worker could not afford to travel back to the city. Understanding this is crucial for formulating policy responses, such as considering subsidies for firms vs. income support for unemployed workers. Moreover, we hope to make a novel contribution to the literature on relational contracts in developing countries, which so far has focused primarily on supply-chain relationships involving large firms (Macchiavello and Morjaria, 2015).

Outputs

  • Blog post

    The resilience of informal labour markets: Insights from Uganda

    While the lockdown in Uganda resulted in a large but temporary shock to SME activity, mature labour relationships were highly resilient to the lockdown, and a large share of workers were able to temporarily engage in alternative income generating activities during the lockdown. On 30th of March 2020, the Government of Uganda implemented a hard lockdown for a 14-day...

    18 May 2021 | Vittorio Bassi, Tommaso Porzio, Ritwika Sen, Esau Tugume

  • Publication - Policy Brief

    The impact of the COVID-19 lockdown on SMEs and employment relationships in Uganda

    During 2020, governments in many developing countries introduced severe restrictions on economic activity and mobility to curb the spread of COVID-19. In Uganda, public transport and non-essential businesses were closed from early April to June 2020. This policy brief reports on the results from a phone survey of a representative sample of SMEs and their workers...

    6 May 2021 | Vittorio Bassi, Tommaso Porzio, Ritwika Sen, Esau Tugume

  • Publication - Project Report

    The resilience of informal labour markets

    This project studies labour relations in informal economies where there are no written contracts, employment benefits, or protection for workers. ‘Informality’ is a defining characteristic of labour markets in most developing countries, making the study of employment relationships and related policy challenges especially difficult due to the paucity of administrative...

    20 May 2021 | Vittorio Bassi, Tommaso Porzio, Ritwika Sen, Esau Tugume