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Symposium 2010

Escaping the Informal-Employment Trap in Developing Countries

The Challenge

Informality of employment is a way of life throughout the developing world. In poor Sub-Saharan African countries, the informal sector employs the vast majority of the nonagricultural labour force. Informal jobs continue to account for a high share of employment in the middle-income Latin American countries, The global economic crisis is likely to cause a further surge of informal employment because of job losses in the formal sector.

While informality has many different guises, what informal workers tend to have in common is that they earn less than formal workers and their basic rights are more vulnerable. Informality can be a major cause of poverty as most informal workers are insufficiently protected from health problems, unsafe working conditions and possible loss of earnings due to sudden dismissal. Persistently high levels of informal employment also reduce fiscal revenues and the state’s capability to develop social security systems.

How can developing countries overcome the informal employment trap? Should formalization of employment always be the ultimate objective or are measures that raise the productivity of informal workers and provide them with basic social protection equally important? And do high labor costs and other restrictions in the formal labor market constitute in surmountable entry barriers, suggesting a need for reform?

    Solutions

    Solution
    Symposium 2010

    Replace tax incentives for firms to invest in physical capital with incentives for firms to invest in human capital via formal employment.

    Replace tax incentives for firms to invest in physical capital with incentives for firms to invest in human capital via formal employment.

    Replace tax incentives for firms to invest in physical capital with incentives for firms to invest in human capital via formal employment.

    Polity, Business, Civil Society
    Solution
    Symposium 2010

    Invest in training and skills development tailored to the needs of the formal sector—which requires market-driven and market- recognized certification of skills.

    Invest in training and skills development tailored to the needs of the formal sector—which requires market-driven and market- recognized certification of skills.

    Invest in training and skills development tailored to the needs of the formal sector—which requires market-driven and market- recognized certification of skills.

    Business
    Solution
    Symposium 2010

    Use new information and telecommunications technologies to formalize employment and support enterprise.

    Use new information and telecommunications technologies to formalize employment and support enterprise.

    Use new information and telecommunications technologies to formalize employment and support enterprise.

    Business, Civil Society
    Solution
    Symposium 2010

    Simplify labor laws and tax legislation without sacrificing basic social standards.

    Simplify labor laws and tax legislation without sacrificing basic social standards.

    Simplify labor laws and tax legislation without sacrificing basic social standards.

    Polity, Business, Civil Society
    Solution
    Symposium 2010

    Where there is wage discrimination, give informal workers a stronger voice and remove the stigma attached to informal employment.

    Where there is wage discrimination, give informal workers a stronger voice and remove the stigma attached to informal employment.

    Where there is wage discrimination, give informal workers a stronger voice and remove the stigma attached to informal employment.

    Polity, Business, Civil Society

    Proposals

    Proposal
    Symposium 2010

    Incentives to Formal Employment: A Proposal for Colombia

    The creation of formal employment is currently the main challenge of economic policy in Colombia. The year 2010 began with unemployment in the double digits and high rates of underemployment and infor ...

    The creation of formal employment is currently the main challenge of economic policy in Colombia. The year 2010 began with unemployment in the double digits and high rates of underemployment and informal employment, which disproportionately affects young people and those with low educational levels. The current high level of unemployment, underemployment and informal employment in Colombia, rather than a situational phenomenon, is a structural problem. Even during a period of expansive growth, from 2003 to 2007, the unemployment rate remained in the double digits. The 2.5% GDP growth forecast for 2010 is insufficient to avoid a deterioration of current labor

    Polity, Business, Civil Society
    Proposal
    Symposium 2010

    Reforming Labour Law

    The labour market in most developing countries is dualistic and segmented. Formal and informal markets coexist. Transactions continue to be non monetized. Information is not complete and is costly. Mo ...

    The labour market in most developing countries is dualistic and segmented. Formal and informal markets coexist. Transactions continue to be non monetized. Information is not complete and is costly. Mobility is restricted. In addition to this problem of a vast majority in the unorganized sector, the work force also is remarkably heterogeneous. Laws that protect only the organized sector do not protect the unorganized or the informal sector. Added to this is the problem of the plurality, which results often in conflicting interests and goals. Caste or race factors and regional factors enter into the picture and worker interests get

    Polity
    Proposal
    Symposium 2010

    Escaping the Informal-Employment Trap in Developing Countries

    Informal employment can be the result of both people being excluded from formal jobs and people voluntarily opting out of formal structures. To deal with these distinct phenomena, a carefully targete ...

    Informal employment can be the result of both people being excluded from formal jobs and people voluntarily opting out of formal structures. To deal with these distinct phenomena, a carefully targeted government response is needed. For the world's poor, working informally is often the only way to participate in the labor market. Poverty-alleviation measures that provide improved risk management and social protection should be employed to address the hardship of these people. At the same time, governments should try to unlock them from their low-productivity activities. Specific options include active labor market policies, such as training and skill-development programs, which may open

    Polity, Academia, Business, Civil Society
    Proposal
    Symposium 2010

    Women in the Informal Economy

    Introduction The face of the informal sector is that of women. They are disproportionately represented as informal workers in most developing countries. In Benin, Chad and Mali, for example, the infor ...

    Introduction The face of the informal sector is that of women. They are disproportionately represented as informal workers in most developing countries. In Benin, Chad and Mali, for example, the informal sector accounts for 95% of women workers outside agriculture. In India and in Indonesia, nine out of ten women in non-agricultural work are informal workers. In ten Latin American and four East Asia countries, half or more eke out a living in the informal sector. Despite income earned from informal work, women are also the majority of the poor. Just as they earn less than men in the formal

    Polity, Academia, Business, Civil Society
    Proposal
    Symposium 2010

    Training and skill development

    Despite unprecedented growth in the last decade, India has a very low low per capita income. The Indian workforce is around 460 million strong. More than 90 per cent of the workforce is in the unorgan ...

    Despite unprecedented growth in the last decade, India has a very low low per capita income. The Indian workforce is around 460 million strong. More than 90 per cent of the workforce is in the unorganised sector and the unemployment rate is around 9 per cent. Employment surveys report low unemployment rates; the reality is that many Indians work on more than one job and continue to search for other opportunities even when they are already employed in some activity. Low productivity is a major cause for both of these. This disguised unemployed when added to the unemployed results in

    Polity, Business
    Proposal
    Symposium 2010

    Escaping the Informal-Employment Trap in Developing Countries

    Develop market-driven and market-recognised skill certification systems for informal workers to allow them to signal the market of their ‘acquired’ skill levels and seek gainful employment in the ...

    Develop market-driven and market-recognised skill certification systems for informal workers to allow them to signal the market of their ‘acquired’ skill levels and seek gainful employment in the formal sector. Certification will integrate labour markets and increase labour mobility. Brief description and rationale: One of the prime causes of informal employment in developing countries is the lack of adequate skills and training for labour which makes them unfit for formal-sector jobs. In other words, it is the lack of employability that forces millions of youth to the informal sector for employment and livelihood. For those working in the formal sector,

    Polity, Business

    Implemen- tations

    Implementation
    Symposium 2010

    Kenya National Alliance of Street Vendors and Informal Traders

    Polity, Academia, Business, Civil Society