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Symposium 2010

Proposal - 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 ...

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.

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, it is the degrees and certificates from recognised institutions that act like a passport to formal sector jobs. The informal workers do not have any such mechanism to signal the market and differentiate themselves on the basis of their acquired skill levels. In a scenario where there are not many vocational training institutes imparting skill development courses (the likely scenario in most developing countries), the unskilled youth gains skills through ‘learning by doing’ by working on odd jobs. Over a period of time, such labour does acquire skills of a skilled trades-person, but does not have any mechanisms to signal the market for their skill levels.

A market-based and market-recognised certification system for informal sector workers could address this issue. Chambers of industry, in collaboration with the Government training institutions, can help create certification standards which are recognised by the industry (the job-providers). Private entrepreneurs can play the role of an ‘aggregator’ for certified and skilled human resource to supply to firms in the formal economy (reduce search costs for both job-seekers and job-providers). City and Guilds (UK), LabourNet (India), National Skills Foundation of India (NSFI) are a few examples of initiatives in this regard that need to be taken to scale.

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