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Symposium 2010

Solution for 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.

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

Insufficient education and training can trap people in the informal economy early in their lives. While governments have made great strides in raising levels of educational attainment, the labor force in most developing countries continues to be predominantly unskilled and private sector demand for specific skills remains largely unmet.

The solution is not only to invest in skills development (for example, by building a training infrastructure with qualified trainers) but also to ensure that the skills are recognized and accepted by potential employers. This requires the involvement of employers in the formulation of curricula and a credible, market-driven and market-recognized certification of the skills that workers have acquired.

The aim should be to enable informal workers to signal their acquired skill levels and seek gainful employment in the formal sector. An additionaladvantage of certification is that labor markets become more integrated and labor mobility increases.

In collaboration with government training institutions, chambers of commerce can help create certification standards that are recognized by industry (the job providers). Private entrepreneurs can play the role of “aggregator” for certified and skilled human resources to supply to firms in theformal economy (thereby reducing search costs for both job seekers and job providers). City and Guilds in the UK, and LaborNet and the National Skills Foundation in India are examples of initiatives of this kind.

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