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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.

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

When devising labor and tax legislation, developing countries have typically aimed to emulate the laws enacted by the former colonial powers. The ensuing complexity has made it almost impossible for small enterprises to comply with the provisions. In India, for example, there are more than 45 labor laws in operation today.

Simplified labor laws and a more transparent tax system (consisting of only a few pillars, say, an income tax and a value added tax) could provide strong incentives for small enterprises to enter the formal economy. Such liberalizing reforms can go hand in hand with enhanced social protection and the granting of basic labor rights. A leaner tax system, for example, may well lead to a higher tax take and thus an increased ability of governments to support people trapped in the informal sector.

    Related 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

    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