GLOBALIZATION AND INFORMAL JOBS IN DEVELOPING …

[Pages:192]GLOBALIZATION AND INFORMAL JOBS IN DEVELOPING COUNTRIES

A joint study of the International Labour Office and the Secretariat of the World Trade Organization

Prepared by

Marc Bacchetta

Ekkehard Ernst Juana P. Bustamante

Economic Research and Statistics Division International Institute for Labour Studies

World Trade Organization

International Labour Office

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Copyright ? 2009 International Labour Organization and World Trade Organization

Reproduction of material contained in this document may be made only with the written permission of the WTO Publications Manager.

WTO ISBN: ILO ISBN:

978-92-870-3691-9 978-92-2-122719-9

Also available in French and Spanish.

French title:

WTO ISBN 978 92 870 3692 6 -- ILO ISBN 978-92-2-222719-8

Spanish title:

WTO ISBN 978 92 870 3693 3 ? ILO ISBN 978-92-2-322719-7

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Printed by WTO Secretariat, Switzerland, 2009

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Contents

Acknowledgements ....................................................................... 5 Foreword .......................................................................................... 7

CHAPTER 1: Globalization and informality in times of crisis ........................................................................ 21

A. Labour markets in open developing economies.......................................21 B. Key facts on globalization, trade and informal employment

in developing countries .................................................................................25 C. Improving social equity and efficiency by battling informality..............37

CHAPTER 2: Varieties of informality .................................... 39

A. Three views of the informal economy .........................................................39 B. A unifying model: multi-segmented labour markets.................................43 C. Definitions: making informality concepts operational..............................51 D. The crux of measurement...............................................................................54

CHAPTER 3: Openness to trade and informality................ 59

A. How does trade opening affect informal employment and wages? ......59 B. What does the evidence tell us ? ..................................................................67

CHAPTER 4: Impact of informality on trade and growth .. 87

A. How does informality shape macroeconomic performance?.................87 B. Informality and macroeconomic performance: empirical evidence .....91

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GLOBALIZATION AND INFORMAL JOBS IN DEVELOPING COUNTRIES

CHAPTER 5: Economic resilience: dynamics of informality ......................................................... 101

A. Transmission mechanisms of shocks in informal labour markets......101 B. Informality and business cycles .................................................................104 C. Capital flows and informality .......................................................................108

CHAPTER 6: Globalization and informal employment: an empirical assessment ........................................................113

A. Setting the stage ............................................................................................113 B. The impact of globalization on informal employment ............................119 C. Does informal employment lock countries into trade patterns?..........123

CHAPTER 7: Robust policies for an uncertain world....... 127

A. Formalization of firms ...................................................................................128 B. Supporting transitions from informal jobs to formal employment ......134 C. Employment-friendly trade policies ...........................................................140 D. Coherence between trade and labour market policy .............................143

References ............................................................................... 149

Annex 1: Data description ..................................................... 163

A. Informality measures ....................................................................................163 B. Economic and social indicators used in the empirical analysis ..........169

Annex 2: Technical details to the empirical analysis ....... 175

A. Methodological considerations ..................................................................175 B. Detailed regression results ..........................................................................176 C. Robustness checks........................................................................................177

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Table of illustrations

Figure 1.1 Own-account and contributing family workers (relative to total employment, in per cent) .......................................................26 Figure 1.2 Informality around the world (relative to total employment, in per cent) .......................................................27 Figure 1.3 Within-region variation of informality rates (relative to total employment, in per cent) .......................................................29 Figure 1.4 Informal economy (relative to GDP, in per cent) .........................30 Figure 1.5 Shadow economy (relative to GDP, in per cent)..........................31 Figure 1.6 Incidence of informality by skill level (relative to total employment, in per cent) ....................................................................................32 Figure 1.7 Status in informal employment in Latin America (2006) (relative to total informal employment, in per cent) .......................................33 Figure 1.8 Informality and economic development ......................................34 Figure 1.9 Trade openness and informality in Asia ......................................35 Figure 1.10 Foreign direct investment and informality in Latin America ....................................................................................................36 Figure 2.1. Multi-segmented labour markets .................................................47 Figure 5.1 Informality and the long-term sustainability of growth (1990?2006) ..........................................................................................................107 Figure 6.1 Globalization and other economic influences on informal employment ..........................................................................................................120 Figure 6.2 The impact of policies and regulation on informality ............122 Figure 6.3 Determinants of export concentration ......................................124 Figure A2.1 Selected quantile regressions ...................................................182

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Acknowledgements

This project was carried out under the supervision of Patrick Low and Raymond Torres. The authors would like to thank Charlotte Beauchamp, Margaret Fennessy, Sophie Li?vre, Paulette Planchette and Judy Rafferty for their assistance in the preparation of the report; Ana Cristina Molina and Lassana Yougbare for research assistance; as well as Azita Berar Awad, Franz Ebert, Frank Hoffer, Marion Jansen, David Kucera, Francis Maupain, Marcelo Olarreaga, Roberta Piermartini, Anne Posthuma and Uma Rani for comments on earlier versions of this study. Any remaining errors are solely the responsibility of the authors. The production of the Report was managed in close cooperation with Anthony Martin, Serge Marin-Pache and Heather Sapey-Pertin of the Information and External Relations Division. Gratitude is also due to the WTO Language Services and Documentation Division for their hard work.

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