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Informalisation of Labour MarketsThere is a widespread assumption that theinformal economy is counter-cyclical: that is, itexpands during economic down turns and contractsduring periods of economic growth. To besure, empirical evidence from a set of developedand developing countries indicates that the levelof informal employment, taking self-employmentas a proxy indicator, decreases when GDPper capita goes up and vice versa. 23 However, asshown above, the informal economy is made upof both self-employed and wage workers, therebydemonstrating limitations to the use of self-employmentalone as a proxy indicator. Furthermore,the co-relationship between informal employmentand growth is not straightforward. Recent analysesof data over time from different developingcountries suggest a more complex and dynamicrelationship between informality and economicgrowth. While economic downturns are almost invariablyassociated with an expansion of employmentin the informal economy (due to the growthin survival activities), steady rates of economicgrowth may be accompanied, not by a reduction,but actually an expansion of employmentin the informal economy. This is because duringeconomic upswings, certain forms of informalemployment may expand, such as the more entrepreneurialsmall firms as well as sub-contractedand outsourced activities linked to the globalproduction system. 24 This may well demonstratethat increasingly the formal economy is enteringinto a symbiotic relationship with the informal,where the former makes use of the latter toimprove profits and growth strategies, perhapseven to avoid respecting labour standards andregulations. In these countries, it was only aftera sustained period of higher levels of growth thataggregate informalisation declined. 25 This importantfinding is further elaborated in Box 2.Box 2 Relationship betweeninformality and growth:Cross-country evidenceConsider the findings from 20 countries in Asia,Africa, and Latin America at two points in time— generally in the 1980s and the 1990s. Foreach of the countries, the rate of change in informalisationis compared to the average per capitaGDP growth (Heintz and Pollin 2003). Most of thecountries (14 out of 20) experienced growth in informalisation,while four experienced a decline and twoexperienced little, if any, change. What is interestingto note is that informalisation increased in threecountries with respectable per capita growth rates(>2 percent) and declined in two countries with poorper capita growth rates (