Trade and Employment From Myths to Facts - International Labour ...

Trade and Employment: From Myths to Facts
making needs to take into account the impact of the global economic structure and
the international trading system on the size and the conditions of the informal
economy worldwide. Domestic policies, both trade and labour-market policies, as
well as other measures such as economic reforms, impact the effects of trade on informality
as well as the potential of economies to benefit from trade liberalization.
It stands to reason that informality is not only a matter of concern in terms of
social equity, but also in terms of the improved economic efficiency of a country.
There is a major concern that the persistent or rising informalization of work in the
developing and even developed countries could adversely impact human capital and
social progress. Thus, the main reasons for governments to intervene in the informal
economy are based on the principles of developing a mechanism to utilize the
potential productivity of the informal labour force, poverty reduction, and equity
considerations.
Economic policies impact both the informal and the formal economy, but in
different ways. Standard economic policies do not have the same effects on the informal
economy, where responses are much more varied, as on the formal economy.
Hence, it is important to develop policies that fully recognize the interrelationship
between the informal and formal economy and other economic and social agents.
The informal economy is very much affected by the objects of economic regulation
as well as their impact (e.g. the price of capital, labour, inputs and outputs). Trade
and industry policy also provides incentives to large formal businesses to increase
their international competitiveness, from which small informal businesses in the same
industry or sector may not benefit. Proactive policy on the informal economy would
shift the structure of aggregate demand, the prices of inputs and outputs, and the
set of incentives and subsidies in favour of informal enterprises. Appropriate economic
policies on the informal economy should balance incentives, tax burdens and statutory
benefits (e.g. unemployment insurance and pension funds) between large and small
businesses, and between employers and informal workers.
Clearly, a reappraisal of the impact of existing economic policies and the need
for supportive economic policies is needed, since these policies impact the process
of redistribution between the formal and informal economies. Policy analysis needs
to determine whether the informal economy shares in benefits that result from government
expenditure and procurement policies. New methods for assessing
government budgets – called social audits or people’s budgets – can be used to assess
the differential impacts of policies on the formal and informal economy. However,
there is a clear need for improved statistics on the informal economy. Collection of
budget data is difficult, since allocations affecting those who work in the informal
economy may be the responsibility of many different government departments, such
as labour, housing, small enterprise development and public health.
Policies towards the informal economy have the potential to create a new contract
between the State, business, organized labour and other social actors (including
organizations of informal workers and producers). Without addressing the employment
needs, constraints and vulnerabilities of those who work in the informal
economy, efforts to reduce poverty will not succeed. International labour conventions
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