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«Jobs and Labour Markets in Developing Countries Policy Issues and Priorities Steven Miller 1. Introduction The challenge of providing productive ...»

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As long ago as 1991 the 78th Session of the International Labour Conference discussed the “dilemma of the informal sector”, which can be seen both as an incubator for entrepreneurship and job creation and a scene of exploitation, poor working conditions and low levels of productivity. The dilemma was posed as whether the ILO and its constituents should promote the informal sector as a provider of employment and incomes or seek to extend regulation and social protection to it and thereby possibly reduce its capacity to provide jobs and incomes for an ever expanding labour force. The 1991 Report emphasized that “there can be no question of PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 8 the ILO helping to ‘promote’ or ‘develop’ an informal sector as a convenient, low-cost way of creating employment unless there is at the same time an equal determination to eliminate progressively the worst aspects of exploitation and inhuman working conditions in the sector”.

The Conference discussion stressed that the dilemma should be addressed by “attacking the underlying causes and not just the symptoms” through “a comprehensive and multifaceted strategy” (ILO 1991).

The World Bank provides a contrasting framework in which to view the issue in its regional flagship report on Latin America, Informality: Exit and Exclusion, which notes the “exclusionary character of much informality, which leaves citizens outside formal institutions”, but adds that “there is an important ‘exit’ dimension that has been understressed in the literature: workers, firms and families, dissatisfied with the performance of the state or simply not finding any benefit to interacting with it, opt into informality.” (Perry et al, 2007). The ILO’s perspective, on the other hand, stresses that this is not a free and positive choice. Its report to the 2002 International Labour Conference – outlining trends that have only increased in the decade

since then -- states:

Contrary to earlier predictions, the informal economy has been growing rapidly in almost every corner of the globe, including industrialized countries – it can no longer be considered a temporary or residual phenomenon. The bulk of new employment in recent years, particularly in developing and transition countries, has been in the informal economy. Most people have been going into the informal economy because they cannot find jobs or are unable to start businesses in the formal economy. In Africa, for instance, informal work accounted for almost 80 per cent of non-agricultural employment, over 60 per cent of urban employment and over 90 per cent of new jobs over the past decade or so. (ILO 2002) The growth of informal employment underlines both the importance of improving the productivity and quality of informal work and the scale of the challenge involved. Tackling that challenge requires an understanding that the distinction between ‘formal’ and ‘informal’ work – despite being an important one – needs to be understood as demarcating points along and at the poles of a spectrum of employment relationships. For example, Marty Chen of Women in Informal Employment Globally Organising (WIEGO) focuses (see diagram below) on segmentation within the informal economy, relating the different categories of informal workers to different types of employment (employer-worker, disguised employment relationship or selfemployment) and segmentation in the informal labour markets (gender, earnings). (Chen 2006).

PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 9 Whereas the informal sector is often portrayed in terms of certain categories of work, from a policy perspective it is more useful to determine whether or not a given category of employment is integrated into formal systems of protection or regulatory regimes. By focusing on the employment relationship or the regulatory environment, the issue of informality, rather than being intrinsic to an activity, rather falls within the sphere of public policy. Saskia Sassen argues that it is not the nature of work but rather the absence of regulations - “regulatory fractures” – that determines informality. For example, while domestic helpers or backyard mechanics may be considered to be informal workers, this is the case only if they work outside regulatory frameworks. (Sassen 1997).

Therefore, regulatory policy can play an important role in creating and formalising job opportunities. This is the case most obviously with labour law, except that this does not apply outside formal employment relationships. Indeed, a challenge with labour regulation is to balance the need for standards with the danger of contributing to informality due to the cost of complying with regulations. “at the risk of over-simplification”, identifies “three broad relationships”: situations in which there is no relevant law in place, such as absence of regulation of self-employment ; situations in which regulation is not enforced; and situations in which the law stands in the way of job creation as well as contributing to informality For example, in the context of community-based labour-intensive slum upgrading schemes, urban government can review local regulatory frameworks (zoning, procurement, business registration, construction codes, etc.) with a view of making them more employment-friendly.

Labour laws and their enforcement In the context of understanding informality in terms of the absence of regulatory protection, Translating the above characteristics of the informal economy and its relationship with the regulatory framework into policy prescriptions is a challenge. Since informality is often characterized by long hours, low productivity and revenues and poor working conditions, the challenge is not so much employment creation but rather to improve working conditions, productivity and earnings. Policy interventions have tended to focus on training and capacity building efforts for workers and enterprises in the informal economy, a supply-side approach.

However, a focus on the demand for the goods and services produced by the informal economy is also called for, one which not only takes into account the heterogeneity of informal work and production, but also addresses its varying degrees of integration within the formal economy.

Rather than viewing the informal economy as a marginalized phenomenon, destined to disappear as development takes place, informality rather is an integral feature of modern capitalist development, one which is strategically captured not only by the survival strategies of informal workers, local micro- and small enterprises and their dependents, but also by industries and economic sectors seeking to take advantage of global supply chains.

Therefore, policy initiatives can help workers better position themselves with respect to demand

for goods and services they produce through informal work, for example, for:

• domestic low-income markets

• domestic high-income markets

• global markets.

The Commission for Legal Empowerment of the Poor13 proposed a new social contract which is based on a minimum floor of social protection combined with improved access to formal sector

employment. The Commission’s Working Group on Labour Rights (CLEP 2008) writes:

PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 10 The growing recognition of the need for labour rights to catalyse employment creation in the informal economy, while protecting its workers, has now led to an emerging global social contract, a broad agenda for reform and for empowerment....[The] Working Group... suggests that the underpinnings of the new social contract on labour rights [for the informal economy]

include five fundamental areas of action, namely:

• Strengthen identity, voice, representation and dialogue.

• Strengthen the quality of labour regulation and the effective enforcement of fundamental principles and rights at work.

• Support application of a minimum package of labour rights for the informal economy.

• Strengthen access to opportunities for decent work and to opportunities for education, training and retraining, as well as combating discrimination to ensure efficient labour markets.

• Support inclusive social protection.

Indeed, these recommendations largely coincide with the four areas of action of the Decent Work Agenda but applied specifically to the informal economy, and the recommendation about a social protection floor has been been echoed by the Bachelet Report published by the ILO last year (Bachelet 2011).

3.6 Youth employment

Youth development and youth employment have a long history of resonance with political leaders and policy makers around the world, for many reasons. On the one hand, young people are seen to be the future of society and an asset, rich in imagination and creativity, which can be harnessed for the greater good, stable and productive societies. On the other hand, youth are seen as a problem. When a large youth cohort is combined with high rates of unemployment, for example, this is seen as an explosive mixture. In both cases, as well as all the nuanced points of view along the problem-to-asset spectrum, there is both a wealth of practical experience and a lack of a coherent vision about how to give young people access to decent jobs.

From 1998 to 2007, the global youth unemployment rate declined from 12.4% to 11.7%.

However, the global financial crisis wiped out a decade of progress, and the rate rose from 11.9 to 12.8 per cent between 2008 and 2009, marking the largest annual increase since global estimates have been made. There has been little or no recovery since with the latest estimates showing this rate as having fallen only slightly in 2011 to 12.7%. (ILO 2012) Those regions where young people form the highest share of the working age population, i.e., with an above-average youth “bulge” within the overall demographics of the working age

population, are the developing regions of the world, namely:

• Sub-Saharan Africa (35.4%),

• Middle East (30.8%),

• North Africa (29.9%),

• South Asia (28.9%),

• South-East Asia and the Pacific (25.6%)

• Latin America and the Caribbean (25.1%). (ILO 2008 and ILO 2010).

PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 11 Unfortunately, as shown below, most – but not all - of these developing regions also experience youth

unemployment rates higher than the 2011 world average of 12.7%:

• North Africa: 27.1%

• Middle East: 26.2%

• Central and South-Eastern Europe (non-EU) and CIS: 17.7%

• South-East Asia and the Pacific: 13.4%

• Latin America and the Caribbean: 13.3%

• Sub-Saharan Africa: 12.8% Only South Asia, at 9.9 %, has a youth unemployment rate lower than the world average. The wide variations in youth unemployment rates amongst developing countries suggest the following


The Middle East and North Africa show persistent and structurally high rates of youth unemployment.

For the past 20 years, one in four young persons from these two regions has been unemployed.

Central and South-Eastern Europe, despite a relatively low percentage (21%) of young people in the overall working age population, exhibit higher than (world) average rates of youth unemployment.

The other developing regions (South-East Asia and the Pacific, Latin America and the Caribbean, Sub-Saharan Africa and South Asia) exhibit rates of youth employment close to if not lower than the world average. This can be explained not by a relatively healthy labour market, but rather by the fact that young people from these regions have either dropped out of the labour market altogether, or due to lack decent jobs and of social protection to tide them through periods of unemployment - are employed in informal and vulnerable jobs.

Since the majority of young people in the world are involved in informal employment relationships, a clear understanding of the heterogeneity and the dynamics of informal work are important to helping create new employment opportunities while at the same time addressing decent work deficits.

The ILO’s Global Employment Trends for Youth 2010 reports that the global financial crisis led to “an increase in vulnerable employment and casual labour in an ‘increasingly crowded’ informal economy.” (ILO 2010) The report also points to the underlying high incidence of young people

working in the informal economy, a phenomenon that was disproportionately impacted by the crisis:

...Workers living day to day in self-employment do not halt their income-seeking activities during times of economic shocks. In fact, the tendency is for more people to join the ranks of own-account and contributing family workers during times of crises in poor countries. If a worker in a low-income country loses a job in the formal sector – such as the garment worker in Cambodia – there is little chance of finding new work in the same sector as it continues to shrink, and social protection from the State is not sufficient to cover the living costs of themselves and their families; what choice does the person have but to take up whatever work they can find, regardless of the wage, condition and stability? The ILO’s Panorama Laboral 2009 confirms that this is exactly what happened in the Latin American countries studied. (ILO 2009) Young people are also more likely to be in vulnerable employment, a category which can include not only informal self-employment but also casual day labourers - a category of workers that tend to be unprotected and vulnerable to poverty - who are classified as “wage and salaried employment”. The ILO points out: “This classification hazard weakens the argument that during times of economic shocks, vulnerable employment will grow at the expense of wage and salaried employment. What PUBLIC WORLD / Jobs and Labour Markets in Developing Countries / Steven Miller 12 could be happening instead is a shift of persons within wage and salaried employment from steady contract jobs to occasional wage labour in the informal sector. This implies a negative shift in labour market developments that is not captured in the analysis of the employment by status indicator.” (ILO 2010).

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