Informalization, Economic Growth and the Challenge of Creating Viable Labor Standards in Developing Countries

Abstract

Over recent decades, there has been the substantial rise in the proportion of people engaged in what is termed informal employment, generating a broad trend toward "informalization" of labor market conditions in developing countries, even when economic growth is proceeding. We consider the relationship between the rise of informalization and the corresponding ascendancy of neoliberal policies in developing countries, focusing in particular on how the decline in average per capita GDP growth associated with neoliberalism has fostered informalization. We then explore policy measures for raising the proportion of decent jobs with core social protections in developing countries - which means, as we argue, reversing the process of informalization. We examine policy measures in two areas: raising the rate of economic growth and improving the regulation of labor markets.

Keywords: informal economy, employment, informalization, macroeconomics, economic growth, labor standards

JEL Classification: O11, O17, J8