Globalisation and informal jobs in developing countries

1. “Inclusive Development in the Face of Informal Trade: Success Stories and Best Practices”.Prof. Raymond Saner, TPGP, CSEND, GenevaJoint Working Session, WTO Public Forum 2016CUTS International, Geneva, Ministry of Industry & Commerce, Tunisia and Organisation Internationale de la Francophonie

2. Structure of Presentation: 1. ILO-WTO Trade & Informal Economy Study2. Meso-Macro Informal Entrepreneurship Study3. Possible Solutions

3. Globalisation and informal jobs in developing countries (Study conducted by Marc Bacchetta, WTO, Ekkehard Ernst and Juana P. Bustamante, IILS (ILO), 2009

4. The informal economy is large and in many countries it has been growing Source: IILS estimates based on the IILS Informality Database.

5. Informal employment is associated with lower economic performance of a country

6. …adjustment processes are impaired… • Persistence in informality is high • Chances for upward mobility are low, while risk of downward mobility is high in informal jobs

7. Informality makes developing countries more vulnerable … Frequency of crisis increases with informality • Countries with large informal economies are hit by shocks more often and have lower sustainable growth rates

8. “Shades of Grey: How Do Informal Firms Navigate Between Marco and Meso Institutional Environments? (Study conducted by JULIO O. DE CASTRO, SUSANNA KHAVUL, and GARRY D. BRUTON; IE Business School, Madrid, Strategic Entrepreneurship Journal, 2014)

9. Research findings (de Castro et al.) (1) Their research shows that when making decisions about informality, entrepreneurs in emerging economies purposefully navigate between the enabling and constraining rules of the macro institutional environment and the norms of the meso institutional environment.

10. … (2) as entrepreneurs grow more successful they become simultaneously more attuned to the countervailing constraints of both the macro and meso institutional environments; and..(3) informal firms and formal firms weave together an exchange system that legitimizes the persistence of informality. In the context of informality, meso institutions serve as the connective tissue which cross-link levels of the environment and shape the context in which entrepreneurs make decisions.

11. Proposition 1: The weaker the formal macro environmental institutions, the more likely informal entrepreneurs are to rely on norms in the meso institutional environment. Corollary 1: Meso institutional narratives and beliefs influence the decisions of entrepreneurs with respect to formalization of their firms.

12. Proposition 2: At each stage, entrepreneurial firms will choose, within each institutional dimension, a level of compliance where the benefits offormalization outweigh its cost. Corollary 2: Informality is a multidimensional continuum that ranges from no formal registration with any government agency to degrees of partial registration with intermediate authorities and across multiple institutional dimensions.

13. Proposition 3: As the wealth of informal entrepreneurs increases, they become more attuned to formal rules in the macro institutional environment and launch their firms on the path to formalization. Corollary 3: Financially successful informal entrepreneurs adopt staged formalization when the level of their commercial activity threatens to expose them to formal scrutiny.

14. Proposition 4: As the wealth of informal entrepreneurs increases, they become more attuned to the constraints of the meso institutional environment. Corollary 4: Financially successful informal entrepreneurs avoid strong displays of their success to prevent a backlash from their meso institutional environment.

15. Proposition 5: The more developed the channels of interaction between informal firms and formal organizations in local environment, the lower the incentive for informal firms to formalize. Corollary 5: Informal firms interact with a variety of formal organizations in their environment to weave together an exchange system that legitimizes the persistence of informality.

16. Overlapping options for informal entrepreneurs (CSEND, 2016) Micro (informal) Macro (formal) REGISTRATIONNational, provincial, local admin. If benefits are higher than costs (financial, political, security) CORRUPT INSPECTORS if benefits are lower than costs (financial, political, personal security, family, MESO LICENCES to Operate(Business, Employment, Health etc) REQUESTS FOR POLITICAL OR RELIGIOUS SUPPORT INSPECTIONSLabour, Health, Mirgrants THREATS TO SAFETY OF ENTREPRENEUR AND FAMILY EXPORT LICENCES Ports, Shipment, etc

17. Possible Solutions

18. Facilitating adjustment & transition to formal jobs (ILO-WTO study) • Develop active labour market policies • Extend public employment services also to the informal economy • Job search and matching can be improved when informal workers are being reached as well • Focus on education, also in the informal economy • Improved education and skills is key for workers to find formal jobs • Vocational training systems in the informal economy can provide additional policy leverage

19. Facilitating adjustment & transition to formal jobs (ILO-WTO 2) • Strong social dialogue between employers and workers helps... • ...in the design of measures • ...extend the reach to the informal economy • Reform product markets and enhance governance • Eliminate red tape and improve governance to lower entry barriers and stimulate firm growth • Well-designed taxation helps job creation in the formal economy

20. Facilitating adjustment & transition to formal jobs (ILO-WTO study) 3 • Carefully designed trade reforms • Credible announcement of reform path • Gradual implementation • Country-specific trade reforms • Support trade • Aid-for-trade initiative: Least developed countries need support to export diversification and export development • Exploit complementarities • Countries reap greater benefits from trade opening when labour markets allow better adjustment of jobs across sectors. • Coordination of trade and labour market reforms

21. Strengthen links between macro (state), meso (informal) and micro levels (informal entrepreneur) (De Castro et al. 2014, CSEND 2016) • Provide incentives to entrepreneurs to move from informal to formal economy (registration, licencesetc) • Limit opportunities for corrupt behavior of government officials (cut back red tape while at the same time ensure decent work, education, human rights) • Provide vocational education and apprenticeships (avoid split between formal and informal education) • Give informal sector recognition (e.g. labour unions represent a minority of workers in informal economies!) • Make legal system transparent and provide legal assistance to actors of the informal sector

22. CSEND Proposition • Encourage and support development of cooperatives (agriculture, housing, industry, services) • Cooperatives produce goods and service AND engage in social integration (crucial in countries with high youth unemployment, discrimination of women, ethnic minorities) • Cooperatives also engage in trade!!! See CSEND policy brief Nr. 10, Cooperatives for inclusive growth (http://www.csend.org/csend-policy-briefs) and CSEND + ILO Aid for Trade panel on Cooperatives and Trade (July 2015).

23. ਤੁਹਾਡਾ ਧੰਨਵਾਦ Thank you Merci Hvalae Շնորհակալություն děkuji 谢谢 Salamat ngiyabonga 謝謝 Daalụ धन्यवाद ви благодариме ຂໍຂອບໃຈທ່ານ o ṣeun Aitäh