Classifying Latin American Economies: A Degree of Informalisation Approach

Abstract

Given the commonality of employment in the informal economy, this paper moves beyond classifying economies by the composition of their formal economies and instead classifies economies by their degree of informalisation. Analysing International Labour Organisation data on the varying level of employment in the informal economy across 16 Latin American economies, the outcome is to reveal a significant correlation between cross-national variations in the degree of informalisation and cross-national variations in GNP per capita, poverty and social contribution levels. The paper concludes by discussing the implications for theory and policy.Keywords: informal sector, shadow economy, underground sector, varieties of capitalism, economic development, Latin America IntroductionReviewing the dominant classificatory schemas for differentiating economies, it becomes quickly obvious that countries are distinguished by the nature of their formal economic systems, such as their level of Gross Domestic Product (GDP) per capita (World Bank, 2013), whether they are control, market or mixed economies (Arnold, 1996;Rohlf, 1998), or liberal or coordinated varieties of capitalism (Hall and Soskice, 2001). The problem, however, is that that the majority of the global labour force are working in jobs outside the formal economy (Jütting and Laiglesia, 2009;ILO, 2012ILO, , 2013Williams and Lansky, 2013). Recognising this, the aim of this paper is to develop a classificatory schema for differentiating economies according to their degree of informalisation. The intention in doing so is to de-centre the formal economy in economic discourse and bring to the fore the prevalence of employment in the informal economy so that greater attention is paid to understanding this realm where the majority of global jobs are found and how it can be addressed in policy.In the first section, therefore, a brief review will be undertaken of how to economies have been classified according to the character of their formal economic systems and an alternative typology will be provided that classifies economies according to their degrees of informalisation along with a review of the competing theories that have sought to explain the cross-national variations in the level of employment in the informal economy. In order to start to populate this classificatory schema and evaluate the competing explanations for the cross-national variations, the second section then introduces an ILO data set on the level of informal employment in 16 Latin American countries and the third section reports the descriptive findings on the cross-national variations in the degree of informalisation. The fourth section then conducts a preliminary evaluation of the competing explanations for these cross-national variations whilst the fifth and final section concludes by summarising the findings and discussing their theoretical and policy implications. Classifying Economic Systems: A Degrees of Informalisation ApproachReviewing the dominant classificatory schemas used to differenti...

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