Macroeconomic Policies to Address Informality: A Two-pronged Strategy to Foster Dynamic Transformations that Reduce Informality

Lal, Radhika

doi:10.1111/j.1759-5436.2008.tb00453.x

Cited by 2 publications

(1 citation statement)

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“…This kind of analysis sits well with any broad strategy in which the ultimate goal is to expand and deepen the formal sector. Lal (2008) argues that in those developing countries where the informal sector is already extensive, a two pronged strategy is required. One is to expand the formal economy and draw into it as many people as possible from the informal sector.…”

Section: The Problem With Informalitymentioning

confidence: 99%

Global South and North: Why Informality Matters

Hodder¹

2016

New Global Studies

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Informality in the global south thought to matter because it is a threat, or a stage on the road, to (or embedded in) formality; or because it is a permanent condition acceptable on its own terms and has the potential to keep formal bureaucratic organizations running and in touch with citizens. These understandings of informality also share an assertion: that the quality of informality is different -almost genetically so -from formality. The purpose of my remarks here is to point this discussion in another direction. I argue that the difference between informality and formality is only conceptual. The supposition that there exists in fact an informal-formal dichotomy, dualism or dialectic, and its use as an analytical lens, produces apparent features which it cannot easily account for. I illustrate these features and then go on to sketch out another approach and its implications. New Global Studies 2016; aop Unauthenticated Download Date | 6/13/16 12:46 PM spontaneous, off-the-books, and outside established routines and practice; and a wider context in which capital and advanced technology are scarce and labor is used intensively. Measures of the extent of informality in the developing world also vary but are striking. About 50 % of employment and 30-40 % of all economic activities are thought to be informal. Figures are higher for some activities and in some regions. A good proportion (60-70 %) of manufacturing across the developing world is said to be informal. In Latin America, about half of the salaried workforce is informal, while figures for the urban workforce alone range from 30 to 70 %. Proportions of the labor force in informal employment rise to 72 % in sub-Saharan Africa and to 65 % in Asia. (See Galiani and Weinschelbaum 2012; Maloney 2004; Moreno-Monroy 2012; Funder and Marani 2015; Maiti and Mitra 2011).In establishing a reasonably distinct and tangible phenomenon for analysis and enumeration, collections of features which are necessarily recurring, predictable, and quantifiable are required, together with an assertion that informality is different -almost genetically so in some instances -from formality. A number of accounts or understandings of "informality" follow from this. First, informality is a barrier to progress. It delineates a detached sector producing different (and inferior) products with different (and inferior) labor and with little capital (see, for instance, La Prota and Shleifer 2014). Enterprises are inefficient and poorly managed, have low employment growth rates, seldom evolve into formal organizations, and see formality as a menace (ibid.). Thus, informality closes down opportunities, suppresses motivation, discourages freedom and creativity, inhibits and distorts communication; and -as markets expand, the division of labor deepens, and the number, scale and complexity of transactions increase -it becomes less cost effective (Balogh 1966, Bardhan 2002Bauer and Yamey 1963;Olson 1982;Sobel 2002). The only remedy is economic development. The informal will only wither as more comp...

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Section: The Problem With Informalitymentioning

confidence: 99%