Informality and Globalization

1
Informality and Globalization

• W.F. Maloney
• Office of the Chief Economist
• Latin America and Caribbean
• World Bank

LACML/OAS May 2004 Washington, DC
2
Sources

• From Natural Resources to the Knowledge Economy
  Trade and Job Quality
• Informality Revisted (World Development
  forthcoming)
• www.worldbank.org/laceconomist

3
What does a high rate of informality mean?
Self-Employment vs Level of Development
Self Employed in Work Force
Log. Industrial Value Added/Worker
4
Most entry into informal SE voluntary

• Mexico 66 coming from FS do so for higher
  earnings and more independence, higher pay.
  Consistent with sociological work. (ENAMIN)
• Brazil 62 of self-employed men stated that
  they did not want a formal sector job- were happy
  with their current job. (PNAD)
• Argentina(Jujuy) 80 self-employed had no
  desire to change jobs, under 18 see SE as a
  temporary activity before transiting to FS

5
Rise in informality in early 1990s-booms and
welfare improvement?
Mexico
Self Employed ? Formal
Formal ? Self Employed
66 voluntary
Unemployment
Bosch y Maloney 2004
6
Mex rise in informality not acccompanied by
segemenatation
No Secular Trend
Income Formal/SE
NT Boom
Form/SE
Fiess, Fugazza, Maloney 2001
7
Colombia increase in massive segmentation
Colombia
Income Formal/SE
Form/SE
8
Colombia vs. Mexico Nominal rigidities have
compounded the impact of the crisis
Distribution of informal and formal salaries
Careful with minimum wages!
9
Argentina Movement Toward Informality Predates
Trade Reform
Informality Rate for Salaried Workers in
Greater Buenos Aires, 1980-1990
-

Trade Liberalization


Gasparini 2000
10
Formality Is Higher in Tradeable Industries
Rate of Formality By Tercile of
Exports-imports/worker
High Imports
High Exports
Montes and Maloney 2001
11
Informality as part of global manufacturing
chain? Didnt increase with NAFTA
Share of micros with large business clients

• large clients 30 earnings premium
• large suppliers 11 premium
• Problem isolation of informal sector.

Sanchez, Joo and Zappala 2001