How do market-oriented reforms matter to workers outside the formal economy? This is an important question for developing economies, where formal labor markets often coexist with large pools of informal labor, in which workers are offered fewer protections, little training, and few if any benefits.
But it is also a terribly thorny question for scholars, given the many confounding factors that mediate the impact of reforms. There is a large literature on the impacts of ‘reform’ on informality and there is also, separately, a vibrant literature on the impacts of regulation on informality. But to date, there has been little work that considers both of these potentially interactive driving forces on the extent of informality in the developing world.
In a recent working paper (and blog post) for UNU-WIDER, Rita K. Almeida, Lourenço S. Paz, and Jennifer Poole begin to disentangle the relationship between episodes of market-oriented reforms, labor market regulation enforcement, and the proportions of workers pushed or kept out of the formal economy (“precarization”).
Drawing on extensive data from the Brazilian census – nearly 8 million workers in both the 2000 and 2010 census waves, distributed by municipality – the authors evaluate the surprising effects of active labor regulation. Their counterintuitive finding from careful econometric analysis of Brazilian municipalities is that, even as formal employment expanded generally, the enforcement of labor regulations appeared to act as “sand in the wheels” of reform-driven growth. The higher the municipal enforcement of labor regulation, the more precarization of labor markets, and the fewer workers shifted out of self-employment into formal employment. Said another way: market reforms actually seem more likely to drive the move into informal markets in municipalities with greater de facto enforcement of labor regulations, when both reform and regulation are considered jointly.
The paper will provide important insights to policymakers as they seek to disentangle the multiple factors that influence labor markets, so as to protect and support workers in an increasingly integrated world.
Image: Flickr/Creative Commons License
