By Felipe Bosch, Editor at Le Grand Continent and Co-founder of the Groupe d’études géopolitiques’ Americas Programme
The pandemic has shed light on the unavoidable need for concrete answers to the challenges of urban informality. The “best practices” discourse tends to oversimplify policy-making processes aimed at providing such answers. While regularisation policies are mainly associated with technical prescriptions imposed from a top-down perspective by international organisations, a detailed study of them in Latin America, based on a comparative case study of Mexico and Argentina, elucidates how bottom-up solutions to development problems might arise.
One contention is that balanced development and policy action that lifts the financial, technological, institutional and human capital constraints to productivity will also enable higher productivity in informal firms and thereby formalisation. A growth-inducing productivity agenda is a necessity, but growth alone is not enough to reduce informality. Continue reading “Policy pathways for addressing informality”
The informal economy remains a problem when we discuss the prospects of economic development. It is perceived as a hindrance to economic progress because the informal sector does not pay taxes, does not include its employees in social insurance schemes and does little to offer labour law protections. Increasingly, various researchers (La Porta1, Shleifer2, 2014) and international organisations, like the OECD, converge in seeing the informal economy as an obstacle to economic development due to its imminent low productivity. Indeed, informal businesses are concentrated in low productivity sectors. They are, on average, smaller and hence less productive. They generate lower value added. They pay lower wages to their employees and do not train them. And the owners of informal businesses manage their firms less efficiently than their better educated formal sector counterparts.
The informal sector is hence both a symptom of economic backwardness and a drag on economic development. But, can this apparent vicious circle be broken, or is it an economic policy donquichottean task?
The informal economy consists of economic activities and units that are not registered with the state and workers who do not receive social protection through their work, both wage-employed and self-employed. The reality of the informal economy in Africa cannot be denied. In fact, informal employment accounts for two-thirds (66%) of non-agricultural employment in Sub-Saharan Africa. But, variation within the region is significant. Informal employment accounts for a smaller share of non-agricultural employment in southern Africa (33% in South Africa and 44% in Namibia) relative to countries in other sub-regions (82% in Mali and 76% in Tanzania) (Vanek et al 2014). Informal employment is a greater source of non-agricultural employment for women (74%) than for men (61%) in the region overall. In seven cities in West Africa with data, informal employment comprises between 76% (Niamey) and 83% (Lomé) of employment. In all seven cities, proportionally more women than men are in informal employment (Herrera et al 2012). Continue reading “The Informal Economy in African Cities: Key to Inclusive and Sustainable Urban Development”
By Juan Carlos Benítez, Economist at the Latin American and Caribbean Unit, and Angel Melguizo, Head of the Latin American and Caribbean Unit, at the Organisation for Economic Co-operation and Development (OECD)
Informality equals vulnerability. In emerging economies and particularly in Latin America, informal is normal. On average, 55% of workers in the region did not contribute to pension or healthcare programmes in 2013. Although informality rates vary significantly across countries (Figure 1), a common feature of informality is its large prevalence amongst the poor and low-middle income workers (e.g. Jutting and De Laiglesia, 2009). On average, 85% and 73% of households in the lowest earning quintiles do not have any member contributing to social security schemes. Furthermore, informality is “one of the most striking differences, within the middle sectors, between the vulnerable population and the consolidated middle class” (Lustig and Melguizo, 2015).
One of the most important achievements of the recent period of economic expansion in Latin America has been the substantial reduction of poverty and the surge of an emerging middle class. According to World Bank estimates (Ferreira et al, 2013), in 2009 the Latin American population with a daily income of between 4 and 50 dollars a day (in parity of purchasing power) represents 68% in the region today, compared with 29% who still are moderate poverty. These ‘middle sectors’ are composed of 38% belonging to a vulnerable population, which has between 4 and 10 dollars a day, and 30% middle class, between 10 and 50 dollars. Continue reading “How middle class are middle-income households in Latin America?”