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Informality and Globalization W.F. Maloney Office of the Chief Economist Latin America and Caribbean World Bank LACML/OAS May 2004 Washington, DC.

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Presentation on theme: "Informality and Globalization W.F. Maloney Office of the Chief Economist Latin America and Caribbean World Bank LACML/OAS May 2004 Washington, DC."— Presentation transcript:

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2 Informality and Globalization W.F. Maloney Office of the Chief Economist Latin America and Caribbean World Bank LACML/OAS May 2004 Washington, DC

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

4 What does a high rate of informality mean? Log. Industrial Value Added/Worker % Self Employed in Work Force Self-Employment vs Level of Development

5 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

6 Rise in informality in early 1990s- booms and welfare improvement? Unemployment Self Employed  Formal Formal  Self Employed 66% voluntary Bosch y Maloney 2004 Mexico

7 Mex: rise in informality not acccompanied by segemenatation Fiess, Fugazza, Maloney 2001 NT Boom No Secular Trend Income Formal/SE #Form/#SE

8 Colombia: increase in massive segmentation Colombia Income Formal/SE #Form/#SE

9 Colombia vs. Mexico: Nominal rigidities have compounded the impact of the crisis Distribution of informal and formal salaries Careful with minimum wages!

10 Argentina: Movement Toward Informality Predates Trade Reform Informality Rate for Salaried Workers in Greater Buenos Aires, 1980-1990- Trade Liberalization Gasparini 2000

11 Formality Is Higher in Tradeable Industries High ImportsHigh Exports Montes and Maloney 2001 Rate of Formality By Tercile of Exports-imports/worker

12 Informality as part of global manufacturing chain? Didn’t increase with NAFTA Sector199419961998 Manufacturing301622 Services121110 Commerce1299 Sanchez, Joo and Zappala 2001 large clients: 30% earnings premium large suppliers: 11% premium Problem: isolation of informal sector. Share of micros with large business clients

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