Informality in Latin America: Facts and Opportunities
This paper deals with informality in Latin America. Its main purpose is to
contribute to the understanding of the informal economy and to provide a
framework for policy design. It is organized in five sections. The first three sections contain a diagnosis of informality. The first presents an estimate of the size and evolution of the informal economy and of country diversity. The second analyzes the heterogeneity within informality by occupations, by the degree of legal recognition of the employment relationships and by the relative concentration of vulnerable groups: women, indigenous population and international migrants. In the third section consequences of informality and its results in terms of low incomes and restricted access to social and labor protection are examined.
Causes of informality are reviewed in the fourth section. Diverse interpretations
are discussed in the framework of their historical sequence starting with the
association of informality to insufficient growth and productive employment
creation, following with globalization, decentralization of production and labor
processes and flexibility in labor markets to increase international
competitiveness and ending with regulations and government intervention.
These major scenarios correspond to different theories of informality, while a
more recent one places the emphasis on informality as a voluntary decision of
exit and not only as the result of exclusion. As informality cannot be fully
explained by a single interpretation, for policy purposes it is necessary to
identify the relevance and importance of the multiple factors introduced in the
conceptual debate.
Finally, the paper suggests responses and present experiences. The responses can contribute to the design of a comprehensive strategy to decrease informality, while incorporating the prevailing heterogeneity of causes and needs. In addition, specific policy experiences in Latin America are included to provide some guidance about their effectiveness. The paper ends with main conclusions.
This paper was written as a contribution to a WIEGO/OECD project under the OECD Regional Reviews on Informality.
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