INFORMAL SECTOR HINDERS DEVELOPMENT, ACCORDING TO ILO CHIEF

Victor Tokman, the head of the Latin American/Caribbean Office of the International Labor Organization (ILO), spoke before an audience of students and professors at Florida International University on April 10, 2000. His discussion of the informal economy provided a powerful reminder of those sectors of Latin American society that remain far removed from the issues involved in the hemispheric integration negotiations.

Tokman pointed out that half of nonagricultural employment in Latin America is in the informal economy. Six out of every 10 jobs created in the 1990s are in this sector, and most are filled by highly vulnerable workers, such as women and young people. Noting that 75% of such jobs are low-paying positions for the working poor, Tokman suggested that the informal sector could best be defined as disguised wage employment.

What will it take to bring this large group of people into the modern economy? Tokman argued that some degree of economic regulation is necessary, although not to the extent that previous statist regimes regulated the economy. He recommended streamlined regulation and registration of small businesses and their workers. Only then, he argued, will these workers and enterprises be capable of having a positive impact on trade and receive its benefits in turn. At present, the only “trade” available to many workers is to offer their own limited levels of skills. In countries such as Argentina and Peru, Tokman noted, 50% to 70% of wage employment moves outside the official economy. He pointed out that the “flexibility” of so many workers is a major factor behind Latin America’s underfunded retirement and health systems. It also contributes to the lack of job and employment programs and the high level of work-related accidents and diseases, resulting in low productivity as well as social instability.

The huge “black” economy also doesn’t say much for the rule of law in the region, Tokman continued. Even large companies, he claimed, employ significant numbers of workers without the contractual and legal protections mandated by law. Arguing that such jobs must be integrated into the regular economy to be efficient, Tokman called for simplified channels to register workers and businesses, taking care to preserve protections and standards. These steps would allow micro and small business sectors to contribute their dynamics and creativity to the economy as a whole.

The challenge, Tokman concluded, is to produce the rates of growth necessary to create an environment in which the informal sector can be efficiently incorporated into the official economy. If not, the problems that employment in the informal sector creates will become an increasingly serious obstacle to development in the region.