Cracker Barrel on Regulating Responsibility

Business and the Environment

Formalizing Informality?

A few weeks ago New York University’s International Public Service Association (IPSA) hosted a conference on trade and poverty alleviation.  As a co-organizer of the event I had an opportunity to get to know the speakers well and help frame the discussion.

Sean Sweeney, director of Cornell’s Global Labor Institute, represented global trade unionists and made some thoughtful comments when I asked him to describe labor’s view of the informal economy.  Unsurprisingly, global trade unions use formal work environments as their frame for understanding how labor rights are attained and preserved.  Therefore, “informal” workers have been seen as “soon-to-be-formal” workers.  Efforts, then, have not been concentrated on organizing the informal economy.

Some World Bank research from Mexico illustrates that sometimes formal workers are choosing to exit the formal system in favor of informal employment.

There is little evidence to support the traditional dualistic view of a labor market segmented between formal and informal sectors as the principal paradigm through which to view the informal sector. The division between good jobs and bad jobs seems to cut across issues of formality-and for many workers, inefficient labor codes and low levels of human capital may make employment in the informal sector more desirable.  – Maloney, 1998.  “Are Labor Markets in Developing Countries Dualistic?”

So, perhaps it is time for a reconceptualization of the informal economy.  We also need to think about the factors that are making the informal economy a rational choice.  And what’s so great about formality anyway?  Could there be a combination of the two that works for more people?

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