Informality and Globalisation
In Search of a New Social Contract
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Globalisation and rapid technological change have radically transformed labour markets, affecting the lives and prospects of billions of workers. Those in the informal economy, the vast bulk of the workforce in the Global South, have been bearing the brunt. This report is for policy makers seeking to address the factors that make those workers in informality vulnerable. It provides them with a distinctive cross-country comparison of recent informality trends, and how they were affected by the recent crises such as the COVID-19 epidemic, casting light on the impacts of sub-contracting models in global value chains, and digital labour platforms. It argues that an inclusive recovery and greater resilience to future crises necessitate that many countries renew their social contracts, to make them more inclusive of informal workers and their families.
Informal employment and the social contract
This chapter proposes a holistic approach to understanding informality through the prism of the social contract. Social contracts have a procedural and a substantive dimension. The extent of informality in a given country may be linked to an underdeveloped procedural dimension, a weak substantive dimension, a misalignment between the two, or all of these situations at once. Linkages between informality and the substantive dimension are empirically shown by relating the level of corruption, mistrust in public institutions, and dissatisfaction with various public services to the extent of informality among different types of workers. Informality is also shown to positively correlate with lower public spending on public goods and services and with poorer social outcomes. The social contract approach to informality can unify previous theories of exit and exclusion. As such, it offers a novel look at tools to tackle informal employment and the vulnerabilities of informal workers and their families.
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