The ILO/WTO Joint Report on Informal Employment: What It Says and What Role the WTO Should Play in Addressing Informality
The World Trade Organization (WTO) and the International Labor Organization (ILO) prepared a report on the convergence of globalized trade and informal economies in developing countries (WTO: Press release, 2009). They point out that while globalization of trade has reduced poverty and increased incomes, even in the informal economy, it has not improved the work environment, job security, or social, benefits for those in the informal sector. Furthermore, because of poor access to institutions such as banking, property rights protection, and government programs, entrepreneurship, risk taking, and expansion for firms in the informal economy are limited. Thus, apparent that the informal economy has negative effects on workers and firms, they similarly find it has negative influences on the country.
They find that a high rate of informality in a developing economy restricts capacity to profit from global trade, however they point out the evidence of a causal effects from informality are not well documented (Bacchetta, Ernst, & Bustamante, 2009). Moreover, high informality within a country makes it more susceptible to economic shocks. The authors find such countries “suffer more frequently from shocks and experience lower sustainable growth” (WTO: Press release, 2009, para. 9). Furthermore, governments suffer from a loss of tax revenue while still having to provide basic infrastructure used by the informal market.
Opening to international trade also has an impact on informality. The researchers found that initially upon opening their borders to international trade, countries experienced an increase in informality. However, over the long run, the formal sector grew, with the caveat that enabling domestic policies and facilitation of access to employment are undertaken.
The report appears to advocate the movement of workers out of jobs in the informal market and into existing formal market structure, stating “that trade reforms should be designed and implemented in an employment-friendly way, making the reallocation (emphasis added) of jobs more conducive to formal employment growth” (WTO: Press release, 2009, para. 12). However one sentence in the previous paragraph “Facilitating formality of firms and jobs helps a country to benefit fully from trade openness, improves living standards and gives workers access to decent working conditions” (WTO: Press release, 2009, para. 11) provides an opening to transitionong mor of the informal market into the formal realm, an approach this paper advocates.
Proposed Role of the WTO in Addressing Informality
The WTO has been a great instrument in reducing barriers to global trade in goods, through reduction in tariffs and toward the elimination of non-trade barriers. It has also been an effective mediator of trade disputes between countries (Trebilock, Howe, & Eliason, 2013). However,...