Ebook Economic Recession and Informal Sector Workers
The financial and economic crisis that started in 2008 has deep implications for employment across the world. While the precise consequences cannot be predicted, it appears certain that both jobs and wage levels will suffer in many developing countries. The crisis is underscoring the relevance of the ILO’s Decent Work Agenda. As per the annual Global Employment Trends report (2009) of the ILO the global economic crisis could result in an additional 18 million unemployed in the world and increased levels of vulnerable people in employment.
The economic crisis is bound to produce a significant impact on the informal sector which has emerged as an important institution in the entire developing world. It is beyond any doubt that the informal sector plays a very significant role in employment in developing countries constituting at least 70 per cent of total employment of the working population (Agenor 1996). In case of India this figure is over 90 per cent if one includes agriculture.
Labour market theory suggests an increase in informal activities as a result of economic turmoil, since informal employment can act as a buffer when people are laid off in the formal sector and need to find new job opportunities. Furthermore, an economy going into recession might experience a shift from the tradable to the non-tradable sectors, which again would strengthen informality. Empirical evidences from Latin American countries like Argentina and many Asian countries support the predicted shift towards more informal employment.
The economic crisis that originated in developed countries affects the developing economies in a number of ways. The fall in the imports of the developed nations from developing countries has spelt gloom. Consequent decline in commodity prices have resulted in lower export earnings, which left the latter countries high and dry.
Developing countries which depend on primary and processed products are hit hard. Countries like India and China that are large exporters of high skill commodities like computer software are facing serious problem due to decreased demand from developed countries resulting in lower prices for these products. For India, it is even a bigger problem because India is the land of IT outsourcing and a lot of large western companies outsource their IT services to Indian companies. So, it is obvious that the supply of works for Indian outsourcing companies will suffer until the crisis gets over.
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