Discussant Comments to Informality: Exit and Exclusion OECD Development Centre Paris, 2 July, 2007 Janine Berg Economic and Labour Market Analysis Department International Labour Office, Geneva

Why has informality grown in Latin America? Report argues that it is a combination of Exit and Exclusion. A weak state that has failed to deliver to its citizenry. Too much emphasis on “burdensome” labour laws -- are they really so burdensome? Is the evidence so compelling? Too little attention paid to poor macro and meso policies (over appreciated exchange rates, hasty liberalization)

GDP growth has slowed

Reasons for Exit : Poor state benefits or low wages? CountryMicroenterprise worker Self-employed (low-skilled) Labour Force Avg. Argentina Brazil Chile Guatemala Mexico Nicaragua Source: Gasparini, 2003.

Real minimum wage in Mexico ( )  Weak bargaining, fall in wage share

Labour Market Reforms in Latin America in the 1990s Primarily aimed at deregulation: flexibility not “flexicurity” Introduction of temporary contracts, sometimes exempt of social security or severance (AR, BR, PE, CO, EC) Flexible working time (AR, BR, CO, DR, PE) Severance pay (increased scope for dismissal: CH, PE; reduction: AR, CO; increase: AR, CH, PE) Exemptions for SMEs (AR, BR, CO, PA) Minimum wages have fallen or stagnated in 12 out of 20 LAC countries

Women employed in a fish cannery, Argentina, Will we reduce informality by reducing their protections?

Understanding Labour Law Why it exists? To correct asymmetry in bargaining Statutory rights Process rights (voice) How it evolves Changes in the world of work require constant re- regulation of labour laws – not deregulation. Importance of social dialogue for designing adequate policies.

Conclusions Re-regulate labour market, don’t deregulate Introduce part-time contracts, work sharing arrangements Improve access of workers to formal jobs Importance of enforcement Introduce UI to eventually replace severance pay ‘Flexicurity’ not flexibility Importance of meso and macro policies, including an appropriate trade and investment policy

¡Gracias!