The importance of the informal economy in Latin America and the Caribbean limits opportunities for growth and social welfare and corrodes the integrity of companies in the region.
Thats is the conclusion in a World Bank report made public Wednesday entitled, Informality: Exit and Exclusion.
The study reports that 54 percent of the people in urban regions of Latin America and the Caribbean exercising some kind of economic activity, do it in an informal way, or one that is somehow involved with employees in the informal sector.
While most choose their jobs voluntarily and are not actively looking for employment in the formal economy, most informal wage-earners (employees without any social security benefits) take those jobs because they did not find a position as a formal wage-earner, and were reportedly willing to change their occupation, indicated the study.
According to the study, the solution depends to a great extent on which way politicians in charge of Latin American countries orient their policies to improve conditions that drive productivity and expansion of the formal sector.
It further indicated the necessity to modify barriers, costs and benefits that support companies and workers from the region to work in a more formal business environment.
Among its recommendations, the World Bank said that there is a need to use a combination of sticks (improved enforcement) and carrots (perceived benefits) to create the incentives that induce more workers and firms to become formal.
For instance, it specified,
– through actions to facilitate new business registration,
– the simplification of tax laws,
– expansion of the benefits of formality (credit and market access, legal security, business development schemes),
– removal or reduction of labor market inflexibilities,
– improvement in the design and coverage of social security and social protection programs, with an evenhanded and determined law enforcement.
Kilde: www.worldbank.org
