Competing Perspectives on the Latin American Informal Sector

Abstract

Employment in the informal sector generally connotes various forms of precarious or subterranean employment concentrated in urban areas primarily in developing countries. The informal economic developed in response to post-World War II urban labor surpluses generated by high population growth and accelerated rural-urban migration associated with the adoption of import substitution industrialization. National governments and international development agencies have recently given a great deal of attention to this notion of informality. Many programs have especially been implemented in Latin America with the goal of improving conditions in the sector. This paper reviews successive conceptualizations of the informal sector in Latin America; describes the measurement strategies used to study the sector; and examines ways in which the current state of knowledge about the informal sector affects development policies. Competing definitions of the phenomenon make it difficult to identify sector boundaries internal dynamics and needs. These different views therefore lead to the formulation of differing policy recommendations. On the one hand it is desirable to completely absorb the labor force into the formal sector but this will not happen unless rigid labor rules are relaxed. It is equally desirable to transform subsistence activities into dynamic autonomous small firms but this also will not result by simply removing state controls without the aid of sustained support programs. Policy alternatives from the structuralists however combine greater flexibility in existing labor codes with active programs in support of small entrepreneurial development. When working with developing enterprises it is stressed that entrepreneurial incubators should be extremely flexible decentralized and adapted to the needs and skills of local communities. Moreover attention should be paid to the social ties and community bonds present among informal artisans and merchants.

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