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1100 GENEVA TIME ( 0900  GMT) 12  OCTOBER 2009  
 
PRESS/574 
12 October 2009 
 
(09-4942) 
 
  
ILO, WTO JOINT STUDY ON TRADE AND INFORMAL EMPLOYMENT  
Informal employment curbs trade benefits for developing 
countries  
GENEVA (ILO/WTO News) -- A joint study from the International Labour Organization and the WTO 
has found that high incidence of informal em ployment in the developing world suppresses 
countries' ability to benefit from trade opening by creating poverty traps for workers in job 
transition.   
The study is a product of the collaborative research programme of the ILO International Institute 
for Labour Studies and the WTO Secretariat. It focuses on the linkages between globalization and informal employment and finds that informal em ployment is widespread in many developing 
countries, leaving thousands of workers with almost no job security, low incomes and no social 
protection. Levels of informality vary substantially across countries, ranging from as low as 30% in some Latin American countries to more than 80% in certain sub-Saharan African and South Asian 
countries.  
 “The study confirms what we know from experi ence, that by promoting complementarity between 
decent work objectives and trade, financial and labour market policies, developing countries are 
much better placed to benefit from trade opening,  advance the social dimension of globalization, 
and to cope with the current crisis” said ILO Dire ctor-General Juan Somavia. He added that this 
echoes the recent call by the G20 to implement "recovery plans that support decent work, help 
preserve employment, and prioritize job growth....and to continue to provide income, social protection, and training support for the unemployed and those most at risk of unemployment." 
 
Informal employment involves private, unregistere d enterprises which are not subject to national 
law or regulation, offer no social protection and involve self-employed individuals, or members of 
the same household. In most cases, informality has remained high and has even increased in 
some countries, particularly in Asia.  PRESS/574 
Page 2 of 2 
 
 
 "Trade has contributed to growth and development worldwide. But this has not automatically 
translated in an improvement in the quality of employment. Trade opening needs proper domestic 
policies to create good jobs. This is all the more evident with the current crisis which has reduced trade and thrown thousands into informal jobs," said WTO Director-General Pascal Lamy.  
The analyses on the effect of trade opening on th e size of the informal economy suggest that the 
effect of trade opening on informality depends crucially on both country-specific circumstances and the design of trade and domestic policies. The empirical analysis in this study shows that more open economies tend to have a lower incidence of  informal employment. The short term effects of 
trade reforms may in the first instance be associat ed with higher informal employment. But longer 
terms effects point in the direction of a strengthen ing of formal sector employment, provided that 
trade reforms are more employment friendly and the right domestic policies are in place.  
 Reducing informality can release additional productive forces, enhance diversification and strengthen the capacity to trade internationally.  Adverse effects of informality can mainly be 
related to the absence of productivity gains and low average firm size resulting from barriers to firm growth in the informal economy. Entrepreneur ship and risk-taking is reduced when informality 
is high, partly as a result of badly designed tax systems, weak social protection and poor business regulation. Informality also prevents countries from  fully benefiting from trade reforms by creating 
poverty traps for workers in job transition.   The higher the incidence of informality, the greater the vulnerability of developing countries to shocks like the ongoing global crisis. Countries  with larger informal economies suffer more 
frequently from shocks and experience lower sust ainable growth rates. Al so, informal employment 
reduces the effectiveness of automatic stabilizers.  Integration into world markets and tackling informal employment through decent work policies should be considered complementary. 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. Social protection is also crucial for supporting transitions and realising the gains from open trade. Greater attention should be devoted to social protection policies as well as to the design of trade reforms.    The study suggests that trade reforms should be designed and implemented in an employment-friendly way, making the realloca tion of jobs more conducive to formal employment growth.    
 The study is available online at www.wto.org. 
 
 
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