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Informal Sector And Social Development In The Context of Globalization

Written by: Prof.K. Uma Devi and Dr. V. Sowbhagya Rani - Professor of Law - Department of law, SPMVV. Tirupati
NCLT Lawyers in India
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  • Globalization means different things to different people. In its broader sense, the term encompasses all types of economic and cultural transfer between nations. In a narrower sense it refers to the economic exchange of goods and services internationally and international financial flows. Globalization process was initiated to accelerate economic growth through enhanced internal and external competition, privatization and trade liberalization. It includes measures to reduce domestic credit expansion in general fiscal deficit in government expenditure in particular, and to divert resources towards relatively more productive private sector.

    Global trade and investment patterns are having a dramatic impact on employment relations and work arrangements around the world. The impact can be both negative and positive and differs by context, by industry and trade and employment status. Some of those who work in the informal sector have been able to find new jobs or new markets for their products while others have lost jobs and markets. Many workers have seen their wage decline their working conditions deteriorated or their workloads increased.

    In the wake of Globalization and resultant financial crisis employment in the informal sector has risen rapidly in all regions of the developing world and various forms of non-standard employment have emerged in most regions of the developed world. Even before the Asian crisis, official statistics indicated that the share of the informal sector in the non-agricultural workforce ranged from over 55 percent in Latin America to 45-85 percent in different parts of Asia to nearly 80 percent in Africa.

    Globalization and Informal Sector:

    There is no simple answer to this question as different casual factors at work in different contexts. The first set of factors relate to the pattern of economic growth. Some countries have experienced little or no growth or jobless growth. In both cases not enough jobs are created for all those seeking work. Many frustrated formal job seekers find employment or create their economic growth “high tech” growth- tends to create more high skill service sector jobs than lower-skill manufacturing jobs. In such circumstances who without the skill to compete for high tech jobs find work or continue to work in the informal sector. The second set of factors have to do with economic restructuring and economic crisis. During the periods of economic crisis, the informal sector tends to expand. This is because retrenched workers move into the informal sector when public enterprises are closed or the public sector is downsized.

    The third set of factors relates to the Globalization of the world economy. Global trade and investment patterns tend to privilege capital, especially companies that can move quickly and easily across borders, and to disadvantaged labour, especially lower skilled workers that cannot migrate easily or not at all. To increase their global competitiveness, more and more investors are moving to countries that have low labour costs or shifting to informal employment arrangements. Further more there has been a radical restructuring of production and distribution in many key industries characterized by outsourcing or subcontracting through global commodity chains. The net result is that more and more workers are being paid very low wages and many of them have absorbed the non-wage costs of production. In sum, Globalization put pressure on low-skilled workers and petty producers by weakening their bargaining power and subjecting them to increasing competition.

    Social Impact of Globalization:

    There is a link between working in the informal sector and being poor. Average incomes are lower in the informal sector than in the formal sector. As a result, a higher percentage of people working in the informal sector, relative to the formal sector are poor. Informal incomes worldwide tend to decline as one move across the following types of employment- from employer to self-employed to informal and casual wage workers to industrial out workers. The link between working in the informal sector and being poor as stronger for women than for men. A higher percentage of women than men worldwide work in the informal sector. Moreover there is gender gap in income and wages in the informal sector. This is because women worldwide are under –represented in higher income employments in the informal sector and over-represented in the lower income jobs i.e., casual wages worker and industrial outworkers. Even within the same trade or employment statuses.

    Available evidence suggests that Globalization of the economy tends to reinforce the links between poverty, informality and gender. This is because global competition tends to encourage formal firms to shift formal wage workers to informal employment arrangements without minimum wages, assured work, or benefits and to encourage informal units to shift workers from semi-permanent contracts without minimum wages or benefits to piece-rate or casual rate arrangements without either assures work, minimum wages or benefits. Globalization can also lead to new opportunities for those who work in the informal economy in the form of new jobs for wage workers or new markets for the self-employed. However, the collaborative efforts on the part of grass root organizations of those who work in the informal sector with sympathetic representatives of non-governmental organizations.

    Globalization and Its Impact on Women:

    The benefits of competitive markets and other mainstays of globalization such as information technology have been skewed towards the elite minority of women. The markets, tools and rules of this global era have railed to relatively affluent women are able to take advantage of the increased opportunities for work that come with the influx of foreign firms. Conversely, poor, less educated and credit and rural informal sectors may not see many of the benefits of globalization at all.

    Richer and educated women have gained from globalization, but the vast majority of women have so far been sidelined in the global system. The raising tide globalization has not lifted all women. As a matter of fact, globalization tends to increase income inequality between different sectors and groups.
    In addition, it is expected that unemployment will increase due to downsizing associated with the race to become more competitive. Most of those loosing jobs are unskilled while their jobs are hired by highly skilled.

    Women work in the informal sectors mainly means casualisation of work. That is to say flexible working hours often means greater insecurity, reducing in working hours and pay, changes in shifts, loss of national insurance benefit, loss of overtime bonus and loss of holidays, maternity leave, sick pay and pension.
    In the era of globalization women entered the labour market in greater numbers than ever before but their work is casualised.

    World bank also acknowledges that “women workers often more vulnerable than men, disproportionately concentrated in low wage sectors or occupations and often segregated into the informal sector. Not surprisingly their relative position ha often deteriorated during structural adjustment.

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