The mismatch between the impressive growth rates of the recent past and the abysmally low living standards of the majority in the developing world is again in the spotlight, this time by a joint report of the World Trade Organisation and the International Labour Organisation focussing on conditions outside the formal economy. With estimates suggesting that states with above average-sized informal economies are three times more likely to suffer the adverse effects of economic shocks than those with lower rates, the all-important need to reduce labour market vulnerabilities in the context of global slowdown should be self-evident to policy makers and industry. In addition, low export diversification is a characteristic of large informal economies, a situation that advocates of greater integration of global trade would do well to bear in mind. Although the share of global trade, at 60 per cent of the gross domestic product in 2007, was more than twice the figure for the 1980s, there has not been a corresponding improvement in several indices of human development, says the study. About 60 per cent of employment in developing countries is concentrated in the informal sector of the economy, characterised by the absence of job security, meagre incomes, and the persistent lack of access to social benefits, education, and training opportunities. Conversely, there has been a noticeable increase in the premium on skills even in emerging economies because international investment from big corporations is strongly linked to the demand for highly skilled manpower. Moreover, the bias in favour of high calibre skilled personnel, driven by technological change, has marginalised the need for low-skilled labour and accentuated the adverse impact on living standards.
Leveraging the gains of globalisation is an imperative for developing countries that have to contend with chronic poverty, rising expectations and social inequity, not to mention the need to factor in the challenges posed by climate change, even as they strive to raise growth rates. The answers lie in addressing the prerequisites to absorb the effects from exposure to external economic shocks, especially vulnerabilities in the labour market. A greater impetus to enhance the quality of education at all levels is no less a priority. Governments should respond to these challenges without prevarication and foot-dragging. More of the requisite political will has to be displayed to create structures that will enhance the incomes of the workforce and provide social security.