A LITERATURE REVIEW ON TRADE AND INFORMAL LABOUR MARKETS IN DEVELOPING COUNTRIES

Laura Munro Consultant to the OECD This report provides a summary of the literature on the relationship between trade and informality in developing countries, with an emphasis on the BRIICS. While main conclusions of the ILO and WTO (2009) literature review are highlighted, the report focuses on additional and more recent literature. The report investigates four key issues in the literature on trade and informal labour markets: (1) theoretical predictions for trade and informality; (2) how trade liberalisation affects informal labour markets; (3) how trade flows affect the informal economy; and (4) what implications informality has for trade and growth. The main conclusion from this review is that empirical evidence on the relationship between trade and informality is complex and context-specific. Several of the empirical analyses reviewed in this report suggest that this variation is due to countryspecific characteristics (in particular, labour market rigidity, capital mobility, level of economic development and heterogeneity of the informal workforce). Variation can also be partly explained by the fact that different methodologies are used and different measures of informality are employed across studies. JEL classification: F16 (Trade and labour market interactions). Keywords: Trade, employment, wages, inclusive growth.

THE DEPARTMENT OF LABOUR IS RESPONSIBLE FOR THE EFFECTIVE OPERATION OF THE LABOUR MARKET AS THE FOUNDATION OF ECONOMIC GROWTH. New Zealands economy has been greatly impacted by the global economic downturn, and its effects are being sharply seen in the labour market, as high levels of participation and low unemployment are being replaced by a contracting labour market and rising sunemployment. This operating environment poses many challenges, and positive labour market outcomes are therefore critical to support New Zealands economic recovery. The Department will respond to these challenges in a number of ways through its expertise in labour market economics, its regulatory and policy settings for employment, workplace health and safety and through managing the volume and mix of migrants to New Zealand. Our work programme needs to balance what is required to protect jobs for New Zealanders, limit recessionary impacts on the labour market and build the skills and workplace conditions that will increase productivity. Our global and national service delivery network provides the Department with up-to- date labour market intelligence. This will be used to advise Government and business on how best to address changing labour market needs and remedy any failures or inefficiencies identified in the labour market. This is key to delivering a flexible and resilient labour market that will keep New Zealanders in work and businesses operating maintaining standards of fairness and safety and putting in place practices that will improve productivity in the long term. A number of legislative reviews and a focus on cost drivers of injury prevention and rehabilitation for ACC will also be a priority for the Department. These aim to strengthen workplaces while reducing compliance costs.

Immigration services also need to respond to changes in demand in a way that will strengthen New Zealands labour market and economy. The Department will focus on what is needed to deliver a world-class immigration service and will continue addressing the performance issues that have been the focus of a number of reviews. Programmes will centre on improving efficiencies, strengthening core capability and processes, and delivering targeted initiatives that address short-term skill and investment needs. Organisational development goals have been established which I expect the Department to deliver by 2012. These will rebuild and improve our operating infrastructure and core systems, processes and capabilities that are essential to our service delivery. An ongoing priority for the Department is to ensure the cost-effectiveness of our work and to maximise the value it creates. Alongside core processes to measure savings and benefits, a programme of internal value-for-money reviews is being implemented that will produce a mix of additional efficiency and savings gains. This Statement of Intent sets out the Departments strategic direction and work programme for the next three years. We need to build a new momentum, and I look forward to leading the Department in implementing the Ministers priorities. The gains from optimal labour market performance will benefit all New Zealanders and will accelerate the growth of New Zealands economy. Christopher Blake Secretary of Labour