Cycling between vice and virtue: Assessing the informal sector's awkward role under neoliberal reform

Abstract

ABSTRACT The rise of informal labour activities in Latin America in the era of neoliberal reform has necessitated a revision of earlier accounts which argued that low-paying informal work resulted primarily from excessive government regulation of product and factor markets. Under market-oriented adjustment and stabilization policies that promoted trade and capital market reform; altered the relative prices of capital and labour; and fostered greater degrees of labour market ‘flexibility’, the informal sector grew. In response, the revisionist argument transformed informal activity from an indication of systemic vice to that of systemic virtue. In the presence of growing structural unemployment, rising income inequality, and stagnant or falling real wages for many, the argument that proceeded from virtue is found wanting and marked by mis-specification and contradiction. Instead, and given the discrepancy between the progress of labour productivity and the weakening of real wages in both the formal and informal sectors, a case is made that the emerging system is both sectorally and socially disarticulated along the lines enunciated years earlier by Alain de Janvry and others.