Thursday, August 09, 2012

Formal and informal labor

In an otherwise unremarkable Wall Street Journal article comparing the Mexican and Brazilian economies, this little nugget that underlines the often poor understanding of developing economies.

What could trip Mexico, though, is if a new government elected in July doesn't undertake labor reforms to unify its "formal" and "informal" labor pools, the report said. Formal is defined as organized labor that is expensive, while informal labor is free of associations but is also unskilled.

This is wrong on numerous levels, though to be fair I don't know if the misunderstanding is the Nomura Group, which wrote the report, or the reporter. Regardless:

  • Formal vs. informal refers to legality, not expense or skill.
  • Formal labor is not necessarily organized. In fact, it often isn't.
  • Organized labor is not always expensive, though we could quibble about the definition
  • Reforms should make informal labor more formal. I am not sure if that what is meant by "unify." The tone of the article hints at the opposite, with references to "investor-friendly policies."
  • Informal labor is not necessarily free of associations, e.g. landless movements in numerous countries


Russell,  10:32 AM  

Well done. Pretty sad that you had to make this correction to a story in the primary business paper in the U.S.

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