ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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A Contemporary Perspective on the Informal Labour Market: Theory, Policy and the Indian Experience

This article looks at the substantial literature that has emerged in recent times on the impact of globalisation, reform and deregulation on the informal labour market, in terms of theory and accompanying empirical evidence. Growth of real informal wage and productivity across all states in India since the early 1990s is an interesting starting point. While it is not a foregone conclusion that a liberal economic environment necessarily benefits such sectors, marketfriendly policies can improve the real income of informal workers and thus can have a substantial effect on urban poverty. Some supportive evidence to this effect has led to analytical models that investigate these issues closely. The analysis here shows that deregulated economies may benefit the informal workers, by raising both wages and employment under certain conditions that depend on inter-sectoral capital mobility. In the process, agriculture and formal manufacturing may suffer. Labour and commodity market reform may have different and contradictory impact on informal labour. Organisational changes in production in a more open economy increase the degree of specialisation, help informal entrepreneurs, and promote exports. Lower tariffs and lower interest rates have opposite impacts on the informal segment of import competitive industries.

undergoes a complete reversal if capital is perfectly mobile and is represented by a horizontal line MM (Figures 2 and 3). Retrenchments from the formal sector and additional job creation in the informal could even lead to a wage gain for the informal

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