The Indian informal sector: The impact of globalization and reform

Abstract

Globalization and economic reforms typically affect the formal sector, the informal sector existing outside regulation. Yet, numerous links between them mean the informal sector is variously affected. Traditionally, the model used to explain the impact of these forces was labour market segmentation and migration: workers laid off in the formal sector increase informal labour supply, leading to wage decline and increased poverty. The author examines whether this pattern applies in India following economic reforms in the 1990s, and finds a more appropriate model, driven by expansion both in labour supply and in demand, through outsourcing, skill transfers and new enterprises. Copyright © The authors 2010.