Economic Liberalisation, Informal Wage and Skilled–Unskilled Wage Inequality
Informal labour market characterised by competitive wage formation rather than unionised process of negotiations has emerged as an important institution in the entire developing world. The ongoing process of economic reforms has boosted significantly the role played by informal sectors in determining the pattern of employment in the developing countries. Many of the developing countries have been facing substantial adjustment costs in implementing economic liberalisation programmes, particularly in the employment front. Empirical evidence suggests that in South Africa and in many of the Latin American and other developing countries, trade liberalisation during the 1990s was associated with falling employment and hence economic insecurity for the formal sector labour force (ILO, 2006). Reformatory policies lead to contraction of the formal manufacturing sector and drive labour out into the informal segment of the labour market.