GS3 PYQ (Mains Answer Writing): Globalization | Indian Economy for UPSC CSE PDF Download

How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (UPSC MAINS GS3 )

Over recent decades, conditions for working people in developing countries have undergone a major transformation. This has been the substantial rise in the proportion of people engaged in what is termed “informal” employment, generating a broad trend toward “informalization” of labour market conditions in developing countries.

• Informal forms of employment include, for example, agricultural day labourers, urban street vendors, paid domestic work, or at-home producers of clothing or other manufactured goods. A high proportion of informal workers are self-employed. In most countries, women are disproportionately employed in such informal jobs. 
• The promotion of success in export markets and the ability to attract foreign direct investment is a fundamental element of a neoliberal strategy. Maintaining low labor costs is generally regarded as a central feature—and often the single dominant element—for successfully promoting exports and multinational investment. 
• Thus, in the name of encouraging trade and foreign investment, the explicit goal of government policy under this policy regime will be to limit the ability of workers to capture the benefits of productivity improvements as increases in employment income, to reduce social and legal protections, and to weaken workers’ bargaining power—that is, to induce workers to accept jobs with lower pay. 
• The competitive pressures resulting from increasing an economy’s degree of international integration will further strengthen these tendencies. Furthermore, pressures to increase the productivity of currently employed workers will reduce the number of employment opportunities generated by a given level of output growth, thereby limiting the growth of formal employment relative to informal employment. 
• With the advent of globalization and resultant reorganization of production chains led to a situation where production systems are becoming increasingly atypical and non-standard, involving flexible workforce, engaged in temporary and part-time employment, which is seen largely as a measure adopted by the employers to reduce labour cost in the face of stiff competition. 
• No doubt, it obviously indicates that these flexible workers in the new informal economy are highly vulnerable in terms of job security and social protection, as they are not deriving any of the social protection measures stipulated in the existing labour legislations. The insecurities and vulnerabilities of these modern informal sector labour are on the rise, as there is a visible absence of worker mobilization and organized collective bargaining. 
• Informal work arrangements are able to flourish when workers have few alternative economic opportunities—that is, weak fall-back positions in bargaining situations with employers. Considering only formal employment situations, the wage at which workers are willing to accept jobs will depend in large part on the other job opportunities available to them. As such, informalization will also place downward pressure on wages and working conditions in formal jobs as well. 
• Thus, the process of informalization proceeds in part through a vicious cycle: a relatively high proportion of informal jobs make it increasingly difficult for workers to bargain for decent wages, working conditions and social protections, so that what had once been formal jobs become increasingly informalized over time.

Topics Covered - Globalisation and Employment