Labour and Labour-Related Laws in Micro and Small Enterprises: Innovative Regulatory Approaches

SEED Working Paper No. 81

States face difficult policy choices in developing labour regulation for MSEs. They must balance the twin - and apparently competing - goals of improving job quality while promoting and rewarding entrepreneurship and economic growth. States must address the challenge of developing the best method of regulating, and so of moving toward achievement of their important policy goals as well as proper functioning of the markets.

The findings of this study suggest that States neither must nor should simply exclude MSEs from the application of labour laws. The exclusion of MSEs from labour law only deprives MSEs of the benefits that flow from workers experiencing better job quality. From the point of view of development theory, a State that takes this approach fails to ensure that it is developing its citizens' human capabilities: it thereby fails them as individuals, and society as a whole.

This study identifies a number of innovative regulatory approaches that States have adopted to try to achieve the goal of applying labour and labour related laws to MSEs, without imposing significant costs upon them. Some States have adopted legislative measures to redefine the scope of the employment relationship in broader terms. Others have taken a 'staged' approach, for example gradually extending the scope of social security schemes to ensure that over time they include MSEs. A number of States have developed special agencies or units within their labour administration that have particular responsibilities for the promotion of labour law and its application to MSEs.