In a globalised world, recessions strike formal sectors more swiftly, which when adopting cost-cutting measures retrench regular workers with higher non-negotiable wages. An economywide computable general equilibrium (CGE) model with different labour market closures has been used to study the impact of such a recession on labour productivity. Results show that labour productivity is more adversely affected when regular wages are increasingly rigid. Because of such wage rigidity, many formal workers lose jobs and tend to join the informal labour force. As a result, formal workers are transformed into informal workers, thereby transforming to low-productivity wage earners. They earn less and create lower demand compared with the earlier situation and affect overall growth. A rise in the number of informal workers exerts downward pressure on casual wages, which fall on the average. The stylised model findings show that global slowdown causes casual wages to decline, increasing wage and productivity inequalities between the formal and informal labour markets.
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