Labour markets in developing countries While most research in labour economics focuses on the US and Western Europe, the majority of the world's population and particularly of the poor and the youth live in countries where labour markets often function quite differently. This special issue is intended to stimulate and promote research on employment and labour economics in developing countries. In many developing countries, labour markets are characterized by a large informal sector, many small-scale production units, household firms and farms, labour supply decisions of large households, limited coverage of social protection and insurance, often large uninsured risks such as natural catastrophes, etc. The stock of knowledge on how labour markets function and how policies, labour markets, incomes and poverty interact is certainly much lower than for developed countries. At the same time, given the still high levels of poverty, hunger, sickness, violence and bleak outlooks due to climate change and population growth, knowledge would be even more valuable. In developing and particularly in the low income countries, labour markets have for long been characterised by weak demand for labour due to stagnant growth performance and unprecedented supply of labour fuelled by population growth. Partly due to globalisation and the rapid economic transformation of the BIC (Brazil/India/China) countries, in recent decades growth has improved considerably in most of the developing world, also boosting labour demand. Nevertheless, labour demand is often still far from matching the level of labour supply in countries with growing populations. The labour markets in developing countries also have several aspects that make them different from what labour economics has dealt with traditionally. These include: the existence of large urban informal sectors; a huge agricultural sector with small-scale farming activities as the mainstay in many cases; high levels of rural–urban migration; high levels of unemployment and underemployment; weak private sectors and a low productivity enterprise culture often involving micro- and household-enterprises with unpaid family workers; small capital stock; social pressure and social obligations that limit incentives for firms to grow; lack of empowerment of women and the youth in particular; rampant child labour; poor quality of human capital also due to poor education and poor health systems or low nutrition. Such differences are also visible in labour relations, with a higher fraction of casual versus permanent labour contracts, as well as “coercive” labour relations (Acemoglu, 2011, Econometrica). A related issue has to do with (formal) labour market institutions and regulations often being weak or non-existent, particularly in the poorest countries. There is often limited coverage of social protection and insurance. In addition, the social protection systems are often tailored to the formal sector, thus poorly protecting the large share of people working in the informal sector. Furthermore, attempts to reach out to the informal sector have many times generated further distortions. The existing stock of knowledge on how labour markets operate and, generally, how labour market policies and institutions influence incomes, levels of poverty and social welfare and mobility is more limited for developing countries than for rich European and North-American countries. At the same time, it is in the developing world that high levels of absolute poverty and its usual manifestations such as hunger, ill health and violence exist and have to be addressed. It is also in the developing world where one finds the ‘lands of conflict or broken states’, to use the words of the World Development Report 2011 (World Bank, 2011), where millions get displaced from their livelihoods and jobs due to conflict. These aspects, together with labour often being the only asset for most people in the developing world, underscore the daunting task awaiting research in labour economics to influence changes in lives and livelihoods. The recent financial crisis may also remind us that a quick solution to all these problems is unlikely to be expected soon. After an unprecedented economic boom in the developing world thanks to globalisation and, in particular, the influence of the BIC (Brazil/India/China) countries, the great recession that started in 2008 in the US is still lingering across most of the developed world. This recession is also threatening to wipe out some of the progress made in the developing world in terms of jobs and employment in recent decades. ILO's latest Global Employment Trends (ILO 2011) report a stagnation in progress in reducing vulnerable employment and slowed progress in reducing working poverty in the developing world. Lack of social security and effective institutions to deal with the consequences of the economic crisis adds to the affliction of the lives of millions in the developing world. Empirical research on labour markets in developing countries is often complicated by less reliable and imperfect data, making the precise estimation of policy impacts and causal effects difficult. For most low income countries one can only dream of good quality longitudinal data, linked employer–employee data and administrative register data with large sample sizes and low measurement error. Primary data collection on firms in the informal sector or of longitudinal data on households and individuals is not an easy and costless task. In addition, there does not yet seem to be a consensus on the most appropriate theoretical model for labour markets in developing countries. For example the debate on whether informality is voluntary or involuntary is still on-going, and while it is easy to agree that some people are voluntarily and others are involuntarily informal, this does not help for policy making. Models need to incorporate both facets, and then not only test whether they are true but also quantify the effects of possible reforms. For informed policy making one would therefore require an even larger stock of research results than for developed countries, even more so once one acknowledges the large heterogeneity across developing countries. Equally important is the need to strengthen the interface between research and policy making in the developing Labour markets in developing countriesLabour Economics 18 (2011) S2–S6 Labour Economics 18 (2011) S2–S6 0927-5371/$ – see front matter © 2011 Elsevier B.V. All rights reserved. doi:10.1016/j.labeco.2011.10.003 Contents lists available at SciVerse ScienceDirect Labour Economics journal homepage: www.elsevier.com/locate/labeco