External financial liberalization has led to a surge in international capital flows since the early 1990s. In spite of reserve accumulation, many developing countries have experienced greater economic volatility and full-scale financial crises since the early 1990s with a considerable impact on GDP and long-term growth prospects. This paper shows that volatility in international financial markets has been one of the most harmful factors for enterprises and labour in developing countries and labour has suffered disproportionately as labour market indicators typically lack economic recovery. Furthermore, the labour share in national income is typically eroded during a financial crisis. Hence, the paper suggests how greater policy coherency between international and national financial, economic and employment policies can give greater attention to employment and incomes.

NOTE:
This paper is originally an ILO paper which the author has permitted to be reoffered as an IDEAs conference paper.

March 10, 2007.