Question

Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R). Assertion (A): Informal sector expansion in developing countries is linked to firms externalizing risk and labour costs. Reason (R): Outsourcing allows firms to bypass labour laws and shift employment insecurity onto workers. In the light of the above statements, choose the most appropriate answer from the options given below.

• A. Both (A) and (R) are correct and (R) is the correct explanation of (A).
• B. Both (A) and (R) are correct but (R) is not the correct explanation of (A).
• C. (A) is correct but (R) is not correct.
• D. (A) is not correct but (R) is correct.

Hint:

Informal sector expansion is associated with:
• Outsourcing.
• Contract labour.
• Subcontracting.
• Externalization of labour costs.
• Employment insecurity.

Answer 1

The Correct Option is A

Concept: The expansion of the informal sector in many developing countries is often associated with outsourcing, subcontracting and contractual employment. Firms reduce production costs by transferring employment risks and labour obligations to workers employed outside the formal sector.

Step 1: Examine Assertion (A). Many firms shift production activities to informal workers in order to:
• Reduce labour costs.
• Avoid long-term employment obligations.
• Minimize social security expenses.
• Increase flexibility. Therefore, \[ \boxed{\text{Assertion (A) is Correct.}} \]

Step 2: Examine Reason (R). Outsourcing and subcontracting often enable firms to avoid several labour regulations and transfer employment insecurity to workers employed on temporary or informal contracts. Thus, \[ \boxed{\text{Reason (R) is Correct.}} \]

Step 3: Determine whether (R) explains (A). The outsourcing of production is one of the major reasons behind the expansion of the informal sector. Hence, \[ \boxed{ \text{Reason (R) correctly explains Assertion (A).} } \] Therefore, \[ \boxed{\text{Correct Answer}=(A)} \]