Abstract
The idea of dualism in the South African economy, characterized by a “first” and “second” economy has come to dominate government thinking in recent years. Using the panel component of the Labour Force Survey (LFS), the authors explore linkages between the formal and informal economy. Their analysis suggests that there is a high level of interaction between formal and informal work, at the lower end of the labour market. At the household level too, access to stable employment in the formal economy is associated with higher levels of earning in the informal economy. The findings have implications for poverty analysis in South Africa. Policy which views poverty as being located outside the mainstream of the economy – in the so-called ‘second’ economy – is misleading. Instead, an integrated approach which views poverty as linked to and a product of the trajectory and growth patterns of the South African economy is suggested as a more useful conceptualisation of poverty and inequality in South Africa.
Highlights
During the almost twenty years since the transition to democracy South Africa has adopted and implemented market-friendly economic policies; yet the gap between rich and poor is growing,1 there is uneven access to the labour market2 and unemployment rates remain high
“second economy” which has culminated in an impressive strategic framework
We argued that the economy is integrated and that, in part, the “two economies” idea allows government to justify its economic policies for the so-called first economy, even though little benefit accrues to most of the poor
Summary
During the almost twenty years since the transition to democracy South Africa has adopted and implemented market-friendly economic policies; yet the gap between rich and poor is growing, there is uneven access to the (middle class) labour market and unemployment rates remain high. “The second economy (or the marginalised economy) is characterised by underdevelopment, contributes little to GDP, contains a big percentage of our population, incorporates the poorest of our rural and urban poor, is structurally disconnected from both the first and the global economy and is incapable of self generated growth and development.” The notion of dualism in South Africa came to dominate the policy debate. The extent of this can be gauged by the fact that most government departments adopted some policy addressed at the “second economy”. “second economy” which has culminated in an impressive strategic framework. in the process of formulating this framework, stakeholders have questioned the idea that the first and second economies are disconnected:
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