Informal work in sub-Saharan Africa: Dead end or stepping-stone?

Michael Danquah,Kunal Sen,Simone Schotte

doi:10.2478/izajodm-2021-0015

Abstract

Abstract Despite rapid economic growth in recent decades, informality remains a persistent phenomenon in the labor markets of many low- and middle-income countries. A key issue in this regard concerns the extent to which informality itself is a persistent state. Using panel data from Ghana, South Africa, Tanzania, and Uganda, this paper presents one of the very few analyses providing evidence on this question in the context of sub-Saharan Africa. Our results reveal an important extent of heterogeneity in the transition patterns observed for workers in upper-tier versus lower-tier informality. Given the limited alternative job opportunities available, particularly to those in lower-tier informal self-employment who often remain locked in a situation of inferior pay and conditions, specific policies that seek to enhance the livelihoods of workers in this most disadvantaged segment may be more relevant in the sub-Saharan context than policies that aim to reduce the regulatory barriers to formalization.

Highlights

In classical accounts of economic development, economic growth is seen to be accompanied by a decline in informal employment
Within informal wage employment, one may observe workers employed as casual laborers in poorly paid unskilled jobs, at the lower end, along with skilled workers employed in better-paid jobs that are not covered by labor legislation or social protection provisions but require some professional training to obtain these jobs
We examine the likelihood of workers moving from lower-tier to upper-tier informal work and to formal work, as well as the earning implications of such transitions using comparable panel data for four countries in sub-Saharan Africa—Ghana, South Africa, Tanzania, and Uganda

Summary

Introduction

In classical accounts of economic development, economic growth is seen to be accompanied by a decline in informal employment. Informal workers range from multi-dimensionally deprived individuals in subsistence activities which exhibit low returns, are accessible, and are undesirable relative to formal sector employment to workers in activities that are better paid, exhibit barriers to entry, and may even be preferred to formal sector employment (Hayami et al, 2006; Fields, 2019). This internal duality between a “lower-tier” and an “uppertier” in informality can be observed both in wage employment and in self-employment

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