What Determines Employment in the Formal and Informal Sectors of Pakistan? Primary Data Insights from Lahore

Abstract

In developing countries, despite the fact that a larger part of GDP is generated by the formal sector, most people earn and spend their lives in the informal sector. We identify the determinants of formal and informal sectors’ employment in the urban areas of district Lahore, by conducting a household survey in 2015. The multinomial logit model is used to analyze the data obtained from a sample of 309 workers. Our results indicate that personal, socio-economic and household factors are essential for regulating employment in both sectors. Furthermore, our findings provide evidence that employment in the sectors in question is significantly determined by the level of higher education, age, working experience of individuals, marital status, sound educational background of the parents of workers, the number of dependents and the presence of assets. The study also provides the policy framework to channelize employment opportunities in the urban labor market and advises the government to enhance the growth potential of workers by expediting the provision of higher education and other skill acquisition initiatives.