Informality and Inequality: The African Case

Abstract

Despite the importance of labour markets in shaping inequalities, the literature linking the informal sector to income inequalities is scarce. In this article, we examine this linkage on the African continent, where informality has both been deemed a development curse, and lauded as a potential engine for growth. Recognising a multitude of mechanisms affecting both concepts, we investigate the link in two settings: using a panel of country data ranging from 1991 to 2015, and using a series of surveys on the informal sector from seven West African capitals. Focusing on the prism of social redistribution, we find evidence that a smaller informal sector has marginally contributed to reducing income inequalities but find no evidence that social redistribution has played a role in this evolution.