Informal-formal transitions in work status in sub-Saharan Africa: A comparative perspective

Abstract

Informal forms of economic activity is the norm in many sub-Saharan African countries. Most businesses are informal in the way they operate, and major and essential economic activities are dominated by informal businesses. An important question 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 chapter examines the likelihood of workers moving from lower-tier to upper-tier informal work and to formal work (and vice versa), as well as the earning implications of such transition. Our results reveal that informal workers in the lower tier, particularly workers in lower-tier self-employment tend to remain locked in this tier of informality. We find a significant earnings gain for workers who make the transition from lower-tier to upper-tier employment. Policymakers would therefore need to devise specific policies that seek to enhance the productivity of lower-tier informal works.