Chapter 6 : The Informal Sector

Informal sector

Types of employment where people find work for themselves (sometimes illegally) on the streets or in small home workshops. All developing countries have a large informal sector.

Growth of SA's informal sector

Grew from 1 million (1996) to 2,5 million (2011) - about one-fifth of the labour force; 3,8 million including domestic workers. Earnings are estimated at ~7% of GDP.

Why did the informal sector grow rapidly in the 1990s?

Mining, farming and manufacturing were not growing fast enough to absorb new workers entering the labour market. Since 2000 the formal sector expanded and the informal sector stabilised.

Characteristics of informal sector work

People are self-employed; family (including children) may help; wages are uncertain and hours long; mostly roadside/stall selling or domestic work; low capital use; small profit margins; and little trade-union protection, insurance or tax.

Services offered in the informal sector

Trading, car-guarding, domestic cleaning, doing odd jobs and providing casual labour.

Reasons for high informal sector employment in SA

High formal unemployment (people who cannot get a job make one for themselves), and people who leave formal jobs to work part-time (childcare, pregnancy, study, relocation, retirement).

Unemployment definitions (2011)

Narrow definition = 25% (people without a job actively looking); broad definition = 37% (people who want a job whether or not actively looking).

Proportion (key word)

The relation of one thing to another in number or size.

Challenges facing the informal sector

Difficult to access a 'pitch' (limited and often controlled by people charging protection fees); rising competition (growing youth population, immigrants, recession pushing more people in); it can increase poverty; and stress on government social-grant funding.

Pitch

The area or place on a street or in a market where an informal worker (hawker) works - e.g. a car park, intersection or corner.

Economic recession

A period of temporary reduction in business activity; during recessions more people lose formal jobs and crowd into the informal sector.

How a large informal sector can increase poverty

The formal and informal sectors depend on each other; if the formal sector shrinks too much, informal traders lose business and prosperity, and limited government grants cannot support everyone.