Formal / Informal Linkages in South Africa: Some Considerations

by VALODIA,I., 2006
Research Report, Employment Growth & Development Initiative, Human Sciences Research Council

Informal employment in South Africa grew from 965,000 to just over 2.3-million workers between 1997 and 2005, rising from about 10% to 18% of the employed workforce. Notwithstanding the difficulties and debates about data issues, it is widely accepted that informal employment grew rapidly in the late 1990s, and stabilised in the 2000s. In this paper, Valodia considers how the informal sector might contribute to employment growth going forward, as part of the Human Sciences Research Council Employment Scenarios. How much of the employment target is likely to be made by growth in the informal economy? Is the informal sector likely to continue growing in the period leading up to 2014? Most important for the ES project is to untangle the relationship between the formal sector and the informal sector in South Africa, and to assess whether the relationship is likely to continue as is or likely to change in the period leading up to 2014. Now that the informal sector has reached a significant scale, would it be expected to grow in alignment with the formal sector? Or might it shrink if there is success in expanding the formal sector? Valodia begins by discussing some definitional and measurement issues, examines the international literature on formal-informal linkages, assesses some known trends in South Africa and, finally, suggests a few plausible hypotheses for further exploration.