Formal/Informal Linkages in South Africa: Some Considerations

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

To know how the economy might meet the target of halving unemployment by 2014, the Employment Scenarios project investigated how the informal sector might grow. How much of the employment target is likely to be reached through growth in the informal economy? Is the informal sector likely to continue growing in the period leading up to 2014? Most important for the project was 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 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 the formal sector expands sufficiently? Valodia discusses the different ways of defining the informal sector, and then provides an overview of international literature, finding that the specific relationship between formal and informal sectors depends considerably on context. He then provides a brief overview of the informal sector in South Africa, for which empirical evidence is limited. Finally, he suggests a few plausible hypotheses or research questions that may be explored.