A panel data analysis on the formal-informal sector linkages in South Africa
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Date
2017
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Publisher
University of the Western Cape
Abstract
There are few studies on linkages between the formal and informal sectors in South Africa.
This study explores the types of linkages between the informal and formal sectors with
empirical research concentrating on labour churning (movements between the informal and
formal sectors). Using National Income Dynamics Study (NIDS 2008-2014) data from four
waves, individuals are classified into labour market statuses based on the Heintz & Posel
(2008) methodology. This study conducts labour market transitional matrices and finds
formal employment to provide the most stability in terms of employment. The main focus is
on the following three groups of employed: working in the formal sector in all four waves;
working in the informal sector in all four waves; moving between the formal and informal
sectors across all four waves. For those always working in the formal sector, they are
predominantly females and Africans. Those who always work in the formal sector are most
educated, while those always working in the informal sector are associated with low
educational attainment. The descriptive statistics are followed by econometric analysis: in
terms of attaining employment, being male and a higher educational attainment significantly
increase the probability of finding employment. In terms of sustaining work, the same two
covariates significantly increase the probability of sustaining work. Being the head of
household is also a key covariate in significantly increasing the probability in maintaining
and sustaining employment. In terms of transitioning to formal employment, being male, an
increase in education and living with a partner (married or unmarried) significantly increase
the probability of moving to formal sector employment. In addition, multinomial logistic
regressions are conducted, and the results indicate that being a male significantly increases
the probability of working in the formal sector for all four waves. Africans are also
significantly more likely to be employed informally for all four waves and an increase in the
years of education significantly increases the probability of being formally employed for all
four waves. The household-level variables reveal that being the head household significantly
increases the probability of being employed (especially formally employed for all four
waves) while having children has a negative impact on being employed for all four waves.
Description
Magister Commercii - MCom (Economics)