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Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities

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Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities

7th August 2018

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Introduction

The previous article discussed the size and impact of the South African informal sector, also distinguishing key policy-relevant features. Approximately 2.3 million people worked in the non-agricultural informal sector in 2013. (In 2018 it has reached 2.9 million.) At about 17% of total employment, one in every six South Africans who worked, worked in the informal sector – in approximately 1.4 million informal enterprises.

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We now consider how informal enterprises differ in respect of having employees or not, or being ‘survivalist’ or ‘growth-oriented’, and so forth. Distinguishing informal enterprises that have employees – and thus are not ‘own-account workers’ (one-person enterprises) – is particularly illuminating. Yet both multi-person and one-person enterprises play a significant role in employment creation.

* Using survey data on informal enterprises – in addition to labour-force data – brings a significant new dimension to the analysis of the informal sector. The millions of people in the informal sector all work in enterprises – whether one-person enterprises or enterprises with employees. This indicates the important institutional context in which these jobs exist: workers are either employees or owner-operators of enterprises.

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One-person and multi-person/employing enterprises  –  and institutional differentiation

Using QLFS data, Rogan and Skinner (Chapter 4 in the book) find that a sizeable component of those working in the informal sector are informal-enterprise operators that also generate employment not only for themselves but also for a million other workers.

More specifically, the enterprise-based data from the SESE (Survey of Employers and the Self-Employed), used in Chapter 5 in the book, reveal that approximately 80% of the 1.4 million informal enterprises are one-person enterprises and 20% are multi-person, employing enterprises (2013 data). This seems to suggest a sector dominated by own-account workers. However, if one looks at the number of persons working in the enterprises (rather than the number of enterprises), a different picture emerges from the data. Figure 1 shows the share of persons working in multi-person enterprises since 2001.

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