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Informality in Manufacturing and the Economy OCCASION This publication has been made available to the public on the occasion of the 50th anniversary of the United Nations Industrial Development Organisation. DISCLAIMER This document has been produced without formal United Nations editing. The designations employed and the presentation of the material in this document do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. Designations such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of firm names or commercial products does not constitute an endorsement by UNIDO. FAIR USE POLICY Any part of this publication may be quoted and referenced for educational and research purposes without additional permission from UNIDO. However, those who make use of quoting and referencing this publication are requested to follow the Fair Use Policy of giving due credit to UNIDO. CONTACT Please contact [email protected] for further information concerning UNIDO publications. For more information about UNIDO, please visit us at www.unido.org UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna International Centre, P.O. Box 300, 1400 Vienna, Austria Tel: (+43-1) 26026-0 · www.unido.org · [email protected] working paper 08/2013 Informality in manufacturing and the economy UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION DEVELOPMENT POLICY, STATISTICS AND RESEARCH BRANCH WORKING PAPER 8/2013 Informality in manufacturing and economy Bill Gibson John Converse Professor of Economics University of Vermont UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna, 2014 Acknowledgements This working paper was prepared by Bill Gibson, John Converse Professor of Economics, University of Vermont, as a Background Paper for the UNIDO Industrial Development Report 2013. The paper was written with extensive help from Diane Flaherty, Economics, UMass, Amherst, who was principally responsible for the section on subcontracting and contributed to Acknowledgementsthe analysis of the remaining sections as well. Michael Ferris and Reginald Minott contributed with research assistance. Thanks also to Ascha Pedersen who provided detailed comments on an Thisearlier working draft. paper was prepared by Bill Gibson, John Converse Professor of Economics, UniversityData for replication of Vermont, of regressions as a Background are included Paper http://www.uvm.edu/~wgibson. for the UNIDO Industrial Development Report 2013.Key wordsThe andpaper phrases. was written Informal with sector, extensive employment. help from JEL Dianecodes: Flaherty,O17, E17. Economics, UMass, Amherst, who was principally responsible for the section on subcontracting and contributed to the analysis of the remaining sections as well. Michael Ferris and Reginald Minott contributed with research assistance. Thanks also to Ascha Pedersen who provided detailed comments on an earlier draft. Data for replication of regressions are included http://www.uvm.edu/~wgibson. Key words and phrases. Informal sector, employment. JEL codes: O17, E17. The designations employed, descriptions and classifications of countries, and the presentation of the material in this report do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries, or its economic system or degree of development. The views expressed in this paper do not necessarily reflect the views of the Secretariat of the UNIDO. The responsibility for opinions expressed rests solely with the authors, and publication does not constitute an endorsement by UNIDO. Although The designations employed, descriptions and classifications of countries, and the presentation of the great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its member material in this report do not imply the expression of any opinion whatsoever on the part of the Secretariat States assume any responsibility for consequences, which may arise from the use of the material. Terms of the United Nations Industrial Development Organization (UNIDO) concerning the legal status of any such as “developed”, “industrialized” and “developing” are intended for statistical convenience and do country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or not necessarily express a judgment. Any indication of, or reference to, a country, institution or other legal boundaries, or its economic system or degree of development. The views expressed in this paper do not entity does not constitute an endorsement. Information contained herein may be freely quoted or reprinted necessarily reflect the views of the Secretariat of the UNIDO. The responsibility for opinions expressed but acknowledgement is requested. This report has been produced without formal United Nations editing. rests solely with the authors, and publication does not constitute an endorsement by UNIDO. Although great care has been taken to maintain the accuracy of information herein, neither UNIDO nor its member This document reflects work in progress. Its distribution is limited for the purposes of eliciting comments States assume any responsibility for consequences, which may arise from the use of the material. Terms andsuch reviews as “developed”, only. “industrialized” and “developing” are intended for statistical convenience and do not necessarily express a judgment. Any indication of, or reference to, a country, institution or other legal entity does not constitute an endorsement. Information contained herein may be freely quoted or reprinted but acknowledgement is requested. This report has been produced without formal United Nations editing. This document reflects work in progress. Its distribution is limited for the purposes of eliciting comments and reviews only. Table of Contents List of figures .................................................................................................................. iii List of tables .................................................................................................................... iv Abstract ............................................................................................................................. v 1. Introduction .................................................................................................................. 1 2. Profiles .......................................................................................................................... 2 3. Analysis ...................................................................................................................... 45 4. Policy conclusions ...................................................................................................... 69 References ...................................................................................................................... 73 List of figures Figure 1 Informal sector employment ........................................................................................ 4 Figure 2 Informal sector by region ........................................................................................... 22 Figure 3 Self-employment ........................................................................................................ 24 Figure 4 Share of informal labour in total employment in manufacturing ............................... 28 Figure 5 Skilled and formal labour in South Africa ................................................................. 36 Figure 6 Informal productivity in South Africa ....................................................................... 37 Figure 7 Informal sector as a share of GDP in South Africa ................................................... 37 Figure 8 The phase plane ......................................................................................................... 63 Figure 9 Informal sector crowds into trade .............................................................................. 68 Figure 10 Informal sector crowds into trade .............................................................................. 68 Figure 11 Informal sector crowds into trade .............................................................................. 69 iii List of tables Table 1 The demography of the informal sector ....................................................................... 8 Table 2 Regression results ........................................................................................................ 9 Table 3 Informality in the manufacturing sector .................................................................... 10 Table 4 Percentage of informal labour in manufacturing ....................................................... 12 Table 5 Odds ratio compared to formal salaried college graduates ........................................ 14 Table 6 Ratio of informal to formal sector employment shares by age .................................
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