Transitions into informal employment: an analysis of South African panel data: 2008-2012

• Main Author: Muttze, Takudzwa
• Format: Others
• Language: English
• Published: Rhodes University 2016
• Online Access: http://hdl.handle.net/10962/4498

South Africa’s labour market is characterised by high unemployment but relatively low levels of informal employment, making it distinct from other developing countries. The existing literature appears to show evidence of high mobility rates of labour across labour market states. The coexistence of high labour mobility rates, yet high unemployment and weak informal employment in South Africa’s labour market is therefore puzzling. Considerable research has been done to explain this phenomenon and has suggested that barriers to informal entrepreneurship form the key reason why informal employment is relatively low in South Africa compared to other developing countries. Worker transitions have however not been a focal question in the literature. Using data from the National Tncome Dynamics Study (NTDS 2008-2012), this study sought to examine the characteristics of workers who move into informal employment, attaching importance to those who become self-employed. Transition matrices are constructed showing the proportion of workers who stayed or moved into different labour market states between 2008 and 2012, and linking the movements to 2008 personal characteristics. Churning between labour market states was found to be relatively high, albeit formal wage employment exhibiting immobility. Transitions out of informal employment were high, reflecting its survivalist nature. Conversely, those from unemployment into informal employment, particularly self-employment were low. Using the probit regression model, transitions to informal employment were found to be more associated with workers who are generally marginalised from formal employment opportunities. The results suggest that the South African labour market is to a larger extent not reflective of the Dualist narrative of ease of movement of workers from unemployment into informal employment and barriers into informal entrepreneurship are high. To date, policies which have sought to encourage informal entrepreneurship have not been a success. A central challenge to policymakers is to create an enabling environment for the unemployed to start their own informal businesses. This has the potential of reducing unemployment and poverty rates in the country.