Narrow Results

This paper studies the COVID-19 pandemic’s impact on Indonesia’s labor market, using the exogenous timing of the pandemic in a seasonal difference-in-differences framework. We use multiple rounds of Indonesia’s National Labor Force Survey to establish a pre-pandemic employment trend and attribute any difference from this trend to the estimated effect of the pandemic on employment outcomes. We find mixed impacts of the pandemic on Indonesia’s labor market. While the pandemic has reduced the gender gap in employment participation due to the “added worker effect” among women, it has also lowered overall employment quality among both women and men. The increase in female employment was mainly driven by women in rural areas without a high school education entering either informal agricultural employment or unpaid family work. For men, the pandemic had negative employment impacts for all subgroups. Among the employed, both women and men work fewer hours and earn lower wages.

Encouraging informal firms to register with the government is a key policy issue for developing economies. However, the impact of formal registration on firm performance remains inconclusive. This paper constructs a nationally representative panel data set on registered and unregistered establishments in Cambodia by using the Economic Census in 2011 and the Inter-censal Economic Survey in 2014; the Economic Census surveyed all nonfarm establishments and enterprises without any establishment-size threshold, which served as a credible sample frame for the Inter-censal Economic Survey. To mitigate selection bias, I employ a difference-in-differences method combined with propensity-score matching and a propensity-score-weighted regression method. My results show that formalization has a significantly positive impact on sales, value added, and regularly employed workers, but yields little effect on labor productivity. While formal registration alone may not boost productivity, it can encourage the business growth of formalized firms by hiring more formal workers.

This paper analyzes the effects of an unfunded pension system on economic growth using an extended overlapping generations model to include the informal sector. Emerging countries usually have a more significant informal sector than advanced ones. The findings based on the Thai economy data suggest that an increase in unfunded pension payouts and the noncontributory old-age allowance induces lower output and changes the consumption profiles of the workers. Furthermore, it reduces households’ incentives to save and provide labor, especially among formal workers, which lowers the physical capital stock in the new steady state.

We consider a small open Harris-Todaro (1970) economy with a rural foreign enclave and urban informal sector. We introduce consumption-efficiency relation to explain the simultaneous existence of informal sector and urban unemployment. The main objective of this paper is to analyse the effects of removal of subsidy, given to the foreign enclave, on urban unemployment and on domestic factor income. Our results shed light on the debate: whether subsidies should be removed from the agri-export sector.

Shortage of formal jobs, lack of skills in workforce and increasing human population proliferate the informal sector. This sector provides an opportunity to unskilled workers to gain skills along with earnings. In this paper, a deterministic nonlinear mathematical model is developed to study the effects of informal skill learning and job generation on unemployment. For the formulated system, feasibility of equilibria and their stability properties are discussed. A pertinent quantity (${{ℛ}}_0$), known as the reproduction number, is calculated and it is shown that the formulated system undergoes transcritical, saddle-node, Hopf and Bogdanov–Takens bifurcations on the variation of ${{ℛ}}_0$. The analytically obtained results are validated through numerical simulations. The results obtained from this study indicate that a substantial rate of job generation by self-employed individuals has a stabilizing effect on the system. Moreover, self-employment along with informal skill acquisition through engaging in informal work proves to be an effective measure in curbing the issue of unemployment in society.

Until now, few studies have evaluated whether there are geographical variations in the extent and character of off-the-books entrepreneurship. The aim of this paper is to evaluate whether and how the prevalence and nature of off-the-books entrepreneurship varies across deprived and affluent neighborhoods in an advanced economy. To do this, face-to-face interviews were conducted with 511 households in English affluent and deprived urban neighborhoods, and are reported here. The finding in both communities surveyed is that wholly legitimate enterprises represent just the tip of the iceberg. Beneath the surface in all areas is a large hidden enterprise culture composed of both registered businesses trading off-the-books as well as unregistered wholly off-the-books enterprises. However, the preponderance of both early-stage entrepreneurs as well as the established self-employed to trade off-the-books is greater in deprived than affluent urban communities, as is the tendency for entrepreneurs to operate business on a wholly off-the-books basis, intimating that deprived urban communities are perhaps relatively more enterprising and entrepreneurial than is currently recognized. The paper thus concludes by contending that across all localities, but especially in deprived urban neighborhoods, legitimizing the hidden enterprise culture could be an important but so far untapped means of promoting enterprise and economic development.

In recent decades, the field of entrepreneurship studies has become increasingly interested in the relationship between entrepreneurship and the informal economy. This paper reviews this burgeoning sub-field of entrepreneurship studies that recognizes how entrepreneurs do not always conduct their business affairs wholly by the rulebook. Evaluating this rapidly growing body of literature, it reviews the findings regarding the preponderance of entrepreneurs to engage in the informal economy, the nature of such informal entrepreneurship, the characteristics of informal entrepreneurs and the motives underpinning participation in such endeavor, along with the competing theories that have sought to explain engagement in this type of entrepreneurship. The tentative finding is that there are marked socio-spatial variations in the prevalence and nature of informal entrepreneurship, the characteristics of informal entrepreneurs and their rationales. The implication is not only that different theorizations of informal entrepreneurship apply more in some populations than others, but also that some populations usually seen as lacking in entrepreneurial spirit are perhaps more enterprising and entrepreneurial than currently recognized. Consequently, legitimizing this hidden enterprise culture could be an important means of promoting enterprise and economic development in such populations. The paper concludes by highlighting future avenues for research on this subject.

This paper analyzes entrepreneurs in South Africa's informal sector. The aim is to determine the extent to which African informal retail trade spawns viable enterprises. To assess the prospects for South Africa's informal retail sector, we obtained questionnaires from owners of small-scale establishments in a random sample taken throughout the country in 2007. Owner's income and sales data provided a basis for investigating viability. Regression analysis tests hypotheses identified as crucial to higher income and sales, including startup capital, size, male/female ownership, business training and the proximity to shopping centers. Also tested is the influence of urbanization externalities on sales and owner's income. Initial capital and positive urban externalities have a strong influence on the ability to generate a sustainable livelihood for informal entrepreneurs. After controlling for startup capital, location and other factors, it appears women entrepreneurs face distinct difficulties in generating a viable income through informal retail trade.

Women entrepreneurship in the informal sector, such as street food vending, is important for poverty alleviation in West Africa. The street food sector provides employment for women and inexpensive and nutritious food for the urban poor. In this paper, we determine the importance of the cowpea street food sector, evaluate the determinants of successful enterprises and ascertain the impact of economic, cultural, religious and geographic differentials between enterprises in Niamey, Niger and Kumasi, Ghana. Data were collected through in-person interviews with 114 and 122 women street food entrepreneurs in both countries in 2009. Results revealed that women entrepreneurs engaged in the cowpea street food sector can earn incomes 4 times and 16 times higher than the minimum legal wage in Niamey and Kumasi, respectively. Incomes earned from these entrepreneurial activities contribute directly to health, education and needs of their families. OLS regression results indicate that lack of financial resources, stable business locations and religious beliefs are important entrepreneurial success factors. Cross-country comparisons revealed enterprises in Kumasi are larger and more successful than those in Niamey.

This paper makes an attempt to estimate the index of informal sector employment that can be attributed to the supply-push phenomenon. Factors explaining the inter-state variations in this index include the industrial-informal sector wage gap, revenue expenditure and development expenditure incurred by the government. Increased development expenditure brings a decline in distress-led informalization because education, health and infrastructure facilities tend to enhance the employability of an individual. However, education as such does not reduce the residual absorption in the informal sector unless there is improvement in quality. The paper also notes an increase in inequality with an increase in distress-led informalization. Adoption of labor intensive technology in the organized or formal industrial sector is indeed crucial for pro-poor growth. The other policy implication is in terms of enhanced investment in the areas of human capital formation and overall development of the region.

Despite a widespread recognition in the mainstream entrepreneurship literature that many legitimate entrepreneurs do not pursue purely profit-driven commercial goals, the small but burgeoning literature on entrepreneurship in the informal economy has assumed entrepreneurs operating wholly or partially on an off-the-books basis are commercial rather than social entrepreneurs. To evaluate critically this assumption, evidence is reported from a survey involving face-to-face interviews with 70 informal entrepreneurs located in deprived and affluent urban and rural English localities. The finding is that informal entrepreneurs range from those pursuing purely commercial ends through to purely social entrepreneurs pursuing solely social logics, with the majority situated somewhere in-between combining both commercial and social objectives. The outcome is a call to recognize that not all informal entrepreneurs are purely commercial entrepreneurs and that the commercial versus social entrepreneurship dichotomy will need to be transcended if the multifarious goals underpinning informal entrepreneurship are to be better understood.

The aim of this paper is to evaluate critically the gender variations in informal sector entrepreneurship. Until now, a widely-held belief has been that entrepreneurs operating in the informal sector in developing nations are lowly paid, poorly educated, marginalized populations doing so out of necessity as a survival strategy in the absence of alternatives. Reporting an extensive 2003 survey conducted in urban Brazil of informal sector entrepreneurs operating micro-enterprises with five or less employees, the finding is that although less than half of these entrepreneurs are driven out of necessity into entrepreneurial endeavor in the informal economy, women are more commonly necessity-driven entrepreneurs and receive lower incomes from their entrepreneurial endeavor than men despite being better educated. The outcome is a call to recognize how the gender disparities in the wider labor market are mirrored and reinforced by the participation of men and women in the realm of informal sector entrepreneurship.

This paper presents an empirical study investigating the effect of entrepreneurship on the incidence of informal employment. It builds upon economic models exploring the determinants of informal economy by analyzing the role played by institutions and policies and their effect on the informal sector. Among policies examined are payroll and severance taxes, labor and product market regulations, unemployment benefits, firing and hiring costs, enforcement of financial contracts and financial costs. The empirical analysis is based on a panel data approach. The main result of the paper supports the view that the informal sector is an “unregulated micro-entrepreneurial sector.” The findings suggest that differences in the level of entrepreneurial activities across developing countries are associated with variance in the incidence of informal employment, and that entrepreneurship has a positive effect on the informal sector. The incidence of informal employment is strongly affected by the public perception of government performance, role, accountability and effectiveness, as well as labor market and business regulations.

The aim of this paper is to evaluate the impacts on future firm performance of a firm deciding to register from the outset of its operations. Until now, the assumption has been that starting up registered is linked to higher future firm performance. Reporting World Bank Enterprise Survey (WBES) data collected in 2014 on 9,281 formal enterprises in India, and controlling for other determinants of firm performance as well as the endogeneity of the registration decision, the finding is that formal enterprises that start up unregistered and spend longer unregistered have significantly higher subsequent annual sales and employment growth rates compared with those registered from the outset. When the number of years spent unregistered is included, there are also productivity gains from delaying registration. The tentative explanation is that in this weak institutional environment, the advantages of registering from the outset are outweighed by the benefits of deferring registration. Evaluating the policy implications, the argument is that there is a need to shift away from the conventional eradication approach toward unregistered startups based on the assumption they are unproductive, and toward a more facilitating approach that improves the benefits of being registered and tackles the systemic formal institutional deficiencies that lead entrepreneurs to delay their decision to register.

Is social capital important in formal-informal sector linkages? Previous research focused on the role of the productive capacities of the enterprises in the informal sector as determining factors. This paper aims to uncover, at least in part, whether or not social capital is important in facilitating the linkages between enterprises in the formal and informal sectors. As a novelty, having linkages with the formal sector is treated as a rare event. Consequently, the analysis involves flexible binary generalized extreme value models using data from the World Bank Informal Sector Surveys. The scope is thirteen countries from sub-Saharan Africa. The results are indicative that social capital has significantly positive, real effects on the likelihood of linkages. If one sees the informal sector as a source of jobs and as a stepping-stone to the formal sector, there is a case for the recognition of the role of informal social networks in the design of entrepreneurial policy.

Institutional theory has been widely used to explain entrepreneurship in the informal economy. A first wave of institutionalist theory argued that informal entrepreneurship resulted from formal institutional failures and a second wave that such entrepreneurship results from an asymmetry between the laws and regulations of formal institutions and the unwritten socially shared rules of informal institutions. This paper evaluates the validity of these two waves of institutionalist explanation and a new third wave of institutional theory explaining informal entrepreneurship in terms of a lack of both vertical and horizontal trust. Reporting data from a 2013 survey in Kosovo involving 500 face-to-face interviews with owners of small and medium-sized enterprises, 35.7 percent of sales are estimated to be unreported and a regression analyses reveals this is significantly higher among smaller and older firms, and firms owned by men. No significant association is found between formal institutional failings and the under-reporting of sales, but there is a statistically significant correlation between sales under-reporting and the level of vertical and horizontal trust. Taking account of the limitations of this single country study, the implications for theory and policy are then discussed.

A widespread assumption is that competition from the informal sector has a negative impact on the firm performance of legitimate enterprises. This is because of the unfair competition they face from such enterprises in the informal sector. The aim of this paper is to provide an evidence-based evaluation of whether this is the case based on an analysis of the relationship between the firm performance of enterprises and their perception of the prevalence of informal sector competition. To do so, data is reported from a representative sample of 1,430 enterprises in Bulgaria, Croatia and FYR Macedonia. The finding is that enterprises asserting that their competitors participate in the informal economy have significantly lower real annual sales growth rates compared with those who assert that their competitors do not participate in the informal economy. The theoretical and policy implications are then discussed.

The rapidly growing informal micro and small-scale enterprise sector in Zimbabwe is an issue of concern because the government is still struggling to revive the economy from the effects of economic meltdown. Of main concern is the lost revenue through tax evasion. The growing informal sector is believed to be a result of the poor quality of certain institutions, high corruption levels in the country and lack of incentives to formalize. The objective of this study was to analyze the impact of growth constraints on the willingness to formalize by informal MSEs. Twenty internal and external growth inhibiting factors were analyzed using Principal Component Analysis (PCA) and a logistic model was estimated on a dichotomous variable of willing/not willing to formalize. The results show that willingness/unwillingness to formalize by informal entrepreneurs in Zimbabwe is significantly related to institutional imperfections and asymmetry of bureaucracy associated with the registration process, lack of access to technology, market and financial constraints and lack of entrepreneurial and management skills. Improving the bureaucracy of the registration process and access to technology may possibly increase the odds of the informal operators formalizing their businesses. However, improvement in market and financial constraints and entrepreneurial and managerial skills will decrease the odds of willingness to formalize.

To advance understanding of the relationship between entrepreneurship and the informal sector, the aim of this paper is to evaluate and explain variations in the extent to which formal enterprises witness competition from unregistered or informal enterprises across Latin American and Caribbean countries. Reporting World Bank Enterprise Survey (WBES) data on 31 Latin American and Caribbean countries, this reveals that two-thirds (65.5 percent) of formal enterprises witness competition from informal sector enterprise. To explain the cross-country variations, four competing theories are evaluated, which variously view the prevalence of the informal sector to be determined by either: economic under-development (modernization theory); high taxes and state over-interference (neo-liberal theory); too little state intervention (political economy theory), or an asymmetry between the laws and regulations of formal institutions and the unwritten socially shared rules of informal institutions (institutional theory). A probit regression analysis confirms the modernization, political economy and institutional theories, but not the neo-liberal theory. Beyond economic under-development, therefore, it is too little state intervention and whether the laws and regulations developed by governments are in symmetry with the norms, values and beliefs of entrepreneurs. The paper concludes by discussing the theoretical and policy implications of these findings.

Retailing dominates the informal environment where activities occur in private and public spaces. Notwithstanding the contributions from informal retailing entrepreneurs (IRE), a paucity of research remains on the complex entrepreneur-environment exchange and in particular, the relationship between retailing entrepreneurs and the informal environment in Caribbean economies. This qualitative study aims to explore the informal retailing environment between 2003 and 2018 for informal sector start-ups in the Caribbean, specifically Barbados. Guided by Gnyawali and Fogel’s Integrative Model of Entrepreneurial Environments, content analysis of newspaper articles unveiled insights about the country’s environmental conditions pertaining to (a) government policies and procedures, (b) socioeconomic conditions, (c) entrepreneurial and business skills, (d) financial assistance, and (e) non-financial assistance and its impact on new enterprise creations. The study’s results imply that the Barbadian IRE have not been embraced fully, which reduces the likelihood of new informal venture creations testing the market and the potential for more IRE transitioning to the formal market. Empirical findings infer that efficient market functioning requires clear policies and procedures and fewer barriers limiting people from pursuing business opportunities, making the environment more conducive to new business start-ups.