Labour Market Modelling and the Urban Informal Sector: Theory and Evidence

[Excerpt] The purpose of this paper is to assess the compatibility between theoretical models of the urban informal sector (UIS) and empirical evidence on the workings of that sector in the context of developing countries\u27 labour markets. My major point is that although the UIS is an excellent idea which has served us well in the 1970s and 1980s, we have need in the next round of research to refine our terminology and our models in light of empirical findings which have come to the fore in the interim. I would contend that what empirical researchers label the informal sector is best represented not as one sector nor as a continuum but as two qualitatively distinct sectors. Wage employment or self-employment in small-scale units may be better than or worse than employment in the formal sector. This is not a new point: diversity of earning opportunities and other job characteristics within the informal sector has long been noted — among other places, in the pathbreaking work of Hart (1973) and in the critiques of the informal sector concept by Bienefeld and Godfrey (1975), the ILO Sudan Report (1976), Standing (1977) and Sinclair (1978). But only recently has this view come to the fore: A third point in which agreement has been reached concerns the degree of heterogeneity within the informal sector. Contrary to the prevailing image of a decade and a half ago to the effect that the informal sector was of a homogeneous nature, it is clear today that there are different segments within this sector (Tokman, 1986, p. 13)