The unemployed and the formal and informal sectors in South Africa: A macroeconomic analysis

Abstract

Background: At 27.2% in the second quarter of 2018 the official unemployment rate in South Africa ranks as one of the highest in the world. However, depending on whether one uses the official or broad definition of unemployed, since 2008 there are on average between 2 and 3.3 times as many unemployed people as there are people in the informal sector.Aim: This article seeks to explore empirically, using time-series data, the extent to which an increase in the number of unemployed leads to increased entry of workers into the informal sector.Method: We use a Markov-switching vector error correction model.Results: We find that such entrance is very limited, lending credence to the notion that significant entry barriers exist into the informal sector.Conclusion: From a policy point of view these results suggest the need to consider measures that will ease entrance into the informal sector.

The nexus between unemployment and the shadow economy in Lithuanian regions during the COVID-19 pandemic

“…The close relationship between the shadow economy and the labour market was confirmed by Perry et al (2007), Fialova (2010), Pocius (2015) and many other authors. Nevertheless, Rogan and Skinner's (2017), Burger and Fourie's (2019) and some other studies do not confirm the role of the informal sector in absorbing surplus labour. On the contrary, the above-mentioned studies show that even when the unemployment rate is rising during the period of an economic downturn or shock, transfer to the informal sector is not such a simple solution, since there exist particular barriers for entities to enter the informal sector.…”

“…Due to the effects of the above-mentioned barriers, the informal sector does not act as a full downturn or shock absorber, i.e., a sector in which all the unemployed are able to find an occupation. At best, it acts only as a partial absorber (Burger and Fourie, 2019), which means that involvement of the unemployed in the shadow economy is determined not by pure economic cycles, but by a complex of various factors that limit the potential of the unemployed to find a job, and the decline in the number of work places in the formal economy during its downturn is only one of these factors. As it was noted by Fialova (2010), economic agents may not enter the labour market either due to the lack of opportunities or may leave the formal sector voluntarily for monetary or non-monetary benefits.…”

“…When unemployment rates are high, the informal sector of the economy often becomes the sector where the unemployed can earn some income, thus mitigating the destructive effects of unemployment. As noted by Burger and Fourie (2019), remuneration for work in the informal sector is commonly lower than that in the formal sector, though the former also requires significantly lower skills than the latter.…”

“…To diminish the share of the economically vulnerable individuals, it is relevant to take a deeper look at the aspects and extent of involvement of the unemployed in the shadow economy so that, based on the research results, the guidelines for reducing the scope of this phenomenon could be developed. Previous studies mainly focused on the macroeconomic context of informal employment (Hvidtfeldt et al, 2011;Schneider, 2011;Schneider et al, 2015;Burger, Fourie, 2019;Hendrickx, 2019, etc. ) or analysed informal employment in particular population groups (e.g.…”

Special purpose acquisition companies as a vehicle for providing venture capital to small and medium size enterprise

“…Employment in either the formal or informal sectors is difficult to find. Involuntarily unemployment is prevalent in the whole economy and skills and capital shortages even in the informal sector play a role as entry barriers (Burger & Fourie 2019). The development of the small and medium-sized enterprise (SME) sector in South Africa has the potential to not only erode unemployment but also contribute to economic growth (The Banking Association of South Africa 2019).…”