Investigating the linkages between the formal and informal sector in South Africa

Abstract

There have been many studies focussing on informal sector in South Africa in the last 25 years. This paper adds to the wealth of research that has been conducted in this field. It examines the linkages between the formal sector and informal sector, and how they interact with each other. The study uses probit models and fixed effects models to investigate how variables such as age, education and skill level affect employability and income in the labour market. This paper uses two data sets: wave 1 to wave 5 panel data of the 2008-2016 National Income Dynamics Study (NIDS) to investigate the nature of the formal sector and the informal sector in South Africa. To study the linkages between the firms in the formal and informal sector, it uses the eThekwini Large and Medium Manufacturing Firm Survey dataset collected in 2013/2014.