Formal-informal economy linkages: What implications for poverty in South Africa?

Abstract

The idea of dualism in the South African economy, characterized by a “first” and “second” economy has come to dominate government thinking in recent years. Using the panel component of the Labour Force Survey (LFS), the authors explore linkages between the formal and informal economy. Their analysis suggests that there is a high level of interaction between formal and informal work, at the lower end of the labour market. At the household level too, access to stable employment in the formal economy is associated with higher levels of earning in the informal economy. The findings have implications for poverty analysis in South Africa. Policy which views poverty as being located outside the mainstream of the economy – in the so-called ‘second’ economy – is misleading. Instead, an integrated approach which views poverty as linked to and a product of the trajectory and growth patterns of the South African economy is suggested as a more useful conceptualisation of poverty and inequality in South Africa.