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TRANSFORMATION 60 (2006) ISSN 0258-7696 90
Article
Low-waged and informal employment in
South Africa
Imraan Valodia, Likani Lebani, Caroline Skinner and
Richard Devey
Introduction
This paper forms one component of a larger project of the Human Sciences
Research Council (HSRC) to assess the state of knowledge of the labour
market in South Africa, and to identify research gaps. Our paper has two
primary objectives: to outline the extent and incidence of low-waged
employment in South Africa and to review the literature on informal
employment, one important component of low-waged employment. We
begin by provided a statistical overview of low-waged employment using
the Labour Force Survey of March 2000 and March 2004. Based on these
data, we summarise trends in low-waged employment. In Section B, we
focus on informal employment in South Africa, and discuss some of the
conceptual and statistical literature and apply it to the South African
context. Section C provides trends on informal employment. Section D,
using a unique panel drawn from the Labour Force Survey, provides
analysis of some of the linkages between informal employment and other
labour market statuses, including unemployment. Finally, in Section E,
based both on our analysis of low-waged employment and on the review of
the informal economy, we offer some suggestions for a research agenda.
The issues of low-waged employment and informal employment are both
important considerations for labour market policy in South Africa. One of
the key debates about employment in South Africa is the relationship
between wages and employment, with the argument often made that the high
levels of unemployment in South Africa are a result of rapid increases in
wages, particularly of unskilled black workers (see Fallon and Lucas 1998,
Lewis 2002). In the last comprehensive overview study of the labour market
91
Low-waged and informal employment in South Africa
in South Africa, Standing et al (1996) reject this argument and point to the
extreme inequalities in wage income and to the high levels of low-waged
income in South Africa. Whatever the merits of these arguments may be, it
is imperative that any assessment of labour market policy in South Africa
takes cognisance of the high levels of low-waged income in the labour
market.
The South African labour market has not been shielded from rapid
growth in informal employment across the globe (see Standing 1999,
Charmes 2000). As we show below, a large proportion of the workforce is
employed in the informal economy. Understanding trends and patterns of
informal employment is critical for broader labour market policy for a
number of reasons. First, and related to low-wages, the increasing
informalisation of work has resulted in a segment of the workforce being
unable to access the formal institutions that govern the labour market, and
they do not have access to retirement provisions and medical insurance,
which form part of the remuneration package for employees in formal
employment. As President Mbeki remarked recently, ‘casualisation has
produced the phenomenon of the working poor…(who) have little say over
their wages …(and) their employers are not required to provide them with
medical and retirement benefits’ (Business Report July 25, 2005). Second,
an understanding of informal economy employment is important for
contextualising policy discussions about employment and unemployment.
What, for example, is the potential for the unemployed to enter informal
employment and then to progress to better paying, more secure forms of
employment? Or, is the growth in informal employment largely the result of
the ‘hollowing out’ of the lower segments of formal employment as firms
restructure in response to a more open international trade environment? Is
the distinction between formal and informal employment really appropriate
for South Africa?
Section A: Low-waged employment in the South African labour
market
We employ two simple benchmarks to assess low-waged employment in
South Africa – earnings below R2,500 per month, and earnings below
R1,000 per month. Table 1 shows the distribution of low-waged workers in
South Africa. On this basis, a large proportion of workers employed in
South Africa earn low incomes. On the basis of the 2000 Labour Force
Security (LFS), 77.8 per cent of the workers fall under the low-waged
category when a R2,500 cut off point is used. A R1,000 cut off point results
92
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
in 53 per cent of workers being classified as low-waged. In 2004 there is a
slightly more than 10 percentage point decrease in the proportion of low-
waged workers for both cut off points. Adopting a more stringent cut off
point of earnings of R500 per month to classify low-waged employment still
results in a high proportion of workers being classified in the low-waged
sector: 38 per cent and 19 per cent for 2000 and 2004 respectively.
Table 1: Distribution of low-waged workers in South Africa
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
The data presented in Table 1 may be criticised for not adjusting wages
for inflation effects – that the supposed reduction in low-waged employment
between 2000 and 2004 is simply an inflation effect. Unfortunately, the LFS
data for wages are collected in income bands which are not easily adjusted
to allow for comparisons in real wages. Thus, the data for 2000 and 2004
should not be compared – we simply present an indication of the extent of
low-waged employment using two benchmarks (earning below R1,000 and
R2,500 per month) and two points in time (2000 and 2004).
However, in order to provide some indication of changes in low-waged
employment over the period 2000 and 2004, Table 2 allows for some
admittedly inexact comparisons. The benchmarks, R1,000 and R2,500 per
month for 2000, have been adjusted to the closest possible inflation
adjusted incomes benchmarks for 2004, respectively R1,500 and R3,500.
These data show that between 2000 and 2004 there has been some reduction
in low-waged employment in South Africa. It should be stressed, however,
that these data are inexact and are shown for illustrative purposes only.
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Low-waged 8697262 77.8 5958388 53.3 7379357 65.0 4423904 39.0
Non-Low-
waged 2477033 22.2 5215907 46.7 3978483 35.0 6933936 61.0
Total
employed
reporting
wages
11174295 100.0 11174295 100.0 11357840 100.0 11357840 100.0
93
Low-waged and informal employment in South Africa
Table 2: Distribution of low-waged workers in South Africa – adjusted
for real incomes
Source: Authors’ calculations from Stats SA (2001) and Stats SA (2004).
Using the March 2004 LFS only, Table 3 shows the distribution of wages
in the employed workforce. We see a concentration of the workforce in the
lower income bands, with 58 per cent of the workforce earning between
R200 and R2,500.
Table 3: Distribution of wages of the employed, LFS March 2004
Source: Authors’ calculations from Stats SA (2001) and Stats SA (2004).
Frequency Percent Valid
Percent
Cumulative
Percent
None
R1-200
R201-500
R501-1000
R1001-1500
R1501-2500
R2501-3500
R3501-4500
R4501-6000
R6001-8000
R8001-11000
R11001-16000
R16001-30000
R30000+
276543
535212
1304487
2195499
1271590
1661159
974044
653423
747599
567995
438614
291266
204089
69795
2.3
4.5
10.9
18.3
10.6
13.9
8.1
5.5
6.2
4.7
3.7
2.4
1.7
0.6
2.5
4.8
11.7
19.6
11.4
14.8
8.7
5.8
6.7
5.1
3.9
2.6
1.8
0.6
2.5
7.3
18.9
38.5
49.9
64.7
73.4
79.3
86.0
91.0
95.0
97.6
99.4
100.0
Income
Total 11191315 93.4 100.0
Don’t know
Refuse
Unspecified
257788
520514
14878
2.2
4.3
.1
Missing
Total 793181 6.6
Total 11984496 100.0
94
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
Table 4 shows the racial composition of the low-waged workforce in the
South African labour market. Using a cut off point of R2,500, these data for
2000 show the racial composition of the low-waged workforce: 82 per cent
are black, 11 per cent are coloured, 2 per cent are Indian and 5 per cent are
white. A lower cut off point of R1,000 results in an increase in the
proportion of low-waged workers classified as black and a corresponding
decrease for other race groups. For the year 2004, a similar scenario
obtains, except that the numbers of workers classified as low-waged
decreases.
Table 4: Racial composition of low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 5 tabulates the distribution of low-waged workers within population
groups. The highly skewed racial pattern of waged-income is most evident
in this table. Based on the 2004 LFS almost half (47 per cent) of black
workers earn an income below R1,000 per month. At the higher cut-off,
R2,500, almost three quarters (74 per cent) of African workers are classified
as low-waged workers.
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Black 7125579 81.9 5238434 87.9 6150520 83.3 3889645 87.9
Coloured 918892 10.6 519487 8.7 880245 11.9 442140 10.0
Indian 195177 2.2 68493 1.1 111359 1.5 22024 0.5
White 450621 5.2 128153 2.2 234191 3.2 70096 1.6
Other 6992 0.1 3821 0.1 2711 0.0
Unspecified 331 0.0
Total 8697261 100.0 5 958388 100.0 7379357 100.0 4423905 100.0
95
Low-waged and informal employment in South Africa
Table 5: Distribution of low-waged workers within racial groups
Source: Authors’ calculations from Stats SA (2001) and Stats SA.
(2004).
Table 6 shows the gender distribution within low-waged employment. The
year 2000 had an equal proportion of males and females earning at most
R2,500. At the lower cut-off of R1,000, the proportion of women workers
increases, as it does in the more recent period. This trend would be
consistent with evidence that women earn lower incomes than men.
Table 6: Gender distribution of low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 7 shows the age distribution of low-waged workers. In both periods
the majority of low-waged workers are aged between 25 and 34 years
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
African 7125579 89.4 5238434 65.8 6150520 74.4 3889645 47.0
Coloured 918892 77.2 519487 43.7 880245 59.9 442140 30.1
Indian 195177 57.1 68493 20.0 111359 26.2 22024 5.2
White 450621 27.0 128153 7.7 234191 11.9 70096 3.6
Other 6992 87.9 3821 48.0 2711
Unspecified 331
Total 8697262 5958388 7379357 4423904
96
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
irrespective of the income bracket used. On average, 70 per cent of low-
waged workers are below 44 years for both income brackets and years.
Table 7: Age distribution of low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 8 shows the marital status of low-waged workers. For both years and
both cut-off points there is a high proportion of low-waged workers who are
classified either as married or living together. The proportion of households
with such a marital status ranges from 45 to 51 per cent.
Table 8: Marital Status of low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
15-24 1428733 16.4 1099728 18.5 903628 12.2 615430 13.9
25-34 2545065 29.3 1680254 28.2 2300809 31.2 1308407 29.6
35-44 2220697 25.5 1395638 23.4 2153221 29.2 1203287 27.2
45-54 1312093 15.1 862499 14.5 1350461 18.3 821260 18.6
55-64 730695 8.4 547548 9.2 518801 7.0 352372 8.0
65+ 459978 5.3 372722 6.3 152438 2.1 123148 2.8
Total 8697261 100.0 5958389 100.0 7379358 100.0 4423904 100.0
97
Low-waged and informal employment in South Africa
Table 9 shows the education levels of low-waged workers. Education plays
an important role in access to high paid work. Over three-quarters of low-
waged workers do not have a matric school leaving certificate.
Table 9: Education levels of low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 10: Training in skills that can be used for work
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 10 shows the number of low-waged worker that have received
training in some form of skill that can be used for work. In the year 2000,
just 14 per cent of low-waged workers were trained in skills that can be used
for work (using the R2,500 cut off point). Though the number of trained
workers decreased in 2004, the apparent trend is that the lower the cut off
mark, the fewer the number of people that are trained in work-related skills.
Somewhat surprisingly, as shown in Table 11, the majority of workers in
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
No
education 1106919 12.9 973378 16.5 714330 9.7 585368 13.3
Pre
matric 5870286 68.2 4212984 71.4 4995424 68.0 3150108 71.5
Matric 1226067 14.2 579044 9.8 1375982 18.7 573026 13.0
Tertiary 409711 4.8 137012 2.3 255983 3.5 96723 2.2
Total 8612983 100.0 5902418 100.0 7341719 100.0 4405225 100.0
98
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
low-waged employment that have received some amount of training have
received training over a period of at least 6 months. This suggests that the
training provided is more than just basic skills training.
Table 11: Length of training in skills
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 12: Ability to read within low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Tables 12 and 13 respectively show the ability to read and write among
low-waged workers. Although the percentages are relatively low, up to 17
per cent of workers in low-waged employment do not have basic reading
and writing skills.
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Less than
week 22761 1.9 9831 1.7 7092 1.0 4457 1.5
1 week 37100 3.1 17645 3.1 24959 3.5 12906 4.5
>1 week-
< 2 weeks 41991 3.5 26737 4.6 37378 5.3 12323 4.3
2 week-
< 1 month 105033 8.7 59423 10.3 99415 14.0 40120 13.9
1 month-<
2 months 80431 6.7 41638 7.2 70335 9.9 25701 8.9
2 months-<
6 months 160174 13.3 89104 15.5 134046 18.9 54793 18.9
6 months + 753945 62.8 330890 57.5 336225 47.4 139289 48.1
Total 1201435 100.0 575268 100.0 709450 100.0 289589 100.0
99
Low-waged and informal employment in South Africa
Table 13: Ability to write within low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 14: Type of employment, low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 14 shows how low-waged employment is distributed in the economy.
In 2004, based on a cut off of R1,000 per month, most low-waged workers
were in the informal sector, but large numbers of workers in the formal
economy also earned below R1,000 per month. Using the higher cut off
point of R2,500 increases the number of workers in formal employment that
may be classified as low-waged. The dominance of formal employment in
the South African labour market distorts the concentration of low-waged
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Formal 3626128 41.7 1337982 22.5 3478445 47.2 1143480 25.9
Comm
agric 687934 7.9 616826 10.4 849678 11.5 729621 16.5
Subsist
agric 1693863 19.5 1674877 28.1 386195 5.2 376482 8.5
Informal 1624125 18.7 1341055 22.5 1627103 22.0 1276781 28.9
Domestic 962556 11.1 911257 15.3 1003738 13.6 881178 19.9
Unspec 72264 0.8 49887 0.8 29486 0.4 11982 0.3
Not eco
active 30392 0.3 26505 0.4 4711 0.1 4380 0.1
Total 8697262 100.0 5958389 100.0 7379356 100.0 4423904 100.0
100
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
employment to some extent. Table 15 shows how low-waged employment
in distributed in the main forms of employment in South Africa. Whereas
Table 14 shows how the total number of low-waged workers are distributed
in the economy (ie total low-waged employment = 100 per cent), Table 15
shows the concentration of low-waged employment in each of the main
forms of employment (ie total formal employment = 100 per cent and 14.6
per cent of formal workers earned below R1,000 per month in 2004). We see
that low-waged employment is particularly concentrated in subsistence
agriculture, domestic work, commercial agriculture and the informal
economy. Using a cut off of R1000, only 14.6 per cent of workers in the
formal economy may be classified as low-waged in 2004. However, 44.4
per cent of formal workers earned incomes below R2,500 per month.
Table 15: Low-waged employment by type of employment, proportions
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. of
workers
in
economy
No. in
LW
No. of
workers
in
economy
No. in
LW
No. of
workers
in
economy
No. in
LW
No. of
workers
in
economy
No. in
LW
Formal 6677923 3626128
54.3% 6677923 1337982
20.0% 7827251 3478445
44.4% 7827251 1143480
14.6%
Comm
agric 756984 687934
90.9% 756984 616826
81.5% 929759 849678
91.4% 929759 729621
78.5%
Subsist
agric 1508264 1478098
98% 1508264 1417768
94% 337136 330393
98.0% 337136 320279
95.6%
Inform
al 1820350 1624125
89.2% 1820350 1341055
73.7% 1833612 1627103
88.7% 1833612 1276781
69.6%
Domes
tic 1001108 962556
96.2% 1001108 911257
91.0% 1013150 1003738
99.1% 1013150 881178
87%
Unspec 115106 72264
62.8% 115106 49887
43.3% 43588 29486
68% 43588 11982
27.5%
Unemp 4333104 4333104 4611101 4611101
NEA 10241611 30392
0.3% 10241611 26505
0.3% 13833483 4711
0.03% 13833483 4380
0.03%
Total 2 6454450 8697262 26454450 5958388 30429080 7323554 30429080 4367701
101
Low-waged and informal employment in South Africa
Table 16 shows how low-waged employment is distributed among
economic sectors. Using the cut off of R1,000 per month we see that
although there is a fairly high degree of low-waged employment in all
sectors of the economy, low-waged employment is most evident in households
(domestic work), agriculture, construction and retailing.
Table 16: Low-waged employment by Economic Sector
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 17 shows the distribution of low-waged employment by occupations.
As it to be expected, low-waged employment is a feature of particular
occupations – mainly domestic work, farm work and elementary occupations.
LFS 2000 LFS 2004
<=R 2500 <=R1000 <= R2500 <=R 1000
Economic
Sector
Total
in
sector No. % No. %
Total
in
sector No. % No. %
Agriculture 2536397 2309139 91.0 2399233 94.6 1339863 1110548 82.9 1240814 92.6
Mining 475692 83862 17. 6 34251 5 72.0 589904 22609 3.8 326097 55.3
Manufacturing 1503791 412443 27.4 992883 66.0 1684519 379165 22.5 936706 55.6
Electric ity,
gas, water 91527 16324 17.8 42520 46.5 110970 7260 6.5 25499 23.0
Construction 604222 256061 42.4 436132 72.2 678909 264671 39.0 509938 75.1
Wholesale/
Retail 2505730 1190696 47.5 1820749 72.7 2489676 1089509 43.8 1785756 71.7
Transport 550741 126677 23.0 303522 55.1 604542 85936 14.2 257407 42.6
Financial 853537 118858 13.9 352600 41.3 1115713 125246 11.2 431582 38.7
Community
service 1946478 328971 16.9 804257 41.3 2297676 289371 12.6 673165 29.3
Private
household s 1221102 1082390 88.6 1152845 94.4 1210346 1052261 86.9 1188378 98.2
Ext org/
foreign 4545 1818 40 5980 582 9.7 2892 48.4
102
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
Table 17: Low-waged employment by occupations
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 18 shows the form of employment for low-waged workers. Using
R1,000 as the cut off to classify low-waged work, the data show that,
although most low-waged workers have permanent employment
relationships, a significant number are employed in temporary and casual
jobs.
LFS 2000 LFS 2004
<=R1000 <=R2500 <=R1000 <=R2500
Occupation Total in
Occup. Number % Number %
Total in
Occup. Number % Nu mber %
Management 652883 68284 10.5 163674 25.1 854060 47903 5.6 114552 13.4
Professionals 451142 15202 3.4 53833 11.9 549197 11350 2.1 31086 5.7
Technical 1075211 120323 11.2 359897 33.5 1196526 102407 8.6 248360 20.8
Clerks 1061895 156713 14.8 485743 45.7 1243450 149212 12.0 435002 35.0
Service and
shop worke rs 1381317 583834 42.3 946610 68.5 1423499 456659 32.1 922919 64.8
Skilled
agricult ure
/fishery
1898871 1755337 92.4 1819068 95.8 366828 301575 82.2 321889 87.7
Craft &
related
occupations
1461991 550798 37.7 1049901 71.8 1478906 439230 29.7 964732 65.2
Plant &
mach ine
operators
1160261 345653 29.8 904711 78.0 1228550 284614 23.2 852278 69.4
Elementa ry
Occupations 2161677 1422302 65.8 1912929 88.5 2774158 1754959 63.3 2484982 89.6
Domestic
workers 1022240 911257 89.1 962556 94.2 1022174 881537 86.2 1004097 98.2
Total 12327488 5929703 8658922 12137348 4429446 7379897
103
Low-waged and informal employment in South Africa
Table 18: Low-waged workers, type of employment
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 19: Low-waged workers, membership of trade unions
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 19 shows trade union membership among the low-waged. Only a
small proportion of those earning below R1,000 per month have trade union
membership, and access to trade union services. At the higher level of
R2,500, just under one-fifth of workers belong to trade unions. Table 20
elaborates on this, showing more detailed data on income and trade union
membership. Trade union membership is associated with higher income
brackets for both periods. There is less than 10 per cent of workers earning
R500 or less who are members of a trade union. The implication is that the
higher the income the higher the likelihood that a worker is a trade union
member.
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Permanent 4074358 70.8 1969765 60.1 3711559 63.3 1622406 50.7
Fixed per.
contract 183582 3.2 105107 3.2 265108 4.5 114480 3.6
Temporary 898901 15.6 712834 21.7 1175409 20.0 913790 28.6
Casual 512978 8.9 408762 12.5 609799 10.4 459479 14.4
Seasonal 87298 1.5 85130 2.69 105031 1.8 90071 2.8
Total 5757117 100.0 3281598 100.0 5866906 100.0 3200226 100.0
104
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
Table 20: Trade union membership, by income
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Table 21 shows low-waged work by the type of employer. The data show
that low-waged work occurs primarily in the private sector. Very small
numbers of workers in the government and NGO sector are paid low wages.
LFS 2000 LFS 2004
Income
category
Yes No Total Yes No Total
None 0
0.0%
3211
0.1%
3211
0.1%
0
0.0%
11507
0.2%
11507
0.2%
R1-200 38602
2.5%
568121
14.2%
606723
11.0%
8765
.8%
276834
5.8%
285599
4.9%
R201-500 77300
5.1%
1148279
28.6%
1225579
22.1%
41801
3.8%
952009
20.1%
993810
17.0%
R501-1000 294265
19.3%
1105361
27.5%
1399626
25.3%
168639
15.3%
1742542
36.8%
1911181
32.7%
R1001-1500 467530
30.7%
596826
14.9%
1064356
19.2%
234477
21.2%
907219
19.2%
1141696
19.6%
R1501-2500 647399
42.4%
591729
14.7%
1239128
22.4%
650865
58.9%
842915
17.8%
1493780
25.6%
Total 1525096
100.0%
4013527
100.0%
5538623
100.0%
1104547
100.0%
4733026
100.0%
5837573
100.0%
105
Low-waged and informal employment in South Africa
Table 21: Types of businesses employing low-waged workers
Source: Authors’ calculations from Stats SA (2001) and Stats SA
(2004).
Our statistical overview, presented over Tables 1-21, suggests that low-
waged employment is extensive. Using a conservative cut off point at
R1,000 per month, some 39 per cent of the workforce may be classified as
low-waged. Given the history of industrial development in South Africa,
and the high levels of inequality in the society, this incidence of low-waged
work is hardly surprising. As is to be expected, low-waged employment
occurs mainly among African workers, and it occurs mainly in specific
sections of the economy: in domestic work, is farm work and in the informal
economy. Low-waged workers tend to be less skilled, have more precarious
employment and do not, by and large, belong to trade unions.
Section B: The informal economy: conceptual issues and definitions
Although the notion of the informal economy only recently has been
conceptualised and studied seriously in South Africa, informal and flexible
forms of labour are a historical feature of the South African labour market.
A key characteristic of the apartheid system and the racial pattern of South
Africa’s industrialisation, was the flexible system of contract labour and
migrant labour (see, among others, Hindson 1987, Legassick 1974, Wolpe
LFS 2000 LFS 2004
<=R2500 <=R1000 <=R2500 <=R1000
No. %No. %No. %No. %
Central
govt 60281 1.0 11990 0.4 39277 0.5 8459 0.2
Prov govt 373201 6.5 93293 2.8 200156 2.7 55400 1.3
Loc govt 158751 2.7 53988 1.6 115468 1.6 42187 1.0
Govt
enterprise 155190 2.7 40129 1.2 65105 0.9 16459 0.4
Non-
profit org 85925 1.5 48505 1.5 61056 0.8 35182 0.8
Coop/
self help 61335 0.8 28358 0.6
Priv bus/
self-emp 4940069 85.6 3078787 92.5 5514158 74.8 3165114 71.6
Self-
employed 1320191 17.9 1071379 24.2
Total 5773417 100.0 3326692 100.0 7376746 100.0 4422538 100.0
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
1972). Related to the flexibility were high levels of unrecorded informal
economy activities, particularly in African areas. Indeed, several micro-
level studies conducted in the early 1980s suggested that extremely high
levels of informal economy activity were taking place (see for example
Cross and Preston-Whyte 1983, Webster 1984 on informal activity in
Soweto, Wellings and Sutcliffe 1984 on informal activity in Durban).
Whilst the apartheid system forced many black South Africans to earn
their livelihoods in the informal economy by restricting their access to the
formal economy, the apartheid state also actively constrained millions of
South Africans in their attempts to make a productive living through
informal economy activities. Standing, Sender and Weeks (1996) list all the
apartheid legislation that restricted the economic activities of African,
coloured and Indian South Africans. The Black Urban Areas Consolidation
Act (25 of 1945) and the Group Areas Act (36 of 1966) restricted the right
of black entrepreneurs to establish and operate businesses. Apartheid
legalisation limited the range of goods that could be sold, blocked the
formation of companies by blacks, and set up an array of bureaucratic
processes that discouraged the registration of small-scale economic activity.
The impact of repressive legislation on the development of black informal
economy activities cannot be underestimated. For example, Davies (1987)
conducted extensive surveys to investigate the major obstacles confronting
black entrepreneurs in Port Elizabeth. He found that bureaucratic and
political controls were ‘without doubt, … the single most important factor
that has limited black entrepreneurial growth and development’ (Davies
1987:40). The findings were reiterated in similar studies of black micro-
enterprises undertaken during the 1980s in Soweto, Port Elizabeth and
Durban (Rogerson 1997:20). The restrictive environment in which these
businesses had to operate forced them to be largely of a survivalist nature.
Although the legislation was relaxed in the late 1980s and early 1990s,
apartheid history has impacted on the nature of informal activity taking
place today. Within the retail sector Lund (1998) points out how many
commentators have noted the lack of diversity in South African trading in
comparison to other African countries. Particularly striking in a comparative
African context is the extent to which informal manufacturing activities in
South Africa are underdeveloped. In their study of home-based work
conducted in the early 1990s, Manning and Mashigo (1993:31) note that
where manufacturing did occur, discrimination against blacks resulted in
African-owned micro-enterprises being located in those segments of the
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Low-waged and informal employment in South Africa
manufacturing sectors that were of lowest value, poorest in quality and least
lucrative.
With the heightened political activity of the 1980s and the onset of
reform, there was renewed interest in the informal sector, with much of the
popular writing celebrating the energy of the informal sector (the emergence
of the minibus industry, for example), and the emergence of new black
entrepreneurship and economic opportunity. Preston-Whyte and Rogerson’s
(1991) volume on the informal economy marked the first sober assessment
of the emerging informal sector, with rich case studies documenting informal
activity in a range of industries, and raising some of the important policy
issues at the time.
The onset of the political transition and the necessity to develop industrial
and labour market policy for post apartheid South Africa led to some
analyses of the possibilities to expand employment in the informal economy.
This issue was taken up by the Industrial Strategy Project (Joffe et al 1995,
Manning and Mashigo 1993). Much of this later focus was linked to policy
on small business development and was quite influential in the White Paper
(WP) on Small Business Development of the Department of Trade and
Industry (DIT). This government WP on the SMME sector distinguishes
four categories of SMMEs; medium enterprises (assets of about R5 million),
small enterprises (employ between 5 and 50), micro-enterprises (involving
owner, some family members and one or two employees) and survivalist
enterprises, which comprises the bulk of the informal economy in South
Africa. The WP recommends that different support strategies are required
for each category of the SMME sector. Yet, whilst outlining concrete
proposals for the small, medium and micro categories, the WP is mute on
support strategies for the survivalist category, which is really our area of
interest. Budlender et al (2004) argue that whilst the government’s WP on
small business recognises that the survivalist sector has the largest
concentration of women and lists as one of its key objectives to ‘support the
advancement of women in all business sectors’, the DTI offers very little,
if any, support to those operating in the survivalist segment of the informal
economy. Lund (1998:11) argues that ‘it would seem that the SMME
policy…has little relevance for the survivalist sector – in particular for
women street traders and home-based workers. What is seen by policy
makers as a micro-enterprise is not micro enough. And though the government
espouses policy support for the development of micro-enterprise, little in
the way of material support has been allocated so far’.
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
As in other contexts, the literature in South Africa has been concerned
with issues of definition. Despite Peattie’s (1987) critique of the term
‘informal sector’ as an ‘utterly fuzzy’ concept and her suggestion that those
interested in policy and analysis of this phenomenon should start by
abandoning the concept, the concept continues to be used in all countries,
including South Africa. Since Keith Hart (1973) first coined the phrase
‘informal sector’ in the early 1970s to describe the range of subsistence
activities of the urban poor, there has been considerable debate about what
exactly the term refers to. The most quoted definition is that contained in the
International Labour Organisation’s Kenya Report (1972:6) in which
informal activities are defined as ‘a way of doing things’, characterised by
‘ease of entry; reliance on indigenous resources; family ownership of
enterprises; small scale of operation; labour intensive and adapted
technology; skill acquired outside of the formal school system; and
unregulated and competitive markets’.
For our purposes, two important points are worth noting. First the term
‘informal sector’ disguises a significant degree of heterogeneity. Informal
activities encompass different types of economic activity (trading, collecting,
providing a service, and manufacturing), different employment relations
(the self employed, paid and unpaid workers, and disguised wage workers)
and activities with different economic potential (survivalist activities and
successful small enterprises). A second and related problem is the distinction
between the formal and informal ‘sectors’ as if there was a clear line
dividing the two. Closer analysis of this phenomenon demonstrates that
they are integrally linked. With the exception of illegal activities there are
few examples of informal operators who are not linked (either through
supply or customer networks) into the formal economy. As Peattie (1987:858)
points out, ‘if we think about the world in terms of a formal and informal
sector we will be glossing over the linkages which are critical for a working
policy and which constitute the most difficult elements politically in policy
development’.
Using the term informal ‘economy’ rather than informal ‘sector’ partially
addresses such concerns. The term ‘economy’ implies a greater range of
activities than ‘sector’. If both formal and informal activities are seen as
part of the economy we are better able to see the linkages between the two.
Implied in the notion ‘in’formal is that there is a formal, a norm, against
which these other activities can be compared. As with any norm this will be
time and context specific. With respect to the labour market Eapen
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Low-waged and informal employment in South Africa
(2001:2390) points out how some analysts (eg Papola 1980, Banerjee 1985)
defined informality in terms of the absence of characteristics that belong to
‘formal’ activities, like security/regularity of work, better earnings, existence
of non-wage and long term benefits, protective legislation and union
protection. She goes on to point out that in a situation in which a number of
activities within the formal sector are getting ‘informalised’ and private,
small scale processing/manufacturing enterprises are growing, ‘the
borderline becomes blurred’. Considering this issue from another angle,
Bromley (1995:146) asks ‘if an enterprise is required to have six official
permits, for example, but only has five, should it be considered informal
even when the sixth derives from a moribund regulation that most
entrepreneurs ignore?’ She goes on to conclude: ‘formality and informality
are really the opposite poles of a continuum with many intermediate and
mixed cases’ (Bromley 1995:146).
For statistical purposes, the accepted international standard for defining
the informal sector was agreed in a resolution at the 15th International
Conference for Labour Statistics (ICLS). An important criterion of the
ICLS definition is that employment in the informal economy is based on the
characteristics of the enterprise in which the person is employed instead of
the characteristics of the worker employed. The ICLS definition recommends
that informal sector enterprises be defined in terms of one or more of the
following criteria:
• non registration of the enterprise in terms of national legislation such as
taxation or other commercial legislation;
• non-registration of employees of the enterprise in terms of labour
legislation;
• small size of the enterprise in terms of the numbers of people employed.
Statistics South Africa (SSA) uses this employment based definition in
order to derive estimates of informal employment in South Africa. The ILO
(2002) and the 17th ICLS have recently proposed a definition of the informal
economy which is based on the employment characteristics of the worker.
The 2002 International Labour Conference proposes the following definition:
The informal economy comprises informal employment (without secure
contracts, worker benefits or social protection) of two kinds. The first is
informal employment in informal enterprises (small unregistered or
unincorporated enterprises) including employers, employees, own account
operators, and unpaid family workers in informal enterprises. The second
is informal employment outside informal enterprises (for formal enterprises,
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
for households or with no fixed employer), including: domestic workers,
casual or day labourers, temporary or part-time workers, industrial
outworkers (including home based workers), and unregistered or undeclared
workers.
The difference between these definitions is captured in Table 22. The
enterprise based definition, currently used by SSA, is made up of cells 3 and
4 with the enterprise being the unit of analysis. In contrast, the new
employment based definition, now recommended by both the ILO and the
ICLS, examines the nature of the work being performed and defines the
informal economy as being made up of cells 2 and 4 – ie that informal
employment includes workers employed in the formal enterprises, but not
having the traditional employment benefits that are attached to formal jobs
(cell 2), and it excludes workers employed in informal enterprises who do
enjoy such benefits (cell 3). An issue that arises and which we seek to
address in this section is whether the employment based definition would be
more appropriate to capture the informal economy in South Africa. Devey
et al (2005) have argued that the employment based definition would be
more appropriate for South Africa.
Table 22: Formal and informal employment – definitional differences
Key: Formal employment=1; Enterprise based definition of the informal
sector= 3+4; Informal employment ie employment based definition=
2+4.
An important policy issue in the South African context that has received
the attention of scholars is the size of the informal economy.
Section C: Trends in the informal economy in South Africa
Internationally, there is a growth in the numbers of people working in the
informal economy, either self-employed in unregistered enterprises or as
wage workers in unprotected jobs. A recent collation of international
statistics on the informal economy states: ‘Informal employment comprises
one half to three quarters of non-agricultural employment in developing
countries’ (ILO, 2002:7). Table 23 lists the percentages in regions.
Types of jobs
Production units Formal employment Informal employment
Formal enterprises 1 2
Informal enterprises 3 4
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Low-waged and informal employment in South Africa
Table 23: Informal employment as a proportion of non agricultural
employment
Source: Adapted from ILO (2002:7)
It is thus clear that in many parts of the world informal employment is the
norm. Further Chen (2001:72) cites that 83 per cent and 93 per cent of new
jobs were created in the informal economy in Latin America and Africa
respectively. This indicates that the trend of informalisation is unlikely to
be reversed. Informal employment, however, is not only a developing
country phenomenon. The ILO (2002:7) states that three categories of non-
standard or atypical work – self-employment, part-time work and temporary
work – comprised 30 per cent of overall employment in 15 European
countries and 25 per cent of total employment in the United States.
Figure 1 shows broad trends in the labour market in South Africa over the
period 1997 to 2003. As Altman (2005) shows, formal sector employment
has been growing consistently since 1997, albeit at relatively low rates of
growth. We see a sustained growth in unemployment. One segment of the
economy which seems to have generated employment is the informal
economy.1 In this sector, employment increased from 965,000 in October
1997 to 1.9 million in September 2003, more than doubling over a period
of 6 years. For a number of reasons, this trend must, however, be treated
with some caution. First, we are using data from the October Household
Survey for the period 1997-1999 and the Labour Force Survey for the
period 2000-2003, two separate surveys which are not directly comparable.
Second, Devey et al (2004) point to two serious problems with these
estimates of informal employment. They highlight the fact that there are
several inconsistencies in the data on informal employment. More
importantly, they show that Statistics South Africa has improved its capturing
of informal employment so that at least part of the increasing trend in
informal employment is simply better capture of the phenomenon.
Notwithstanding these difficulties, it is now widely accepted that informal
employment has grown since the political transition and that, as the data
shows, this growth has declined in recent years.
Region Percentage
North Africa
Sub-Saharan Africa
Latin America
Asia
48%
72%
51%
65%
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
Figure 1: Labour market status of workers in South Africa, 1997-2003
Source: Authors’ calculations from October Household Survey and
Labour Force Surveys
Drawing on the latest available figures – from the March 2004 LFS –
Figure 2 shows the distribution of informal workers by industrial sector.
From this it is clear that informal employment in South Africa is concentrated
in trade, with just under half of all informal workers located in this sector.
Further, there are significant numbers of people working in construction,
manufacturing and services. In comparison to other developing contexts,
South Africa’s informal economy is disproportionately dominated by trade
(see, for example, Charmes 2000 figures for other African countries).
Figure 2: Informal economy by sector, March 2004
Source: Authors’ calculation from LFS, March 2004
Labour Market Status of Workers, 1997-2003
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
1997 1998 1999 2,000 2001 2002 2003
Year
Number of Workers
Unemploy ed
Unspecified
Domes tic
Inform al
Subs agric
Comm agric
Formal
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Low-waged and informal employment in South Africa
Figure 3 is a graphical representation of monthly incomes in the informal
economy. It is clear from the figure that 51 per cent of those working in the
informal economy earn R500 or less (with a significant number of people
reporting earning nothing) and that 92 per cent earn less than R2501. This
suggests a correlation between being poor and working in the informal
economy. This relationship is confirmed in previous analyses using LFS
data (see, for example Meth, 2002).
Figure 3: Incomes in the informal economy, March 2004
Source: Authors’ calculations from LFS, March 2004.
Table 24 contains summary statistics about the sex and race of those
working in the formal sector, the informal sector, and domestic work. As is
the case internationally,2 there is a gender dimension to the informal
economy in South Africa. It is clear from the table that although more men
than women work in the informal economy, the difference is less than is the
case for the formal economy. It is also clear that the overwhelming majority
of domestic workers are women. Within the informal economy, smaller
scale surveys and qualitative research indicate that women tend to be over
represented in the less lucrative tasks (see, for example, Lund 1998 for
gendered re-analysis and synthesis of research on street trading). Finally,
with respect to race, the majority of those working in the informal economy
are black.
11%
40%
24%
17%
7% 2%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
None R1-R500 R501-
R1000 R1001-
R2500 R2501-
R8000 R8000+
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
Table 24: Formal, informal economies and domestic work by sex and
race
Source: Authors’ calculations from LFS, March 2004.
It is thus clear that a large number of South Africans work in the informal
economy and that this component of employment is increasing. The South
African informal economy is disproportionately dominated by the retail and
wholesale trade. Further there is a close correlation between being poor and
working in the informal economy. Finally there is a gender and race
dimension to informal work.
One interesting issue that has received some attention in the literature is
why, in contrast to other developing country examples, has South Africa’s
informal economy remained so small, in spite of the extremely high levels
of unemployment. Kingdon and Knight (2001) show that the unemployed
are significantly worse off than those operating in the informal economy
and argue that the informal economy in South Africa has high barriers to
entry – some related to the historical racial impediments to blacks entering
the informal economy but, Kingdon and Knight argue, labour market
legislation and access to credit may be significant barriers to growth in
informal employment. A more plausible argument, however, may be that
given large firms’ dominance of the South African economy, smaller
economic agents, including informal workers, lack access to markets. There
is some evidence to support this contention. Altman’s (1995) study of the
clothing industry shows that the market is dominated by large firms who are
unwilling to subcontract production, and that smaller firms are unable to
supply to required quality standards. Similar evidence, in other manufacturing
industries, is provided in the report of the Industrial Strategy Project (Joffe
et al 1995). Furthermore, where informal workers are able to easily enter
Formal Sector Informal Sector Domestic % of Total
Population
Male 61.9% 57.9% 3.8% 52.3%
Female 38.1% 42.1% 96.2% 47.6%
Black 60.1% 89.3% 89.7% 79.7%
Coloured 14.3% 4.8% 10.2% 8.9%
Indian 4.6% 1.2% 0.0% 2.4%
White 20.9% 4.7% 0.0% 8.9%
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Low-waged and informal employment in South Africa
markets, such as in street trading, these activities tend to be highly overtraded
and incomes are exceptionally low (see Skinner 1999, 2005).
Lund (1998) provides an excellent overview of South African research
on street trading, by far the most prominent and extensive form of informal
activity. She shows that there has been a large number of repetitious studies,
almost all based on small samples, exploring the extent of street vending,
and reporting on the lives of these workers. From this, she argues, we get a
‘limited sense of the dynamics of peoples’ lives’ (1998:40). Building on
this overview, Lund and Skinner explore two central issues of relevance to
street trading. Firstly, in Lund and Skinner (1999), they explore the vexed
issue of representation of informal economy workers. They show that a
number of organisations that claim to represent the interests of informal
workers lack adequate records of membership, and offer very few services
to informal workers. More often that not, these organisations emerge as
some contentious issue boils over and then, as the issue dissipates, the
organisations quickly disappear. Secondly, Skinner (1999) explores the
issue of local government regulations and policy toward the informal
trading. In a five city study, she shows that South African cities differ
fundamentally in their approach to local policy for the informal economy.
Section D: Linkages between the formal and informal economy
A critical consideration for policy purposes is the contribution that the
informal economy makes to national output. An argument that the Presidency
and the ANC make, in their recent documents about the ‘Second Economy’
is that it contributes ‘little to GDP’. In fact, the informal economy contributes
somewhere between 7 and 12 percent of GDP. In its estimates of GDP in
South Africa, the South African Reserve Bank uses expenditure surveys of
households to estimate the contribution of the informal economy, which it
captures via its estimates of private consumption expenditure of households.
On this basis, the informal economy contributes some 7 per cent of GDP.
Using an alternative methodology, Budlender et al (2001) estimate that the
informal economy contributes between 8-12 per cent of gross domestic
product.
A particular problem in policy terms, for those working in the informal
economy, is the idea of the second economy being ‘structurally disconnected
from the first’. Case material evidence indicates that there are multiple
forward and backward linkages between formal and informal activities.
Consider, for example, Ince’s (2003) work on informal clothing
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
manufacturing in a residential area in Durban. Not only do manufacturers
source their inputs in the formal economy, but the garments often end up in
formal retail stores. Witt’s (2000) work on informal fruit and vegetable
distribution demonstrates multiple linkages. It is these linkages which, in
policy terms, are often the most interesting places to be concentrating on.
Finally, the idea of the ‘Second Economy’ homogenises a heterogeneous set
of activities.
The panel component of the Labour Force Survey allows us to explore
dynamics in the labour market. The sampling design of the LFS, which is
conducted bi-annually in March and September, allows for 80 per cent of
the sampling in each wave to remain in the sample. Thus, households remain
in the sample over five waves of the LFS. In another paper (Devey et al
2005), we explore these dynamics beginning in September 2001, for five
waves of the LFS ending in March 2004. Matching the individuals in these
households over the period, we are able to get some indication of the extent
to which workers move between employment and unemployment, and when
employed between different segments of the economy, such as formal and
informal.3 In total, we are able to match 5,587 individuals over the period.
Table 25 gives a broad overview of how the status of these workers
changed over the period. The data show that there is a surprising level of
churning within the labour market, with more than half of the workers’
status having changed at least once over the period September 2001 to
March 2004. As is to be expected, for those workers whose status remained
unchanged, most tended to be employed in the formal sector, or remained
economically inactive. Only 1.3 per cent of the 5,587 workers that remained
in the panel continued to work in the informal economy over the period
under consideration.
Table 25: Labour market status, Sept. 2001 to March 2004, n=5587.
Source: Authors’ calculations from various LFSs
Type of Worker Frequency Percent
Remained in the formal economy
Remained economic inactive
Remained in commercial agric.
Remained as a domestic worker
Remained unemployed
Remained as informal worker
Worker status changed
1175
1077
99
89
74
71
3002
21.0
19.3
1.8
1.6
1.3
1.3
53.7
Total 5587 100
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Low-waged and informal employment in South Africa
In Table 26 below we remove from the panel all workers who did not
engage in informal economy activities over the period, ie we retain only
workers who have been engaged in informal economy activities for at least
one period. This reduces the number of workers from 5,587 to 1,009. Again,
we see a surprising level of churning occurring, with only 7 per cent of
workers remaining as informal workers over the entire period.
Table 26: Labour market status of informal economy workers,
September 2001 to March 2004, n=1009
Source: Authors’ calculations from various LFSs
Table 27 below shows the movement of workers that were employed in
the informal economy in any one period over the panel. As is to be expected,
a large number of workers moved between the informal economy and being
unemployed or economically inactive. A significant proportion of workers
(18.3 per cent) moved between formal and informal employment.
Table 27: Shifts between informal work and other labour market status
Source: Authors’ calculations from various LFSs
Type of Worker Frequency Percent
Informal for 5 periods 71 7.0
Informal for 4 periods 88 8.7
Informal for 3 periods 106 10.5
Informal for 2 periods 202 20.0
Informal for 1 period 542 53.7
Total 1009 100
Type of Change Frequency Percent
Informal and unemployed and not economically active 191 18.9
Informal and not economically active 190 18.8
Informal and formal 185 18.3
Informal, formal and unemployed 77 7.6
Informal, formal and not economically active 73 7.2
Remained in informal 71 7.0
Informal and unemployed 60 5.9
Informal, formal, unemployed and not economically active 44 4.4
Other 118 11.7
Total 1009 100
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
If we reduce the period under consideration to just six months, from
September 2003 to March 2004, we still find fairly high levels of churning
in the labour market. Of individuals recorded as informal workers in
September 2003, in March 2004, 44.5 per cent reported working in the
informal economy, 17.3 per cent reported working in the formal economy,
11.4 per cent reported being unemployed, and 23.7 per cent reported being
not economically active. Of individuals recorded as formal workers in
September 2003, in March 2004, 3.4 per cent reported working in the
informal economy.
These linkages between employment in the formal and informal economy
are corroborated by other studies. Devey et al (2004) show that many
workers classified as formal workers have employment characteristics that
are consistent with informal work. There is also significant evidence from
micro-level studies which highlights the growing informalisation of
previously formal work. Kenny (2000) in her analysis of the retail sector,
not only demonstrates that casual and subcontracted labour constitutes up
to 65 per cent of total employment, but highlights how core tasks like shelf
packing are increasingly done by employees of labour brokers, contracted
by suppliers. Skinner and Valodia (2001) analysed the Confederation of
Employers South Africa (COFESA), a labour consultancy that assists
companies to restructure their workforces, to change employees to
contractors and to outsource production to them. COFESA firms no longer
have to adhere to collective agreements on minimum wages or contribute to
any of the benefit or training schemes. In the workplace, other than changes
in labour conditions, everything else remains the same. Skinner and Valodia
demonstrate how by the end of 2000 they estimated that this had resulted in
the establishment of over 700,000 independent contractors. COFESA
members are involved in many different sectors: food, farming, transport,
construction, engineering and, particularly, in footwear and clothing
manufacturing. The legislative loophole in the Labour Relations Act that
COFESA was using has recently been changed. It is unclear whether the
processes COFESA set in place have been reversed. Theron and Godfrey’s
(2000) more qualitative study in which interviews were conducted with key
informants in retail, mining, manufacturing (food, clothing, metal and
engineering), catering and accommodation, construction and transport.
Almost all informants reported an increase in the use of labour brokers and
employment agencies (2000:27). There are also signs of an increase in the
use of labour brokers in agriculture (see for example Du Toit and Ally 2001,
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Low-waged and informal employment in South Africa
on Western Cape horticulture).
Another way to think about linkages between formal and informal work
is to examine how workers from the same household engage in work in the
formal and informal economy. Using the March 2004 LFS, Devey et al
(2005) explore this issue. In the survey, only 2 per cent of households (about
¼ million) contained ONE formal and ONE informal worker. When the
formal worker was a manager (n=9,776), 30 per cent of the cohabiting
informal workers were professionals and 39 per cent were in technical
occupations. When the formal worker reported an elementary occupation
(n=66,446), of the cohabiting informal workers, the distribution was: 44 per
cent elementary occupations; 14 per cent craft workers; 11 per cent service;
11 per cent clerks; < 6 per cent technical; and 2.5 managers. These trends
are not surprising, given the class structure of households in South Africa,
but the data indicates that there are in fact close linkages between work in
the formal economy and work in the informal economy.
Another important aspect of the informal economy with respect to labour
is the role of foreigners, particularly from other African countries. There are
no reliable statistics on the number of foreigners living and working in
South Africa. It is likely however, that since the political transition,
numbers have substantially increased. In the street trading sector this has
become an increasingly controversial issue (see Skinner and Hunter 2001).
Research on international migrants in South Africa demonstrates that they
are very active in the informal economy. Studies have been conducted on
specific groups of immigrants (see Gema (2001), Geyevu (1997), and
Sabet-Shargi (1999) on the economic activities of Ethiopian, Ghanaian and
Congolese refugees respectively). Vawda (1999) reflects on the survival
strategies of different groups of migrants living in the Durban area. Peberdy
and Crush (1998) highlight the contribution of cross border traders to the
craft industry. Rogerson (1997) and Peberdy and Rogerson (2001)
demonstrate the important role foreigners play in the creation of small
businesses. A key theme that emerges in this literature is that, although
foreign migrants are entering the informal economy in large numbers they
tend to remain marginalised and unable to access state resources to enable
progression and growth in their enterprises.
Since the mid 1980s there has been a global trend of decentralisation,
with local and regional authorities having increasing decision-making
power. Although this was initially a response from the international
institutions to address corruption, it has now taken on a momentum of its
120
Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
own. Further, Castells and Portes (1989:304) argue that local government
is often more effective in responding to the informal economy because it is
not embroiled in the types of policy debates which often paralyse national
level initiatives. Portes and Castells make reference to Emilia Romagna in
Italy, Miami and Hong Kong in demonstrating the role of local level
initiatives in supporting segments of the informal economy with growth
potential.
In South Africa, since the political transition, local government has been
given significantly more autonomy. Not only is local government
constitutionally committed to promoting economic development but, because
of the gap in national government policies identified in Section C,
increasingly local government is finding itself having to take responsibility
for managing and supporting the informal economy. The experience in
South Africa is mixed. Certain cities are embarking on a privatisation drive.
This often has negative consequences for those in the informal economy
(see, for example, Skinner 2000, on the consequences of privatising street
trader management in Johannesburg). There are a number of more innovative
responses that warrant mention. First, in 2001 the Durban Unicity adopted
an informal economy policy that outlines a series of support measures for
all informal economy workers. According to the policy document (Durban
Unicity 2001) organisations representing the informal economy will be
strengthened with a view to establishing a strong, stable negotiating
relationship between local government and informal economy workers.
This builds on the experience of a particularly innovative urban regeneration
project in the main transport hub in the inner city – the Warwick Junction.
Second, the Johannesburg City Council’s establishment of a fashion district
in the inner city has significantly assisted small clothing manufacturers
operating there. The project not only offers skills training, but links
manufacturers to markets and fashion designers.
Skinner’s (2005) survey of informal enterprises in the Durban is one of
the few studies available that has a large enough set of data for understanding
the business operations of informal enterprises. Her study shows that there
is in fact extensive entry into, and exit from, the informal economy, with
most enterprises being established recently. She shows that most enterprises,
particularly those of informal traders, operate in heavily overtraded markets
where margins are very low.
.
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Section E: Research agendas
This paper has concentrated on one important aspect of low-waged
employment in South Africa – the informal economy. As highlighted in the
earlier discussion, two other sectors of the economy, domestic work and
agriculture, have a high incidence of low-waged employment. We have not
reviewed developments in these sectors. This is an obvious gap that requires
attention, particularly since the protective ambit of labour legislation,
including minimum wages, has been extended to farm workers and domestic
workers. There is an urgent need for analysis of developments in farm
labour and domestic work.
An important issue that emerges in our review of the literature on the
informal economy in South Africa, and in particular in relation to government
support measures for the informal economy, is the merging of two different
categories of business enterprises – small business and informal enterprises.
The lack of conceptual clarity on these enterprises means that often the
same policy is designed for enterprises employing 100 workers (the top end
of small business) and a street vendor selling basic products with a turnover
of less than R100 per day. There is an urgent need to unpack the analytical
categories used for small business and informal enterprises.
The reliability of national survey data on informal employment, and
more broadly on the lower segments of the labour market has dogged the
debate on employment for a number of years. The President’s recent
questioning of the reliability of the national estimates of unemployment has
again brought this issue to the fore. There is some anecdotal evidence that
large sections of the unemployed are engaged in low-level and low-income
economic activities in the informal economy, and that the estimates of
informal employment should therefore be somewhat higher than they
presently are (and consequently that unemployment should be lower). This
is clearly a critical issue, and one that should receive the attention of the
research community. Detailed field level studies to explore the economic
activities of the unemployed would go some way to resolving this issue.
South Africa is one of the few developing countries that has a time use
survey. Regrettably, the research community in South Africa has not
sufficiently exploited this data. The data is potentially useful to understanding
the dynamics between work and work activities, and is therefore particularly
relevant for understanding informal employment, where the distinction
between work and non-work activities is often blurred. Furthermore, a
recent innovation in macroeconomic modelling, in particularly computable
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Imraan Valodia, Likani Lebani, Caroline Skinner and Richard Devey
general equilibrium (CGE) models, has been the incorporation of the
informal economy (see, for example, Fontana and Wood 2000). These CGE
models rely on time use data. Further research in this area in South Africa
would not only clarify linkages between the formal and informal economy,
but also bring the issues of the informal economy to the fore in
macroeconomic simulations of policy options and the likely impacts of
policy changes.
From a labour market perspective there is clearly a need for research
aimed at better understanding the impacts of labour legislation on the low-
waged sector and on the informal economy. This should focus not only on
the possible negative impacts of labour legislation on employment, but also
on better understanding the reach of the legislation and on the possibility of
extending the protective ambit of the legislation to informal workers, whose
employment is particularly vulnerable. What, for example, are the
possibilities for extending some social protection, such as unemployment
insurance, to the informal economy?
Skinner’s (1999) research has highlighted the importance of local
government policy for the informal economy. Her five city (and town) study
has shown that local government authorities are taking very different
approaches – from facilitative at the one extreme, to restricting at the other
– toward regulating informal economy activities. There is a need for more
research both to understand the outcomes of these approaches and, for
policy purposes, to develop more uniform approaches to informal trade
activities.
Much of the research on the informal economy has concentrated on
explaining the growth of the informal economy and on the data issues. From
an employment policy perspective there is an urgent need for research
aimed at identifying areas for growth in informal employment and the
policies needed to realise this potential. For example, what are the
possibilities for growth in informal employment in services? Relatedly,
most of the detailed case studies conducted have concentrated on street
vendors. Further research is required on other activities in the informal
economy. For example, there is certainly anecdotal evidence of extensive
informal provision of construction services such as plumbing, painting, etc,
yet we have no studies on these activities.
Devey et al (2005) represent the first foray at researching the employment
linkages that may exist between the formal labour market and the informal
economy. Further research aimed at illuminating these linkages is critical
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Low-waged and informal employment in South Africa
for a comprehensive understanding of employment and unemployment in
South Africa.
Notes
1. The other sector showing rapid growth (and then rapid decline) is subsistence
agriculture. See Aliber (2003) for an analysis of the trend in subsistence
agriculture.
2. See Sethuraman (1998) for an international gendered analysis of informal
sector statistics. Having gone through substantial country specific data he
concludes: ‘The evidence reviewed suggests that not only are women’s incomes
lower than that of men [in the informal sector but that]… a greater proportion
of women are in lower income categories than men…. This finding holds good
across all countries in Asia, Africa and Latin America from which evidence is
drawn’.
3. Note that the panel component of the LFS allows us to track households not
individuals over the five waves of the survey. We have examined the sex and
age profiles of workers in these households to confirm that the individuals
remain in the panel. We have thus removed from the panel all households where
the individuals inside the household may have changed (through, for example,
migration).
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