FORMAL–INFORMAL ECONOMY LINKAGES AND UNEMPLOYMENT IN SOUTH AFRICA

Rob Davies · James Thurlow

114 citations0/0 files storedSouth African Journal of Economics

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Taxation and Compliance Studies Labor market dynamics and wage inequality Education and Labor Relations

Abstract

Abstract South Africa's high unemployment and small informal economy has been attributed to barriers to entry in informal labour markets. We develop a general equilibrium model based on a typology of informal activities that captures formal/informal linkages in product and labour markets. Simulations reveal that trade liberalisation increases formal employment, hurts informal producers, and favours informal traders and may explain the dominance of traders instead of producers. Wage subsidies also raise employment but further heighten competition for informal producers. Cash transfers favour informal employment, albeit with a fiscal burden. Results confirm the role of formal/informal linkages and product markets in explaining policy outcomes.

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References

2004Informality Revisited 2004Unemployment in South Africa: The Nature of the Beast 2008Understanding South Africa's economic puzzles*1999Decomposing Shifts in Labour Demand in South Africa 2004‘TWO MILLION NET NEW JOBS': A RECONSIDERATION OF THE RISE IN EMPLOYMENT IN SOUTH AFRICA, 1995–2003 1998Labor Unions and the Distribution of Wages and Employment in South Africa 2007A Gender-Focused Macro-Micro Analysis of the Poverty Impacts of Trade Liberalization in South Africa

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