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The Informal Sector

Labour Market Issues
in the Urban Informal Sector

Hari Srinivas
Concept Note Series E-070. June 2015.

Essentially, there are three labour market issues which could be studied in the urban informal sector perspective:
  1. Does the urban informal sector absorb recent migrants for its labour force?
  2. Is the urban informal sector an easy entry sector for various categories of labour?
  3. Does the urban informal sector play a buffer role in the transitional stage of a migrants search for a formal sector job?

A detailed study of the labour market would require the study of the supply and demand conditions prevailing in the market.

It can, of course, be argued that the labour market analysis does not include processes. While market is essentially economic in character, processes include social, cultural and political factors that go into effecting the supply and demand of labour in an urban economy.

    Supply in the labour market
  • Population: Population growth and policies such as family planning have an effect on the supply of labour
  • Age structure: With the productive age groups being from 10 years to 65 years, the age distribution will affect productive capacities in the informal sector.
  • Gender distribution: Distribution of male and female population, especially in light of the vast female population entering the labour market
  • Education and skills: The level of education and skills that a labourer, both formal and informal.
  • Stage of economic development: THe current state of the macro economy - in terms of economic upturns (or booms) and down turns (or recessions).
  • Wage levels: The current levels of wages available for labourers in the informal (and formal) sectors.

    Demand in the labour market

  • Age and sex of labour can also be determinants on the demand side, depending on the work to be done
  • Similarly, education and skill levels will also affect the demand
  • Stage of economic development will have an affect on the requirement for labour
  • Level of technology impacts the trade-off between capital-intensive and labour-intensive technologies, which will affect the demand for labour
  • Again, wages offered by an enterprise could affect demand for labour (high wages are an incentive, for example, for women to work).

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