BOX 2.1 Informality in the Services Sector (continued)
ce an ur ins
nd la cia
an Fin
tra nis Ad
mi
Pr
ort su
nd ea tiv
Tr
ss ofe
tel Ho
pp
ICT
on sp
an
tec al/ ion
ort
hn
ati
ica
l
ale les
l
ho
tai
W
ran tau
sa
Ot
nd
he
res
rs
Re
s ice erv
tur fac nu Ma
ts
100 90 80 70 60 50 40 30 20 10 0
ing
Share (%)
FIGURE B2.1.2 The Importance of Informality in Services Relative to Manufacturing Is Most Pronounced When Comparing Shares of Employment and Value Added Shares of value added and employment from unregistered businesses in Ghana, by sector, 2013
% value added
% employment
% firms
Source: Calculations using the 2013 Integrated Business Establishment Survey of the Ghana Statistical Service. Note: The dataset includes only informal firms. Informality is determined by whether firms are registered at the Registrar General’s Department. No minimum size threshold has been applied. ICT = information and communication technology.
• One view—commonly associated with De Soto (2000)—emphasizes the role of burdensome regulations in keeping firms informal and unproductive and asserts that removing barriers to formalization would encourage firm growth. • A less favorable view of informality—as expressed by Farrell (2004) and Levy (2008)—emphasizes the benefits to informal firms of unfair competition and tax avoidance. • A third view—as expressed by La Porta and Shleifer (2014)—contends that informality is a symptom of lacking capabilities and that informal and formal enterprises have very different characteristics. Generally, the informal sector underperforms the formal sector in terms of revenue, profits, employment, and productivity (La Porta and Shleifer 2014), and many informal entrepreneurs likely operate their businesses out of necessity rather than opportunity (Acs 2006). In Sri Lanka, roughly two-thirds of informal entrepreneurs have characteristics more akin to wage workers than to formal entrepreneurs (De Mel, McKenzie, and Woodruff 2010). In Mozambique, 62.7 percent of informal entrepreneurs would prefer to have a wage job that provides a similar income (Aga et al. 2021). These findings do not necessarily imply that informality is undesirable. From a social protection point of view, the informal sector is important in providing economic livelihoods to many who cannot find employment in the formal sector. Gulyani and Talukdar (2010) study informal enterprises in the slums of Nairobi and argue that—when factors explaining selection into entrepreneurship are controlled for—poverty is lower among
Box continues on the following page
Productivity and Jobs in Services: Mind the Gaps
65
