Introduction

CHAPTER 6

What Is the Role of Socioemotional Skills in Supporting South Asia’s Informal Sector Poor: Insights from Pakistan and Sri Lanka

SYUD AMER AHMED, PINYI CHEN, ZAINEB MAJOKA, AND JYOTIRMOY SAHA

Introduction

Informality is ubiquitous in the labor markets of South Asia, and it may be argued that the high rates of informality have implications for income growth and other features of economic development. In the five larger economies in the region collectively, more than 80 percent of the labor market is in the informal sector.1 For example, in Bangladesh, India, Nepal, and Pakistan, the informal sector accounts, respectively, for 95 percent, 88 percent, 81 percent, and 82 percent of economic activity; Sri Lanka is an exception: only 68 percent of economic activity is informal. The high rates of informality may be associated with slower economic growth based on the global evidence on informality and economic development. For example, Ulyssea (2018, 2020) finds that lower rates of informality may be (but are not necessarily) associated with higher output, productivity, or welfare. More recently, Ohnsorge and Yu (2021) argue that economies with larger informal sectors tend to have less access to finance for the private sector, lower labor productivity, slower physical and human capital accumulation, and smaller fiscal resources.

At the same time, poverty reduction remains a major policy objective of many South Asian economies. Many economies are considering the role of labor market and economic inclusion programs in poverty reduction. Poverty rates are higher in South Asian