Informal Sector Work in Ghana: Determinants and Poverty Implications

Abstract

This study adopts a legal definition of informal sector work and studies the determinants of informality, paying particular attention to the gender dynamics with respect to informality and poverty. The study throws more light on the definition and measures of informality, then proceeds to determine the socio-economic factors that influence an individual’s decision to work in the informal sector. Particular attention is given to the relationship between informal sector work and poverty – unidimensional and multidimensional poverty. Then the study analyses certain characteristics of informal sector work that contributes to poverty, arguing that these characteristics have different implications on unidimensional poverty and multidimensional poverty. Employing the simultaneous equation probit model in analyzing the first objective, the study finds that there is a significant impact of poverty on the probability of participation in the informal sector. There is also a form of association between working in the informal sector and the likelihood of being poor. Other factors such as age, education, household size, and location also have significant effects on participation in the informal sector. The ordinary least squares method is applied to determine the characteristics of the informal sector that is likely to affect the unidimensional and multidimensional poverty of households. The findings corresponding to this objective suggests that an increase in the average hours of informal sector work reduces multidimensional poverty of households. Also, gender has a specific role to play when it comes to reducing poverty, especially in the informal sector. Based on this, it is recommended that policies be directed towards educating males in the sector and improving the working conditions for the females in the sector.