FORMAL–INFORMAL ECONOMY LINKAGES AND UNEMPLOYMENT IN SOUTH AFRICA |
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Authors: | Rob Davies James Thurlow |
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Affiliation: | 1. Research Associate, Human Sciences Research Council, 134 Pretorius Street, Pretoria, South Africa. E‐mail: rdavies@hsrc.ac.za;2. United Nations University's World Institute for Development Economics Research, and International Food Policy Research Institute, Helsinki, Finland |
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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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Keywords: | D58 D5 D J21 J2 J O21 O2 O O55 O5 O Informal sector unemployment CGE model South Africa |
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