Growth and Informality in Urban Africa

Tanzania and Ghana have both seen improvements in their growth rates and, in the case of Ghana, a halving of the poverty rate between 1991 and 2005. Yet a common trend in both countries has been the growth in informality in the labour force. Growth has occurred but this has not led to a structural transformation of the economy from small scale to larger scale activities. The result is sometimes described as jobless growth but more accurately characterised as growth without formal wage jobs where formality refers primarily to the size of the enterprise in which the wage job is created. Ghana’s halving of poverty was associated with a halving of the average size of firms in the manufacturing sector. Why does this matter for longer term growth? Enterprise size is linked to demand for skills and the ability to export. Increasing the returns to skills and the demand for them via rapid growth needs to be linked to exports. The project poses two questions. why has growth in output been associated with informality? How are policies which lead to accelerated growth linked to increases in formality? These two questions will be explored within the specific context of the Tanzanian and Ghanaian urban sectors, and will aim to provide information on policies relating to the links between skill formation and the productivity of workers. Specific policy issues that will be addressed include: which skills are most valuable where? How does micro finance link to micro firm formation? Who gets a job and how? What are the sources of income growth among urban workers? What explains unemployment and joblessness in urban Africa?

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