Human Capital and Women’s Informal Work: Theory and Evidence

Informal employment among developing countries’ women continues to impair their emancipation from chronic poverty, although there has been progress in recent decades. In sub-Saharan Africa, not only do women lag behind men in educational attainments, they are also overrepresented in low-paid informal employments. In the literature, marriage and childbearing are seen to be the cause of both low educational attainments and high prevalence of informal employment among sub-Saharan African women. However, this prediction ignores the significance of human capital as a determinant of employability in the formal sector. In this paper, we use micro-level data from Niger in combination with the instrumental variables approach to analyze the causal effect of a female’s level of education - a proxy for human capital - on the likelihood of informal employment. A theoretical job-search model highlighting the mechanism driving this causal effect guides our empirical analysis. We find that an additional year of schooling completed lowers the probability that a female is informally employed by 3.99% to 6.12%. Our theoretical model explains this relationship by the fact that, in informal employments, the opportunity cost of leisure and childbearing rises with a female education, due to the flexibility of hours worked for this type of employment.