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Is Informal Sector Employment Marginal to Formal Sector Growth?


  • Nadia Tahir

    (University of Lahore, Lahore)

  • Pervez Tahir

    (former Chief Economist, Planning Commission, Islamabad)


This paper discusses existing scenario of informal sector employment and socio-economic challenges faced by informal worker in search of “decent work.” We supplement the Labour Force Surveys (LFS) with a socioeconomic survey in five towns of Lahore to profile home-based workers, street vendors, and waste pickers. LFS is used to estimate the percentage distribution of employed labour force in the informal sector by applying dynamic panel data model. Random effect and Arellano and Bond (1991) GMM style dynamic panel model outperforms other experiments in terms of consistency of estimator and efficiency gains. The results show that wages in formal sector and overall GDP growth are countercyclical and manufacturing sector growth is procyclical with informal employment. There is unobserved gender heterogeneity and no latent time effect. It is the only work opportunity for the low skilled. Informal sector continues to be marginal to the formal sector but a dynamic subset exists in the manufacturing sector.

Suggested Citation

  • Nadia Tahir & Pervez Tahir, 2012. "Is Informal Sector Employment Marginal to Formal Sector Growth?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(4), pages 543-564.
  • Handle: RePEc:pid:journl:v:51:y:2012:i:4:p:543-564

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    More about this item


    Informal Sector; Employment; Wages; Women; Panel Data;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J81 - Labor and Demographic Economics - - Labor Standards - - - Working Conditions
    • J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements


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