Formal and Informal Labor Demand in Egyptian Manufacturing Firms

This paper investigates the determinants and dynamics of labour demand and specifically informal labour in Egypt's manufacturing sector, using nationally representative firm-level data. We analyse the determinants of total employment, the share of informal labour, and its average annual change over the firm life cycle. Three key findings emerge. First, employment is positively associated with capital, exporting, innovation, industrial zones, worker training, and managerial education, and negatively associated with sole proprietorships, wages, and total factor productivity. Second, informal employment is more common among private sector firms, sole proprietorships, and firms using more part-time workers, and less prevalent among firms adopting technology or led by more educated managers. Third, although most formal firms exhibit no change in the share of informal workers, formal firms that did not initially employ informal labour tend to increase their informal share, while firms that formalised continue to rely heavily on informal employment. Together, these findings underscore the persistence of informality and limited transitions toward full formalisation within Egypt's formal manufacturing sector.