Explaining the Trend toward Informal Employment in Africa: Evidence from Ghanaian Manufacturing

During the 1990s the proportion of the urban labor force working in the small scale, informal sector grew dramatically across Africa. We investigate the causes of this trend toward informality by studying the case of the manufacturing sector in Ghana, where the share of workers employed in small and micro enterprizes grew from roughly one third in 1987 to over half in 2003. By combining two waves of an industrial census with a rich panel data set on a sample of firms, we quantify the patterns of firm entry, exit and growth which have produced this trend. We document a significantly different pattern of job creation and destruction than previously found in developed country data sets. ∗Special thanks are due to Moses Awoonor-Williams for assistance in obtaining the Ghana Industrial Census data, and to my supervisor, Francis Teal, for consistent guidance and input. The survey data used in this paper were collected by a team from the CSAE, Oxford, the University of Ghana, Legon, and the Ghana Statistical Service (GSS), Accra, over a period from 1992 to 2002. The surveys from 1992 to 1994 were part of the Regional Program on Enterprize Development (RPED) organized by the World Bank. The surveys have been funded by the Department for International Development of the UK Government and the CSAE is funded by the Economic and Social Research Council of the UK.