Is Informal Sector Employment Marginal to Formal Sector Growth?

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.