A panel data analysis of the formal-informal sector labour market linkages in South Africa

Figures & data

Table 1. Demographic characteristics of the final sample (%).

Province of residence
Western Cape	8.25
Eastern Cape	10.35
Northern Cape	2.40
Free State	5.45
KwaZulu-Natal	19.80
North West	4.94
Gauteng	24.23
Mpumalanga	8.08
Limpopo	8.19
Province of residence changed	8.31
Geo-type of residence
Traditional	27.89
Urban	54.59
Farms	3.97
Geo-type changed	13.55
Gender
Male	44.54
Female	55.46
Population group
African	83.80
Coloured	7.77
Asian/Indian	2.42
White	6.01
Age cohort at the time of wave 1
15–24 years	32.99
25–34 years	24.54
35–44 years	21.02
45–54 years	16.07
55–65 years	5.39

Source: Own calculations using NIDS data.

Table 2. Educational, labour market and household characteristics of the final sample.

	Wave 1	Wave 2	Wave 3	Wave 4
Highest educational attainment (%)
None	6.18	5.71*	5.69	5.62^^
Incomplete primary	12.60	11.69*	11.63^#	11.00^^
Incomplete secondary	52.30	50.04*	47.43^#	47.67^^
Matric	20.04	20.43*	20.09^#	17.20^^
Matric & certificate/diploma	6.81	9.68*	12.05^#	14.65^^
Degree	1.87	2.36*	2.98^#	3.62^^
Other/unspecified	0.20	0.08*	0.13^#	0.23^^
% with at least Matric	28.72	32.47*	35.12^#	35.47^^
Labour market status (%)
Inactive	32.84	39.33*	31.42^#	28.92^^
Unemployed	22.07	17.73*	20.39^#	14.66^^
Employees	31.30	33.69*	37.71^#	43.55^^
Self-employed	6.16	4.82*	5.63^#	6.84^^
Casual workers	4.09	3.35*	3.87^#	4.81^^
Unclassified employed	3.54	1.09*	0.99	1.23^^
Labour force participation rate (%)	67.16	60.67*	68.58^#	71.08^^
Unemployment rate (%)	32.86	29.22*	29.73	20.62^^
Formal/Informal sector status of employed (%)
Informal	38.58	41.15*	39.86^#	39.75^^
Formal	53.57	56.33*	58.08^#	58.07^^
Unclassified employed	7.85	2.53*	2.06^#	2.18^^
Household level characteristics (mean)
Household size	5.11	5.29*	5.04^#	4.81^^
Number of children aged 0–14 years	1.66	1.75*	1.64^#	1.58^^
Number of adults aged 15–59 years	3.21	3.28*	3.13^#	2.92^^
Number of elderly aged 60+ years	0.23	0.26*	0.28^#	0.31^^
Number of old-age grant recipients	0.17	0.25*	0.22^#	0.25^^
Number of child grant recipients	0.55	0.63*	0.67^#	0.67
Number of other government grant recipients	0.16	0.13*	0.14^#	0.14

Source: Own calculations using NIDS data.

*The change between wave 1 and wave 2 is statistically significant at α = 5%.

^#The change between wave 2 and wave 3 is statistically significant at α = 5%.

^{^}The change between wave 3 and wave 4 is statistically significant at α = 5%.

Figure 1. Labour market status transition between wave 1 and wave 4. Source: Own calculations using the NIDS data.

Table 3. Detailed labour market status of the final sample (%).

Detailed labour market status category
Remain inactive (RIA)	7.31
Remain unemployed (RU)	0.94
Remain informal (RI)	2.54
Remain formal (RF)	11.84
Employed all 4 waves, moving between formal and informal sectors (E4M)	8.02
Employed all 4 waves & movement unknown (E4U)	0.31
Employed in 3 waves only (E3)	15.69
Employed in 2 waves only (E2)	16.68
Employed in 1 wave only (E1)	21.40
Other (O)	15.29
Number of times employed (regardless of sector)
Not employed at all	23.53
Employed in 1 wave	21.40
Employed in 2 waves	16.67
Employed in 3 waves	15.59
Employed in all 4 waves	22.71
Number of times working in the formal sector
Never worked in formal sector	53.90
Worked in formal sector in 1 wave	15.75
Worked in formal sector in 2 waves	10.30
Worked in formal sector in 3 waves	8.21
Worked in formal sector in all 4 waves	11.84
Number of times working in the informal sector
Never worked in informal sector	54.23
Worked in informal sector in 1 wave	26.07
Worked in informal sector in 2 waves	11.79
Worked in informal sector in 3 waves	5.37
Worked in informal sector in all 4 waves	2.54

Source: Own calculations using NIDS data.

Table 4. Work characteristics of the three focus groups in wave 4.

	Per cent (%)
	RI	RF	E4M
Nature of work
Employees	58.68	96.22	84.38
Self-employed	28.97	3.78	11.13
Casual workers	12.35	0.00	4.49
Broad occupation category
Managers	2.93	10.97	5.58
Professionals	5.86	16.98	6.79
Technicians	0.46	7.71	6.00
Clerks	1.43	10.21	6.22
Service workers	21.02	12.87	18.97
Skilled agriculture	0.09	0.56	0.66
Trades	11.65	13.04	18.15
Operators	9.60	15.96	13.49
Elementary occupation	46.12	9.92	23.83
Other/unspecified	0.85	1.78	0.31
Broad industry category
Agriculture	3.12	3.55	10.73
Mining	0.00	7.80	3.30
Manufacturing	2.81	12.38	12.82
Utilities	0.17	1.51	1.34
Construction	9.17	4.33	8.65
Wholesale & retail	17.28	11.06	16.87
Transport	4.81	7.99	5.48
Finance	0.04	12.37	10.28
Community, social and personal services	14.28	37.90	24.13
Private household	46.40	0.00	5.98
Other/unspecified	1.93	1.11	0.40

Source: Own calculations using the NIDS data.

Table 5. Change in mean years of education of selected groups between wave 1 and wave 4.

	Years of education in wave 1	Years of education in wave 4	Difference in years of education
Regardless of educational institution attendance in wave 1
Formal in wave 1; formal in wave 4	10.88	11.27	0.39
Informal in wave 1; informal in wave 4	7.87	8.05	0.18
Formal in wave 1; informal in wave 4	9.12	9.42	0.30
Informal in wave 1; formal in wave 4	9.86	10.28	0.42
Only including those who were not enrolling any educational institution in wave 1
Formal in wave 1; formal in wave 4	10.87	11.24	0.37
Informal in wave 1; informal in wave 4	7.76	7.94	0.28
Formal in wave 1; informal in wave 4	9.11	9.40	0.29
Informal in wave 1; formal in wave 4	9.83	10.25	0.42

Source: Own calculations using the NIDS data.

Table 6. Probit estimates or labour market transitions from wave 1 to wave 4.

	Job finding rate	Job exiting rate	Transitioning from unemployed or informal sector to formal sector	Transitioning from informal sector to formal sector
Male	0.106***	−0.057**	0.140***	0.199***
Coloured	0.045	0.079	0.062	0.153
Indian	Dropped^#	0.006	0.007	−0.031
White	0.061	0.043	0.149	0.337*
Age	0.008	−0.044***	−0.008	0.012
Age Squared	0.000	0.001***	0.000	0.000
Years of education	−0.054***	0.012	−0.028*	−0.024
Years of education squared	0.005***	−0.002***	0.004***	0.004**
Traditional	−0.059	0.060	−0.045	−0.067
Urban	0.022	−0.060	0.067	0.041
Farm	0.150	−0.142***	0.164*	0.106
Western Cape	−0.036	−0.077	−0.010	−0.111
Eastern Cape	−0.153*	−0.080	−0.113*	−0.160
Northern Cape	−0.160*	−0.090	−0.044	−0.127
Free State	−0.091	−0.073	−0.016	0.111
Kwa-Zulu Natal	−0.072	0.046	0.000	−0.021
North West	−0.077	−0.022	−0.023	−0.122
Gauteng	−0.144*	−0.093*	−0.067	−0.033
Mpumalanga	−0.068	−0.124*	0.075	−0.025
Limpopo	−0.175*	−0.138*	−0.049	−0.061
Head of household	0.086*	−0.076*	0.071*	0.062
Married/partner present	−0.068	−0.003	0.041	0.099*
Number of children	0.012	0.008	0.023***	0.015
Number of elderly	−0.028	0.032	0.012	0.082
Observed probability	0.7021	0.2823	0.3455	0.4043
Predicted probability (at x-bar)	0.7134	0.2563	0.3285	0.3849
Number of observations	1267	3491	2285	944
Probability > chi-squared	.0033	.0000	.0000	.0000
Pseudo R^2	.0543	.1379	.0925	.1409

Notes: Significance levels: ***p < .01, **p < .05, *p < .10. The average marginal effects based on panel-weighted binary probit regression; Base categories: female, Africans, geo-type changed, province of residence changed, not household head; not married or no partner.

Source: Own calculations using the NIDS data.

^#Perfect collinearity.

Table 7. Multinomial logistic estimates of grouped final labour market status transitions from wave 1 to wave 4.

	Relative risk ratio (RRR)
	Group 2: Employed in 1–3 waves	Group 3: Informal sector in 4 waves	Group 4: Formal sector in 4 waves	Group 5: Formal or informal in 4 waves
Male	2.437***	1.379	7.017***	5.940***
Coloured	1.920***	0.235***	2.105**	2.050**
Indian	0.595	0.048***	2.178	0.309
White	0.952	0.048***	1.607	0.880
Age in years	1.228***	1.960***	2.163***	1.785***
Age in years squared	0.997***	0.991***	0.990**	0.992***
Education years	0.852***	0.868	0.747***	0.813***
Education years squared	1.018***	1.014*	1.042****	1.029***
Traditional	0.577***	0.751	0.260***	0.345***
Urban	0.805	1.482	0.919	0.745
Farm	0.882	5.302***	1.345	3.051***
Western Cape	1.063	4.604**	2.330*	3.111***
Eastern Cape	0.830	1.862	1.176	1.260
Northern Cape	0.712	3.063	1.155	1.523
Free State	1.182	1.034	2.089	2.052*
Kwa-Zulu Natal	1.272	1.499	1.204	1.643
North West	0.886	1.145	1.437	2.327*
Gauteng	1.097	2.266	2.707**	2.186*
Mpumalanga	1.252	1.939	2.401*	2.665**
Limpopo	1.085	2.206	2.361*	1.812
Head of household	1.582***	1.996***	3.449***	2.595***
Married/partner present	0.995	0.930	1.347	1.270
Number of children	1.001	0.766***	0.896**	0.905*
Number of elderly	0.942	0.703	0.732	0.923
Constant	0.060***	0.000***	0.000***	0.000***
Number of observations	8610
Probability > chi-squared	.0000
Pseudo R^2	.1917

Notes: Significance levels: ***p < .01, **p < .05, *p < .10. Normalising category: never employed (group 1); Base categories: female, Africans, geo-type changed, province changed, not household head, unmarried or not living with partner.

Source: Own calculations using the NIDS data.

Table 8. Multinomial logistic fixed-effect estimates of labour market status category.

	Relative risk ratio (RRR)
	Inactive	Unemployed	Formal sector	Unclassified employed
Age in years	0.546***	0.832***	1.408***	0.728***
Age in years squared	1.007***	1.001*	0.996***	1.003***
Education years	1.003	0.815**	1.006	0.814
Education years squared	0.985***	1.016***	1.005	0.994
Urban	0.463***	0.370***	1.133	0.324***
Farm	0.373***	0.343***	1.452*	0.455**
Eastern Cape	2.957**	1.059	0.744	1.281
Northern Cape	1.097	1.995	0.915	0.258
Free State	0.921	1.909	1.793	0.000
Kwa-Zulu Natal	3.597**	1.782	1.269	2.136
North West	1.514	1.230	2.295	1.415
Gauteng	0.996	1.326	1.562	0.255
Mpumalanga	2.063	2.800	1.359	1.049
Limpopo	2.048	1.601	1.189	0.693
Head of household	0.924	0.734***	0.849**	1.427***
Married/partner present	1.176*	1.085	1.008	2.957***
Number of children	1.125***	1.089***	1.054*	0.875***
Number of elderly	0.893	0.954	0.838*	0.695**
Number of old-age grant recipients	1.672***	1.423***	1.212**	0.935
Number of child grant recipients	0.909	0.971	0.908**	0.858**
Number of other social grant recipients	1.144	0.990	1.019	1.193
Number of observations	27 615
Probability > chi-squared	.0000
Pseudo R^2	.1729

Notes: Significance levels: ***p < .01, **p < .05, *p < .10. Normalising category: informal sector; Base categories: Western Cape, traditional area, not household head, unmarried or not living with partner. 1719 groups (6848 observations) are dropped because the labour market status remains the same across all four waves; Gender and race dummy variables are omitted because of zero within-group variance.

Source: Own calculations using the NIDS data.

Table A1. Labour market status transitional matrices.

		Inactive	Unemployed	Informal	Formal	Unclassified	Total
	Labour market status in wave 4
Labour market status in wave 1	Inactive	39.89	20.19	20.18	18.15	1.60	100.00
	Unemployed	29.31	21.16	24.13	24.04	1.36	100.00
	Informal	23.72	9.83	38.42	26.58	1.45	100.00
	Formal	13.63	5.28	13.62	67.02	0.45	100.00
	Unclassified	54.52	10.68	14.06	19.48	1.26	100.00
	Total	28.92	14.66	22.42	32.76	1.23	100.00
	Labour market status in wave 2
Labour market status in wave 1	Inactive	66.36	19.27	8.78	4.22	1.36	100.00
	Unemployed	40.42	28.69	18.86	10.24	1.79	100.00
	Informal	26.19	14.32	38.93	20.15	0.41	100.00
	Formal	7.39	7.66	14.74	69.85	0.37	100.00
	Unclassified	64.20	20.52	8.21	4.69	2.37	100.00
	Total	39.33	17.73	17.67	24.19	1.09	100.00
	Labour market status in wave 3
Labour market status in wave 2	Inactive	51.10	26.05	13.51	7.90	1.43	100.00
	Unemployed	32.30	31.73	18.99	15.36	1.62	100.00
	Informal	19.93	14.49	41.00	23.99	0.59	100.00
	Formal	6.86	6.82	12.92	73.24	0.16	100.00
	Unclassified	38.33	28.21	14.54	18.91	0.00	100.00
	Total	31.42	20.39	19.21	27.99	0.99	100.00
	Labour market status in wave 4
Labour market status in wave 3	Inactive	53.29	17.77	17.57	9.46	1.92	100.00
	Unemployed	30.14	27.13	24.62	17.12	0.99	100.00
	Informal	16.81	10.28	46.46	25.20	1.25	100.00
	Formal	8.40	5.22	9.37	76.58	0.42	100.00
	Unclassified	45.25	11.48	34.04	2.51	6.71	100.00
	Total	28.92	14.66	22.42	32.76	1.23	100.00

Source: Own calculations using NIDS data.

Table A2. Demographic and educational attainment characteristics of three selected labour market transition groups.

	[A]: Informal to inactive	[B]: Informal to unemployed	[C]: Informal to formal
Province of residence
Western Cape	8.25	10.28	10.20
Eastern Cape	8.99	13.77	7.49
Northern Cape	3.17	2.84	2.56
Free State	6.92	3.65	9.11
KwaZulu-Natal	29.71	23.82	15.06
North West	5.64	4.37	3.05
Gauteng	19.47	25.95	28.03
Mpumalanga	10.00	3.05	11.15
Limpopo	6.48	5.88	7.64
Province of residence changed	1.35	6.40	5.72
Geo-type of residence
Traditional	34.27	33.14	15.42
Urban	54.34	53.55	66.18
Farms	2.91	3.39	10.39
Geo-type changed	8.48	9.92	8.00
Gender
Male	33.27	45.99	56.49
Female	66.73	54.01	43.51
Population group
African	80.46	86.92	83.57
Coloured	7.93	9.40	10.31
Asian/Indian	3.89	0.00	3.41
White	7.72	3.68	2.71
Age cohort at the time of wave 1
15–24 years	9.26	23.43	25.26
25–34 years	15.59	37.44	34.19
35–44 years	26.80	20.23	31.51
45–54 years	30.84	18.45	8.23
55–65 years	17.50	0.45	0.78
Mean (years)	42.52	33.37	32.49
Highest educational attainment at the time of wave 1
None	16.96	6.44	3.34
Incomplete primary	22.36	12.64	8.55
Incomplete secondary	41.52	61.28	53.39
Matric	10.46	19.23	21.19
Matric + certificate	8.32	0.41	11.89
Degree	0.38	0.00	1.65
Other/unspecified	0.00	0.00	0.00
Mean (years)	7.16	8.92	9.87
Highest educational attainment at the time of wave 4
None	15.37	6.72	2.59
Incomplete primary	21.24	9.13	8.97
Incomplete secondary	44.82	64.08	47.47
Matric	9.82	12.73	15.12
Matric + certificate	6.47	4.21	23.78
Degree	2.27	2.69	2.07
Other/unspecified	0.00	0.43	0.00
Mean (years)	7.37	9.26	10.31

Source: Own calculations using NIDS data.

Table A3. Characteristics of each detailed labour market status category (%).

	RIA	RU	RI	RF	E4M	E4U	E3	E2	E1	O	All
Province of residence
Western Cape	4.64	7.11	10.44	11.21	14.33	16.79	11.26	7.99	5.06	5.68	8.25
Eastern Cape	18.30	3.07	13.35	6.51	7.50	1.81	8.31	9.54	11.12	13.01	10.35
Northern Cape	2.32	3.10	3.61	2.51	2.94	2.70	2.20	2.23	2.33	2.32	2.40
Free State	5.00	4.17	3.85	6.34	5.98	7.19	6.03	5.46	5.18	4.78	5.45
KwaZulu-Natal	25.39	17.06	12.91	10.93	11.64	43.80	17.51	22.65	24.38	21.91	19.8
North West	5.11	2.62	3.44	4.15	6.15	3.64	5.26	3.73	4.83	6.41	4.94
Gauteng	14.87	41.30	32.16	40.47	30.80	0.00	25.71	21.42	19.93	18.39	24.23
Mpumalanga	4.92	5.37	8.72	7.12	10.55	1.61	8.34	8.28	8.15	8.67	8.08
Limpopo	11.00	9.34	8.77	5.36	5.92	6.55	6.70	7.78	9.50	10.24	8.19
Province changed	8.46	6.85	2.74	5.40	4.19	15.89	8.69	10.92	9.52	8.59	8.31
Geo-type of residence
Traditional	41.52	29.40	22.97	7.71	14.25	43.57	21.23	28.58	34.77	41.00	27.89
Urban	40.41	61.77	62.84	79.63	65.88	28.49	60.36	52.08	45.60	44.15	54.59
Farms	4.84	0.43	8.62	4.28	10.21	2.69	4.16	2.90	2.66	2.33	3.97
Geo-type changed	13.22	8.40	5.57	8.39	9.66	25.24	14.25	16.44	16.97	12.52	13.55
Gender
Male	25.64	26.57	33.36	66.18	64.02	52.65	51.21	46.21	37.59	30.46	44.54
Female	74.36	73.43	66.64	33.82	35.98	47.35	48.79	53.79	62.41	69.54	55.46
Population group
African	84.03	89.82	96.09	66.01	77.92	90.03	83.04	83.32	88.97	92.06	83.80
Coloured	5.27	6.55	3.28	9.11	13.18	2.90	9.17	9.36	6.51	4.61	7.77
Asian/Indian	3.88	0.43	0.28	5.94	1.97	0.00	1.72	2.11	1.74	1.79	2.42
White	6.82	3.20	0.35	18.94	6.94	7.06	6.06	5.21	2.78	1.54	6.01
Age cohort at the time of wave 1
15–24 years	40.73	32.29	9.36	3.21	13.56	36.34	24.31	37.09	45.97	52.73	32.99
25–34 years	3.77	42.39	29.10	32.83	35.43	34.19	27.15	27.35	19.83	21.12	24.54
35–44 years	8.97	22.51	39.93	37.85	32.18	10.42	25.12	17.59	15.08	12.69	21.02
45–54 years	26.59	2.81	19.92	21.95	16.83	7.80	17.66	13.71	13.45	11.04	16.07
55–65 years	19.94	0.00	1.69	4.16	1.99	11.25	5.76	4.27	5.66	2.43	5.39
Mean (years)	36.38	28.78	37.15	38.62	35.45	31.64	34.93	31.44	30.24	27.67	32.81
Highest educational attainment at the time of wave 1
None	16.98	0.47	10.27	0.98	4.21	1.08	6.06	5.13	8.15	4.36	6.18
Incomplete primary	23.78	11.66	18.95	7.69	11.39	19.47	11.12	11.48	14.23	11.00	12.60
Incomplete secondary	53.14	65.30	51.66	29.35	47.93	50.49	46.97	53.60	56.46	69.57	52.30
Matric	3.52	17.16	14.21	31.95	23.17	16.50	23.53	23.87	18.16	13.17	20.04
Matric + certificate	2.26	5.42	3.95	19.67	10.52	1.18	10.46	5.19	2.71	1.52	6.81
Degree	0.28	0.00	0.47	10.20	2.52	11.29	1.60	0.60	0.13	0.07	1.87
Other/unspecified	0.03	0.00	0.49	0.17	0.26	0.00	0.27	0.13	0.16	0.30	0.20
Mean (years)	6.38	9.48	8.02	11.10	9.64	9.83	9.35	9.25	8.49	8.84	9.05
Highest educational attainment at the time of wave 4
None	15.49	0.47	8.59	1.56	4.58	1.08	5.12	4.47	7.26	4.00	5.62
Incomplete primary	20.03	6.03	19.34	6.45	9.61	9.95	10.40	10.80	12.88	8.05	11.00
Incomplete secondary	43.91	67.33	51.88	30.11	48.41	47.02	47.07	48.54	47.73	60.39	47.67
Matric	12.57	15.22	12.35	18.64	15.12	11.21	15.81	19.16	18.60	17.78	17.20
Matric + certificate	6.81	8.29	7.37	28.44	18.58	19.46	17.71	13.98	11.50	9.16	14.65
Degree	0.80	0.00	0.47	14.75	3.30	11.29	3.90	2.58	1.82	0.51	3.62
Other/unspecified	0.38	2.65	0.00	0.06	0.40	0.00	0.00	0.47	0.21	0.11	0.23
Mean (years)	7.49	9.94	8.17	11.47	9.95	11.07	9.76	9.74	9.23	9.58	9.63

Source: Own calculations using the NIDS data.

Table A4. Pooled multinomial logistic estimates of labour market status category.

	Relative risk ratio (RRR)
	Inactive	Unemployed	Formal sector	Unclassified employed
Male	0.540***	0.761***	2.104***	0.837**
Coloured	0.937	0.974	1.449***	0.525***
Indian	2.675***	1.558**	1.362	0.972
White	1.926***	0.717	1.429***	2.025**
Age in years	0.649***	0.923***	1.074***	0.771***
Age in years squared	1.005***	1.000***	0.999***	1.003***
Education years	1.035**	1.057***	0.931***	0.970
Education years squared	0.993***	0.997***	1.017***	1.002
Urban	0.670***	0.723***	1.483***	0.300***
Farm	0.468***	0.421***	1.835***	0.480***
Eastern Cape	1.516***	1.396***	0.679***	0.784
Northern Cape	1.413***	1.552***	0.774***	1.023
Free State	1.324***	1.406***	0.781***	0.741
Kwa-Zulu Natal	1.461***	1.314***	0.860*	1.421*
North West	1.539***	1.607***	0.955	0.817
Gauteng	1.116	1.342***	0.901	0.639*
Mpumalanga	1.319***	1.471***	1.047	0.790
Limpopo	1.368***	1.064	0.650***	0.736
Head of household	0.710***	0.599***	0.957	1.055
Married/partner present	1.238***	1.021	1.274***	1.710***
Number of children	1.110***	1.089***	1.080***	1.020
Number of elderly	0.796***	0.947	0.934	0.905
Number of old-age grant recipients	1.774***	1.355***	1.024	1.152
Number of child grant recipients	0.874***	0.969	0.813***	0.906**
Number of other social grant recipients	1.584***	1.113**	0.821***	1.475***
Constant	6109.516***	7.750***	0.042***	33.487***
Number of observations	34 643
Probability > chi-squared	.0000
Pseudo R^2	.1530

Notes: Significance levels: ***p < .01, **p < .05, *p < .10. Normalising category: informal sector; Base categories: Western Cape, traditional area, not household head, unmarried or not living with partner.

Source: Own calculations using the NIDS data.