nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2014‒11‒22
two papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Income Insecurity, Job Insecurity and the Drift towards Self-employment in SSA By Adams, Abass; Cantah, William Godfred; Wiafe, Emmanuel Agyapong
  2. Effects of Reducing Tariffs in The Democratic Republic of Congo(DRC): A CGE Analysis By Jean Luc Erero, Daniel Djauhari Pambudi & Lumengo Bonga-Bonga

  1. By: Adams, Abass; Cantah, William Godfred; Wiafe, Emmanuel Agyapong
    Abstract: This study contributes to the explanation to growing informality by proposing and testing a simple framework that link income insecurity to the proliferation of informal enterprise through job insecurity in selected SSA countries. The study adopted a quantitative approach and used ANOVA analysis to analyze a uniform firm level data on informal enterprises in Ghana, Kenya and the DRC. The analyses suggested that income insecurity exist in the form of significant seasonal variations in sales returns. Enterprises that employ more than one worker, on the average, cut employment significantly during the slowest months as compared to employment in the busiest months. Thus a link is established between income insecurity and job insecurity which deters the informal enterprises from increasing permanent employment and hence remains small overtime. Instead firms resort to casual workers and unpaid workers to facilitate production. The insecurity in the informal sector paid employment drive paid employees into self-employment after learning the employer’s trade and hence multiply the number of enterprises in a locality which in turn keep returns fairly normal in the sector. The major recommendation of that study is that owners of informal enterprises must be regulated in their current jobs and assisted to build capacity to deal with sales variations and other employment uncertainty after which the demand for formality and growth in decent employment shall be a natural course of action to the firms.
    Keywords: informality, Insecurity, Enterprises, income, job, employment, Self-employment
    JEL: J01 J29 J40 J47 J63 J64
    Date: 2014–10–31
  2. By: Jean Luc Erero, Daniel Djauhari Pambudi & Lumengo Bonga-Bonga
    Abstract: In this paper, the effects of reducing tariffs are analysed through a Computable General Equilibrium (CGE) model of the DRC. The specific DRC Formal-Informal Model (DRCFIM) is a multi-sectoral computable general equilibrium model that captures the observed structure of the DRC’s formal and informal economies, as well as the numerous linkages or transmission channels connecting their various economic agents, such as investors, firms, traders, and the government. The parameters of the CGE equations are calibrated to observed data from a social accounting matrix (SAM). In particular, this study draws the attention of policy makers to a different employment outcome when tariff reduction is taken into consideration. Tariff reduction increases formal employment and output but hurts informal producers. It considerably increases the output and employment of the formal sector by raising import competition without providing further opportunities for the informal sector to access foreign export markets. Nonetheless, it induces productivity improvements when local producers survive import competition by seeking importing input-saving technologies and production practices. These findings highlight the importance of differentiating between the formal and informal sector impacts of the DRC’s socioeconomic policies.
    Keywords: informal sector, CGE model, Democratic Republic of Congo
    JEL: C68 D58 E26 F16
    Date: 2014

This nep-iue issue is ©2014 by Catalina Granda Carvajal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.