Skill Formation, Employment and Earnings in the Urban Informal Sector

The origins of the informal sector are traced to the twin problems of rapid urbanization, as a result of rural to urban migration, and low rates of employment expansion in the “modem” sector. The inability of the “modern” sector to provide jobs for the fast growing urban labour force, however, is not’ reflected in widespread unemployment. Instead, the surplus labour is absorbed in other sections of the urban economy which has been termed in the development literature as the informal sector. The informal sector not only serves the important function of absorbing surplus labour unable to find jobs in the modern organized sector but it is also the training ground for workers in the economy. According to the Sixth Plan document, of the estimated 50,000 skilled workers produced annually only ten percent go through formal training institutions (Government of Pakistan 1983).