The Urban Informal Sector in an Adjusting Economy: The Case of Pakistan

The concept of the informal sector has gained popularity since the well-known study by International Labour Organisation [ILO] in 1972 Kenya. Since then it has become a centre stage in policy discussion regarding unemployment and poverty alleviation. Though economists are still not able to give an authentic and unanimous definition of the informal sector, it is commonly known as the non-regulated sector of the economy. Despite the fact that the informal sector provides a large chunk of GDP and employment in the national economy, this sector is very much neglected in Pakistan. A few studies have been conducted to measure the size and the role of urban informal sector in past. However, the employment estimates provided by these studies have always been controversial. In addition, in all of these studies attention has been focused mainly to the manufacturing sector. Though the importance of the manufacturing sector cannot be denied, the services sector is also of significant importance as well, however it has received relatively less attention in the past. In this study, sufficient attention has been given to this neglected sector and focus is given to its role in employment in the urban informal sector. As Pakistan is a signatory of the World Bank and IMF’s stabilisation and structural adjustment programmes, which aim to reduce the budget deficit and restructuring of public sector employment, in the compliance with these programmes, retrenchment policies have been adopted in the government jobs by the respective governments. It is estimated that employment in the public sector has declined by about 10.6 per cent in period 1990 to 1992 only [Kemal.1995]. All of these measures have exacerbated the employment situation in Pakistan. In the light of above mentioned facts, it may be viewed that the urban informal sector has become more important in absorbing this surplus labour.