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CH7 The Urban Informal Sector

CH7 The Urban Informal Sector - Ch 7 The Urban Informal...

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Ch. 7 The Urban Informal Sector What is informal sector i) It is unorganized, unregulated, and mostly legal but unregistered. ii) It is characterized by a large number of small-scale production and service activities. They tend to operate like monopolistically competitive firms. iii) Their worker tend to have little education, unskilled worker productivity is lower than formal sector. iv) Workers are recent migrants from rural areas unable to find employment in the formal sector. v) Every household members works for the business vi) Always work very long hour Function of informal Sector: Informal sector allow excess labor to escape from extreme rural poverty and underemployment. It provides working opportunities, share more than half of employer population in developing countries. Links Between Informal sector and Formal sector: Formal sector want cheap inputs and wage goods from informal sector Informal sector want the growth of the formal sector provide more customers and incomes. Why Informal sector should be promoted: 1. It generate surplus which stimulate economic growth 2. They use much lower fraction capital to employ a worker than formal sector 3. The training cost is low 4. They are more likely to adopt appropriate technologies and make use of local resources more efficient of allocating resources 5. They provide job for semiskilled or unskilled workers, which formal sector would not. 6. They are good at recycling waste materials: they collect goods such as scrap metals and transform it to industrial sector and provide basic commodities for the poor.
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