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

Muhammad Arif Sargana


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.

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