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This study examined the contributions of the urban informal sector of Ibadan to income, employment generation and skill formation. It also investigated whether or not the sector provides permanent employment for some members of the urban labour force. The methodology of the study involved the use of questionnaires to elicit desired information from informal sector enterprises as well as formal and informal sector workers in manufacturing and technical services from selected enumeration areas of Ibadan. The analytical techniques relied on the use of employment and earning regression models as well as informal employment probability model. Also, summary statistics like mean, mode, median, ratios and percentages were used. The estimated employment model shows that the level of capital employed, earnings, amount of education of owner, quality of training of owner and the type of industry where an enterprise operates significantly affect the level of employment. Such employment is found to be permanent for 86 percent of informal sector .operators, while 94 percent of the formal sector workers interviewed expressed strong desire of moving to the informal sector whenever they can save up the required starting capital. This fact is also confirmed by the informal employment probability models estimated for the urban labour force of Ibadan. Thus, the result of our study does not uphold the probabilistic migration hypothesis with respect to the role of informal sector in the urban labour market of Ibadan.  With respect to earnings, the informal sector workers compare favorably with their formal sector counterparts. Sixty-one percent earn more than N200 per month while the mean monthly earnings is N583. Our earnings distribution model estimated shows that variables like sector of employment, migration status, education, quality of training, labour market experience and the type of industry in which an enterprise operates significantly affect the distribution of earnings among the urban labour force. In terms of skill development, the apprenticeship system is the most dominant form. Ninety percent of current entrepreneurs were thus trained, while a total of 2,200 apprentices had been previously trained by these masters. At present, the 544 enterprises sampled have a total of 2,119 apprentices that are being trained. However, in terms of the extent of skill utilization, it is found that a considerable amount of underemployment ranging from 21 to 36 percent exists in the sector. Apart from its contributions to employment, earnings and skill formation; this study shows that the urban informal sector, rather than disappearing with time, is a major and growing element of development in the urban labour market of Ibadan. Thus, the government and its agents (e.g. the National Directorate of Employment), private formal organizations and researchers are called upon to focus more attention to the sector to sustain and enhance the sector’s contributions to development.

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