Creating jobs, reducing poverty III: Barriers to entry and growth in the informal sector – and business cycle vulnerabilities
In this extract from a new REDI3x3 book, the focus is on the constraints faced by informal enterprises in trying to enter, survive, grow, or increase employment. A lower tier of ‘survivalist’ enterprises and an upper tier of ‘growth-oriented’ enterprises is apparent, with barriers limiting entry into the upper tier. Selling into higher-value or formal-sector markets and value chains encounter significant structural barriers. And the sector is particularly vulnerable to severe cyclical downturns.
‘You can’t bite the hand that feeds you’: Contracts between SME suppliers and the large supermarkets
This article examines the implications of the contracts between the four main South African supermarkets and their SME suppliers. Supermarkets’ procurement practices, in particular their practice of charging suppliers a substantial ‘rebate commission’ as well as requiring suppliers to comply with private, rather than public, production and health standards, have a significant impact on the ability of new SME suppliers to enter the market and to create jobs. This has important policy implications.
A job-search subsidy has been proposed as a measure to help people find employment. At least three criteria need to be met to create new jobs for those who receive the subsidy. First, it needs to be used only to search for jobs or to remove the financial constraints that prevent people from searching for jobs; second, firms need to recruit through the channels which subsidy holders actually use to seek employment; and third, the relative cost of labour needs to fall.
The debate on unemployment is fragmented into at least three sub-discourses, i.e. those of macroeconomists, labour economists and poverty analysts. This results in inconclusive analyses and narrow, flawed proposals to address the problem. This fragmentation feeds into the policy field. Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist activities – and especially linkages and barriers between these segments.