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Female participation in the labour market:
The case of the informal sector in Kenya

AERC Research Paper 157

Rosemary Atieno, Institute for Development Studies, University of Nairobi

African Economic Research Consortium, Nairobi

July 2006

SARPN acknowledges the African Economic Research Consortium as a source of this document:
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Labour markets in sub-Saharan Africa are fragmented, with differing characteristics between formal and informal sectors. Particularly characterized by a dichotomy between the formal and informal sectors is the urban labour market. The differences between the formal and informal sectors can also been seen in light of the segmentation between the different parts of the labour market. In Kenya, as in other parts of Africa, segmentation relates mainly to economic phenomena. Workers in the formal sector have higher levels of education than those in the informal sector, and since these firms are likely to have technologies requiring more skills and on-the-job training, the workers are likely to be more skilled (Bigsten and Horton, 1997).

Kenya’s informal sector covers all semi-organized and unregulated small-scale activities largely undertaken by self-employed persons or those employing only a few workers, and excludes all farming and pastoral activities. The activities in the sector are carried out by artisans, traders and other operators. It uses simple technology and businesses are not legally registered although they may be required to obtain licences from relevant authorities (Republic of Kenya, 1998, 2003). For statistical purposes, the informal sector is defined as a group of production units within the System of National Accounts that form a part of the household sector as unincorporated enterprises owned by households. The main features of the informal sector include ease of entry, the small scale of activity, self-employment with a high proportion of family workers and apprentices, little capital and equipment, labour intensive technology, low productivity and low incomes, limited access to organized markets and formal credit, and minimal education and training (CBS, K-REP and ICEG, 1999).

Despite its limitations the informal sector has become increasingly important in the Kenyan economy as a source of employment and income. During the last decade, the growth rate in the sector’s employment has remained above that of the formal sector, which declined over the same period. The informal sector has seen its share in total employment rise from 16% in 1980, to 63.6% in 1997 and 70% in 2000. Between 2000 and 2001, employment in the sector rose by 11.4%. Its share in GDP has also recorded increases, rising from 13% in 1993 to 18% in 1999 (Republic of Kenya, 2002). Sectorally, the informal sector is the second largest source of employment after small-scale agriculture (Ministry of Finance and Planning, 2000). The 1999 national survey of micro and small enterprises (MSEs) found that about 26% of the total households in the country are engaged in some form of MSE activity (CBS, K-REP and ICEG, 1999). The sector is therefore an important source of livelihood for a majority of the country’s population. Currently, informal sector’s share in total employment stands at 75% (Republic of Kenya, 2004).

The decelerating performance of the formal sector has resulted from a number of factors. These include the economic recession of the early 1990s occasioned by adverse weather conditions, and reduced economic activity in the main sectors of agriculture and manufacturing. The ongoing reforms in the public sector, specifically retrenchment and a restrictive government employment policy, have further reduced the sector’s potential for employment generation (ILO/EAMAT, 1999). There has also been increased shedding of labour in the private sector because of restructuring. The small size of the formal labour market also reflects the constraints facing the sector, like high risks, poor infrastructure and lack of social capital (Bigsten and Horton, 1997). The formal sector has therefore become increasing unable to generate employment and this has contributed to the rapid expansion in the informal sector employment.

These trends underscore the sector’s potential in absorbing the increasing labour force in the country. An increasing number of households are becoming dependent on the informal sector as a source of income and employment, in both rural and urban areas. Despite this significance, certain characteristics of the sector raise questions about its potential for income generation and employment. Studies on the informal sector have shown that despite the proliferation of informal sector activities, many of them do not grow (McCormick, 1992). Informal sector activities are characterized by small size of activities, few workers (often fewer than six) and working in makeshift structures. A significant proportion of those counted as employed are also underemployed in the informal sector. The sector is therefore increasingly operating as a sponge for easing open unemployment and transforming it into underemployment (UNDP, 2002; Republic of Kenya, 2003).

There is also increasing concern that the operators in the sector face several limitations, including lack of security of tenure and lack of access to credit, infrastructure, skilled labour and markets. The informal sector has also suffered from lack of coherent policy guidelines, inadequate physical infrastructure and unfavourable regulatory framework, all of which have inhibited its growth and contribution. All these hamper the potential contributions of the informal sector activities and raise the question of the sector’s potential in raising the incomes for its participants.

One significant characteristic of the sector is that as it has grown, it has also become an important employer of the female labour force in the country. The 1999 baseline survey of the sector shows that the ownership of the informal sector enterprises is almost equally divided between males and females, with men owning 52% of the enterprises and women 48%. Although women constitute 53% of the labour force, their participation in wage employment in the modern sector has remained low and they have access to less than 30% of wage employment (UNDP, 1999). A number of factors restrict women’s access to formal employment. These include traditional roles, occupational segregation by gender, and lack of access to technology and credit, among others. In the informal sector, female-owned enterprises have been found to employ fewer workers and have less capital compared with male-owned ones (CBS, KREP and ICEG, 1999). The survey shows that about 57.4% of the total MSE labour force is generated by male owned MSEs while 42.6% is generated by female owned MSEs. But there are other alternative activity choices in the Kenyan labour market other than the informal sector. So, given all these constraints, what factors contribute to women’s participation in the sector?

This study investigates the factors determining the participation of women in informal sector activities given a range of other available labour market options.

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