1.6 Informal Firms Have Lower Output per Worker

FIGURE 1.6 Informal Firms Have Lower Output per Worker

Source: Estimates based on pooled microdata from ASi (Annual Survey of industries) (dashboard), industrial Statistics wing, National Statistical Office, ministry of Statistics and Program implementation, kolkata, http://www .csoisw.gov.in/CmS/En/1023-annual-survey-of-industries.aspx; “india: unincorporated Non-Agricultural Enterprises (Excluding Construction), July 2015–June 2016, 73 round” (data portal), National data Archive, National Sample Survey Office, ministry of Statistics and Program implementation, New delhi, http://www.icssrdataservice.in /datarepository/index.php/catalog/148.

firms respond to regulations, as well as differences in access to capital, product markets, and skills.

The variation in the earnings of informal workers echoes the patterns observed in informal firms. The informal sector is mostly poor, but there is much heterogeneity within it and also some overlap with the formal sector. Figure 1.7 shows the share of informal and formal workers at different income percentiles of the wage-earning population in Bangladesh and Pakistan as estimated from labor force survey data. As expected, informal workers predominate in the lower half of the earnings distribution. More than 80 percent of wage workers at the median income level in these countries are in the informal sector. However, there is also a sizable presence of informal workers at the upper end of the earnings distribution. In Bangladesh, at least 50 percent of workers at the 90th earnings percentile are informal; in Pakistan, the share is more than 20 percent.