Much of the literature on the informal self-employed sector in LDCs, with roots in Harris and Todaro (1970), has assumed a dualistic labor market where self-employed workers who are unprotected by labor legislation are rationed out of protected or “formal” salaried sector jobs by above-market clearing remuneration in the protected sector. In this view, the sector is generally an involuntary holding pattern for young workers entering the labor force or older workers dismissed from formal jobs. In economic upturns, transitions should be largely unidirectional, from informal microenterprises to the formal sector.
