Pakistan Institute of Development Economics



Earnings Functions in Pakistan’s Urban Informal Sector: A ‘CaseStudy

The informal sector is frequently attacked on the grounds thatit offers very low earnings in very unfavourable and exploitativeworking conditions with no prospects for upward mobility for itsparticipants. Since entry in this sector is not restricted, therefore,it is argued that a mushroom growth of labour supply takes placeparticularly at times when growth in the formal sector slows down[Richardson (1984)]. Therefore, earnings in this sector do not reflectvariations in personal capabilities on account of human capitalendowments. As a result, it is opined that workers in this sector face aflat age-earnings or experienceearnings profile because they are notrewarded for their schooling and accumulated experience with age. Theunrestricted entry of labour may be the case in some sub-sectors of theinformal sector where no specific skills are required. However, itcannot be generalized because there are many activities which requirefrom theiT workers to have learned some sort of skills, thus creatingbarriers to entry. The existence of such barriers may explain higherearnings in these sub-sectors [Burki (1989); Burki and Ubaidullah(1990)].

Qaisar Abbas, Abid Aman Burki

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