DISCUSSION

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2. Measurement and Data

Our main dependent variable is formality. 6 To measure formality, direct methods are best

suited given available data. 7 These methods can be categorized as legalistic and productive (Perry

et al. 2007).

2.1 Legalistic Informality

The legalistic approach to informality, popularized by Saavedra and Chong (1999, 99),

focuses on the coverage and availability of social protections for workers. It illustrates the

relationship between individual actors and the state, in particular the rule of law, because it is based

on compliance with the established judicial, regulatory and institutional framework. Given that

labor laws and regulations outline entitlements, benefits and rights, legalistic informality primarily

measures the social benefits workers enjoy, rather than the nature of their employment. 8

6

Since Keith Hart (1973) coined the term ‘informality’ to describe the activities of Ghanaian

unskilled workers, it has evolved into an umbrella term that reflects the heterogeneity of

informality. Past decades have seen considerable research to measure and understand the

informal sector. However, it is only recently that this literature has been compiled into extensive

studies of the sector as in the ILO’s (2013) manual.

7

There are three main forms of measuring informality: (1) direct methods (2) indirect methods

and (3) model methods.

8

Studies have used indicators such as union membership, access to pensions, health insurance or

registration with the national tax authority to identify legalistic informality. The benefits of this

measure are threefold: first, these dimensions are easily captured by national household surveys;

8

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