<u>Improving Skills Development in the Informal Sector (World Bank, Adams, de Silva, and Razmara,</u> 2013) provides case studies of five African countries – Rwanda, Kenya, Tanzania, Nigeria, and Ghana – examining the role of education and skills development in increasing the productivity, profitability and earnings in the nonfarm informal sector. Education and skills development were found to have a strong influence, even though the returns to education were lower in the informal sector than in the formal. Technical and vocational training were found to enhance earnings, while the impact of traditional apprenticeships was mixed.

# **VI.  Recent studies by region: Middle-income countries**

In the poorer LDCs where informal economic activity and employment constitute the majority, there seems to be an easy fit for the moniker “informal is normal.” However, in middle income countries where education levels are high and the formal private and public sectors dominate, businesses and workers end up in the informal sector for particular reasons, and they have a particular impact on productivity, growth and development.

## **A. LAC: Multi-country study**

<u>Informality: Exit and Exclusion, World Bank, Perry et al. (2007), is a major study of informality in the</u> LAC region and a path-breaking foray into informality from the World Bank. It is based on extensive data collection and hypothesis testing in many LAC countries of varying income levels. It examines the importance of state failures; labor market, business, tax and social protection laws; and the implications of informality for productivity, growth, development and public institutions. Its title refers to two perspectives for looking at the informal sector in Latin America: Informality driven by exclusion from the circuits of the modern economy, and that driven by voluntary decisions of workers and firms to opt out of formal institutions.

Revisiting this work in 2012, Maloney (2012) emphasizes the strong heterogeneity across different types of workers and firms, and notes that firms closer to becoming formal may be more susceptible to policy, though these may be few in number. He reaffirms the value of improving the investment climate in ways that raise productivity as well as improving services associated with formality, especially for SME’s. Finally, he reconfirms the value of raising the quality and fairness of public institutions.

## **B. MNA**

### **1. Privilege**

Privilege is a well-recognized hallmark of Middle Eastern economies. As noted in the MNA jobs section above, the benefits of public employment are high enough to engender queuing for jobs, while placement often depends on connections. Those queuing, or without connections, are likely to end up in the informal sector. Systems of privilege affect both the public and private sector in ways that restrict labor mobility and relegate the non-connected to the informal sector.

Indeed, for an extensive study of firm surveys and qualitative interviews on the MENA investment climate, the title itself is indicative: From Privilege to Competition: Unlocking Private-led Growth in the <u>Middle East and North Africa (World Bank, 2009). One quote from the book cites a participant in a high-</u> level seminar on the knowledge-economy in the region: “Why a seminar of the knowledge-based 22