It is seen that while Ghana is more or less on par with the other African countries as far as the increase in relative productivity of labor with increase in capital intensity is concerned, the strength of increasing returns to scale is the lowest in the sample. This may be because of the low productivity of State owned enterprises in Ghana which tend to be of large size. A second relevant factor is the relative inefficiency with which capital stock is used in Ghana's manufacturing sector. The liberalization of the economy under the ERP was expected to ease the foreign exchange constraint impeding adequate supply of essential inputs and thus improve the utilization of capacity. This did happen to some extent as it pulled up from a low of 18 percent in 1984. But the level reached in 1992 of 45 percent is still pretty low by international standards.

The difference in wage levels by size of enterprise in manufacturing is of relevance to another basic aspect of the labor market in Ghana: the difference in the levels of earnings between the "informal" and the "formal" sectors. The wage levels in micro enterprises can be expected to be near the mean earnings of workers - wage earners as well as the self-employed - in the informal sector, particularly in the urban economy. But more detailed analysis of the formal-informal earnings differential must await further work on the GLSS data sets. In the next section we give an overview of the informal sector activity and some of its salient features from a cursory look at the data available.

# **4.7 Informal Sector Activities in Ghana**

The complexity in the definition and measurement of informal sector activity is a perennial one. Although we do not want to get into the semantics of this issue it is important to recognize that informal sector activities play an important part in the lives of people in developing countries and Ghana is no exception.<sup>2</sup> Hart (1973) who coined the term "informal sector" ironically used a study of Accra and Nima in Ghana to show the importance of such activities for national income and employment estimates considerations. Both from a labor market perspective and also from a living standards and welfare perspective informal sector activity is important. Some estimates based on GLSS data indicate that on average in Ghana households earn more than three-fourths of their income from informal sector activities, i.e. activities which are not covered in our formal sector earnings discussion hitherto (GSS, 1996). It is stated that in areas such as rural Savannah almost 90 percent of household income comes from informal sector activity compared to 45 percent in Accra. Alternatively household activity generated consumption (subsistence consumption) accounts for around 27 percent of household consumption with 56 percent in rural Savannah and 2.6 percent in Accra, indicating the subsistence nature of informal sector activity for Ghanaian households. Estimates of informal sector incomes and output in Ghana suggest it to be a sizable percentage of current estimates of GDP. For instance non-farm enterprises are estimated to contribute at least 20 percent.

2 For some useful information on the characterization and definition of informal sector see Thomas (1992), Tumham, Salome and Shwarz (1989) and Suthuraman (1981) among others.

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