# **3. A profile of labor informality**

## **_How labor informality in Senegal compares with peer countries_**

Sub-Saharan Africa (SSA) is the region with the highest average rate of informality in theworld (89.2 percent).<sup>2</sup> Within the region, West Africa<sup>3</sup> has the highest informality rate (92.4 percent), compared to East Africa (91.6 percent), Central Africa (91.0 percent) and Southern Africa (40.2 percent). Per ILO estimates, Senegal has a higher rate of informality (91.2 percent)<sup>4</sup> compared to the rest of SSA, yet performs relatively better compared to its West African peers, particularly those that are part of the WAEMU region (Figure 1, Panel A). In fact, Senegal has the lowest informality rate within WAEMU, which includes Burkina Faso and Benin, both which have the highest informality rates in the world (94.6 and 94.5 percent respectively). Nonetheless, Senegal’s informality rate is high compared to aspirational peers (Figure 1, Panel B).<sup>5</sup> Informality was 5.6 percentage points higher than its closest aspirational peer, Indonesia.

Informality disproportionately affects women in SSA, making them more vulnerable to exogeneous labor market shocks. On average, 92.1 percent of women are employed in the informal sector compared to 86.4 percent for men (ILO 2018). In Senegal, the share of women employed in the informal sector is also greater than that for men at 93.7 percent versus 89.5 percent (ILO 2018). Compared to its closest aspirational peers, Senegal significantly lags in terms of female informality (Indonesia, 87.1 percent and Guatemala, 80.8 percent). However, Senegal outperforms its WAEMU peers having the lowest female informality rate across the region.

Labor market rigidities are commonly attributed to crowding out formal employment into the informal sector (World Bank 2019). Recent evidence shows that Senegal has among the most rigid labor markets in the world, resulting in bottlenecks for hiring and

> 2 Per the ILO, informal employment is not subject to national labor legislation, income taxation, social protection or entitlement to certain employment benefits (advance notice of dismissal, severance pay, paid annual or sick leave, etc.). Informality is determined or based on firm operational criteria such as social security contributions by the employer (on behalf of the employee), and entitlement to paid sick leave and paid annual leave. For more information, please refer to ILO 2018.

> 3 West Africa is composed of Benin, Burkina Faso, Cabo Verde, Côte d'Ivoire, The Gambia, Ghana, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.

> 4 This estimate differs from the informality rate per the EHCVM, which stood at 93.7 percent in 2018-19. 5 Aspirational peers were chosen for their similarity regarding the proportion of the economy engaged in international trade, the value of natural resource extraction, the size of the agriculture sector, the state of human capital, and size. However, these countries achieved greater GDP per capita growth than Senegal. Based on this approach, Indonesia, Armenia, and Guatemala are categorized as Senegal’s aspirational peers. Please refer to World Bank 2018 for more information.

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