As mentioned earlier, while the headcount index in the informal sector group is over 76%, a significantly lower rate, about 47%, is recorded in the formal sector. In the absence of minimum wage legislation in effect, and persistent wage differentials between formal and informal sector employment, the growing size of the latter may be largely driven by a decline of labor demand in the formal public sector, following the hiring freeze imposed in 1993 in response to the fiscal crisis and declining private investment, particularly in the secondary sector.<sup>18</sup> The growing size of informal sector employment in urban areas may also be partly attributed to the excess supply of labor, especially in urban areas, fuelled by rural-urban migration driven by relative wages.

Labor market segmentation, which is common to most developing countries, also has a geographical and inter-sectoral dimension where the urban-rural and socioeconomic gaps in the measurement of welfare are driven by systematic income and wage differentials across sectors of employment and geographical regions.<sup>19</sup> Cameroon is not an exception to this, and even within a given geographical region, wage differences imposed by sector of employment exist and can be important, irrespective of skills. This is illustrated by the highly confined nature of primary sector activities, largely dominated by agricultural production in rural areas, where per capita income and wages are lower than the urban and national averages, though production falling within the realm of primary sector may be found in urban areas (generally in the form of industrialized agricultural production mainly by capitalists for exports). Also, despite the relatively low contribution of agricultural production and primary sector production to the aggregate GDP, an overwhelmingly large proportion of active labor force continues to reside in rural areas; and the relatively low contribution of primary sector production to aggregate output (averaging 22% over the 1990s) may be a reflection of low value added and productivity of the sector. In the next section, we draw on the financial SAM analysis to shed more light on the geographical and sectoral contribution to aggregate gross value added.

Also, while the labor force in urban areas is largely heterogeneous (unskilled and skilled workers, with the latter mainly employed in the formal public and private sector, and capitalist group), it is more homogeneous in Cameroon’s rural areas. However, despite the relative homogeneity of rural labor force, differences in wage setting mechanisms exist. Unskilled workers can have significantly large disparities in wages and income depending on the nature of their employment (tradable versus non tradable agricultural production).<sup>20</sup> Though smaller in size, the tradable group has a higher per capita income and a relatively large contribution to aggregate output, a reflection of higher wages and value added.<sup>21</sup> By contrast, the relatively low contribution of non tradable agricultural production to overall aggregate output is reflected in the group’s overall income, which is about the lowest and not commensurate with its size, about the largest income group in Cameroon. We fully take into account the segmented nature of the labor market in the construction of Cameroon’s financial SAM. In particular, we make a clear distinction between urban and rural production in the

> 18 Prior to the imposition of hiring freeze, public sector employment accounted for over 75 percent of total formal employment in Cameroon.

> 19 Indeed, most studies of labor markets in developing countries indicate much segmentation, rigidity and unemployment (Ndulu [1991]).

> 20 Non tradable rural agricultural sectors are essentially engaged in subsistence agricultural production, and a large share of their income (wages) is derived as imputed values of home consumption of own production.

> 21 This group is engaged in the production of a number of products for exports, including coffee, cocoa, timber, banana, and cotton.

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