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AN EVALUATION OF THE CONTRIBUTION OF THE INFORMAL SECTOR IN EMPLOYMENT AND INCOME GENERATION IN NIGERIA: THEMATIC APPROACH.
Abstract
This study examined the role of informal sector in income and employment generation besides the contribution of the sector to tax revenue. First, the description of the size and composition of the informal sector was undertaken using relevant literature and survey information by the relevant government agencies. From the description, it was found that the informal sector is expanding in size by the day because of the inability of the formal sector to absorb the expanding labour force. Consequently, informal sector operation comprises activities in the manufacturing, agriculture, forestry and quarrying, wholesale, retail trade and construction among others. Next, an estimation of the contribution of this sector to employment generation, income generation and tax revenue was undertaken with data obtained from World Development Indicators report of 2019 using Ordinary Least Square (OLS) estimation technique. From the result it was found that the informal sector by its various components contributes positively and significantly to employment generation and income generation but has not significantly contributed to tax revenue. Poor contribution of the sector to tax revenue had been linked to such factors as political considerations, cumbersome tax mechanism, lack of incentives, poor record keeping and corruption. In view of the findings, it is recommended that government should show more than just a passive interest in the activities of the informal sector by creating a master list of all the informal sector operators in the economy, fight corruption and review the existing legislation to make ease of registration of businesses possible.
Keywords: Informal Sector, Employment Generation, Income Generation, Unemployment.