The Urban Informal Sector: Trends, Directions, Determinants and Potentials

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Labor Force Surveys (LFS) 2010  of Bangladesh reveals that 95% of the 56.7 million of labor force was employed, with 87.5% of the employed population is in the informal sector. In Bangladesh, the formal sector witnessed a decline by 3.40 percent per year during the period of 1999-2000 to 2010 where 89% jobs are informal. On the other hand, informal sector has increased at an annual rate of 4.90 percent during the same period.  Such high degree of informalization of the labor market along with disproportionate growth in absorption of growing labor force between formal and informal sectors in Bangladesh, is tilting in favor of the latter and the squeeze of the former. However, little is known about the informal sector earnings structure compared to that of the formal sector. The informal sector accounted for more than 40% of total gross value added (GVA) of Bangladesh (LFS 2010). It is therefore necessary that efforts to alleviate poverty must be focused on the informal sector and the constraints and needs faced by the poor people who are engaged in informal employment.

Brief outline and scope of work of the study:

This study will made attempt to analyze the labor market of Bangladesh and analyze the wage gap between formal and informal employment and the underlying factors. This is crucial for addressing welfare, equity and poverty consequences of the country.

Need and justification:

The key questions of the study relate to (a) the size of the sector, (b) profile of the participants in this sector in terms of skill composition, labor status, gender, and demographics, (c) benefits to participation, (d) “formalization” as a desirable route (or not), (e) drivers of the informal sector growth, and (f) constraints faced by the sector in the medium-term. To this end, the study will collect primary data on “leading sub-sectors” of the informal economy along with the re-working of the existing secondary (unpublished) data. The study is expected to fill in the gap in the existing knowledge about this sector and would be helpful in devising the strategy for inclusive growth.


This study will make use of both qualitative and quantitative techniques to gather the necessary information. Questionnaire survey will be used for quantitative analysis. Qualitative techniques such as in-depth interviews (including Key Informant Interviews), Focus Group Discussions (FGDs) and Case Studies will be used to substantiate the quantitative data collected from primary and secondary sources.

Study Team: Dr. Binayak Sen, Dr. Anwara Begum, Dr. Mohammad Harunur Rashid Bhuyan (Study Director), Mr. Md. Iqbal Hossain and Mr.Shahidul Islam

(A study under the Special Research Programme of BIDS with the Planning Division, 2018-19)

About BIDS

The Bangladesh Unnayan Gobeshona Protishthan or The Bangladesh Institute of Development Studies (BIDS) is an autonomous public multi-disciplinary organization which conducts policy oriented research on development issues facing Bangladesh and other developing countries. 

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