Informal Sector Versus Informal Contracts in Nairobi, Kenya

Abstract: From official records, it would appear that the labour market significantly shifted from the formal to the informal sector in Kenya. However, a careful examination of different data sources for Nairobi show that in the 1990s there has been no direct transfer of employment from the formal sector to supposedly flourishing informal enterprises, but rather an increasing number of employees informally contracted by formal enterprises to the expense of social and legal protection of employees. Seven out of eight jobs in Nairobi still depend on the formal sector, through either formal or informal contracts. Although migrants form more than three quarters of the active population in Nairobi, migration has not had a specific impact on the labour market structure and evolution. However, Nairobi became less attractive to active male migrants during the 1990s as unemployment and lack of opportunity in the formal sector deterred candidates from in-migrating. The Nairobi labour market also became more discriminative against women, whose chance to enter and to remain in the labour market reduced considerably. In the 1990s the combination of higher unemployment, lower female participation rate and reduced migration of males in active ages resulted in higher dependency on the workforce and in doubling the absolute poverty in Nairobi.