The connection between informality and the inclusiveness of economic growth is quite complex and varies in different contexts. Firstly, the authors find that the informal sector promotes inclusive growth through providing an alternative to unemployment when there are no alternative employment opportunities available; particularly for those with low skills, as well as women and young people. This is true for South Africa as well as in a broad sense for Sub-Saharan Africa. In terms of measures of inclusive growth, the unemployment-informality transition reduces poverty, but is unlikely to have much effect on inequality in a high-unemployment society such as South Africa. In South Africa, the study find that transitions from searching or non-searching unemployment to informal sector employment or self-employment are relatively rare and that there are two specific challenges that policymakers should address: the overarching skills gap, specifically in entrepreneurship and practical business management; and the failure of female-run micro-enterprises to progress. Skills constraints are often an outcome of poor quality schooling, which is prevalent for the majority of households at the lower end of the income distribution. Therefore, there is a larger issue at stake for policymakers to deal with regarding the infrastructure and quality of teaching in schools. Schooling should also be used as a tool to empower young women who may want to become entrepreneurs instead of transitioning from school to a traditional formal sector type job. In addition, specifically targeted incentives and business incubators should be used to support female-run micro-enterprises. Secondly, the study found that formal sector workers are better off, and therefore the informal sector may inhibit inclusive growth when workers find themselves in precarious positions where earning benefits are outweighed by job insecurity and other potential negative impacts associated with informal employment. In South Africa, is it found that only one-third of informal employees transitioning into formal employment or self-employment over the four-year period examined.
