Definitions of what actually comprises the formal and informal sectors are not always very consistent. Nevertheless, “the basic distinction [between the formal and the informal sectors]. . .turns on the idea that employment in the formal sector is in some sense or senses ’protected’ so that wage levels and working conditions in the sector are not available, in general, to job seekers unless they manage somehow to cross the protective barrier. This kind of protection may arise from the action of trade unions, of governments, or of both acting together” (Mazumdar, 1981:85). However, this is not to imply that wages to employees in the formal sector are always superior to those in the informal sector with similar education and skills. Indeed, heads of more established enterprises frequently have considerable labor market experience and earn more than their formal sector counterparts.


The availability of hard data on labor characteristics and labor markets in megacities is very limited. Some of the information presented in this paper refers either to nationwide data or to urban data generally, rather than to megacities specifically. In many cases, extrapolation of the more general findings to the megacity case is appropriate. However, the limitations of the database are a major problem.


The share is even larger (70-90 percent) in secondary cities.


Characteristics of the informal sector in Manila include the following: 80 percent sold food and other items; 57 percent were unpaid family workers, while only 20 percent earned fixed wages; two-thirds of enterprise heads had not finished high school, compared with one-third of all workers; one-half of enterprise heads had worked at the same place for at least 4 years; and 56 percent were primary breadwinners (Alonzo, 1989).


An externality occurs whenever the actions of one person or firm affect another person or firm in ways that are not taken into account by the operation of the market (Varian, 1984).


Calculations of the private and social rates of return to education are often hindered by a paucity of appropriate data. Theoretically, the decision by an individual or a government to invest in education entails weighing all the costs against the expected benefits of such an

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