WOLITA SODO UNIVERSITY

COLLEGE OF: BUSSINESS AND ECONOMICS

DEPARTMENT OF: ECONOMICS

"THECONTRIBUTION OF INFORMAL SECTOR ON JOB CRATION"

IN AREKA TOWN.

Pre
pared By:

RAHEL ALEMU

ID.No;CBE/R/248/11

Adviser; NEGA MATHEWOS

May,2021

AREKA;ETHIOPA
 Abstract

In Ethiopia informal sector is very important for the development of the country. The
rapid expansion of high rate of urbanization and unemployment resulted more people
engaged in this sector .This sector also wide spread and over visible in Areka town at
present .so the purpose of this study would be to investigate the contribution of informal
sector on job creation in Areka town. To achieve this objectives only primary data would
be used by conducting structural interview, questionnaires and personal contact .The
survey was carried out using multistage sampling technique since the existence of
extensive informal sector in the town. A sample size of “40” was selected from the
selected informal sector and the data were analyzed using table, and percentage. The
study was pointed that informal sector plays a vital role for the creation of employment
on permanent and temporarily period .From the male and female participant’s female
participants cover relatively a large number in the selected sector.

Moreover the study found that the local drink preparation are the dominant sector in the
town .on the other hand illegal trade contributes the least share and The study also found
that there are different problems that face the sector those problems are accessibility of
raw materials, financial problems, lack of demand, high cost of raw materials, lack of
government support and problems of working place are some of the challenge that hinder
the involvement of informal sector. Based on these I recommend that since informal
sectors are contributes a great role for the reduction of unemployment so the local
government should be involved and improving the working conditions of the informal
sector, improving accessibility of raw materials and give freedom for their own activities
in any places. In order to facilitate these activities the local government should promote
and assisting peoples who participant in the informal sector.

I
ACRONYEM

. EU= European Union

GDP= GROSS Domestic product

SSA=sub-Saharan Africa

ILO= International Labor Organization

.NLFS=National Labor Force Survey

WIEGO=Women In Informal Employment Globalizing And Organizing

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Table of Contents page

Abstract.............................................................................................................................................I

ACRONYEM....................................................................................................................................II

CHAPTER ONE...............................................................................................................................3

Introduction..................................................................................................................................3

1.1 Background of the study..................................................................................................3

1.2 statement of the problem.................................................................................................4

1.3 Research question.............................................................................................................5

1.4. Objectives of the study.....................................................................................................5

1.4 .1. General objectives....................................................................................................5

1.4.2 Specific Objectives......................................................................................................5

1.5. Significance of the Study..................................................................................................5

1.6. Scope of the study.............................................................................................................6

1.7. Limitation of the study....................................................................................................6

1.8. Organization of the study................................................................................................6

CHAPTER TWO..............................................................................................................................7

2. Review of literature.................................................................................................................7

2.1. Theoretical review of literature....................................................................................7

2.1.1. Definition of informal sector.................................................................................7

2.1.2. Concept and Characteristics of Informal sector..................................................9

2.1.3. Areas of informal sector activities.......................................................................11

2.1.4 Advantage of informal sector participation........................................................11

 2.1.5 Disadvantage of informal sector participation..................................................11

2.1.6 Reasons people engage in the informal sector...................................................11

2.1.7 Challenges that hinder the development and improvement of informal

sector.....................................................................................................................................12

2.2 Empirical literature review...........................................................................................12

2.2.1. Contribution of informal sector to employment...............................................13

2.2.2. Contribution of the informal sector to GDP........................................................13

2.2.3. Contribution of the informal sector to poverty reduction..............................13

2.2.4. Contribution of informal sector to the improvement of socio-economic

welfare..................................................................................................................................14

CHAPTER THREE......................................................................................................................15

3. Research Methodology.........................................................................................................15

3.1 Description of The Study Area......................................................................................15

3 .2 Research Design..........................................................................................................15

3.3 Source and Type of Data.............................................................................................15

3.4 Sample Size and Sampling Technique.....................................................................16

3.5 Data collection instrument and procedure............................................................16

3. 6 Methods of data analysis...........................................................................................16

CHAPTER FOUR..........................................................................................................................17

4. TIME AND COST BUDGET.....................................................................................................17

4.1 Time budget......................................................................................................................17

4.2 Cost budget........................................................................................................................17

Reference.....................................................................................................................................18

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 CHAPTER ONE

Introduction
1.1 Background of the study

Informal sector is wide spread and over visible in the world. It covers around 43% of the
Economic activates of world. Informal sector has been seen in developed, middle, and
under developed economy and also under the fact that it plays a crucial role in job
creation in terms of job security. It is least as compared to the formal sector with regard
to its impact on the economy, particularly increasing employment opportunities. The role
of Informal sector greatly different from country to country. For instance, it accounts
from 4-6% total employment in developed countries and, more than 50% in least
developed countries (ILO, 2009).

Globally the informal economy has been growing in both developed and developing
Countries, particularly for unskilled labor (Feldman, 2004). The share of informal
economy employment to total employment is increased from 1988 to1998 by 25%. The
corresponding share of informal economy employment in developed countries was 25%
where it increased strongly in the 1990’s (ILO, 2009).

Developing countries also has been showing high growth in their informal economy. For
Example, in 1990’s 21% of the sub-Saharan Africa (SSA) labor force 227 million was
working in the informal economy. However, by 1998, 40-60% of urban employment was
estimated to be in the informal economy of formal wage at an average annual rate
of15%contrasting sharply with the decline of formal wage employment of 1% annually
by the year 1990s. The urban informal economy was contributing 22% to national
employment (charms, 2009).

The broad range of the informal economic activities conducted in many countries
condensed to identify several economic activities, such as all employment that is not
bound by Contractors, other legal regulations, under registered business and all activities
that can generate revenue that are not reported to tax authorities with the intention of
evading payment of income tax (Chantal, 2009).“Due to lack of support people within the
informal sector have a limited access of basic necessities and are not sure attaining a
stable income, hence making them more vulnerable than the formal sector”
(Todaro,2009,pp - 333). Studies reveal that the share of the urban labor force engaged in
informal sector activities growing and ranging from 30% to 70%. The average being
around 50%. The informal sector is characterized by a large number of small scale
production and service activities that are individually or family owned and uses labor

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 intensive simple technology. It is well documented that informal sector is the major
provider of job for the youth in Africa (ILO, 2012).For instance about 38% of youth were
engaged in informal sector business in Ethiopia (CSA, 2011).Besides the informal
economy gives youth opportunity to legal work bay offering experience and self
employment opportunities, Thus understanding the contribution of informal sector
employment. In reducing youth unemployment is a crucial for the success of economic
development policy and poverty reduction strategy. However studies in the area of
informal nexus youth unemployment are limited in Ethiopia particularly in the study area.
This study is, thus aimed at assessing the role of informal sector on job creation in Areka
town. Areka is town in Ethiopia, it founds 315 km away from Addis Ababa. Currently the
total numbers of population who live in the town are 21065 people in different sectors.
The vast majority of poor and poor workers are found in the informal economy of Areka
town. These workers are not cover by social security occupational safety and health
measure. The firm has no license and the revenue generated from those sectors is not
reported to tax authority and they are not registered (Areka town trade and industry
office2009).

1.2 statement of the problem

Informal economy activities are practiced in wide development range in both developing
and developed countries of the globe having substantial number of participants. In
Ethiopia the informal economic activities have been in different forms. So many people
are engaged with different activities such as local drink preparation, metal work, weavers,
street vender and prostitution (Aschalew, 2011). Like any other town in the country, large
number of people living in Areka town engaged themselves in varies informal economic
activities such as local drink preparation, metal work, weaver and other informal
economic activities have a strong linkage in the town both legal and illegal informal
activities. Informal sectors play a major role for job opportunities and reduction of
unemployment

Much of the prior research on informal sector has focused on macro level using aggregate
data. Such data are useful in identifying over all informal sector relations and been
instrumental in estimating the effect of changes in national policy variables. However,
because of the level of aggregation of data used, these data tend to abstract from the
behavior of individuals and treat the entire economy as a single entity. In this paper an
attempt will be made to assess micro level factors related with the role informal sector in
job creation in case of Areka town.

In times of when there are sufficient job opportunities, informal sector is the only most
servile strategy for majority of urban poor. It is the most and significant contributor to the
town economies of different people. There for, this sector is crucial elements of the town
economies for numerous reason; It provide cheap goods and services to countries, it plays

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 the role of a reservoir of the individual reserve army that holds down ways for the formal
sector of the urban economy (Prasad,2007).

Informal sector is a crucial source of income and employment for urban poor and plays
significant role in reducing the extent and intensity of poverty (Nirathorn, 2006;p.3, )and
(UNSC,2006)

1.3 Research question

Those motivate me to study in this sector in order to answer the following research
questions.
 What are the reasons that people engaged in the informal sectors?
 What are the potential advantages of informal sector for job creation?
 What are the factors that hinder the development of informal sector?

1.4. Objectives of the study.

1.4 .1. General objectives

The general objective of this study is to assess the contribution of informal sector on job
creation (in case of Areka town).

1.4.2 Specific Objectives

The study has the following specific objectives

 To examine why people engaged in informal sector
 To analyze the potential advantage of the selected informal sectors to job creation.
 To studied factors that hinders the development of informal sector

1.5. Significance of the Study

This study has the following significance.
-is hence highlight their activity and look in to how the informal economy could be
integrated in to the formal economy through enhanced development
- The information gained from the study will help the local government to develop a better
policy on the sector.
-It will use as an initial idea for other researcher who go beyond and study on this sector.
- To achieve increased understanding of the role and potential of the informal sector as found
primarily in the urban area of Areka.
-It enables the concerned bodies to give attention on the problems related to informal sector.
- More over this study help me to get knowledge, skill and experience, and also encourages
other researchers in undertaking the study more deeply and broadly.

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 1.6. Scope of the study

This study was geographically limited in Areka town, especially to analyze and examine the
contribution of informal sector in the process of job creation on local drinks preparation,
wood work, metal work, weaver, pottery and illegal trade in the town.

1.7. Limitation of the study

The following are the major limitation that faced during the study and during the draft of the
proposal.
- Unavailability of enough reference material and documents related to informal sector in
Areka town especially serves as background of this study.
- The respondent was not willingness to give accurate information.
- There were faced budget deficit to cover the basic expense.
- Lack of experience to conduct the research.
- Unwillingness of respondent to fill the question

1.8. Organization of the study

The studies have four chapters the first chapter deals with the introduction part of the
study, statement of the problem, Research question, objective of the study (both general
and specific), significance of the study, scope, limitation, and organization of the study.
The second chapter consists of related literature review (both theoretical and empirical).
The third chapter deals with Methodology of the research. The fourth chapter deals with
time and cost budget

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 CHAPTER TWO

2. Review of literature
2.1. Theoretical review of literature
2.1.1. Definition of informal sector

Informal sector was first used by ILO to mean that the informal economic activities (ILO,
2012; Seyfu Sisay, 2005). Informal sector activities are mainly engaged in market
production, not registered, have no book account, engaged with less than ten persons and the
activities have no license (WB, 2007).

Informal sector was viewed from several perspectives such as national policy maker and
international development agent that result a number of definitions. The policy makers
focusing on the legal aspect, concerning tax and other legislative procedure consider the
informal sector as an activity which does not follow established business. On the other hand,
Scholars and development actor focusing on the social view of point put urban informal
sector as a non-farm urban micro enterprise that are engaged in trading, manufacturing
service rendering etc. (GDRC,2009).

For the first time, the term” informal sector” was used by Keith Hart in 1971. But other states
that the concept is not a new one rather build up on the earlier concept of “unorganized
sector” which encompass production unit of small scale size includes Handicraft, which have
a domestic or unorganized character (Verick,2006.2).

The ILO/UNDP mission to Kenya played a significant role in introducing the sector
significance, particularly in employment perspective. The ILO general director in 2009
describes the sector as; informal sector is a very small unit producing and distributing goods
and services, and consisting largely independent self-employed producers in urban areas of
developing countries. Some of them employ family labor and which operate little for the
most part of unregistered, unrecorded in official statistics and tend to have little access to
credit, formal education and training institution, to many public services and amenities. They
are not registered and even when they are registered and respect certain aspect of law, they
are beyond social protection, labor legislation and productive measure at work place
(Hussman, 2006; Blaauw, 2006).

Informal sector produce goods that have more appropriate for the poor and appropriate means
of reducing poverty (UNSECO,2006). Informal sector refers to home based individual
activities operating by the owner with few employees. They are the most small and low level
of productivity and low income which tends to have little access to organized market, formal
training and public services. They concerned on income earning activities to reduce poverty.

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 Informal sectors productive are and income generate enabling the people involved feed their
families .In Ethiopia most of informal sector or micro enterprises are generally small scale
and operated by one main or assisted by family members. They involve highly labor
intensive and traditional technology requiring relatively little capital (Blaauw.2005).Informal
sector can be categorized on different areas of the sector operations.

•Agricultural informal sector: these are small scale farm operations or activities performed in
rural areas. It includes Dairy production, bee keeping, poultry rising, vegetable farm etc.
•Manufacturing, handcraft, cottage industry, etc.
•Services informal sector activities include shoe repairs, laundry, photograph, etc.

Informal sectors are types of economic activities which have not recognition and permission on
the government. Those informal sectors that do not have employment security, work security
and social security. Such activities included in this part are hidden shadow, underground,
unofficial black market and participants in drug trading activities (volition, 2008, pp-53-55;
GDRC, 2009). The definition of informal sector may be broadly characterized as consisting
of units engaged in the production of goods and services with the primary objectives are
generating employment and income to the person. Most of informal sector characterized as
follows (OECD, 2006).
Ø It operates in the small scale with weak levels of organization and with little or no distinction
between the factors of production.
Ø Informal employment relationship is usually based on part time employment kind ship or
personal and social relationship, rather than contractual agreements or formal agreements.
Ø Individual enterprises are not distinct legal entities separate from the household to which they
belong. They do not keep accounts that distinguish their activities of production from the
other activities of their owners. Thus assets used do not belong to the unit but to their owner.
From a legal perspective there is a personal, unlimited liability on the part of the proprietor
For all commitments entered in to during the production process the unit or informal enterprise
plus be defined by one of the following criteria (GDRC,2009).
1) The enterprises or paid workers are not registered; or
2) The size of the unit is not commensurate with its level of employment
Based on these two definitions informal sector activity is carried out as a principal or secondary
employment by most people. Informal sector workers are most often not professional rather
self-employed, paid or unpaid help in family enterprise or workers in domestic settings
(Della Roca, 2006). To put in few words, the informal sector includes these activities which
are not reported in national economic statistics such as GDP. (CUTS, 2009, p. 2) broadly
defines informal sectors are works which are takes place without the state knowledge which
have legal or illegal character.

2.1.2. Concept and Characteristics of Informal sector

To support and promote informal sector activities, the sector should access to resources and

8
 market availability through institutional innovation and delivery mechanism for example
credit, training, technology, particularly decade to proof that such direct interventions and
activities are gaining importance (NLFS,2005,).

At the beginning, the urban informal sector was seen as a marginal sector with respect to its
contribution to the whole economy. But, this perspective has changed when evidences shows
that the sector contribute a lot for an economy particularly with respect to employment and
output using more of labor intensive undertaking persons. In addition to this, evidences
shows that at least in Africa and Latin-America, urban informal sector shows some
expansionary nature after some adjustment and policy changes. Informal sector is
characterized by the following major facts (WB, 2007).

A. Entry and Exit: -individual want to enter in the informal sector is very simple because the
required capital to enter in this sector is less expensive. It is also simple to exit from the
informal sector. So, entry and exit from the informal sector is over simplified.

B. Formal education: -most of the employees engaged in the informal sector are less for
educated. That means skilled is acquired outside the formal school system.

C. Unregulated and competitive market: - due to informal sector's are out of the view of
government and the startup capital is low, every individual is enter and compete in the
market.

D. Cash as most common medium of exchange

Another key aspect of the informal economy cash is the most important medium of exchange
that commonly exchange between parties rather than a check payroll statement, or credit
control. The purpose using currency rather than bank credit is to avoid creating a record of
the activities.

E. Relies on endogenous resources: - the activity is performed through locally available resource,
and it provides cheap input and output to formal sector.

F. Unreported income: -The nature of the exchange is cash or bartering so there is no recorded of
the transaction; there for the income is not reported for taxation. Both the individual who
work informally and the companies who employ them follow this arrangement. Informal
workers are not claiming their income on their state and federal tax for forms.

The urban informal sector was viewed as more or less a residual sector that is a good source of
employment for many people, particularly those who are unable to put themselves in the
informal sector. Wage employment statics shows that the residual sector concept is no longer
acceptable and the sector workers as low productive one. (Semboja, 2007; UNICA, 2006).

9
 Informal sector enterprises use simple technologies that have lower capital intensity. Some of
the enterprises are highly dynamic, innovations are taking place in inputs, working patterns
and output which make them able to adopt new situation and exploit market opportunities
(Soaries, 2005).

Informal sector activities create a variation in the use of capital. most of the entrepreneurs in
the sector use own personal saving as a capital of start-up capital ,followed by credit from
family or friends .In terms of credit availability ,borrowing from other sources like bank, and
different financial institutions is minimum(Nelies,2006).

The motives for the participation in the informal sector is varying .Some of them are the
following (Nirathorn, 2006).
•Labor market flexibility: many of the participants particularly women prefer this sector because
it offers flexibility in participation .For example, combine house hold responsibilities with
income earning opportunities by choosing their own hours and place of work as well as the
activities
•Existence of profitability opportunities: some enters to this sector voluntarily because there are
profitability opportunities .Being small units; these are in advantageous position to exploit
the market niches weighting to be exploited by offering tailored services.
•Non-compliance with regulation: many units offer choose to be small and remain an
unregulated or unlicensed that is indivisible and thus mislabeled in to the informal sector. So
that, they avoid compliance with some or all the regulations since compliance with them
generally have a cost burden
Informal sector or small scale sectors are close amalgam of organizations that escape the
cover many of these regulations and do not receive access privileged facilities. It is usually
does not adhere to norms of minimum wage, retirement plan and unemployment
compensation. They do not pay taxes and they receive little government support .These
sector are not illegal in the strict sense but they convenient for the government to look the
other way. The sector includes non-professional self-employed; unpaid family workers,
domestic servants, and business with fewer workers. It characterized by ease of entry, Use of
credit from non-institutional sources, and non-adherence to government regulations
especially regarding the scale of smuggled goods. An informal sector activity includes
laundry services, taxi and unregistered buses, black market transactions, money lending, etc.
(GDRC, 2009).

2.1.3. Areas of informal sector activities

Informal sectors productive are and income generate enabling the people involved feed their

10
 families .In Ethiopia most of informal sector or micro enterprises are generally small scale
and operated by one main or assisted by family members. They involve highly labor
intensive and traditional technology requiring relatively little capital .Informal sector can be
categorized on different areas of the sector operations (Kusakabe, 2006).

•Agricultural informal sector: these are small scale farm operations or activities performed in
rural areas. It includes It includes Dairy production, bee keeping, poultry rising, vegetable
farm etc.

•Manufacturing, handcraft, cottage industry, etc.

•Services informal sector activities include shoe repairs, laundry, photograph, etc.

2.1.4 Advantage of informal sector participation

The primary reason for entering the informal sector are a desire for becoming independent
and to earn a higher income along with a lack of jobs in the formal sector and a prohibitive
level of bureaucracy and entrance costs to operate formally the tax burden is less for informal
sector similar for employees who have common motivations for seeking work or creating
business outside of the official sector (Tokman, 2007).

2.1.5 Disadvantage of informal sector participation

Disadvantage for employers operating in the informal sector include lack of access to capital
for business growth and lack of access to business development opportunities. Employees in
the informal sector suffer from lack of employment contracts. Both employer and employee
have diminished legal right including no properly right protection (Ibid)

2.1.6 Reasons people engage in the informal sector

People participate in the informal economy activity for several reasons for some it is
necessary their only result or their best option that better alternative than low wage formal
employment. Because in some formal employment wage rate is incapable for the fulfillment
of their basic needs than the best alternative for those employees are engaged in the informal
sector to improve their income. The primary objective of informal sector participants is
receiving income and being self-reliance (Wiego, 2004).

2.1.7 Challenges that hinder the development and improvement of informal

sector

The challenges of the informal sector on urban is unfortunate activity. They constitute a major

11
 threat to the health and well-being of urban life (John, 2011). Some informal business may
lack both supply and demand of market because the market does not exist for their business
activities. Most of their activities are restrict to unfavorable environment since the operation
of their business is not registered by the government (Tefera Dafge Deliso, 2011).

2.2 Empirical literature review

Empirical evidences related to this study. A study of by Africa development bank (2012)
reviled that in Bangladesh reported that out of the total 89% of jobs in the labor market. The
informal sector accounted for more than 40% of the total gross values add of Bangladesh in
2012. This is with the highest contribution of informal sector on agriculture, fishery, trade
and industries. It also concludes that workers who have no education or primary educations
are more likely to hold informal job. It said informal workers are less likely to receive
pension, social protection and notes of termination compared to formal workers and the
common places for informal worker are located informal market, bazaars stalls and trade
fairs. Informal employment make up 48% on non-agricultural employment in North Africa,
51% in Latin America, 65% in Asia and 72% in sub Saharan African. Agriculture
employment is included in the sector the percentage of some countries are increased like
India and many sub Saharan Africa countries beyond 90% and estimated for developed
countries is around 15% and in developing countries the largest part of informal work around
70% are self-employed or wage employment predominantly (WB,2007).

In Africa informal work accounted for almost 80% of non-agricultural employment, over 60%
of urban employment and over 90% of new jobs for approximately the past decade. The
informal sector increasingly serves as a safety net for disadvantaged people in developing
countries such as Ethiopia. The fact that the nature of the informal sector is neither capital
intensive nor requiring educational skills also means that poor people are drawn more to this
sector than the formal sector (International labor office, 2002).

Like many other developing countries ,most people in Ethiopia is engaged in informal
economy .Ethiopia 's poverty -stricken economy is almost entirely depending on the profits
made from informal economic activities .The activities within this sector account for nearly
50% of total employment .The majority are however not included in the formal economy but
are cultivating for subsistence living .the issue of food security is a constant worry and a
major challenge for the Ethiopia government since agricultural sector suffer from drought
and poor cultivation practice .By this case most of the Ethiopian people engaged in informal
economy to solve the problem (Utrikespolitiskal institute 2010).

2.2.1. Contribution of informal sector to employment

The World Bank (2006) indicates that in informal sector employment of total labor force
remained high between the year 1978 and 1988. It has observed about 92% of the total

12
 employment.

Similarly, International Labor Organization (2004) reported that informal sector employment has
increased by an average of 0.7% each year between1980-1988, in Africa and more employed
people than the formal sector by creating 6 million new jobs against 0.5 million over the
same period. The Informal sector contribute to the major parts of employment, then informal
sector is seen to contribute at a lower rates but significantly in the term of income generation
it provides between 20-30 rural income (Bagachwa, 2009).

2.2.2. Contribution of the informal sector to GDP

National informal sector survey (2005) in Tanzania, Argued that the contribution of informal
sector to the Gross domestic product (GDP) in 1991 was about 32%. This is quite a
reasonable amount bearing in mind that this sector is not counted in the official statistics due
to the exclusion of this information in the circulation of national income a gross
understatement of the level of per capital income of the population is inevitable given the
counting expansion of the informal sector, a greater potential for a higher contribution to the
gross domestic product exists.

2.2.3. Contribution of the informal sector to poverty reduction

The income generation opportunities offered in informal sector provides a very important source
of lively hood for a large proportion of the population in the urban and rural areas. This is
manifested by the larger number of people employed in this sector. As the ‘‘ultimate refuge’’
in beneficial economic activities it is a source of income without which object poverty,
increased crime rate and social unrest would have been the inevitable out comes. For
instance, statistics indicate that in 2008, the in formal sectors share to the total employment
was 22% with 56% of the urban labor force and 14% of the rural labor engaged in the
informal sector, earning estimated average of Tanzania’s 14,120 and 7,270per month
respectively. This high rate may be attributed to the deficient labor capacity in the informal
sector and rapidly growing labor force among other factors.

2.2.4. Contribution of informal sector to the improvement of socio-

economic welfare

A part from the contribution of the informal sector to poverty reduction, Omar (2005)
reported that the informal sector plays a vital role in improving people welfare. The emphasis
was on the key contribution to the house hold economy. In fact, with not informal activities,
the house hold would suffer
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 CHAPTER THREE

3. Research Methodology

3.1 Description of the Study Area

Areka is a town in southern part of Ethiopia located in wolayita zone of southern nation’s
nationalities and peoples region about 315kilometrs from Addis Ababa. This town has
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 latitude and longitude of 7° 4'N &37°42'E,and an elevation of 1774 meters above sea level.
The average daily temperature is ranging between 13.6°c and 16.3°c.the main rainy seasons
starts in June and lasts up to beginning of November. This indicates that Areka has long rainy
season. The town receives a fairly uniform amount of rain fall across March to October.
Therefore, the town and its surrounding areas have an advantage of growing different types
of cool vegetables and producing different types of cool crops (Areka town city service,
2008).almost all population of income source was gained from private sectors and in Areka
private investment is the largest component. The investors within the act of investing prevail
with over time and space.

3 .2 Research Design

The researcher would be use descriptive type of research design to conduct the study. The reason
for selecting such type of research method is to describe the contribution of informal sector on
the process of job creation in the town because of this the researcher will be used such method to
clearly describe the sector.

3.3 Source and Type of Data

In order to objective of the study i will be use both primary and secondary data mostly i will use
primary data since it was more applicable conducted based on primary data that are quantitative
and qualitative in nature, this primary data would have collected from informal sector in the
town, secondary data will be obtain from in formal sectors written documents, internet, books
and other secondary data will be applicable .

3.4 Sample Size and Sampling Technique

As reported by Areka town industry and trade office (2009) there were extensive informal
sector operating in the city because of this the study used stratified sampling techniques. To
do this the researcher uses the following producers.

√ First the researcher grouped the informal sector in to four based on the usage of their final
product.

√ Group one - include local drink preparation like teji. tella etc.

√ Group Two -metal work and furniture making.

√ Group Three - weaving and pottery include.

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 √ In Group Four - illegal tread or black market grouped. The researcher selected 10
respondents from each group. So the final sample size would be "40"by using multistage
sampling techniques i.e the researcher used convincingly select those samples from the total
population use convenience sampling method

3.5 Data collection instrument and procedure

For this study the researcher used both close ended and open ended questionnaires and
interviews. The researcher distributed the questionnaires in face to face in order to avoid
refusal by briefly explaining the purpose of the study.

3. 6 Methods of data analysis

The study will be used both quantitative and qualitative method of data analysis. In these
regard data which are collected through questionnaires would analysis through quantitative
method like percentage, and table presentations and qualitative data which are collected
through interview would analysis with essay descriptions.

CHAPTER FOUR

4. TIME AND COST BUDGET

4.1 Time budget

The time budget considered all the activity that is to be performed to active the objective timely.
no List of activities Jan Feb Mar Apr May Jun
1 Title selection 
2 Literature review 
3 Data collection 
4 Data analysis 
5 Report writing 
6 Report submission
7 Preparation and
submission of proposal

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 8 Presentation
Table 1: Time budget
4.2 Cost budget
Cost budget refer to budget required to conduct the study which comprise the
materials and resource required.
NO National requirement Quantity required Unit cost TOTAL
1 Paper 30 0.5 Cent 15 Birr
2 Pen 2 10 Birr 20 Birr
3 Internet  25 Birr 25 Birr
4 Note book 1 50 Birr 50 Birr
5 Telephone expense  50 Birr 50 Birr
6 Miscellaneous expense  40 Birr 40 Birr
7 Flash memory 8GB 1 250 Birr 250 Birr
8 Printing cost 44 2 Birr 88 Birr
9 Transportation cost 5 20 Birr 100 Birr
10 Other personal consumption  200 Birr 200 Birr
11 Photo copy 44 1 Birr 44 Birr
Total Birr

Table 2: Cost budget

Reference
 Aschalew, Bekele (2011), "trade and informal economy: how tax policy
conducted over informal sector" A senior essay in partial fulfillment of BA degree
in economics, Hare Maya university, Ethiopia.

Available at http: www. Informal sector and unemployment .com

 Chantal, SF. (2009) "the impact of informal trade on GDP Growth in Latin
America", Volume1, number3.
 Charm,P (2009), Global Recession and the Informal Economy, Economic
crisis at the bottom of pyramid, Black Hall publisher Harvard, USA
 Roca, Della (2007) international trade and institutional change, Alferd
publishing New York, USA.
 Friedman, M (1992) Definition of informal sector, Jersey Random house, New
York, USA.
 ILO (2003),Resolution concerning statics of employment in the informal
sectors, Harper and Row publisher Geneva, Switzerland
 John, M (2011), "examining barriers, issue and challenges that hinder effective
development and implementation of corporate informal activity", Lagos

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 development working paper, number 3
 Michael, Todaro, (2009) Economic development, 6th Edition long man
publishing New York, USA.
 Tokman, V (2007);" the informal economy, insecurity and social cohesion in
Latin America; Oxford university, London, UK

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