Determinants of income in the informal sector : a case of selected slums in Ghana

Abstract

This paper investigates the determinants of income earned in two informal slum economies in Ghana, using OLS regression analysis. Amongst factors, operator’s social networks, locus of control, type of economic activity, educational level, age of business and labour size, it was found that labour size was the main determinant of average daily income in slum activities in Ghana, with a 25% increase in average daily income for every extra person employed. Also, an extra year of experience in running the same business increases income by 10%. This reflects that, a slum operator’s continuous operation (learning and earning by doing) over the years, helps to augment income. An extra year of formal education on the other hand only increases daily income by 1%.