Labor Informality and Market Segmentation in Senegal

ABSTRACT Understanding why workers select into informal employment is essential for designing effective formalization policies across Sub‐Saharan Africa, where nine out of 10 workers remain informal. This paper estimates a self‐selection model with entry barriers to quantify involuntary informality in Senegal, a representative country in terms of informality levels and labor market rigidity. Using nationally representative household survey data, we find that the preference for formal employment is higher among workers with formal education, those who are married, and those with fewer young children. Preference also rises with age but at a decreasing rate. Our results indicate that informality in Senegal is primarily voluntary: only 30% of informal workers are involuntarily excluded from formal jobs. Findings are robust to alternative model specifications, informality definitions, and sample restrictions. By providing new evidence on the drivers of voluntary versus involuntary informality, this paper contributes to the literature on labor market segmentation in West Africa, an understudied but highly informal region.