This study revisits the definition of informal employment, and it investigates the puzzle of high open unemployment co-existing with relatively limited informal employment in South Africa. We estimate earnings equations using data from the September 2004 Labour Force Survey and present evidence of persistent earnings differentials not only between formal and informal employment, but also between types of informal employment. These persistent earnings differentials are suggestive of complex segmentation in the South African labour market and challenge the presentation of informal employment as an undifferentiated residual with no barriers to entry or mobility.

Accepted for publication by The South African Journal of Economics 76(1)2008. The definitive version is available at: http://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2008.00153.x/pdf on Wiley Online Library.