Ghana's Informal Sector Paradox: Why 80% of Workers Only Make 27% of the GDP

A 2024 report from the Ghana Statistical Service (GSS) reveals a central paradox at the heart of Ghana's economy.

• Informal Sector: Employs 80% of the workforce, yet produces only 27% of the country's GDP.

  
  

• Formal Sector: Employs only 20% of the workforce, yet produces a staggering 73% of the GDP.

This is the core challenge: the vast majority of working Ghanaians are busy, but this effort is not translating into national wealth. The report itself notes that this imbalance, with "80 percent of workers contributing only about a quarter of the national output," is an "obvious constraint to the transformational agenda of the country".

How is this paradox possible? Why is it a problem? And what can be done about it? We'll break it all down.

What Is the "Informal Sector" Anyway?

"Informal" at its simplest is work that isn't officially registered, taxed, or monitored by the government. Think of the street hawker, the small-scale farmer using family land, the local mechanic, or the neighborhood tailor.

The GSS report states that the informal sector is dominated by "own account work" (meaning you're your own boss) and earnings are "typically low and irregular".

This is the direct opposite of the formal sector, which has "clearly defined employer-employee relationships subject to national labour standards".

Solving the 80:27 Puzzle: A Tale of Two Productivities

So, how can 80% of workers contribute so little? The answer is one word: Productivity.

Productivity is the economic value each worker creates. The 80:27 ratio shows a massive productivity gap.

Let's use an analogy: the Shovel vs. the Excavator.

Imagine 10 people digging a foundation with shovels. They are working hard, sweating, and their work is essential. But one person in an excavator can do the same job in a shorter time.

• The 80% in the informal sector are the shovels. They are "labor-intensive." They are working just as hard, but their economic output per person is tiny. The report confirms that "most activities in the informal economy are characterized by low-productivity and low pay jobs".

  
  

• The 20% in the formal sector are the excavator. They are "capital-intensive," using technology and machinery. As the report notes, these sectors like mining (a tiny slice of formal employment) have the "highest levels of productivity". A single oil rig or gold mine generates massive revenue with a relatively small staff.

So, the paradox isn't about people not working; it's about the economic value their work is able to produce.

Why the Paradox is a Problem for Everyone

But if people are employed and getting by, what's the big deal? This paradox is a major problem for both individuals and the country.

For Individuals: It traps people in "working poverty." You can work all day, but if your productivity is low, your pay will be too. The report confirms these jobs are "precarious" and are a key reason why "average earnings in Ghana are lagging behind the growth of labour productivity". No pension, no formal sick pay, no safety net.

For the Country: When 80% of your workforce is stuck in first gear, the whole country moves slowly. The report calls this an "obvious constraint to the transformational agenda of the country". It is a "drag on the overall productivity and living standards of the nation". A country cannot become wealthy when most of its people are working with shovels, economically speaking.

A Surprising Twist: What if "Old" Jobs Just Get Better?

So, the solution is just to move everyone from low-productivity farms to high-productivity factories, right?

Not so fast.

What if we just make the "unproductive" fields more productive? Isn't that a better solution than forcing people to leave?

It's a brilliant question, and the GSS report's data provides a surprising answer: This is already happening. And it's part of the challenge.

The report finds that "Household Agriculture"... has been "losing employment as they gained in productivity". This is an "expected [part] of the modernization of the economy".

As traditional farming modernizes (for example, using better tools or methods), it needs fewer people to produce the same amount of food. This is good, it is progress! But it creates a critical new problem: Where do all the "freed up" workers go?

The Way Forward: Building the Next Step

The real challenge isn't that people are leaving farms. It is where they're going next.

According to the report, Ghana is getting this part wrong. Workers are flowing out of traditional agriculture, but they are moving "towards the lower-productivity urban services... and construction".

This is like moving from working with a cutlass on a farm to working with a shovel on a building site. It's not a transformational leap.

So, what's the solution? The report's conclusion is clear :

1. Focus on "Key Sectors": Policy and investment must target the sectors that drive both growth and jobs. The report specifically names "commercial agriculture, transportation and utilities, and manufacturing" as deserving "particular attention".

2. Build the "Landing Pad": As people leave modernized farms, they need a high-value place to land. The report says the "fate of manufacturing will be particularly significant" for this exact reason, citing its "potential for both employment and productivity growth".

3. Share the Gains: Finally, the report highlights a crucial warning: on average, "labour earnings are falling behind the curve" of productivity growth. This is the "unfair pie-slicing" problem. The report links this directly to the "prevalence of informal, unorganized work".

   The way forward, therefore, isn't just about creating more productive jobs; it's also about giving workers the power to negotiate for their fair share of that new productivity. By fixing the "unorganized work" problem through formalization and "social dialogue," workers get a seat at the table. This ensures that as the economic pie gets bigger (from new manufacturing and commercial farms), their 'personal pockets' get bigger, too.

From Paradox to Potential

Ghana's 80:27 paradox isn't a story of people not working hard enough. It's a story of an economy stuck in transformation.

The challenge, as the GSS report shows, is to move from a nation of 80% working with shovels to one where everyone has a chance to operate an 'excavator' and to share in the wealth it creates.