A Formal vs. Informal Perspective

Tanzania’s labor market is split between formal and informal employment, with the informal sector accounting for 71.8% of the workforce. The 2025 Employment Study found that employment choices are influenced by factors such as education, work experience, financial barriers, and job security. This article presents key statistical insights into why workers choose either formal or informal employment.

Current Employment Distribution in Tanzania

A survey of 2,500 respondents revealed the following employment status:

The informal sector dominates because it offers low entry barriers and greater flexibility, while the formal sector is more structured and provides benefits like job security and social protection.

Key Factors Influencing Employment Choices

1. Education and Employment Type

Education is a major factor in determining employment choices. The study found that:

• 83% of formal employees have at least a bachelor’s degree, making higher education a strong requirement for formal jobs.
• 50% of informal workers only have secondary education, which limits their ability to access formal jobs.
• 35% of informal workers have primary-level education, often working in agriculture or small businesses.

2. Work Experience and Employment Type

Experience plays a crucial role in employment stability:

• 60% of informal workers have between 2–5 years of experience, suggesting they take temporary jobs before seeking formal employment.
• 45% of formal employees have 6–10 years of experience, showing that experience improves access to structured jobs.
• 35% of informal workers have less than one year of experience, reflecting high participation of young workers in casual labor.

3. Barriers to Formal Employment

Workers and small businesses face challenges transitioning into the formal sector:

• 42% of respondents cited limited job availability as the biggest challenge in finding formal employment.
• 26% identified skills mismatches, meaning available jobs don’t match their qualifications.
• 21% mentioned bureaucracy as a major hurdle, especially for small businesses trying to formalize.

4. Financial and Economic Factors

Many Tanzanians choose informal employment due to low capital requirements and business flexibility:

• 44% of informal workers are self-employed in small businesses, as formal employment requires more capital and regulatory compliance.
• 26% work in retail and street vending, which provides daily income without business registration costs.
• 8% are in transportation, such as bodaboda (motorcycle taxis), which requires minimal startup investment.

5. Job Security and Social Protection

Formal jobs offer social security benefits and stable wages, attracting workers seeking long-term financial security.

• 50% of respondents stated that access to social security, pensions, and health insurance was the primary motivation to seek formal jobs.
• 20% preferred formal jobs due to higher wages and stable income, compared to unpredictable informal earnings.
• 16% would transition to formal employment if business registration processes were simplified.

Conclusion and Policy Recommendations

The study reveals that education, work experience, financial barriers, and job security concerns are key factors influencing employment choices in Tanzania. While formal jobs offer stability, many workers prefer informal employment due to financial independence, ease of entry, and fewer regulatory burdens.

Policy Recommendations:

1. Expand Vocational Training – Equip workers with skills that match industry needs.
2. Simplify Business Registration – Reduce bureaucracy to encourage small businesses to formalize.
3. Improve SME Financing – Provide low-interest loans to informal entrepreneurs.
4. Raise Awareness on Social Protection – Promote pension and health insurance benefits for informal workers.

NOTE:

The research and case studies presented in this report were conducted by Tanzania Investment and Consulting Group Limited (TICGL) to analyze employment trends, macroeconomic stability, and job creation dynamics in Tanzania. The study covered a sample size of 2,500 respondents, representing diverse economic sectors and geographic regions. A mixed-methods approach was employed, integrating quantitative surveys (85%), structured interviews (10%), and focus group discussions (5%) to gather both statistical data and qualitative insights. The research was conducted across six key regions: Dar es Salaam (25% of respondents), Mwanza (18%), Arusha (15%), Dodoma (14%), Mbeya (12%), and Morogoro (16%), ensuring a balance between urban and rural employment patterns.

The findings indicate that Tanzania’s workforce is 71.8% informal (25.95 million workers) and 28.2% formal (10.17 million workers), highlighting a significant divide in job security, wages, and access to social protection. Among the 2,500 surveyed individuals, formal employment accounts for 23% (550 individuals), predominantly in government (32% of formal jobs), banking and financial services (25%), manufacturing (18%), and education and healthcare (15%). On the other hand, informal employment constitutes 49% (1,170 individuals), with key sectors including agriculture (35% of informal workers), small businesses and trade (28%), transportation (15%), and casual labor (12%). The remaining 27% (650 individuals) were unemployed, with youth unemployment (ages 18–35) reaching 33%, significantly higher than the national average of 9.2%.

Employment trends indicate that formal employment is projected to rise to 38% by 2030, driven by industrialization, digital transformation, and policy reforms. However, major barriers continue to slow the transition, including limited job availability (42%), skills mismatches (26%), and bureaucratic challenges (21%). The study also found that women make up 65% of the informal workforce, primarily due to barriers in accessing formal jobs, while 72% of youth are engaged in informal employment due to limited entry-level job opportunities.

To bridge the gap between formal and informal employment, Tanzania must focus on expanding SME growth, strengthening vocational training programs, improving access to financial services for small businesses, and reducing bureaucratic hurdles for business registration. This report emphasizes the key trends, challenges, and opportunities shaping Tanzania’s employment landscape and highlights the role of public-private partnerships, investment in digital workforce expansion, and targeted policy interventions in creating a more structured and inclusive workforce by 2030.