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The need for medicine sellers to fill gaps in formal sector provision was often implied rather than explicitly articulated.
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They might require licenses to operate, but other requirements for the formal sector like social security provisions, formal entry requirements etc. are either not necessary or not implemented.
Formal wages increase, informal wages decline, and self-employed men become wage earners to take advantage of the increase in the provision of mandated benefits—although the increase in labor supply in the formal sector is not enough to compensate for the increase in demand resulting in an increase in formal wages.
This may be attributed to the provision of a small quantum of loans from the formal sector for consumption purposes, which is non-productive in nature.
Some are simple sales, whereas many, reflecting a universal recognition of the distinctness of medicines over other commodities, can be characterized as provision of 'first aid' and often lead to prescribing of pharmaceuticals or to referral to formal sector providers.
The formal sector is the enemy.
Specifically, the model predicts that improvements in the provision of public healthcare (e.g., public hospitals) increase the size of the informal sector and decrease the wages of this sector, while increasing the wages of the formal sector.
In regions where financial services from the formal sector are available, low-income households and small businesses are for the most part unable to meet certain basic lending requirements, like strict documentation and collateral provision.
The same reasoning applies to the formal sector.
Formal sector include workers enrolled in social insurance.
Note that the formal sector wage premium is not signed.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com