Thomas Monnier – PhD student in economics at CREST, École polytechnique, IP Paris

In September 2025, he will join Hitotsubashi University (Institute for Advanced Study) as an assistant professor.

In his research, he applies structural approaches (mainly urban economics) to questions in development economics.

His thesis, The Informality Trade-Off: Wages and Rural-Urban Migration in South Africa, supervised by the economist Benoît Schmutz-Bloch, deals with the role of informal labor and housing in South Africa.

More broadly, he works on migration, urbanization, climate change, misallocation, structural transformation, and place-based policies.

As part of his doctorate, he also worked as a consultant for the World Bank.

1. Why did you choose South Africa as a field of study? What makes it both comparable and distinct from other countries?
South Africa is a middle-income country, richer and more developed than other economies in sub-Saharan Africa and comparable to those of the East Asia–Pacific region. These major geographical areas are those where the increase in the urban population—fueled by rural exodus—will be the strongest over the next 25 years. Given that informality can play a buffer role in the context of overcrowded cities, it seemed important to me to focus on one of the major economies of the area, rather than on Latin America for example—where many studies on informality have been published (notably due to access to high-quality data). The relatively recent legacy of apartheid also makes South Africa an interesting case study in itself, with migratory flows from rural to urban areas high for this level of urbanization (about 60% of the population) and specific dynamics of informality.

2. What are the dynamics of urban informality in South Africa?
Informality refers to all activities operating on the margins of existing laws and regulations, in the absence of a contract or enforcement mechanism (not to be confused with the criminal economy). If we consider cities, from an economic point of view, as local markets for employment and housing, speaking of urban informality essentially amounts to speaking of undeclared jobs and slums. These conditions are often far from ideal for workers and do not always benefit businesses, but they can constitute an interesting fallback solution, even a springboard towards better conditions (see next question). For example, an informal job can serve as an alternative to unemployment and informal housing as an affordable location close to employment centers. In the case of South African cities, the share of informal labor (about 30%) is typically lower than in comparable countries (about 60%), but the share of so-called “structural” unemployment is also higher (about 35% versus 5%). The share of informal housing is comparable to East Asia for example (about 25%), but nearly half of these homes consist of backyard installations attached to formal units (“backyarding”), an emerging phenomenon that is still little studied. These specific dynamics call for the modeling of corresponding congestion mechanisms that could in time apply to other countries in the area of interest, particularly in the case of poorly supported urban growth.

3. Is the analysis of informal urban labor markets enriched by taking into account spatial dynamics, notably rural–urban migration? What role does geographic mobility play in the resilience of workers to urban policies?
That is the whole point of the first chapter of my thesis (my “job market paper”). At the local level, even if informal employment is typically preferred to unemployment at a given moment, it is not always clear that it is a preferable option in the long term (if it is more difficult to find a formal job afterwards, for example). However, given the better professional opportunities that cities offer compared to rural areas, the choice of informal urban employment remains relevant for rural migrants seeking to integrate into the labor market (in the absence of a formal position and if one considers that a job is necessary to justify the mobility costs induced by migration). The formal–informal and rural–urban labor markets therefore do not operate in watertight compartments, and one must expect significant general equilibrium effects in the analysis of urban policies. Thus, I show that the negative impact of a formalization policy (reinforced controls on informal firms) on urban incomes leads to a decrease in geographic mobility from rural to urban areas: just as informal employment can serve as a fallback solution in the face of formal firms seeking to lower wages, rural employment can enable urban workers to adapt when their wage prospects actually decline. It should be noted that the direction of this effect is not obvious a priori, since wages can also be pushed upwards by increased competition between formal firms: the net effect between these two forces is an empirical question that justifies the use of a theoretical model bringing external validity to the mechanisms at work in the South African case.

4. In what way can informality be considered a rational response in contexts of high labor-market frictions? And what are the specific forms of frictions on the South African labor market that push individuals towards informality?
In a sense, frictions in the formal market are the raison d’être of the informal market: if supply and demand were perfectly aligned in one, workers and firms would have no interest in the other. In the case of the labor market, these frictions cover mechanisms of imperfect information, monetary or psychological costs for recruitment and job search, limited social networks, etc. For example, it may be simpler (and less costly) for a worker to signal their skills or motivation to a close contact, who would be all the more inclined to hire them without a contract if their activity is small and not very profitable. In doing so, each weighs the opportunity cost represented by the lack of access to social benefits or the resources of the formal market (access to capital, security, etc.). In the case of South Africa, these frictions seem to operate insofar as the rate of formal employment is comparable to that of other emerging countries. On the other hand, it would seem that the informal market is also characterized by strong frictions, which would explain the high unemployment rate: existing studies point to spatial frictions specific to informal activities (transport costs, zoning, permits) and to pressure from formal firms in certain key sectors (hospitality, commerce, agriculture). These factors contribute to the strong market power of firms over wages which underpins the results of the first chapter.

5. Is informal housing a fallback solution in the face of the scarcity of formal housing?
Absolutely, and that is the subject of the second chapter of my thesis, which focuses on the city of Cape Town. My co-authors and I show that the increase in the urban population induces upward pressure on formal housing prices in the absence of changes in planning constraints. Consequently, the share of informal housing increases, and this in different ways depending on the policies implemented to deal with urban growth: introducing a limit to urban sprawl further restricts the supply of formal housing and increases the share of slums, while the construction of social housing allows part of the slum population to move towards “backyarding,” typically less unsanitary. In my third chapter, we show that taking into account flood risks to which informal households are particularly subject does not fundamentally change this dynamic, even if it induces a reallocation in space. On the other hand, unlike the first chapter, I do not study the prospects of transition from informal to formal housing, nor do I look at the extent to which this issue of access to housing (and therefore to employment) affects return migration choices: these are avenues that I keep for future work.

6. In what way do the results of your research illustrate the ambiguous and ambivalent role of the informal sector?
As you suggested, my results depict informality as a constrained choice that is fully rational. However, it must be kept in mind that this choice is rarely optimal and constitutes at best a medium-term solution while awaiting a change in these constraints. Indeed, informal firms are partly protected from competition from the formal sector (by “parasitizing” workers’ job search), tend to remain less productive, and do not contribute to the tax effort. Informal housing limits households’ consumption capacity and steers them towards certain types and centers of employment. And that is without mentioning other aspects that I do not study directly: insurance logics, wealth accumulation, life cycles and intergenerational transmission, neighborhood effects and segregation, etc.

7. In your opinion, what urban public policies would make it possible to exit informality? And in the absence of adequate development policies, what economic functions can informality fulfill in emerging countries to allow an increase in workers’ well-being?
In my first chapter, I show that although coercive policies can allow a reduction in informality and an increase in production, they are not necessarily desirable insofar as they induce a decrease in workers’ well-being—and it is likely that I would obtain a similar result in the following chapters. The impact on the urbanization rate can also have an indirect negative effect on production in the presence of agglomeration economies and structural change mechanisms. It is therefore a matter of replacing or combining these policies with incentives for formality. For the latter to be effective, they must tackle the factors that justify the existence of the informal sector in the first place: low skill levels of the labor force, lack of resources and infrastructure, poor access to public services, administrative burdens, poorly defined legal framework, imperfect competition, strategic choices… The question of the relative effectiveness of these different options, their financing, and their political feasibility remains open.

8. Did the subject of your thesis or the orientations of your research evolve since the beginning of your PhD?
Yes, I had an initial interest in urban economics—both for its applications to public policy issues and for its overlaps with other social sciences—but I did not have a clear angle (in terms of object or method) for the whole thesis. My master’s dissertation was a historical economics project on public education, but I abandoned it, because another PhD student carried out similar work and because I realized that the associated data-processing work did not appeal to me. I then worked on another empirical project on fiscal zoning policies in France, which I also abandoned for lack of convincing results. A chance collaboration with the World Bank led me to the study of informal housing in the case of the city of Cape Town. The subject interested me, and I developed a taste for the underlying theoretical modeling and associated estimation techniques. This project gave me the opportunity to reflect more broadly on the role of the informal sector in the cities of developing countries—notably why it plays a predominant role there compared to richer countries—keeping South Africa as a case study. If I had to draw a lesson from this process, it would be to remain curious about new approaches, attentive to the evolution of one’s tastes, and open to opportunities that arise!

9. How do you envisage the continuation of your professional career?
For now, I am going to work as an assistant professor in a university in Japan. I will therefore pursue my research at the intersection of urban economics and development economics, broadening my interest in questions of informality to more general questions of structural transformation. Being in Japan will undoubtedly also be an opportunity to broaden my geographical scope. In parallel, I would like to continue interacting with policymakers, as I had begun to do with the World Bank. I find that this is an enriching experience in two respects: on the one hand, it allows impact-oriented research related to a given project to be brought to completion; on the other hand, it allows iteration on the project itself or the emergence of new ideas by better identifying certain concerns, field realities, etc. Belonging to the academic world makes it possible to maintain great freedom and a certain independence, even if the duration of projects can sometimes be frustrating. As long as I have the feeling that I continue to train myself and that I manage to deliver interesting results, I think I will remain there in the more distant future.