The idea of dualism in the South African economy, characterised by a ‘first’ and ‘second’ economy, has come to dominate government thinking in recent years. Using the panel component of the Labour Force Survey (LFS), we explore linkages between the formal and informal economy. Our analysis suggests that there is a high level of interaction between formal and informal work at the lower end of the labour market. At the household level too, access to stable employment in the formal economy is associated with higher levels of earning in the informal economy. Our findings have implications for poverty analysis in South Africa. Policy which views poverty as being located outside the mainstream of the economy—in the so-called ‘second economy’—is misleading.
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