The informal sector constitutes a vital part of developing countries’ economy. It serves as a major source of employment and livelihood for the urban poor. However, despite its multifaceted economic contributions in many developing countries, little is known about its contribution. Hence, this study examines the role of the urban informal sector in improving the livelihoods of the participants in Hawassa city, southern Ethiopia, using primary data. A random sample of 182 informal sector participants was selected from eight kebeles using multi-stage sampling techniques. Descriptive statistics and a logistic regression model were used to analyze the data. The descriptive analysis results showed that the majority of the participants (67%) perceived that participating in the informal sector has considerably improved their livelihood. The econometric analysis reveals that informal business operators who earn a higher monthly income, those who save their income, stayed longer in the business, have access to credit and own more working capital, and those who get training opportunities are observed to have better livelihood improvement compared to their comparative group. Given the sector’s role in creating employment opportunities for the burgeoning urban labor force and improving livelihood, informal businesses should not be treated as a hostile group with a marginal role in the economy. Thus, along with designing strategies for the formalization of informal enterprises, facilitating access to finance, training programs, improving the business environment, and provision of business development services prepare youth to navigate the informal sector in the study area, in particular, and Ethiopia, in general. © 2023 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.
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