ABSTRACT
The main problem facing by developing countries, including Indonesia, is how to manage a huge unski lied labour to become assets rather than as liabilities in the development. In order to achieve this goal, it is considered that the informal sector has an important role, particularly, to absorb the unskilled labour .. The informal sector can be used as a training ground as well as a place to grow for the unskilled labour. By joining informal sector activities first, ttie unskilled labours will improve their skill and gain knowledges and experiences which in turn, equip them to shift to the formal sector or modern sector later. Employment statistics show that invisible underemployment or informal sector workers are the largest portion (more than 75%) of the Indonesian workers . The reisa trend that the informal sector become larger and larger in the future. This condition couples with a higher rural-urban migration which may be attracted by the urban informal sector, make the urban informal sector unchange; no further improvement toward the formalization. In other words, the informal sector becomes permanent, rather than temporary. The above phenomenon is the central problem of the thesis, such as "Does informal sector change toward formalization or does it remain unchange (permanent) ? And, which policies needed to stimulate formalization