Employment generation alleviates poverty and increases the level of economic activities translating into
economic growth. The rate of unemployment in Nigeria is not only alarming but a national embarrassment
needing meaningful and tangible action. The contribution of the informal sector to reducing unemployment
and growth of the Nigerian economy is quite significant. It is better placed to absorb unutilised resources
which the public sector and the organised private sector are unwilling or unable to use and contributes
significantly to national economy in terms of output and employment. The challenge is how to support and
regulate the informal sector to promote employment, productivity, and income. This paper examines the role
of the informal sector in combating the menace of unemployment in Nigeria; the extent to which government
policies and programmes have facilitated the sector, and how informal sector enterprises and settlements can
be upgraded and progressively integrated into the urban development mainstream. Government has
developed policies and programmes to combat the menace with little impact. The sector has shown some
dynamism in creating new jobs and its challenges have to do with access to credit and other resources,
education and training as well as leadership and organisation. The government must encourage and empower
the informal sector through the provision of conducive policies and physical conditions. The informal sector
in Nigeria must be sustained for employment generation and job creation goals and optimum contribution to
the growth of the economy.