Key characteristics of informal economy

Key characteristics of informal economy

• Persistence or expansion or of the informal economy due too many factors including lack of creation of job creation, outsourcing and downsizing, technology changes, economic crisis/reforms, globalisation, etc ( Marilyn Car and Martha Alter Chen)
• Traders with low education levels, wages (and hence, poverty), hours worked and overall employment conditions, poor health and safety, high job insecurity, no worker representation and few opportunities for skill enhancement,  child labour, etc
• Existence of inhuman working conditions in the informal economy
• Difficulties in collecting data on the informal sector

<![if !supportLists]>·         <![endif]>Dominated by trade-related activities, with services and manufacturing accounting for only a small percentage of this sector.

<![if !supportLists]>·         <![endif]>Growth in the informal economy, is more rapid in urban areas where there is lack of basic infrastructures-water and sanitation, electricity ,etc ( e.g. Kibera Slums in Nairobi) and the  interests of  poor slum dwellers are threatened by the interests of  powerful  local interests ( e.g. big developers, politicians , and military juntas- M. Davis ( 2006)

<![if !supportLists]>·         <![endif]>Informal economy does not provide the same benefits and protection to workers and businesses as found in the formal economy.

• Workers in the informal economy are often referred to as the unorganised sector. However, this is not an accurate description, as there are many instances of organisation of workers in the informal economy ( e.g. trade-based associations).
• Most informal traders do not (or are unable to) comply with regulations e.g.  registration, licensing, tax payments, occupational safety, health, and working conditions.  This inability is ascribed to a number of factors, including cumbersome bureaucracies, high costs, unreasonable demands, ambiguous regulations and negative state attitudes to workers in the informal economy.

There are three main schools of fought in relation to linkages with the formal economy ( Merlyn Carr & Martha Alter Chen): 

• Dualists:  informal economy is a separate marginal sector-not directly linked to the formal sector.
• Structuralists:  informal economy subordinated to the formal economy
• Legalists: a national response to over-regulation by government bureaucracies.

Proposals for measurement problems: Using household approach may be utilised to capture the informal economy for purposes of measuring its size:  finding the informal workers within the household through a household survey and then identifying the enterprises through these workers.

Gender impact:

• High proportion of women in self-employment, especially in developing countries.

• SAPs, lack of jobs, decrease and stagnation of labour market contributed to the growth of the informal sector
• Women are under-represented in high-income activities and over-represented in low income activities such as subcontracted work.
• The link between working in the informal economy and being poor is stronger for women than men ( Marilyn Car and Martha Alter Chen);

Potential negative economic impacts of globalisation on the informal economy include: 

Unemployment, shifts to self-employment, casual work, migration (urban, rural, overseas), decline in health services, rise in child labour, rise in prostitution, rise in mental health problems, depression,  rise in human rights violations

Benefits of globalisation on the informal economy  include: 

• Trade linkages and inflow of capital investments into the formal economy, potentially eventually absorbing part of the informal economy.
• Opening up of new markets for goods produced by the informal sector (  production of shea butter in Burkina Faso).

Policy recommendations - integrate or deregulate?

According to  Standing G ( 1999) , employment flexibility reflects the ability of firms to hire and dismiss workers easily and at  low costs. Flexible labour markets  are the reality, and the policies should respond to that reality. The economic flexibility embraces organisational forms (enterprise, production and distribution chains, etc) , labour relations ( decentralisation, contractualisation, etc. ) and socio-economic relations ( family forms, social networks, etc). These take many forms including casual and temporary workers, consultants, sub-contractors agency workers, homeworkers, teleworkers, etc.

Provide support to informal economy through access to credit and insurance for businesses,  secure property rights , improve flows of information and technology  to the informal sector for training, extend worker benefits such as health insurance and social security, provide measures and incentives, develop worker representation, remove the barriers that prevent mobility of labour between the formal and informal sectors,  improve the collection and analysis of data on the informal sector. Assistance in the form of education and training, the development of other relevant skills, and importantly, access to credit

Areas for research and debate:

• What policy initiatives are working to protect the vulnerable? How  the informal economy is to gain from globalisation and global markets.
• Should  governments aim to integrate the informal sector into the formal economy in order to extend benefits to this sector, though this may hamper growth and job creation? or should they instead focus on deregulating the formal sector to remove the barriers to workers and enterprises from participating in the formal segment of the economy?