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Informal Sector
Informal Sector A. G. Aguilar, Universidad Nacional Auto´noma de Me´xico, Mexico City, Mexico E. P. Campuzano, Instituto Polite´cnico Nacional, Mexico City, Mexico & 2009 Elsevier Ltd. All rights reserved.
Glossary Developing Countries The developing countries are those characterized by their low standard of living, poor infrastructure, and generally nonindustrialized. Other common used terms to describe this group include lessdeveloped countries, Third World countries, or nonindustrialized countries.
Introduction For many years, the informal sector has been a key issue in the literature on economic development, principally in developing countries, and has been a research topic in several disciplines such as geography, anthropology, sociology, and economics. These disciplines have pointed out the importance of studying this complex phenomenon that includes activities as diverse as traditional agriculture, livestock and fisheries, retail, street vendors, home-based workers and home production, small workshops, and bricklaying, and even some illegal activities such as the drug trade. Even with a vast body of literature on the theme, the conceptualization of informality is confused due to the lack of theoretical frameworks and appropriate empirical data. The problem of conceptualization is more common than one might expect and is illustrated by the quantity of adjectives and nouns used to describe the informal sector, such as black, underground, hidden, shadow, clandestine, illegal, unregulated, precarious, invisible, nonofficial, subterranean, etc.; the nouns used include (informal) -economy, -sector, -activities, and -employment/work/jobs. Every characterization depends on the goals, context and theoretical background of the research. In spite of its fuzzy nature and uses, almost all scholars agree that informality is an important phenomenon because of its economic and social effects. Traditionally, the informal sector has been seen as a Third World problem, but for some years, these kinds of problems have increased in the developed world and in the transition countries. Recent evidence in developed countries has shown a growth in the informal economy and labor market, while the transformation of the economic model of the ex-socialist countries has been accompanied by a rapid rise of the informal economy – including illegal activities. Globalization has brought new forms of production, which include new forms of regulation (or de-regulation), new types of industrial processes of organization, and the
446
growth of the tertiary sector. These critical changes have encouraged the utilization of unskilled workers, small-size enterprises, and family workers in developing countries. Meanwhile, larger cities in the developed world are witnessing the growth of part-time jobs, and the polarization of their labor market. Thus, in different ways, globalization has generated new types of informal jobs and activities (Table 1).
Conceptions and Measures of the Informal Sector Defining the Informal Sector Characterized by its vagueness, the concept of the informal sector has been used in different ways, contexts, and for different goals: interpretations range from survival activities to illegal procedures. We can distinguish two main strands in the development of the concept: the earlier views and the recent ones. Keith Hart in 1973 described formal income opportunities as salaried jobs and informal ones as selfemployment. This characterization was adopted by the International Labour Office (ILO) in a mission in Kenya, Africa. In a study in this country, informal employment was conceptualized as labor-intensive production, family owned, small-scale operations, low entry barriers to entrepreneurship, and unregulated competitive markets. Following this study, the earlier conceptualizations in the informal sector saw it as encompassing marginal activities which are unregulated and unregistered. These activities include unreported income from the production or trade of legal goods and/or services, either from monetary or from barter transactions. In most of the cases, they comprise small-scale production, semilegal, low productivity, and family-based production. Recent conceptualizations of the term define the informal sector as an important aspect of the economic and social dynamics of any country, but especially in less developed and in-transition ones. They include issues like tax evasion (both direct and indirect), social security fraud, and the avoidance of labor legislation. In one strand of the new conceptualizations, the central characteristic of the sector is the role played by the small entrepreneurs in the economic transformation of their situation and the opportunities created by these actors, including the positive impact on the decrease of unemployment; whereas in other conceptualizations, the informal sector plays a functional role in the
Informal Sector Table 1
Continued
Country
Year
Urban/ rural
Colombia Costa Rica
2000 2000
Chile Ecuador Nicaragua Paraguay Peru
1997 1997 2000 1999 1999
Uruguay Venezuela Thailand
2000 1997 2000
3.7 10.2 15
Coˆte d’Ivoire Gambia Bangladesh Indonesia
1996 1993 1993 1999
46 57.3 50.6 86.9 78.5 93.4 57.5 71
Iran,Is.Rep. Myanmar Croatia Poland
1996 1996 1997 1998
Urban Urban Rural Urban Urban Urban Urban Urban Rural Urban Urban Urban Rural Urban Urban Urban Urban Rural Urban Urban Urban Urban Rural
Table 1 Urban and Rural Informal Employment (Absolute and Percentage of the Total Work Force) by Country Country
Year
Urban/ rural
Numbers in 1000s Total
Informal sector (harmonized definition) Ethiopia 1999 Urban 1118.5 Rural 2137.7 Peru 1999 Urban 3606.1 Georgia 1999 Urban 39 Rural 13.5 India 2000 Urban 29 680 Rural 35 880 Latvia Urban 95.4 Rural 30.6 Russian 1999 Urban 2228 Federation Rural 560 Turkey 2000 Urban 1035 Rural 388 Informal sector Benin Cameroon Ethiopia
(national 1999 1993 1999
Ghana
1997
Madagascar Mali
1995 1996
Niger South Africa
1995 1999
Tanzania Zimbabwe Brazil Mexico
1995 1993 1997 1999
Georgia
1999
India
2000
Kazakhstan Kyrgyzstan
1996 1999
Nepal
1999
Pakistan
1997
Philippines Latvia
1995 1999
Lithuania
1997 2000
Russian Federation
2001
Turkey
2000
Ukraine
1997
definition) Urban 275.5 Urban 119 Urban 1149.5 Rural 3665.3 Urban Rural Urban 239 Urban 370.6 Rural 805.5 Urban 302.6 Urban 1549 Rural 1157 Urban 345.9 Urban 154.1 Urban 12 870.4 Urban 7448.5 Rural 1693 Urban 73.4 Rural 29.9 Urban 39 970 Rural 39 740 Urban 962.7 Urban 139 Rural 55.1 Urban 375 Rural 1282 Urban Rural Urban 539.3 Urban 127.2 Rural 30.6 Urban 93 Urban 7.8 Rural 193.8 Urban 4525 Rural Urban Rural Urban
3654 962.8 356.8 755.9
Small or micro-enterprises (national definition) Senegal 1996 Urban 665 Uganda 1993 Urban 654.9 Rural 11 452 Argentina 2000 Urban 3067.5 Bolivia 1999 Urban 1296.3
Percent of total employment Total 49.2 50.7 53.8 5.6 1.3 38.1 55 13.7 18.1 4.5
21.3 37.4 67 27.3 29.7 47.2 14.2 3.1 51.3 61 17.3 29.4 18 64.8 76.2 61.2 68.2 17.3 18.2 18.1 8.5 41.3 74.2 9.2 23.8 9 13.2 4.9
83.7 40.6 64.3
Numbers in 1000s Total 3913 132.5 116.4 1368.4 1223.6 305.1 554.7 4388.5 3579.7 3698 3272.3 20 159.7 414.2 100.7 197.5 12 728.3 42 966.7 844.2 1681.5 61.6 720 711
447
Percent of total employment Total 60.9 20.2 17.6 30.3 40 54.7 45.9 62.8 88.1 29.7 46.3 47.1 77.4 52.7 72.4 10 39.4 76.1 17.9 54.2 6.2 7.6 11.6
Source: International Labour Organization.
development and reproduction of capitalism by flexibilization of work, and the reduction of wages. Also, it is recognized that there is not a clear dividing line between formal and informal activities. Measuring the Informal Sector As a result of the lack of conceptual consistency, measuring the informal sector has been a difficult task. Broadly speaking, we can find two ways of measuring the sector: direct and indirect. The first one is used more in anthropological and sociological studies, because it implies extensive field work and its principal goal is to determine the importance of the informal labor market. The second one is more used in socioeconomic studies and international comparisons. Direct approaches
Household surveys have become an important source of information on the informal sector. In this kind of survey the key elements are the characteristics of the people engaged in informal sector activities, the participation of women and child labor, the characteristics of the households, and the survival strategies. This kind of measuring method is widespread. Business surveys are really important in determining the characteristics of the enterprises involved in these kinds of activities. The principal points of inquiry are the number and type of workers, the nature of economic
448
Informal Sector
capital used, and the survival strategies of small establishments. In this category we can include the surveys taken by fiscal authorities. There are few examples of household–enterprise surveys. They try to understand the relationship between entrepreneurial and household strategies and how one shapes the other, principally in less-developed countries. Indirect approaches
Despite the complex methods to measure the informal sector, one of the most used is the analysis of discrepancies between national expenditures and income statistics – residual GDP. Briefly, this consists in determining how much GDP is produced and how much money is really expended. The difference represents the shadow economy. In labor terms, the difference between the official and actual labor force, i.e., the residual labor force, is assumed to be working in the informal sector. The formal labor force can be measured using fiscal records or social security records. The difference is assumed to be informal.
Labor Markets, Growth, Urbanization, and the Informal Sector in Developed and Developing Countries Special attention has been paid to the informal sector in developing countries. Currently, the main conceptions of the sector/activities are related to the African, Latin American, and Asian contexts. The concept, at the beginning, stated the differential access to the urban labor markets in Africa and was characterized by low productivity, small enterprises, and self-employment. In the most recent views, informality is conceptualized as an opportunity to challenge the unequal distribution of poverty. In developed countries the phenomenon has not been studied much, principally due to its small size; however,
there is evidence of its growth. As opposed to the studies in developing countries, the principal focus in developed ones is the macroeconomic impact of these activities and state regulations. Nevertheless, the macroeconomic indicators do not necessarily show an increase in the informal sector in both developed and developing countries. There are other ways to identify these activities, for example, labor data. Studies on global cities reveal a polarization in the labor markets. In global cities, the growth of services creates not only high-level employment, but also lessqualified jobs. While the former are taken by highly educated and skilled people, the unskilled jobs are taken by recent immigrants, the poorly educated, and marginalized populations. Contrary to common thinking, there is evidence that educated and skilled people also engage in informal activities, mainly due to tax reasons and the desire for economic freedom. In the following section some empirical evidence is presented to appreciate what is happening with informality nowadays. Current Patterns of Informal Sector Activity In recent years, world agencies have shown a real interest in determining what informality is and how to measure it. There is no consensus yet, but some institutions such as the World Bank (WB), the International Monetary Fund (IMF), and the ILO have reported on the situation. In this section we present an overview of informal sector trends. We choose the GNP, published by WB, and labor market information, published by ILO, to present the current situation in the world. In Figures 1 and 2, we can see the importance of the informal sector for less-developed countries. While the Organization for Economic Co-operation and Development
12.00 OECD 10.00
Formal_log
Middle East and North Africa 8.00
Europe and Central Asia Latin America and Caribbean
East Asia and Pacific
6.00
South Asia
Sub-Saharan Africa
4.00 2.00
y = −0.1077x + 11.632 R 2 = 0.6461
0.00 10
15
20
25
30
35
40
45
Informal sector
Figure 1 General income per capita and share of informal sector (% GDP). Source: Aguilar and Perez and data from the World Bank and the International Labour Organization.
Informal Sector
449
Formal_log
12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00
y = −2.3164x + 15.832 R 2 = 0.4667
4.00 3.00 2.00 2.00
2.50
3.00
3.50
4.00
4.50
Informal_log
Figure 2 Income per capita and informal sector (% GNP). Source: Aguilar and Perez with data from the World Bank database and the International Labour Organization.
(OECD) countries have the higher per capita income and the lower share of informal economy in the total GNP, Asia, Latin America, and sub-Saharan Africa countries have lower income per capita and a higher share of informal sector in their GNP (Figure 1). It seems that the higher the income, the lower the contribution of informal sector in the economy (R2 ¼ 0.692). Nevertheless, if we see the same graph at the national level, even when the contribution of the informal sector in developing countries is higher, the relationship is weak (R2 ¼ 0.4667). This means that there are important local factors at play in the shaping of the informal sector. The informal sector is not the same in developed, developing, and in-transition countries. Every country has particularities that encourage/discourage informal activities. Africa
The size of the informal economy in sub-Saharan Africa was 42.2% in 2000. In countries like Nigeria, Tanzania, and Zimbabwe, the informal sector contributes more than 50% of the total GDP. In South Africa the share of the informal sector is 28.4%; meanwhile in Ethiopia, Malawi, and Mozambique it is around 40%. The informal sector makes up around 50% of the total labor market. In Ghana and Uganda more than threequarters of their urban workers are in the informal sector, whereas in Ethiopia, Cameroon, Madagascar, Nepal, Tanzania, Coˆte d’Ivoire, Gambia, this percentage varies from 50% to 75%. Latin America and the Caribbean
In Latin America and the Caribbean, the informal sector is around 40% of the total GDP. In Chile and Argentina it was less than 25% in 2000, whereas in Panama and Bolivia it represented around 65%. In the other countries, the share of the informal economy was between 25% and 60% of the GDP. In terms of the labor market in Brazil, Mexico, Ecuador, Costa Rica, Chile, Argentina, and Uruguay, between 25% and 40% of their urban labor workers were engaged
in the informal economy. In Peru, Bolivia, Colombia, Nicaragua, Paraguay, and Venezuela, the share of the urban informal employment represented more than 40%. Asia and Pacific
In Asia and Pacific, the share of the informal economy was around 28% in the year 1999–2000. In Thailand, Sri Lanka, and Philippines, this percentage was higher than 40% and in China and Singapore this was lower than 15%. OECD
In the OECD the share of the informal economy was around 17.4% in the year 1999–2000. In Switzerland and USA, this percentage was around 8.8%; meanwhile in Portugal, Spain, Belgium, Italy, Korea, and Greece it was higher than 20% but lower than 29%. In the other countries, the share of the informal economy represented 10–20% of the total GDP. Central European and Middle Asian Countries
In the Central European and Middle Asian countries, the average of the informal economy was 37.7% in the year 1999–2000. The percentage of the informal sector in Azerbaijan and Georgia was 60.6% and 67.3%, respectively; in Serbia and Montenegro, Poland, Slovenia, Hungary, Czech Republic, and Slovak Republic, this percentage was between 19% and 30%. In the other countries, the share of the informal economy represents more than 25% and less than 50%. For none of the countries the percentage of the urban informal workers surpasses 40% of total urban employment. Lithuania, Kyrgyzstan, Latvia, Kazakhstan, and the Russian Federation have the larger percentages.
Approaches to the Informal Sector It is clear that there is no polished theory on the informal sector, but some scholars have pointed out that there are
450
Informal Sector
three main approaches: dualistic, structural, and legalistic or institutionalist. The ‘dualistic’ view defines the informal sector as marginal or separated from the formal one. The sector is a niche for poor people in periods of crisis and its persistence is due to the lack of sufficient modern labor market opportunities, the faster rate of growth of population in relation to job opportunities, or poor economic growth. ‘Structuralism’ sees the informal sector as subordinate to the formal one. In this perspective, the informal sector plays a very important role in the development of capitalism via the reduction of labor and input costs. The informal sector provides cheaper labor and input to formal enterprises allowing for the improvement of competitiveness of the latter. From Milton Santos’ point of view, there are two main circuits in the economy of developing countries: an ‘upper circuit’ and a ‘lower circuit’. The first one represents the modern economy, is commonly high tech, and consequently has a sophisticated system of production and commerce. On the other hand, the ower circuit is characterized by its small scale, the poor use of technology, and the intensive use of labor. Contrary to the dualistic view, for structuralists – including Milton Santos – the informal sector is not marginal or backward but it is part of capitalism, because the upper circuit dominates and requires the lower circuit to reproduce itself. The ‘legalist’, or ‘institutionalist’, view sees the informal sector as micro-entrepreneur’s response to the state’s over-regulation and the lack of clear property rights. For Hernando de Soto – one of the main theorists of this perspective – the main factor in the growth of the sector is the role played by the state, which does not allow the micro- or small entrepreneurs to develop their economic potential. These actors prefer to operate outside the regulations to reduce costs, time, and efforts instead of following the complex system of the state’s regulations which increases costs and crushes the ‘entrepreneurial spirit’. Although there is no refined theory on informality, there are many recurrent themes. In the next section, the most common are presented. Principal Themes In this section our objective is to present a taxonomy of the themes that have been related to the informal sector and appear more frequently in the specialized literature. The division is not static but actually is more complex than we present here; many factors are related to each other in different ways. The section divides themes into three main categories: economic, institutional, and social. The first two have received more attention, whereas the latter one is relatively new. In
different ways every vision uses almost all of the factors enumerated below. Economic themes
Settlement type has been shown to have a strong relationship with the informal sector. In fact, where the informal sector is conceptualized as including waged employment, cities are more likely to have large amounts of workers in the informal sector. Developing countries with large cities have a large quantity of informal workers due to concentration of the labor markets, large amounts of rural out-migration, and lack of opportunities in the formal labor market. In addition, urban informality includes a vast diversity of activities and jobs: from craft production or street commerce to companies linked to large transnational companies. Therefore, it is in the cities where the informal sector is more complex and palpable. Urban labor markets have received much more attention than rural ones. As the informal sector has been conceptualized as an urban employment problem, the main contributions have emerged from this perspective. The increase of unemployment due to the high rates of rural–urban migration, the lack (or decrease) of social benefits, underemployment, subminimum wages, and the presence of unregulated segments of the labor market have been identified as the main contributors to the informal sector. Poor people, in urban scenarios are more likely to be involved in nonformal activities because they cannot access the modern sector of the economy. Labor markets have been linked to poverty, principally in developing countries. One of the most influential themes is related to the relationship between national economic size and growth and the informal sector. From this point of the view, greater the size and growth of an economy, the less likely it is that people will engage in informal activities. This kind of vision was popular at the beginning of theorization on the informal sector and nowadays it is part of more complex explanations. It is recognized that the rate of growth of one economy is important but does not explain the entire problem. The size of one economy is related to the number of qualified workers, the availability of credit, and the number of small-, medium-, and large-size enterprises. As we have seen, all these factors encourage/inhibit the growth of the informal sector. Both traditional and contemporary conceptions recognize that the size of the firm is intimately related to the informal sector. Micro- and small-size enterprises are more likely to engage in the informal sector due to their reduced capital, their incapacity to pay taxes, their flexibility, and greater opportunities to escape state controls. The larger the firm, the lower the possibility of that firm being involved in informal activities because it
Informal Sector
has enough resources to access credit, a qualified labor force, and to pay taxes. Furthermore, the industrial structure is also important in the growth of the informal sector. In this sense, the relations between industrial enterprises and the productive chains encourage the growth of informal sector by the de-concentration of processes, subcontracting, flexibilization, or the combination of two or more of these phenomena. In the period of late capitalism, globalization and industrial restructuring have promoted the increase of informal activities through different forms of subcontracting. Generally, large firms in the developed world subcontract medium and small enterprises in the developing world and in the transition countries to produce goods and services. From large companies to home workers and home production there is a complex chain of intermediaries, contracts (not all legal), and forms of production. At the end of the chain, there are families, small towns, or small firms that are unregulated by labor laws. In the developed world, the de-concentration of production and the seeking of more efficient production methods of production have promoted the increase of the informal sector. Nowadays, practices like outsourcing (buying manufactured products instead of producing them) and subcontracting are common; the result is an increase of the total number of part-time jobs and the deterioration of working conditions. Institutional themes
Generally, the informal sector has been seen as consisting of widely unregulated or unregistered activities. In this case, the principal component is related to the role of the state, state agencies, and the avoidance of many rules. State regulations are the most utilized issue related to the informal sector. In fact, for many scholars the informal sector could not be defined without its counterpart: the state. The state through legislation and regulations defines what informal activity is and what it is not, and thus its existence; whereas for others, the excessive regulations encourage the growth of the informal sector. Clearly, nowadays, there is a trend to de-regulate many markets, including labor ones. Trying to attract Foreign Direct Investment (FDI), many national states are determined to reduce or cut off many labor rights, such as pensions and social care, and to allow subcontracting or to encourage part-time jobs and small-scale production. This view has been supported by multilateral organizations such as the IMF and the WB and has been followed by almost all countries. The argument is more or less clear: the tax system is linked to the growth of the informal sector. The increase of tax burdens encourages the increase of the informal sector, whereas from the point of view of some institutionalists there is not only the tax burden but the increase
451
of the tax system’s complexity and the excessive regulation over labor markets, licensing requirements, and right to property that de-incentivize productivity increases of productivity. Stronger and more complex legislation is important in the existence of the sector. Hence, the informal sector is the response of economic actors to the over-regulation by the state. For example, in some economic literature the increase of the tax burden influences the growth of the informal sector due to the differential costs of employing or being employed without taxes. The incentive to avoid taxes is reinforced by the fact that even when many companies or people are engaged in informal activities, they are not excluded from public goods or basic infrastructure. On the other hand, for some institutionalists, the informal sector is a reaction to the inefficiencies in public sector service provision. It has been recognized that if economic actors do not have enough incentives in terms of (cheaper) provision of public services, they are encouraged to pursue other routes, such as the informal sector. In many cases, state policies tolerate or even promote informal activities at different scales. In developing countries, governments have given incentives to encourage the development of small firms (mostly informal) to decrease unemployment. This situation is common in countries that went through structural adjustment in the 1980s and 1990s. In many countries, the informal sector has been seen as a reaction to the labor unions in two ways: employers do not want their employees to be unionized and, on the other hand, unions, principally in developing countries, do not have enough credibility. Hence, there are few barriers to the informalization of the workforce. In developed countries, immigrants, especially illegal ones, are more involved in informal activities. As they do not have permission to work, they prefer to avoid state regulations by working in small and unregulated businesses. In many developing countries, the informal sector is a reaction to the lack of confidence in state institutions. In these terms, the state is seen as weak and untrustworthy, so the increase of the informal sector is only a part of the lack of confidence in state rules, institutions, or legislations. Corruption creates the problem that only a few actors have access to the formal market. The creation of special rules (legal or not) that are on the side of these groups encourages the informal sector in two ways. On the one hand, the protected groups shape the market according to their interests, and, on the other hand, vulnerable groups unleash their energies to avoid these rules, even in the informal sector. In fact, state regulations support the existence of the informal sector. Work in the informal sector can be an option to circumvent the rules imposed by some unions, such as forbidding certain processes and forms of labor. Also, the implicit high cost
452
Informal Sector
of unionization promotes the move of enterprises and workers toward the informal sector. Social themes
The informal sector is shaped not only by economic and institutional processes, but also by social ones. Since the 1980s, many authors have pointed out the importance of social networks, gender, and local cultures in the growth and relevance of the sector. Generally, it has been assumed that women are more likely to be involved in the informal sector than men. The informal sector allows them to work fewer hours and combine their income-generating activities with domestic household tasks. Also, women usually take this kind of job as a response to a reduction in household income. The informal sector is more likely to be accepted in some places than others. This issue has been seen as a reflection local and regional traditions. In this case, it is not just that the informal sector is viewed as normal in one place, but that there is a completely history of the labor markets and their social and institutional regulations. Some scholars have found that social networks, especially those that are dense, are an important factor in promoting the informal sector. These networks are important in at least two senses. First, an easy way to get into the informal sector is to turn to a friend or acquaintance. The spread of the sector generally depends on the social relations between persons in a specific locality. Second, the informal sector requires a communal sense of social participation in order to avoid state regulations. Many informal workers, in developed and developing countries, state that one of the principal factors that drives them into the sector is the desire for autonomy and flexibility in their work. They find the informal sector more flexible and autonomous than the formal one; hence they have more freedom to do their own business, to establish their schedule, and to combine their work with other activities.
Remarks and Conclusions Both the informal economy and informal labor market are special subjects in the field of geography, not only as a specific topic but as an area of action. World statistics show the importance of the sector, in both developed and in developing (or transition) countries. Geography can play a very important role in the conceptualization and the determination of policies. The conceptualization of informality is one of the biggest issues. Despite their divergences, as presented here, many approaches are relatively close to each other; therefore, the next step is to develop a global and comprehensible conceptualization for the understanding of a very complex phenomenon.
Recent evidence has shown that informality grows as a response to the deterioration of living conditions both in the developed and in the developing world and the transformation of global industrial processes. However, there is a problem still: the analysis of the policies. Geography in this field can contribute in many ways: from the study of patterns of localization of informal activities to the analysis of the policies that promote the growth of the informal sector. See also: Capital and Space; Dependency; Development I; Development II; Economic Crises; Economies, Alternative; Economies, Borderland; Economy, Informal; Global Commodity Chains; Labor Flexibility; Labor Markets, Regional; Neoliberal Economic Strategies; Urbanization; World/Global Cities.
Further Reading Aguilar, A. G. (1997). The urban labour market in Mexico: Global change, informality, and social polarization. Urban Geography 18, 106--134. Daniels, P. W. (2002). Urban challenges: The formal and informal economies in mega-cities. Cities 21, 501--511. De Soto, H. (1989). The other path. The Invisible Revolution in the Third World. New York: Harper & Row. Ge¨rxhani, K. (2004). The informal sector in developed and less developed countries: A literature survey. Public Choice 120, 267--300. ILO (2005). World Employment Report, 2004–05. Employment, Productivity and Poverty Reduction. Geneva: ILO. Laguerre, M. S. (1994). The Informal City. New York: St. Martin’s. Mead, D. C. (1996). The informal sector elephant. World Development 24, 1611--1619. OECD (2002). Measuring the Non-Observed Economy. A handbook. Paris: OECD. Portes, A. (1995). En torno a la informalidad; ensayos sobre teorı´a y medicio´n de la economı´a no regulada (On informality; essays on theory and measurement of the unregulated economy). Mexico City: FLACSO-Miguel Angel Porru´a. Portes, A. (2004). La Economı´a Informal (The Informal Economy). Santiago de Chile: CEPAL. Portes, A., Castells, M. and Benton, L. (1989). The Informal Economy: Studies in Advanced and Less Developed Countries. Baltimore: John Hopkins. Santos, M. (1979). The shared space. The Two Circuits of the Urban Economy in Underdeveloped Countries. London: Methuen. Scheider, F. and Enste, D. H. (2000). Shadow economy: Size, causes, and consequences. Journal of Economic Literature 38, 77--114. Williams, C. and Windebank, J. (1998). Informal Employment in the Advanced Economies. London: Routledge.
Relevant Websites http://www.ilo.org International Labour Organization. http://www.imf.org International Monetary Fund. http://www.unescap.org United Nations Economic and Social Commission for Asia and the Pacific. http://www.escwa.org.lb United Nations Economic and Social Commission for Western Asia.
Informal Sector
http://www.uneca.org United Nations Economic Commission for Africa. http://www.unece.org United Nations Economic Commission for Europe.
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http://www.eclac.org United Nations Economic Commission for Latin American and the Caribbean. http://www.worldbank.org World Bank.
Glossary Developing Countries The developing countries are those characterized by their low standard of living, poor infrastructure, and generally nonindustrialized. Other common used terms to describe this group include lessdeveloped countries, Third World countries, or nonindustrialized countries.
Introduction For many years, the informal sector has been a key issue in the literature on economic development, principally in developing countries, and has been a research topic in several disciplines such as geography, anthropology, sociology, and economics. These disciplines have pointed out the importance of studying this complex phenomenon that includes activities as diverse as traditional agriculture, livestock and fisheries, retail, street vendors, home-based workers and home production, small workshops, and bricklaying, and even some illegal activities such as the drug trade. Even with a vast body of literature on the theme, the conceptualization of informality is confused due to the lack of theoretical frameworks and appropriate empirical data. The problem of conceptualization is more common than one might expect and is illustrated by the quantity of adjectives and nouns used to describe the informal sector, such as black, underground, hidden, shadow, clandestine, illegal, unregulated, precarious, invisible, nonofficial, subterranean, etc.; the nouns used include (informal) -economy, -sector, -activities, and -employment/work/jobs. Every characterization depends on the goals, context and theoretical background of the research. In spite of its fuzzy nature and uses, almost all scholars agree that informality is an important phenomenon because of its economic and social effects. Traditionally, the informal sector has been seen as a Third World problem, but for some years, these kinds of problems have increased in the developed world and in the transition countries. Recent evidence in developed countries has shown a growth in the informal economy and labor market, while the transformation of the economic model of the ex-socialist countries has been accompanied by a rapid rise of the informal economy – including illegal activities. Globalization has brought new forms of production, which include new forms of regulation (or de-regulation), new types of industrial processes of organization, and the
446
growth of the tertiary sector. These critical changes have encouraged the utilization of unskilled workers, small-size enterprises, and family workers in developing countries. Meanwhile, larger cities in the developed world are witnessing the growth of part-time jobs, and the polarization of their labor market. Thus, in different ways, globalization has generated new types of informal jobs and activities (Table 1).
Conceptions and Measures of the Informal Sector Defining the Informal Sector Characterized by its vagueness, the concept of the informal sector has been used in different ways, contexts, and for different goals: interpretations range from survival activities to illegal procedures. We can distinguish two main strands in the development of the concept: the earlier views and the recent ones. Keith Hart in 1973 described formal income opportunities as salaried jobs and informal ones as selfemployment. This characterization was adopted by the International Labour Office (ILO) in a mission in Kenya, Africa. In a study in this country, informal employment was conceptualized as labor-intensive production, family owned, small-scale operations, low entry barriers to entrepreneurship, and unregulated competitive markets. Following this study, the earlier conceptualizations in the informal sector saw it as encompassing marginal activities which are unregulated and unregistered. These activities include unreported income from the production or trade of legal goods and/or services, either from monetary or from barter transactions. In most of the cases, they comprise small-scale production, semilegal, low productivity, and family-based production. Recent conceptualizations of the term define the informal sector as an important aspect of the economic and social dynamics of any country, but especially in less developed and in-transition ones. They include issues like tax evasion (both direct and indirect), social security fraud, and the avoidance of labor legislation. In one strand of the new conceptualizations, the central characteristic of the sector is the role played by the small entrepreneurs in the economic transformation of their situation and the opportunities created by these actors, including the positive impact on the decrease of unemployment; whereas in other conceptualizations, the informal sector plays a functional role in the
Informal Sector Table 1
Continued
Country
Year
Urban/ rural
Colombia Costa Rica
2000 2000
Chile Ecuador Nicaragua Paraguay Peru
1997 1997 2000 1999 1999
Uruguay Venezuela Thailand
2000 1997 2000
3.7 10.2 15
Coˆte d’Ivoire Gambia Bangladesh Indonesia
1996 1993 1993 1999
46 57.3 50.6 86.9 78.5 93.4 57.5 71
Iran,Is.Rep. Myanmar Croatia Poland
1996 1996 1997 1998
Urban Urban Rural Urban Urban Urban Urban Urban Rural Urban Urban Urban Rural Urban Urban Urban Urban Rural Urban Urban Urban Urban Rural
Table 1 Urban and Rural Informal Employment (Absolute and Percentage of the Total Work Force) by Country Country
Year
Urban/ rural
Numbers in 1000s Total
Informal sector (harmonized definition) Ethiopia 1999 Urban 1118.5 Rural 2137.7 Peru 1999 Urban 3606.1 Georgia 1999 Urban 39 Rural 13.5 India 2000 Urban 29 680 Rural 35 880 Latvia Urban 95.4 Rural 30.6 Russian 1999 Urban 2228 Federation Rural 560 Turkey 2000 Urban 1035 Rural 388 Informal sector Benin Cameroon Ethiopia
(national 1999 1993 1999
Ghana
1997
Madagascar Mali
1995 1996
Niger South Africa
1995 1999
Tanzania Zimbabwe Brazil Mexico
1995 1993 1997 1999
Georgia
1999
India
2000
Kazakhstan Kyrgyzstan
1996 1999
Nepal
1999
Pakistan
1997
Philippines Latvia
1995 1999
Lithuania
1997 2000
Russian Federation
2001
Turkey
2000
Ukraine
1997
definition) Urban 275.5 Urban 119 Urban 1149.5 Rural 3665.3 Urban Rural Urban 239 Urban 370.6 Rural 805.5 Urban 302.6 Urban 1549 Rural 1157 Urban 345.9 Urban 154.1 Urban 12 870.4 Urban 7448.5 Rural 1693 Urban 73.4 Rural 29.9 Urban 39 970 Rural 39 740 Urban 962.7 Urban 139 Rural 55.1 Urban 375 Rural 1282 Urban Rural Urban 539.3 Urban 127.2 Rural 30.6 Urban 93 Urban 7.8 Rural 193.8 Urban 4525 Rural Urban Rural Urban
3654 962.8 356.8 755.9
Small or micro-enterprises (national definition) Senegal 1996 Urban 665 Uganda 1993 Urban 654.9 Rural 11 452 Argentina 2000 Urban 3067.5 Bolivia 1999 Urban 1296.3
Percent of total employment Total 49.2 50.7 53.8 5.6 1.3 38.1 55 13.7 18.1 4.5
21.3 37.4 67 27.3 29.7 47.2 14.2 3.1 51.3 61 17.3 29.4 18 64.8 76.2 61.2 68.2 17.3 18.2 18.1 8.5 41.3 74.2 9.2 23.8 9 13.2 4.9
83.7 40.6 64.3
Numbers in 1000s Total 3913 132.5 116.4 1368.4 1223.6 305.1 554.7 4388.5 3579.7 3698 3272.3 20 159.7 414.2 100.7 197.5 12 728.3 42 966.7 844.2 1681.5 61.6 720 711
447
Percent of total employment Total 60.9 20.2 17.6 30.3 40 54.7 45.9 62.8 88.1 29.7 46.3 47.1 77.4 52.7 72.4 10 39.4 76.1 17.9 54.2 6.2 7.6 11.6
Source: International Labour Organization.
development and reproduction of capitalism by flexibilization of work, and the reduction of wages. Also, it is recognized that there is not a clear dividing line between formal and informal activities. Measuring the Informal Sector As a result of the lack of conceptual consistency, measuring the informal sector has been a difficult task. Broadly speaking, we can find two ways of measuring the sector: direct and indirect. The first one is used more in anthropological and sociological studies, because it implies extensive field work and its principal goal is to determine the importance of the informal labor market. The second one is more used in socioeconomic studies and international comparisons. Direct approaches
Household surveys have become an important source of information on the informal sector. In this kind of survey the key elements are the characteristics of the people engaged in informal sector activities, the participation of women and child labor, the characteristics of the households, and the survival strategies. This kind of measuring method is widespread. Business surveys are really important in determining the characteristics of the enterprises involved in these kinds of activities. The principal points of inquiry are the number and type of workers, the nature of economic
448
Informal Sector
capital used, and the survival strategies of small establishments. In this category we can include the surveys taken by fiscal authorities. There are few examples of household–enterprise surveys. They try to understand the relationship between entrepreneurial and household strategies and how one shapes the other, principally in less-developed countries. Indirect approaches
Despite the complex methods to measure the informal sector, one of the most used is the analysis of discrepancies between national expenditures and income statistics – residual GDP. Briefly, this consists in determining how much GDP is produced and how much money is really expended. The difference represents the shadow economy. In labor terms, the difference between the official and actual labor force, i.e., the residual labor force, is assumed to be working in the informal sector. The formal labor force can be measured using fiscal records or social security records. The difference is assumed to be informal.
Labor Markets, Growth, Urbanization, and the Informal Sector in Developed and Developing Countries Special attention has been paid to the informal sector in developing countries. Currently, the main conceptions of the sector/activities are related to the African, Latin American, and Asian contexts. The concept, at the beginning, stated the differential access to the urban labor markets in Africa and was characterized by low productivity, small enterprises, and self-employment. In the most recent views, informality is conceptualized as an opportunity to challenge the unequal distribution of poverty. In developed countries the phenomenon has not been studied much, principally due to its small size; however,
there is evidence of its growth. As opposed to the studies in developing countries, the principal focus in developed ones is the macroeconomic impact of these activities and state regulations. Nevertheless, the macroeconomic indicators do not necessarily show an increase in the informal sector in both developed and developing countries. There are other ways to identify these activities, for example, labor data. Studies on global cities reveal a polarization in the labor markets. In global cities, the growth of services creates not only high-level employment, but also lessqualified jobs. While the former are taken by highly educated and skilled people, the unskilled jobs are taken by recent immigrants, the poorly educated, and marginalized populations. Contrary to common thinking, there is evidence that educated and skilled people also engage in informal activities, mainly due to tax reasons and the desire for economic freedom. In the following section some empirical evidence is presented to appreciate what is happening with informality nowadays. Current Patterns of Informal Sector Activity In recent years, world agencies have shown a real interest in determining what informality is and how to measure it. There is no consensus yet, but some institutions such as the World Bank (WB), the International Monetary Fund (IMF), and the ILO have reported on the situation. In this section we present an overview of informal sector trends. We choose the GNP, published by WB, and labor market information, published by ILO, to present the current situation in the world. In Figures 1 and 2, we can see the importance of the informal sector for less-developed countries. While the Organization for Economic Co-operation and Development
12.00 OECD 10.00
Formal_log
Middle East and North Africa 8.00
Europe and Central Asia Latin America and Caribbean
East Asia and Pacific
6.00
South Asia
Sub-Saharan Africa
4.00 2.00
y = −0.1077x + 11.632 R 2 = 0.6461
0.00 10
15
20
25
30
35
40
45
Informal sector
Figure 1 General income per capita and share of informal sector (% GDP). Source: Aguilar and Perez and data from the World Bank and the International Labour Organization.
Informal Sector
449
Formal_log
12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00
y = −2.3164x + 15.832 R 2 = 0.4667
4.00 3.00 2.00 2.00
2.50
3.00
3.50
4.00
4.50
Informal_log
Figure 2 Income per capita and informal sector (% GNP). Source: Aguilar and Perez with data from the World Bank database and the International Labour Organization.
(OECD) countries have the higher per capita income and the lower share of informal economy in the total GNP, Asia, Latin America, and sub-Saharan Africa countries have lower income per capita and a higher share of informal sector in their GNP (Figure 1). It seems that the higher the income, the lower the contribution of informal sector in the economy (R2 ¼ 0.692). Nevertheless, if we see the same graph at the national level, even when the contribution of the informal sector in developing countries is higher, the relationship is weak (R2 ¼ 0.4667). This means that there are important local factors at play in the shaping of the informal sector. The informal sector is not the same in developed, developing, and in-transition countries. Every country has particularities that encourage/discourage informal activities. Africa
The size of the informal economy in sub-Saharan Africa was 42.2% in 2000. In countries like Nigeria, Tanzania, and Zimbabwe, the informal sector contributes more than 50% of the total GDP. In South Africa the share of the informal sector is 28.4%; meanwhile in Ethiopia, Malawi, and Mozambique it is around 40%. The informal sector makes up around 50% of the total labor market. In Ghana and Uganda more than threequarters of their urban workers are in the informal sector, whereas in Ethiopia, Cameroon, Madagascar, Nepal, Tanzania, Coˆte d’Ivoire, Gambia, this percentage varies from 50% to 75%. Latin America and the Caribbean
In Latin America and the Caribbean, the informal sector is around 40% of the total GDP. In Chile and Argentina it was less than 25% in 2000, whereas in Panama and Bolivia it represented around 65%. In the other countries, the share of the informal economy was between 25% and 60% of the GDP. In terms of the labor market in Brazil, Mexico, Ecuador, Costa Rica, Chile, Argentina, and Uruguay, between 25% and 40% of their urban labor workers were engaged
in the informal economy. In Peru, Bolivia, Colombia, Nicaragua, Paraguay, and Venezuela, the share of the urban informal employment represented more than 40%. Asia and Pacific
In Asia and Pacific, the share of the informal economy was around 28% in the year 1999–2000. In Thailand, Sri Lanka, and Philippines, this percentage was higher than 40% and in China and Singapore this was lower than 15%. OECD
In the OECD the share of the informal economy was around 17.4% in the year 1999–2000. In Switzerland and USA, this percentage was around 8.8%; meanwhile in Portugal, Spain, Belgium, Italy, Korea, and Greece it was higher than 20% but lower than 29%. In the other countries, the share of the informal economy represented 10–20% of the total GDP. Central European and Middle Asian Countries
In the Central European and Middle Asian countries, the average of the informal economy was 37.7% in the year 1999–2000. The percentage of the informal sector in Azerbaijan and Georgia was 60.6% and 67.3%, respectively; in Serbia and Montenegro, Poland, Slovenia, Hungary, Czech Republic, and Slovak Republic, this percentage was between 19% and 30%. In the other countries, the share of the informal economy represents more than 25% and less than 50%. For none of the countries the percentage of the urban informal workers surpasses 40% of total urban employment. Lithuania, Kyrgyzstan, Latvia, Kazakhstan, and the Russian Federation have the larger percentages.
Approaches to the Informal Sector It is clear that there is no polished theory on the informal sector, but some scholars have pointed out that there are
450
Informal Sector
three main approaches: dualistic, structural, and legalistic or institutionalist. The ‘dualistic’ view defines the informal sector as marginal or separated from the formal one. The sector is a niche for poor people in periods of crisis and its persistence is due to the lack of sufficient modern labor market opportunities, the faster rate of growth of population in relation to job opportunities, or poor economic growth. ‘Structuralism’ sees the informal sector as subordinate to the formal one. In this perspective, the informal sector plays a very important role in the development of capitalism via the reduction of labor and input costs. The informal sector provides cheaper labor and input to formal enterprises allowing for the improvement of competitiveness of the latter. From Milton Santos’ point of view, there are two main circuits in the economy of developing countries: an ‘upper circuit’ and a ‘lower circuit’. The first one represents the modern economy, is commonly high tech, and consequently has a sophisticated system of production and commerce. On the other hand, the ower circuit is characterized by its small scale, the poor use of technology, and the intensive use of labor. Contrary to the dualistic view, for structuralists – including Milton Santos – the informal sector is not marginal or backward but it is part of capitalism, because the upper circuit dominates and requires the lower circuit to reproduce itself. The ‘legalist’, or ‘institutionalist’, view sees the informal sector as micro-entrepreneur’s response to the state’s over-regulation and the lack of clear property rights. For Hernando de Soto – one of the main theorists of this perspective – the main factor in the growth of the sector is the role played by the state, which does not allow the micro- or small entrepreneurs to develop their economic potential. These actors prefer to operate outside the regulations to reduce costs, time, and efforts instead of following the complex system of the state’s regulations which increases costs and crushes the ‘entrepreneurial spirit’. Although there is no refined theory on informality, there are many recurrent themes. In the next section, the most common are presented. Principal Themes In this section our objective is to present a taxonomy of the themes that have been related to the informal sector and appear more frequently in the specialized literature. The division is not static but actually is more complex than we present here; many factors are related to each other in different ways. The section divides themes into three main categories: economic, institutional, and social. The first two have received more attention, whereas the latter one is relatively new. In
different ways every vision uses almost all of the factors enumerated below. Economic themes
Settlement type has been shown to have a strong relationship with the informal sector. In fact, where the informal sector is conceptualized as including waged employment, cities are more likely to have large amounts of workers in the informal sector. Developing countries with large cities have a large quantity of informal workers due to concentration of the labor markets, large amounts of rural out-migration, and lack of opportunities in the formal labor market. In addition, urban informality includes a vast diversity of activities and jobs: from craft production or street commerce to companies linked to large transnational companies. Therefore, it is in the cities where the informal sector is more complex and palpable. Urban labor markets have received much more attention than rural ones. As the informal sector has been conceptualized as an urban employment problem, the main contributions have emerged from this perspective. The increase of unemployment due to the high rates of rural–urban migration, the lack (or decrease) of social benefits, underemployment, subminimum wages, and the presence of unregulated segments of the labor market have been identified as the main contributors to the informal sector. Poor people, in urban scenarios are more likely to be involved in nonformal activities because they cannot access the modern sector of the economy. Labor markets have been linked to poverty, principally in developing countries. One of the most influential themes is related to the relationship between national economic size and growth and the informal sector. From this point of the view, greater the size and growth of an economy, the less likely it is that people will engage in informal activities. This kind of vision was popular at the beginning of theorization on the informal sector and nowadays it is part of more complex explanations. It is recognized that the rate of growth of one economy is important but does not explain the entire problem. The size of one economy is related to the number of qualified workers, the availability of credit, and the number of small-, medium-, and large-size enterprises. As we have seen, all these factors encourage/inhibit the growth of the informal sector. Both traditional and contemporary conceptions recognize that the size of the firm is intimately related to the informal sector. Micro- and small-size enterprises are more likely to engage in the informal sector due to their reduced capital, their incapacity to pay taxes, their flexibility, and greater opportunities to escape state controls. The larger the firm, the lower the possibility of that firm being involved in informal activities because it
Informal Sector
has enough resources to access credit, a qualified labor force, and to pay taxes. Furthermore, the industrial structure is also important in the growth of the informal sector. In this sense, the relations between industrial enterprises and the productive chains encourage the growth of informal sector by the de-concentration of processes, subcontracting, flexibilization, or the combination of two or more of these phenomena. In the period of late capitalism, globalization and industrial restructuring have promoted the increase of informal activities through different forms of subcontracting. Generally, large firms in the developed world subcontract medium and small enterprises in the developing world and in the transition countries to produce goods and services. From large companies to home workers and home production there is a complex chain of intermediaries, contracts (not all legal), and forms of production. At the end of the chain, there are families, small towns, or small firms that are unregulated by labor laws. In the developed world, the de-concentration of production and the seeking of more efficient production methods of production have promoted the increase of the informal sector. Nowadays, practices like outsourcing (buying manufactured products instead of producing them) and subcontracting are common; the result is an increase of the total number of part-time jobs and the deterioration of working conditions. Institutional themes
Generally, the informal sector has been seen as consisting of widely unregulated or unregistered activities. In this case, the principal component is related to the role of the state, state agencies, and the avoidance of many rules. State regulations are the most utilized issue related to the informal sector. In fact, for many scholars the informal sector could not be defined without its counterpart: the state. The state through legislation and regulations defines what informal activity is and what it is not, and thus its existence; whereas for others, the excessive regulations encourage the growth of the informal sector. Clearly, nowadays, there is a trend to de-regulate many markets, including labor ones. Trying to attract Foreign Direct Investment (FDI), many national states are determined to reduce or cut off many labor rights, such as pensions and social care, and to allow subcontracting or to encourage part-time jobs and small-scale production. This view has been supported by multilateral organizations such as the IMF and the WB and has been followed by almost all countries. The argument is more or less clear: the tax system is linked to the growth of the informal sector. The increase of tax burdens encourages the increase of the informal sector, whereas from the point of view of some institutionalists there is not only the tax burden but the increase
451
of the tax system’s complexity and the excessive regulation over labor markets, licensing requirements, and right to property that de-incentivize productivity increases of productivity. Stronger and more complex legislation is important in the existence of the sector. Hence, the informal sector is the response of economic actors to the over-regulation by the state. For example, in some economic literature the increase of the tax burden influences the growth of the informal sector due to the differential costs of employing or being employed without taxes. The incentive to avoid taxes is reinforced by the fact that even when many companies or people are engaged in informal activities, they are not excluded from public goods or basic infrastructure. On the other hand, for some institutionalists, the informal sector is a reaction to the inefficiencies in public sector service provision. It has been recognized that if economic actors do not have enough incentives in terms of (cheaper) provision of public services, they are encouraged to pursue other routes, such as the informal sector. In many cases, state policies tolerate or even promote informal activities at different scales. In developing countries, governments have given incentives to encourage the development of small firms (mostly informal) to decrease unemployment. This situation is common in countries that went through structural adjustment in the 1980s and 1990s. In many countries, the informal sector has been seen as a reaction to the labor unions in two ways: employers do not want their employees to be unionized and, on the other hand, unions, principally in developing countries, do not have enough credibility. Hence, there are few barriers to the informalization of the workforce. In developed countries, immigrants, especially illegal ones, are more involved in informal activities. As they do not have permission to work, they prefer to avoid state regulations by working in small and unregulated businesses. In many developing countries, the informal sector is a reaction to the lack of confidence in state institutions. In these terms, the state is seen as weak and untrustworthy, so the increase of the informal sector is only a part of the lack of confidence in state rules, institutions, or legislations. Corruption creates the problem that only a few actors have access to the formal market. The creation of special rules (legal or not) that are on the side of these groups encourages the informal sector in two ways. On the one hand, the protected groups shape the market according to their interests, and, on the other hand, vulnerable groups unleash their energies to avoid these rules, even in the informal sector. In fact, state regulations support the existence of the informal sector. Work in the informal sector can be an option to circumvent the rules imposed by some unions, such as forbidding certain processes and forms of labor. Also, the implicit high cost
452
Informal Sector
of unionization promotes the move of enterprises and workers toward the informal sector. Social themes
The informal sector is shaped not only by economic and institutional processes, but also by social ones. Since the 1980s, many authors have pointed out the importance of social networks, gender, and local cultures in the growth and relevance of the sector. Generally, it has been assumed that women are more likely to be involved in the informal sector than men. The informal sector allows them to work fewer hours and combine their income-generating activities with domestic household tasks. Also, women usually take this kind of job as a response to a reduction in household income. The informal sector is more likely to be accepted in some places than others. This issue has been seen as a reflection local and regional traditions. In this case, it is not just that the informal sector is viewed as normal in one place, but that there is a completely history of the labor markets and their social and institutional regulations. Some scholars have found that social networks, especially those that are dense, are an important factor in promoting the informal sector. These networks are important in at least two senses. First, an easy way to get into the informal sector is to turn to a friend or acquaintance. The spread of the sector generally depends on the social relations between persons in a specific locality. Second, the informal sector requires a communal sense of social participation in order to avoid state regulations. Many informal workers, in developed and developing countries, state that one of the principal factors that drives them into the sector is the desire for autonomy and flexibility in their work. They find the informal sector more flexible and autonomous than the formal one; hence they have more freedom to do their own business, to establish their schedule, and to combine their work with other activities.
Remarks and Conclusions Both the informal economy and informal labor market are special subjects in the field of geography, not only as a specific topic but as an area of action. World statistics show the importance of the sector, in both developed and in developing (or transition) countries. Geography can play a very important role in the conceptualization and the determination of policies. The conceptualization of informality is one of the biggest issues. Despite their divergences, as presented here, many approaches are relatively close to each other; therefore, the next step is to develop a global and comprehensible conceptualization for the understanding of a very complex phenomenon.
Recent evidence has shown that informality grows as a response to the deterioration of living conditions both in the developed and in the developing world and the transformation of global industrial processes. However, there is a problem still: the analysis of the policies. Geography in this field can contribute in many ways: from the study of patterns of localization of informal activities to the analysis of the policies that promote the growth of the informal sector. See also: Capital and Space; Dependency; Development I; Development II; Economic Crises; Economies, Alternative; Economies, Borderland; Economy, Informal; Global Commodity Chains; Labor Flexibility; Labor Markets, Regional; Neoliberal Economic Strategies; Urbanization; World/Global Cities.
Further Reading Aguilar, A. G. (1997). The urban labour market in Mexico: Global change, informality, and social polarization. Urban Geography 18, 106--134. Daniels, P. W. (2002). Urban challenges: The formal and informal economies in mega-cities. Cities 21, 501--511. De Soto, H. (1989). The other path. The Invisible Revolution in the Third World. New York: Harper & Row. Ge¨rxhani, K. (2004). The informal sector in developed and less developed countries: A literature survey. Public Choice 120, 267--300. ILO (2005). World Employment Report, 2004–05. Employment, Productivity and Poverty Reduction. Geneva: ILO. Laguerre, M. S. (1994). The Informal City. New York: St. Martin’s. Mead, D. C. (1996). The informal sector elephant. World Development 24, 1611--1619. OECD (2002). Measuring the Non-Observed Economy. A handbook. Paris: OECD. Portes, A. (1995). En torno a la informalidad; ensayos sobre teorı´a y medicio´n de la economı´a no regulada (On informality; essays on theory and measurement of the unregulated economy). Mexico City: FLACSO-Miguel Angel Porru´a. Portes, A. (2004). La Economı´a Informal (The Informal Economy). Santiago de Chile: CEPAL. Portes, A., Castells, M. and Benton, L. (1989). The Informal Economy: Studies in Advanced and Less Developed Countries. Baltimore: John Hopkins. Santos, M. (1979). The shared space. The Two Circuits of the Urban Economy in Underdeveloped Countries. London: Methuen. Scheider, F. and Enste, D. H. (2000). Shadow economy: Size, causes, and consequences. Journal of Economic Literature 38, 77--114. Williams, C. and Windebank, J. (1998). Informal Employment in the Advanced Economies. London: Routledge.
Relevant Websites http://www.ilo.org International Labour Organization. http://www.imf.org International Monetary Fund. http://www.unescap.org United Nations Economic and Social Commission for Asia and the Pacific. http://www.escwa.org.lb United Nations Economic and Social Commission for Western Asia.
Informal Sector
http://www.uneca.org United Nations Economic Commission for Africa. http://www.unece.org United Nations Economic Commission for Europe.
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http://www.eclac.org United Nations Economic Commission for Latin American and the Caribbean. http://www.worldbank.org World Bank.