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Informal economy AI simulator
(@Informal economy_simulator)
Hub AI
Informal economy AI simulator
(@Informal economy_simulator)
Informal economy
An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable. However, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. Integrating the informal economy into the formal sector is an important policy challenge.
In many cases, unlike the formal economy, activities of the informal economy are not included in a country's gross national product (GNP) or gross domestic product (GDP). However, Italy has included estimates of informal activity in their GDP calculations since 1987, which swells their GDP by an estimated 18% and in 2014, a number of European countries formally changed their GDP calculations to include prostitution and narcotics sales in their official GDP statistics, in line with international accounting standards, prompting an increase between 3-7%. The informal sector can be described as a grey market in labour. Other concepts that can be characterized as informal sector can include the black market (shadow economy, underground economy), agorism, and System D. Associated idioms include "under the table", "off the books", and "working for cash".
The original use of the term 'informal sector' is attributed to the economic development model put forward in 1955 by W. Arthur Lewis, used to describe employment or livelihood generation primarily within the developing world. It was used to describe a type of employment that was viewed as falling outside of the modern industrial sector. An alternative definition from 2007 uses job security as the measure of formality, defining participants in the informal economy as those "who do not have employment security, work security and social security". While both of these definitions imply a lack of choice or agency in involvement with the informal economy, participation may also be driven by a wish to avoid regulation or taxation. This may manifest as unreported employment, hidden from the state for tax, social security or labour law purposes, but legal in all other aspects. In 2016 Edgar L. Feige proposed a taxonomy for describing unobserved economies including the informal economy as being characterized by some form of "non-compliant behavior with an institutional set of rules". He argues that circumvention of labor market regulations specifying minimum wages, working conditions, social security, unemployment and disability benefits gives rise to an informal economy, which deprives some workers of deserved benefits while conveying undeserved benefits to others.
The term is also useful in describing and accounting for forms of shelter or living arrangements that are similarly unlawful, unregulated, or not afforded protection of the state. 'Informal economy' is increasingly[when?] replacing 'informal sector' as the preferred descriptor for this activity.
Informality, both in housing and livelihood generation has historically been seen as a social ill, and described either in terms of what participant's lack, or wish to avoid. In 2009, the Dutch sociologist Saskia Sassen viewed the new 'informal' sector as the product and driver of advanced capitalism and the site of the most entrepreneurial aspects of the urban economy, led by creative professionals such as artists, architects, designers and software developers. While this manifestation of the informal sector remains largely a feature of developed countries, increasingly systems are emerging to facilitate similarly qualified people in developing countries to participate.
Governments have tried to regulate aspects of their economies for as long as surplus wealth has existed which is at least as early as Sumer. Yet no such regulation has ever been wholly enforceable.[citation needed]
Archaeological and anthropological evidence strongly suggests that people of all societies regularly adjust their activity within economic systems in attempt to evade regulations.[citation needed] Therefore, if informal economic activity is that which goes unregulated in an otherwise regulated system then informal economies are as old as their formal counterparts, if not older.[citation needed] The term itself, however, is much more recent.[citation needed]
The optimism of the modernization theory school of development had led people in the 1950s and 1960s to believe that traditional forms of work and production would disappear as a result of economic progress in developing countries.[citation needed] As this optimism proved to be unfounded, scholars turned to study more closely what was then called the traditional sector and found that the sector had not only persisted, but in fact expanded to encompass new developments.[citation needed] In accepting that these forms of productions were there to stay, scholars and some international organizations quickly took up the term informal sector (later known as the informal economy or just informality). The term Informal income opportunities is credited to the British anthropologist Keith Hart in a 1971 study on Ghana published in 1973, and was coined by the International Labour Organization in a widely read study on Kenya in 1972.[citation needed]
Informal economy
An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countries, it is sometimes stigmatized as troublesome and unmanageable. However, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. Integrating the informal economy into the formal sector is an important policy challenge.
In many cases, unlike the formal economy, activities of the informal economy are not included in a country's gross national product (GNP) or gross domestic product (GDP). However, Italy has included estimates of informal activity in their GDP calculations since 1987, which swells their GDP by an estimated 18% and in 2014, a number of European countries formally changed their GDP calculations to include prostitution and narcotics sales in their official GDP statistics, in line with international accounting standards, prompting an increase between 3-7%. The informal sector can be described as a grey market in labour. Other concepts that can be characterized as informal sector can include the black market (shadow economy, underground economy), agorism, and System D. Associated idioms include "under the table", "off the books", and "working for cash".
The original use of the term 'informal sector' is attributed to the economic development model put forward in 1955 by W. Arthur Lewis, used to describe employment or livelihood generation primarily within the developing world. It was used to describe a type of employment that was viewed as falling outside of the modern industrial sector. An alternative definition from 2007 uses job security as the measure of formality, defining participants in the informal economy as those "who do not have employment security, work security and social security". While both of these definitions imply a lack of choice or agency in involvement with the informal economy, participation may also be driven by a wish to avoid regulation or taxation. This may manifest as unreported employment, hidden from the state for tax, social security or labour law purposes, but legal in all other aspects. In 2016 Edgar L. Feige proposed a taxonomy for describing unobserved economies including the informal economy as being characterized by some form of "non-compliant behavior with an institutional set of rules". He argues that circumvention of labor market regulations specifying minimum wages, working conditions, social security, unemployment and disability benefits gives rise to an informal economy, which deprives some workers of deserved benefits while conveying undeserved benefits to others.
The term is also useful in describing and accounting for forms of shelter or living arrangements that are similarly unlawful, unregulated, or not afforded protection of the state. 'Informal economy' is increasingly[when?] replacing 'informal sector' as the preferred descriptor for this activity.
Informality, both in housing and livelihood generation has historically been seen as a social ill, and described either in terms of what participant's lack, or wish to avoid. In 2009, the Dutch sociologist Saskia Sassen viewed the new 'informal' sector as the product and driver of advanced capitalism and the site of the most entrepreneurial aspects of the urban economy, led by creative professionals such as artists, architects, designers and software developers. While this manifestation of the informal sector remains largely a feature of developed countries, increasingly systems are emerging to facilitate similarly qualified people in developing countries to participate.
Governments have tried to regulate aspects of their economies for as long as surplus wealth has existed which is at least as early as Sumer. Yet no such regulation has ever been wholly enforceable.[citation needed]
Archaeological and anthropological evidence strongly suggests that people of all societies regularly adjust their activity within economic systems in attempt to evade regulations.[citation needed] Therefore, if informal economic activity is that which goes unregulated in an otherwise regulated system then informal economies are as old as their formal counterparts, if not older.[citation needed] The term itself, however, is much more recent.[citation needed]
The optimism of the modernization theory school of development had led people in the 1950s and 1960s to believe that traditional forms of work and production would disappear as a result of economic progress in developing countries.[citation needed] As this optimism proved to be unfounded, scholars turned to study more closely what was then called the traditional sector and found that the sector had not only persisted, but in fact expanded to encompass new developments.[citation needed] In accepting that these forms of productions were there to stay, scholars and some international organizations quickly took up the term informal sector (later known as the informal economy or just informality). The term Informal income opportunities is credited to the British anthropologist Keith Hart in a 1971 study on Ghana published in 1973, and was coined by the International Labour Organization in a widely read study on Kenya in 1972.[citation needed]
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