Informal realities …

The informal economy is no small constituency. According to Hernando de Soto’s research the informal economy over the past 40 years has generated US$10 trillion of wealth, a value nine times greater than all bilateral foreign aid and forty times larger than the international development loans received by underdeveloped nations, and a value larger than the size of the worlds twenty largest stock markets. Statistics on the informal economy are by their nature unreliable but the sheer scale of opportunity merits attention.

Broadly defined, the informal economy comprises one half to three quarters of non-agricultural employment in developing countries. Some countries include informal employment in agriculture in their estimates. This makes a significant impact: from 83% of non agricultural employment to 93% total employment in India; from 55% to 62% in Mexico and from 28% to 34% in South Africa. With roughly nine out of ten of India’s working population gaining livelihoods in the informal economy (35% of whom live under the poverty line), it is important to understand the scope and scale.

Estimates for developed countries are 15%. This is subject to wide variation. In the UK the figure is 7% but in the Ukraine and Russia it is more than 50% and Georgia 62%. In South America 75% of new jobs generated come from the informal sector. In Zambia, only 10% of the workforce is legally employed. One thing is for sure, as we do the global sums we are not talking of people at the margins, this is the Majority World.

And it is not confined to the underdeveloped or emerging economies. Self employed, part time and temporary work comprise 30% of overall employment in 15 EU countries, 25% of the total in the USA and “moonlighting” or, formal workers taking informal jobs on the side, is growing. Many countries have only just started to track the informal economy and, because of the discrepancies in methodology, the data can have limited comparability. In an era when supply chains rather than individual companies compete, the entire end-to-end process of sourcing to the consumer (sketch to dress to store or, field to fork) is generating endless examples of formal brands working with companies, teams, individuals from the informal economy.

It is now clear that these patterns of collaboration will increase; that it is not true to dismiss all informal workers as using outdated equipment and therefore damaging productivity – many informal workers are highly skilled and, that many workers remain outside of the formal economy for complex reasons. Take Caterina, from Kiev, who set up a hairdressing salon in her flat. Soon, a local official demanded bribes to keep her off the official register and thereby off the tax regime. Caterina closed the salon and returned to bit part jobs – just to survive. Corruption and arthritic regulations are a crucial part of creating conditions for the informal economy. Is such marginalisation necessary? This is a problem with the formal economy not the other way round.

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One Response to Informal realities …

  1. Byron Song says:

    It is surprising to see the informal economy, such a large piece of cake, being overlooked by so many for so long.
    As you mentioned above, differences in definition and approach limit the research and benchmarking of the informal economy. So what is the “informal economy”? Is it illegal employment/trade? Is self employment or part time work included? Is it the black market? Is it value created “off the book” or “under the table”?

    answers.com describes the difficult of defining the term:

    “…Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study…
    …To further confound attempts to define this process, informal economic activity is temporal in nature. Regulations (and degrees of enforcement) change frequently, sometimes daily, and any instance of economic activity can shift between categories of formal and informal with even minor changes in policy.”

    and it gives a simple definition:

    “any exchange of goods or services involving economic value in which the act escapes regulation of similar such acts.”

    Reference: http://www.answers.com/topic/informal-economy

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