Informal economy

Black market sellers offer watches for sale to US soldiers in Baghdad in 2004.

An informal economy (informal sector or grey economy)[1][2] 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[3][4] and has been expanding rapidly since the 1960s.[5] Integrating the informal economy into the formal sector is an important policy challenge.[3]

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).[3] 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".


Black market peddler on graffiti, Kharkiv

The original use of the term 'informal sector' is attributed to the economic development model put forward 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.[6] An alternative definition 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".[7] 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.[8] Edgar L. Feige has 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.[9] Feige argues that circumvention of labor market regulations specifying minimum wages, working conditions, social security, unemployment and disability benefits gives rise to an informal economy that 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 replacing 'informal sector'[3] as the preferred descriptor for this activity.

Informality, both in housing and livelihood generation has often been seen as a social ill, and described either in terms of what participant's lack, or wish to avoid. A countervailing view, put forward by prominent Dutch sociologist Saskia Sassen is that the modern or new 'informal' sector is 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.[10] 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.[11]