The Sustainability Frontier
Edited by Urs P. Jäger and Vijay Sathe
Chapter 6: Informal economy
The term ‘informal economy’, while evading universal definition, generally refers to those productive sectors of an economy that fall outside of the typical scope and reach of governmental regulatory and administrative frameworks. In general, the activities in this sector go unreported to official institutions for one of two reasons: (1) illegality of the productive activity itself or (2) evasion of costs associated with formalizing a legal activity (e.g. license fees, taxes or labor costs) (Vuletin, 2008). Beyond the economy of the informal sector, there is also informal employment in the ‘formal’ economy, in which a regulated enterprise may underreport production and/or employment for reason 2 above (ILO Department of Statistics, 2011). While the nature of the informal economy makes it very difficult to measure accurately, various direct and indirect approaches have been taken to estimate its size. Based on direct measures (household surveys), the ILO estimates that over 50 percent of non-agricultural workers in Latin America are engaged in informal employment (ILO Department of Statistics, 2011). Roughly one-third of all non-agricultural employees are employed in the informal sector. Enterprises in this sector are typically small family businesses with relatively few employees, so this proportion represents a large number of small enterprises. When the agriculture sector is considered, with its heavy reliance on smallholder farming, the number of enterprises participating in the informal productive sector increases significantly.
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