In economics, the term informal economy refers to the general market income category (or sector) wherin certain types of income and the means of their generation are “unregulated by the institutions of society, in a legal and social environment in which similar activities are regulated.” (Portes et al.) Anglo-Saxon capitalism (so called because it is largely practiced in English speaking countries such as Australia, the UK and the United States) is a capitalist macroeconomic model in which levels of regulation and taxes are low, and the quality of state services and social indicators are weak. ... For other uses, see Capitalism (disambiguation). ... Dual economy is the existence of two separate economic systems within one region; common in the less developed countries, where one system is geared to local needs and another to the global export market. ... A gift economy is an economic system in which the prevalent mode of exchange is for goods and services to be given without explicit agreement upon a quid pro quo, or the concept of a favor for a favor in the Latin language. ... Information economy is a loosely defined term to characterize an economy with increased role of informational activities and information industry. ... A market economy (aka free market economy and free enterprise economy) is an economic system in which the production and distribution of goods and services takes place through the mechanism of free markets guided by a free price system rather than by the state in a planned economy. ... A mixed economy is an economy that contains both private and public, or state owned (or controlled) enterprises. ... Natural economy refers to a type of economy in which money is not used in the transfer of resources among people. ... The term, originated by the Organization for Economic Cooperation and Development (OECD), describes nations of the Third World that have enjoyed rapid economic growth and can be described as middle-income countries. ... An open economy is an economy in which people, including businesses, can trade in goods and services with other people and businesses in the international community at large. ... A palace economy is a system of economic organisation in which wealth flows out from a central source (the palace), eventually reaching the common people, who have no other source of income. ... A planned economy is an economic system in which decisions about the production, allocation and consumption of goods and services are planned ahead of time, usually in a centralized fashion, though some proposed systems favour decentralized planning. ... This article is in need of attention. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... A token economy is a system of behavior modification based on the principles of operant conditioning. ... A transition economy is an economy which is changing from a planned economy to a free market. ... The underground economy consists of all trade that occurs without detection by government so that commerce and income are not taxed. ... Buyers bargain for good prices while sellers put forth their best front in Chichicastenango Market, Guatemala. ... Income, generally defined, is the money that is received as a result of the normal business activities of an individual or a business. ...

Although the informal economy is often associated with developing countries —where up to 60% of the labor force works, all economic systems contain an informal economy in some proportion. The term “informal sector” was used in many earlier studies, and has been mostly replaced in more recent studies which use the newer term. A developing country is a country with low average income compared to the world average. ...

The English idiom "under the table" typically refers to this type of economy. The term black market refers to a specific subset of the informal economy in which contraband is traded —where contraband may be strictly or informally defined. The black market or underground market is the part of economic activity involving illegal dealings, typically the buying and selling of merchandise or services (for example sexual services in many countries) illegally. ... Contraband consists of items of which possession may be illegal, depending on the variety and the country or the age or sex of the possessor. ...

Definition

The informal sector of an economy can be defined in terms of lack of governmental regulation or lack of institutions that provide job security and benefits. Comprising the largest part of the economies of developing countries, the sector depends on small scale individual entrepreneurship, almost always without the benefit of official support or services. Jobs in the informal economy are characteristically without benefits such as health insurance, sick leave, paid vacations or pensions.

Informal economic activity is a dynamic process (not an object) 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.

Given the complexity of the phenomenon, the simplest definition of informal economic activity might be: any exchange of goods or services involving economic value in which the act escapes regulation of similar such acts. Value as defined in economics is only a small subcategory of value in general, as defined in value theory or in the science of value. ...

History

Governments have tried to regulate (formalize) 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. Archaeological and anthropological evidence strongly suggests that people of all societies regularly adjust their activity within economic systems in attempt to evade regulations. 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. The term itself, however, is much more recent. The optimism of the modernization theory school of development had led most 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. As this optimism proved to be unfounded, scholars turned to study more closely what was then called the traditional sector. They found that the sector had not only persisted, but in fact expanded to encompass new developments. In accepting that these forms of productions were there to stay, scholars started using the term informal sector, which was first used by the British anthropologist Keith Hart in a study on Ghana in 1971 and then taken up by the ILO in a widely read study on Kenya in 1972. It has been suggested that Edubba be merged into this article or section. ... Modernization theory is a socio-economic theory, sometimes known as (or as being encompassed within) developmet theory, which highlights the positive role played by the developed world in modernizing and facilitating sustainable development in underdeveloped nations, often contrasted with dependency theory. ... The International Labour Organization (ILO) is a specialized agency of the United Nations to deal with labour issues. ...

Since then the informal sector has become an increasingly popular subject of investigation, not just in economics, but also in sociology and anthropology. With the turn towards so called post-fordist modes of production in the advanced developing countries, many workers were forced out of their formal sector work and into informal employment. In a seminal collection of articles, The Informal Economy. Studies in Advanced and Less Developed Countries, Alejandro Portes and collaborators emphasized the existence of an informal economy in all countries by including case studies ranging from New York City and Madrid to Uruguay and Colombia. Social interactions of people and their consequences are the subject of sociology studies. ... Anthropology (from the Greek word άνθρωπος, human or person) consists of the study of humanity (see genus Homo). ... Post-fordism is the mode of production increasingly found in most industrialized countries today, which can be contrasted with fordism, the productive method typified by Henry Fords car plants, in which workers work on a production line, performing specialised tasks repetetively. ... Nickname: The Big Apple, The Capital of the World Official website: City of New York Government Counties (Boroughs) Bronx (The Bronx) New York (Manhattan) Queens (Queens) Kings (Brooklyn) Richmond (Staten Island) Mayor Michael Bloomberg (R) Geographical characteristics Area Total 468. ... Madrid is the capital and the largest city in Spain, as well as in the province and the autonomous community of the same name. ...

Arguably the most influential book on the informal economy is Hernando de Soto's El Otro Sendero (1986), which was published in English in 1989 as The Other Path with a preface by Peruvian writer Mario Vargas Llosa. De Soto and his team argue that excessive regulation in the Peruvian (and other Latin American) economies force a large part of the economy into informality and thus prevent economic development. While accusing the ruling class of 20th century mercantilism, de Soto admires the entrepreneurial spirit of the informal economy. In a widely cited experiment, his team tried to legally register a small garment factory in Lima. This took more than 100 administrative steps and almost a year of full-time work. Whereas de Soto’s work is popular with policymakers and champions of free market policies like The Economist, many scholars of the informal economy have criticized it both for methodological flaws and normative bias. Hernando de Soto is a: Spanish explorer. ... Mario Vargas Llosa (birth name: Jorge Mario Pedro Vargas Llosa) (born March 28, 1936) is a Peruvian writer who is one of Latin Americas leading novelists and essayists. ... A painting of a French seaport from 1638, at the height of mercantilism. ... The Economist is a weekly news and international affairs publication of The Economist Newspaper Ltd edited in London, UK. It has been in continuous publication since September 1843. ...

In the second half of the 1990s many scholars have started to consciously use the term “informal economy” instead of “informal sector” to refer to a broader concept that includes enterprises as well as employment in developing, transition, and advanced industrialized economies.

Some Facts

The informal economy under any governing system is diverse and includes small-scaled, occasional members (often street vendors and garbage recyclers) as well as larger, regular enterprises (including transit systems such as that of Lima, Peru). Informal economies include garment workers working from their homes, as well as informally employed personnel of formal enterprises.

The above definition rejects the inclusion of certain activities including crime and domestic labor. Crime cannot be included because such acts have no regulated counterpart against which they may be compared. (Of course, by their nature, informal economic activities escape regulation and may then become criminal.) Domestic labor, such as childcare and cooking, cannot be included when performed in the natural course of daily living and to one's own benefit. Such activities can easily be performed for others and exchanged for goods and services with economic value and depending on broader conditions, these can be either formal or informal economic activities. However, when performed for personal benefit they have no external economic value (they cannot be exchanged).

Statistics on the informal economy are unreliable by virtue of the subject, yet they can provide a tentative picture of its relevance: For example, informal employment makes up 48% of non-agricultural employment in North Africa, 51% in Latin America, 65% in Asia, and 72% in sub-Saharan Africa. If agricultural employment is included, the percentages rises, in some countries like India and many sub-Saharan African countries beyond 90%. Estimates for developed countries are around 15%.

In developing countries, the largest part of informal work, around 70%, is self-employed, in developed countries, wage employment predominates. The majority of informal economy workers are women. Policies and developments affecting the informal economy have thus a distinctly gendered effect.

Underground economy

Main article: Underground economy

Underground economy may be understood as a synonym of informal economy. However, it also involves money laundering and tax evasion activities (which are not necessarily "criminal" - Luxembourg, a famous European tax haven, had no law against money laundering until the end of the 1990s). Underground economy differs from the black market, which exclusively refers to trade of illegal goods. Grey market however may be related to informal economy. The underground economy consists of all trade that occurs without detection by government so that commerce and income are not taxed. ... Money laundering is the practice of engaging in financial transactions in order to conceal the identity, source and destination of the money in question. ... This article contrasts tax evasion, tax avoidance, tax resistance and tax mitigation. ... A tax haven is a place where certain taxes are levied at a low rate or not at all. ... The black market or underground market is the part of economic activity involving illegal dealings, typically the buying and selling of merchandise or services (for example sexual services in many countries) illegally. ... The grey market (or gray market) refers to the flow of goods through distribution channels other than those authorized or intended by the manufacturer or producer. ...

See also

• Hernando de Soto
• International Labour Organization

Hernando de Soto (born 1941; Arequipa) is a Peruvian economist known for his work on the informal economy. ... The International Labour Organization (ILO) is a specialized agency of the United Nations to deal with labour issues. ...

External links

• The Informal Economy in Latin America, an article by a collaborator of de Soto, published by the libertarian Cato Institute
• Doing Business project @ World Bank, a project studying the determinants of informality
• Formalizing the informal economy, a working paper describing attempts to formalize street vending in Mexico
• Men and Women in the Informal Economy A report by the ILO containing a lot of statistical information
• Unlocking Human Potential Conference proceedings of a conference on the informal economy by the World Institute for Development Economics Research at the United Nations University
• A Homegrown Mass Transit System in Lima, Peru A Case of Generative Planning, abstract of an article which discusses large-scale, generative planning
• Cheats or Contributors? Self Employed People in the Informal Economy A report by east London Charity Community Links and Microfinance organisation Street UK providing analysis of the motivations of informal workers.
• World Bank archived online discussion: "How to Tackle the Problem of Rising Informality?"
• World Bank archived online discussion: "Can Formal Property Titling Programs Ensure Increased Business Investments and Growth?"
• World Bank archived online discussion: "The Informal Economy: Large and Growing in Most Developing Countries"
• Policy note on The Informality Trap: Tax Evasion, Finance, and Productivity in Brazil
• Policy note on Rising Informality - Reversing the Tide
• Paper estimating the size of the informal economy in 110 developing, transition and developed countries
• Keith Hart's archived work: "Keith Hart's Memory Bank"