Exploring the Informal Economy: Examples from Around the World

The World’s Informal Economy

The informal economy refers to any economic activity that falls outside the scope of government regulation, taxation, and observation. It is also known as the ‘shadow economy’ or the ‘black market’. While some activities can be legal (like home-based online work), others may be illegal or unethical (such as smuggling or child labor). According to the International Labor Organization (ILO), the informal economy accounts for about 61% of the world’s labor force, with developing countries having a higher share than developed countries. This article explores some examples of the informal economy from around the world and their effects on society and the economy.

The Informal Economy in Africa

Sub-Saharan Africa has a vibrant informal sector that is estimated to employ over 80% of the workforce, according to the World Bank. Street vending, hairdressing, food processing, and transport services are some of the common informal activities. Many people engage in informal work due to a lack of formal employment opportunities, education, skills, or capital. While the informal economy provides income and goods for millions of people, it also faces challenges such as low incomes, lack of social protection, health risks, and job insecurity. Moreover, the informal sector may undermine formal businesses by avoiding taxes and regulations. For example, a study in South Africa found that informal clothing sellers reduced formal retail sales by up to 70%.

The Informal Economy in Latin America

Latin America is home to various forms of informal work, ranging from street vending and informal settlements to drug trafficking and illegal mining. In some countries, like Bolivia and Peru, informal mining employs more people than formal mining. The informal economy can be a source of income for marginalized groups such as women, indigenous people, and migrants. However, it also poses risks and challenges such as environmental degradation, criminal activities, and human rights abuses. One notable case in Latin America is the informal recycling sector, where waste-pickers collect and sort recyclable materials from landfills and streets. While this activity provides environmental benefits, it also involves health hazards, low pay, and poor working conditions. Some cities, such as Bogotá and Buenos Aires, have implemented formalization programs to improve the recycling sector’s safety, productivity, and social welfare.

The Informal Economy in Asia

Asia has a diverse and dynamic informal economy that ranges from small-scale home-based businesses to large-scale transnational crime networks. In countries like India and Thailand, informal workers account for a significant share of the workforce, especially in agriculture, construction, and domestic work. However, informal workers often face exploitation, discrimination, and exclusion from social benefits. On the other hand, some informal activities, such as street food and artisanal crafts, are a vital part of the local cultural heritage and tourism industry. Moreover, the digital economy has enabled many people in Asia to engage in informal online work such as freelancing, coding, and online tutoring. However, the lack of legal frameworks and protections in the online economy also creates risks for workers and consumers.

Conclusion: Navigating the Informal Economy

Exploring the informal economy around the world shows us the complexity, diversity, and challenges of informal work. While the informal economy provides income opportunities for many people, it also poses risks and costs to workers, society, and the economy. Therefore, policymakers and stakeholders need to navigate these challenges and maximize the benefits of informal work while minimizing its harms. Some strategies that could be effective include formalization programs, social protection schemes, education and training programs, and inclusive growth policies. By understanding the informal economy, we can develop more informed and evidence-based approaches to promote sustainable and equitable development.