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The Global Impact of Informal Economies

The Global Impact of Informal Economies - A Pineapple Vendor

Informal economies: missing money?

Today’s post comes courtesy of Sandy Cosser on behalf of Skilled Migrant Jobs

Informal economy: be honest, what was the first thing that came to kind? Curbside fruit and vegetable vendors in South Africa? Ear wax removers in India? Bet you didn’t think of the US and EU.

W. Arthur Lewis used the term ‘informal sector’ in reference to work opportunities outside of the modern industrial sector. The term ‘informal economy’ refers to jobs that don’t provide any form of security (no fixed contracts, no benefits, and no real legal protection). It’s also been used in reference to ‘hidden jobs’, those that allow people to work below the radar, as in they don’t pay tax and they don’t pop up in any government index (Wikipedia).

Wikipedia also makes mention of Saskia Sassen’s new definition of the informal sector (or economy). Essentially, Sassen says that we need to get over the idea that the informal sector is bad and that countries need to work towards a formal employment market or else risk being seen as backward. In truth, Sassen says, the informal economy is both the result of and the driving force behind advanced capitalism and that it’s led by budding entrepreneurs.

Informal Economies: A World View

Even though informal economies are growing in developed countries, the countries with the biggest informal sectors may still be considered developing. An article by Martha V Shelton in the San Francisco Chronicle lists the 10 biggest informal markets: Bolivia, Georgia, Panama, Zimbabwe and Azerbaijan make up the top five.

An article on Working-Class Perspectives says that the US’s informal sector is growing in the proliferation of unregulated internships and home-based carers.

Nationmaster.com provides a regularly updated list of the size of global informal markets. According to the list, Georgia has the biggest informal sector at 67.3% and is followed by Bolivia at 67.1%. Poland is 66th on the list with 27.6%, Italy is 68th with 27%, Norway is 82nd on the list with 19.1%, Germany is 90th on the list with 16.3%, Australia and France are tied at 93rd with 15.3%, the UK is 99th with 12.6% and the United States is 102nd with 8.8%.

China’s and Japan’s informal economies are also growing.

Is It Good or is It Bad?

Despite Sassen’s somewhat optimistic view, most economic and employment experts believe that the informal sector growth is not a symbol of capitalism advancement.

Charlotte Guériaux (New Eastern Europe) says that not only do informal economies deprive governments of tax revenue (which can be ploughed back into employment programmes), but they can also lead to the exploitation of workers. Most people resort to informal employment because they have no choice (the vendors in South Africa, the ear wax removers in India) and not because it provides an outlet for their creative passions or helps them avoid tax. This means poverty is an important driving force behind informal sectors, which is bad news in anybody’s book.

The Economic Times has published an article by Klaus F Zimmermann, Director, IZA, Institute for the Study of Labor, Germany, who adds another concern to the list. Zimmerman says that as long as people are informally employed they can’t save for their retirement. They can’t really save for anything, for that matter. Moreover, without a permanent job and proper pay slips they can’t secure loans or open accounts.

Unemployment is still a major issue in the developing and developed world and the continuing global economic downturn is doing nothing to help the situation. It can be argued that as precarious as the informal market is, and as open as it is to exploitation, some jobs are better than no jobs at all. What do you think?

About the Author

Written by Sandy Cosser on behalf of Skilled Migrant Jobs, a job portal that helps immigrants find jobs in the UK, Australia and the US.

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Author:Globial International Business Team

The Globial International Business Team researches, analyzes, and reports on all things related to global trade and business.

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