Two categories of workers play a part in the informal economy:
- Self-employed workers in informal enterprises (small and/or unregistered businesses)
- Wage-based workers in informal jobs (without secure contracts, worker benefits, or social protection)
As a broad concept, informal employment is understood to include all remunerative work – both self-employment and wage employment – that is not recognized, regulated, or protected by existing legal or regulatory frameworks.
In 2002, the International Labour Conference noted that, although there is no universally accurate or accepted description or definition of the term
informal economy, it may be taken to refer to all economic activities by workers and economic units that are not covered, or are insufficiently covered, by formal arrangements. These workers either operate outside the formal reach of the law, or they are not covered in practice, which means that, although they are operating within the formal reach of the law, the law is not applied or not enforced.
Home-based workers and street vendors are two of the largest sub-groups of the
informal workforce, home-based workers being the most numerous, and street vendors being the most visible. These
informal workers are not confined to developing countries: home-based workers are to be found around the world, including garment workers in Toronto, embroiderers on the island of Madeira, shoemakers in Madrid, and assemblers of electronic parts in Leeds. Some of these home-based workers work on their own account, while others work on a piece-rate basis for a contractor or a firm.
Even within countries, the informal economy is highly segmented by location of work, sector of economy, status of employment and, across these segments, by social group and gender. But most workers in the informal economy have one thing in common: a lack of formal labour and social protection.
The informal economy should not be confused or conflated with the criminal economy. While production or employment arrangements in the informal economy are often semi-legal or illegal, the informal economy produces and distributes legal goods and services. In contrast, the criminal economy deals in illegal goods and services.
(adapted from the International Labour Organization (ILO),
Women and Men in the Informal Economy: A Statistical Picture, 2002, visited 2009-07-03)
Informal Work and Labour Protection
"Most
informal workers – including both self-employed and wage workers – are deprived of secure work, worker's benefits, social protection, and representation or voice. The self-employed have to take care of themselves and their enterprises. Moreover, they often face a competitive disadvantage vis-à-vis larger formal firms in capital and product markets. Informal wage workers also have to take care of themselves as they receive few (if any) employer-sponsored benefits. As a result of these and other factors, a higher percentage of people working in the informal economy, compared to those working in the formal economy, are poor."
(International Labour Organization (ILO),
Women and Men in the Informal Economy: A Statistical Picture, 2002, visited 2009-07-29)
"The risks faced by those who work in the informal economy differ by their employment status, by the industry or trade in which they are engaged, and by the wider social, economic, and political context in which they live and work. However, broad generalizations can be made in this regard.
Informal workers often face greater exposure to general risks [such as illness, property loss, disability, death] given the nature of their work and living conditions. Secondly, those who work in the informal sector face greater work-related risks than those who work in the formal sector. Thirdly, those who work in the informal sector typically have fewer mechanisms for dealing with risk than those who work in the formal sector."
(Alter Chen, M., F. Lund, and R. Jhabvala,
Supporting Workers in the Informal Economy: A Policy Framework, World Bank, 2001, visited 2009-07-29)
For a large proportion of the working-age population, particularly in developing countries, participation in the informal economy is not a choice but a means of survival. With the relatively rapid growth in the high technology sector, for example, more high-skilled than low-skilled jobs have been created in many economies, and individuals who have not acquired the skills needed to compete in the evolving labour market may find that their only option is the informal economy.