Informal Economy

Examples and Types of Informal Activities

Activities that may be considered part of the informal economy range from the explicitly illegal and criminal to everyday transactions that few would consider a violation [Page 654]of social norms and values. Thus, hiring undocumented workers, operating sweatshops that flaunt occupational health and safety regulations, producing or selling illicit substances, failing to report income for tax purposes, bartering goods or services, and substituting one's own labor to produce commodities that are normally purchased have all been classified as informal activity.

The same activity can be considered formal or informal, depending on the larger social and political context. Similarly, the boundary between legal and illegal often determines whether an exchange is considered informal. As a result, it is difficult to distinguish between informal and illegal. For example, because of the highly regulated nature of the liquor industry, producing and selling moonshine (home-brewed alcoholic drink), formerly a prominent informal practice in many parts of the United States, remains illegal even though the repeal of Prohibition made alcohol production and consumption once again legitimate enterprises. If the advocates of marijuana legalization were to achieve their goal, a highly lucrative informal (and illegal) source of income in many rural communities would be subject to formal regulation and conceivably, but not necessarily, legitimated.

Because so much of the informal economy resides in a legal and analytic gray area, numerous classifications and typologies of informal activity exist. Analysts often distinguish between overtly criminal activities and those that represent lesser violations of social norms and values, eliminating the explicitly criminally unlawful from consideration. Some analysts distinguish between the product and the process of its production. A legal product may be produced illegally in an informal process. Sweatshop labor, such as often occurs in the garment industry in New York, typically results in socially valued goods that have violated labor law in their production. Informal labor markets are among the most studied of informal economic activities, but again, these can represent a broad range of specific activities and practices.

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