Informal Economy

Definition

The informal economy can be defined as all those economic activities that operate without state regulation. Most of these businesses also tend not to pay taxes and usually operate in zones that are not meant for them, hence, they experienced frequent harassment by local or national police. Informal economic activities are usually considered legitimate but may be seen as illegal, depending on where the operation is taking place; for example, a food seller in a main downtown street who is not licensed to be on that street—the food is legitimate, but selling it in this location is illegal. Researchers on the informal economy have tended to distinguish between the legitimate and illegitimate economic activities. The former activities are seen as legitimate in society but may be considered illegal by government authorities mainly because of zones where they operate. Illegitimate economic activities involve the so-called “Black market”: drug selling and trafficking, money laundering, and prostitution (adult and children, human trafficking). Though some researchers may view illegitimate activities as part of the informal economy, many believe these activities border on criminality. When the concept of informal economy is used, especially in Africa, most people think of the legitimate rather than the illegitimate activities.

Another defining character of the informal economy is entrepreneurship. Most of those involved in the [Page 725]informal economy are entrepreneurs to the core because they have to come up with their own business ideas and figure out how to fund those ideas. Work in the informal economy is not like a formal job where people present their credentials to become employed. To earn a living in the cities, especially in the Third World, many people have had to be innovative, driven by their acumen and entrepreneurship. In turn, this has made the informal economy grow and expand, particularly in all Third World cities, where it has become the main employer of the majority of the urban dwellers.

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