4 - Characteristics of the informal economy

Summary

Introduction

What types of informal work exist? Who participates in the informal economy? Why do they do so? This chapter seeks answers to these questions regarding the characteristics of the informal economy. To do so, the first section introduces the different types of work in the informal economy, revealing how over recent decades a plethora of heterogeneous forms of work have been recognized to exist in the informal economy. Secondly, and to analyse who engages in the informal economy, the widely-held marginalization thesis is evaluated which holds that it is groups marginalized from the formal labour market who are more likely to participate in the informal economy. Thirdly, the reasons for participation in the informal economy are evaluated. This will analyse whether it is indeed the case that the participation of workers in the informal economy is largely necessity-driven due to their exclusion from the formal economy and alternative means of livelihood, or whether at least some workers participate in the informal economy because they desire to exit the formal economy, perhaps due to the level of public sector bribery and corruption they witness when seeking to work in the formal economy. Having reviewed who supplies informal work and their reasons for doing so, the fourth section then turns to the demand-side and evaluates who purchases goods and services in the informal economy and their motives for doing so. Whether goods and services are purchased in the informal economy solely due to them being cheaper, or whether other reasons for doing so also prevail, will be examined in the context of a case study of the 28 countries of the European Union. Finally, some conclusions will be drawn about the character of the informal economy in terms of what it is, who participates and why they do so.

Types of informal work

During the latter half of the twentieth century until around the 1980s, a widely-held view was that work in the informal economy was low-paid waged employment conducted under “sweatshop-like” exploitative conditions in which legislation on health and safety standards, minimum wages, holiday entitlements, working hours and so on, did not apply.