Informal Economy: Unregulated and Misunderstood


Imani is a skilled cook who sells food from a small cart on a busy street corner. She was able to start her own business and make enough money to support her family doing something she loves. However, due to the nature of her business, she does not have any protections if she gets sick or is harassed by customers and other people on the street. 


Imani’s job is an example of informal work. Informal work is very diverse and not uniform, which means that it doesn’t always look the same and isn’t easy to identify. While not everyone who works as a street vendor or creates products at home is necessarily participating in the informal economy, these tend to be the most common forms of informal work. 

Informal Economy 

The informal economy consists of Individuals or their employers who engage in activities that generate income that is not taxed or registered by the government. As a result, the government does not provide social protections to those in the informal economy. 

How It Works

The informal economy has existed ever since people have been trading goods and providing services in exchange for some form of payment, which means that its origins cannot be traced to a certain time period. However, the term itself was coined in 1971 by a British anthropologist named Keith Hart when he was studying economic activities in Ghana. He noted the creativity and resilience of the workers in the informal economy, but many in the international development community thought that with increased industrialization and capitalist growth, the informal economy would not survive. However, the informal economy has actually expanded in many countries over time. 

Some of the oldest forms of this kind of work are home-based producers, street vendors, and waste pickers, with the last category being dominant in the global south. Other types of work in the informal economy include childcare, domestic work, and day labor. Informal workers face many challenges. For some workers, earnings can be low, and there is not much protection when income and work is lost. For those who work in public spaces, there is a higher chance of being targeted by police and other local authorities. There is sometimes stigma, particularly in countries in the global north, where the informal economy is stigmatized as “illegal” or considered to be the “black market.” Although some people see this work as unethical, many workers rights activists posit that this generalization is unfair given that many informal sector employees contribute greatly to their communities. 

So What

Some economists view the informal economy in a positive light, noting that it is a source of livelihood for the poor, or for those who do not receive opportunities for income through the formal job market. They also emphasize that much of the economic activity in the global south is based on informal work. The informal economy also allows women in many countries to earn their own income, as women make up at least 70% of informal entrepreneurs. In addition to that, anywhere between 60%-80% of food production globally is made in the informal economy. 

Despite some economists crediting informal work and its contribution to people’s wellbeing, others focus on the challenges that come with informality. They point out that many who work in the informal economy face human rights abuses, especially those working under employers who do not follow government guidelines for payments and work benefits. These economists also argue that without formalization, equity can be hard to achieve. Some activist groups who are more aligned with the first group of economists have argued that it is possible to empower informal workers without pressuring them to move their labor into the formal economy. They instead argue that appropriate laws and policies can be implemented to protect informal workers. 

Think Further

  1. Can you think of ways to address the stigma around working in the informal sector? 
  2. Why do you think women make up such a large part of the informal economy? 
  3. How can those working in the informal sector be better protected?


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Learn More

  1. Chen, Martha Alter, and Carré Françoise. The Informal Economy Revisited: Examining the Past, Envisioning the Future. Routledge, 2020.
  2. Cuevas, Lola Smallwood, director. City Rising: The Informal Economy, KCET, 2018,
  3. Family Friendly Policies for Workers in the Informal Economy. Women in Informal Employment: Globalizing and Organizing (WIEGO), United Nations Children’s Fund (UNICEF) and the International Labour Organization (ILO), July 2021,