The Informal Sector
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Urban Informal Sector: Definitions at a glance
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Definition of the Informal Sector
The informal sector is a term used to describe economic activities that are not regulated by the state and do not operate within the formal market. It includes self-employed individuals, informal businesses, and unpaid family workers who operate outside of the formal economy and are not registered with the government.
These activities may be legal or illegal, and they often lack the protections and benefits afforded to workers in the formal sector. The informal sector is a significant component of many economies and is particularly prevalent in developing countries.
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The urban informal sector, often called the urban subsistence sector/unorganized sector/unenumerated sector, is conceptually defined to include all economic activities which are not officially regulated and which operates outside the incentive system offered by the state and its institutions. In contrast, enterprises which enjoy official recognition, protection and support are defined as formal sector enterprises.
At the empirical level, the informal sector often is defined to comprise these economic enterprises which employ less than certain number of persons (e.g. 5 or 10, depending on the country's official procedures) per unit, and which simultaneously satisfy one or more of the following criteria: (a) it operates in open spaces, (b) it is housed in a temporary or semipermanent structure, (c) it does not operate from spaces assigned by the government, municipality or private organizers of officially recognized market-places, (d) it operates from residences or backyards, and (e) it is not registered.
The three facets of the informal sector are:
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Labour force: analysis is mode from labour market perspective (job search model, labour segmentation etc.)
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| ACTIVITY |
Economic enterprise/business/firms: analysis is mode from the industrial organization perspective (market structure, market conduct, and market performance)
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| HABITAT |
Information settlements (squatters and slums): culture of poverty thesis and similar sociological aspects used to dominate analysis; current trend is to use housing problems
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