Exploring the Economy’s Informal Sector
|May 26, 2004||Posted by Staff under The Progress Report|
It Quietly Surrounds Us
Exploring the Economy’s “Informal Sector”
Most people in this world do not work 40 hours each week in some office building for some large corporation. Labor takes many shapes and forms. In this article, Alex Noury introduces us to the characteristics of the “informal sector.”
Part I: The Informal Sector and its Divisions
by Alex J. Noury
The informal sector of the economy has been a growing segment with increasing participation and significant contributions to the gross domestic product. The International Labor Organization (ILO) estimated in 2002 that the informal sector’s average share of non-agricultural GDP ranged from a low of 27 percent in Northern Africa to a high of 41 percent in sub-Saharan Africa. However, these contributions are seldom, if ever, included in these figures.
The ILO notes on their website that in Latin America during the 1990s, six out of every 10 new jobs were created within the informal sector. Furthermore, they state, Informal sector employment grew by 3.9 per cent per annum while formal sector employment grew by only 2.1 per cent in that region [Latin America]. In Africa, urban informal employment is estimated to absorb 61 per cent of the urban labour force. This sector was expected to generate more than 93 percent of all additional jobs in the region in the 1990s.
Activity in the informal sector differs from that in the formal sector where the related sequence of production-distribution-consumption activities [are] regulated and tracked by the official record-keeping system of a polity’s governing sector, as anthropologist M. Estelle Smith notes in Stuart Plattner’s Economic Anthropology.
According to the ILO’s report, World’s Women: 2000 Trends and Statistics, the informal sector is broadly characterized as consisting of units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned. This suggests that informal sector activity involves individuals utilizing their own labor to generate profits that they will control. However, this fails to recognize production within the illegal informal sector. Within this sub-sector, individuals involved in production often receive no profits, if even income, as a result of their efforts. An example of this is the illegal sex-trade (often involving sex slaves) and modern-day bondage labor (e.g. farmers in Latin America struggling to pay off unjustly inflated debts to their employer).
It should be noted that the informal sector involves a wide variety of economic activity, both legal and illegal. According to the United Nations’ 1990 publication, Methods for Measuring Women’s Participation and Production in the Informal Sector, the informal economy can be divided into four separate segments. The first segment of this economy is the visible informal sector. This sector involves small- and micro-business people, self-employed individuals, and house workers (e.g., telemarketers working out of their homes). The majority of this labor is legal, but is classified into the informal sector because it exists outside of the boundaries of formal economic activity (i.e., factories, shopping malls, etc.).
The second segment of the informal sector consists of self-employed street workers, both legal and illegal. This category includes street venders selling fruits and vegetables, night watchmen and unlicensed parking attendants, individuals selling salvaged goods, panhandling, and prostitution. This segment generates perhaps the largest of all informal sector contributions to the gross domestic product. The ILO noted recently that the illegal sex trade produces up to 10-15 percent of the GDP in some Asian countries.
The third segment is the invisible informal sector. These activities are most often performed by women and have evaded the government’s ability to track them. This sector includes unpaid work within the household that is performed for productive ends (e.g. wives who milk their husband’s cows, the by-product of which is sold in the market for the husband’s profit).
The final segment of the informal sector is characterized as domestic service. Resident or non-resident individuals perform these activities within a household and receive compensation (i.e., gardeners, housekeepers, etc.).
Research in the informal sector is difficult due to the inherent elusiveness of certain activities that occur within it. A fair amount of this economic activity exists within these invisible dimensions. A variety of approaches have been established to study and record these activities, yet it has been difficult to accurately represent the data.
Bryan Roberts explains in Smith’s Perspectives on the Informal Economy (1990), that studies of informal activity are also hampered by the fact that there is no clear-cut distinction between capital and labor. Employment in this sector is not organized through legal obligations, but through community and family relations (or, coercive relations). Additionally, law enforcement efforts towards tracking and/or limiting these markets often make their study difficult, as gaining the trust of participants requires separating oneself from the government (which is much easier said than done, particularly when government grants are used for the research).
Aims to legitimize informal sector activities offer little hope of success. Furthermore, such efforts may not be in the interest of the people. These activities have been an important source of both legal and illegal income. Flea markets, bake sales, and garage sales are legal examples of this sector that will not disappear through governmental regulation. They provide a means for people to make available goods and services, as well as strengthening a sense of community. In various places I have lived these markets were gathering places for various members of society. Attending them was a tradition, and spending money symbolized giving back to the community. Histories are transmitted through antiques. Stories are told with the purchase of second-hand items. And, perhaps more importantly, people are generating their own incomes.
Despite the large amount of illegal activity categorized within the informal sector, a wide variety of informal economic behavior serves legitimate purposes. These behaviors not only provide goods and services that may not otherwise be easy to get, but also serve to strengthen local communities.
Ethnographic studies of the informal sector provide the best means of understanding its structure, operation, and contributions. Such research has been difficult, as its participants are often wary of discussing their unregulated and/or illegal economic activities. Nonetheless, this sector contributes greatly to the total gross national product (especially activities such as drug dealing, illegal gambling, and prostitiution), despite our not knowing exactly how much.
The second installment of this glance into the informal sector will focus on one particular activity: suitcase trading, or higgling. The ILO estimates on their website that 60 to 80 percent of informal sector participants are women. Throughout the Caribbean, women have gained a significant amount of economic independence through participation in suitcase trading. This activity involves travelling from island-to-island, purchasing goods cheaply on one island to be sold for profit on another. How does this trade affect the identity of the women involved? How do their relationships with other women from their hometowns change as a result of their involvement? These questions will be explored in my second article on the informal sector.
Alex J. Noury is a recent graduate of the University of Florida Anthropology Masters program. He has studied the cultural influences on micro-entrepreneurship in Curaçao, Netherlands Antilles and is currently employed at the National Institute of Health. Alex is the author of Intertribal Trade on the Great Plains: Expanding control on a changing frontier, published in the Florida Journal of Anthropology (Spring 2002). He looks forward to any questions and/or comments regarding his work. You can e-mail him at: Alex10k@yahoo.com
Copyright 2003 by Alex Noury. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without the permission of Alex Noury.
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