Recent studies estimate approximately 60% of the world's population earns their wages in the informal economy. Focusing on the prevalence of informal work across Africa, Latin America, and South Asia, analysts frequently advocate for a transition to the formal economy in these regions as part and parcel of development goals. But increased attention on informal work in the US and Europe has complicated how the informal economy is defined across both high-income and low-income nations.
In the introduction to his co-edited 2000 book, sociologist FARUK TABAK considers informalization through a long term, world-systems view.
From the text:
"From the late 1960s to the 1980s, the interest in and literature on the informal economy grew almost exponentially—as did the informal economy itself. The term informal economy originally referred to that great mass and realm of economic activities and transactions lying outside official accounting, more by default than design (at least initially). And during the opening decades of the post-1945 period, its overwhelming presence in what was then referred to as the developing world was no surprise. Indeed, the informal economy was considered one of the developing world's defining characteristics; the failure of these transactions to show up in official statistics was attributed mainly to the inability of state apparatuses to compel compliance and thereby reinforce relations of rule. In fact, in modernization theory, administering and overseeing the eradication of the informal realm was a political priority for buttressing relations of governance. It was a forgone conclusion that once these relations were solidly (re)established, the informal realm would steadily yet inexorably be brought under strict statal regulation.
This paradigm reigned as long as informalization remained an attribute of the periphery, but was eventually undermined by the equally relentless pace of informalization in the core zones after the 1970s. As the research suggests, the inability of state apparatuses to effectively administer and regulate a wide and growing range of productive activities conducted within their jurisdictions contributed to the spread of the informal economy. At other times, a state's unwillingness—not necessarily its inability—to police these activities and transactions was the most salient determinant. In certain locales, corporate restructuring swelled the ranks of of the informal sector by farming out the production of goods and services formerly produced in-house. In other locales, massive rural-to-urban migration and the resulting urban demographic explosion precipitated and sustained the process of informalization. Moreover, state bureaucracies in the periphery—the very agencies expected to preside over the demise of the informal sector—resorted to hiring and farming-out to firms and enterprises in the informal sector as they administered "public" enterprises. Yet the multiplicity of processes underlying informalization and the inability to identify a single cause does not mean the concept or the term itself should be dispensed with in toto. A narrow focus on the variety of the processes underlying the informal economy overlooks the sheer magnitude and cumulative significance of these activities in the functioning of the capitalist world-economy."
Link to the book.
- A previous JFI Sources examines the International Labor Organization's attempts to quantify the informal economy in the "developing world." Link. And Saskia Sassen's 1997 article looks to the US to understand informalization, asking "whether these systemic conditions in advanced market economies in the post-fordist era are also engendering a new dynamic of informalization in the Third World along with older dynamics." Link.
- Zoran Slavnic rejects the notion of separate informal and formal economies. Instead, "All economic actors are increasingly ready to adopt informal economic strategies." Link. Martha Alter Chen comes to a similar conclusion, finding "most informal enterprises and workers are intrinsically linked to formal firms." Link.
- "The common impression that the devaluing of labor is a function of globalization and competition from lower-cost producers in the global south does not appear to be the case." James DeFilippis, Nina Martin, Annette Bernhardt, and Siobhán McGrath examine informal work in Chicago and New York, finding that the bulk of labor violations occur in industries that serve local consumption. Link.