What is the informal economy?

• In 1993 an international definition of the informal sector was adopted, to include those who work in small unregistered enterprises, both employers and employees, as well as self-employed persons who work in their own or family businesses
• Despite the definition of the sector, collecting accurate statistics on the sector remains exceedingly difficult because of its diversity and the wide range of activities it encompasses
• Given the difficulties of data collection, official statistics probably underestimate the size and economic contribution of the sector, as well as women's roles in it

MAJOR SEGMENTS OF THE INFORMAL ECONOMY

Over the past two decades, employment in the informal sector has risen rapidly in all regions. It was only the once-rapidly-growing economies of East and Southeast Asia that experienced substantial growth of modern sector employment. However, even in these countries, a significant percentage of women workers were in rural and informal employment before the Asian financial crisis: for example, 43 percent of women workers in South Korea and 79 percent of women workers in Indonesia. Moreover, in the wake of the recent crisis, most of these countries have experienced a decline in formal wage employment and a concomitant rise in informal employment.

Even before the Asian crisis, official statistics indicated that the share of the informal sector in the non-agricultural workforce ranged from over 55 percent in Latin America to 45-85 percent in different parts of Asia to nearly 80 percent in Africa. The contribution of the informal sector - not only its size - is quite large. The contribution of informal sector income to total household income is significant in many regions: for example, in several African countries, informal sector income accounts for nearly 30 percent of total income and over 40 percent of total urban income. The contribution of the informal sector to GDP is probably also significant. For those countries where estimates exist, the share of the informal sector in non-agricultural GDP is between 45 to 60 percent.

SIZE OF THE FORMAL ECONOMY

SIZE OF THE INFORMAL ECONOMY

The informal economy is a major growth sector

• The informal sector accounts for large share of output and employment
• The informal sector accounts for more than half of non-agricultural employment in Latin American and the Caribbean, nearly half in East Asia and as much as 80 percent in other parts of Asia and Africa
• The informal sector is responsible for 93% of new jobs in Africa and 83% in Latin America and the Caribbean
• Nearly three-fourths of manufacturing in South East Asia is done by informal sector workers
• For those countries where estimates exist, the informal sector accounts for 45 to 60 percent of non-agricultural GDP

Existing data also suggest that the majority of economically active women in developing countries are in the informal sector. The founders of WIEGO and others who have worked closely with women in the informal sector would argue that the informal sector is even larger than official statistics suggest. Their argument is based on the fact that much of women's paid work - not just their unpaid housework - is not counted in official statistics. If the magnitude of women's invisible paid work, particularly home-based remunerative work, were to be fully counted, both the share of women and the share of informal workers in the work force would increase. Recognizing and, more importantly, counting women's invisible paid work would challenge our empirical understanding not only of the informal sector but also of the economy as a whole.