Informal Economy

woman at a market
Photo by Olga Abizaid

What is the Informal Economy?

The informal economy is the diversified set of economic activities, enterprises, jobs, and workers that are not regulated or protected by the state. The concept originally applied to self-employment in small unregistered enterprises. It has been expanded to include wage employment in unprotected jobs.

This summary explains why supporting informal workers is key to reducing poverty.

Ending the "Shadow Economy" Myth

The informal economy tends to be stigmatized as “illegal”, “underground”, “black market” or “grey market”. It is often called the "shadow economy" and characterized as illegal or inethical activity.

The generalization is unfair. The vast majority of informal workers are trying to earn an honest living against great odds. Rather than working in the shadows, a great many work in public spaces and make huge contributions to communities and economies.

Get the facts about the informal economy: Myths & Facts

For in-depth information on the informal economy, read WIEGO Working Paper No. 1, The Informal Economy: Definitions, Theories and Policies by Martha A. Chen.

Read Can Informal Employment Actually Reduce Poverty

How big is the informal economy?

A majority of the world's workforce is informal

The International Labour Organization released the first-ever estimates of the world's informal labour force in 2018: 61% of the world's workers earn their livings in the informal economy.

More About the Informal Economy

  • Since its “discovery” in the early 1970s, the informal economy and its role in economic development have been hotly debated. History & Debates presents a brief overview and looks at subsequent debates and the dominant schools of thought on the informal economy.
  • In recent decades, the growth of statistics on the informal economy have shed light on how large the informal workforce is – 2 billion workers worldwide – and how significant their contributions. Visit the Statistics subsection for data, details and discussion.
  • The informal economy is expanding in many contexts, appearing in new places and new guises. It plays a significant role in the global economy and, if supported, in reducing poverty and inequality. The informal economy does not, however, offer a “cushion” during economic crisis. Poverty & Growth Linkages explores these interrelated topics.
  • Occupational Groups features information on the size, contributions and working conditions of some of the most significant groups of workers in the informal economy. (Not all workers can be easily slotted into one occupational group. For example, a home-based worker may produce a variety of goods and services across many industries, or may engage in street trading to sell what she makes.