The economy has been undergoing changes throughout the years, especially with various events that influenced the world economy. One of the most significant changes involves informal employment, which continues to flourish.
This sector has been around for a long time, and many people are participating in it, whether they are aware of it or not. However, not many are aware of the informal economy and what jobs are covered by this sector.
Those who want to know more about this market should look at the points discussed in this article. Check it out.
- What Is Informal Employment?
- Evolution Of Informal Employment
- The Advantages Of The Informal Sector
- The Drawbacks Of The Informal Economy
- Should People Participate In The Informal Economy?
What Is Informal Employment?
Informal employment is a type of employment under what is called the informal sector or grey economy. While different nations may not have a clear agreement on defining informal work, it is typified by the lack of taxation and government regulation. The International Labor Organization defines it as all economic activities that are not or insufficiently covered by formal arrangements.
The informal sector is diverse and often small-scaled, especially those done before or outside technology. Jobs in this market are also known to have little to no barriers to entry. Workers in this sector are considered employed. Informal work is paid; thus, they contribute to the market economy.
The typical notion of an informal job is that they are done in public spaces. Think of street vendors, street food sellers, bicycle peddlers, rickshaw and cart pullers, and waste pickers, to name a few. Some sell goods and services near or from their homes.
Informal employment can include jobs that may be under a contract or not. Contract workers in different establishments, casual laborers, piece-rate workers, temporary employees, and off-site workers can also fall under this category.
Are Illegal Activities Included?
Given the definition of informal employment or work that is not covered by taxation laws and regulatory agencies, the informal economy can be composed of legitimate and non-legitimate, especially when some work arrangements may not be legal.
However, it is essential to remember that while some employments in the informal sector may have not-so-legal arrangements, they often produce legal goods and services. On the other hand, illegal or criminal activities are unlawful all the way, from the manner of production to the end products.
The International Labor Organization clarified that this sector does not include criminal activities. Work that is unpaid, a practice that may be illegal, is not a type of informal work as it does not contribute to the overall market economy.
Evolution Of Informal Employment
Informal work has been around since the start of civilization, especially as it is a part of the market economy. Self-employment, small-scale operations, and bartering can be considered part of the informal sector, which persisted until modern times.
In the 1950s and the 1960s, many started to assume that the informal sector will be absorbed into the formal economy thanks to progress, especially in developing countries. Toward the end of the 1960s, the sector remained to be active and flourishing. Enterprises even started to participate in it.
Studies in the 1970s showed that informal work is active and efficient, encourages creativity, and is profitable. The 1980s and the 1990s saw an informalisation of work. Many jobs started to hire contractual workers that pay by the hour and with minimal benefits. Sub-contracting also became popular.
The recent recession in the 2000s furthered the popularity and development of the informal sector. With economic difficulties during that time, people participated in the informal market to earn a living.
Informal Jobs Today
Today, the economic activities mentioned above still exist, mainly small-scale businesses, self-employment, odd jobs, contractual work, and casual labor. However, some aspects of these examples have evolved into more advanced levels.
The gig economy, a part of the informal sector, is as popular as ever, especially with the availability and accessibility of online work. Aside from the more traditional forms of informal employment, it does not include more digital and tech-advanced jobs such as graphic designing, programming, and being a virtual assistant. Freelancing, a type of independent contractual work, has become a viable option for many.
Freelancers who earn less than $400 annually from a single employer are considered part of the informal sector, but the Internal Revenue Service considers freelancers who earn $400 and above annually as self-employed and must pay taxes.
The Advantages Of The Informal Sector
The informal sector remains to be active and prosperous. It continues to gain popularity, especially at a time when many people are compelled to stay home and work remotely. While it lacks enough support provided by formal work arrangements, many people prefer to participate in the informal economy.
This is because it offers some advantages to them. Informal work offers more flexibility, meaning workers can choose where they work, when they work, how they work, and who they work for. In short, it gives them the ability to work on their own terms.
Informal workers, especially those who participate in the modern gig economy, have the opportunity to earn more if they have the right skills and knowledge on how to work the game to their advantage. Digital nomads are now a thing, and they work online, almost anywhere.
For employers, the informal sector is a way to lower operation costs. Contracting workers lets them save money by hiring short-term workers who receive piece rates or by-the-hour wages without full benefits. Usually, hiring contractors can be more cost-efficient compared to in-house workers.
Effects On The Economy
One thing that makes informal work advantageous to the economy is that it provides work options for individuals who cannot penetrate the formal economy due to high barriers of entry.
The informal sector still contributes to the economy, giving workers purchasing power, thus stimulating the economy.
Because it fills in the employment opportunity gaps left by the formal market, the informal sector balances out the market economy.
The Drawbacks Of The Informal Economy
Workers may use the opportunities offered by the informal sector to their advance, but it has some risks for them. Keep in mind that what makes the informal sector different from its formal counterpart is that it does not provide the benefit of formal work arrangements.
Formal work arrangements typically include minimum wage pay and benefits, including medical, dental, and vision insurance, retirement plan matching, and paid time off. Informal workers do not enjoy many aspects of this compensation package, especially benefits.
They may not work full-time for one client. Instead, they part-time for several ones to complete the hours and load that standard formal work provides. This gives them more flexibility, but this means that they will need to look for another when one contract ends.
Those in more traditional informal work such as street vending may see little earnings compared to being employed.
Impact On The Individual
Informal work may involve self-employment or employment in small-scale operations. However, those who participate in the gig economy, especially online freelancers, face several challenges.
Digital artists, for example, may earn more from freelancing compared to being employed in a marketing agency.
However, they will need to use their own devices, pay for their own electricity and amenities, and use their own Internet connection while helping employers and clients save money on these facilities.
Should People Participate In The Informal Economy?
Given the advantages and disadvantages of informal employment, workers need to consider their options well.
Typically, those who work in traditional informal work such as street selling, rickshaw pulling, and other odd jobs are likely to not have many options as their circumstances affect their opportunities. However, those who decide to become self-employed tend to choose this path.
Freelancers usually participate in the informal market on the side. However, many individuals choose to become full-time freelancers because of the benefits it has to offer.
Things To Consider
When thinking of participating in the informal sector, individuals should consider the pros and cons of working in the informal economy and the type of work they can do. This kind of work arrangement may be more favorable for individuals who want to break away from conventional workplaces.
Individuals should also consider their willingness to bear the burden of its disadvantages. For some, lack of stability may be an issue, while others may find lack of benefits to be the main problem. Others may also frown upon spending additional money on utilities such as electricity and the Internet.
Informal employment can have its own merits. By the looks of it, this sector is here to stay, especially given its history and current events.
Knowing its history and what it can offer can help individuals who are thinking of entering this market and those who have no choice but to participate.