Informal Economy

by

Martin J. Murray, Dana Kornberg

• LAST REVIEWED: 17 August 2023
• LAST MODIFIED: 29 October 2013
• DOI: 10.1093/obo/9780199846733-0128

Introduction

Generally speaking, the term “informal economy” refers to income-generating activities that take place outside official state regulation. In scholarly writing, terms like informal economy, informal sector, informal work, and informal economic activities are often used interchangeably. Despite its indispensability for understanding how those without formal employment “get by” in urban settings and how negotiations between urban actors actually occur, informality remains a notoriously slippery term that defies simple classification. Scholars have employed various labels to describe informal economic activities: the shadow economy, the irregular economy, the subterranean economy, the underground economy, and the black economy. The term informality has also been associated with hidden, invisible, submerged, non-official, unrecorded, and clandestine economic activities. Yet recent scholarly work, notably that of Martha Chen (Chen 2012, cited under Origins and Evolution of Theorizing Informality), suggests that it is more useful to maintain distinctions that recognize the heterogeneity of informal economic activities. Generally speaking, the scholarly literature looks upon the informal economy as economic transactions, exchange, or trade that takes place outside of state regulation and control. It includes barter of goods and services, odd jobs, street trading, and other similar direct-sale activities. Informality is a concept that scholars purport to understand intuitively, but somehow they find it quite difficult to operationalize in concrete terms. Despite this ambiguity, studies of everyday life in urban Africa cannot avoid referring to informality, because large numbers of ordinary urban residents earn income through work that is not regular or wage-paying, and this is the principal means through which they sustain themselves in the absence of formal employment in legally recognized enterprises. Despite development policy interventions over the past half-century, informality has not disappeared but has in fact expanded. While some scholars have focused on developing and specifying a more precise definition for the concept of informality, others have turned their attention to concrete investigations related to the experience of irregular work in urban settings. Whether informality is the object of study in its own right or the point of departure for empirically grounded research, focusing on the processes of informal income generation and its consequences is integral to any understanding of the organization of socioeconomic life in African cities.

General Overviews

A number of collections seek to investigate informality from a variety of different angles. These add nuance and complexity to the discussion of informality in cities. The works included here offer broad theoretical insights into the phenomenon of informality, not only in African cities, but also in urban areas worldwide. While these are not necessarily appropriate as introductory texts for a general audience, they provide useful starting points for scholars seeking to gain an initial foothold into the literature. The Informal Economy (Portes, et al. 1989) was the first book to bring together studies from so-called Third World countries, Eastern Europe, and the developed nations of the West and to integrate them into a coherent theoretical framework. For those interested in understanding the two influential approaches for studying informality, structuralism and legalism, refer to Rakowski 1994. AlSayyad 2004 (cited under Hierarchies, Divisions, and Inequalities) presents up-to-date research from various regions of the world to highlight the rapid pace of urbanization that is taking place in the cities of the Global South and how this is influenced by informal economy processes. Roy 2005 provides a touchstone for understanding urban informality globally and its relation to formal planning. For an analysis of the relation between formal and informal economies from an economic perspective, Guha-Khasnobis, et al. 2006 offers a comprehensive introduction. Grounded case studies from particular African cities can be found in Hansen and Vaa 2004, and these are fruitfully supplemented with attention to political mobilization, which is a core subject of Lindell 2010. Vainio 2012 further considers the political strategies of informal workers, arguing for a rights-based approach over a market-based one to protect workers against social vulnerabilities.

• Guha-Khasnobis, Basudeb, Ravi Kanbur, and Elinor Ostrom, eds. Linking the Formal and Informal Economy: Concepts and Policies. Oxford: Oxford University Press, 2006.

  DOI: 10.1093/0199204764.001.0001

  This edited volume is a careful synthesis of past debates and contemporary policy analysis dealing with the linkages between formal and informal economies. The contributions range from commentaries on economic development, governance, and social justice to case studies drawn from a wide variety of social contexts.

• Hansen, Karen, and Mariken Vaa, eds. Reconsidering Informality: Perspectives from Urban Africa. Uppsala, Sweden: Nordiska Afrikainstitutet, 2004.

  Reconsidering Informality consists primarily of case studies taken from a variety of African cities including Bissau, Lusaka, Harare, Dar es Salaam, Nairobi, Maputo, Maseru (Lesotho), and Pointe-Noire (Congo-Brazzaville). Hansen and Vaa have brought together an impressive collection of essays. The strength of the book lies in its synthetic approach to understanding urban planning, urban policies, and informal economies. The entire e-book is freely available online.

• Lindell, Ilda, ed. Africa’s Informal Workers: Collective Agency, Alliances and Transnational Organizing in Urban Africa. London: Zed Books, 2010.

  Grounded in case studies conducted in nine countries and cities across sub-Saharan Africa, this volume extends beyond the usual focus on household “coping strategies” and individual agency by looking at the rise of informal and casual work across Africa and the world and by considering the expanding number of collective organizations through which informal workers make themselves visible and articulate their demands and interests.

• Portes, Alejandro, Manuel Castells, and Lauren Benton, eds. The Informal Economy: Studies in Advanced and Less Developed Countries. Baltimore: Johns Hopkins University Press, 1989.

  The authors dispel a number of misconceptions about the informal economy, particularly the widely held view that it is solely the province of the poor. The authors suggest that the persistence of the informal economy reflects a political and economic realignment between employers and workers and a shift in state regulatory frameworks away from shoring up protections for wage-paid employment in the formal economy.

• Rakowski, Cathy. “The Informal Sector Debate, Part 2: 1984–1993.” In Contrapunto: The Informal Sector Debate in Latin America. Edited by Cathy Rakowski, 31–50. Albany: State University of New York Press, 1994.

  Rakowski distinguishes four main approaches to understanding informality. She focuses primarily on what she calls structuralists and legalists.

• Roy, Ananya. “Urban Informality: Toward an Epistemology of Planning.” Journal of the American Planning Association 71.2 (Spring 2005): 147–158.

  DOI: 10.1080/01944360508976689

  Arguing that informality has become a generalized mode of metropolitan urbanization, Roy identifies the challenges for urban planners in dealing with the “unplannable,” that is, exceptions to the order of formal urbanization.

• Roy, Ananya, and Nezar AlSayyad, eds. Urban Informality: Transnational Perspectives from the Middle East, Latin America, and South Asia. Lanham, MD: Lexington Books, 2004.

  The contributions present an empirically rich overview of urban informality as a system of regulations and norms that governs the use of space and makes possible new forms of social and political power. For example, the authors demonstrate that informal housing is no longer the domain of the urban poor; rather, it represents a significant zone of transactions for the middle class and even transnational elites.

• Vainio, Antti. Market-based and Rights-based Approaches to the Informal Economy: A Comparative Analysis of the Policy Implications. Policy Dialogue 7. Uppsala, Sweden: Nordiska Afrikainstitutet, 2012.

  This short policy-oriented book compares two very different but prominent conceptions of the informal economy: a market-based approach and a rights-based approach. Vainio is critical of a market-based perspective, as it tends to lead to policy recommendations that undermine the already fragile livelihoods of many people.