Abstract
The first studies concerning the informal sector were conducted back in the 1970s. It was first considered as a marginal phenomenon, comprising activities not totally distinct from the formal sector. Since then, more institutions showed interest in this very specific part of the economy and different visions were developed to describe the features of the informal sector. We can crystallize these visions into three dominant schools:
- The dualist school, popularized by an ILO (International Labor Organization) study in Kenya in 1972. It subscribes to the notion that the informal sector is totally independent from the formal one. It is useful in the sense that it provides the poor with an income, a safety net. Its persistence is explained by the absence of modern job massive creation, and its decline should come through the implementation of a capitalist economy leading to economic growth. This vision is based upon Lewis' dualist model, stating that the informal sector constitutes a labor reserve for the formal economy.
- The structuralists, represented by authors was not limited to Castells and Portes in the late 1980s. According to them, the informal sector was linked and even subordinated to the formal sector, the latter using the former in order to optimize its profits, thanks to the informal sector low costs. The causes of its subsistence lie in the very nature of capitalism rather than in the lack of capitalist structures as stated by the dualist school.
- The legalists, through Hernando de Soto's work in the late 1990s. He assumes that informality is a rational response from micro-entrepreneurs to avoid taxes and costs of setting a business due to over-regulations and bureaucracy. In 1993, the participants of the 15th International Conference of Labor Statisticians agreed on the need to elaborate an international definition of the informal sector to assess its size and facilitate international comparisons.
Contrary to some predictions, the informal sector was expanding and it had become obvious that it would be an issue of main concern in the coming years. To understand its impact upon employment and its contribution to GNPs, what we call "informal sector" had to be clearly defined. Doing so could enable analyzing its features and evolutions through space and time. During this conference, the informal sector was defined in terms of characteristics of the production units, i.e. following an enterprise-based approach rather than a labor-based approach that would consider the characteristics of people working in this sector.
The participants agreed on two principles to characterize the concept of informal sector:
- The informal sector consists of units producing goods and/or services that are meant to generate employment and incomes to the persons involved. They operate at low-level of organization, with little or no division between labor and capital as factors of production. Labor relationships are not regulated through contractual agreements, but are based on casual employment, kinship, personal or social relations.
- The production units have the features of household enterprises. These features are the following: production units are not constituted as separate legal entities independently of the households or household members who hold them; no complete set of account is held so there is no clear distinction between the flow of income/capital of the enterprise and the ones of the owner; the units as such cannot enter into contracts nor engage in transactions with other units; the owners are personally liable, without limit, for any debt or obligation contracted in the production process.
Tags: Informal Economy, marginal phenomenon, International Labor Organization, informal sector, capitalist structures.
